As filed with the Securities and Exchange Commission on September 27, 1996
Securities Act of 1933 File No. 2-80886
Investment Company Act of 1940 File No. 811-3626
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 35
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 30
---------------------------------
CITIZENS INVESTMENT TRUST
(Exact name of registrant as specified in charter)
One Harbour Place
Suite 525
Portsmouth, N.H. 03801
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (603) 436-5152
Sophia Collier
One Harbour Place
Suite 525
Portsmouth, N.H. 03801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
__X__ immediately upon filing pursuant to paragraph (b)
_____ on _____________ pursuant to paragraph (b)
_____ 75 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has previously registered an indefinite number of securities under the
Securities Act of 1933. The Notice required by Rule 24f-2 was filed by the
Registrant for its most recent fiscal year on August 29, 1996.
- --------------------
* This N-1A filing relates to the Working Assets Money Market, Citizens Income,
Citizens Index, Citizens Emerging Growth, Citizens Global Equity, Muir
California Tax-Free Income, and E.fund Portfolios.
<PAGE>
CITIZENS INVESTMENT TRUST
CROSS INDEX PAGE
WORKING ASSETS MONEY MARKET, CITIZENS INCOME, CITIZENS EMERGING GROWTH, CITIZENS
GLOBAL EQUITY, CITIZENS INDEX, MUIR CALIFORNIA TAX-FREE INCOME, AND EFUND
PORTFOLIOS
Part A INFORMATION REQUIRED IN A PROSPECTUS
<TABLE>
<CAPTION>
ITEM REFERENCE Page
---- --------- ----
<S> <C> <C> <C>
Item 1. Cover Page Cover Page 1
Item 2. Synopsis; Fee Information Cover Page; Fee Information 1;3
Item 3. Condensed Financial Information Condensed Financial Information; Financial 4;5
Highlights
Item 4. General Description of Registrant Organization and Management of the Trust 12
Item 5. Management of the Fund Organization and Management of the Trust 12
Item 6. Capital Stock and other Securities How to Purchase and Redeem Shares; 15;18
Dividends, Distributions, and Taxes
Item 7. Purchase of Securities Being Offered How to Purchase and Redeem Shares 15
Item 8. Redemption or Repurchase How to Purchase and Redeem Shares 15
Item 9. Legal Proceedings None N/A
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION - Working Assets Money Market, Citizens Income,
Citizens Emerging Growth, Citizens Global Equity, Citizens Index Portfolios
Item 10. Cover Page Cover Page Cover Page
Item 11. Table of Contents Table of Contents Cover Page
Item 12. General Information & History The Fund 1
Item 13. Investment Objectives & Policies Investment Objectives and 1;6
Policies; Other Investment Techniques
Item 14. Management of the Registrant Trustees and Officers; Add'l Information 17;19
Regarding Management Company
Item 15. Control Persons & Principal Holders of Add'l Information Regarding Citizens 19
Securities Adviser
Item 16. Investment Advisory & Other Services Investment Advisory & Other Services 20
Item 17. Brokerage Allocation & Other Practices Turnover and Portfolio Transactions 8
Item 18. Capital Stock & Other Securities The Value of Our Shares 8
Item 19. Purchase, Redemption & Pricing of Additional Redemption Information 17
Securities Being Offered
Item 20. Tax Status Federal Taxes 15
Item 21. Underwriters Investment Advisory and Other Services 20
Item 22. Calculation of Yield Quotations of Money About Our Yield and Total Return 10
Market Funds
Item 23. Financial Statements Financial Statements 24
<PAGE>
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION (cont'd) - Muir Tax-Free Income Portfolio
Item 10. Cover Page Cover Page 1
Item 11. Table of Contents Table of Contents 1
Item 12. General Information & History The Fund 2
Item 13. Investment Objectives & Policies Investment Objectives and Policies 2
Item 14. Management of the Registrant Trustees and Officers; Management of the 19;21
Fund
Item 15. Control Persons & Principal Holders of Management of the Fund 21
Securities
Item 16. Investment Advisory & Other Services Management of the Fund 21
Item 17. Brokerage Allocation & Other Practices Execution of Portfolio Transactions 22
Item 18. Capital Stock & Other Securities Determination of Share Price 24
Item 19. Purchase, Redemption & Pricing of Additional Purchase and Redemption 23
Securities Being Offered Information
Item 20. Tax Status Tax Information 8
Item 21. Underwriters Principal Underwriter 24
Item 22. Calculation of Yield Quotations of Money None
market Funds
Item 23. Financial Statements Financial Statements 27
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION - E fund Portfolio
Item 10. Cover Page Cover Page 1
Item 11. Table of Contents Table of Contents 1
Item 12. General Information & History The Fund 2
Item 13. Investment Objectives & Policies Investment Objectives and 2;3
Policies; Other Investment Techniques
Item 14. Management of the Registrant Trustees and Officers; Add'l Information 12;14
Regarding Citizens Adviser
Item 15. Control Persons & Principal Holders of Add'l Information Regarding Citizens 14
Securities Adviser
Item 16. Investment Advisory & Other Services Investment Advisory & Other Services 15
Item 17. Brokerage Allocation & Other Practices Turnover and Portfolio Transactions 6
Item 18. Capital Stock & Other Securities The Value of Our Shares 6
Item 19. Purchase, Redemption & Pricing of Additional Redemption Information 11
Securities Being Offered
Item 20. Tax Status Federal Taxes 9
Item 21. Underwriters Investment Advisory and Other Services 15
Item 22. Calculation of Yield Quotations of Money About Our Yield and Total Return 8
Market Funds
Item 23. Financial Statements Financial Statements 18
</TABLE>
<PAGE>
The Talking Prospectus
September 27, 1996
Dear Friend,
This prospectus is a bit different from other mutual fund prospectuses. It is
written - not by a lawyer - but by the people who work for the Trust. I hope
you'll take some time to read it carefully (and retain it for your future
reference). I think you'll find we have some new and interesting ideas about how
to make money investing in mutual funds.
We believe there is a revolution going on in business today, and only certain
companies will be able to thrive in this faster-paced and environmentally
concerned business environment. At Citizens Trust, we identify and invest in
these companies - businesses with the potential to produce strong financial
results today, as well as create a world we want to live in tomorrow.
We truly believe that understanding your investments starts right here with our
own prospectus. You deserve not only lucid, concise prose, but an informative,
even enjoyable, reading experience.
[photo of Sophia Collier]
Sincerely,
/s/Sophia Collier
Sophia Collier
President
Our Portfolios
The E*fund and Working Assets Money Market Portfolios' objective is current
income consistent with safety and liquidity. We seek to maintain a stable $1.00
Net Asset Value per share at all times, although there is no assurance that we
will be able to do so. Shares are neither insured nor guaranteed by the U.S.
Government.
Citizens Income Portfolio invests in fixed income securities to generate current
income and pay a dividend every month.
Citizens Index Portfolio is a market weighted portfolio of 300 companies, with
the objective of long-term capital appreciation.
Citizens Emerging Growth Portfolio invests in promising small and medium-sized
companies with the objective of aggressive growth.
Citizens Global Equity Portfolio holds U.S. and foreign stocks for capital
appreciation.
Muir California Tax-Free Income Portfolio seeks a high level of current income
exempt from both federal and California state personal income tax.
Citizens Trust
CITIZENS TRUST
One Harbour Place
Portsmouth, NH
03801
For Shareholder
Service and
New Account
Information:
1-800-223-7010
For Broker-Dealer
Sales & Service:
1-800-982-7200
CITIZENS TRUST IS AN OPEN-ENDED, DIVERSIFIED MANAGEMENT COMPANY, NOT A BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Citizens Trust logo]
603-436-5152
800-223-7010
1
<PAGE>
The Talking Prospectus
TABLE OF CONTENTS
Dear Friend 1
Fee Information 3
Financial Highlights 4
How We Select Our
Investments 6
Citizens Index Portfolio 7
Citizens Global Equity
Portfolio 8
E*fund and Working Assets
Money Market Portfolio 9
Citizens
Income Portfolio 10
Muir California Tax-Free
Income Portfolio 10
Citizens Emerging Growth
Portfolio 12
Organization and
Management of
the Trust 12
How to Purchase and
Redeem Shares 15
Shareholder Services 17
Mailing Address/
Wiring Instructions 18
Dividends, Distributions and
Taxes 18
Trustee Profiles
William D. Glenn II, chair of the board of trustees, is the executive director
of Continuum HIV Day Services in San Francisco.
Azie Taylor Morton, audit chair, operates an investment management firm, and was
the 36th Treasurer of the United States.
*Sophia Collier is the Trust's president and principal owner of our investment
adviser, Citizens Adviser.
Lokelani Devone is assistant general counsel at DFS Group Limited, an
international retail business group.
Juliana Eades is the executive director of the New Hampshire Community Loan
Fund, one of the country's oldest local community economic development
institutions.
*J.D. Nelson is the chief executive officer of RhumbLine Advisers, an investment
advisory firm specializing in institutional and pension assets.
Ada Sanchez is director of the Public Service and Social Change Program at
Hampshire College.
*INTERESTED PERSON (INSIDE TRUSTEE)
Confidentiality of Shareholder Transactions
"As Trustees we have a firm 'no exceptions' policy stating that no shareholder
transaction information will be sold or shared with anyone, except as required
by law, or with the shareholder's permission."
No Load
All portfolios are no load. All portfolios, except the E*fund, are subject to
12b-1 fees.
Minimum Initial Investment
There is a minimum investment of $2,500 for all portfolios except the E*fund
which requires an initial investment of only $1,000. You can invest in a
portfolio for as little as $250 if you set up an Automatic Investment Plan,
currently $50 per month.
Statement of Additional Information
Our detailed Statement of Additional Information, is dated the same as this
prospectus and is filed with the Securities and Exchange Commission. It is
incorporated into this prospectus by reference. If you would like a copy please
call us toll-free at 800-223-7010.
This prospectus is available electronically at: http://www.efund.com. The
Securities and Exchange Commission maintains a website (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference and other information regarding the portfolios.
Escrow Policy
We reserve the right to wait up to seven business days to redeem any investments
that have been made by check or five business days for purchases made by ACH
transfer. Therefore, if you need to redeem shares within seven business days of
your purchase, please invest by wire.
2
<PAGE>
Citizens Trust
Fee Information
<TABLE>
<CAPTION>
WORKING
ASSETS MUIR CA
MONEY EMERGING GLOBAL TAX-FREE
MARKET INCOME GROWTH INDEX E*FUND EQUITY INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None None None None None None
(as a % of offering price)
Maximum Sales Load Imposed on Reinvested None None None None None None None
Dividends(as a % of offering price)
Deferred Sales Load (as a % of the original None None None None None None None
Purchase Price or Redemption Proceeds)
Redemption Fees (as a % of amount redeemed) None None None None None None None
Exchange Fee (per exchange) None None None None None None None
</TABLE>
Costs For Other Services
<TABLE>
<S> <C>
Returned checks (All portfolios)................................................$10.00
Outgoing wire transfer (All portfolios).........................................$10.00
Incoming wire (All portfolios)....................................................Free
2-day electronic payment-ACH (All portfolios).....2/month free / $0.50 each thereafter
Per check fee.....................................................................None
Stop payments(Working Assets & E*fund)..........................................$10.00
Checkbooks (Working Assets & E*fund).................................First 20 are Free
Box of 100 checks (E*fund only)..................................................$9.95
ATM cost (E*fund only)..................................$0.65 each /Cash advance:$2.50
Annual fee for E*fund...........................................................$35.00
</TABLE>
Annual Portfolio Operating Expenses
(as a percentage of Average Net Assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees .35% .65% 1.00% .50% .10% 1.00% .65%
Distribution Expense .25% .25% .25% .25% None .25% .25%
Other Expenses (**after waiver and reimbursement) .65%* .53%+ .85%+ 1.00%* .40%** 1.41%+ .65%+
Total Portfolio
Operating Expenses 1.25%* 1.43% 2.10% 1.75%* .50%** 2.66% 1.55%
</TABLE>
*Restated to reflect current fees and expenses
**E*fund expenses prior to reimbursement are projected at 1.46%
+The Adviser waived certain fees and reimbursed certain expenses. The ratio
prior to reimbursement for year ending June 30, 1996 for the Income, Emerging
Growth, Global Equity and Muir Portfolios are 1.48%, 2.34%, 2.72%, 1.87%
respectively.
Example: You would have paid the following expenses on a $1,000 investment
assuming a 5% annual return and redemption at the end of each period:
1 Year 3 Years 5 Years 10 Years
-------------------------------------
Working Assets Money Market Portfolio $13 $40 $69 $151
E*fund 5 16 28 63
Citizens Income Portfolio 15 45 78 171
Citizens Index Portfolio 18 55 95 206
Citizens Emerging Growth Portfolio 21 66 113 243
Citizens Global Equity Portfolio 27 83 141 299
Muir California Tax-Free
Income Portfolio 16 49 84 185
The example should not be considered a representation of past or future expenses
or past or future return. Actual expenses and actual return may be greater or
less than those included in the example above. The example for the E*fund
includes the $35 annual fee for the Citizens Access Account.
3
<PAGE>
The Talking Prospectus
Financial Highlights
Per Share Data
Income (Loss) from Investment Operations Less Distributions
<TABLE>
<CAPTION>
Net Gains
(Losses)
Net Asset on Securities Distributions
Year Value, Net (both Total from Dividends (from Net Net Asset
Ending Beginning of Income Realized and Investment (from Net Realized Total Value, End
June 30 Period (Loss) Unrealized) Operations Income) Gain) Distributions of Period
Working Assets Money Market Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00
1988 1.00 0.06 0.00 0.06 (0.06) 0.00 (0.06) 1.00
1989 1.00 0.08 0.00 0.08 (0.08) 0.00 (0.08) 1.00
1990 1.00 0.08 0.00 0.08 (0.08) 0.00 (0.08) 1.00
1991 1.00 0.07 0.00 0.07 (0.07) 0.00 (0.07) 1.00
1992 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 1.00
1993 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00
1994 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00
1995 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 1.00
1996 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00
E*fund
1996(7) 1.00 0.06 0.00 0.06 (0.06) 0.00 (0.06) 1.00
Citizens Income Portfolio
1992(1) 10.00 0.01 0.07 0.08 (0.01) 0.00 (0.01) 10.07
1993 10.07 0.46 0.54 1.00 (0.47) 0.00 (0.47) 10.60
1994 10.60 0.55 (0.54) 0.01 (0.55) (0.02) (0.57) 10.04
1995 10.04 0.65 0.36 1.01 (0.65) (0.02) (0.67) 10.38
1996 10.38 0.66 (0.10) 0.56 (0.66) 0.00 (0.66) 10.28
Citizens Index Portfolio
1995(4) 10.00 0.01 0.93 0.94 0.00 0.00 0.00 10.94
1996 10.94 0.08 2.47 2.55 (0.03) (0.05) (0.08) 13.41
Citizens Emerging Growth
1994(2) 10.00 0.01 (0.08) (0.07) 0.00 0.00 0.00 9.93
1995 9.93 0.07 2.18 2.25 (0.09) (0.22) (0.31) 11.87
1996 11.87 (0.13) 4.72 4.59 0.00 (1.59) (1.59) 14.87
Citizens Global Equity Portfolio
1994(2) 10.00 0.01 (0.21) (0.20) 0.00 0.00 0.00 9.80
1995 9.80 (0.01) 0.96 0.95 0.00 (0.06) (0.06) 10.69
1996 10.69 (0.10) 1.43 1.33 0.00 (0.13) (0.13) 11.89
Muir California Tax-Free Income Portfolio
1992(5) 15.00 0.67 0.53 1.20 (0.44) 0.00 (0.44) 15.76
1993(5) 15.76 0.90 1.00 1.90 (0.91) (0.08) (0.99) 16.67
1994(5) 16.67 0.84 (0.79) 0.05 (0.86) (0.15) (1.01) 15.71
1994(6) 15.71 0.18 0.01 0.19 (0.32) (0.15) (0.47) 15.43
1995 15.43 0.67 0.10 0.77 (0.67) 0.00 (0.67) 15.53
1996 15.53 0.62 0.11 0.73 (0.62) 0.00 (0.62) 15.64
(1) Period from June 10, 1992 (commencement of operations) (4) Period from March 3, 1995 (commencement of operations)
(2) Period from February 8, 1994 (commencement of operations) (5) Period ending March 31, 1994 (prior to merger)
(3) Annualized (6) Period ending June 30, 1994
(7) Period from July 1, 1995 (commencement of operations)
</TABLE>
4
<PAGE>
Citizens Trust
Ratios And Supplemental Data
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses Ratio of Net Income
Net Ratio of to Average Net Net Income (Loss) to
Assets Expenses Assets (Loss) to Average Net
Portfolio End of Period to Average Prior to Average Net Assets Prior to
Turnover Rate (in 000's) Net Assets Reimbursement Assets Reimbursement Total Return
<S> <C> <C> <C> <C> <C> <C>
NA 108,533 1.15% 1.15% 5.31% 5.31% 5.44%
NA 123,861 1.15% 1.15% 5.98% 5.98% 6.19%
NA 166,285 1.13% 1.13% 7.74% 7.74% 8.02%
NA 214,603 1.05% 1.05% 7.50% 7.50% 7.81%
NA 243,194 1.02% 1.02% 6.47% 6.47% 6.67%
NA 223,951 1.07% 1.07% 4.09% 4.09% 4.16%
NA 152,625 1.11% 1.11% 2.41% 2.41% 2.43%
NA 103,766 1.16% 1.16% 2.31% 2.31% 2.35%
NA 97,611 1.16% 1.16% 4.39% 4.39% 4.51%
NA 78,326 1.21% 1.21% 4.56% 4.56% 4.60%
NA 11,082 0.00% 1.55% 6.02% 4.64% 6.10%
0.00% 1,030 1.75%(3) NA 4.38%(3) NA 0.80%
22.35% 12,601 1.42% 2.38% 4.98% 4.02% 10.08%
52.62% 24,410 1.25% 2.01% 5.43% 4.68% 0.04%
46.03% 30,122 1.35% 1.48% 6.47% 6.34% 10.45%
41.36% 32,276 1.43% 1.48% 6.26% 6.21% 5.48%
64.95% 106,096 1.75%(3) NA 0.98%(3) NA 9.40%
6.44% 136,980 1.82% 1.82% 0.68% 0.68% 23.41%
33.35% 3,754 1.89%(3) 3.81%(3) 0.63%(3) (1.29%)(3) (0.70%)
231.30% 10,638 1.90% 2.93% 0.53% (0.50%) 23.24%
337.41% 36,409 2.10% 2.34% (1.64%) (1.88%) 42.43%
0.00% 5,639 2.50%(3) 3.16%(3) 0.25%(3) (0.41%)(3) (2.00%)
22.10% 9,503 2.50% 2.99% 0.00% (0.49%) 9.77%
85.92% 15,595 2.72% 2.72% (1.01%) (1.01%) 12.52%
28.97% 6,135 0.27%(3) 5.83%(3) 6.90%(3) 1.34%(3) 8.00%
36.24% 15,455 0.46% 1.87% 5.59% 4.18% 12.58%
31.04% 17,532 0.75% 1.62% 4.98% 4.11% 0.04%
38.29% 17,276 1.25%(3) 1.86%(3) 4.70%(3) 4.09%(3) 1.21%
74.94% 15,241 1.25% 1.74% 4.37% 3.88% 5.15%
83.12% 13,221 1.55% 1.87% 3.98% 3.66% 4.71%
</TABLE>
5
<PAGE>
The Talking Prospectus
Auditor
[photo of Jim Mahoney]
A partner at the firm Tait, Weller & Baker, Jim Mahoney has served as the
Trust's Certified Public Accountant and Auditor since 1986.
"While I have learned that most people do not share my fascination with tables
of numbers, I think two columns from the 'Financial Highlights' table should be
of interest to any prospective investor. They reflect the two ways your shares
can earn you money. They are Net Income and Net Asset Value. Your share of the
Trust's Net Income can be paid to you in cash or be reinvested in the Trust. In
order to realize your profits from increases in Net Asset Value, you will need
to sell your shares."
About The "Financial Highlights" Table
The "Financial Highlights" on the preceding page are for the fiscal year ended
June 30, 1996. The complete statements and our auditor's opinion on the
condensed financial information for the most recent five years appear in the
1996 Annual Report to Shareholders for each of the portfolios and are part of
this prospectus. For a copy of the Annual Report, please call the Trust's
toll-free number. It contains a full discussion of each portfolio's performance.
How We Select Our Investments
Financially Sound
Citizens Trust has certain policies that we consider fundamental such as
consistently applying both social and financial screens to all our investment
decisions. This, together with each portfolio's investment objective and other
technical investment policies described in the Statement of Additional
Information, cannot be changed without the approval of a majority of the
outstanding shares of each portfolio that would be affected by the change. In
addition to the specific policies for each portfolio, we also have some general
policies that we use to manage all of our portfolios.
Socially Responsible
We are always seeking profitable investments for our shareholders. To find them,
we favor companies which make good and useful products and have positive
environmental, community and workplace records. We avoid companies which engage
in discrimination or union busting; whose primary business is the manufacture of
alcohol, tobacco, firearms or nuclear power; and those that use animals to test
personal care products or otherwise treat animals in an inhumane manner.
Additional Investment Policies
We try not to put all our eggs in one basket. This means that 75% of a
portfolio's assets will never hold more than 5% of any one company. We do not
invest more than 25% of the value of any one portfolio in one industry with the
exception of securities of U.S. government agencies or enterprises, or in our
money market portfolios, domestic banks.
We believe Citizens Trust's role is to be a conscientious and alert investor,
not a controlling manager; therefore, across all our portfolios, we will not
accumulate more than 10% of the voting securities of any one company.
We sometimes purchase securities issued by companies that do not trade in the
public market. To maintain a good investment balance, we will limit these and
all other illiquid securities to a total of no more than 10% of each portfolio's
assets.
Each of our portfolios may, from time to time, invest in money market securities
such as the ones we use in our money market funds.
Each portfolio may temporarily borrow money from banks (and pledge its assets to
secure such borrowing) to meet redemption requests, or for other purposes. We
will keep this borrowing down to no more than 10% of the value of each
portfolio's total assets and make no purchases while we have any outstanding
loans.
6
<PAGE>
Citizens Trust
Citizens Index Portfolio
Objective: A market weighted portfolio of 300 companies, with the objective of
long-term capital appreciation (Income from dividends will be similar to the
income of the S&P 500).
The Citizens Index Portfolio is invested in 300 companies that make up the
Citizens Index. We believe these companies best represent their industries.
Approximately 200 are very large companies that are also included in the S&P
500. The others are companies selected in order to provide industry diversity
that we believe is essential to a sound investment program.
On a day-to-day basis, the portfolio is run by purchasing and holding common
stock of all the companies in the Index in a percentage, as closely as possible,
equal to each security's total market value divided by the total market value of
all the companies in the Index. In addition, under normal circumstances the
portfolio will usually hold a small amount of cash or money market instruments
(no more than 5%) resulting from shareholder purchase and redemption activity
and a provision for operating expenses. Holding this cash, together with the
costs of operations, will prevent us from ever perfectly tracking the
theoretical performance of the underlying Index. Payment of our operating
expenses will reduce returns. Our small allocation to cash will improve returns
when the market is heading down and hurt them when the market is moving up.
Companies will be deleted from the Index and divested from the portfolio if they
fail our annual social responsibility review. If a company is removed we will
replace it with another company from the same industry which meets all social
criteria. In addition, from time to time we may make other small changes in the
Index to include, for example, exceptional companies, or to reflect changes in
the composition of the S&P 500. We do not expect these changes to exceed 10% of
the members of the Index on an annual basis.
Risk Factors
Like all stock funds, the Net Asset Value of the Citizens Index Portfolio will
fluctuate based on market and economic conditions, or other factors that affect
particular companies or industries.
We are always pleased to send interested investors a current list of the members
of our Index.
Manager
[photo of Edwin Ek]
Portfolio manager for Citizens Index Portfolio, Edwin Ek spent eight years at
Wilshire Associates before joining the RhumbLine team in October, 1994. He
oversees the day to day operations of the Citizens Index Portfolio.
"The Citizens Index Portfolio is highly diversified, both by industry and in the
number of individual companies. We think it presents lower risk than a portfolio
with fewer holdings or more industry concentration."
7
<PAGE>
The Talking Prospectus
Manager
[photo of Lilia Clemente]
Lilia Clemente is the Chairman of Clemente Capital, Inc., the lead member of the
team which manages the Citizens Global Equity Portfolio:
"As a person who was born in the Philippines and who has traveled throughout the
world as a global investor, I believe global investment offers an opportunity to
reduce risk and increase returns by linking security and prosperity to the
performance of an array of markets and companies instead of concentrating only
in the U.S."
Citizens Global Equity Portfolio
Objective: Holds U.S. and foreign stocks for capital appreciation.
The world is changing rapidly with new companies - and even new countries -
being created every year. We expect that tremendous value will be created and
earned by those companies and investors who are successful at understanding
these new markets. In the Citizens Global Equity Portfolio we invest primarily
in common stocks of both U.S. domestic and foreign companies. We seek companies
with growing sustainable earnings, innovative products, services and business
strategies, revised corporate strategies, or beneficiaries of political or
economic conditions. We plan to allocate over half our assets to foreign markets
in most circumstances in a minimum of three countries. From time to time, we may
also buy other securities such as convertible or preferred stocks and short-term
debt securities.
Risk Factors
You should be aware of the potential risks of investing outside of the United
States. Foreign stock markets are generally less efficient and more volatile
than those in the United States. This creates opportunities, but also risk.
Settlement and trading costs are generally higher on foreign exchanges than in
the U.S. The economies and governments of some countries that the portfolio may
invest in may be less mature and stable than the U.S., and when political or
economic changes occur there can be an adverse impact on the portfolio. This
includes exchange control regulation, expropriation, confiscatory taxation and
political or social instability. The risks of investing in emerging market
countries are even greater, and can involve risk of higher inflation, high
sensitivity to commodity prices and economic dependence on few industries or
government owned industries.
To moderate these risks and gain potential benefits we use a number of
investment techniques. One of these is country selection. We restrict our
investments in riskier emerging nations (like Argentina or Singapore) to no more
than 25% of the assets of Citizens Global Equity Portfolio.
When we invest in foreign exchanges we buy securities in the currency of the
local country. Often the local currency will fluctuate against the dollar. To
moderate this risk we sometimes use currency "hedging." We do this by entering
into arrangements to buy or sell a particular currency, security, or securities
index for a stated value against the dollar at a given time. While there is a
cost involved in hedging, and a risk that our hedging strategy may not work and
will add cost or reduce our potential gains, we still think hedging can be a
valuable tool.
8
<PAGE>
Citizens Trust
The E*fund and the Working Assets Money Market Portfolio
Objective: Current income consistent with safety and liquidity.
These are good vehicles for short-term cash management and for investors who
need stability of principal. Checking services are available.
In our money market portfolios, we only invest in short-term money market
instruments (short-term debt issued by branches of the government, corporations,
banks, or other financial institutions) that we believe present minimal risk and
we maintain a weighted average maturity of 90 days or less for the portfolio as
a whole.
U.S. Government Securities
When we look at government securities, we only buy those that are issued or
guaranteed, as to both interest and principal, by agencies or other enterprises
of the United States government.
Commercial Paper
We will also buy high quality "commercial paper," which is short-term debt
issued by well-established corporations. One hundred percent of this short-term
debt must be rated A-1 by Standard & Poor's Corporation or have a comparably
high rating by another nationally recognized rating service. If a security is
only rated by one agency, it must be rated in one of the two highest ratings by
that agency. If a security is not rated, it must be as good as A-1 in our
judgment. We also use our own research and experience to help assure our money
market securities have only a minimal credit risk.
Other types of debt that offer us a yield advantage are sometimes issued by
banks. These include certificates of deposit, time deposits, and bankers'
acceptances of U.S. banks or thrift institutions.
The E*fund Refund
Every time you use the debit card associated with the E*fund, our distributor,
Citizens Securities, puts 1% of the amount of your debit card purchases, not
including cash advances or automatic teller transactions, back into the fund.
This has the potential to improve the E*fund's total return, subject to the
limit that the amounts paid to the E*fund, together with any other
"non-qualifying" income received by the fund in any fiscal year, cannot exceed
9.75% of the fund's gross income for that year. (This limitation is intended to
ensure that the fund continues to meet the requirement under the Internal
Revenue Code that at least 90% of its income comes from certain permitted
sources, so that the fund can maintain its status as a "regulated investment
company.)
Risk Factors
The shares of the E*fund and the Working Assets Money Market Portfolio are
neither insured nor guaranteed by the U.S. Government and there is no assurance
that either portfolio will be able to maintain a stable Net Asset Value of
$1.00 per share, despite our care and caution.
Manager
[photo of Danita Wright]
The primary manager of our two money market portfolios, Danita Wright, is an
associate at GMG/Seneca Capital Management, L.P. Previously, Danita was
employed by Merus Capital Management.
"Our goal is to earn a market rate of return (or better) for our shareholders by
investing in financially attractive companies whose operations have a positive
impact on the human and natural environment."
9
<PAGE>
The Talking Prospectus
Manager
[photo of Gail Seneca]
The managing partner of our sub-adviser GMG/Seneca Capital Management, L.P.
Gail Seneca is the primary manager of the Citizens Income Portfolio.
"Since our goal is to achieve a reliable stream of monthly income, we analyze
carefully the credit quality of the debt we purchase."
Gail Seneca is also the primary manager of the Muir California Tax-Free Income
Portfolio.
"Our goal of providing a high level of income exempt from California or federal
taxes, gives me a number of very interesting investment opportunities with high
social impact, as well as potentially attractive financial results."
The Income Portfolio
Objective: To generate current income and pay a dividend every month.
The Income Portfolio is similar to the money market portfolios in that it lends
money to the agencies and enterprises of the government and to companies in
exchange for interest payments. However, unlike the money market portfolio
(which only makes short-term loans), the Income Portfolio invests most of its
money in bonds or mortgages that are due within 2-30 years, although at times it
will hold short-term securities as well. Our average maturity in the Citizens
Income Portfolio is usually between 5 and 15 years. By committing money for this
longer period, we can generally earn higher interest than in the money market
portfolios.
At least 65% of the Income Portfolio's assets are invested in securities rated
"investment grade" (BBB or above). Up to 35% may be invested in bonds or other
debt instruments rated as below investment grades. Although bonds rated below
BBB are considered speculative (and are commonly referred to as "junk bonds")
and therefore add risk, we believe that by limiting the overall portfolio
exposure to a maximum level of 35%, the higher yield usually available in these
securities can benefit the portfolio and more than compensate for the greater
risk.
Occasionally, we buy securities that are not rated. In these cases, the security
must be of comparable quality, in our judgment, to the rated securities we buy
for the applicable portfolio.
In our Statement of Additional Information we give more detailed information
about each rating agency and its system of ratings.
Risk Factors
Bond prices, like stock prices, go up and down in value. These market price
fluctuations will be reflected in the value of the Citizens Income Portfolio.
When interest rates rise the market value of our Income Portfolio will decline,
and when interest rates fall the market value of our Income Portfolio will rise.
Muir California Tax-Free Income Portfolio
Objective: High level of current income exempt from both federal and
California state personal income tax.
The Muir California Tax-Free Income Portfolio only buys securities which have
been rated "investment-grade," or are equivalent to investment-grade in our
judgment. (Our Statement of Additional Information contains a full description
of bond ratings and the agencies which provide them.)
In addition to tax-free bonds, we may also buy other types of tax-exempt
fixed-income securities. Some of the important examples: We may invest up to 5%
of our assets in installment contracts known as municipal lease/purchase
agreements. We may also invest in a type of security known as a variable - or
floating-rate demand note or "VRDN". Another type of security we sometimes buy
is called a 'participation interest.' In this case we are buying
10
<PAGE>
Citizens Trust
part of a large loan made by a bank. Interest development bonds are
good examples of this particular type of investment.
Risk Factors
As with all fixed-income investing, we have two types of risk. The first is
credit risk: We will lend money to an organization and we won't be paid back
promptly, or at all. As we mentioned before, to moderate this risk we only buy
securities which have been rated "investment grade," or are equivalent to
investment-grade in our judgment. Many tax-exempt securities are ultimately
backed by the issuing town's or city's authority to tax its residents in order
to pay its principal interest.
Some types of tax-exempt securities are not backed by taxing power. These
include revenue bonds that are payable from a particular facility or a special
excise or other specific revenue source. Another example is industrial
development bonds, which in most cases are revenue bonds that do not carry the
pledge of the credit of the issuing municipality, but generally are guaranteed
by the corporate entity on whose behalf they are issued.
As a California fund, under normal market conditions we will have all or a
substantial portion of our assets concentrated in California municipal
securities. Here in California there have been some changes in the constitution
and other laws, as well as fiscal deficits and other problems, that have raised
questions about the ability of California state and municipal issuers to pay
their obligations.
The other risk in fixed-income investing is interest rate risk. When interest
rates rise, the market value of our Muir California Tax-Free Income Portfolio
will decline, and when interest rates fall, the market value of the Muir
California Tax-Free Income Portfolio will rise. Securities with longer
maturities typically have more fluctuation in market value. We may invest in
tax-exempt securities with maturities of any length up to 30 years, depending
upon our assessment of the relative yield on securities of different maturities
and our expectations of future changes in interest rates.
While these are risks, we watch them carefully in order to monitor their impact
on the portfolio.
Special Tax Considerations
As a matter of fundamental policy, we must invest at least 80% of our assets in
securities, the interest on which is exempt from regular federal and California
state personal income taxes and which is not subject to the federal alternative
minimum tax. During normal market conditions, at least 65% of our total assets
must be invested in bonds. We intend to always meet and usually substantially
exceed these minimum requirements. The Muir California Tax-Free Income Portfolio
will invest up to a maximum of 20% of its assets in private activity bonds which
may be subject to the federal alternative minimum tax.
MUIR INVESTMENT BONDS
The Muir California Tax-Free Income Portfolio generally buys investment-grade
bonds issued by cities and towns in California or other types of organizations
that issue tax-exempt securities. In particular, we look for bonds that are
issued for three basic purposes:
Education: Tax-exempt securities that finance projects like construction of
public and private educational facilities, as well as tax exempt securities used
to provide student loans.
Environment: Projects that foster the buying and building of parks, the
preservation of ancient forests and wildlife habitats, and the creation of
public transit. We also purchase pollution control bonds.
Housing: In our opinion, the availability of quality, low-cost housing is
critical to a peaceful and more just society. For this reason, we invest in
securities financing low-income housing.
11
<PAGE>
The Talking Prospectus
Manager
[photo of Rick Little]
Part of the team that manages the Citizens Emerging Growth Portfolio, Rick
Little has worked in the investment field for 24 years. He has been with
GMG/Seneca Capital Management, L.P. since its inception in 1990 and was
previously a senior vice president at NatWest Securities. He explains the
investment approach used to manage the Emerging Growth Portfolio:
"We are looking to build a portfolio of companies that have special
characteristics, and therefore have the ability to grow their sales and earnings
at a rapid rate. These are the companies that we hope can become 'the next
Microsoft,' developing new and innovative products and services."
Other Policies
If sufficient desirable tax-exempt securities issued by California governmental
entities are not available, we may invest in other types of securities which
meet our social and financial criteria and are exempt from federal and personal
income tax. These and other investment policies are more fully discussed in our
Statement of Additional Information under the section entitled "Investment
Objectives and Policies." Our Statement of Additional Information also contains
more information about the risks of California municipal securities as well as a
description of municipal securities ratings.
Citizens Emerging Growth Portfolio
Objective: Aggressive growth through investment in small and medium-sized
companies.
Our Citizens Emerging Growth Portfolio looks for aggressive gains with long-term
investing in mid-cap companies. During normal market conditions, at least 65% of
this portfolio's assets will be invested in the common or preferred stock of
companies that average at least $2 billion in market capitalization.
Risk Factors
While many of these companies will have strong businesses, some will still be
unseasoned, and therefore may have some speculative characteristics. Investing
in smaller companies is a long-term process with the potential for significant
gains. However, the value of this portfolio can have significant fluctuation
because smaller companies have unique risks. They may be dependent on individual
managers or have a harder time obtaining financing and market share. Further,
their shares are more volatile and thinly traded. To moderate this risk we plan
typically to hold between 30 and 50 companies in the portfolio.
Since most of the companies we will purchase for the Citizens Emerging Growth
Portfolio are relatively new, we don't expect much, if any, dividend income. At
times we may also buy short-term fixed-income securities for the portfolio.
Organization and Management of the Trust
Citizens Investment Trust began November 24, 1982. Today, it's affectionately
known as Citizens Trust. We are a Massachusetts business trust and an open end
investment company, registered under the Investment Company Act of 1940 as a
diversified management company. The Trust is also a "series" company which means
that we can have several portfolios, each with its own investment objective,
assets, and liabilities. The Trust is supervised by a board of trustees.
In order to manage the Trust on a day-to-day basis, we have signed a Management
Agreement with our investment adviser, Citizens Advisers, with offices at 111
Pine Street, San Francisco, CA 94111 and One Harbour Place, Portsmouth, NH
03801. Citizens Advisers has managed the Trust's assets since the Trust's
inception.
12
<PAGE>
Citizens Trust
Citizens Advisers and its wholly-owned subsidiary, Citizens Securities, are
both California corporations. Sophia Collier is the 60% owner. Fellow
shareholders are three brothers, John P. Dunfey, Robert J. Dunfey, Sr., and
Gerald F. Dunfey, who own 12% each, and William B. Hart, who owns 4%.
The Role of Investment Adviser
Our investment adviser's job is to determine which companies meet the Trust's
investment criteria and will be carried on our "Approved List." To assist with
portfolio management they have retained at their own expense these sub-advisers.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Working Assets Money Market Portfolio, E*fund, Muir
California Tax-Free Income, Citizens Income and Emerging Growth Portfolios,
GMG/Seneca Capital Management, L.P. is a registered investment adviser
established in 1990. It is a wholly owned subsidiary of GMG Capital Management,
LLC, which manages over $3 billion from their offices at 909 Montgomery Street,
San Francisco, CA. Organized as a California limited partnership, GMG/Seneca
Capital Management, L.P. has two general partners, Gail Seneca and Genesis
Merchant Group, L.P., an Illinois Limited Partnership. Genesis Merchant Group,
in turn, has three general partners: William K. Weinstein, Gail Seneca, and
Philip C. Stapleton. Prior to starting GMG/Seneca, Gail was employed by Wells
Fargo Bank as a senior investment officer.
Clemente Capital, Inc.
Our sub-adviser for the Citizens Global Equity Portfolio, Clemente Capital, Inc.
is a registered investment adviser organized in 1979. It is majority owned by
Lilia Clemente with 61.15%; Wilmington Trust of Wilmington, DE with 24% and
Diaz-Verson Capital Investments, Inc. of Columbus, GA with 14.85%. Clemente also
manages the First Philippine and Clemente Global Growth Funds, two closed-end
funds traded on the New York Stock Exchange. Its headquarters are at Carnegie
Hall Tower, 152 West 57th Street, New York, NY.
RhumbLine Advisers, Inc.
The Citizens Index Portfolio is sub-advised by RhumbLine Advisers, a registered
investment adviser established in 1990 with offices at 30 Rowes Wharf, Boston,
MA. RhumbLine is owned in excess of 97% by J.D. Nelson, who is also an
interested trustee of the Trust.
Citizens Advisers also provides administrative services and acts as the Trust's
distributor through its subsidiary, Citizens Securities.
Voting Rights
Our shareholders are entitled to one vote for each full share owned and a
fractional vote for fractional shares. Shares of each portfolio generally vote
separately on matters that only concern that portfolio. However, all
shareholders of the Trust vote together on the selection of trustees and other
matters as required by the Investment Company Act of 1940. The holders of shares
have no preemptive, conversion, or subscription rights, and voting rights are
not cumulative. To save money we do not hold annual meetings. However, a meeting
may be called by our trustees or at the request of 10% of the Trust shares. We
will assist shareholders in communicating with one another to arrange such a
meeting.
13
<PAGE>
The Talking Prospectus
Manager
[photo of Azie Taylor Morton]
Azie Taylor Morton chair of the Audit Committee, explains the Trust's
relationship with its advisers.
"One of the Trust's most important contracts is our Management Agreement with
Citizens Advisers. It states that Citizens Advisers has authority to manage our
portfolios and will provide all necessary office space, facilities, equipment
and personnel to do so."
Transfer Agent:
PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Dividend Paying Agent:
PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Phone: 800-223-7010
Citizens Trust's Management Agreement
Citizens Trust's Management Agreement with Citizens Advisers specifies fees as
follows (based on average annual net assets of the respective portfolios):
Trust Adviser
Pays Pays
Portfolio Adviser Sub-Adviser
Working Assets
Money Market Portfolio .35% .08%
E*fund Money Market Portfolio .10% .08%
Income Portfolio .65% .17%
Index Portfolio .50% .10%
Emerging Growth Portfolio 1.00% .35%
Muir California Tax Free Portfolio .65% .175%
Global Equity Portfolio 1.00% .35%
The fees of the Citizens Emerging Growth Portfolio, Citizens Index Portfolio and
Citizens Global Equity Portfolio are higher than the average investment company
and reflect the higher cost of managing these portfolios.
Citizens Advisers also has a separate administrative contract for providing
general administrative services, shareholder servicing and sub-accounting,
telephone services and services related to the organization of a portfolio's
federal and state regulatory filings. The fees paid by the Trust under this
contract are set by the Trustees based upon the services required. Citizens
Advisers will sometimes contract to have specialized services provided by third
parties, such as investment advisers for pension funds, or other institutions
which maintain omnibus accounts with the Trust. Under the administrative
contract, for the year ending June 30, 1996, we paid $583,266 to the adviser for
its administrative services.
The individual portfolios pay all expenses not expressly assumed by Citizens
Advisers. These include interest, taxes, audit and legal fees, custodian and
transfer agent charges, shareholder service and administration, insurance
premiums, cost of registering shares under federal and state laws, dues, and any
litigation costs, as well as the cost of typesetting, printing, and distributing
shareholder reports and prospectuses sent to shareholders. When a cost is shared
by several portfolios, the staff at Citizens Advisers will allocate the expense
in a reasonable manner under the supervision of the board of trustees.
For the Working Assets Money Market Portfolio and Citizens Income Portfolio,
Citizens Advisers has agreed to reimburse the Trust if the costs to be borne by
the portfolios exceed a specified limit in the ordinary course of business.
Please see the Statement of Additional Information for a full description.
12b-1 Fees
Citizens Trust has a 12b-1 plan which allows us to reimburse Citizens Securities
and other distributors of the Trust's shares for sales related costs. These
costs include the printing of prospectuses and reports not sent to current
shareholders, as well as other sales material, advertising, and salaries for
salespeople and other personnel. We will also pay commissions to outside brokers
or service organizations for similar services.
14
<PAGE>
Citizens Trust
Amounts paid fiscal year ended June 30, 1996:
Working Assets Money Market Portfolio $182,653
E*fund none
Income Portfolio 79,764
Index Portfolio 273,219
Emerging Growth Portfolio 49,373
Global Equity Portfolio 29,666
The Muir California Tax Free Income Portfolio 36,286
Sometimes Citizens Securities makes additional promotional expenditures that are
not reimbursed by the 12b-1 plan such as expense reimbursements to non-dealers
for meetings, advertising, and other valid promotional purposes.
How to Purchase and Redeem Shares
How to Buy Shares
It's easy to buy shares in Citizens Trust Portfolios. Just fill out an
application and send in your payment by check, wire transfer, exchange from
another portfolio, or through arrangement with your investment dealer.
Shares in the E*fund or Working Assets Money Market Portfolio cost $1.00 per
share. For all other portfolios your cost will be the Net Asset Value next
determined after your payment is received. You can purchase both full and
fractional shares, which will be rounded to the nearest 1/100th of a share. If
your check is returned for any reason, you will be assessed a fee of $10.00.
The E*fund is open only to clients of the Citizens Access Account. Many
shareholders take advantage of the "E" in the E*fund by investing electronically
either by direct payroll deposit or through another automated deposit program.
This is a safe and easy way to go.
Investment Minimums
We encourage every investor to make a minimum investment of $2,500 ($1,000 for
the E*fund) per portfolio. Shareholders who sign up for our Automatic Investment
Plan can start with an investment balance as low as $250, with an automatic
investment of $50.00 per month.
Investment Maximum
Only the E*fund has an investment cap. The maximum investment in the E*fund is
$15,000 and we reserve the right to decline any investment in excess of this
limit. This limit is designed to give investors who use the E*fund as their
everyday account the full benefit of the amounts generated through the E*fund
Refund. We reserve the right to refuse any order to purchase shares in the
E*fund from any shareholder who makes more than 35 withdrawals (other than
debit card purchases) from the E*fund per month.
Automatic Investment Plan
To enroll in our Automatic Investment Plan, simply check off that box on the
account application and provide us with your bank information and the amount and
frequency of your investment into your chosen portfolio. We will do the rest.
Manager
[photo of David Parker]
Customer Service Manager, David Parker, oversees the Citizens Trust Call
Center.
"We talk to thousands of people from almost every circumstance and stage of
life. If you need help or have any questions, please call us. We are available
Monday through Friday from 9 AM to 8 PM, Eastern Time.
Our goal is to serve you in a caring and responsible manner that respects your
time and needs. Our service people pride themselves on getting the job done for
you in a quick, efficient manner."
15
<PAGE>
The Talking Prospectus
Use the E*fund
Debit Card:
The E*fund, serves as a transaction account for holders of the Citizens Access
Account available through the Fund's distributor Citizens Securities.
Shareholders who use this account may request an optional debit card and use it
to redeem shares for cash at ATM machines or to make purchases at any merchant
who accepts the debit card.
Payroll Deduction
Setting up direct payroll deposit is very easy. We can send you a form including
the necessary information and steps to follow. Simply complete and sign the
form, then give it to your payroll administrator for processing. If you or your
payroll administrator have any questions please call our shareholder service
department.
Funds will be deposited into your account using the Electronic Funds Transfer
System. We will provide the account number. Your payroll department will let you
know the date of the pay period when your investment begins.
Excepting the E*fund, if your account falls below $2,500 per portfolio, we may
ask you to open an Automatic Investment Plan or bring your balance back up over
$2,500. If you decide not to go ahead with either option, we may close your
account by sending you a check for your balance.
How to Redeem Shares
We offer you several convenient ways to redeem your shares in any of the
Citizens Trust Portfolios.
Call Us
We have a Telephone Exchange and Redemption option on your account application.
Under this option you can call us and tell us how much you want us to redeem.
Depending upon your instructions, we will then deposit your redemption into
another Citizens Trust Portfolio account, mail you a check, or electronically
transfer your redemption to your pre-designated account. One day wired funds
cost $10, or, we offer two day service via the Automated Clearing House (ACH).
You will earn dividends up to and including the date when we receive your
redemption request.
If you do select the Telephone Exchange and Redemption option, you should be
aware that it may increase the risk of error or of an unauthorized party gaining
access to your account. To keep these problems to a minimum we record all
telephone calls. But please remember, neither the Trust, our Adviser, nor our
Transfer Agent will be responsible if we properly act on telephone instructions
we reasonably believe to be genuine. Normally, we will send you your redemption
on the next business day after we receive your request.
Write a Check
When you open an account in the E*fund or Working Assets Money Market Portfolio,
we will send you a free starter book of 20 checks. E*fund shareholders will
receive an order form to purchase additional checks ($9.95 for 100 checks).
Shareholders in Working Assets Money Market Portfolio can request additional
books of 20 free checks. Although these checks are payable through a banking
agent of Citizens Trust, your account is not FDIC insured and your shares are
subject to fluctuations in value. You can write a check for any amount and there
is no charge per check. There will be a $10.00 charge for any checks returned
for any reason.
16
<PAGE>
Citizens Trust
Written Request for Redemption
If you do not use Telephone Exchange and Redemption, you can still redeem your
shares at any time, although the process will take longer. Send us a written
request together with a signature guarantee. We may require further
documentation from corporations, fiduciaries, pension plans, and/or
institutional investors.
Redeem Your Shares in Person
Investors may also redeem their shares through Citizens Securities, or through
participating broker-dealers (who may charge a fee for this service). Certain
broker-dealers may have arrangements with the Trust that permit them to order
redemption of shares by telephone or facsimile transmission.
However, in rare cases, payments for the redemption of non-money market accounts
may take up to five business days. We also reserve the right to hold your
redemption proceeds for up to seven business days when you redeem any
investments that have been made by check or five days for an ACH transfer.
Therefore, if you need your redemption proceeds within seven business days of
your purchase, please invest by wire.
Shareholder Services and Policies
Exchange Privilege
Since people's investment needs change over time, we provide for easy exchanges
among our portfolios at no charge. You may make an exchange at any time and to
any portfolio. Just call us or write to us with your request.
Systematic Withdrawal Plan
You can send us a written request to automatically redeem a portion of your
shares and make a regular monthly, quarterly, or annual payment on your behalf.
Making a Change in Your Account
After your account is set up, you may want to make a change in one of the
options or in the account title. We are pleased to assist, but in many cases
will require a signature guarantee from all registered owners of the accounts.
Tax-Sheltered Retirement Plans
Our distributor, Citizens Securities, has arranged for shareholders to have
access to qualified Individual Retirement Accounts (IRAs) and 403(b) plans
(non-profit employees). Our portfolios are also suitable for other types of
retirement plans as well.
Common
Transactions That
Require Signature
Guarantees:
* Written request for redemption
* Changing your account title in any way
* Authorizing telephone transaction for the first time
* Changing your pre-designated wire or ACH instructions
* Establishing or modifying a systematic withdrawal plan
* Exchanges between accounts which do not have identical titles
Eligible Guarantors:
* Commercial Bank
* Trust Company
* Savings Associations
* Credit Unions
* Members of domestic stock exchange
Note:
Notaries public are not eligible guarantors.
17
<PAGE>
The Talking Prospectus
Mailing and
Wiring Instructions
Regular U.S. Mail:
Please use the Business Reply Envelope
provided with this Prospectus, or mail to:
Citizens Trust
c/o PFPC Inc.
PO Box 8962
Wilmington, DE
19899-8962
Our Wiring Address:
Instructions:
PNC Bank, N.A.
Philadelphia, PA
ABA#: 031000053
For Further Credit
A/C# 86-1030-3646
Shareholder
name/acct. number
Overnight Delivery Package (i.e., Federal Express, UPS, Airborne Express, etc.)
No U.S. mail, please.
Send to:
Citizens Trust
c/o PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Phone: 800-223-7010
Please send overnight delivery packages only to this address. Regular U.S. Mail
will not be accepted at this address and may be returned to you.
Dividends, Distributions and Taxes
Unless you give us other instructions, we will automatically reinvest your
dividends and distributions at the Net Asset Value, calculated on the dividend's
payable date.
We can also pay your dividends and distributions to you by check or electronic
transfer through the Automated Clearing House to your bank account. The details
of your dividends and other distributions will be included on your statement.
Payment of dividends and distribution of capital gains, if any, are declared and
paid on the following schedule.
<TABLE>
<CAPTION>
Dividend Capital Gains Paid
Declared Paid Long-term Short-term
<S> <C> <C> <C> <C>
E*fund Daily Monthly None None
Working Assets
Money Market Portfolio Daily Monthly None None
Citizens Income Portfolio Monthly Monthly Annually Annually
Citizens Emerging
Growth Portfolio Annually Annually Annually Annually
Citizens Index Portfolio Annually Annually Annually Annually
Muir California
Tax-Free Income Portfolio Daily Monthly Annually Annually
Citizens Global Equity
Portfolio Annually Annually Annually Annually
</TABLE>
How We Report Investment Results
There are a number of ways of reporting performance, and we'll walk through each
one that we use, but, when you look at any mutual fund, remember, actual mileage
may vary.
Every business day the Working Assets Money Market Portfolio and the E*fund
quote both a '7-day yield' and a '7-day effective yield.' To calculate the 7-day
yield, we take our Net Investment Income per share for the most recent 7 days,
annualize it, and then divide by the Net Asset Value per share (expected always
to be $1.00) to get a percentage. The 'Effective Yield' assumes that you have
reinvested your dividends.
The E*fund Total Return
We also calculate an annual total return for the E*fund on a daily basis. This
number is the true reflection of what the E*fund returns to you. We calculate
total return for the E*fund by adding the Net Investment Income together with
the portfolio's other income, including income from debit card transactions,
other income and capital changes, if any.
Citizens Income Portfolio and the
Muir California Tax-Free Income Portfolio Yield
For these two portfolios, we start with Net Investment Income per share for the
most recent 30 days and divide it by the maximum offering price per share on the
30th day and annualize the result assuming a semiannual compounding.
18
<PAGE>
Citizens Trust
Total Return and Other Quotations
For all portfolios except the money markets, we start with the total number of
shares that you can buy for $1,000 at the beginning of the period. We then add
all the additional shares that you would have purchased within the period with
reinvested dividends and distributions (this takes into account the portfolio's
income, if any). Finally, we multiply the number of these shares by the Net
Asset Value on the last day of the period and divide the result by the initial
$1,000 investment to see our percentage gain or loss. For periods of more than
one year, we adjust the cumulative Total Return to get an average annual Total
Return.
Valuation of Shares
To calculate our Net Asset Value, we add up the total assets of the portfolio,
subtract all liabilities and then divide by the number of shares outstanding. To
value money market securities we use an accounting system called the amortized
cost method. This system is described in the Statement of Additional
Information. To calculate the amount of the E*fund's share of the income from
the debit card we use a daily accrual method which is intended to accurately
reflect actual debit card income due from our distributor.
In our non-money market portfolios we value our holdings at the most recent
closing price or, if there is no closing sale price, halfway between the bid and
asked price. If no market quotation is available for a given security, our
adviser will fairly value that security in good faith. Securities maturing
within 60 days are normally valued at amortized cost, which approximates market
value.
From time to time, we may compare the investment results of our portfolios to
unmanaged market indices, and other data and rankings from recognized
independent publishers.
Tax Matters
The dividends you have earned are taxable to you as dividends (unless of course
you are otherwise not subject to taxes). Remember, the exchange of shares is
treated as a sale and any exchanging shareholder may, therefore, realize a
taxable gain or loss. You may also be subject to state and local taxes on
dividends and distributions from the Trust. Please consult your own tax adviser.
We will send you a complete statement each January as to the federal tax status
of dividends and distributions paid by each portfolio during the previous
calendar year.
We do not expect the Trust itself to pay any federal income or excise taxes
because each year we expect to qualify each portfolio as a separate regulated
investment company under the Internal Revenue Code. To do this, the portfolio
must meet certain income, distribution and diversification requirements such as
distributing all of the portfolio's Net Investment Income and realized capital
gains to shareholders in a timely manner.
That's it!
"Mutual Fund advertisements and stock brokers' offices have many ways of
reporting mutual fund performance. It's no wonder investors can become confused.
Remember: When you look at mutual fund quotations, you are looking at history -
how the fund did in the past. And, as Jim Mahoney said at the front of the
prospectus, there are only two ways you can make money from your investment:
through an increase in Net Asset Value or through 'Net Income.' These two
elements are the building blocks of all performance calculations."
- -Sophia Collier
19
<PAGE>
[Citizens Trust logo]
[recycle logo]
Printed on recycled paper with soy-based ink.
(C)1996 Citizens Securities
Working Assets is a registered trademark of Working Assets Funding Service.
Used under license.
The Talking Prospectus is a trademark of Citizens Securities.
<PAGE>
[INSERTS TO MIDDLE OF BOOK]
[Citizens Trust logo] [little man] Return your completed application to:
Citizens Trust
c/o PFPC Inc. PO Box 8962
New Account Application Wilmington, DE 19899-8962
For assistance in completing this application, please call 800-223-7010.
1. OPEN YOUR ACCOUNT (Check one box below)
Please Print or Type-Don't forget to sign application in section 7b
[box] INDIVIDUAL OR JOINT ACCOUNT [box] INSTITUTIONAL
/ /
_______________________________________________________________________________
OWNER'S NAME (First, Middle Initial, Last) DATE OF BIRTH
/ /
_______________________________________________________________________________
JOINT OWNER'S NAME (First, Middle Initial, Last) DATE OF BIRTH
[box] GIFT/TRANSFER TO A MINOR (UGMA / UTMA)
[NOTE: Custodial accounts must be in single ownership]
_________________________________ as custodian for ____________________________
Custodian's Name (one custodian only) Minor's Name (First, Middle
Initial, Last)
under the _______________ Uniform Gifts/Transfer to Minors Act._____/____/_____
State DATE OF BIRTH
[box] TRUST
______________________________ as Trustee(s) of _______________________________
Trustee(s) Name Name of Trust Agreement
for the benefit of ____________________________________________________________
Beneficiary's Name Date of Trust Agreement (required)
[box] CORPORATION OR OTHER ENTITY
_______________________________________________________________________________
Name of Corporation or Other Entity Type of Entity - Please complete Section 8
ADDRESS
Address (of Owner, Trustee, or Corporation) If P.O. Box, please show street
address also.
________________________________________________________________________________
Street Name City State Zip
( ) ( )
_________________________________________________________
Daytime Phone Evening Phone
If not a U.S. citizen, please indicate country of citizenship _________________
2. SELECT YOUR INVESTMENT CHOICES
The minimum initial investment for each Citizens Trust Portfolio is $2500.00
($250.00 when you set up an Automatic Investment Plan), except for the E*fund,
which requires only a $1000.00 initial investment.
Please make checks payable to Citizens Trust.
DIVIDENDS/CAPITAL GAINS OPTIONS
Reinvest Dividends Paid By
Name of Portfolio $ Amount Dividends/C.G. ACH Transfer* Check
*Must complete Section 5a.
The E*fund Money
Market Portfolio _____ [box] [box] [box]
(must complete 6 & 7 of application)
Citizens Income
Portfolio _____ [box] [box] [box]
Citizens Index
Portfolio _____ [box] [box] [box]
Citizens Emerging
Growth Portfolio _____ [box] [box] [box]
Citizens Global
Equity Portfolio _____ [box] [box] [box]
The Muir Tax-Free
Income Portfolio _____ [box] [box] [box]
Working Assets
Money Market
Portfolio _____ [box] [box] [box]
<PAGE>
3. EXCHANGE AND REDEMPTION BY PHONE
Please use any four numeric characters in specifying your Personal
Identification Number (PIN). If no PIN is specified by you, we will use the last
four digits of your Social Security Number. Check to authorize the following
transaction services: [box] I (We) authorize Citizens Trust and its Agent to
honor telephone instructions for my (our) current account. Neither the Trust,
its Adviser, its Distributor, or its Agent will be liable for properly acting
upon telephone instructions believed to be genuine. Indicate your personal
password to authorize telephone transactions:
[box] [box] [box] [box]
Any changes to the number you choose will require a signature guaranteed letter.
4. AUTOMATIC INVESTMENT PLAN
This plan makes it easy for you to invest a regular amount each month into
Citizens Trust Portfolios. Citizens Trust and its Transfer Agent, PFPC Inc.,
will transfer money electronically from your bank account and invest it into the
Portfolio you designate. There is no charge and you may cancel at any time.
Please invest $__________ ($50 minimum) into _________________________________
(Designated Portfolio)
On the _____ day of each month (either the 15th or the 30th or both) by transfer
from my bank account shown below on this application. (For payroll and Social
Security deposits, please call 800-223-7010).
5a. INFORMATION REQUIRED FOR ACH TRANSFER
[box] I (We) authorize electronic funds transfers through Automatic Clearing
House (ACH) for my (our) account indicated below:
Please attach an unused voided check or savings deposit slip from the account
listed below, or provide the requested information:
_______________________________________________________________________________
Name in which Bank Account is established
_______________________________________________________________________________
Name of Bank
_______________________________________________________________________________
Address of Bank
_______________________________________________________________________________
Account Number
_______________________________________________________________________________
Bank Routing Number
Check One: [box] Checking Account [box] Savings Account
5b. [box] AUTOMATIC INVESTMENT FROM AN EXISTING CITIZENS TRUST ACCOUNT
From: (Portfolio Name) Account Number:
_________________________________________________________
To: (Portfolio Name) Account Number:
___________________________________________________________
To be Deducted on the: [box] 1st [box] 10th [box] 20th
Starting Date: / / Amount $________
6. EMPLOYMENT INFORMATION - E*FUND
The easiest way to use your E*fund is to set up Direct Deposit of your payroll
or pension (co-applicant's, also if applicable). Please fill out your employment
information below for our records.
________________________________________________________________________________
Employer (required) Employer (required)
________________________________________________________________________________
Address Address
________________________________________________________________________________
City State Zip City State Zip
________________________________________________________________________________
Work Phone Work Phone
________________________________________________________________________________
Your Position Years There Your Position Years There
Please refer to the prospectus(es) that accompany this application for
information on all fees associated with the Citizens Access Account, check
writing and debit card privileges. If you have any questions, please call us
at: 1-800-223-7010.
<PAGE>
7a. FOR E*FUND ACCOUNTS ONLY
When you open your Access account, you will receive 20 starter checks at no
charge. Additional checks for the E*fund are available at a charge of $9.95, in
quantities of 100.
[box] Please order an additional 100 checks for my E*fund account now. (Checks
must be ordered through an authorized vendor to ensure accurate processing.)
[box] I want to save paper and use the E*fund to its fullest potential. I will
refer to the World Wide Web site for Prospectus updates. Citizens Trust Web
address is: http://www.efund.com.
7b. SIGNATURES AND TAX IDENTIFICATION NUMBER (REQUIRED)
Required to Open Account:
Social Security Number of applicant/co-applicant ____________/_______________
For Gift to Minor account, please use the minor's Social Security number. For
Trust, Corporation, or Other Organization account, please use U.S. Tax ID
Number. ______________________________________________________________________
Tax ID # Applied for (date)
By signing below, I certify under penalties of perjury that the social security
or taxpayer identification number entered above is correct. I have received a
current prospectus and have the full authority and am of legal age to purchase
such shares. I have not been notified by the IRS that I am subject to backup
withholding.
Special Tax Situations Only
[box] I am subject to backup withholding.
[box] I am exempt from paying taxes.
[box] I do not have a Taxpayer Identification Number/Social Security number, but
have applied for one.
If we do not receive this information within 60 days, the IRS requires us to
initiate irreversible backup withholding. Please call us (800-223-7010) if you
have any questions or concerns about this federal policy. To receive my
MasterCard [Registration Mark] debit card I understand that Citizens Securities
must first approve my application. I authorize Citizens Securities to check my
credit and employment history and to ask me questions about my payment
experience. If approved by Citizens Securities, PNC will issue a Card to me, and
I am responsible for all Card usage.
________________________________________________________________________________
Signature of Individual or Custodian Date
________________________________________________________________________________
Signature of Individual or Custodian Date
7c. CHECK-WRITING SIGNATURE CARD
Citizens Access Account signature card for E*fund and Working Assets Money
Market Accounts
Account Number (Internal use only) [ ]
By signing this signature card the undersigned agree(s) to be subject to the
rules and regulations of Citizens Trust and its Agent now or hereafter
pertaining thereto and as amended from time to time, and as set forth on the
reverse side.
________________________________________________________________________________
LAST NAME (PLEASE PRINT) FIRST NAME MIDDLE INITIAL
________________________________________________________________________________
LAST NAME (PLEASE PRINT) FIRST NAME MIDDLE INITIAL
SIGNATURE SIGNATURE
[box] Check here if both/all signatures are required on checks.
[box] Check here if only one signature is required on checks.
If neither box is checked, all checks will require both signatures.
By our signatures above, we agree to permit check redemption upon the single
signature of a joint owner by appointment. The signature of one joint owner is
on behalf of herself/himself and as attorney in fact on behalf of each other
joint owner by appointment. We hereby agree with each other, with Citizens Trust
and its Agent that all monies now or hereafter invested in our account are and
shall be owned as Joint Tenants with Right of Survivorship and not as Tenants in
Common.
<PAGE>
8. RESOLUTION (FOR CORPORATION/PARTNERSHIP/OTHER)
The undersigned hereby certifies and affirms that she/he is the duly elected
___________________________________ of _______________________________________
Officer or Title Name of Organization
which is organized under the laws of the state of and
that all necessary actions by directors, trustees, partners, and/or other
appropriate persons have been taken to open an account with Citizens Trust in
the name of the organization, and to deposit funds in said account; that any of
the officers whose signatures appear below have authority to sign checks and
other orders issuable by the organization redeeming the shares of the Trust, and
that this authority shall be honored until revoked by written notice to Trust;
that the Trust, its Adviser and Transfer Agent, herein appointed as redemption
agent for the organization for shares of the Citizens Trust, shall be held
harmless for any loss, damage, cost or claim arising out of any authorized or
unauthorized use of the checks or assets of the organization invested in the
Trust.
________________________________________________________________________________
Signature of Certifying Officer Date
________________________________________________________________________________
Printed Name Title
________________________________________________________________________________
Signature
________________________________________________________________________________
Printed Name Title
________________________________________________________________________________
Signature
Corporate Seal (if any)
9. EXTERNAL DEALER OR ADVISOR INFORMATION
If you do not have a Broker/Dealer or Investment Adviser; please leave this
section blank.
By this designation I hereby authorize the Trust and its Agents to accept
instructions from and transmit information to my Broker/Dealer or Investment
Advisor concerning my account.
________________________________________________________________________________
Broker/Dealer or Adviser Firm Name Branch
________________________________________________________________________________
Registered Representative Name Reg. Rep. Number
________________________________________________________________________________
Branch Address
________________________________________________________________________________
City State Zip
PLEASE READ CAREFULLY
By filling out this signature card, I (We) hereby request Citizens Trust and its
Agent, to honor checks drawn by me (us) on my (our) account subject to
acceptance by Citizens Trust, with the payment to be made by redeeming
sufficient shares in my (our) account, subject to the terms and conditions
listed on the signature card.
The payment of funds is authorized by signature(s) appearing on the reverse
side.
Each signatory guarantees the other's signature.
The Agent of the Trust is hereby appointed agent by the person(s) signing this
card (the depositor) and, as agent, is authorized and directed to present drafts
drawn on this account to the Transfer Agent of the Trust, as a request to redeem
shares. The Agent shall be liable only for its own negligence.
The depositor agrees to be subject to the rules and regulations of the Agent
pertaining to this account. The Trust and its Agent reserve the right to change,
modify or terminate this account and authorization at any time.
Shares purchased by check will not be redeemed within 7 business days of such
purchase by check writing or any other method of redemption.
<PAGE>
[envelope]
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 457 WILMINGTON, DE
POSTAGE WILL BE PAID BY ADDRESSEE
[Citizens Trust logo]
C/O PFPC
PO BOX 8962
WILMINGTON, DE 19899-9685
<PAGE>
Statement of Additional Information
September 27, 1996
This Statement is not a prospectus and should be read in conjunction
with the Prospectus dated the same date as this Statement of
Additional Information. A copy of the current Prospectus dated
September 27, 1996 as may be amended from time to time, can be
obtained by calling (800) 223-7010, or by writing Citizens Investment
Trust (hereafter Citizens Trust), One Harbour Place, Portsmouth, NH
03801. This Statement and the Fund's Prospectus may be supplemented
from time to time.
Citizens Investment Trust
Working Assets Money Market Portfolio
Citizens Income Portfolio
Citizens Emerging Growth Portfolio
Citizens Global Equity Portfolio
Citizens Index Portfolio
- ------------------------------------------------------------------------------
Table of Contents Page
- ------------------------------------------------------------------------------
The Fund 1
Investment Objective and Policies 1
Other Investment Techniques 6
Factors that Affect the Value of Our Investments 7
Turnover and Portfolio Transactions 8
The Value of Our Shares 8
About Our Yield and Total Return 10
Total Return and Other Quotations 11
Description of Bond Ratings 12
Dividends and Distributions 14
Federal Taxes 15
Additional Redemption Information 17
Trustees and Officers 17
Additional Information Regarding the Management Company 19
Investment Advisory and Other Services 20
Additional Information 23
Voting Rights 23
Shareholder and Trustee Liability 23
Custodian 24
Auditors 24
Legal Counsel 24
Financial Statements 24
<PAGE>
- -------------------------------------------------------------------------------
The Fund
Citizens Investment Trust (the "Fund" or "Citizens Trust") presently
consists of seven separate portfolios: Working Assets Money Market Portfolio
(inception date 8/30/83), Citizens Income Portfolio (inception date 6/10/92),
Citizens Emerging Growth Portfolio (inception date 2/8/94), Citizens Global
Equity Portfolio (inception date 2/8/94), Muir California Tax-Free Income
Portfolio (inception date 6/10/91), Citizens Index Portfolio (inception date
3/3/95), and Efund (inception date 7/1/95). On May 28, 1992 the Fund, which had
operated as a money market fund since 1983, changed its name from Working Assets
Money Fund. On October 5, 1995 the Fund changed its name from Working Assets
Common Holdings to Citizens Investment Trust.
Investment Objective and Policies
The following are fundamental investment policies followed by each of the
current portfolios of the Fund (each a "Portfolio", and collectively, the
"Portfolios") which supplement those listed in the Prospectus. Any policy
identified as a fundamental investment policy of a Portfolio may be amended only
with approval of the holders of a majority of the outstanding shares of that
Portfolio as defined by the Investment Company Act of 1940 (known as the "1940
Act").
1. A Portfolio may not buy the securities of any company if the Portfolio would
then own more than 10% of the total value of all of the company's outstanding
voting securities, or if the Fund as a whole would then own more than 10% of the
total value of all of the company's outstanding voting securities. A Portfolio
may not concentrate its investments by buying the securities of companies in any
one industry if more than 25% of the value of total assets would then be
invested in that industry; however, obligations issued or guaranteed by the U.
S. Government, its agencies and instrumentalities, and obligations of domestic
branches of domestic banks, are not included in this limit.
2. A Portfolio will not invest in limited partnerships, including those which
own commodities, real estate, and oil, gas and mineral leases.
3. A Portfolio may not make loans other than pursuant to repurchase agreements.
When we buy money market instruments or loan participation interests, we are
investing, not making a loan.
4. A Portfolio may not invest for the purpose of exercising control or
management of other companies.
5. A Portfolio may not buy or continue to hold securities if our Trustees,
officers or the Directors or officers of our Adviser own more than certain
limits of these securities. If all of these people who own more than 1/2 of 1%
of the shares of a company together own more than 5% of the company's shares, we
cannot buy, or continue to own, that company's shares.
6. A Portfolio may not participate with others on a joint, or a joint and
several, basis in any trading account in any securities.
7. A Portfolio may not underwrite securities, which means we may not sell
securities for others.
8. A Portfolio can borrow only under special circumstances. We do not normally
borrow money, but for temporary purposes a Portfolio may borrow from banks up to
10% of the Portfolio's total assets. If we borrow, we can pledge our assets up
to the amount borrowed. A Portfolio cannot borrow to purchase securities or to
increase its income, but can borrow to pay for shares being redeemed so that we
do not have to sell securities we do not want to sell. Thus, a Portfolio will
not purchase any securities while the Portfolio has borrowings above 5% of
assets outstanding. The interest paid on our borrowings would reduce our net
income.
1
<PAGE>
9. Subject to the provisions of our Declaration of Trust which provides that we
may issue several classes of shares in any one portfolio, we may not issue
senior securities. We may not issue securities that have priority over others in
dividends, redemption rights, or have other privileges. We must limit our
involvement in "illiquid instruments," that is, repurchase agreements that have
a term of more than seven days, and securities that have restrictions on resale
or lack readily available market quotations, to 10% of the total value of a
Portfolio's net assets and we will buy no such securities for a Portfolio unless
the assets in the Portfolio exceed $10 million at the time of purchase. Private
Placements which may be traded under rule 144A will not be subject to these
limitations, if our Board of Trustees finds that a liquid trading market exists
for these securities. Our Trustees will review on an ongoing basis any
determination by the Adviser to treat a restricted security as a liquid
security, including the Adviser's assessment of current trading activity and the
availability of reliable price information. In determining whether a privately
placed security is properly considered a liquid security, the Adviser and our
Trustees will take into account the following factors: (i) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer); (ii) dealer undertakings to make a market in the security; and (iii)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers. To the extent the Portfolio invests in restricted
securities that are deemed liquid, the general level of illiquidity in the
Portfolio may be increased if qualified institutional buyers become uninterested
in purchasing these securities or the market for these securities contracts.
Acquisitions of such liquid restricted securities will be made from a list
approved by our Trustees.
10. There is a limit on a Portfolios' ability to loan portfolio securities. If a
portfolio loans securities, then it must maintain collateral at 100% of the
value of the securities and any collateral must be marketable on an exchange.
The following are fundamental policies for Working Assets Money Market
Portfolio, Citizens Income Portfolio,and Citizens Index Portfolio and do not
apply to the Citizens Emerging Growth Portfolio.
1. A Portfolio may place only 5% of its total assets in companies which have
been in operation, including operations of predecessors, for less than three
years.
The following is a general policy of all Citizens Trust Portfolios: None of the
Citizens Trust Portfolios will invest in real estate assets or interests
therein, excluding readily marketable securities.
The following discussion elaborates on the description of each Portfolio's
investment objectives and policies as contained in the Prospectus, including any
fundamental investment policies of a Portfolio that supplement the fundamental
policies of the Fund listed above and in the Prospectus.
Working Assets Money Market Portfolio
Working Assets Money Market Portfolio, as a fundamental investment policy of
the Portfolio, may not buy any securities other than money market securities.
Thus, the Portfolio cannot buy any commodities or commodity futures contracts,
any mineral programs or leases, any shares of other investment companies or any
warrants, puts, calls or combinations of these. The Portfolio may not buy real
estate, or real estate loans, but may buy money market securities even though
the issuer invests in real estate or interests in real estate.
The following are also the present policies of Working Assets Money Market
Portfolio, but may be changed by our Trustees without a vote of the shareholders
of the Portfolio:
1. The Portfolio may invest in variable amount master demand notes, which are
obligations that permit us to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between us and the borrower, subject to
the 10% limitation referred to in paragraph 3 below. The interest rates and
amounts involved may change daily. We have the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount; and the borrower
2
<PAGE>
may repay up to the full amount of the note without penalty. Because these types
of notes are direct lending arrangements between us and the borrower, they
generally will not be traded and there is no active secondary market for these
notes. However, they are redeemable on demand, and thus immediately repayable by
the borrower, at face value plus accrued interest at any time. Our right to
redeem is dependent on the borrower's ability to pay principal and interest on
demand. Accordingly, our Adviser will consider and continuously monitor the
earning power, cash flow and other liquidity ratios of the borrower to assess
its ability to meet its obligations on demand. We will invest in these notes
only if the Board of Trustees or its designee determines that they present
minimal credit risks and are of comparable quality to commercial paper having
the highest rating of Moody's Investors Service or Standard & Poor's
Corporation.
2. The Portfolio may not invest more than 10% of its assets in time deposits
maturing in more than two business days but less than seven business days.
3. The Portfolio will not enter into a repurchase agreement if it would cause
more than 10% of its assets to be subject to repurchase agreements having a
maturity of more than seven days; included in this 10% limitation would be any
illiquid securities (as described below). See OTHER INVESTMENT TECHNIQUES Money
Market Instruments and Repurchase Agreements.
4. The Portfolio will not invest more than 10% of its net assets in illiquid
securities. Generally an illiquid security is any security that cannot be
disposed of promptly and in the ordinary course of business at approximately the
amount at which the Portfolio has valued the instrument. Subject to this
limitation, our Trustees have authorized the Portfolio to invest in restricted
securities, specifically privately placed commercial paper, where such
investment is consistent with the Portfolio's investment objective, and has
authorized such securities to be considered to be liquid to the extent the
Adviser determines that there is a liquid institutional or other daily market
for such securities. For example, restricted securities which may be freely
transferred among qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended, and for which a liquid institutional market
has developed may be considered to be liquid securities. See the discussion
relating to the purchase of illiquid securities in the section on the
fundamental investment policies of the Portfolios under Investment Objective and
Policies above.
The Portfolio may not sell short or buy on margin and may not write put or
call options.
Portfolio Quality and Required Maturities
Because the Working Assets Money Market Portfolio uses the amortized cost
method of valuation (see "The Value of Our Shares"), the Portfolio will not
purchase any instruments with a remaining maturity of more than 397 days (13
months), except for certain exceptions permitted by rules under the 1940 Act.
Obligations of U.S. Government agencies and instrumentalities which have a
variable rate of interest which is adjusted no less frequently than every 762
days are considered to have a maturity equal to the period remaining until the
next adjustment date. A variable rate instrument which permits us to demand
payment of the principal amount of the instrument at any time or at specified
intervals of no more than 397 days (13 months), on no more than thirty days'
notice, is deemed to have a maturity of the longer of the period remaining until
the interest rate is adjusted or the period remaining until the principal amount
will be paid to us on demand. A variable rate instrument maturing in 397 days
(13 months) or less is deemed to have a maturity equal to the period remaining
until the next interest adjustment date. A floating rate instrument with a
demand feature, and which has its interest rate pegged to an identified market
interest rate, is deemed to have a maturity equal to the period of time
remaining until the principal amount will be paid to us on demand, provided that
our Trustees determine that the floating rate feature insures that the market
value of the instrument will always approximate par value and that the
instrument is of high quality. Our Trustees will review our holdings of variable
rate instruments quarterly to assure themselves that these instruments continue
to be of high quality. A repurchase agreement is considered to have a maturity
equal to the period remaining until the delivery date on resale. An instrument
called for redemption is considered as maturing on the date on which the
redemption payment must be made. The Money Market Portfolio will maintain a
dollar-weighted average portfolio maturity that does not exceed 90 days.
3
<PAGE>
The Money Market Portfolio intends to comply with Rule 2a7 under the 1940
Act. Under that Rule, the Portfolio may not invest more than 5% of its total
assets in the securities of any one issuer, except for U. S. Government agency
securities. In addition, we may only invest in securities which are rated within
the top two rating categories (or, if unrated, deemed by our Adviser to be of
equivalent credit quality). We may not invest more than 5% of the Money Market
Portfolio's assets in securities which are not rated in the highest rating
category by at least two nationally recognized statistical rating organizations
(for single-rated securities, one rating organization will suffice; for unrated
securities, our Adviser may rely on its own credit equivalency assessment based
upon procedures approved by our Trustees). If we do invest in securities which
are not rated in (or, if unrated, not deemed equivalent to) the highest rating
category, we will limit such investments so that no more than 1% of the total
assets of the Money Market Portfolio is invested in securities of any one issuer
rated below the highest category. In addition, pursuant to our own credit
procedures, we will not invest in any unrated security or in any security rated
by only one rating organization unless such security is on a list approved by
our Trustees.
Although Rule 2a-7 allows that 5% may be invested in second tier securities,
the Money Market Portfolio's policy is to invest, 100%, in first tier securities
only.
Citizens Income Portfolio
The objective of Citizens Income Portfolio is to provide as high a level of
current income as we believe to be consistent with prudent investment risk. We
invest in bonds and other debt securities which meet our financial and social
criteria. We intend to purchase primarily intermediate and long term securities
and to maintain a weighted average maturity of 5 - 15 years. However, at times,
we may have a longer or shorter weighted average maturity if we believe it will
help us meet our investment objective.
We plan to invest at least 65% of the value of the Citizens Income
Portfolio's assets in debt securities that are rated BBB or better by a
nationally recognized rating service such as Standard & Poor's Corporation or
Moody's Investors Service, Inc.; unrated securities which we believe are
comparable in credit quality to securities rated BBB or better as described
above; obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities; mortgages and other asset backed securities;
other debt securities or cash and cash equivalents. Up to 35% of the Income
Portfolio's total assets may be invested in debt securities which do not have
the investment characteristics described above. Such debt securities could
include convertible debt securities, convertible preferred and preferred stocks,
or other securities.
In pursuit of our investment objective we will sometimes purchase
securities that have warrants attached to them. These warrants are typically
held on our books at a zero value, as the value of the warrants can only be
realized upon their exercise. From time to time, we will also purchase options
to buy or sell securities in the future at values determined by the performance
of financial bench marks or indexes. The use of options can add risk to the
Portfolio because the portfolio manager may determine that exercise of the
option will not benefit the Portfolio and therefore, the amount invested to
acquire the option will be lost. We may also purchase "structured securities,"
such as interest only strips or similar vehicles where one or more of the rights
within the underlying securities has been traded through the financial markets
for a different right or series of rights. The risk associated with
"interest-only strips" is that the security may prepay or default and our
ability to collect interest payments will end.
The Citizens Income Portfolio is authorized to purchase the securities
described above from both United States and non-U.S. issuers. (See OTHER
INVESTMENT TECHNIQUES -Foreign Securities.)
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Citizens Emerging Growth Portfolio
The objective of the Citizens Emerging Growth Portfolio is aggressive
growth through investment in small and medium sized companies. Up to 100% of
this portfolio's assets will be invested in companies in the common and
preferred stock of companies with capitalization in the range of $75 million to
$4 billion. While many of these companies will have already demonstrated their
strength, some will be still unseasoned, and therefore may have some speculative
characteristics.
The net asset value of this Portfolio is subject to significant
fluctuation. Smaller companies have the potential for a much higher reward, as
well as significantly more risk. To moderate this risk we plan to typically hold
between 30-50 companies in the Portfolio, under normal conditions.
At times we will also buy short term fixed income securities for the
Citizens Emerging Growth Portfolio. Since most of the companies we will purchase
are relatively new, we expect dividend income to be negligible to accomplishing
the Portfolios objective.
Citizens Global Equity Portfolio
The objective of the Citizens Global Equity Portfolio is capital
appreciation by investing in both foreign and United States markets. Investing
in foreign companies and on international exchanges may entail greater risk than
investing solely in the United States. (See Other Investment Techniques, Foreign
Securities)
In the Citizens Global Equity Portfolio we buy primarily common stocks of
U.S. domestic and foreign companies. From time to time, we may also buy other
securities such as convertible or preferred stocks and short term debt
securities. We plan to allocate over half our assets to foreign markets in most
circumstances in a minimum of three countries.
To moderate these risks as well as gain potential benefits we use a number
of investment techniques. The first of these is country selection. We restrict
our investments in emerging nations (those not included in Morgan Stanley's
World Index) to no more than 25% of the assets of Citizens Global Equity
Portfolio.
When we invest on foreign exchanges we buy securities in the currency of
the local country. Often the local currency will fluctuate vs. the dollar. To
moderate this risk we engage in currency "hedging" when we feel it is
appropriate to protect the value of our portfolio. We do this by entering into
arrangements to buy or sell a particular currency, security, or securities index
for a stated value at a given point in time. While there is a cost involved in
hedging, we believe it allows us to moderate the risk of currency exchange.
Citizens Index Portfolio
The objective of the Citizens Index Portfolio is capital appreciation by
investing in a specially designed index of 300 socially responsible companies.
The Citizens Index Portfolio invests primarily in a market weighted index of
companies included in the S&P 500 that have passed Working Assets social screens
in addition to companies that are not part of the S&P 500 but which pass our
social and financial screens. Companies outside the S&P 500 are used in the
Index Portfolio to add industry diversity and other financial characteristics
that we believe will enable the Portfolio to track the returns of the S&P 500 as
a whole.
Securities will be purchased in a proportion equal to the weight of each
company to the total index. At times we will also buy short term fixed income
securities for the Citizens Index Portfolio. Under normal circumstances these
short term investments will amount to no more than 5% of the Portfolios. Our
investment results will usually lag the performance of the underlying index due
to short term cash investments and the deduction of portfolio expenses and
transaction costs.
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Other Investment Techniques
Money Market Instruments and Repurchase Agreements
During periods of unusual market conditions, or for liquidity purposes or
pending the investment of the proceeds of the sale of its shares, we may invest
all or a portion of assets of the Citizens Income Portfolio, Citizens Emerging
Growth Portfolio, Citizens Global Equity Portfolio, and Citizens Index Portfolio
in money market instruments, including: obligations of agencies and
instrumentalities of the U. S. Government; certificates of deposit of banks; and
commercial paper or other corporate notes of investment grade quality.
Options Transactions
Each Portfolio may from time to time buy and write (sell) call and put
options on securities, security indices, and foreign currencies that are traded
on recognized securities exchanges and over-the-counter markets. A call option
gives the holder (buyer) the right to purchase a security or currency at a
specified price (the exercise price) at any time until or on a certain date (the
expiration date). A put option gives the purchaser of the option the right to
sell, and the writer (seller) the obligation to buy, the underlying security or
currency at the exercise price at any time until or on the expiration date. The
premium that a Portfolio receives for buying or writing a call or put option is
deemed to constitute the market value of an option. Aggregate premiums paid for
put and call options will not exceed 5% of the Portfolio's total assets at the
time of each purchase. The premium that a Portfolio will receive from writing a
call option will reflect, among other things, the current market price of the
underlying investment, the relationship of the exercise price to such market
price, the historical price volatility of the underlying investment, and the
length of the option period. These instruments are often referred to as
"derivatives" which may be defined as financial instruments whose performance is
derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). The Portfolios may use these
techniques to hedge against changes in interest rates, foreign currency exchange
rates, changes in securities prices or other factors affecting the value of
their investments, or as part of their overall investment strategies. Each
Portfolio will maintain segregated accounts consisting of liquid assets (or, as
permitted by applicable regulations, enter into certain offsetting positions to
cover its obligations under derivatives transactions) to avoid "leveraging" the
Portfolio.
Risks in the use of these derivative securities depends on the Advisers
ability to predict correctly the direction of interest rates, securities prices
or other factors. Risks include: the risk that interest rates, securities
prices, or other factors do not move in the directions being hedged against, in
which case the Fund will have incurred the cost of the derivative (either its
purchase price or, by writing an option, losing the opportunity to profit from
increases in the value of the securities covered) with no tangible benefits. b)
an imperfect correlation between the price of derivatives and the movements of
the securities prices, interest rates or currency exchange rates being hedged;
c) the possible absence of a liquid secondary market for any particular
derivative at any time; d) the potential loss if the counterparty to the
transaction does not perform as promised; and e) the possible need to defer
closing out certain positions to avoid adverse tax consequences.
Foreign Securities
Each of the Portfolios may invest in foreign securities which meet our
social and financial criteria. As discussed in the Prospectus, investing in
foreign securities generally presents a greater degree of risk than investing in
domestic securities due to possible exchange rate fluctuations, less publicly
available information, more volatile markets, less securities regulation, less
favorable tax provisions, war or expropriation. As a result of its investments
in foreign securities, a Portfolio may receive interest or dividend payments, or
the proceeds of the sale or redemption of such securities, in the foreign
currencies in which such securities are denominated. Under certain
circumstances, such as where we believe that the applicable exchange rate is
unfavorable at the time the currencies are received or we anticipate, for any
other reason, that the exchange
6
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rate will improve, a Portfolio may hold such currencies for an indefinite period
of time. A Portfolio may also hold foreign currency in anticipation of
purchasing foreign securities. While the holding of currencies will permit the
Portfolio to take advantage of favorable movements in the applicable exchange
rate, such strategy also exposes the Portfolio to risk of loss if exchange rates
move in a direction adverse to the Portfolio's position. Such losses could
reduce any profits or increase any losses sustained by the Portfolio from the
sale or redemption of securities and could reduce the dollar value of interest
or dividend payments received.
When-Issued Securities
Each Portfolio, other than the Working Assets Money Market Portfolio, may
purchase securities on a "when-issued" or on a "forward delivery" basis. It is
expected that, in many cases, a Portfolio purchasing securities on a when-issued
basis, will take delivery of such securities. When a Portfolio commits to
purchase a security on a when-issued or on a forward delivery basis, it will set
up procedures consistent with current policies of the Securities and Exchange
Commission concerning such purchases. Since that policy currently recommends
that an amount of a fund's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, we intend that a
Portfolio will always have cash, short term money market instruments or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, although we do not intend to make such purchases for
speculative purposes and we intend to adhere to current regulatory policies with
respect to such purchases, purchases of securities on such bases may involve
more risk than other types of purchases. For example, we may have to sell assets
which have been set aside to cover our commitments in order to meet redemptions.
Also, if we were to determine that it is necessary to sell the when- issued or
forward delivery securities before delivery to a Portfolio, the Portfolio may
incur a loss because of market fluctuations since the time the commitment to
purchase such securities was made. When the time comes to pay for when-issued or
forward delivery securities, a Portfolio will meet its obligations from the
then-available cash flow on 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).
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Factors That Affect the Value of Our Investment
Money Market Instruments and Fixed Income Securities: The value of the
fixed income securities in which we invest will fluctuate depending in large
part on changes in prevailing interest rates. Fixed income securities comprise
all assets in the Working Assets Money Market Portfolio and Citizens Income
Portfolio and a portion of assets in the Citizens Emerging Growth Portfolio and
Citizens Global Equity Portfolio under normal conditions. If these rates go up
after we buy a security, its value may go down. On the other hand, if the rates
go down, the security's value may go up. Changes in value and yield based on
changes in interest rate may have different effects on short-term obligations
than on long-term obligations. Long-term obligations, which often have higher
yields, may fluctuate in value more than short-term ones. We do not expect
changes in interest rates to significantly affect the value of our shares in the
Working Assets Money Market Portfolio, since we use the amortized cost method,
which is described in the section "The Value of Our Shares." However, changes in
interest rates can have a significant effect on the value of non-money market
fixed income securities.
The value of equity securities held in the Citizens Emerging Growth,
Global Equity, and Index Portfolios will fluctuate based upon market conditions
and issues specific to the issuer. These include changes in the management and
fundamental financial condition of the issuing company, prevailing economic and
competitive conditions in the industry sectors in which the company does
business and other factors which affect individual securities and the equity
market as a whole.
7
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Turnover and Portfolio Transactions
In Working Assets Money Market Portfolio, we generally purchase investments
and hold them until they mature. Historically, securities of U.S. Government
agencies or instrumentalities have involved minimal risk when they have been
held by investors to maturity. However, we may from time to time sell securities
and purchase others to attempt to take advantage of short-term market
variations. We may also sell securities prior to maturity to meet redemptions or
as a result of a revised evaluation of the issuer by our Adviser.
For the Citizens Income Portfolio we purchase fixed income securities,
and for Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio,
and the Citizens Index Portfolio, we may purchase both equity and fixed income
securities and hold them until such time as we believe it is advisable to sell
them in order to realize a gain or loss whereupon we reinvest these assets in
other securities.
The Citizens Index Portfolio seeks to have a turnover of less than 25% per year.
Our Adviser seeks to obtain for us the best net price and the most
favorable execution of orders. Purchases are made from issuers, underwriters,
dealers or brokers, and banks who specialize in the types of securities we buy.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriters. Purchases from dealers include the spread between
the bid and asked prices and purchase from brokers include commissions paid to
the broker based upon the transaction size. If the execution and price offered
by more than one dealer are comparable, the order may be given to a dealer who
has provided research advice, quotations on portfolio securities or other
services. Our Advisor will comply with rule 17e-1 in regards to brokerage
transactions with affiliates, to assure that commissions will be fair and
reasonable to the shareholders.
Our Advisor may allocate transactions to broker/dealers in exchange for
services. By allocating transactions to obtain services, the Adviser is able to
supplement its own efforts. While it is not possible to place a dollar value on
these services, it is the opinion of the Adviser that the receipt of these
services does not materially reduce the Adviser's overall expenses. These
services may or may not be useful to us or to our Adviser and its affiliates
which engage in securities activities. For the fiscal years ended June 30, 1993,
1994, and 1995, all portfolio purchases, as described above, were made directly
from issuers or from dealers, and we paid commissions in aggregate as follows:
1993-$79,300, 1994-$329,000 1995-$250,000, and 1996-$171,957.
Our Adviser also may enter into "soft dollar" arrangements with
broker/dealers. A soft dollar arrangement is one in which the brokerage
commissions generated through trading are used to purchase ancillary products
and services relating to social and investment research.
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The Value of Our Shares
The value of our shares is expressed as net asset value. The net asset
value per share is computed by subtracting total liabilities from total assets
and dividing that number by the total number of our outstanding shares. All
expenses are accrued daily and taken into account in determining net asset
value.
We attempt to keep the net asset value of our Money Market Portfolio fixed
at $1.00 per share, while we expect the net asset value per share in our other
Portfolios to fluctuate.
The value of our shares is determined at 4:00 p.m. Eastern Time on each day
on which the New York Stock Exchange is open for regular trading and at such
other times as we feel may be necessary or appropriate.
8
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Working Assets Money Market Portfolio
Our Trustees have determined that it is appropriate for us to value our
Money Market Portfolio using the amortized cost method and that this method
represents the fair value of the Portfolio's shares. This method values a
security at the time of its purchase at cost and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the security. This method does
not take into account unrealized gains and losses.
While the amortized cost method provides certainty in valuation, there may
be periods during which value, as determined by the amortized cost method, is
higher or lower than the price we would receive if we sold the instrument.
During periods of declining interest rates, the daily yield on our shares may
tend to be higher than a like computation made by a fund with identical
investments which uses a method of valuation based on market prices and which
reflects capital changes in its dividends. Thus, if the use of amortized cost by
us resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in our shares would be able to obtain a somewhat higher
yield from us than he would from investment in the other fund, and existing
investors in our shares would receive less investment income. The converse would
apply in a period of rising interest rates.
To use the amortized cost method, our Board of Trustees must establish
procedures designed to stabilize the net asset value of the Money Market
Portfolio at $1.00 per share, to the extent reasonably possible. These
procedures must include review of the portfolio by the Board at intervals it
deems appropriate and reasonable in the light of market conditions to determine
how much the net asset value using available market quotations deviates from the
net asset value based on amortized cost. For this purpose, when market
quotations are available, securities are valued at bid price. If market
quotations are not available, investments are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of our Board of Trustees, including being valued
at prices based on market quotations for investments of similar type, yield and
maturity.
Under the procedures which our Trustees have adopted in connection with
valuation of our securities at amortized cost, our dividend policy will change
under certain circumstances. If on any day there is a deviation of more than
3/10th of 1% between the net asset value of a share computed on the amortized
cost basis and that computed on an available market price basis, the amount of
the deviation in excess of $0.003 will be added to or subtracted from the
dividend for that day in order to reduce the deviation to within $0.003. If on
any day the dividend is not large enough to absorb any such reduction and the
deviation is more than $0.005, our Board will be required, under a rule of the
Securities and Exchange Commission, to consider taking other action. Such action
could include the sale of portfolio securities, reducing or eliminating
dividends or establishing a net asset value per share based on market
quotations.
To use the amortized cost method, we must also limit our portfolio
investments, including repurchase agreements, to those U.S. dollar denominated
instruments which our Board of Trustees determines present minimal credit risks
and which are of "high quality", e.g., portfolio investments rated in one of the
top two rating categories by at least two rating organizations or, if not rated
or created by only one rating agency, are of comparable quality in the judgment
of our Advisor and Trustees. A rated instrument that is subject to some external
agreement (such as a bank letter of credit), which agreement was not considered
in rating the instrument, is considered unrated and the Board of Trustees and
our Adviser will determine whether the external agreement makes the instrument
of comparable quality.
Citizens Income Portfolio, Citizens Emerging Growth Portfolio, Citizens Global
Equity Portfolio, and the Citizens Index Portfolio.
As described in the Prospectus, the Citizens Income Portfolio, Citizens
Emerging Growth Portfolio, Citizens Global Equity Portfolio, and the Citizens
Index Portfolio are generally valued on the basis of market values. Equity
securities, if any, in a Portfolio are valued at the last sales 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
9
<PAGE>
for listed securities in which there were no sales during the day or for
unlisted securities not reported on the NASDAQ system. Debt securities are
generally valued at their most recent closing sale prices, or, if there is no
closing sale price, at the bid price, in the principal market in which such
securities are normally traded. Fixed income securities maturing within 60 days
are normally valued at cost, plus or minus any amortized discount or premium.
Securities and other assets for which market quotations are not readily
available (including restricted securities, if any) are appraised at their fair
value as determined in good faith under consistently applied procedures under
the general supervision of the Fund's Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer supplied valuations and evaluation based
upon expert analysis of market data or other factors if such valuations are
believed to reflect more accurately the fair value of such securities.
Use of a pricing service has been approved by the Fund's Board of Trustees.
There are a number of pricing services available, and the Trustees and Officers
of the Fund acting on behalf of the Trustees, may use or discontinue the use of
any pricing service now, or in the future, employed.
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Information About Our Yield and Total Return
We report the investment performance of the Fund's Portfolios in several
ways. All performance reported in advertisements is historical and not intended
to indicate future returns.
Yield
From time to time the "yield" and "compounded effective yield" of the
Portfolios may be published in advertisements and sales material. For the
Working Assets Money Market Portfolio, the yield is usually quoted for a seven
day period. For the seven-day period ended June 30, 1996 for the Working Assets
Money Portfolio, our average seven-day yield was 4.02% and our compounded
effective yield was 4.10%. For the Citizens Income Portfolio we usually report
for a 30 day period. For the 30 days ended June 30, 1996 for the Citizens Income
Portfolio, our average 30 day yield was 6.42%.
The current yield of the Money Market Portfolio for a specific period of
time is calculated based on a hypothetical account containing exactly one share
at the beginning of the period. The net change in the value of the account
during the period is determined by subtracting this beginning value from the
value of the account at the end of the period including a hypothetical charge
reflecting deductions from shareholder accounts. Capital changes (i.e., realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation) are excluded from the calculation. Because the change will not
reflect any capital changes, the dividends used in the yield computation may not
be the same as the dividends actually declared. The dividends used in the yield
calculation will be those which would have been declared if there had been no
capital changes included in our actual dividends. The net change in the account
value is then divided by the value of the account at the beginning of the period
and the resulting figure is called the "base period return." The base period
return is then multiplied by (365/7) for a seven day effective yield with the
resulting yield figure carried to the nearest hundredth of one percent.
The "compounded effective yield" for the Money Market Portfolio is
determined by annualizing the base period return and assuming that dividends
earned are reinvested daily. Compounded effective yield is calculated by adding
1 to the base period return (which is derived in the same manner as discussed
above) raising the sum to a power equal to 365 divided by 7 and subtracting 1
from the result.
Compounded effective yield information is useful to investors in reviewing
the performance of our Money Market Portfolio since the yield is calculated on
the same basis as those of other money market funds. However, you should take a
number of factors into account in using our yield information as a basis for
comparison with other investments.
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Since our Portfolio is invested in short-term money market instruments, our
yield will fluctuate with money market rates. Therefore, the compounded
effective yield is not an indication of future yields. Other investment
alternatives such as savings certificates provide a fixed yield if held full
term, but there may be penalties if redeemed before maturity, whereas there is
no penalty for withdrawal at any time in the case of our Portfolios.
The yield quotation for the Citizens Income Portfolio is based on the
annualized net investment income per share of the Portfolio over a 30 day
period. The yield is calculated by dividing the net investment income per share
of the Portfolio earned during the period by the public offering price per share
of the Portfolio on the last day of that period. The resulting figure is then
annualized. Net investment income per share is determined by dividing (i) the
dividends and interest earned by the Portfolio during the period, minus accrued
expenses for the period, by (ii) the average number of the Portfolio's shares
entitled to receive dividends during the period multiplied by the public
offering price per share on the last day of the period. Income is calculated for
the purposes of yield calculations in accordance with standardized methods
applicable to all stock and bond funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses are generally excluded from the
calculation as these are reflected in the portfolio's net asset value per share.
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Total Return and Other Quotations
We also can express the investment results in terms of "total return." We
do this for the Citizens Income Portfolio, Citizens Emerging Growth Portfolio,
Citizens Global Equity Portfolio, and the Citizens Index Portfolio to take
account of fluctuations in share value in addition to income from interest and
dividends. Total return refers to the total change in value of an investment in
the Portfolio over a specified period, while the yield calculation only reflects
the income component. We compute total return by taking the total number of
shares purchased by a hypothetical $1,000 investment after deducting any
applicable sales charge, adding all additional shares purchased within the
period with reinvested dividends and distributions, calculating the value of
these shares at the end of the period, and dividing the result by the initial
$1,000 investment. For periods of more than one year, we adjust the cumulative
total return to calculate average annual total return during that period.
When we quote each Portfolio's yield or total return we are referring to
its past results and not predicting our future performance. We quote total
return for the most recent one year period as well as average annual total
return for the most recent five- and ten-year periods, or from the time when we
first offered shares, whichever is shorter. Sometimes we advertise our actual
return quotations for annual or quarterly periods or quote cumulative return for
various periods. When we do this, we also always present the standardized total
return quotations at the same time.
When we quote our investment results we sometimes will compare them to
unmanaged market indices such as the Dow Jones Industrial Average and the
Standard & Poor's 500, and other data and rankings from recognized independent
publishers, sources such as Donoghue's Money Fund Report, Bank Rate Monitor,
Money Magazine, Forbes Magazine, Lipper Analytical Services and others.
11
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For the fiscal year ended 1996 the Fund's Portfolio's had the following
performance:
1 Year Since Hypothetical Investment
Total Inception return of $1,000 for the
Portfolio Return Total Return 1 year period ending 6/30/96
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Citizens Income
Portfolio 5.48% 6.54% $1054.80
Citizens Emerging
Growth Portfolio 42.53% 26.19% $1425.30
Citizens Global
Equity Portfolio 12.64% 8.36% $1126.40
Citizens
Index Portfolio 23.79% 25.58% $1237.90
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Description of Bond Ratings
We use the ratings provided by national rating services as one of several
indicators of the investment quality of fixed income securities. The following
is a description of the ratings of the two services we use most frequently. When
considering any rating, it is important to remember that the ratings of Moody's
Investors Service, Inc. and Standard & Poor's Corporation represent their
opinions as to the quality of various debt instruments. It should be emphasized,
however, that ratings are not absolute standards of quality. Consequently, debt
instruments with the same maturity, coupon and rating may have different yields
while debt instruments to the same maturity and coupon with different ratings
may have the same yield.
Moody's Investors Services, Inc.
"Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa granted they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A posses many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. Baa: Bonds which
are rated Baa are considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
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Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
Absence of Rating
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications. Suspension or withdrawal may occur if new and
material circumstances arise, the effects of which preclude satisfactory
analysis; if there is no longer available reasonable up-to-date data to
permit a judgment to be formed; if a bond is called for redemption; or for
other reasons.
Standard & Poor's Corporation
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
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<PAGE>
BB, B, CCC, CC and C: Debt rated BB, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures for adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major on-going uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category also used for debt subordinated to senior debt that is assigned
as actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but has the capacity to
meet interest payments and principal repayments. Adverse business, financial or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBb or BB rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that it assigned an actual or implied
B or B rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
NR: indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy."
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Dividends and Distributions
Working Assets Money Market Portfolio
As described in the Prospectus, net income is determined and accrued daily
and paid monthly. This dividend is payable to everyone who was a shareholder at
4:00 p.m. Eastern time on the day the dividend is declared. Accordingly, when
shares are purchased dividends begin to accrue on the day the Transfer Agent
receives payment for the shares, provided that the payment is received by 4:00
p.m. Eastern time. When shares are redeemed, the shares are entitled to the
dividend declared on the day the redemption request is received by the Transfer
Agent, provided that the request is received after 4:00 p.m. Eastern time.
Dividends are automatically reinvested in shares, at net asset value, unless a
shareholder otherwise instructs the Transfer Agent in writing. Shareholders so
requesting will be mailed checks in the amount of the accumulated dividends. For
the purpose of calculating dividends, our daily net investment income consists
of: (a) all interest income accrued on investments (including any discount or
premium ratably amortized to the date of maturity or determined in such other
manner as the Trustees may determine); and (b) minus all liabilities accrued,
including
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<PAGE>
interest, taxes and other expense items, amounts determined and declared as
dividends or distributions and reserves for contingent or undetermined
liabilities, all determined in accordance with generally accepted accounting
principles; and (c) plus or minus all realized and unrealized gains or losses on
investments.
Citizens Income Portfolio
The Citizens Income Portfolio distributes to its shareholders monthly
dividends substantially equal to all of its net investment income. The
Portfolio's net investment income consists of non-capital gain income less
expenses. Net realized short-term capital gains, if any, and net realized
long-term capital gains, if any, will be distributed by the Portfolio at least
annually. Dividends and capital gains distributions are automatically reinvested
at net asset value in additional shares, unless a shareholder elects cash
distributions. Cash distributions will be paid at the close of the appropriate
monthly or annual period.
Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio, and the
Citizens Index Portfolio
The Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio,
and the Citizens Index Portfolio normally declare and pay dividends
substantially equal to all net investment income annually. Net investment income
consists of non-capital gain income less expenses. Net realized short-term
capital gains, if any, and net realized long-term capital gains, if any, will be
distributed by the Portfolios at least annually. Dividends and capital gains
distributions are automatically reinvested at net asset value in additional
shares, unless a shareholder elects cash distributions. Cash distributions will
be paid annually.
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Federal Taxes
Status as a "Regulated Investment Company." Each of the Portfolios intends
to qualify as a "Regulated Investment Company" under Subchapter M of the
Internal Revenue Code. We plan to continue this election in the future for all
Portfolios of the Fund.
To qualify for the tax treatment afforded a "regulated investment company"
under the Internal Revenue Code, a Portfolio must annually distribute at least
90% of its net investment income and net short-term capital gains and meet
certain requirements with respect to sources of income, diversification of
assets, and distributions to shareholders. If a Portfolio elects and qualifies
for such tax treatment, the Portfolio will not be subject to federal income tax
with respect to amounts distributed. Under current law, in order to qualify, a
Portfolio must (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, and income from certain other sources;
(b) derive less than 30% of its gross income from the sale or other disposition
of stock, or securities and certain other investment held less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, U.S. Government securities, and other securities, limited,
in respect of any one issuer, to an amount not greater than 5% of the fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. Government securities). Options that are held by a
Portfolio at the end of its taxable year are subject to section 1256 of the Code
and will be deemed to have been sold at market value for federal income tax
purposes. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net gain or loss realized from any actual sales of Section
1256 Contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss.
A Portfolio that qualifies as a "qualified investment company," may
nonetheless be subject to certain federal excise taxes unless the Portfolio
meets certain additional distribution requirements. Under the Internal Revenue
Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated
investment company's "required distribution" for the calendar year ending within
the regulated investment company's taxable year over the "distributed amount"
for such calendar year. The term "required distribution" means the sum of (i)
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<PAGE>
98% of ordinary income (generally net investment income) for the calendar year,
(ii) 98% of capital gain net income (both long-term and short-term) for the
one-year period ending on October 31 (as though the one-year period ending on
October 31 were the regulated investment company's taxable year), and (iii) the
excess, if any, of the sum of the taxable income of the regulated investment
company for the previous calendar year plus all amounts from previous years that
were not distributed over the amount actually distributed for such preceding
calendar year. The term "distributed amount" generally means the sum of (i)
amounts actually distributed by a Portfolio from the Portfolio's current year's
ordinary income and capital gain net income and (ii) any amount on which the
Portfolio pays income tax for the year. We intend to meet these distribution
requirements, to avoid the excise tax liability, with respect to each of the
Portfolios. As long as a Portfolio maintains its status as a regulated
investment company and distribute all of its income, the Portfolio will not be
subject to any Massachusetts or California income or excise tax.
Distributions of Net Investment Income
Dividends derived from net investment income and any excess of net
short-term capital gains over net long-term capital losses will be taxable to
shareholders as ordinary income. For each of the Portfolios other than the
Working Assets Money Market Portfolio and the Citizens Income Portfolio, a
portion of these ordinary income dividends is normally eligible for the
dividends received deduction for corporations if the recipient otherwise
qualified for that deduction with respect to its holding of a Portfolio's
shares. Availability of the deduction to particular corporate shareholders is
subject to certain limitations and deductible amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Since the
investment income of the Working Assets Money Market Portfolio and the Citizens
Income Portfolio is derived from interest rather than dividends, no portion of
the dividends received from these Portfolios will be eligible for the dividends
received deduction. Moreover, to the extent that a Portfolio derives investment
income from sources within foreign countries, such Portfolio's dividends and
distributions will not qualify for such deduction.
Shareholders will be taxed for federal income tax purposes on dividends in
the same manner whether such dividends are received as shares or in cash.
Distributions from the Portfolios will also be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
Any dividend or distribution (except for dividends of net investment income
declared by the Money Market Portfolio) will have the effect of reducing the per
share net asset value of shares in a Portfolio by the amount of the dividend or
distribution. Shareholders purchasing shares in any of the Portfolios shortly
before the record date of any taxable dividend or other distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
Any loss realized upon a redemption of the shares in a Portfolio held for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gain made with respect to those shares. Any
loss realized upon redemption of shares may also be disallowed under the rules
relating to wash sales.
Special tax considerations apply with respect to foreign investments of
those Portfolios which permit such investments. For example, foreign exchange
gains and losses realized by a Portfolio generally will be treated as ordinary
income or losses. In addition, investment income received by a Portfolio from
sources within foreign countries may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle a Portfolio to a reduced rate of tax or an exemption
from tax on such income.
Non-U.S. Shareholders
Distributions of net investment income to non-resident aliens and foreign
corporations will be subject to U.S. tax. For shareholders who are not engaged
in a trade or business in the U.S. to which the distribution is effectively
connected, this tax is withheld at the rate of 30% upon the gross amount of the
distribution in the absence of a Tax Treaty providing for a reduced rate or
exemption from U.S. taxation. However, if the
16
<PAGE>
distribution is effectively connected with the conduct of the shareholder's
trade or business within the United States, the distribution will be included in
the net income of the shareholder and subject to U.S. income tax at the
applicable marginal rate.
The foregoing is limited to a discussion of federal taxation. It should not
be viewed as a comprehensive discussion of the items referred to nor as covering
all provisions relevant to investors. Dividends and distributions may also be
subject to state or local taxes. Shareholders should consult their own tax
advisers for additional details on their particular tax status.
After the end of each calendar year, each shareholder receives information
for tax purposes on the dividends and distributions for that year, including any
portion taxable as ordinary income, any portion taxable as capital gains, any
portion representing a return of capital, any amount of dividends eligible for
the dividends-received deduction for corporations.
===============================================================================
Additional Redemption Information
The redemption information below supplements the information contained in
the Prospectus. We pay redemption proceeds within five business days after we
receive a proper redemption request. Our obligation to pay for redemptions can
be suspended when the New York Stock Exchange is closed other than for weekends
or holidays or under certain emergency conditions determined by the Securities
and Exchange Commission. The holidays on which the New York Stock Exchange is
closed currently are: New Year's Day, President's Day (observed), Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas. We pay redemption proceeds in cash, except that our Board of Trustees
has the power to decide that conditions exist which would make cash payments
undesirable. In that case, we could send redemption payments in securities from
our portfolio, valued in the same method as we used to determine our net asset
value. There might then be brokerage or other costs to the shareholder in
selling these securities. We have elected to be governed by Rule 18f-1 under the
Investment Company Act, which requires us to redeem shares solely in cash up to
the lesser of $250,000 or 1% of our total net assets during any 90 day period
for any one shareholder. Your redemption proceeds may be more or less than your
cost, depending on the value or our shares.
If any of the shares being redeemed were recently purchased by check or
electronic funds transfer, we may delay sending the redemption proceeds for up
to ten business days while we determine whether the check or electronic funds
transfer used to purchase the shares has been honored by the bank on which it
was drawn or made. You can eliminate any possible delay by making your
investment by wire.
We have the right to compel the redemption of shares held in an amount if
the aggregate net asset value of the shares in the account is less than $2,500.
If our Adviser decides to do this, we will advise shareholders who would be
affected to increase the size of their accounts to the $2,500 minimum.
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Trustees and Officers
We have a Board of Trustees which provides broad supervision over our
affairs. Our officers are elected by the Board and are responsible for day to
day operations. The Trustees and officers are listed below, together with their
principal occupations during at least the past five years. (Their titles may
have varied during that period.) The address of each, except where an address is
indicated, is One Harbour Place, Portsmouth, NH 03801.
The Trustees who are "interested persons" as defined in the 1940 Act are
indicated by an asterisk. William D. Glenn, II, Chair of the Board and Trustee,
has been a shareholder of Working Assets since 1983. He is a psychotherapist and
the executive director of Continuum HIV Day Services in San Francisco. He is a
past President of the San Francisco AIDS Foundation and former member of the
Board of Directors of the Gay Rights Chapter of the Northern California American
Civil Liberties Union. From 1981 to 1988, Mr. Glenn
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<PAGE>
was the Assistant Principal and Dean of Students at Mercy High School in San
Francisco. He currently serves on the boards of San Francisco's KQED and the
18th St. Services Chemical Dependency Recovery Center. Address: 915 Las Ovejas,
San Rafael, CA 94903
Sophia Collier*, Trustee, is President and Principal owner of Citizens
Adviser. She also serves in an advisory capacity to Rhumbline Advisers. Please
see the section entitled "Additional Information Regarding The Management
Company" for more information regarding Ms. Collier.
Juliana Eades, Trustee, has served as Executive Director of the $4 million
New Hampshire Community Loan Fund since its inception in 1984. In this capacity
she has been a leading force in the creation of jobs and affordable housing in
New Hampshire. Prior to accepting her position at the Loan Fund, Ms. Eades was
Program Manager at the N.H. Governor's Council on Energy. In other community
activities, Ms. Eades is a member of the Campaign for Rate payers' Rights and
the Society for the Protection of New Hampshire Forests. Address: 79 South State
Street, Concord, New Hampshire 03301.
Lokelani Devone is the assistant general counsel at DFS Group Limited, an
international retail business group where she has worked since 1989. Address:
655 Montgomery St., 18th floor, San Francisco, CA 94111.
Azie Taylor Morton, Trustee, was Treasurer of the United States during the
Carter Administration. From 1984 - 1989, she owned and operated the Stami
Corporation, a franchisee of Wendy's Old Fashioned Hamburgers. Her thirty year
career began as a teacher at the State School for Girls in Crockett, Texas. She
went on to work at the AFLCIO, the White House Conference on Civil Rights and
U.S. Equal Employment Opportunity Commission. She has served as the Commissioner
of the Virginia Department of Labor and Industry as well as Executive Director
of the Human Rights Project, Inc. In 1990 - 92 she was Director of Resource
Coordination at Reading is Fundamental, Inc. She is currently an investment
advisor. Address: 2801 Park Center Drive, Suite A-912, Alexandria, Virginia
22302.
J.D. Nelson*, Trustee, is the founder and C.E.O. of Rhumbline Advisers
Corp., a minority-owned investment firm specializing in the management of
institutional pension assets using indexed and quantitative techniques. Mr.
Nelson was formerly Senior Vice President and Director of Public Funds Services
at State Street Bank and Trust Company in Boston. Prior to his twelve years at
State Street, he was the Administrator of the Democratic National Committee. He
currently serves on the Board of the City of Boston's Economic Development
Industrial Corporation. He is a former Chairman of the Roxbury MultiService
Center (Mass.), a past director of the United Way and has taught at the School
of Banking at Williams College. Address: Rhumbline Advisers, 50 Rowes Wharf,
Boston, Massachusetts 02110.
Ada Sanchez, Trustee, is Director of the Public Service and Social Change
Program at Hampshire College. This program is a multi-disciplinary program
designed to engage students and faculty in community service learning research
and volunteer projects, primarily in low income Latino and African-American
communities. From 1985 - 1987 she was the National Toxic Waste Campaign
Coordinator for Greenpeace USA. Prior to that Ms. Sanchez was involved with a
number of activist organizations including; Western States Field Consultant for
the Disarmament Program for the National Fellowship of Reconciliation,
co-director and founder of Viewpoint Syndicate, lecturer for Progressive
Foundation Speakers Bureau, national coordinator for Supporters of Silkwood and
outreach coordinator for Coalition for Non-Nuclear World. Address:
177 Bridge Street, Northhampton, MA 01060
.
Our Board of Trustees functions with a Nominating Committee comprised of
the whole board, but pursuant to our Distribution Plan (see "Our Distributor")
below, we have agreed that Trustees who are not "interested persons" of the
Fund, as defined in the Investment Company Act of 1940, and who have no direct
or indirect financial interest in the operation of the Distribution Plan or any
agreement relating to the Plan ("Qualified Trustees") shall have primary
responsibility for the selection and nomination of other Qualified Trustees.
This agreement will continue for so long as our Distribution Plan is in effect.
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The following compensation table disclosed the aggregate compensation from
the Registrant for services provided through June 30, 1996. Our Trustees,
officers and members of the Board of Advisors as a group owned less than 1% of
our outstanding shares as of June 30, 1996.
<TABLE>
<CAPTION>
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
==============================================================================================================
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total
Person, Compensa- Retirement Benefits Upon Compensation
Position tion From Benefits Accrued Retirement Paid to Directors
Registrant Registrant As Part of Fund
Expenses
==============================================================================================================
<S> <C> <C> <C> <C>
Azie Taylor Morton $4,000 0 0 $4,000
Aileen Hernandez 1,000 0 0 1,000
Juliana Eades 4,000 0 0 4,000
Jeffrey Mori 2,500 0 0 2,500
William D. Glenn,II 6,500 0 0 6,500
Ada Sanchez 4,000 0 0 2,000
Lokelani Devone 750 0 0 750
Sophia Collier* 0 0 0 0
J.D. Nelson* 0 0 0 0
Wilma Mankiller 1,000 1,000
</TABLE>
* Sophia Collier is an interested trustee and received no compensation from
Citizens Trust. J.D. Nelson did not become an interested trustee until March
1995 and received compensation from the Trust prior to his change in status to
an interested trustee.
The Trustees who are not "interested persons" received aggregate fees from
us of $23,750 for services provided through June 30, 1996 and were also
reimbursed for out of pocket expenses. Our Trustees, officers and members of the
Board of Advisors as a group owned less than 1% of our outstanding shares as of
June 30, 1996.
Other Officers of The Fund
Christine Pratt, Senior Vice-President of Citizens Advisers began working for
Citizens Advisers in June of 1996. Prior to that time Ms. Pratt was employed by
BayBanks, where she headed up the lending and servicing division for BayBanks
Consumer Lending and Mortgage subsidiaries.
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Additional Information Regarding Citizens Adviser
Sophia Collier individually owns 60% of the outstanding stock of Citizens
Advisers, Inc. Ms. Collier is the founder of American Natural Beverage Corp.,
the maker of Soho Natural Soda, a company which Ms. Collier co-founded in her
Brooklyn kitchen when she was 21 years old and built up over the next 12 years
to an enterprise with 52 employees and retail sales of $25 million. Soho Soda
was the first natural soda in America and was created as an alternative to
unhealthful mass market sodas. Sophia and her partners sold American Natural
Beverage Corp. in 1989.
Four other individuals own the remaining 40% of the outstanding stock of
Citizens Advisers, Inc., as follows: John F. Dunfey (12%); Robert J. Dunfey, Sr.
(12%); Gerald F. Dunfey (12%); and William B. Hart, Jr. (4%). John, Robert and
Gerald Dunfey, brothers, now serve as directors of the Dunfey Group, a venture
capital and investment company. The Dunfey family has been associated, over a
number of years, with progressive social and political causes and has actively
participated in organizations dedicated to world peace, human and civil rights,
and economic justice. The family founded and continues to sponsor New England
Circle,
19
<PAGE>
a forum for the "discussion of social, political, literary and educational
topics that can lead to constructive change in our lives, our nation and our
world."
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Investment Advisory and Other Services
We are advised by Citizens Advisers, Inc. (the Adviser) under a contract
known as the Management Agreement. The Adviser has offices at 111 Pine Street,
San Francisco, California 94111 and One Harbour Place, Portsmouth, New Hampshire
03801. The Adviser is a California corporation. Citizens Securities, Inc., a
wholly-owned subsidiary and a California corporation, serves as the Fund's
distributor.
Management Agreement
The Management Agreement provides for the Adviser, which is subject to the
control of our Board of Trustees, to decide what securities will be bought and
sold, and when, and requires the Adviser to place purchase and sale orders. At
the Adviser's discretion and sole expense, these duties may be delegated to a
sub-adviser.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Working Assets Money Market Portfolio, E[bullet]fund,
Muir California Tax-Free Income, Citizens Income and Emerging Growth Portfolios,
GMG/Seneca Capital Management, L.P. is a registered investment adviser
established in 1990. It is a wholly owned subsidiary of GMG Capital Management,
LLC, which manages over $3 billion from their offices at 909 Montgomery Street,
San Francisco, CA. Organized as a California limited partnership, GMG/Seneca
Capital Management, L.P. has two general partners, Gail Seneca and Genesis
Merchant Group, L.P., an Illinois Limited Partnership. Genesis Merchant Group,
in turn, has three general partners: William K. Weinstein, Gail Seneca, and
Philip C. Stapleton. Prior to starting GMG/Seneca, Gail was employed by Wells
Fargo Bank as a senior investment officer.
Clemente Capital, Inc.
Our sub-adviser for the Citizens Global Equity Portfolio, Clemente Capital, Inc.
is a registered investment adviser organized in 1979. It is majority owned by
Lilia Clemente with 61.15%; Wilmington Trust of Wilmington, DE with 24% and
Diaz-Verson Capital Investments, Inc. of Columbus, GA with 14.85%. Clemente also
manages the First Philippine and Clemente Global Growth Funds, two closed-end
funds traded on the New York Stock Exchange. Its headquarters are at Carnegie
Hall Tower, 152 West 57th Street, New York, NY.
RhumbLine Advisers, Inc.
The Citizens Index Portfolio is sub-advised by RhumbLine Advisers, a registered
investment adviser established in 1990 with offices at 30 Rowes Wharf, Boston,
MA. RhumbLine is owned in excess of 97% by J.D. Nelson, who is also an
interested trustee of the Trust.
The Adviser (or the Sub-adviser) provides us, at the Adviser's expense,
with all office space and facilities and equipment and clerical personnel
necessary to carry out its duties under the Management Agreement. Some of our
Trustees and our officers are employees of our Adviser and receive their
compensation from the Adviser. Our custodian bank maintains, as part of its
services for which we pay a fee, many of the books and records as we are
required to have and computes our net assets value and dividends per share.
We pay the Adviser a fee for its services at annual rates as follows:
Working Assets Money Market Portfolio, 35/100 of 1% of the Portfolio's
net assets, Citizens Income Portfolio, 65/100 of 1% of the Portfolio's net
assets; Citizens Emerging Growth Portfolio, 1% of the Portfolio's average annual
net assets; Citizens Global Equity Portfolio, 1% of the Portfolio's average
annual net assets; and the Citizens Index Portfolio , 50/100 of 1% of the
Portfolio's average annual net assets. The fee is accrued daily and paid at
least monthly. The Adviser has agreed to limit our expenses each year. If
expenses exceed this limit, the Adviser will reduce its fee by, or refund, the
amount of the excess. The limit on our expenses, pursuant to the Management
Agreement, is as follows: Working Assets Money Market Portfolio: 1
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<PAGE>
1/2% of the first $40 million or our average annual net assets and 1%
thereafter; Citizens Income Portfolio: 1 and 75/100 of 1% of the first $75
million of average net assets and 1 and 1/4% thereafter. There is no limit on
expenses for the Citizens Emerging Growth Portfolio, Citizens Global Equity
Portfolio, Citizens Index Portfolio and the Citizens Index Institutional
Portfolio. Not all our expenses are subject to this limit. Interest expenses,
taxes, brokerage commissions, and extraordinary expenses, such as litigation,
that do not usually occur in the operations of a mutual fund are not included.
We are also subject to a statutory expense limitation imposed by the State of
California. This expense limitation requires the Adviser to reduce its fee to
the extent the aggregate annual expenses of a Portfolio exceed 2 1/2% of the
first $30 million of average net assets in the Portfolio, 2% of the next $70
million of average net assets, and 1 1/2% of the remaining average net assets in
a Portfolio in any fiscal year.
For the fiscal years ended June 30, 1993, 1994, 1995 and 1996, the
Adviser received the following fees: Working Assets Money Market Portfolio,
1993-$925,100, 1994-$619,206, 1995-$526,422, 1996-$423,731; Citizens Income
Portfolio, 1993-$48,316, 1994-$125,495, 1995-$167,280, 1996-$207,386; Citizens
Emerging Growth Portfolio, 1993-$0, 1994-$7,696, 1995-$67,908, 1996-$197,492;
Citizens Global Equity Portfolio, 1993-$0, 1994-$12,569,1995-$78,349,
1996-$118,662; and Citizens Index Portfolio, 1993-$0, 1994-$0, 1995-$760,572,
1996-$689,466.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, thereunder, the Adviser is not liable for any loss sustained by the
purchase, sale or retention of any security and permits the Adviser to act as
investment adviser and/or principal underwriter for any other person, firm or
corporation. The Management Agreement provides that we will indemnify the
Adviser to the full extent permitted under the Declaration of Trust. The
Management Agreement also states that it is agreed that the Adviser shall have
no responsibility or liability for the accuracy or completeness of our
Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 except for information supplied by the Adviser for inclusion
therein.
There are similar provisions with respect to the liability of the
Sub-adviser, and the obligation of the Fund to indemnify the Sub-adviser.
Administrative Services Agreement
The Adviser has also entered into an Administrative Services Agreement with
Citizen Trust, whereby it provides the Trust with the following facilities and
services: 1. Receipt of calls from existing shareholders in a timely manner. 2.
Maintenance of a toll-free number. 3. Response to shareholder questions. 4.
Maintenance of computer interface with the Trust's transfer agent. 5. Execution
of appropriate shareholder requests. 6. Organizational services for any new
series, including, but not limited to the drafting of the prospectus and
statement of additional information, the filing of all required documents,
soliciting proxies, and clerical duties associated with the filing of any such
documents. 7. Blue sky reporting services as required for the issuer of
securities in the states and territories. In addition to the fees paid pursuant
to the foregoing, the Trust has agreed to reimburse Citizens Advisers for out-of
pocket expenses, including but not limited to postage, forms, telephone, and
records storage and any other expenses incurred by Citizens Advisers at the
request or with the consent of the Trust. The Trust also pays to the Adviser
shareholder servicing fees at the following fixed rates: Citizens Income,
Citizens Emerging Growth, Citizens Global Equity and Muir California Tax Free
Income, 10/100 of 1% of average assets; and Citizens Index, 65/100 of 1% of
average assets.
Distribution Plan
Citizens Securities, Inc. (the 'Distributor'), a wholly owned subsidiary of
Citizens Advisers, Inc., acts as the distributor of our shares. There is no
sales charge imposed on any of the portfolios of the Trust, either when you
purchase or redeem shares.
Broker-dealer and other organizations, known as Service Organizations,
which assist in the distribution of our shares may receive fees from us or our
Distributor . Our Board of Trustees has adopted a Distribution Plan under
Section 12(b) of the 1940 Act and Rule 12b1 thereunder. In approving the Plan,
the Trustees determined, in the exercise of their business judgment and in light
of their fiduciary duties, that there is a reasonable
21
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likelihood that the Plan will benefit us and our shareholders. Pursuant to this
Plan, Service Organizations that enter into written agreements with us and our
Distributor may receive, for administration, shareholder service and
distribution assistance, fees at rates determined by our Trustees. In addition,
our Distributor is authorized to purchase advertising, sales literature and
other promotional material and to pay its own salespeople. We will reimburse the
Distributor for these expenditures and for fees paid to Service Organizations,
up to a limit of 0.25% on an annual basis of our average daily net assets. In
addition, if and to the extent that the fee we pay our Distributor as well as
other payments we make are considered as indirectly financing any activity which
is primarily intended to result in the sale of our shares, such payments are
authorized under the Plan.
The Plan was approved on July 5, 1983, by our Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) and who have no financial interest in the operation of the Plan or in
any agreement related to the Plan. These trustees are known as qualified
Trustees. The Plan was approved by a majority of our shareholders at our annual
meeting on April 24, 1984, and has been continued from year to year thereafter
subject to annual approval by a majority vote of our Trustees, including a
majority of the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan was approved by the shareholders of the
Citizens Income Portfolio, on June 11, 1992. Agreements related to the Plan must
also be approved in the same manner by a vote of the Trustees and the Qualified
trustees. These agreements will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of the
majority of the Qualified Trustees or a vote of our outstanding voting
securities on not more than 60 days notice.
Each Portfolio is responsible for the cost of preparing and setting in type
prospectuses and reports to shareholders and distributing copies of the
prospectuses and reports to shareholders. The Distributor pays the cost of
printing and distributing all other copies of prospectuses and reports, as well
as the costs of supplemental sales literature and advertising. The Fund pays all
of our other expenses not expressly assumed by the Adviser such as interest,
taxes, audit and legal fees and expenses, charges of our custodian, our
shareholder servicing, transfer and record-keeping agent costs, insurance
premiums, stock issuance and redemption costs, certain printing costs, costs of
registering our shares under federal and state laws, and dues and assessments of
the Investment Company Institute, as well as any non-recurring expenses,
including litigation.
The Plan provides that the Distributor shall provide and the Trustee
shall review quarterly reports setting forth the amounts, payments and the
purpose for which the amounts were expended. The Plan further provides that
while it is in effect the selection and nomination of the Trustees who are not
interested persons shall be committed to the discretion of the Qualified
Trustees. The Plan may not be amended to increase materially the amounts to be
spent without shareholder approval, as set forth above, and all amendments must
be approved by the Trustees, as described above. The Plan only permits
reimbursement of actual expenses and does not permit expenses to be carried
forward from one fiscal period to another. For the years ended June 30, the
following fees were approved and paid under this Plan, 1991-$474,900,
1992-$508,374, 1993-$ 606,018, 1994-$713,847, 1995-$783,111and 1996-$683,515.
The major categories of expenses for 1995 were as follows: Advertising, printing
and mailing prospectuses to other than current shareholders, compensation to
broker/dealers, compensation to sales personnel.
22
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Additional Information
Our Declaration of Trust permits our Trustees to issue an unlimited
number of full and fractional shares of beneficial interest and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Fund. Each share
represents an interest in the Fund. Certificates representing our shares are not
issued. In the event of our liquidation, all shareholders would share pro rata
in our net assets available for distribution to shareholders. The Trustees also
have the power to designate "series" of the Fund which will function as separate
Portfolios, each having it's own assets and liabilities. They may also create
additional classes of shares which may differ from each other as to dividends.
Shares of each class are entitled to vote as a class or series only to the
extent required by the 1940 Act or as provided in our Declaration of Trust or as
permitted by our Trustees. Income and operating expenses are allocated fairly
among the series and classes by our Trustees. We intend to manage our Portfolios
in such a way as to be a "diversified" investment company, as defined in the
1940 Act. As of June 30, 1996, there were 108,006,752 outstanding shares of our
Common Stock, representing all the shares of all of the Citizens Trust
Portfolios. The following are the shareholders who owned beneficially or of
record 5% or more of the outstanding shares: Working Assets Money Market
Portfolio and Citizens Income Portfolio and - no holders of 5% or more. Citizens
Emerging Growth Portfolio - Charles Schwab & Co, Inc., 9.0%. Citizens Global
Equity Portfolio - Charles Schwab & Co, Inc., 17.9%. Citizens Index Portfolio
Charles Schwab & Co, Inc., 2.3%.
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Voting Rights
Shareholders are entitled to one vote for each full shares held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. Voting is generally
by class and series except as otherwise provided by the provisions of the 1940
Act. The Trustees will call a meeting of shareholders to vote on the removal of
a Trustee upon the written request of the record holders of ten percent of our
shares. No amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of our outstanding shares. The
holders of shares have no preemptive or conversion rights. Shares when issued
are fully paid and non assessable, except as set forth under "Shareholder and
Trustee Liability" below. The Fund may be terminated upon the sale of its assets
to another issuer, if such sale is approved by the vote of the holders or more
than 50% of our outstanding shares, or upon liquidation and distribution of our
assets, if approved by the vote of the holders of more than 50% of our
outstanding shares. If not so terminated, the Fund will continue indefinitely.
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Shareholder and Trustee Liability
We are an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. Our Declaration of Trust contains an express disclaimer of shareholder
liability for our acts or obligations and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by us or our Trustees. The Declaration of Trust provides for
indemnification and reimbursement of expenses by the relevant Portfolio out of
the Portfolio's property for any shareholder held personally liable for the
Portfolio's obligations. The Declaration of Trust also provides that we shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of ours and satisfy our judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholders liability
is highly unlikely and is limited to the relatively remote circumstances in
which we would be unable to meet our obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, 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.
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Custodian
State Street Bank and Trust of Boston, Massachusetts, is the custodian of
the assets of the Fund. The custodian takes no part in determining the
investment policies of the Fund or in deciding which securities are purchased or
sold by the Fund. We, however, may invest in obligations of the custodian and
may purchase or sell securities from or to the custodian.
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Auditors
Tait, Weller & Baker of Philadelphia, Pennsylvania serves as our Fund's
independent auditors, providing audit services including (1) examination of the
annual financial statements and limited review of unaudited semi-annual
financial statements (2) assistance and consultation in connection with
Securities and Exchange Commission filings and (3) review of the federal and
state income tax returns filed on our behalf. The financial statements of the
Fund incorporated here by reference, have been examined by Tait, Weller & Baker,
independent auditors, as stated in their report which is incorporated by
reference, and have been so incorporated in reliance upon such report given upon
their authority as experts in accounting and auditing.
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Legal Counsel
Bingham, Dana & Gould of Boston, Massachusetts.
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Financial Statements
The following financial statements of the Fund and the opinion of its
independent auditors, included in the Annual Report to the shareholders for the
year ended June 30, 1996, are incorporated herein by reference:
Statement of Investments - June 30, 1996
Statement of Assets and Liabilities June 30,1996
Statement of Operations for the year ended - June 30, 1996
Statement of Changes in Net Assets for the year ended June 30, 1995,and the year
ended June 30, 1996.
A list of securities held by the Citizens Index Portfolio is attached as
Schedule A.
Notes to Financial Statements
The above referenced financial statements and the report of the
independent auditors are included in the 1996 Annual Report which is provided to
each person to whom the Statement of Additional Information is sent or given.
Management Discussion
It is the policy of the Fund to provide a management discussion of the
strategy and performance of each portfolio in the annual report.
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STATEMENT OF ADDITIONAL INFORMATION
September 27, 1996
MUIR CALIFORNIA TAX FREE INCOME PORTFOLIO
111 Pine Street
Suite 1415
San Francisco, California 94111
1 (800) 223-7010
Citizens Investment Trust (the "Fund" or "Citizens Trust") presently consists of
six separate portfolios: Working Assets Money Market Portfolio, Citizens Income
Portfolio, Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio,
Citizens Index Portfolio, and Muir California Tax-Free Income Portfolio. On May
28, 1992 the Fund, which had operated as a money market fund since 1983, changed
its name because it added three non-money market portfolios. On September 1,
1995 the Fund changed its name to Citizens Trust.
A Prospectus for the Fund, dated September 27, 1996, as may be amended from
time to time, provides the basic information you should know before purchasing
shares and may be obtained without charge form the Fund at the address stated
above. This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Fund's
Prospectus. It is intended to provide you with additional information regarding
the activities and operations of the Fund, and should be read in conjunction
with the Prospectus.
TABLE OF CONTENTS
Page
The Fund 2
Investment Objective and Policies 2
Characteristics of Tax-Exempt Securities 2
Investment Restrictions 7
Distributions 8
Tax Information 8
Risk Factors 11
Trustees and Officers 19
Management of the Fund 21
Execution of Portfolio Transactions 22
Additional Purchase and Redemption Information 23
Determination of Share Price 24
Principal Underwriter 24
Performance 24
General Information 27
Financial Statements 27
Appendix 28
1
<PAGE>
THE FUND
Citizens Investment Trust (the "Fund" or "Citizens Trust") presently consists
of seven separate portfolios: Working Assets Money Market Portfolio, The
E[bullet]fund, Citizens Income Portfolio, Citizens Emerging Growth Portfolio,
Citizens Global Equity Portfolio, Citizens Index Portfolio and Muir California
Tax-Free Income Portfolio. On May 28, 1992 the Fund, which had operated as a
money market fund since 1983, changed its name because it added three non-money
market portfolios. On September 1, 1995 the Fund changed its name to Citizens
Trust.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the discussion of our investment objective
and policies as set forth in our Prospectus.* Our objective is to provide a high
level of current income exempt from both federal and California state personal
income tax. We seek to achieve this objective by investing primarily in
securities which our Trustees believe will provide social, environmental and
economic benefits.
We Will Not Compromise the Quality of Our Portfolio
While we place a high premium on the economic and social benefit of our
investments, we do not sacrifice the quality of our portfolio to achieve our
social, environmental and economic agenda. Our securities portfolio contains
only Tax-Exempt Securities which have been rated "investment grade." Investment
grade securities are securities which, at the time of purchase, have been rated
in one of the four highest rating categories (i.e., "Baa" or higher) by Moody's
Investors Service, Standard & Poor's Corporation or Fitch Investors Service,
Inc. or if not rated, are determined by our Portfolio Adviser to be at least of
equivalent quality.
We do not invest in "junk bonds" (i.e. securities rated below investment grade).
However, Tax-Exempt securities rated in the fourth highest rating category (the
lowest rating category in which we may invest) have speculative characteristics.
With respect to these securities, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher rated Tax-Exempt Securities.
If we invest in any Tax-Exempt Security the rating of which subsequently drops
below investment grade, our board of Trustees will be notified and shall
promptly determine on a case by case basis whether the security should be
retained or sold. We maintain an operating policy that no more than 5% of our
securities portfolio may consist of securities which, although rated investment
grade when purchased, subsequently drop below investment grade.
Many Tax-Exempt Securities are not rated by any credit rating agency. Although
we are permitted to invest up to 10% of our total assets in unrated Tax-Exempt
Securities, we currently do not invest in any such unrated securities and do not
intend to do so in the foreseeable future. If we were to invest in unrated
securities, the Portfolio Adviser first would determine that these unrated
Tax-Exempt Securities meet our credit quality standards by performing an
independent credit analysis of the issuer of the security (and any institution
giving a credit enhancement to the security) in accordance with procedures
adopted by our Board of Trustees and reviewed by the Manager.
CHARACTERISTICS OF TAX-EXEMPT SECURITIES
"Tax-Exempt Securities," as this term is used in this Statement of Additional
Information, includes debt obligations issued by the State of California, its
political subdivisions, authorities and corporations, the
* References in this Statement of Additional Information to "we", "our" or "us"
relate to the Fund; while references to "you", and "your" relate to a Fund
Shareholder. interest on which is, in the opinion of bond counsel to the issuer,
exempt from federal and State of California personal income taxes. Tax-Exempt
Securities are generally issued to obtain funds for various public purposes. An
inverse relationship exists between the value of debt obligations, including
Tax-Exempt Securities, and interest rates (i.e., when interest rates decline,
the value of debt obligations generally will tend to increase and when interest
rates increase, the value of debt obligations generally will tend to decline).
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Municipal Notes. We may invest in different types of municipal notes including
(1) tax anticipation notes; (2) revenue anticipation notes; (3) bond
anticipation notes; (4) construction loan notes; (5) short-term discount notes;
and (6) variable rate demand notes.
Tax anticipation notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer secured by the issuer's taxing power for the payment
of principal and interest. Revenue anticipation notes are issued in expectation
of receipt of other kinds of revenue, such as federal revenues available under
the federal Revenue Sharing Program. They also are usually general obligations
of the issuer.
Bond anticipation notes normally are issued to provide interim financing until
long-term financing can be arranged. The long-term bonds then provide the money
for the repayment of the notes.
Construction loan notes are sold to provide construction financing for specific
projects. After successful completing and acceptance, many projects receive
permanent financing through the Federal Housing Administration under the Federal
National Mortgage Association or the Government National Mortgage Association.
Short-term discount notes (tax-exempt commercial paper) are short-term (365 days
or less) promissory notes issued by municipalities to supplement their cash
flow.
We may also invest up to 5% of our total assets in variable or floating rate
demand notes ("VRDNs"). VRDNs are tax-exempt securities that contain a floating
or variable interest rate adjustable formula and an unconditional right of
demand to receive payment of the unpaid principal balance plus accrued interest
upon a short notice period prior to specified dates, either from the issuer or
by drawing on a bank letter of credit, a guarantee or insurance issued with
respect to such instrument. The interest rate on a VRDN is adjusted periodically
based on a specific external rate (e.g., bank prime rate) to maintain the VRDN's
market value at approximately par. We decide which VRDNs to purchase in
accordance with procedures prescribed by our Board of Trustees, which are
intended to minimize credit risks. These procedures include, among other things,
both a credit analysis of any financial institution that is giving credit
support and a requirement that a VRDN be investment grade, as determined in
accordance with procedures adopted by the Board of Trustees with respect to both
its long-term and short-term aspects; (except that where credit support for the
instrument is provided even in the event of default on the underlying security,
we may rely only on the investment grade character of the short-term aspect of
the VRDN, i.e., the demand feature.) VRDNs which are unrated must have quality
characteristics similar to rated VRDNs in accordance with procedures adopted by
our Board of Trustees.
We may also invest in participation interests ("Participating VRDNs") in
variable or floating rate tax-exempt obligations held by a financial
institution, typically a commercial bank ("institution"). Participating VRDNs
provide us with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the Participating VRDNs from the institution upon a
specified number of day's notice. In addition, the Participating VRDN is backed
by an irrevocable letter of credit or guarantee of the institution. The
institution typically retains fees out of the interest paid on the obligation
for servicing the obligation, providing the letter of credit and issuing the
repurchase commitment. Our Portfolio Adviser performs a credit analysis of the
institution involved, following procedures adopted by our Board of Trustees.
Municipal Bonds. Municipal bonds meet longer-term capital needs and generally
have maturities of more than one year when issued. Municipal bonds have three
principal classifications: (1) general obligation bonds; (2) revenue bonds; and
(3) industrial development bonds.
General obligation bonds are issued by states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools, and
water and sewer systems. The basic security behind general obligation bonds is
the issuer's pledge of its full faith, credit and taxing power for the
3
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payment of principal and interest. The taxes that can be levied for the payment
of debt service may be limited or unlimited as to the rate or amount of special
assessments.
Revenue bonds are not secured by the full faith, credit and taxing power of
their issuer. Rather, the principal security for revenue bonds is generally the
net revenue derived from a particular facility, group of facilities, or, in some
cases, the proceeds of a special excise tax or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund whose money may
be used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or the net revenues from housing
or other public projects. Some authorities are provided further security in the
form of a state's assurance (although without obligation) to make up
deficiencies in the debt service reserve fund.
Industrial development bonds are in most cases revenue bonds and are issued by
or on behalf of public authorities to raise money to finance various
privately-operated facilities for business, manufacturing, housing, sports, and
pollution control. These bonds are also used to finance public facilities such
as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of the
real and personal property so financed as security for such payment. Tax-exempt
industrial development bonds, in most cases, are revenue bonds and generally do
not carry the pledge of the credit of the issuing municipality, but generally
are guaranteed by the corporate entity on whose behalf they are issued. The
social performance of any such corporate guarantor will be considered in
accordance with procedures adopted by our Board of Trustees before we make an
investment decision with respect to any guaranteed securities. We will not
purchase industrial development bonds to the extent that the interest paid by
particular bonds is not excluded from gross income for federal regular income
tax purposes. We will not invest 25% or more of our total assets in industrial
development bonds.
Tax-Exempt Securities include municipal lease/purchase agreements which are
similar to installment purchase contracts for property or equipment issued by
municipalities. Our investment in municipal lease/purchase agreements will not
exceed 5% of our total assets.
While we may invest in Tax-Exempt Securities with maturities of any length,
securities with longer maturities typically exhibit more fluctuation in market
value and therefore the inclusion of such securities in our portfolio may
increase the fluctuation of our net asset value. We invest in Tax-Exempt
Securities with maturities of up to 30 years depending upon our assessment of
the relative yield on securities of different maturities and our expectations of
future changes in interest rates.
There may, of course, be other types of municipal securities, similar to the
foregoing described municipal securities, which may become available and could
be included in our investment portfolio.
In the event that desirable Tax-Exempt Securities issued by California
governmental entities are not available, we may invest in other types of
securities (meeting, to the extent possible, the social responsibility criteria
outlined above) which are exempt from federal and California state personal
income tax. These securities may include U.S. Territorial obligations including
obligations of Puerto Rico, Guam and the Virgin Islands and the obligations of
the U.S. Government and agencies, instrumentalities or authorities of the U.S.
Government authorized by federal law to issue obligations exempt from any
state's personal income tax.
It is also possible, although not anticipated, that under normal market
conditions up to 20% of our net assets could be invested in state and municipal
obligations of other states (which would generate income exempt from federal
income tax but not exempt from California state personal income taxes), other
securities on which the interest is a tax preference item under the federal
alternative minimum tax, U.S. Treasury obligations, high quality commercial
paper, obligations of U.S. banks (including commercial banks and savings
institutions insured by the Federal Deposit Insurance
4
<PAGE>
Corporation ("FDIC") with assets of $1 billion or more, and repurchase
agreements secured by U.S. Government securities. Some of the foregoing
investments generate income that would be subject to California and possibly
federal personal income taxes when distributed to our shareholders.
For temporary defensive purposes only, we may invest up to 100% of our assets in
(i) obligations issued or guaranteed by the full faith and credit of the U.S.
Government, its agencies, instrumentalities or authorities, highest rated
commercial paper, certificates of deposits of domestic banks with assets of $1
billion or more and repurchase agreements (subject to the limitations described
below) the interest on which is subject to federal tax and may be subject to
California state personal income taxes; and (ii) securities the interest on
which is exempt from regular federal income taxes but not California's personal
income taxes, such as tax-exempt municipal securities issued by other states and
their agencies and instrumentalities.
We may purchase shares of no-load, open-end investment companies which invest in
Tax-Exempt Securities with remaining maturities of one year or less (commonly
known as "money market funds"). We will invest in such tax-exempt money market
funds only as a short-term measure if our manager or Portfolio Adviser
determines that such money market funds provide a better combination of yield
and liquidity than direct investment in short-term, Tax-Exempt Securities. Our
Manager will waive its management fee on any portion of our assets invested in
such money market funds. We will not invest more than 10% of our total assets in
shares issued by money market funds nor will we invest more than 5% of our total
assets in a single money market fund.
Other Securities. We may purchase specified municipal securities with "puts"
from banks, brokers or dealers, or other financial institutions. A "put" is a
right to sell a defined underlying security price, which may be sold only with
the underlying security. Because of the put feature on such securities, the
prices of those securities may be higher and the yields lower than they
otherwise would be. A "standby commitment" is a put that entitles the holder to
achieve same-day settlement and to receive an exercise price equal to the
amortized cost of the underlying security plus accrued interest, if any, at the
time of exercise.
There are diversification requirements with respect to puts which may be
acquired by us, to insure that our liquidity will not be impaired by relying too
heavily upon the same institution or a group of institutions. With respect to
75% of our assets, no more than 5% of our assets may be in securities with
underlying puts from the same institution, except we may invest up to 10% of our
assets in unconditional puts (exercisable even in the event of a default in the
payment of principal or interest on the underlying security) and other
securities issued by the same institution. For purposes of our diversification
requirements, a put will not be considered to be an obligation of the
institution to whom we must look for payment of the exercise price. In the case
of a standby commitment, the put would be an obligation of the institution that
has agreed to repurchase the underlying security. In the case of a demand
feature, the put would be an obligation of the party that has provided a letter
of credit or other credit facility to insure payment of the exercise price.
A standby commitment may not be used to affect our valuation of the municipal
security underlying the commitment. Any consideration paid by us for the standby
commitment, whether paid in cash or as premium for the underlying security,
which increases the cost of the security and reduces the yield otherwise
available from the same security, will be accounted for by us as an expense when
the standby commitment is exercised or expired.
The following information relates to tax-exempt securities subject to puts, as
described above. The Internal Revenue Service (the "Service") has issued a
revenue ruling to the effect that, under specified circumstances, a regulated
investment company will be the owner of tax-exempt obligations acquired subject
to a put option. The Service has also issued private letter rulings to certain
taxpayers (which rulings do not serve as precedents for other taxpayers) to the
effect that tax-exempt interest received by a regulated investment company with
respect to such obligations will be tax-exempt in the hands of the company and
may be distributed to its shareholders as exempt-interest dividends. The Service
has announced, however, that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or
5
<PAGE>
participation interests therein if the purchaser has the contractual right to
the security, or the participation interest therein, to be purchased either by
the seller or a third party. We take the position that we are the owner of any
municipal obligations acquired subject to a standby commitment or other put and
that tax-exempt interest earned with respect to municipal obligations will be
tax-exempt in our hands. There is no assurance that standby commitments will be
available to us; neither have we assumed that such commitments would continue to
be available under all market conditions.
We may also purchase escrow secured bonds, which are created when an issuer
refunds in advance of maturity (or pre-refunds) an outstanding bond issue that
is not immediately callable and it becomes necessary or desirable to set aside
funds for redemption of the bonds at a future date. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will often receive a
triple A rating from the major rating services.
U.S. Government obligations which may be owned by us are issued by the U.S.
Department of the Treasury and include bills, certificates of indebtedness,
notes and bonds, or are issued by agencies and instrumentalities of the U.S.
Government and backed by the full faith and credit of the U.S. Government.
Commercial paper refers to promissory notes issued by municipalities or
corporations in order to finance their short-term needs.
Repurchase Agreements. As we stated in our Prospectus, we may occasionally
invest our assets in eligible U.S. Government securities and concurrently enter
into repurchase agreements with respect to those securities in order to earn
additional income on available cash or as a temporary defensive investment.
Under a repurchase agreement, the seller of the security agrees to repurchase
the security at a mutually agreed upon time and price. The repurchase price is
generally higher than the purchase price, the difference being income to the
seller. However, the purchase and repurchase prices may be the same, with
interest at a stated rate together with the repurchase price due to us upon
repurchase. In either case, the income is unrelated to the interest rate on the
U.S. Government security itself, and such income is taxable and not exempt from
either federal or California personal income tax. Such repurchase agreements
will be made only with banks or savings institutions approved by our Board of
Trustees or with Government securities dealers subject to procedures approved by
our Board of Trustees. We will generally enter into repurchase agreements of
short durations, from overnight to one week, although the underlying securities
generally have longer maturities. If we enter into a repurchase agreement with
more than seven days to maturity, we will consider it to be an illiquid asset
subject to our restriction on investments in illiquid assets described below. We
do not intend to invest more than 5% of our total assets in repurchase
agreements.
For purposes of the Investment Company Act of 1940, as amended (the "1940 Act"),
a repurchase agreement is deemed to be a loan from us to the seller of the U.S.
Government security subject to the repurchase agreement. It is not clear whether
a court would consider the U.S. Government security acquired by us subject to a
repurchase agreement as being owned by us or as being collateral for a loan by
us to the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the U.S. Government security before
its repurchase under a repurchase agreements we may encounter delays and incur
costs before being able to sell the security. Delays may involve the loss of
interest or a decline in price of the U.S. Government security. If a court
characterizes the transaction as a loan and we have not perfected a security
interest in the U.S. Government security, we would be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, we would be at risk of losing some or all of
the principal and income involved in the transaction. As with any unsecured debt
instrument purchased for us, our Adviser seeks to minimize our risk of loss
through repurchase agreements by analyzing the creditworthiness of the
obligator, in this case the seller of the U.S. Government security.
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Apart from the risk of bankruptcy or insolvency proceedings there is also the
risk that the seller may fail to repurchase the security. However, we will
always receive as collateral for any repurchase agreement to which we are a
party U.S. Government securities acceptable to us, the market value which is
equal to at least 100% of the amount invested by us plus accrued interest, and
we will make payment against such securities only upon physical delivery or
evidence of book entry transfer to the account of its Custodian. If the market
value of the U.S. Government security subject to the repurchase agreement
becomes less than the repurchase price (including interest), we will direct the
seller of the U.S. Government security to deliver additional securities so that
the market value of all securities subject to the repurchase agreement will
equal or exceed the repurchase price plus accrued interest. It is possible that
we will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
We may purchase securities on a "when-issued" or "delayed-delivery" basis or we
may purchase or sell securities on a forward commitment basis at a negotiated
price that is fixed at the time of commitment. Payment and delivery normally
occur a month or more after the commitment date. During the intervening period,
the securities are subject to market fluctuations and no interest accrues to us.
Any fee that we may receive for entering into forward commitment contracts is
taxable.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions have been adopted by
us and are fundamental and cannot be changed without the affirmative vote of a
majority of our outstanding voting securities as defined in the 1940 Act.
Policies which are noted to be operating policies may be modified if the change
is first approved by our Board of Trustees and notice of the change is given to
all shareholders prior to implementation.
Fundamental Policies:
Based upon the Fund's current policies, we may not:
1. Make loans to others, except (a) through the purchase of debt securities in
accordance with our investment objectives and policies, and (b) to the extent
the entry into a repurchase agreement is deemed to be a loan.
2. (a) Borrow money, except temporarily for extraordinary or emergency (not
leveraging) purposes from a bank and then not in excess of 5% of our total
assets (at the lower of cost or fair market value).
3. Purchase securities on margin, sell securities short, participate on a joint
or joint and several basis in any securities trading account, or underwrite
securities except insofar as we may be technically deemed an underwriter under
the federal securities laws in connection with the disposition of portfolio
securities. (This is an operating restriction and does not preclude us from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities.)
4. Buy or sell interests in commodities or commodity contracts, oil, gas or
mineral exploration or development programs, or real estate, provided that this
limitation shall not prohibit the purchase of municipal and other debt
securities secured by real estate or interests therein.
5. Invest more than 10% of our net assets in illiquid securities, a term which
means securities that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which we have valued our
securities, and includes, among other things, (i) repurchase agreements maturing
in more than seven days, and (ii) municipal lease/purchase agreements, VRDNs and
Participating VRDNs which the Portfolio Adviser has determined are illiquid
because
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there is an inefficient or thin trading market.
6. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit us from (a) entering into permitted
borrowings, mortgages or pledges, or (b) purchasing securities on a when-issued
or delayed-delivery basis or (c) entering into repurchase transactions.
Operating Policies:
Based upon the Fund's current policies, we may not:
1. Purchase or sell common stocks, preferred stocks, warrants or other equity
securities, or futures contracts, or purchase or write put, call, straddle or
spread options, except that we may purchase, hold and dispose of "obligations
with puts attached" in accordance with our investment policies as described in
the Prospectus.
2. Invest in securities of other investment companies (except as they may be
acquired as part of a merger, consolidation or acquisition of assets) which
would result in our (i) owning more than 3% of the total outstanding voting
stock of another registered investment company; (ii) investing more than 5% of
our total assets in the securities of a single registered investment company; or
(iii) investing more than 10% or our total assets in the securities (other than
treasury stock) of registered investment companies. Within these limitations, we
may invest in other investment companies.
3. Invest in any issuer for purposes of exercising control or management. If a
percentage restriction is adhered to at the time of investment, a subsequent
increase or decrease in a percentage resulting from a change in values or assets
will not constitute a violation of that restriction.
DISTRIBUTIONS
We intend to declare a dividend daily, payable monthly, equal to substantially
all of our net investment income and to distribute substantially all net
realized long-term capital gains (and any short-term capital gains) at least
once each calendar year.
Dividends and capital gains are automatically reinvested in additional shares at
net asset value per share (without a sales charge) on the reinvestment date
unless the shareholder has previously requested in writing that the payment be
made in cash. You may change this election at any time prior to the record date
for a particular distribution by written request to our Transfer Agent.
TAX INFORMATION
Federal Taxation
We have elected and qualified to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). We intend to continue to so qualify, which requires compliance with
certain requirements regarding the source of our income, diversification of our
assets, and timing of our distributions. Our policy is to distribute to our
shareholders all of our investment company taxable income, our net tax-exempt
income, and any net realized capital gains for each fiscal year in a manner
which complies with the distribution requirements of the Code, so that we will
not be subject to any federal income or excise taxes based on net income.
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90% of its tax-exempt net
investment income and at least 90% of its taxable net investment (including net
short-term capital gain), if any, and is not subject to federal income text to
the extent that it distributes annually its taxable net investment income and
net realized capital gains in the manner required under the Code.
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We will be subject to a 4% non-deductible annual excise tax based on net income
on amounts required to be but not distributed under a prescribed formula. The
formula generally requires payment to our shareholders during a calendar year of
distributions at least 98% of the Portfolio's ordinary income for the calendar
year and at least 98% of the excess of our capital gains over capital losses
realized during the one-year period ending October 31 of such year.
The Code permits the character of tax-exempt interest received by a regulated
investment company to flow through as tax-exempt dividends when distributed to
its shareholders, provided that at least 50% of the value of its assets at the
end of each quarter of its taxable year is invested in state, municipal and
other obligations, the interest on which is exempt under Section 103 (a) of the
Code. We intend to satisfy this 50% requirement in order to permit our
distributions of tax-exempt interest to be treated as such for federal income
tax purposes in the hands of our shareholders. Distributions to shareholders of
tax-exempt interest earned by us for the taxable year are therefore not subject
to federal income tax, although such distributions may be subject to the
individual and corporate alternative minimum taxes described below. A portion of
original issue discount relating to stripped municipal bonds and their coupons
may be treated as taxable income under certain circumstances.
Net investment income consists of interest, less expenses with respect to
amortization. Net realized capital gains for a fiscal year are computed by
taking into account any capital loss carry forward which we may have.
Distributions of taxable net investment income and the excess of net short-term
capital gain over net long-term capital loss are taxable to shareholders as
ordinary income.
Distributions of the excess of net long-term capital gain over net short-term
capital loss ("net capital gain") are taxable to shareholders as long-term
capital gain, regardless of the length of time our shares have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction allowed to corporations. Any loss realized upon the redemption or
other sale of shares within six months from the date of their purchase will be
disallowed to the extent of tax-exempt dividends received during such period or
will be treated as a long-term capital loss to the extent of any amounts treated
as distributions of long-term capital gain during such six-month period.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by us for reinvestment, requiring federal income
taxes to be paid thereon by us, we will elect to treat such capital gains as
having been distributed to our shareholders. As a result, shareholders will
report such capital gains as long-term capital gains, will be able to claim
their share of federal income taxes paid by us on such gains as a credit against
their own federal income tax basis of our shares by the difference between their
pro rata share of such gains and their tax credit.
The exemption of the tax-exempt interest component of our dividends for federal
or California state personal income tax purposes does not necessarily result in
exemption under other federal or California tax laws or the income or other tax
laws of any other state or local taxing authority. You should bear in mind that
you may be subject to such other taxes.
Distributions of any taxable net investment income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share on the reinvestment date.
All distributions of taxable and tax-exempt net investment income and net
realized capital gain, whether received in shares or in cash, must be reported
by shareholders on their federal income tax returns.
Interest on indebtedness incurred by shareholders to purchase or carry our
shares generally will not be deductible for federal income tax purposes. Under
rules used by the Internal Revenue Service to determine when borrowed funds are
used for the purpose of purchasing or carrying particular assets, the purchase
of shares may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of shares.
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Under the federal income tax law, we will be required to report to the Internal
Revenue Service all distributions of taxable income and capital gains as well as
gross proceeds from the redemption or exchange of our shares, except in the case
of exempt shareholders, which include most corporations. Pursuant to the backup
withholding provisions or Section 3406 of the Code, distributions of any taxable
income and capital gains and proceeds from the redemption of our shares may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish us with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law or if we are notified by the Internal Revenue
Service or a broker that the number furnished by the shareholder is incorrect or
that the shareholder is subject to withholding due to a failure to report all
interest and divided income. If the withholding provisions are applicable, such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld. Corporate
shareholders should provide us with their taxpayer identification numbers and
certify their exempt status in order to avoid possible erroneous application of
backup withholding.
If we acquire securities that produce taxable income, we will be able to
designate only a portion of our dividends as tax-exempt to you. We will
designate the tax-exempt percentage on an actual earned basis and will notify
you of the percentage by January 31st of the following year. Under this
designation method, the percentage designated as tax-exempt for any particular
distribution may be substantially different from the percentage of our income
that was tax-exempt during the period covered by the distribution.
Section 147 (a) of the Code prohibits exemption from taxation of interest on
certain governmental obligations to persons who are "substantial users" (or
persons related thereto) of facilities financed by such obligations. We have not
undertaken any investigations as to the users of the facilities financed by
tax-exempt bonds in its portfolio.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens, residents and U.S.
domestic corporations, partnerships, trusts and estates. If you are not a U.S.
person or entity, you should consider the U.S. and foreign tax consequences of
ownership of our shares, including the possibility that you many be subject to a
U.S. withholding tax at a rate of 30% (or a lower rate under an applicable
income tax treaty) on amounts constituting ordinary income received by you.
State Taxation
The portion of our exempt-interest dividends equal to the proportion which the
interest on our California municipal bonds bears to all of our tax-exempt
interest will be exempt from California personal income taxes if, at the close
of each quarter of our taxable year, at least 50% of the value of our total
assets consists of California municipal bonds. We intend to invest as least 50%
of our assets in California municipal bonds at all times.
Shareholders not subject to California taxation do not benefit from the fact
that dividends distributed by us are exempt from taxation in California. Most
states other than California will not treat our dividends as tax-free.
Accordingly, if you are taxable in a state other than California, your after-tax
rate of return from our shares may be lower. Residents of New York,
Pennsylvania, Michigan and the District of Columbia may purchase shares of the
fund and the dividends will be free from federal taxation. Dividends will also
be free from District of Columbia taxation. We will inform shareholders annually
regarding the portion of our distributions which constitutes "exempt-interest
dividends" and which is exempt from California income taxes.
Unlike federal law, the Portfolio's exempt-interest dividends will not
constitute a tax preference item for California personal income tax purposes.
Moreover, an individual's Social Security benefits are not subject to California
personal income tax, so that the receipt of exempt-interest dividends will have
no effect on the California personal income taxation of Social Security
benefits. If you receive Social Security benefits, you must take all
distributions including tax-exempt dividends from us into account in determining
whether your total income exceeds the income level at which Social Security
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benefits are partially taxable for federal personal income tax purposes. In
addition, for California personal income tax purposes the shareholders of the
Portfolio will not be subject to tax, or receive a credit for tax paid by the
Portfolio, on any undistributed capital gains of the Portfolio.
A small portion of our assets may from time to time be temporarily invested in
fixed-income obligations, the interest on which, when distributed to our
shareholders, will be subject to federal and California income taxes. We may
purchase so-called "non-essential" or "private activity" bonds the interest on
which would constitute a preference item for shareholders in determining their
federal alternative minimum tax. We may invest up to 20% of our assets in
private activity bonds.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject (a) to California state franchise tax;
(b) to state taxes in states other than California; or (c) to local taxes in
cities other than those in California. Accordingly, our investors, including
corporate investors which may be subject to California franchise tax, should
consult their tax advisers with respect to the application of such taxes to the
receipt of Portfolio dividends and as to their California tax situation in
general.
General
Each distribution by us is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, we will issue to you a
statement of the federal income tax status of all distributions, including a
statement of the percentage of the prior calendar year's distributions which we
have designated as tax-exempt, and the percentage of such tax-exempt
distributions treated as a tax-preference item for purposes of the alternative
minimum tax.
The foregoing discussion and related discussion in the Prospectus have been
prepared by the Portfolio and do not purport to be a complete description of all
tax implications of an investment in the Portfolio. You should consult your tax
adviser about the application of the provisions of tax law described in this
Statement of Additional Information and in the Prospectus in light of your
particular tax situation.
RISK FACTORS
Certain California constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could result in the
adverse effects described below. The following information constitutes only a
brief summary, does not purport to be a complete description and is based
exclusively upon information drawn from official statements and prospectuses
relating to securities offerings of the State of California and various local
agencies in California that have come to our attention and were available as of
the date of this Statement of Additional Information. While we have not
independently verified such information, we have no reason to believe that such
information is not correct in all material respects.
Certain California Municipal Securities may be obligations of issuers which rely
in whole or in part on California state revenues for payment of these
obligations. Property tax revenues and a portion of the State's General Fund
surplus are distributed to counties, cities and their various taxing entities,
and the state assumes certain obligations theretofore paid out of local funds.
Whether and to what extent a portion of the state's General Fund will be
distributed in the future in counties, cities and their various entities, is
unclear.
State Budgetary Considerations
1990-91 Budget. The 1990-91 Budget Act projected General Fund expenditures of
approximately $42.0 billion and Special Fund Expenditures of approximately $8.8
billion. However, revenues for the 1990-91 fiscal year were substantially lower
than the estimates made when the Budget Act was adopted. As a result of new
calculations of revenues and expenditures, the Governor has projected the
estimated budget gap at $14.3 billion
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The California State Controller has reported that the General Fund ended the
1990-91 fiscal year with a negative fund balance of about $1.316 billion on a
budget basis. In order to pay necessary cash expenses through June 1991,
including payment of $4.1 billion 1990 Revenue Anticipation Notes which were due
June 28, 1991, the General Fund borrowed $1.390 billion from California's
Special Fund for Economic Uncertainties and $3.266 billion from other Special
Funds. Data on General Fund revenues for the 1990-91 fiscal year show that
revenues in all major categories (except insurance taxes) were lower than
receipts in 1989-90.
1991-92 Budget. The State Governor's Budget for the 1991-92 Fiscal Year,
submitted on January 10, 1991, indicated that the State's financial condition
deteriorated significantly since enactment of the 1990-91 Budget Act on July 31,
1990. The 1991-1992 Budget Act projected General Fund expenditures of $43.4
billion and Special Fund expenditures of $10.6 billion. The $14.3 billion
estimated budget gap between revenues over the two fiscal years 1990-91 and
1991-92 and established program needs based on existing laws, including
restoration of a prudent reserve for economic uncertainties, was closed through
a combination of temporary and permanent changes in laws and some one-time
budget adjustments. The California Department of Finance has estimated, as of
January 10, 1992, that General Fund expenditures for the 1991-92 fiscal year
exceeded revenues and transfers by about $85 million, increasing the deficit in
the General Fund to about $1.344 billion. The 1992/93 budget summary of
September 2, 1992 projects a 1991/92 year end deficit in the General Fund of
$2.191 billion. The Governor's Budget Summary for the 1993/94 fiscal year,
prepared by the State Department of Finance and issued on January 8, 1993,
projects a 1991-92 year-end deficit in the General Fund of $2.2 billion. In
order to meet a cash-flow deficit on June 30, 1992, the State issued short-term
registered reimbursement warrants in the amount of $475 million. The warrants
matured and were repaid on July 24, 1992.
The foregoing discussion of the 1991-92 fiscal year Budget is based on estimates
and projections of revenues and expenditures for that fiscal year and should not
be construed as a statement of fact. In addition, there have been strong
indications that California's state budgetary goals will not be met and that
economic recovery will be more sluggish than anticipated, with cash receipts
significantly below projections.
1992-1993 Budget. The State Governor's Budget for the 1992/93 Fiscal year,
submitted on January 9,1992, indicates that the State's financial condition has
further deteriorated. The Governor's Budget forecast that the revenues for the
full 1991/92 Fiscal year would be $2.7 billion below budgeted levels. The
1992/93 Governor's Budget projects General Fund expenditures of $43.8 billion
and Special Fund expenditures of $12.5 billion. The 1992/93 Governor's Budget
eliminates the deficit from 1991/92 and estimates $105.4 million as a year-end
balance in the Special Fund for Economic Uncertainties, representing
approximately 0.2% of General Fund expenditures. On May 20, 1992, the State
Department of Finance issued its "May Revision", which estimated that General
Fund revenues and transfers in the 1991-92 fiscal year would be $1.6 billion
less than the January estimate, and expenditures would be $500 million higher.
These estimates, added to the estimated negative fund balance of $1.3 billion
from the Governor's proposed 1992-93 budget, resulted in a projected negative
fund balance of $1.3 billion from the Governor's proposed 1992-93 budget,
resulted in a projected negative fund balance at June 30, 1992 of about $3.4
billion. The May Revision further estimated that, in addition to the $5.2
billion of expenditure costs and increases in revenues projected in the
Governor's proposed 1992-93 budget, another $5.7 billion of budget actions would
be needed in order to end the 1992-93 fiscal year without a budget deficit.
The Commission on State Finance issued a report in May 1992 which, among other
things, estimated that if economic conditions led to a stagnant economy through
1993 (the "pessimistic forecast") rather than slow recovery starting in late
1992 (the "primary forecast"), there could be a negative impact on the General
Fund of approximately $2.1 billion. The Commission on State Finance released an
updated staff report on October 15, 1992, which forecasts that the State's
economy will remain stagnant through 1994. The report projects that as a result
the General Fund deficit for the 1992-93 fiscal year will be about $2.4 billion
and the General Fund Deficit for the 1993-94 fiscal year will be about $1.7
billion. The report projects that as the recession worsens the General Fund
deficit might exceed $7.4 billion for the two-year period. The California
Legislative Analyst recently predicted that the General Fund deficit might be
about $7.5 billion by June 30,
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1994, and the State Treasury shortage as early as next Spring, which would again
necessitate the use of "registered warrants" to pay certain State obligations.
The 1992/93 Fiscal Year began on July 1, 1992. The California Legislature and
State Governor were unable to agree upon a budget for the 1992/93 Fiscal Year
until September 2, 1992, however. As a result of the delay in adopting a budget,
the State of California issued about $3.8 billion of "registered warrants" to
pay many of its creditors, suppliers, and employees. Although most banks honored
these "registered warrants," in August 1992, several large California banks
stopped doing so. A United States District Court recently ruled that the State
violated federal labor law when it used "registered warrants " to pay it
employees. This ruling is not final, however, and the State might appeal it.
The final 1992/93 budget projects 1992/93 General Fund revenues and transfers of
$43.421 billion, expenditures of $40.795 billion, and a year-end reserve for
economic uncertainties of $28 million. The 1991/92 year-end deficit in the
General Fund is projected to be eliminated. The final 1992/93 budget also
projects Special Fund expenditures of $12.631 billion.
The 1992-93 Budget Act, however, was based upon the assumption that a modest
recovery would begin in the state in late 1992. The Commission on State Finance
October 15, 1992 staff report forecasts that recovery will not begin in 1992
and, consequently, the state will end 1992-93 with a general fund deficit of
$2.4 billion. The Governor's Budget Summary for the 1993-94 fiscal year projects
a 1992-93 year-end deficit in the General Fund of $2.1 billion, a decrease of
$2.6 billion in the General Fund reserve from the Proposed 1992-93 Budget. On
May 20, 1993, the California Department of Finance released its "May Revision"
to the Governor's proposed 1993-94 budget, and projected that the 1992-94
year-end deficit in the general fund would be about $2.229 billion.
The foregoing discussion of the 1992-93 fiscal year Budget is based on estimates
and projections of revenues and expenditures for that fiscal year and should not
be construed as a statement of fact.
1993-1994 Budget. On January 8, 1993, the Governor submitted to the California
Legislature his proposed budget for the 1993-94 fiscal year (the "Proposed
1993-94 Budget"). The Proposed 1993-94 Budget indicates that the California
economy has not begun to recover, that the recession will likely be prolonged
through much of 1993 and that is could be early 1996 before California
employment is fully restored to its pre-recession level.
The Proposed 1993-94 Budget includes General Fund revenues and transfers of
$39.874 billion (down 2.6 percent from the 1992-93 level) and General Fund
expenditures of $37.333 billion (down 8.5 percent from the 1992-93 level), with
a year-end reserve of $31 million. The Proposed 1993-94 Budget would among other
things, end the post-Proposition 13 fiscal relief provided to local agencies by
shifting about $2.6 billion in property tax revenue from counties, cities,
special districts and redevelopment agencies. This shift would be accomplished
by (i) reducing property tax allocations to redevelopment agencies by $300
million, (ii) eliminating $150 million in property tax allocations to enterprise
special districts (primarily waste disposal and water utility districts),
excluding transit districts and hospital districts, (iii) shifting $2.075
billion in property tax revenue from cities, counties and special districts to
school and community college districts, which will necessitate major policy
decisions to allocate remaining local revenues, and (iv) making a one-time $70
million adjustment from certain counties to account for increases in certain
federal funding to those counties. The Proposed 1993-94 budget does not call for
increased taxes, and would also (i) allow a 1/2-cent temporary sales tax
increase to expire on June, 30 1993, resulting in a revenue loss of over $1
billion, (ii) require enactment of legislation to correct technical errors in
the 1992-93 school finance legislation, the failure of which would increase the
State's deficit by almost $3 billion, and (iii) be predicted upon the receipt of
$1.5 billion in additional federal assistance to fund federally-mandated
services to immigrants, refugees and their families. If that additional federal
assistance is not provided by May 15, 1993, severe reductions in non-federally
mandated services must be made. The recently proposed federal budget does not
include the entire $1.5 billion requested additional assistance. The Proposed
1993-94 Budget also would assure Proposition 98 funding at its current level.
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A budget bill for the 1993-94 fiscal year was passed on June 30, 1993. The
budget bill and related legislation include many of the provisions included in
the proposed 1993-94 Budget, including the shift of about $2.6 billion in
property tax revenue from cities, counties and special school districts. The
budget bill and related legislation also extend the 1/2-cent temporary sales tax
increase to December 31, 1993. As of July 9, 1993, not all of the legislation
related to the 1993-94 budget bill had been enacted, however.
The foregoing discussion of the 1993-94 fiscal year budget is based on estimates
and projections of revenues and expenditures and should not be construed as a
statement of fact. The assumptions used to construct a budget may be affected by
numerous factors, including future economic conditions in California and the
nation, and there can be no assurance that the estimates will be achieved.
1995-1996 Budget. On January 10, 1995, the Governor submitted to the California
Legislature his proposed budget for the 1995-1996 fiscal year (the "Proposed
1995-96 Budget"). The Proposed 1995-96 Budget reflects Governor Wilson's view
that California's recession is over.
The Proposed 1995-96 Budget includes General Fund revenues and transfers of
$42.5 billion (up 2.8% from the 1994-95 level) and General Fund expenditures of
$41.7 billion (up 0.1% from the 1994-95 level), with an operating surplus of
$812 million.
The Proposed 1995-96 Budget calls for the initial installment of a 15% income
tax cut (total savings of $225 million for individuals and corporations in the
first year), the first funding boost for education in four years (per pupil
increase of 2.2%), cuts to welfare ($1.3 billion), and a 1,200 worker reduction
(6%) at the Department of Transportation. The budget anticipates that the state
will receive $732 million from the federal government to "cover the costs of
illegal immigration" and also plans on sending $241 million less than last year
to the state's 58 counties. The Proposed 1995-96 Budget earmarks $2.2 billion to
be spent constructing new prisons.
On July 1, 1995, California enters fiscal year 1995-96 without a spending plan
for the eighth time in the last nine years. Due to shortfalls in the 1994-95
budget and a projected shortfall between revenue and spending in fiscal 1995-96,
the Legislative Analyst's Office is now predicting a deficit of just under $2
billion. Finally, on August 2, 1995, Governor Wilson signs a $57.3 billion
budget passed by the legislature. The final budget does not include the tax cut
originally proposed by the governor, but does include cuts to welfare and
increases in spending on education. The final budget also forecasts the
elimination of California's debt. Finance officials state that the new budget
seeks to pay off the $1 billion in debt that was rolled into the fiscal 1995-96
budget by Spring 1996.
Concerns remain, primarily due to the budget's tiny "emergency reserve" of $28
million, its assumption of $518 million in federal reimbursements for immigrant
services (some think the feds will be less generous) and $394 million in savings
from welfare and disability grants (which require congressional action or
federal waivers--neither easy to come by), and pending court decisions which
could cost the state up to $1.7 billion.
Another factor for concern is the Orange County bankruptcy. While apparently an
isolated event, the fact that it took many by surprise has cast a shadow over
California municipal securities in general. The effect of this investor concern
remains undetermined.
1996-1997 Budget
The 1996 Budget Bill signed by the Governor on July 15, 1996 represents the
positive growth in the state's economy and an improved state fiscal condition.
Major elements in the budget include the required funding of proposition 98,
reducing class sizes for K-12 education; a 5% reduction in the corporate tax
rate beginning January 1, 1997 reducing expected revenues by $85 million in
1996-97; and the continued spending on judiciary and criminal justice programs,
increasing 5.3% over 1995-96 expenditures.
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The budget reflects an unanticipated increase in General Fund revenues in the
current year. Revised General Fund revenues for the current year are listed as
$45 billion. The forecast for FY '96-'97 is an increase of underlying General
Fund revenue growth of 3.3%. Expenditures are expected to grow by 4.0%. The
General Fund is expected to end 1996-97 with a reserve of about $300 million.
The economic outlook for the state, as reflected by the budget, forecasts
moderate growth and an improved General Fund outlook. Personal income is
expected to increase 5.7 percent in 1996 and 5.9 percent in 1997. Although not
as robust as last year, these numbers still reflect an expanding economy.
Business activity as measured by taxable sales is estimated at 5 to 5.5 percent,
another indicator of moderate growth.
Despite the growing economy, it is estimated that one million California
residents will be unable to find work during 1996. This will pressure state
social services. The budget forecasts an unemployment rate of 7.3 percent for
the current year, dropping to 6.9 percent in 1997.
Other concerns include the cut backs in some social services to fund tax cuts
and the budgeting of program reductions in advance of federal approval.
California Property Tax Revenue
Certain California Tax-Exempt Securities may be obligations of issuers who rely
in whole or in part on ad valorem real property taxes as a source of revenue. On
June 6, 1978, California voters approved an amendment to the California
Constitution know as Proposition 13, which added Article XIII A to the
California Constitution. The effect of Article XIII A is to limit ad valorem
taxes on real property, and to restrict the ability of taxing entities to
increase real property tax and other tax revenues.
Section 1 of Article XIII A limits the maximum ad valorem tax on real property
to 1% of full cash value (as defined in Section 2), to be collected by the
countries and appointed according to law; provided that the 1% limitation does
not apply to ad valorem taxes or special assessment to pay the interest and
redemption charges on (i) any assessments to pay the interest and redemption
charges on (i) any indebtedness approved by the voters prior to July 1, 1978, or
(ii) any bonded indebtedness for the acquisition or improvement of real property
approved on or after July 1, 1978, by two-thirds of the votes cast by the voters
voting on the proposition. Section 2 of Article XIII A defines "full cash value"
to mean "the county assessor's valuation of real property as shown on the
1975-76 tax bill under 'full cash value' or thereafter, the appraised value of
real property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The full cash value may be adjusted
annually to reflect inflation at a rate not to exceed 2% per year, or reduction
in the consumer price index or comparable local data, or reduced in the event of
declining property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article XIII A
provides that notwithstanding any other law, local agencies may not levy any ad
valorem property tax except to pay debt service on indebtedness approved by the
voters prior to July 1, 1978, and that each county will levy the maximum tax
permitted by Article XIII A of $4.00 per $100 assessed valuation (based on the
former practice of using 25%, instead of 100%, of full cash value as the
assessed value for tax purposed). the legislation further provides that, for the
1978/79 fiscal year only, the tax levied by each county was to be apportioned
among all taxing agencies within the county in proportion to their average share
of taxes levied in certain previous years./ The apportionment of property taxes
for fiscal years after 1978/79 has been revised pursuant to Statutes of 1979,
Chapter 282 which provided relief funds from state monies beginning in fiscal
year 1979/80 and is designed to provide a permanent system for sharing state
taxes and budget funds with local agencies. Under Chapter 282, cities and
counties receive more of the remaining property tax revenues collected under
Proposition 13 instead of direct state aid. School districts receive a
correspondingly reduced amount of property taxes, but receive compensation
directly from the state and are given additional relief. As discussed above,
however, the 1993-94 budget would end the post-Proposition 13 fiscal relief.
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The U.S. Supreme Court has struck down as a violation of equal protection
certain property tax assessment practices in West Virginia which had resulted in
vastly different assessments of similar properties. Because Proposition 13
provides that property may only be reassessed up to 2% per year, except upon
change of ownership or new construction, recent purchasers may pay substantially
higher property taxes than long-time owners of comparable property in the same
community. The U.S. Supreme Court in the West Virginia case expressly declined
to comment in any way on the constitutionality of Proposition 13. The United
States Supreme Court recently held, however, that notwithstanding the disparate
property tax burdens on comparable properties, those provisions of Proposition
13 do not violate the Equal Protection Clause of the United States Constitution.
It is not possible to predict the outcome of litigation or the ultimate scope
and impact of Article XIII A, and its implementing legislation. However, the
outcome of such litigation could substantially impact the ability of local
property governments and districts to make future payments on outstanding debt
obligations.
On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" was approved by the California voters, which added Article XIII B to
the California Constitution. Under Article XIII B, state and local governmental
entities have an annual "appropriations limit" and are not able to spend certain
monies, called "appropriations subject to limitation," in an amount higher than
their respective "appropriations limit." Article XIII B does not affect the
appropriation of monies which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is based on certain 1986/87 expenditures, and is adjusted annually to
reflect changes in consumer prices, population and certain services provided by
these entities. Article XII B also provides that if these entities' (other than
the state's) revenues in any year exceed the amounts permitted to be spent, the
excess would have to be returned (i) in the case of the state, 50% to the public
through a revision of tax rates or fee schedules over the subsequent two years
and 50% to the State School Fund for allocation to elementary school, high
school, and community colleges, and (ii) in the case of local governmental
entities, to the public through a revision of tax rates or fee schedules over
the subsequent two years.
At the November 8, 1988 general election, California voters approved an
initiative known as Proposition 98, and on June 5, 1990, California voters
approved Proposition 111. The initiatives amend Article XIII B to require that
(i) the California Legislature establish a prudent state reserve fund in an
amount as it shall deem reasonable and necessary and (ii) 50% of revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIII B by revision of tax rates or fee schedules, be
transferred and allocated to the State School Fund and be expended solely for
purposes of instructional improvement and accountability. Any excess revenues so
allocated are not added to the base when computing the minimum funding guarantee
in future years. Any funds allocated to the State School Fund shall cause the
appropriation limits established in Article X111 B to be annually increased for
any such allocation made in the prior year.
These initiatives also amended Article XVI to require that the State of
California provide a minimum level of funding for public schools and community
colleges. State monies to support school districts and community college
districts shall equal or exceed the lesser of (i) an amount equaling the
percentage of state general fund revenue for school and community college
districts in fiscal year 1986/87 (40.3%), (ii) an amount equal to the prior
fiscal year's state general fund proceeds of taxes appropriated under Article
XIII B plus allocated proceeds of local taxes, after adjustment under Article
XIII B, or (iii) in any year in which the percentage growth in California per
capita state general fund revenues plus one-half of one percent, an amount equal
to the prior fiscal year's proceeds of taxes apportioned under Article XIII B
plus an additional one-half of one percent thereof, after adjustment under
Article XIII B. The initiatives generally permit the enactment of legislation,
by a two-thirds vote, to suspend the minimum funding requirement for one year.
Article XIII B, like Article XIII A, may require further interpretation by both
the Legislature and the courts to determine its applicability to specific
situations involving the state and local taxing authorities. Depending upon the
interpretation, Article XIII B may limit significantly a governmental
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entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.
In June 1982 the voters of California passed two initiative measures to repeal
the California gift and inheritance tax laws and to enact, in lieu thereof, a
California death tax. California voters also passed an initiative measure to
increase, for taxable years commencing on or after January 1, 1982, the amount
by which personal income tax brackets will be adjusted annually in an effort to
index tax brackets will be adjusted annually in an effort to index tax brackets
to account for the effects of inflation. The voters also passed an initiative
measure, subsequently amended, affecting for taxation purposes the valuation of
real property taken through eminent domain proceedings. Decreases in state and
local revenues in future fiscal years as a consequence of these initiatives may
result in reductions in allocations of state revenues to California municipal
issuers or in the ability of such California issuers to pay their obligations.
In the years immediately after enactment of Article XIII B , few California
government entities neared their appropriations limit. Now, however, many local
government entities are at or near the limits. The state exceeded its
appropriation limit for the fiscal year 1986-87. The excess, in the amount of
$1.138 billion, was largely returned to taxpayers as a tax rebate. The state was
below its appropriations limit for 1987-88. State revenues may equal or exceed
the spending limit for current periods. To the extent the state remains
contained by its appropriations limit, the absolute level, or the rate of
growth, of assistance to local governments may be reduced.
On November 4, 1986, California voters approved an initiative statute known as
Proposition 62. This initiative requires that any tax for general governmental
purposes imposed buy local governments be approved by resolution or ordinance
adopted by a two-thirds vote of the governmental entity's legislative body and
by a majority vote of the electorate of the governmental entity, (ii) requires
that any special tax (defined as taxes levied for specific purposed) imposed by
a local governmental entity be approved by a two-thirds vote of the voters
within that jurisdiction, (iii) restricts the use of revenues from a special tax
to the purposes or for the service for which the special tax is imposed, (iv)
prohibits the imposition of ad valorem taxes on real property by local
governments of transaction taxes and sales taxes on the sale of real property,
(vi) requires that any tax imposed by a local government on or after August 1,
1985 and before November 4, 1986 be ratified by a majority vote of the
electorate within two years of the adoption of the initiative or be terminated
by November 15, 1988, (vii) requires that, in the event a local government fails
to comply with the provisions of this measure, a reduction in the amount of
property tax revenue allocated to such local government occurs in an amount
equal to the revenues received by such entity attributable to the tax levied in
violation of the initiative, and (viii) permits these provisions to be amended
exclusively by the voters of the State of California.
While several recent decisions of the California Courts of Appeal have held that
parts of Proposition 62 are unconstitutional, the California Supreme Court has
yet to decide on those matters. On December 19, 1991, the California Supreme
Court declared unconstitutional a 1988 San Diego County ballot measure that
raised sales taxes to construct criminal detention and courthouse facilities,
because it did not receive two-thirds voter approval. the court concluded that
the special tax violated Article XIII A because the agency established to
finance the facilities was a special district created to circumvent Article XIII
A. On March 3, 1992, however, a California Court of Appeal upheld a Los Angeles
County sales tax increase passed by majority vote in 1990, because the agency
entitled to collect the additional tax was not formed to circumvent Article XIII
A, and therefore the increased tax was not subject to the two-thirds voter
approval requirement. These decisions may continue to cast some doubt on their
projects around the state that may have been financed with sales tax increases
imposed without two-thirds voter approval.
Revenues of Health Care Institutions
Certain California tax-exempt securities may be obligations which are payable
solely from the revenues of health care institutions. Certain provisions under
California law may adversely affect such revenues and, consequently, payment on
those Municipal Obligations.
The federally-sponsored Medicare program for health care services to eligible
welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a
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cost-based system of reimbursement for inpatient care furnished to Medi-Cal
beneficiaries by any hospital wanting to participate in the Medi-Cal program,
provided such hospital met applicable requirements for participation. California
law now provides that the State of California shall selectively contract with
hospitals to provide acute inpatient services to Medi-Cal patients. Medi-Cal
contracts currently apply only to acute inpatient services. Generally, such
selective contracting is made on a flat per diem payment basis for all services
to Medi-Cal beneficiaries, and generally such payment has not increased in
relation to inflation, costs or other factors. Other reduction or limitations
may be imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate funding therefore.
In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital cure
inpatient services) would be decreased by ten percent through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the State of California
would be entitled to recapture the payment differential for the intended
reduction period. It is not possible to predict at this time whether any
decreases will ultimately be implemented.
California enacted legislation in 1982 that authorizes private health plans and
insurers to contract directly with hospitals for services to beneficiaries on
negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations"("PPOs"), which offer financial incentives for
subscribers who use only the hospitals that contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payers limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO and PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
Such California Municipal Securities may also be insured by the State of
California pursuant to an insurance program implemented by the Office of
Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured California Municipal Securities, the state
treasurer will issue debentures payable out of a reserve fund established under
the insurance program or from unappropriated state funds. At the request of the
Office of statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983 to evaluate the adequacy of the reserve fund
established under the insurance program and, based on certain formulations and
assumptions, found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc. prepared an update for the study and concluded that
an additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation method.
Revenues Secured by Deeds of Trust
Certain California obligations may be obligations which are secured in whole or
in part by a mortgage or deed of trust on real property. California has five
statutory provisions which limit the remedies of a credit secured by a mortgage
or deed of trust. Two limit the creditor's right to obtain a deficiency
judgment, one limitation being based on the method of foreclosure and the other
on the type of debt secured. Under the former, a deficiency judgment is barred
when the foreclosed mortgage or deed of trust secures certain purchase money
obligations. Another California statute, commonly known as the "one form of
action" rule, requires creditors secured by real property to exhaust their real
property security by foreclosure before bringing a personal action against the
debtor. The fourth
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statutory provision limits any deficiency judgment obtained by a creditor
secured by real property following a judicial sale of such property to the
excess of the outstanding debt over the fair value of the property at the time
of the sale, thus preventing the creditor from obtaining a large deficiency
judgment against the debtor as the result of low bids at a judicial sale. The
fifth statutory provision gives the debtor the right to redeem the real property
from any judicial foreclosure sale as to which a deficiency judgment may be
ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing a formal
notice of default, the debtor is entitled to reinstate the mortgage by making
any overdue payments. Under standard loan servicing procedures, the filing of
the formal notice of default does not occur unless at least three full monthly
payments have become due and remain unpaid. The power of sale is exercised by
posting and publishing a notice of sale for at least 20 days after expiration of
the three-month reinstatement period. Therefore, the effective minimum period
for foreclosing on a mortgage could be in excess of seven months after the
initial default.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a home mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
federal or state constitution, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain California Municipal Securities may be obligations which finance the
acquisition of single family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above, applicable to obligations secured by real property. Under
California anti-deficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, nonjudicial foreclosure.
Under California law, mortgage loans secured by single family, owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and cannot in any event exceed
six months' advance interest on the amount prepaid in excess of 20% of the
original principal amount of the mortgage loan. This limitation could affect the
flow of revenues available to an issuer for debt service on the outstanding debt
obligations which financed such home mortgages.
TRUSTEES AND OFFICERS
We have a Board of Trustees which is responsible for our overall management,
including general supervision and review of our investment activities. Our
Trustees, in turn, elect the officers of the Trust, who are responsible for
administering our day-to-day operations. Our current Trustees and executive
officers and their affiliations and principal occupations for at least the past
five years are set forth below. Trustees whose names are followed by an asterisk
are "interested persons", as that term is defined in the 1940 Act, of the
Manager.
William D. Glenn II, Trustee and chair of the board, is the executive director
of Criterion, and a psychotherapist with a private practice in San Francisco and
Berkeley, and a staff therapist at Merritt Peralta Institute in Oakland, CA.
Address: 915 Las Ovejas, San Rafael, CA 94903.
Sophia Collier, Trustee, is President and Principal owner of Citizens Advisers.
Juliana Eades, Trustee, is Executive Director of New Hampshire Community Loan
Fund and a member of the Campaign for Ratepayer's Rights. Address: 79 South
State Street, Concord, New Hampshire 03301.
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Azie Taylor Morton, Trustee, is an investment advisor and was Treasurer of the
United States during the Carter Administration. Address: 2801 Park Center Drive,
Suite A-912, Alexandria, Virginia 22302.
J.D. Nelson, Trustee, is founder and C.E.O. of Rhumbline Advisers Corp., a
minority-owned investment firm and currently serves on the Board of the City of
Boston's Economic Development Industrial Corporation. Address: Rhumbline
Advisers, 50 Rowes Wharf, Boston, Massachusetts 02110.
Lokelani Devone is the assistant general counsel at DFS Group Limited, an
international retail business group where she has worked since 1989. Address:
655 Montgomery St., 18th floor, San Francisco, CA 94111.
Ada Sanchez, Trustee, is the director of the Public Service and Social Change
Program at Hampshire College. Address: c/o Public Service & Social Change
Program, Hampshire College, Fanklin Patterson Hall, Amherst, MA 01002.
The following compensation table disclosed the aggregate compensation from the
Registrant for services provided through June 30, 1996. Our Trustees, officers
and members of the Board of Advisors as a group owned less than 1% of our
outstanding shares as of June 30, 1996.
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
<TABLE>
<CAPTION>
==============================================================================================
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Total
Person, Compensa- Retirement Benefits Annual Benefits Compensation
Position tion From Accrued As Part of Upon Paid to
Registrant Registrant Fund Expenses Retirement Directors
==============================================================================================
<S> <C> <C> <C> <C>
Azie Taylor Morton $4,000 0 0 $4,000
Aileen Hernandez 1,000 0 0 1,000
Juliana Eades 4,000 0 0 4,000
Jeffrey Mori 2,500 0 0 2,500
William D. Glenn,II 6,500 0 0 6,500
Ada Sanchez 4,000 0 0 2,000
Lokelani Devone 750 0 0 750
Sophia Collier* 0 0 0 0
J.D. Nelson* 0 0 0 0
Wilma Mankiller 1,000 1,000
</TABLE>
* Sophia Collier is an interested trustee and received no compensation from
Citizens Trust. J.D. Nelson did not become an interested trustee until March
1995 and received compensation from the Trust prior to his change in status to
an interested trustee.
The Trustees who are not "interested persons" received aggregate fees from us of
$23,750 for services provided through June 30, 1996 and were also reimbursed for
out of pocket expenses. Our Trustees, officers and members of the Board of
Advisors as a group owned less than 1% of our outstanding shares as of June 30,
1996.
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MANAGEMENT OF THE FUND
The following information and supplements should be read in conjunction with the
section in our Prospectus entitled "Management of the Fund."
The name "Muir," "Working Assets," and "The Talking Prospectus" are used by the
Fund pursuant to a non-exclusive license granted by Citizens Advisor, our
adviser. In the event that either the Underwriting Agreement or the Investment
Management Agreement between the Manager and the Fund is terminated, Citizens
Advisers, has reserved the right to require that we cease using the names.
Investment Manager. Our Manager serves pursuant to an Investment Management
Agreement with us. Subject to the supervision and direction of the Fund's Board
of Trustees, our Manager provides investment advice, manages our investments in
accordance with our stated policies and supervises our Portfolio Adviser,
GMG/Seneca Capital Management, L.P, a wholly owned subsidiary of GMG Capital
Management, LLC.
The Investment Management Agreement and Portfolio Advisory Agreement, each dated
February 7, 1994, were approved by the Board of Trustees at a Board of Trustees
meeting on February 28. Each of those agreements is in effect through February
1996 and shall continue in effect for subsequent periods of up to one year
thereafter if re-approved before that day (and thereafter annually) by (i) the
Board of Trustees of the Trust or (ii) vote of a majority of our outstanding
voting securities (as defined in the 1940 Act), provided that in either event
the continuance also is approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or of our Manager
or Portfolio Adviser, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Management Agreement and Portfolio Advisory
Agreement are terminable without penalty on 60 days' written notice, by the
Board of Trustees of the Trust, by vote of the holders of a majority of our
shares, or by our Manager or Portfolio Adviser. The Management Agreement and
Portfolio Advisory Agreement will terminate automatically in the event of their
assignment (as defined in the 1940 Act).
Sophia Collier individually owns 60% of the outstanding stock of Citizens
Adviser. Ms. Collier is the founder of American Natural Beverage Corp., the
maker of Soho Natural Soda, a company which Ms. Collier co-founded in her
Brooklyn Kitchen when she was 21 years old and built up over the next 12 years
to an enterprise with 52 employees and retail sales of $25 million. Soho Soda
was the first natural soda in America and was created as an alternative to
unhealthful mass market sodas. Sophia and her partners sold American Natural
Beverage Corp. in 1989.
Four other individuals own the remaining 40% of the outstanding stock of
Citizens Adviser, as follows: John F. Dunfey (12%); Robert J. Dunfey, Sr. (12%);
Gerald F. Dunfey (12%); and William B. Hart, Jr. (4%). John, Robert and Gerald
Dunfey, brothers, now serve as directors of the Dunfey Group, a venture capital
and investment company. The Dunfey family has been associated, over a number of
years, with progressive social and political causes and has actively
participated in organizations dedicated to world peace, human and civil rights,
and economic justice. The family founded and continues to sponsor New England
Circle, a forum for the "discussion of social, political, literary and
educational topics that can lead to constructive change in our lives, our nation
and our world."
Other Officers of the Fund.
Christine Pratt, Senior Vice-President of Citizens Advisers began working for
Citizens Advisers in May of 1996. Prior to that time Ms. Pratt was employed by
BayBanks, where she headed up the lending and servicing division for BayBanks
Consumer Lending and Mortgage subsidiaries.
Sub-Adviser.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Muir California Tax-Free Income Portfolio, GMG/Seneca
Capital Management, L.P. is a registered investment adviser established in 1990.
It is a wholly owned subsidiary of GMG Capital Management, LLC, which manages
over $3 billion from their offices at
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<PAGE>
909 Montgomery Street, San Francisco, CA. Organized as a California limited
partnership, GMG/Seneca Capital Management, L.P. has two general partners, Gail
Seneca and Genesis Merchant Group, L.P., an Illinois Limited Partnership.
Genesis Merchant Group, in turn, has three general partners: William K.
Weinstein, Gail Seneca, and Philip C. Stapleton. Prior to starting GMG/Seneca,
Gail was employed by Wells Fargo Bank as a senior investment officer.
Fees. For performing the general management and oversight functions discussed
above, the Manager is entitled to a monthly fee (accrued daily) based upon the
average daily net assets of the Fund at the annual rate of 0.65%. However, the
Manager has agreed to limit total annual portfolio operating expenses of the
Portfolio to 1.25% for the calendar year 1996. Due to this total expense
limitation, the Manager may receive less than its contracted annual fee from the
fund.
Pursuant to a Portfolio Advisory Agreement, the Manager has agreed to pay the
Portfolio Adviser a monthly portfolio advisory fee at the annualized rate of
0.175% per annum of the average daily net assets of the Fund. The Portfolio
Adviser's fee is not an additional expense of the Fund.
Expense Limitation. Any reductions made by the Manager in its fees are subject
to reimbursement from us within the following three years provided we are able
to effect such reimbursement and remain in compliance with the most stringent
limits prescribed by any state in which our shares are offered for sale. The
most stringent current statutory limit requires the Manager to reimburse us to
the extent that our aggregate operating (excluding interest, taxes. brokerage
commissions and extraordinary expenses such as litigation costs) exceed, in any
fiscal year, 2 1/2% of our first $30 million of net assets, 2% of the next $70
million of net assets and 1 1/2% of our average annual net assets in excess of
$100 million. The Manager has agreed not to seek reimbursement from us unless we
are able to effect such reimbursement and remain within the Manager's current
voluntary expense limitations.
We are responsible for our own operating expenses including, but not limited to:
the management fee; transfer agent, custodian, legal and auditing fees and
expenses; fees of Trustees who are not interested persons and expenses of
Trustees in connection with their duties as such; salaries of certain personnel;
taxes, if any; costs and expenses of calculating our daily net asset value;
costs and expenses of accounting, bookkeeping and record keeping required under
the 1940 Act; insurance and fidelity bond premiums; trade association dues; fees
and expenses of registering and maintaining registration of our shares for sale
under federal and applicable state securities laws; all costs associated with
shareholders meetings and the preparation and dissemination of proxy materials
which are appropriately allocable to us; costs of printing and mailing
prospectuses, statements of additional information and reports to existing
shareholders; current amortization of organization expenses; and other expenses
relating to our operations, plus any extraordinary and non-recurring expenses
which are not expressly assumed by our Manager.
To the extent our Manager performs a service or assumes an operating expense for
which we are obligated to pay (other than services which our Manager is
obligated to perform under the Management Agreement), the Manager is entitled to
seek reimbursement from us for the costs incurred in rendering such service or
assuming such expense.
EXECUTION OF PORTFOLIO TRANSACTIONS
We anticipate that our portfolio turnover will not exceed 100% per annum. The
selection of brokers and dealers to execute transactions is made by our
Portfolio Adviser in accordance with any directions which our Manager or
Trustees may give. The Portfolio Adviser considers a number of factors in
determining which brokers or dealers to use for our portfolio transactions. The
factors include, but are not limited to: reasonableness of commissions; quality
of services and execution; in agency transactions, the availability of research
which the Portfolio Adviser or the Manager may lawfully and appropriately use in
its investment management and advisory capacities; and, to the extent permitted
by law and subject to the requirement of best execution, sales of our shares.
Because most purchases made by us are principal transactions at net prices, we
will incur little or no
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brokerage commissions. We deal directly with the selling or purchasing principal
or market maker without incurring charges for the services of a broker on our
behalf unless we or our Portfolio Adviser determines that a better price or
execution may be obtained by utilizing the services of a broker. Purchases from
dealers include a spread between the bid and asked price and purchases of
portfolio securities from underwriters include a commission or concession paid
by the issuer to the underwriter. We seek to obtain prompt execution of orders
at the most favorable net price. Transactions may be directed to dealers, in the
case of transactions involving agency commissions, in return for our Manager's
or Portfolio Adviser's receipt of special research and statistical information
which our Manager and Portfolio Adviser may lawfully and appropriately use in
their investment management or advisory capacities. It is not possible to place
a dollar value on the research services received by our Manager and Portfolio
Adviser from dealers effecting agency transactions in portfolio securities. The
allocation of transactions in order to obtain additional research services
permits our Manager and Portfolio Adviser to supplement their own research and
analysis activities and to make available to them the views and information of
individuals and research staffs of other securities firms. Provided that the
best execution is obtained, the sale of our shares may also be considered as a
factor in the selection of broker-dealers to execute our portfolio transactions.
If purchases or sales of our securities and one or more clients supervised by
our Portfolio Adviser (or any of its affiliates) are considered at or about the
same time, transactions in such securities will be allocated among the several
clients in a manner deemed equitable to all by our Portfolio Adviser, taking
into account the respective sizes of the entities, and the amount of securities
to be purchased or sold. It is possible that in some cases this procedure could
have a detrimental effect on the price or volume of the security so far as we
are concerned. In other cases, however, it is possible that the ability to
participate in volume transactions and to negotiate lower commissions will be
beneficial to us.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
We reserve the right in our sole discretion (i) to suspend the continued
offering of our shares, (ii) to reject purchase orders in whole or in part when
in the judgment of our Adviser such rejection is in our best interests, and
(iii) to reduce or waive the minimum for initial and subsequent investments for
certain fiduciary accounts or under circumstances where certain economies can be
achieved in sales of our shares.
Payment to you for shares redeemed directly from us will be made as promptly as
possible but no later than seven days after receipt by our Transfer Agent of the
written request in proper form with appropriate documentation as stated in the
Prospectus, except that we may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission
(the "SEC") or such Exchange is closed for other than weekends and holidays; (b)
an emergency exists as determined by the SEC, making disposal of portfolio
securities or valuation of our net assets not reasonably practicable; or (c) for
such other period as the SEC may permit for the protection of our shareholders.
At various times, we may be requested to redeem shares for which we have not yet
received good payment. In this circumstance, we may delay the mailing redemption
checks until the payment has been collected for the purchase of such shares.
We intend to pay cash (U.S. dollars) for all shares redeemed, but under abnormal
conditions which may make payment in cash unwise, we may make payment wholly or
partly in securities with a current market value equal to the redemption price.
In such case, an investor may incur brokerage costs in converting such
securities to cash. We have elected to be governed by the provisions of Rule
18f-1 under the 1940 Act, which contains a formula for determining the
redemption amounts that must be paid in cash.
The value of our shares on redemption may be more or less than your cost,
depending upon the market value of our portfolio securities at the time of
redemption.
Shares for an initial investment as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are credited to an
account in your name on our books,
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without the issuance of a share certificate. Maintaining shares in "plan
balance" (or uncertificated form) minimizes the risk of loss or theft of a
share certificate and facilitates expedited redemption. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a sufficient
indemnity bond. The cost of such a bond, which is generally borne by the
shareholder, can be 2% or more of the value of the lost, stolen or destroyed
certificate. A certificate will be issued only if requested in writing by you or
your broker.
DETERMINATION OF SHARE PRICE
As noted in our Prospectus, the net asset value and offering price of our shares
will be determined once daily as of the close of regular trading on the New York
Stock Exchange (currently 1:00 p.m., California time), on each day such Exchange
is open for trading. It is expected that the Exchange will be closed on
Saturdays and Sundays and on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
We do not expect to determine the net asset value of our shares on any day when
the Exchange is not open for trading even if there is sufficient trading in our
portfolio securities on such days to materially affect the net asset value per
share.
Our net asset value per share is calculated as follows: all liabilities incurred
or accrued are deducted from the valuation of total assets (as described in the
Prospectus); the resulting net assets are divided by the number of shares
outstanding at the time of the valuation and the result (resulted to the nearest
cent) is the net asset value per share.
PRINCIPAL UNDERWRITER
Citizens Securities, our Manager, also serves as our "Distributor," or principal
underwriter, in a continuous public offering of our shares. Our Distributor is
currently registered as a broker-dealer with the Securities and Exchange
Commission. The Underwriting Agreement between us and the Distributor will be in
effect until June 10, 1995, and shall continue in effect thereafter for periods
not exceeding one year if approved at least annually by (i) our Board of
Trustees or the vote of a majority of our outstanding voting securities (as
defined in the 1940 Act) and (ii) a majority of the Trustees who are not
interested persons of the Fund, in each case by a vote cast in person at a
meeting called for the purpose of voting on such approval. The Underwriting
Agreement may be terminated without penalty by the parties thereto upon sixty
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
In some instances securities dealers and investment firms may receive 90% more
of the sales charge and may therefore be deemed "underwriters" under the
Securities Act of 1933, as amended.
PERFORMANCE
From time to time, we may quote various performance figures to illustrate our
past performance. We may occasionally cite statistics to reflect the volatility
or risk of an investment in our shares,
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance information be computed
as required by the SEC. Current yield and average annual compounded total return
quotations which we use are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods which
we use to compute or express performance are as follows:
Total Return. The average annual total return is determined by finding the
average annual compounded rates of return over 1, 5 and 10 year periods that
would equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes the maximum sales load is deducted from the
initial $1,000 purchase order, capital gains are reinvested as net asset value
and all income dividends are reinvested at the maximum public offering price
(offering price includes sales charge) on the reinvestment dates during the
period. The quotation assumes
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the account was completely redeemed at the end of each 1,5 and 10 year period
and the deduction of all applicable charges and fees.
These figures will be calculated according to the SEC formula:
P(1 + T)n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods at the
end of the 1,5, or 10 year periods
Other rates of total return which we may quote are computed in the same manner
as our average annual compounded rate, except that such quotations will be based
on our actual return for a specified period without being annualized or
averaged.
Yield. Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base period.
Our yield is calculated by using the SEC formula:
Yield = 2[(a-b + 1)6 - 1]
--------
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive income distributions.
d = the maximum offering price per share on the last day of the period.
Effective Yield. Effective yield, which we may also quote, is determined by
taking the base period return (computed as described above) and calculating the
effect of assumed compounding.
The formula for effective yield is:
[(base period return + 1) 365/7 - 1]
As of June 30, 1996 the one year total return for the Muir California Tax-Free
Income Portfolio was 4.71% and since inception of the portfolio its total return
as of June 30, 1996 is 6.22%. A $1000 hypothetically invested for the year
ending June 30, 1996 would return $1047.10.
Tax Equivalent Yield. We may also quote a tax equivalent yield which
demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund which invests in tax-exempt obligations. Such yield
is computed by dividing that portion of our yield (computed as indicated above)
that is tax-exempt by one minus the highest applicable income tax rate and
adding the product to that portion of our yield that is not tax-exempt.
Current Distribution Rate. Current yield, effective yield and tax equivalent
yield which are calculated according to a formula prescribed by the SEC are not
indicative of the amounts that actually may be paid to our shareholders. Amounts
paid to shareholders are reflected in the quoted current distribution rate or
taxable equivalent distribution rate. The current distribution rate is computed
by dividing the total amount of dividends per share we paid during the past
twelve months by a current maximum offering price. A taxable equivalent
distribution rate demonstrates the taxable distribution rate equivalent to our
current distribution rate (calculated as indicated above). Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be appropriate
to annualize the dividends paid
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over the period such policies were in effect, rather than using the dividends
during the past twelve months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from additional sources (i.e., sources other than dividends and interest, such
as short-term capital gains), and is calculated over a different period of time.
Volatility. Occasionally statistics may be used to specify our volatility or
risk. Measures of volatility or risk are generally used to compare our net asset
value or performance relative to a market index. One measure of volatility or
risk is standard deviation. Standard deviation is used to measure variability of
net asset value or total return around an average, over a specified period of
time. The premise is that greater volatility connotes greater risk undertaken in
achieving performance.
Other Performance Quotations. With respect to those categories of investors who
are permitted to purchase our shares at net asset value, sales literature
pertaining to our shares may quote a "Current Distribution Rate for Net Asset
Value Investments." This rate is computed by adding the income dividends we paid
during the last twelve months and dividing that sum by a current net asset
value. Figures for yield, total return and other measures of performance for Net
Asset Value Investments may also be quoted. These will be derived as described
elsewhere in this Statement of Additional Information with the substitution of
net asset value for public offering price.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
Comparisons. To help investors better evaluate how an investment in our shares
might satisfy their investment objective, advertisements regarding an investment
in our shares may discuss various measures of our performance as reported by
various financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices, and
averages. The following publications, indices, and averages may be used:
a).Salomon Brothers Broad Bond Index or its component indices -- The Broad Index
measures yield, price, and total return for Treasury, Agency, Corporate, and
Mortgage bonds.
b).Shearson Lehman Brothers Aggregate Bond Index or yield, price and total
return for Treasury, Agency, Corporate, Mortgage and Yankee bonds.
c).Shearson Lehman Brothers Municipal Bond Index (SLMBI) or its component
indices -- SLMBI measures yield, price and total return for the municipal bond
market.
d).Bond Buyer's 20-Bond Index -- an index of municipal bond yields based upon
yields of 20 general obligation bonds maturing in 20 years.
e).Bond Buyers' 30-Bond Index -- an index of municipal bond yields based upon
yields of 20 revenue bonds maturing in 30 years.
f).Financial publications: Business Week, Financial World, Forbes, Fortune, and
Money magazines -- the publications periodically rate yield and total return
over specified time periods.
g).Salomon Brothers Composite High Yield Index or its component indices -- The
High Yield Index measures yield, price and total return for Long-Term High-Yield
Index, Intermediate-Term High-Yield Index, Long-Term Utility High-Yield Index.
h).Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan Companies, Salomon Brothers, Merrill Lynch and
Shearson Lehman Hutton.
i).Merrill Lynch California Municipal Bond Index -- based upon yields from
revenue and general obligation bonds weighted in accordance with their
respective importance to the California municipal market. The index is published
weekly in the Los Angeles Times and the San Francisco Chronicle.
j).Lipper-Mutual Fund Performance Analysis and Lipper-Fixed Income Fund
Performance Analysis --
26
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measure total return and average current yield for the mutual fund industry.
Rank individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to our portfolio, that the averages are generally unmanaged, and
that items included in the calculations of such averages may not be identical to
the formula we use to calculate our figures. In addition there can be no
assurance that we will continue such performance as compared to such other
averages.
There is no difference in the tax benefits that are offered for governmental
projects that our Board of Trustees and Manager believe are socially beneficial
and similarly structured governmental projects that do not meet our Fund's
social standards.
Our Fund is designed to let you invest in public works and legitimately reduce
your taxes at the same time in a way that you state, local and federal
government encourages. While new tax laws have eliminated most traditional tax
shelters, the municipal bonds in which the Fund intends to invest still give you
double tax-exempt income. This tax-advantaged character means that the Fund's
return is enhanced by your tax savings, as indicated below. While investment
advisers agree that some portion of any tax-paying investor's portfolio should
be in tax-free securities in order to increase after-tax income.
In determining whether an investment in the Fund is appropriate, an investor
should determine whether a tax-exempt investment will provide a higher after-tax
return than a fully taxable investment. To determine the tax-equivalent yield
that you should expect from the Fund, your tax-exempt yield should be divided by
one minus the applicable combined California and federal tax rates.
GENERAL INFORMATION
Investors will be informed of our progress through periodic reports. Financial
statements certified by independent public accountants will be submitted to
shareholders at least annually.
PFPC, Inc. acts as the Transfer and Dividend Disbursing Agent of the Fund.
State Street Bank and Trust acts as the Fund's Custodian. The Custodian does not
participate in decisions relating to the purchase and sale of our securities.
Tait, Weller & Baker are the independent auditors for the Fund.
The Fund is registered with the SEC as a diversified, open-end management
investment company. Such a registration does not involve supervision of our
management or policies. Our Prospectus and Statement of Additional Information
omit certain information contained in the Registration Statement filed with the
SEC. Copies of such information may be obtained from the SEC upon payment of the
prescribed fee.
As of June 30, 1996, no individual owner of record or is known to us to own
beneficially 5% or more of the Fund's shares of beneficial interest.
FINANCIAL STATEMENTS
The following financial statements of the Fund and the opinion of its
independent auditors, included in the Annual Report to the shareholders for the
year ended June 30, 1996 are incorporated herein by reference:
Statement of Investments - June 30, 1996
Statement of Assets and Liabilities - June 30, 1996
Statement of Operations for the year ended June 30, 1996
Statement of Changes in Net Assets for the year ended June 30, 1995,
and the year ended
27
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June 30, 1996.
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating symbols of
municipal securities.
Municipal Bonds
Moody's Investors Service:
Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be anticipated are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be of the high quality by
all standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuation of protective elements may be
of greater amplitude or there may be other elements which make the long-term
risks appear somewhat larger then in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appears adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Conditional Ratings: Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operations experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Corporation:
AAA: Municipal bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. In the market they
move with interest rates, and hence provide the maximum safety on all counts.
AA: Municipal bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long term money market.
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A: Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior, but
also to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A capacity.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
Fitch Investors Service, Inc.:
AAA: (highest quality) The obligor has an extraordinary ability to pay interest
and repay principal which is unlikely to be affected by reasonably foreseeable
events.
AA: (high quality) The obligor's ability to pay interest and repay principal,
while very strong, is somewhat less than for AAA rated securities or more
subject to possible change over the term of the issue.
A: (good quality) The obligor's ability to pay interest and repay principal is
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: (satisfactory bonds) The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to weaken this ability than bonds
with higher ratings.
Municipal Notes
Moody's:
Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in short
term-borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used will be
as follows:
MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
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Standard & Poor's:
SP-1: Issues carrying this designation have a strong or very strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Commercial Paper
Moody's:
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment
P-2 (Prime-2): Strong capacity for repayment
P-3 (Prime-3): Acceptable capacity for repayment
Standard & Poor's:
S&P's ratings a current assessment of the likelihood of timely payment of debt
having an original maturity of no more than 365 days. Ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues within the "A" category are delineated with the numbers 1, 2,
and 3 to indicate the relative safety , as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The rating s may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's by other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information.
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Statement of Additional Information
September 27, 1996
This Statement is not a prospectus and should be read in conjunction with the
Prospectus dated the same date as this Statement of Additional Information. A
copy of the current Prospectus dated September 27, 1996 as may be amended from
time to time, can be obtained by calling (800) 223-7010, or by writing Citizens
Trust, 1 Harbour Place, Portsmouth, NH 03801. This Statement and the Fund's
Prospectus may be supplemented from time to time.
Citizens Investment Trust
E[bullet]Fund
- --------------------------------------------------------------------------
Table of Contents Page
- --------------------------------------------------------------------------
The Fund 2
Investment Objective and Policies 2
Other Investment Techniques 3
Factors that Affect the Value of Our Investments 6
Turnover and Portfolio Transactions 6
The Value of Our Shares 6
About Our Yield and Total Return 8
Dividends and Distributions 9
Federal Taxes 9
Additional Redemption Information 11
Trustee and Officers 12
Additional Information Regarding the Management Company 14
Investment Advisory and Other Services 15
Additional Information 16
Voting Rights 17
Shareholder and Trustee Liability 17
Custodian 17
Auditors 18
Legal Counsel 18
Financial Statements 18
1
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The Fund
- -------------------------------------------------------------------------------
Citizens Investment Trust (the "Fund" or "Citizens Trust") presently
consists of seven separate portfolios: Working Assets Money Market Portfolio,
Citizens Income Portfolio, Citizens Emerging Growth Portfolio, Citizens Global
Equity Portfolio, Muir California Tax-Free Income Portfolio, Citizens Index
Portfolio, and E[bullet]Fund Portfolio. On May 28, 1992 the Fund, which had
operated as a money market fund since 1983, changed its name from Working Assets
Money Fund, and added the Income, Balanced and Growth Portfolios. On February 8,
1994 the Emerging Growth and Global Equity Portfolios were added, and on
February 6, 1995 the Index Portfolio was added. On May 30, 1995 the Balanced and
Growth Portfolios were acquired by the Index Portfolio.
This Statement of Additional Information relates to the E[bullet]Fund
only which commenced operations on July 1, 1995.
- -------------------------------------------------------------------------------
Investment Objective and Policies
- -------------------------------------------------------------------------------
The following are fundamental investment policies followed by the
E[bullet]Fund ("the Portfolio") which supplement those listed in the Prospectus.
Any policy identified as a fundamental investment policy of a Portfolio may be
amended only with approval of the holders of a majority of the outstanding
shares of that Portfolio as defined by the Investment Company Act of 1940 (known
as the "1940 Act").
1. A Portfolio may not buy the securities of any company if the Portfolio would
then own more than 10% of the total value of all of the company's outstanding
voting securities, or if the Fund as a whole would then own more than 10% of the
total value of all of the company's outstanding voting securities. A Portfolio
may not concentrate its investments by buying the securities of companies in any
one industry if more than 25% of the value of total assets would then be
invested in that industry; however, obligations issued or guaranteed by the U.
S. Government, its agencies and instrumentalities, and obligations of domestic
branches of domestic banks, are not included in this limit.
2. A Portfolio will not invest in limited partnerships, including those which
own commodities, real estate, and oil, gas and mineral leases.
3. A Portfolio may not make loans other than pursuant to repurchase agreements.
When we buy money market instruments or loan participation interests, we are
investing, not making a loan.
4. A Portfolio may not invest for the purpose of exercising control or
management of other companies.
5. A Portfolio may not buy or continue to hold securities if our Trustees,
officers or the Directors or officers of our Adviser own more than certain
limits of these securities. If all of these people who own more than 1/2 of 1%
of the shares of a company together own more than 5% of the company's shares, we
cannot buy, or continue to own, that company's shares.
2
<PAGE>
6. A Portfolio may not participate with others on a joint, or a joint and
several, basis in any trading account in any securities.
7. A Portfolio may not underwrite securities, which means we may not sell
securities for others.
8. A Portfolio can borrow only under special circumstances. We do not normally
borrow money, but for temporary purposes a Portfolio may borrow from banks up to
10% of the Portfolio's total assets. If we borrow, we can pledge our assets up
to the amount borrowed. A Portfolio cannot borrow to purchase securities or to
increase its income, but can borrow to pay for shares being redeemed so that we
do not have to sell securities we do not want to sell. Thus, a Portfolio will
not purchase any securities while the Portfolio has borrowings above 5% of
assets outstanding. The interest paid on our borrowings would reduce our net
income.
9. Subject to the provisions of our Declaration of Trust which provides that we
may issue several classes of shares in any one portfolio, we may not issue
senior securities. We may not issue securities that have priority over others in
dividends, redemption rights, or have other privileges. We must limit our
involvement in "illiquid instruments," that is, repurchase agreements that have
a term of more than seven days, and securities that have restrictions on resale
or lack readily available market quotations, to 10% of the total value of a
Portfolio's net assets and we will buy no such securities for a Portfolio unless
the assets in the Portfolio exceed $10 million at the time of purchase. Private
Placements which may be traded under rule 144A will not be subject to these
limitations, if our Board of Trustees finds that a liquid trading market exists
for these securities. Our Trustees will review on an ongoing basis any
determination by the Adviser to treat a restricted security as a liquid
security, including the Adviser's assessment of current trading activity and the
availability of reliable price information. In determining whether a privately
placed security is properly considered a liquid security, the Adviser and our
Trustees will take into account the following factors: (i) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer); (ii) dealer undertakings to make a market in the security; and (iii)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers. To the extent the Portfolio invests in restricted
securities that are deemed liquid, the general level of illiquidity in the
Portfolio may be increased if qualified institutional buyers become uninterested
in purchasing these securities or the market for these securities contracts.
Acquisitions of such liquid restricted securities will be made from a list
approved by our Trustees.
10. There is a limit on a Portfolios' ability to loan portfolio securities. If a
portfolio loans securities, then it must maintain collateral at 100% of the
value of the securities and any collateral must be marketable on an exchange.
11. A Portfolio may place only 5% of its total assets in companies which have
been in operation, including operations of predecessors, for less than three
years.
The following is a general policy of all Citizens Trust Portfolios: None of the
Citizens Trust Portfolios will invest in real estate assets or interests
therein, excluding readily marketable securities.
The following discussion elaborates on the description of the
E[bullet]Fund's investment objectives and policies as contained in the
Prospectus, including any fundamental investment policies of the Portfolio that
supplement the fundamental policies of the Fund listed above and in the
Prospectus.
3
<PAGE>
E[bullet]Fund
The E[bullet]Fund, as a fundamental investment policy of the Portfolio,
may not buy any securities other than money market securities. Thus, the
Portfolio cannot buy any commodities or commodity futures contracts, any mineral
programs or leases, any shares of other investment companies or any warrants,
puts, calls or combinations of these. The Portfolio may not buy real estate, or
real estate loans, but may buy money market securities even though the issuer
invests in real estate or interests in real estate.
The following are also the present policies of the E[bullet]Fund, but
may be changed by our Trustees without a vote of the shareholders of the
Portfolio:
1. The Portfolio may invest in variable amount master demand notes, which are
obligations that permit us to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between us and the borrower, subject to
the 10% limitation referred to in paragraph 3 below. The interest rates and
amounts involved may change daily. We have the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount; and the borrower may repay up to the full amount of
the note without penalty. Because these types of notes are direct lending
arrangements between us and the borrower, they generally will not be traded and
there is no active secondary market for these notes. However, they are
redeemable on demand, and thus immediately repayable by the borrower, at face
value plus accrued interest at any time. Our right to redeem is dependent on the
borrower's ability to pay principal and interest on demand. Accordingly, our
Adviser will consider and continuously monitor the earning power, cash flow and
other liquidity ratios of the borrower to assess its ability to meet its
obligations on demand. We will invest in these notes only if the Board of
Trustees or its designee determines that they present minimal credit risks and
are of comparable quality to commercial paper having the highest rating of
Moody's Investors Service or Standard & Poor's Corporation.
2. The Portfolio may not invest more than 10% of its assets in time deposits
maturing in more than two business days but less than seven business days.
3. The Portfolio will not enter into a repurchase agreement if it would cause
more than 10% of its assets to be subject to repurchase agreements having a
maturity of more than seven days; included in this 10% limitation would be any
illiquid securities (as described below).
4. The Portfolio will not invest more than 10% of its net assets in illiquid
securities. Generally an illiquid security is any security that cannot be
disposed of promptly and in the ordinary course of business at approximately the
amount at which the Portfolio has valued the instrument. Subject to this
limitation, our Trustees have authorized the Portfolio to invest in restricted
securities, specifically privately placed commercial paper, where such
investment is consistent with the Portfolio's investment objective, and has
authorized such securities to be considered to be liquid to the extent the
Adviser determines that there is a liquid institutional or other daily market
for such securities. For example, restricted securities which may be freely
transferred among qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended, and for which a liquid institutional market
has developed may be considered to be liquid securities. See the discussion
relating to the purchase of illiquid securities in the section on the
fundamental investment policies of the Portfolios under Investment Objective and
Policies above.
4
<PAGE>
5. The Portfolio will not invest more than 5% of its net assets in variable rate
securities.
The Portfolio may not sell short or buy on margin and may not write put
or call options.
Portfolio Quality and Required Maturities
Because the E[bullet]Fund uses the amortized cost method of valuation
(see "The Value of Our Shares"), the Portfolio will not purchase any instruments
with a remaining maturity of more than 397 days (13 months), except for certain
exceptions permitted by rules under the 1940 Act. Obligations of U.S. Government
agencies and instrumentalities which have a variable rate of interest which is
adjusted no less frequently than every 762 days are considered to have a
maturity equal to the period remaining until the next adjustment date. A
variable rate instrument which permits us to demand payment of the principal
amount of the instrument at any time or at specified intervals of no more than
397 days (13 months), on no more than thirty days' notice, is deemed to have a
maturity of the longer of the period remaining until the interest rate is
adjusted or the period remaining until the principal amount will be paid to us
on demand. A variable rate instrument maturing in 397 days (13 months) or less
is deemed to have a maturity equal to the period remaining until the next
interest adjustment date. A floating rate instrument with a demand feature, and
which has its interest rate pegged to an identified market interest rate, is
deemed to have a maturity equal to the period of time remaining until the
principal amount will be paid to us on demand, provided that our Trustees
determine that the floating rate feature insures that the market value of the
instrument will always approximate par value and that the instrument is of high
quality. Our Trustees will review our holdings of variable rate instruments
quarterly to assure themselves that these instruments continue to be of high
quality. A repurchase agreement is considered to have a maturity equal to the
period remaining until the delivery date on resale. An instrument called for
redemption is considered as maturing on the date on which the redemption payment
must be made. The Money Market Portfolio will maintain a dollar-weighted average
portfolio maturity that does not exceed 90 days.
The E[bullet]Fund intends to comply with Rule 2a7 under the 1940 Act.
Under that Rule, the Portfolio may not invest more than 5% of its total assets
in the securities of any one issuer, except for U. S. Government agency
securities. In addition, we may only invest in securities which are rated within
the top two rating categories (or, if unrated, deemed by our Adviser to be of
equivalent credit quality). We may not invest more than 5% of the
E[bullet]Fund's assets in securities which are not rated in the highest rating
category by at least two nationally recognized statistical rating organizations
(for single-rated securities, one rating organization will suffice; for unrated
securities, our Adviser may rely on its own credit equivalency assessment based
upon procedures approved by our Trustees). If we do invest in securities which
are not rated in (or, if unrated, not deemed equivalent to) the highest rating
category, we will limit such investments so that no more than 1% of the total
assets of the E[bullet]Fund is invested in securities of any one issuer rated
below the highest category. In addition, pursuant to our own credit procedures,
we will not invest in any unrated security or in any security rated by only one
rating organization unless such security is on a list approved by our Trustees.
Although Rule 2a-7 allows that 5% may be invested in second tier securities, the
E[bullet]fund's policy is to invest, 100%, in first tier securities only.
5
<PAGE>
- -------------------------------------------------------------------------------
Factors That Affect the Value of Our Investment
- -------------------------------------------------------------------------------
Money Market Instruments and Fixed Income Securities: The value of the
fixed income securities in which we invest will fluctuate depending in large
part on changes in prevailing interest rates. Fixed income securities comprise
all assets in the E[bullet]Fund under normal conditions. If these rates go up
after we buy a security, its value may go down. On the other hand, if the rates
go down, the security's value may go up. Changes in value and yield based on
changes in interest rate may have different effects on short-term obligations
than on long-term obligations. Long-term obligations, which often have higher
yields, may fluctuate in value more than short-term ones. We do not expect
changes in interest rates to significantly affect the value of our shares in the
E[bullet]Fund, since we use the amortized cost method, which is described in the
section "The Value of Our Shares."
- ------------------------------------------------------------------------------
Turnover and Portfolio Transactions
- ------------------------------------------------------------------------------
In the E[bullet]Fund, we generally purchase investments and hold them
until they mature. Historically, securities of U.S. Government agencies or
instrumentalities have involved minimal risk when they have been held by
investors to maturity. However, we may from time to time sell securities and
purchase others to attempt to take advantage of short-term market variations. We
may also sell securities prior to maturity to meet redemptions or as a result of
a revised evaluation of the issuer by our Adviser.
Our Adviser seeks to obtain for us the best net price and the most
favorable execution of orders. Purchases are made from issuers, underwriters,
dealers or brokers, and banks who specialize in the types of securities we buy.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriters. Purchases from dealers include the spread between
the bid and asked prices and purchase from brokers include commissions paid to
the broker based upon the transaction size. If the execution and price offered
by more than one dealer are comparable, the order may be given to a dealer who
has provided research advice, quotations on portfolio securities or other
services. Our Advisor will comply with rule 17e-1 in regards to brokerage
transactions with affiliates, to assure that commissions will be fair and
reasonable to the shareholders.
Our Adviser may allocate transactions to broker/dealers in exchange for
services. By allocating transactions to obtain services, the Adviser is able to
supplement its own efforts. While it is not possible to place a dollar value on
these services, it is the opinion of the Adviser that the receipt of these
services does not materially reduce the Adviser's overall expenses. These
services may or may not be useful to us or to our Adviser and its affiliates
which engage in securities activities.
Our Adviser also may enter into "soft dollar" arrangements with
broker/dealers. A soft dollar arrangement is one in which the brokerage
commissions generated through trading are used to purchase ancillary products
and services relating to social and investment research.
6
<PAGE>
- -------------------------------------------------------------------------------
The Value of Our Shares
- -------------------------------------------------------------------------------
The value of our shares is expressed as net asset value. The net asset
value per share is computed by subtracting total Portfolio and Class liabilities
from total assets and dividing that number by the total number of our
outstanding shares. All expenses are accrued daily and taken into account in
determining net asset value.
We attempt to keep the net asset value of our E[bullet]Fund fixed at
$1.00 per share.
The value of our shares is determined at 4:00 p.m. Eastern Time on each
day on which the New York Stock Exchange is open for regular trading and at such
other times as we feel may be necessary or appropriate.
E[bullet]Fund
Our Trustees have determined that it is appropriate for us to value the
E[bullet]Fund using the amortized cost method and that this method represents
the fair value of the Portfolio's shares. This method values a security at the
time of its purchase at cost and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. This method does not take
into account unrealized gains and losses.
While the amortized cost method provides certainty in valuation, there
may be periods during which value, as determined by the amortized cost method,
is higher or lower than the price we would receive if we sold the instrument.
During periods of declining interest rates, the daily yield on our shares may
tend to be higher than a like computation made by a fund with identical
investments which uses a method of valuation based on market prices and which
reflects capital changes in its dividends. Thus, if the use of amortized cost by
us resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in our shares would be able to obtain a somewhat higher
yield from us than he would from investment in the other fund, and existing
investors in our shares would receive less investment income. The converse would
apply in a period of rising interest rates.
To use the amortized cost method, our Board of Trustees must establish
procedures designed to stabilize the net asset value of the E[bullet]Fund at
$1.00 per share, to the extent reasonably possible. These procedures must
include review of the portfolio by the Board at intervals it deems appropriate
and reasonable in the light of market conditions to determine how much the net
asset value using available market quotations deviates from the net asset value
based on amortized cost. For this purpose, when market quotations are available,
securities are valued at bid price. If market quotations are not available,
investments are valued at their fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of our Board of Trustees, including being valued at prices based on market
quotations for investments of similar type, yield and maturity.
Under the procedures which our Trustees have adopted in connection with
valuation of our securities at amortized cost, our dividend policy will change
under certain circumstances. If on any day there is a deviation of more than
3/10th of 1% between the net asset value of a share computed on the amortized
cost basis and that computed on an available market price basis, the amount of
the deviation in excess of $0.003 will be added to or subtracted from the
dividend for that day in
7
<PAGE>
order to reduce the deviation to within $0.003. If on any day the dividend is
not large enough to absorb any such reduction and the deviation is more than
$0.005, our Board will be required, under a rule of the Securities and Exchange
Commission, to consider taking other action. Such action could include the sale
of portfolio securities, reducing or eliminating dividends or establishing a net
asset value per share based on market quotations.
To use the amortized cost method, we must also limit our portfolio
investments, including repurchase agreements, to those U.S. dollar denominated
instruments which our Board of Trustees determines present minimal credit risks
and which are of "high quality", e.g., portfolio investments rated in one of the
top two rating categories by at least two rating organizations or, if not rated
or created by only one rating agency, are of comparable quality in the judgment
of our Advisor and Trustees. A rated instrument that is subject to some external
agreement (such as a bank letter of credit), which agreement was not considered
in rating the instrument, is considered unrated and the Board of Trustees and
our Adviser will determine whether the external agreement makes the instrument
of comparable quality.
- ------------------------------------------------------------------------------
Information About Our Yield and Total Return
- ------------------------------------------------------------------------------
We report the investment performance of E[bullet]Fund in several ways.
All performance reported in advertisements is historical and not intended to
indicate future returns.
Yield
From time to time the "yield" and "compounded effective yield" of the
Portfolio may be published in advertisements and sales material. For the
E[bullet]Fund, the yield is usually quoted for a seven day period.
The current yield of the E[bullet]Fund for a specific period of time is
calculated based on a hypothetical account containing exactly one share at the
beginning of the period. The net change in the value of the account during the
period is determined by subtracting this beginning value from the value of the
account at the end of the period including a hypothetical charge reflecting
deductions from shareholder accounts. Capital changes (i.e., realized gains and
losses from the sale of securities and unrealized appreciation and depreciation)
are excluded from the calculation. Because the change will not reflect any
capital changes, the dividends used in the yield computation may not be the same
as the dividends actually declared. The dividends used in the yield calculation
will be those which would have been declared if there had been no capital
changes included in our actual dividends. The net change in the account value is
then divided by the value of the account at the beginning of the period and the
resulting figure is called the "base period return." The base period return is
then multiplied by (365/7) for a seven day effective yield with the resulting
yield figure carried to the nearest hundredth of one percent.
As of June 30, 1996 the seven day simple yield for the E[bullet]fund was 5.24%.
The seven day effective yield was 5.91%.
The "compounded effective yield" for the E[bullet]Fund is determined by
annualizing the base period return and assuming that dividends earned are
reinvested daily. Compounded effective yield is calculated by adding 1 to the
base period return (which is derived in the same manner as
8
<PAGE>
discussed above) raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result.
Compounded effective yield information is useful to investors in
reviewing the performance of our E[bullet]Fund since the yield is calculated on
the same basis as those of other money market funds. However, you should take a
number of factors into account in using our yield information as a basis for
comparison with other investments.
Since our Portfolio is invested in short-term money market instruments,
our yield will fluctuate with money market rates. Therefore, the compounded
effective yield is not an indication of future yields. Other investment
alternatives such as savings certificates provide a fixed yield if held full
term, but there may be penalties if redeemed before maturity, whereas there is
no penalty for withdrawal at any time in the case of our Portfolios.
When we quote our investment results we sometimes will compare them to
unmanaged market indices such as the Dow Jones Industrial Average and the
Standard & Poor's 500, and other data and rankings from recognized independent
publishers, sources such as Donoghue's Money Fund Report, Bank Rate Monitor,
Money Magazine, Forbes Magazine, Lipper Analytical Services and others.
- -------------------------------------------------------------------------------
Dividends and Distributions
- -------------------------------------------------------------------------------
E[bullet]Fund
As described in the Prospectus, net income is determined and accrued
daily and paid monthly. This dividend is payable to everyone who was a
shareholder at 4:00 p.m. Eastern time on the day the dividend is declared.
Accordingly, when shares are purchased dividends begin to accrue on the day the
Transfer Agent receives payment for the shares, provided that the payment is
received by 4:00 p.m. Eastern time. When shares are redeemed, the shares are
entitled to the dividend declared on the day the redemption request is received
by the Transfer Agent, provided that the request is received after 4:00 p.m.
Eastern time. Dividends are automatically reinvested in shares, at net asset
value, unless a shareholder otherwise instructs the Transfer Agent in writing.
Shareholders so requesting will be mailed checks in the amount of the
accumulated dividends. For the purpose of calculating dividends, our daily net
investment income consists of: (a) all interest income accrued on investments
(including any discount or premium ratably amortized to the date of maturity or
determined in such other manner as the Trustees may determine); and (b) minus
all estimated Portfolio and Class liabilities accrued, including interest, taxes
and other expense items, amounts determined and declared as dividends or
distributions and reserves for contingent or undetermined liabilities, all
determined in accordance with generally accepted accounting principles; and (c)
plus or minus all realized and unrealized gains or losses on investments.
- -------------------------------------------------------------------------------
Federal Taxes
- -------------------------------------------------------------------------------
Status as a "Regulated Investment Company." The Portfolio intends to
qualify as a "Regulated Investment Company" under Subchapter M of the Internal
Revenue Code. We plan to continue this election in the future for all Portfolios
of the Fund.
9
<PAGE>
To qualify for the tax treatment afforded a "regulated investment
company" under the Internal Revenue Code, a Portfolio must annually distribute
at least 90% of its net investment income and net short-term capital gains and
meet certain requirements with respect to sources of income, diversification of
assets, and distributions to shareholders. If a Portfolio elects and qualifies
for such tax treatment, the Portfolio will not be subject to federal income tax
with respect to amounts distributed. Under current law, in order to qualify, a
Portfolio must (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, and income from certain other sources;
(b) derive less than 30% of its gross income from the sale or other disposition
of stock, or securities and certain other investment held less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, U.S. Government securities, and other securities, limited,
in respect of any one issuer, to an amount not greater than 5% of the fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. Government securities).
A Portfolio that qualifies as a "qualified investment company," may
nonetheless be subject to certain federal excise taxes unless the Portfolio
meets certain additional distribution requirements. Under the Internal Revenue
Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated
investment company's "required distribution" for the calendar year ending within
the regulated investment company's taxable year over the "distributed amount"
for such calendar year. The term "required distribution" means the sum of (i)
98% of ordinary income (generally net investment income) for the calendar year,
(ii) 98% of capital gain net income (both long-term and short-term) for the
one-year period ending on October 31 (as though the one-year period ending on
October 31 were the regulated investment company's taxable year), and (iii) the
excess, if any, of the sum of the taxable income of the regulated investment
company for the previous calendar year plus all amounts from neither years that
were not distributed over the amount actually distributed for such preceding
calendar year. The term "distributed amount" generally means the sum of (i)
amounts actually distributed by a Portfolio from the Portfolio's current year's
ordinary income and capital gain net income and (ii) any amount on which the
Portfolio pays income tax for the year. We intend to meet these distribution
requirements, to avoid the excise tax liability, with respect to each of the
Portfolios. As long as a Portfolio maintains its status as a regulated
investment company and distribute all of its income, the Portfolio will not be
subject to any Massachusetts or California income or excise tax.
Distributions of Net Investment Income
Dividends derived from net investment income and any excess of net
short-term capital gains over net long-term capital losses will be taxable to
shareholders as ordinary income.
Shareholders will be taxed for federal income tax purposes on dividends
in the same manner whether such dividends are received as shares or in cash.
Distributions from the Portfolio will also be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
Any loss realized upon a redemption of the shares in a Portfolio held
for six months or less will be treated as a long-term capital loss to the extent
of any distributions of net capital gain made
10
<PAGE>
with respect to those shares. Any loss realized upon redemption of shares may
also be disallowed under the rules relating to wash sales.
Special tax considerations apply with respect to foreign investments of
those Portfolios which permit such investments. For example, foreign exchange
gains and losses realized by a Portfolio generally will be treated as ordinary
income or losses. In addition, investment income received by a Portfolio from
sources within foreign countries may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle a Portfolio to a reduced rate of tax or an exemption
from tax on such income.
Non-U.S. Shareholders
Distributions of net investment income to non-resident aliens and
foreign corporations will be subject to U.S. tax. For shareholders who are not
engaged in a trade or business in the U.S. to which the distribution is
effectively connected, this tax is withheld at the rate of 30% upon the gross
amount of the distribution in the absence of a Tax Treaty providing for a
reduced rate or exemption from U.S. taxation. However, if the distribution is
effectively connected with the conduct of the shareholder's trade or business
within the United States, the distribution will be included in the net income of
the shareholder and subject to U.S. income tax at the applicable marginal rate.
The foregoing is limited to a discussion of federal taxation. It should
not be viewed as a comprehensive discussion of the items referred to nor as
covering all provisions relevant to investors. Dividends and distributions may
also be subject to state or local taxes. Shareholders should consult their own
tax advisers for additional details on their particular tax status.
After the end of each calendar year, each shareholder receives
information for tax purposes on the dividends and distributions for that year,
including any portion taxable as ordinary income, any portion taxable as capital
gains, any portion representing a return of capital, any amount of dividends
eligible for the dividends-received deduction for corporations.
- -------------------------------------------------------------------------------
Additional Redemption Information
- -------------------------------------------------------------------------------
The redemption information below supplements the information contained
in the Prospectus. We pay redemption proceeds within five business days after we
receive a proper redemption request. Our obligation to pay for redemptions can
be suspended when the New York Stock Exchange is closed other than for weekends
or holidays or under certain emergency conditions determined by the Securities
and Exchange Commission. The holidays on which the New York Stock Exchange is
closed currently are: New Year's Day, President's Day (observed), Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas. We pay redemption proceeds in cash, except that our Board of Trustees
has the power to decide that conditions exist which would make cash payments
undesirable. In that case, we could send redemption payments in securities from
our portfolio, valued in the same method as we used to determine our net asset
value. There might then be brokerage or other costs to the shareholder in
selling these securities. We have elected to be governed by Rule 18f-1 under the
Investment Company Act, which requires us to redeem shares solely in cash up to
the lesser of
11
<PAGE>
$250,000 or 1% of our total net assets during any 90 day period for any one
shareholder. Your redemption proceeds may be more or less than your cost,
depending on the value or our shares.
If any of the shares being redeemed were recently purchased by check or
electronic funds transfer, we may delay sending the redemption proceeds for up
to five business days while we determine whether the check or electronic funds
transfer used to purchase the shares has been honored by the bank on which it
was drawn or made.
You can eliminate any possible delay by making your investment by wire.
- -------------------------------------------------------------------------------
Trustees and Officers
- -------------------------------------------------------------------------------
We have a Board of Trustees which provides broad supervision over our
affairs. Our officers are elected by the Board and are responsible for day to
day operations. The Trustees and officers are listed below, together with their
principal occupations during at least the past five years. (Their titles may
have varied during that period.) The address of each, except where an address is
indicated, is 111 Pine Street, San Francisco, California 94111.
The Trustees who are "interested persons" as defined in the 1940 Act
are indicated by an asterisk.
William D. Glenn, II, Chair of the Board and Trustee, has been a
shareholder of Citizens Trust since 1983. He is a psychotherapist and the
executive director of Continuum HIV Day Services in San Francisco. He is a past
President of the San Francisco AIDS Foundation and former member of the Board of
Directors of the Gay Rights Chapter of the Northern California American Civil
Liberties Union. From 1981 to 1988, Mr. Glenn was the Assistant Principal and
Dean of Students at Mercy High School in San Francisco. He currently serves on
the boards of San Francisco's KQED and the 18th St. Services Chemical Dependency
Recovery Center. Address: 915 Las Ovejas, San Rafael, CA 94903
Sophia Collier*, Trustee, is President and Principal owner of Citizens
Advisers. Please see the section entitled "Additional Information Regarding The
Management Company" for more information regarding Ms. Collier.
Juliana Eades, Trustee, has served as Executive Director of the $4
million New Hampshire Community Loan Fund since its inception in 1984. In this
capacity she has been a leading force in the creation of jobs and affordable
housing in New Hampshire. Prior to accepting her position at the Loan Fund, Ms.
Eades was Program Manager at the N.H. Governor's Council on Energy. In other
community activities, Ms. Eades is a member of the Campaign for Rate payers'
Rights and the Society for the Protection of New Hampshire Forests. Address: 79
South State Street, Concord, New Hampshire 03301.
Lokelani Devone is the assistant general counsel at DFS Group Limited,
an international retail business group where she has worked since 1989. Address:
655 Montgomery St., 18th floor, San Francisco, CA 94111.
Azie Taylor Morton, Trustee, was Treasurer of the United States during
the Carter Administration. From 1984 - 1989, she owned and operated the Stami
Corporation, a franchisee
12
<PAGE>
of Wendy's Old Fashioned Hamburgers. Her thirty year career began as a teacher
at the State School for Girls in Crockett, Texas. She went on to work at the
AFLCIO, the White House Conference on Civil Rights and U.S. Equal Employment
Opportunity Commission. She has served as the Commissioner of the Virginia
Department of Labor and Industry as well as Executive Director of the Human
Rights Project, Inc. In 1990 - 92 she was Director of Resource Coordination at
Reading is Fundamental, Inc. She is currently an investment advisor. Address:
2801 Park Center Drive, Suite A-912, Alexandria, Virginia 22302.
J.D. Nelson*, Trustee, is the founder and C.E.O. of Rhumbline Advisers
Corp., a minority-owned investment firm specializing in the management of
institutional pension assets using indexed and quantitative techniques. Mr.
Nelson was formerly Senior Vice President and Director of Public Funds Services
at State Street Bank and Trust Company in Boston. Prior to his twelve years at
State Street, he was the Administrator of the Democratic National Committee. He
currently serves on the Board of the City of Boston's Economic Development
Industrial Corporation. He is a former Chairman of the Roxbury MultiService
Center (Mass.), a past director of the United Way and has taught at the School
of Banking at Williams College. Address: Rhumbline Advisers, 50 Rowes Wharf,
Boston, Massachusetts 02110.
Ada Sanchez, Trustee, is Director of the Public Service and Social
Change Program at Hampshire College. This program is a multi-disciplinary
program designed to engage students and faculty in community service learning
research and volunteer projects, primarily in low income Latino and
African-American communities. From 1985 - 1987 she was the National Toxic Waste
Campaign Coordinator for Greenpeace USA. Prior to that Ms. Sanchez was involved
with a number of activist organizations including; Western States Field
Consultant for the Disarmament Program for the National Fellowship of
Reconciliation, co-director and founder of Viewpoint Syndicate, lecturer for
Progressive Foundation Speakers Bureau, national coordinator for Supporters of
Silkwood and outreach coordinator for Coalition for Non-Nuclear World. Address:
177 Bridge Street, Northhampton, MA 01060.
13
<PAGE>
The following compensation table disclosed the aggregate compensation from the
Registrant for services provided through June 30, 1996. Our Trustees, officers
and members of the Board of Advisors as a group owned less than 1% of our
outstanding shares as of June 30, 1996.
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
<TABLE>
<CAPTION>
===============================================================================================
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total
Person, Compensa- Retirement Benefits Upon Compensation
Position tion From Benefits Accrued Retirement Paid to Directors
Registrant Registrant As Part of Fund
Expenses
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Azie Taylor Morton $4,000 0 0 $4,000
Aileen Hernandez 1,000 0 0 1,000
Juliana Eades 4,000 0 0 4,000
Jeffrey Mori 2,500 0 0 2,500
William D. Glenn,II 6,500 0 0 6,500
Ada Sanchez 4,000 0 0 2,000
Lokelani Devone 750 0 0 750
Sophia Collier* 0 0 0 0
J.D. Nelson* 0 0 0 0
Wilma Mankiller 1,000 1,000
- -----------------------------------------------------------------------------------------------
</TABLE>
* Sophia Collier is an interested trustee and received no compensation from
Citizens Trust. J.D. Nelson did not become an interested trustee until March
1995 and received compensation from the Trust prior to his change in status to
an interested trustee.
The Trustees who are not "interested persons" received aggregate fees from us
of $23,750 for services provided through June 30, 1996 and were also reimbursed
for out of pocket expenses. Our Trustees, officers and members of the Board of
Advisors as a group owned less than 1% of our outstanding shares as of June 30,
1996.
Other Officers of The Fund
Christine Pratt, Senior Vice-President of Citizens Advisers began working for
Citizens Advisers in June of 1996. Prior to that time Ms. Pratt was employed by
BayBanks, where she headed up the lending and servicing division for BayBanks
Consumer Lending and Mortgage subsidiaries.
- ------------------------------------------------------------------------------
Additional Information Regarding The Management Company
- ------------------------------------------------------------------------------
Sophia Collier individually owns 60% of the outstanding stock of
Citizens Advisers. Ms. Collier is the founder of American Natural Beverage
Corp., the maker of Soho Natural Soda, a company which Ms. Collier co-founded in
her Brooklyn kitchen when she was 21 years old and built up over the next 12
years to an enterprise with 52 employees and retail sales of $25 million. Soho
Soda was the first natural soda in America and was created as an alternative to
unhealthful mass market sodas. Sophia and her partners sold American Natural
Beverage Corp. in 1989.
Four other individuals own the remaining 40% of the outstanding stock
of the Management Company, as follows: John F. Dunfey (12%); Robert J. Dunfey,
Sr. (12%); Gerald F. Dunfey (12%); and William B. Hart, Jr. (4%). John, Robert
and Gerald Dunfey, brothers, now
14
<PAGE>
serve as directors of the Dunfey Group, a venture capital and investment
company. The Dunfey family has been associated, over a number of years, with
progressive social and political causes and has actively participated in
organizations dedicated to world peace, human and civil rights, and economic
justice. The family founded and continues to sponsor New England Circle, a forum
for the "discussion of social, political, literary and educational topics that
can lead to constructive change in our lives, our nation and our world."
- -------------------------------------------------------------------------------
Investment Advisory and Other Services
- -------------------------------------------------------------------------------
We are advised by Citizens Advisers (the Adviser) under a contract
known as the Management Agreement. The Adviser has offices at 111 Pine Street,
San Francisco, California 94111 and One Harbour Place, Portsmouth, New Hampshire
03801. The Adviser is a California corporation. Citizens Securities, a
wholly-owned subsidiary and a California corporation, serves as the Fund's
distributor.
The Management Agreement provides for the Adviser, which is subject to
the control of our Board of Trustees, to decide what securities will be bought
and sold, and when, and requires the Adviser to place purchase and sale orders.
At the Adviser's discretion and sold expense, these duties may be delegated to a
sub-adviser.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the E[bullet]fund GMG/Seneca Capital Management, L.P. is a
registered investment adviser established in 1990. It is a wholly owned
subsidiary of GMG Capital Management, LLC, which manages over $3 billion from
their offices at 909 Montgomery Street, San Francisco, CA. Organized as a
California limited partnership, GMG/Seneca Capital Management, L.P. has two
general partners, Gail Seneca and Genesis Merchant Group, L.P., an Illinois
Limited Partnership. Genesis Merchant Group, in turn, has three general
partners: William K. Weinstein, Gail Seneca, and Philip C. Stapleton. Prior to
starting GMG/Seneca, Gail was employed by Wells Fargo Bank as a senior
investment officer.
The Adviser (or the Sub-adviser) provides us, at the Adviser's expense,
with all office space and facilities and equipment and clerical personnel
necessary to carry out its duties under the Management Agreement. Some of our
Trustees and our officers are employees of our Adviser and receive their
compensation from the Adviser. Our custodian bank maintains, as part of its
services for which we pay a fee, many of the books and records as we are
required to have and computes our net assets value and dividends per share.
We pay the Adviser a fee for its services at annual rates as follows:
E[bullet]Fund, 35/100 of 1% of the Portfolio's average annual net assets. The
fee is accrued daily and paid at least monthly. There are no contractual
limitations placed upon are expenses but we are subject to a statutory expense
limitation imposed by the State of California. This expense limitation requires
the Adviser to reduce its fee to the extent the aggregate annual expenses of a
Portfolio exceed 2 1/2% of the first $30 million of average net assets in the
Portfolio, 2% of the next $70 million of average net assets, and 1 1/2% of the
remaining average net assets in a Portfolio in any fiscal year.
The E[bullet]Fund commenced operations on July 1, 1995. To date, the
Adviser has waived its fees under the Management Agreement.
15
<PAGE>
Each Portfolio is responsible for the cost of preparing and setting in
type prospectuses and reports to shareholders and distributing copies of the
prospectuses and reports to shareholders. The Distributor pays the cost of
printing and distributing all other copies of prospectuses and reports, as well
as the costs of supplemental sales literature and advertising. The Fund pays all
of our other expenses not expressly assumed by the Adviser such as interest,
taxes, audit and legal fees and expenses, charges of our custodian, our
shareholder servicing, transfer and record-keeping agent costs, insurance
premiums, stock issuance and redemption costs, certain printing costs, costs of
registering our shares under federal and state laws, and dues and assessments of
the Investment Company Institute, as well as any non-recurring expenses,
including litigation.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, thereunder, the Adviser is not liable for any loss sustained by the
purchase, sale or retention of any security and permits the Adviser to act as
investment adviser and/or principal underwriter for any other person, firm or
corporation. The Management Agreement provides that we will indemnify the
Adviser to the full extent permitted under the Declaration of Trust.
The Management Agreement also states that it is agreed that the Adviser
shall have no responsibility or liability for the accuracy or completeness of
our Registration Statement under the Securities Act of 1933 and the Investment
Company Act of 1940 except for information supplied by the Adviser for inclusion
therein.
There are similar provisions with respect to the liability of the
Sub-adviser, and the obligation of the Fund to indemnify the Sub-adviser.
Citizens Securities, a wholly-owned subsidiary of Citizens Advisers,
acts as the distributor of our shares. Shareholders do not pay a sales charge on
purchasing the shares of the E[bullet]Fund and there is no 12b-1 fee charged.
Citizens Securities pays for certain costs related to the debit card program
including the cost of telephone service, network access charges and switching
fees, salaries and fees to contractors, such as PNC Bank, for telephone and
clerical contractors and costs incurred with respect to postage, printing and
similar items. Citizens Securities will bear the risk of fraudulent use of the
debit cards. However, in certain limited instances debit card holders may be
liable for fraudulent use, up to $50 if the card holder notifies the debit card
issuer of loss or theft within two business days.
- -------------------------------------------------------------------------------
Additional Information
- -------------------------------------------------------------------------------
Our Declaration of Trust permits our Trustees to issue an unlimited number of
full and fractional shares of beneficial interest and to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Fund. Each share represents an
interest in the Fund. Certificates representing our shares are not issued. In
the event of our liquidation, all shareholders would share pro rata in our net
assets available for distribution to shareholders. The Trustees also have the
power to designate "series" of the Fund which will function as separate
Portfolios, each having it's own assets and liabilities. They may also create
additional classes of shares which may differ from each other as to dividends.
Shares of each class are entitled to vote as a class or series only to the
extent required by the 1940 Act or as
16
<PAGE>
provided in our Declaration of Trust or as permitted by our Trustees. Income and
operating expenses are allocated fairly among the series and classes by our
Trustees. We intend to manage our Portfolios in such a way as to be a
"diversified" investment company, as defined in the 1940 Act. As of June 30,
1996, there were 108,006,752 outstanding shares of our Common Stock,
representing all the shares of all of the Citizens Trust Portfolios, and to our
knowledge, no shareholder owned beneficially or of record 5% or more of the
outstanding shares.
- -------------------------------------------------------------------------------
Voting Rights
- -------------------------------------------------------------------------------
Shareholders are entitled to one vote for each full shares held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. Voting is generally
by class and series except as otherwise provided by the provisions of the 1940
Act. The Trustees will call a meeting of shareholders to vote on the removal of
a Trustee upon the written request of the record holders of ten percent of our
shares. No amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of our outstanding shares. The
holders of shares have no preemptive or conversion rights. Shares when issued
are fully paid and non assessable, except as set forth under "Shareholder and
Trustee Liability" below. The Fund may be terminated upon the sale of its assets
to another issuer, if such sale is approved by the vote of the holders or more
than 50% of our outstanding shares, or upon liquidation and distribution of our
assets, if approved by the vote of the holders of more than 50% of our
outstanding shares. If not so terminated, the Fund will continue indefinitely.
- -------------------------------------------------------------------------------
Shareholder and Trustee Liability
- -------------------------------------------------------------------------------
We are an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. Our Declaration of Trust contains an express
disclaimer of shareholder liability for our acts or obligations and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by us or our Trustees. The Declaration of
Trust provides for indemnification and reimbursement of expenses by the relevant
Portfolio out of the Portfolio's property for any shareholder held personally
liable for the Portfolio's obligations. The Declaration of Trust also provides
that we shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of ours and satisfy our judgment thereon.
Thus, the risk of a shareholder incurring financial loss on account of
shareholders liability is highly unlikely and is limited to the relatively
remote circumstances in which we would be unable to meet our obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, 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.
- -------------------------------------------------------------------------------
Custodian
- -------------------------------------------------------------------------------
State Street Bank and Trust of Boston Massachusetts, is the custodian of the
assets of the Fund. The custodian takes no part in determining the investment
policies of the Fund or in
17
<PAGE>
deciding which securities are purchased or sold by the Fund. We, however, may
invest in obligations of the custodian and may purchase or sell securities from
or to the custodian.
- -------------------------------------------------------------------------------
Auditors
- -------------------------------------------------------------------------------
Tait, Weller & Baker of Philadelphia, Pennsylvania serves as our Fund's
independent auditors, providing audit services including (1) examination of the
annual financial statements and limited review of unaudited semi-annual
financial statements (2) assistance and consultation in connection with
Securities and Exchange Commission filings and (3) review of the federal and
state income tax returns filed on our behalf.
- ------------------------------------------------------------------------------
Legal Counsel
- ------------------------------------------------------------------------------
Bingham, Dana & Gould of Boston, Massachusetts.
- ------------------------------------------------------------------------------
Financial Statements
- ------------------------------------------------------------------------------
Statement of Investments-June 30, 1996
Statement of Assets and Liabilities-June 30,1996
Statement of Operations for the year ended-June 30, 1996
Statement of Changes in Net Assets for the year ended-June 30, 1996
The above referenced financial statements and the report of the independent
auditors are included in the 1996 Annual Report which is provided to each person
to whom the Statement of Additional Information is sent or given.
18
<PAGE>
Supplement dated: June 30, 1996
to Annual Report dated: June 30, 1996
Please replace the information for the Citizens Global Equity Portfolio on
page 33 under Ratios and Supplemental Data for the year ended June 30, 1996 to
read as follows:
Ratio of expenses to average net assets 2.72%
Ratio of expenses to average net assets
prior to reimbursement 2.72%
Ratio of net income (loss) to average net assets (1.01%)
Ratio of net income (loss) to average net assets
prior to reimbursement (1.01%)
<PAGE>
President's Letter
[Picture of Sophia Collier]
Dear Shareholders:
Today in the Wall Street Journal's Mutual Fund Scorecard our very own Citizens
Emerging Growth Fund was reported to be #1 overall for total return among 143
mid-cap funds tracked by Lipper Analytical Services, Inc., for the one year
ended August 1, 1996. This is a very proud moment for the Fund and all its
shareholders. Our special vision of investing with responsibility has again been
tested and proven in some of the most challenging financial markets.
The E[bullet]fund, also known as our "other #1 fund," continues to reign
supreme in the money market area with the top total return of 282 funds for the
one year ended 7-31-96 according to Lipper Analytical Services, Inc.
As the individual managers' reports that follow will show, our five other
portfolios have also turned in strong, positive performances: Citizens Trust as
a whole enjoyed record earnings of $41,190,000 in fiscal 1996. This growth
reflects both ongoing improvement in investment results and other operations.
Our assets have grown to over $350 million dollars as an increasing number of
people join us in our special style of investing.
CORPORATE RESPONSIBILITY INITIATIVES
While we seek to build strong financial performance, we also have the important
obligation of considering the social impact of our investments. In 1996 we
concentrated our efforts in two areas: A campaign to eliminate sweatshops and a
divestment campaign focused on Burma.
"Sweatshops" are manufacturing facilities which do not pay the country's minimum
wage or maintain minimum legal safety standards. It is a common perception that
sweatshops are primarily a "third world" problem, yet this is not true.
According to the Department of Labor, more than half of our nation's 22,000
registered sewing contractors do not pay workers the federal minimum wage and
more than a third have workplace hazards.
At Citizens Trust we are encouraging the retail companies we have invested in to
stop purchasing goods produced with "sweated" labor. This campaign is
coordinated with Unite (Union of Needletrades, Industrial and Textile
Employees), Garment 2000, the National Labor Committee and the Department of
Labor.
BURMA
It was widely recognized that the South Africa Divestiture movement had a
great impact on bringing apartheid to an end in South Africa. We believe this
strategy can also work in restoring democracy to Burma. To this end we worked
closely with investors, activists and students throughout the country including
Progressive Asset Management and Franklin Research and Development in Boston.
Together, we have been successful at gaining the passage of selective purchasing
legislation in a number of cities and in the State of Massachusetts which
prohibit the purchase of goods from companies which do business in Burma. On the
day that our legislation passed in San Francisco, Pepsi announced that it would
divest of Burma operations.
Overall, we have had a very good year in fiscal 1996, but we won't rest on our
laurels. As market conditions change we will need to be vigilant to protect
shareholders assets during the inevitable "downdrafts" and "corrections" that
follow good years. In all that we do we will continue to emphasize the long term
in our financial strategy and its social impact.
Sincerely yours,
Sophia Collier
President
August 5, 1996
1
<PAGE>
Managers' Comments
[Picture of Edwin Ek]
CITIZENS INDEX PORTFOLIO
(Sub-Adviser: RhumbLine Advisers, Inc.)
The strategy for the Citizens Index Portfolio is always the same: Stay as fully
invested as possible in the securities that make up the Citizens Index, a
specially designed market-weighted index of 300 socially responsible companies.
The performance of the portfolio will, therefore, always be similar to the
performance of the Citizens Index itself, less the costs of operating the
portfolio and adjusted for the impact of any cash held in the portfolio. (Cash
will add to performance when the market is heading down and subtract when the
market is going up.)
[DATA FOR RETAIL AND INSTITUTIONAL LINE CHARTS]
Retail Class
15,000
14,500
14,000
13,500
13,000
12,500
12,000
11,500
11,000
10,500
10,000
Institutional Class
11,500
11,000
10,500
10,000
March 3, 1995 June 30, 1995 January 26, 1996 June 30, 1996
Citizens Index Portfolio (Retail Class)
S & P 500
Citizens Index
Citizens Index Portfolio (Institutional Class)
The information presented above reflects performance for the time period
beginning March 3, 1995 and ending June 30, 1996. Past performance is not
indicative of future results. Standardized total return: Citizens Index
Portfolio-Retail Class since inception 25.30%, for 1 year 23.41%. Portfolio
commenced operations March 3, 1995. Standardized total return: Citizens Index
Portfolio-Institutional Class since inception 10.00%. Portfolio commenced
operations January 25,1996.
For the year ended 6-30-96 the Citizens Index itself returned 26.2%,
outperforming the S&P 500 by a small amount. This resulted in performance for
the Citizens Index Portfolio of 23.41% for the year, above the average of 22.6%
recorded for Growth and Income funds tracked by Morningstar, the mutual fund
ranking service.
The largest industry within the Citizens Index is Food & Agriculture,
representing 11.2% of the index versus 6.5% for the S&P 500. The return for this
sector was 36.5%. The next largest industry is Telephone at 11.0% of the index
which returned an average of 24.9%. In both of these cases, the companies in the
Citizens Index outperformed their counterparts in the S&P 500.
Looking at individual companies, twenty-nine of the top thirty companies, ranked
by net contribution to overall index performance (function of both the total
return of the company as well as its relative size within the index) were also
members of the S&P 500 Index. In an environment where larger companies
outperformed smaller companies, this was to be expected. The best performing
smaller company, U.S. Robotics, only represented 0.2% of the index (as compared
to Coca Cola at 5.5%), but had a return of 214%! This company was a direct
beneficiary of the current interest in the Internet since they are the leading
supplier of modems, the piece of computer equipment required to connect onto the
Internet.
Over the past year the Portfolio has increased in size by over 36%. While cash
flows daily into and out of the Portfolio, trading of stocks is kept to a
minimum in order to reduce expenses. The trading techniques employed by
RhumbLine Advisers, the manager of the Citizens Index Portfolio, kept turnover
of stocks below 10% of the total Portfolio's value on an annualized basis. This
compares favorably with most equity mutual funds which average between 60% and
100% turnover.
There were five industries which effectively received no investments: oil
companies, liquor, tobacco, gold production, and aerospace. Combined, these
industries represent almost 10% of the investable equity universe in the United
States. As a group, these industries returned almost 25%, slightly
underperforming the overall market as well as the Citizens Index.
[Picture of Gail Seneca]
CITIZENS INCOME PORTFOLIO
(Sub-Adviser: GMG/Seneca Capital Management)
The Citizens Income Portfolio provided a total return of 5.48% for the year
ending 6-30-96. This return places the Portfolio in the top quartile of
comparable funds, and well above the bond market average. On July 3, 1996, the
Wall Street Journal listed the Citizens Income Portfolio with an "A" ranking.
This denotes the top 20% in performance amoung comparable funds. These
competitive results were achieved
<PAGE>
Managers' Comments
with a lower risk strategy, focused on intermediate maturity bonds with
relatively high income payouts.
The benefits of this careful, risk averse strategy are especially obvious during
periods of great volatility in the markets. This last year was such a period. In
fact, the price volatility of long maturity bonds actually exceeded the
volatility of common stocks during the year. Rather than attempting to time the
swings in the market, the Citizens Income Portfolio controls its maturity
exposure, and over long periods, realizes most of its return through current
income.
[DATA FOR LINE CHART]
13,000
12,500
12,000
11,500
11,000
10,500
10,000
June 30, 1992 June 30, 1993 June 30, 1994 June 30, 1995 June 30, 1996
Citizens Income Portfolio
Lehman Government/Corporate Intermediate
Past performance is not indicative of future results. Standardized total return:
Citizens Income, 1 year 5.48%, since inception 6.54%. Portfolio commenced
operations June 10, 1992.
The bulk of our analytic work is the identification of bonds which can provide a
steady, long term, and high income stream. During the last year, this led us to
emphasize corporate bonds and mortgage backed issues, especially collateralized
mortgage obligations. The issues in which we invested generally carried above
market coupons, which proved quite defensive during the price downturn in the
first half of 1996. As of 6-30-96, our top holdings in the Portfolio included a
number of corporate issues (such as Corporate Express and Time Warner) as well
as some government guaranteed collateralized mortgage obligations.
In absolute terms, the overall bond market's return over the last year was below
average. This return reflects a drop in bond prices in 1996, caused by a rise in
interest rates. Rates jumped over one percentage point in the first half of 1996
in response to stronger than expected economic news. We expect a more benign
trend in interest rates going forward, as the economy slows a bit and inflation
remains tame. This will benefit bond investors. Our approach will remain focused
on providing above market returns through the disciplined, lower-risk strategy
which has proven beneficial for the Portfolio thus far.
THE MUIR CALIFORNIA TAX FREE INCOME PORTFOLIO
(Sub-Adviser: GMG/Seneca Capital Management)
The Muir Portfolio provides tax free income for California residents, through
investment in a high quality portfolio of municipal issues which has positive
social and environmental impact.
The Portfolio provided investors a one year total return of 4.71% as of 6-30-96,
consisting mostly of tax free income. At 6-30-96, the current distribution rate
for the Portfolio was 3.95%, which translates into a very attractive tax
equivalent return of over 7.2%. (Assuming a combined Federal and California
income tax bracket of 45%.)
Volatile conditions prevailed in the California municipal market over the year.
Late in 1995, municipal bond yields fell sharply as the overall economy
softened. 1996 saw an abrupt reversal of the downtrend in rates. By mid year,
interest rates had risen again, completely reversing the prior decline.
In addition to the swings in the general level of interest rates, municipal
bonds experienced additional volatility due to the changing prospects for tax
reform. In 1995, a change in the tax-free status of municipal bond income was
proposed in Congress. Fears that such a change might be enacted into law
dampened investor demand
16,000
15,000
14,000
13,000
12,000
11,000
10,000
9,000
February 8, 1994 June 30, 1994 June 30, 1995 June 30, 1996
Muir California Tax-Free Income Portfolio
Lehman 7 Year Municipal Index
Past performance is not indicative of future results. Standardized total return:
Muir Portfolio, 1 year 4.71%, since inception 6.22%. Portfolio commenced
operations June 10, 1991.
3
<PAGE>
Managers' Comments
for municipals. By early 1996, prospects for tax reform faded, and the tone in
the municipal bond market improved. Also contributing to the firmer tone was the
long awaited emergence of Orange County from bankruptcy and a rebound in the
California economy.
Looking through the volatility, we see good value in California municipals for
high tax bracket investors. At current yields, investors are adequately
compensated for inflation. Credit trends are improving in California, to the
benefit of bond investors. Finally, investor demand is likely to pick up in
response to recent stock market turmoil.
Stable, tax free return, produced by a risk averse strategy focused on
intermediate rather than long maturity bonds, remains our objective.
[Picture of Danita Wright]
WORKING ASSETS MONEY MARKET PORTFOLIO
(Sub-Adviser: GMG/Seneca Capital Management)
Money market yields fell over the last twelve months, in contrast with the
overall rise in longer term interest rates. The Working Assets Money Market
Portfolio yield also declined through the year, but consistently provided a
strong 'real' (inflation adjusted) return. Investors in the Portfolio for the
year outperformed the inflation rate and escaped the volatility of the stock and
bond markets.
The decline in short term rates over the last twelve months reflects the Federal
Reserve's gradual easing of short term rates. By 1996, the long bond market
anticipated that the Fed would reverse its easing policy, in response to a
firming economy. By mid year, long term interest rates had indeed reversed
course and moved higher. But short term rates, which are largely controlled by
the Federal Reserve, did not rise.
We expect stability in short term rates going forward. Further decline is
unlikely. Even though inflation remains quite low, the economy is strong, the
business cycle is quite extended, and the capacity bottlenecks have developed,
especially in labor. The Federal Reserve cannot be expected to lower rates until
the economy softens, and wage pressures are relieved.
Money fund investors are likely to earn strong 'real' returns in the year ahead.
THE E[bullet]fund MONEY MARKET PORTFOLIO
On the investment side, the E[bullet]fund had a similar strategy to the
Working Assets Money Market Portfolio. However, our innovative "E-fund Refund"
helped counter sliding yields and resulted in the E[bullet]fund becoming the
top performing overall money market fund for total return for the one year
ending 7-31-96 of the 282 funds tracked by Lipper Analytical Services, Inc. The
"E[bullet]fund Refund" puts 1% of all the fund's debit card purchases back
into the fund up to a limit of 9.75% of the fund's gross investment income. This
synergy of convenience and performance set the Eofund apart from the rest last
year.
Along with free checking and no minimum balance, the "E[bullet]fund Refund" is
one of several features that make the Eofund a unique financial tool for
everyday money management. Citizens Trust has also dropped the direct deposit
requirement (though we still recommend it for convenience) in hopes that the
E[bullet]fund's advantages will be accessible to a greater number of people.
[Picture of Rick Little]
CITIZENS EMERGING GROWTH PORTFOLIO
(Sub-Adviser: GMG/Seneca Capital Management)
The Citizens Emerging Growth Portfolio rose 42.43% in total return over the last
year as of 6-30-96. This return exceeded the return of all broad stock market
indices, and placed the Portfolio in the top tier of the competitive universe.
The fund was 10th of 89 aggressive growth funds for the period ending 6-30-96,
according to Morningstar. The Portfolio's excellent return outperformed the
broad market, as represented by the S&P 500, over 17 percentage points.
The Portfolio focuses on companies which are demonstrating strong earnings
momentum and which have the potential to produce positive earnings surprises
relative to investor expectations. Our investment discipline requires that our
portfolio companies consistently meet these criteria. Disappointments in
earnings, or a leveling off of growth are signals that the stock should be sold.
Thus, the portfolio is managed actively, in the search for companies with
superior and sustainable earnings momentum.
Over the last year, the Portfolio benefited from excellent corporate earnings
growth, particularly in technology, health care and business outsourcing firms.
Some of these companies do not have a long history as publicly traded firms.
Therefore, our analytic work must be quite
<PAGE>
Managers' Comments
[DATA FOR LINE CHART]
16,000
15,000
14,000
13,000
12,000
11,000
10,000
9,000
February 8, 1994 June 30, 1994 June 30, 1995 June 30, 1996
Citizens Emerging Growth Portfolio
Russell 2000 Index
Past performance is not indicative of future results. Standardized total return:
Citizens Emerging Growth, 1 year 42.43%, since inception 26.15%. Portfolio
commenced operations February 8, 1994.
thorough, and always includes management as well as financial review. Management
credibility is a key element of our portfolio decisions. Over the last year, our
analytic disciplines have served Portfolio shareholders well.
At June 30, 1996, the Portfolio's top ten holdings were:
PMT Services Inc.
BMC Industries
Checkpoint Systems
Envoy Corp.
Amisys Managed Care
Cadence Designs
Cincinnati Bell
Gucci
Sun Microsystems
Corporate Express
We believe the fundamentals for investment in mid-to-smaller capitalization
companies are quite compelling. Business innovation is essential in a world of
intense global competition. Even in service industries, which tend to be purely
domestic, such as health care delivery, greater efficiency is very much in
demand. The Citizens Emerging Growth Portfolio is positioned to capitalize on
these trends, and to continue to provide competitive returns.
Among the major contributors to the Portfolio's robust return over the last
twelve months was Cincinnati Bell, a diversified company providing local access
telephony in its service area and a host of other marketing services. Among its
fastest growing product lines are its billing services, used by many wireless
phone service providers, and its telemarketing services used by firms such as
Direct T.V. The company has grown earnings almost 50% over the last twelve
months, and the stock price has doubled. The Portfolio maintains a position in
this company, because we believe its strategy will result in continued strong
growth.
Though the Portfolio's overall result was extremely strong, some positions hurt
our return. Medpartners/Mulliken, a physician practice management company
declined markedly after it announced an unexpected acquisition of a large health
care company. The targeted company had a history of operating and regulatory
problems. Many investors, including ourselves, concluded that the acquisition
would drain profitability for an uncertain and perhaps extended time period. We
sold the stock at a loss. It has continued its decline.
For the year, the Portfolio's major contributors to return were:
Ascend Communications
Phycor
PMT Services
Cincinnati Bell
Corporate Express
As we move ahead, earnings comparisons may become quite difficult for many
companies because profit momentum appears to have peaked. In this environment,
our investment discipline will become even more critical. In our opinion, the
current portfolio of companies will continue to grow their earnings and provide
excellent returns to their shareholders in the long term.
[Picture of Tom Prappas]
CITIZENS GLOBAL EQUITY PORTFOLIO
(Sub-Adviser: Clemente Capital, Inc.)
Citizens Global Equity Portfolio had a slow start this year and trailed its
benchmark through 12/31/95. However, our strategy began to work well in the
second half and we finished the year with a total return of 12.52% for the
fiscal year ended June 30, 1996.
Our underperformance in the first half was due primarily to the fact that we
underweighted the United States during a time when the United States was
enjoying very strong financial markets. Our hesitation was caused by our concern
for the strength of the U.S. economic rebound and its implications for monetary
policy: If the U.S. Federal Reserve had chosen to raise rates, the stock
5
<PAGE>
Managers' Comments
market would have fallen sharply. Fortunately this did not happen - but our
caution caused us to miss out on some appreciation potential in the first part
of the year.
With the United States underweighted, we focused elsewhere in the world. The
core currency markets of Germany, the Netherlands and Belgium were most
overweighted. We underweighted the other markets, with the exception of Norway,
and overweighted Italy and Spain. The focus was on defensive stocks such as
telecom, media companies and interest rates sensitive issues.
[DATA OF LINE CHART]
12,500
12,000
11,500
11,000
10,500
10,000
9,500
9,000
February 8, 1994 June 30, 1994 June 30, 1995 June 30, 1996
Citizens Global Equity Portfolio
FT World US Dollar
Past performance is not indicative of future results. Standardized total return:
Citizens Global Equity, 1 year 12.52%, since inception 8.32%. Portfolio
commenced operations February 8, 1994.
This strategy paid off with some of our European picks displaying the best
performance over the period. Our top performers were Telecom Italia Mobile in
Italy (+90%), a provider of cellular communications, which was spun off from
Telecom Italia, the parent company, in July 1995. Barco NV (+75%), an
electronics component producer in Belgium, operating in niche markets in
visualization, automation and graphic systems. VNU (+59%) in the Netherlands, a
leading media company which was selling at a steep discount to its peer group
with strong earnings prospects. Bankinter, a very efficient medium size bank in
Spain with leading position in mortgage lending which we sold after a 48% gain.
We were less fortunate with some of our European holdings in France and Austria.
In France, Sidel, a producer of PET packaging equipment came short of market
expectations due to a sharp rise in PET prices in the lst quarter of 1995 which
reduced its order book by 30%.
In Asia we selected Japan (although not to the extent we would have liked due to
the lack of approved companies in our universe) as the weakening yen, fiscal
stimulus, and lower interest rates promised economic recovery and a pick up of
profits. Economically sensitive issues were pursued, along with beneficiaries of
the lower yen, and participants in Japan's retail sector restructuring.
Elsewhere in Asia we also found value: One of our best performing stocks was
found in the Philippines. Philippine National Bank, a restructuring story, gave
us a handsome return of 58%.
Looking to the new year we are striving to continue to build our list of
approved companies with an emphasis in Japan. Maintaining the flexibility to
move in and out of markets - as well as picking the right ones - remain the key
to our success.
<PAGE>
Working Assets Money Market Portfolio
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Yield Maturity Date Value (a) Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Bankers Acceptance: 4.28%
$4,000,000 American Express (Cost $ 3,978,760) 5.31% 8/6/96 $3,978,760 Consumer finance
----------
Commercial Paper: 80.55%
1,785,000 Allergan, Inc. 5.35% 8/13/96 1,773,593 Ophthalmic products
2,300,000 Allergan, Inc. 5.38% 8/20/96 2,282,814 Ophthalmic products
4,000,000 Aristar 5.42% 7/26/96 3,984,944 Banking
4,500,000 Banc One Corp 5.28% 7/19/96 4,488,120 Banking
1,200,000 Barnett Banks Inc. 5.37% 7/09/96 1,198,568 Banking
4,000,000 B.I. Funding Inc. 5.42% 7/31/96 3,981,933 Apparel
700,000 Consolidated Natural Gas Co. 5.32% 7/11/96 698,966 Natural gas
1,000,000 Cooperative Assoc. of Tractor Dealers 5.35% 8/06/96 994,650 Tractor dealer
3,000,000 Cooperative Assoc. of Tractor Dealers 5.37% 8/28/96 2,974,045 Tractor dealer
4,500,000 Countrywide Funding Corp. 5.43% 9/06/96 4,454,524 Mortgage lending
1,300,000 CPC International Inc. 5.30% 9/05/96 1,287,368 Food processing
2,000,000 CPC International Inc. 5.37% 9/24/96 1,974,642 Food processing
2,000,000 Dean Witter Discover Co. 5.33% 7/31/96 1,991,117 Consumer finance
2,500,000 John Hancock 5.33% 7/25/96 2,491,117 Insurance
4,600,000 Lehman Holdings 5.37% 7/08/96 4,595,197 Commercial finance
1,800,000 McGraw Hill Inc. 5.42% 10/16/96 1,771,003 Publishing
3,500,000 Nordstrom Cr Inc. 5.37% 7/11/96 3,494,779 Department stores
3,500,000 Pitney Bowes Cr Corp. 5.28% 9/13/96 3,462,013 Office equipment
4,000,000 Providian Corporation 5.35% 7/15/96 3,991,678 Life insurance
4,000,000 Rubbermaid Inc. 5.32% 7/16/96 3,991,133 Household products
3,600,000 Sonoco Prods. Co. 5.33% 7/16/96 3,592,005 Packaging products
2,300,000 Student Loan Corp. 5.26% 8/23/96 2,282,189 Student lending
4,500,000 Toys R Us Inc. 5.30% 7/26/96 4,483,438 Toy stores
600,000 US West Capital Fdg. Inc. 5.28% 7/17/96 598,592 Telecommunications
4,000,000 Whirlpool Corp. 5.30% 8/13/96 3,974,678 Household appliances
4,000,000 Xerox Credit Corp. 5.28% 7/26/96 3,985,333 Office equipment
----------
Total Commercial Paper 74,798,439
----------
(Cost $ 74,798,438)
Certificates of Deposit: 0.54%
100,000 Boston Bank of Commerce 5.00% 10/18/96 100,000 Community bank
100,000 City National Bank of New Jersey 4.74% 10/18/96 100,000 Community bank
100,000 Community Capital Bank 5.34% 10/18/96 100,000 Community bank
100,000 Independence Bank of Chicago 5.07% 12/27/96 100,000 Community bank
100,000 Self Help Credit Union CD 5.60% 7/24/96 100,000 Credit union
----------
Total Certificates of Deposit 500,000
----------
(Cost $ 500,000)
U.S. Government Agencies: 7.46%
1,100,000 Federal National Mortgage Assn. 5.31% 8/26/96 1,090,923 Mortgage lending
5,835,000 Student Loan Marketing Assn. (b) 5.360% - 5.498% 7/19/96 - 11/20/97 5,833,618 Student lending
----------
Total U.S. Government Agencies 6,924,541
----------
(Cost $ 6,924,541)
Farmers Home Administration (b)(c): 0.22%
204,855 Variable Rate Notes (Cost $ 203,015) 7.520% - 7.647% (b) 203,015 Farm lending
----------
Small Business Administration (b)(d): 5.75%
5,267,595 Variable Rate Notes (Cost $5,342,874) 6.999%-9.725% (b) 5,342,874 Small business
---------- lending
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Working Assets Money Market Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Yield Maturity Date Value (a) Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Investments $98.80% $91,747,629
(Cost $ 91,747,629) (e)
Other assets, less liabilities 1.20% 1,117,384
------ -----------
NET ASSETS 100.00% $92,865,013
====== ===========
</TABLE>
Key: (a) Investments are based upon amortized cost method. (b) Variable interest
rates are subject to change every 7 to 90 days. (c) Includes a total of 2 notes.
(d) Includes a total of 11 notes. (e) Cost for federal income tax purposes is
the same.
Citizens Income Portfolio
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Rate Maturity Date Value (a) Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Corporate Bonds 76.47%
Amusements 10.77%
$1,000,000 J.Q. Hammons Hotel 8.875% 2/15/04 $943,750 Hotels
1,000,000 Royal Caribbean 11.375% 5/15/02 1,063,750 Cruise/Leisure
1,400,000 Time Warner, Inc. 9.125% 1/15/13 1,469,524 Entertainment
---------
3,477,024
---------
Broadcasting & Communications 6.18%
200,000 Cablevision Inds. Corp. 10.75% 1/30/02 213,500 Cable television
1,000,000 Continental Cablevision 8.30%-10.625% 6/15/02-5/15/06 1,062,157 Cable television
750,000 Sullivan Broadcasting 10.250% 12/15/05 720,000 Television stations
---------
1,995,657
---------
Computer, Office & Business Equipment 4.91%
1,600,000 Corporate Express, Inc. 9.125% 3/15/04 1,584,000 Office Products
---------
Financial Services & Insurance 20.62%
775,000 Countrywide Funding Corporation Mtn. 6.875%-8.25% 7/15/02-9/15/05 771,323 Mortgage lending
1,665,070 DLJ Mortgage Acceptance Corp. 6.62%-6.875% 11/1/05-5/25/09 1,482,595 Mortgage lending
100,000 First Chicago NBD Corp. 7.250% 8/15/04 99,538 Regional banking
1,300,000 First Union Corporation 6.550% 10/15/35 1,244,295 Regional banking
1,150,000 Green Tree Financial Corp. 5.600% 4/15/19 370,856 Consumer lending
1,500,000 Lehman Brothers, Inc. 5.04%-8.05% 12/15/03-1/15/19 1,509,536 Financial services
50,000 MBIA Inc. 9.00% 2/15/01 53,878 Municipal bond
insurance
1,000,000 Secured Finance Dels 9.050% 12/15/04 1,122,940 Finance
---------
6,654,961
---------
Healthcare 11.74%
800,000 American Medical International 0.00% 8/12/97 735,184 Hospital management
1,000,000 Columbia/HCA Healthcare Corp. 7.69% 6/15/25 996,280 Hospital management
850,000 Community Health Systems 10.25% 11/30/03 931,813 Hospital management
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Citizens Income Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Rate Maturity Date Value (a) Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
$50,000 Kaiser Foundation Hospitals 9.00% 11/01/01 $ 54,988 Hospitals
1,000,000 Quorum Health Group 8.75%-11.875% 12/15/02-11/01/05 1,071,250 Hospital management
-----------
3,789,515
-----------
Industrial 2.49%
750,000 MVE, Inc. 12.50% 2/15/02 802,500 Insulated
------------ containers
Real Estate 9.61%
1,000,000 Merry Land & Investment, Inc. 6.875% 11/1/03 964,780 Real estate
1,000,000 Property Trust of America 6.875% 2/15/08 920,740 Real Estate
500,000 Security Cap. Pac. Inc. 7.900% 2/15/16 477,145 Real Estate
800,000 Weingarten Realty 6.62% 12/11/07 741,616 Property management
-----------
3,104,281
-----------
Retail 10.15%
1,000,000 Hook Super X, Inc. 10.125% 6/1/02 1,068,750 Drugstores
1,000,000 Orchard Supply 9.375% 2/15/02 977,500 Hardware stores
800,000 Smiths Food and Drug 11.250% 5/15/07 810,000 Supermarkets
400,000 Vons Companies, Inc. 9.625% 4/01/02 418,500 Supermarkets
-----------
Total Corporate Bonds 24,682,688
-----------
(Cost $24,736,959)
Long Term U.S. Government Agencies 21.94%
1,600,000 Federal Home Loan Mortgage Corp. 6.80% - 8.75% 6/15/05-4/15/18 1,622,330 Mortgage lending
4,500,000 Federal National Mortgage Assn. 0% - 8.00% 7/25/06-1/25/24 3,602,465 Mortgage lending
3,865,000 Government National Mortgage Assn. 6.00% - 9.50% 4/15/07-6/15/23 1,856,626 Mortgage lending
-----------
Total Long Term U.S. Government
Agencies 7,081,421
-----------
(Cost $7,165,204)
Total Investments 98.41% 31,764,109
(Cost $ 31,902,163)(a)
Other assets, less liabilities 1.59% 511,743
----------- -----------
NET ASSETS 100.00% $32,275,852
=========== ===========
</TABLE>
Key: (a) Cost for federal income tax purposes is the same.
Citizens Index Portfolio
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Equities 99.52%
Apparel & Textiles 0.67%
1,300 Brown Group Inc $ 22,588 Footwear
1,800 Gymboree Corp 54,900 Children's Clothing Retailer
2,300 Hartmarx Corp 14,375 Men's and Women's Clothing
5,900 Liz Claiborne 204,287 Women's Clothing
100 Oshkosh B'Gosh 1,800 Adult and Children's Clothing
5,900 Reebok International 198,388 Footwear
</TABLE>
9
See accompanying notes to financial statements.
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1,300 Springs Industries Inc $ 65,650 Fabric
3,700 Stride Rite Corp 30,525 Footwear
5,000 VF Corp 298,125 Clothing
3,200 Warnaco Group Inc 82,400 Clothing
------------
973,038
------------
Banks 9.91%
8,900 Bank of Boston Corp 440,550 Regional Banking
6,000 Bankers Trust New York 443,250 Wholesale Banking
7,400 Barnett Banks Inc. 451,400 Regional Banking
13,300 Boatmens Bancshares 533,662 Regional Banking
17,300 Corestates Financial Corp 666,050 Regional Banking
27,384 First Chicago NBD Corp 1,071,399 Regional Banking
22,430 First Union Corp 1,365,426 Regional Banking
19,800 Keycorp 767,250 Regional Banking
10,600 Mellon Bank Corp 604,200 Regional Banking
17,200 National City Corp 604,150 Regional Banking
23,800 Nationsbank Corp 1,966,475 Regional Banking
29,700 Norwest Corp 1,035,788 Regional Banking
26,500 PNC Financial Corp 788,375 Regional Banking
18,200 Suntrust Banks Inc 673,400 Regional Banking
13,000 U.S. Bancorp 469,625 Regional Banking
13,100 Wachovia Corp 573,125 Regional Banking
7,800 Wells Fargo & Co 1,863,225 Regional Banking
------------
14,317,350
------------
Computer, Hardware & Business Equipment 7.37%
21,500 Amdahl Corp 231,125 Computers
9,300 Apple Computer Inc 195,300 Computers
44,100 Cisco Systems Inc 2,497,163 Computer Networks
20,800 Compaq Computer Corp 1,024,400 Computers
19,850 Computer Associates International Inc. 1,414,312 Computers
9,800 Dell Computer Corp 498,575 Computers
12,200 Digital Equipment Corp 549,000 Computers
5,500 Gateway 2000 Inc 187,000 Computers
16,500 Micron Technology Inc 426,937 Semiconductors
27,500 Novell Inc 381,563 Computer Networks
11,700 Pitney-Bowes Inc 558,675 Office Equipment
11,900 Silicon Graphics Inc 285,600 Visual Computing Systems
14,600 Sun Microsystems Inc 859,575 Computers
8,800 Tandem Computers Inc 108,900 Computers
26,700 Xerox Corp 1,428,450 Office Equipment
------------
10,646,575
------------
Construction and Housing 0.74%
3,000 Apogee Enterprises 102,750 Window Systems
2,800 Armstrong World 161,350 Interior Furnishings
2,100 Centex Corp 65,362 Homebuilder
12,200 Masco Corp 369,050 Interior Furnishings
2,100 Pulte Corp 56,175 Home Construction
3,500 Rouse Company 90,563 Property Management
6,800 Stanley Works 202,300 Hardware
1,300 TJ International Inc. 23,400 Composite Wood
------------
1,070,950
------------
</TABLE>
10 See accompanying notes to financial statements.
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Consumer Durables 0.42%
900 CasTech Aluminum Group Inc. $ 13,275 Aluminum
1,155 Harman International Industries 56,884 Audio and Video Products
8,100 Maytag Co 169,087 Appliances
2,800 Toro Co 92,750 Lawn Maintenance
5,500 Whirlpool Corp 272,938 Appliances
------------
604,934
------------
Electronics 8.42%
5,200 ADC Telecommunications 234,000 Telecommunications Networks
10,500 Advanced Micro Devices 143,062 Semiconductors
3,200 Altera Corp 121,600 Semiconductors
7,000 American Power Conversion 71,750 Electronic Connection Devices
16,100 AMP Inc 646,013 Electronic Connection Devices
10,300 Antec Corp 163,512 Optical Transmission Equipment
3,000 Avnet Inc 126,375 Electric Components
1,800 Belden Inc 54,000 Electronic Connection Devices
10,100 General Instrument Corp 291,638 Cable Supplier
3,700 Global Village Communication 30,525 Modems
41,100 Hewlett Packard Co 4,094,588 Electronic Equipment
65,900 Intel Corp 4,839,531 Microprocessors
7,475 Molex Inc 237,331 Electronic Connection Devices
3,700 National Service Industries 144,763 Lighting Equipment
3,100 Perkin-Elmer Corp 149,575 Analytical Instruments
2,200 Tektronix Inc 98,450 Electronic Equipment
3,000 Thomas & Betts Corp. 112,500 Electronic/Electrical Connectors
6,600 U S Robotics Corp 564,300 Communications Equipment
2,700 VLSI Technology 37,462 Semiconductors
------------
12,160,975
------------
Energy & Utilities 2.29%
15,400 Calenergy, Inc. 94,350 Geothermal Energy
7,100 Consolidated Natural Gas 370,975 Natural Gas
71,429 Energia Global (b)(c) 250,002 Energy prod. & conservation
20,100 Enron Corp 821,587 Natural Gas
78,200 Kenetech Corp 41,544 Alternative Energy
3,100 Landmark Graphics Co 59,675 Geoscience Software
4,000 Nicor Inc 113,500 Natural Gas
9,300 Noram Energy Corp 101,137 Natural Gas
7,500 Oneok Inc 187,500 Natural Gas
6,500 Pacific Enterprises 192,562 Natural Gas
2,600 Peoples Energy Corp 87,100 Natural Gas
6,600 Sonat Inc 297,000 Natural Gas
120,000 Vulcan Power Co (b)(c) 25,000 Geothermal energy
4,000 Western Atlas Inc 233,000 Oil Field Services
8,400 Williams Companies 415,800 Natural Gas
700 Yankee Energy Systems Inc 15,225 Natural Gas
------------
3,305,957
------------
Financial Services 5.91%
8,900 Ahmanson & Co, H.F. 240,300 Savings and Loan
39,300 American Express Co 1,753,763 Diversified Financial Services
3,900 Beneficial Corp 218,887 Consumer Finance
13,000 Dean Witter Discover 744,250 Consumer Finance
</TABLE>
See accompanying notes to financial statements. 11
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
4,500 Edwards (A.G.) Inc $ 122,062 Brokerage
14,500 Federal Home Ln Mortgage Corp 1,239,750 Mortgage Lending
87,000 Federal Natl Mtg Assn 2,914,500 Mortgage Lending
4,600 Golden West Financial 257,600 Savings and Loan
10,100 Great Western Financial 241,138 Savings and Loan
17,100 MBNA Corp 487,350 Credit Cards
13,000 Charles Schwab Corp 318,500 Discount Broker
------------
8,538,100
------------
Food & Agriculture 12.27%
4,200 Ben & Jerry's Homemade 71,400 Ice cream
19,500 Campbell Soup Co 1,374,750 Food
100 Celestial Seasonings, Inc. 2,050 Herbal Teas
201,400 Coca Cola Co 9,843,425 Beverages
11,700 CPC International 842,400 Food Processing
7,000 Dial Corp 200,375 Food Services
11,500 General Mills Inc 626,750 Packaged Food
29,900 H J Heinz Co 908,212 Packaged Food
6,200 Hershey Foods Corp 454,925 Packaged Food
2,500 J M Smucker Co 49,063 Packaged Food
17,000 Kellogg Co 1,245,250 Packaged Food
150 Odwalla Inc 3,000 Fresh juices
10,300 Quaker Oats Co 351,487 Food and Beverage
700 Ringer Corp 1,663 Organic Pesticides
5,400 Supervalu Inc 170,100 Supermarkets/Food Dist.
14,700 Sysco Corp 503,475 Food Distributor
5,348 Tootsie Roll Inds 190,523 Packaged Food
8,000 Whitman Corp 193,000 Food and Beverage
5,400 Whole Foods Market Inc. 143,100 Supermarket
500 Wholesome & Hearty Foods 3,875 Vegetarian Foods
5,000 Worthington Foods Inc 86,250 Vegetarian Food
9,300 Wrigley Co 469,650 Chewing Gum
------------
17,734,723
------------
Health & Personal Care 8.58%
6,200 Alza Corp 169,725 Drug Delivery Systems
5,100 American Medical Response 179,775 Ambulance Service
10,800 Avon Products Inc 487,350 Personal Care Products
2,900 Bergen Brunswig Corp 80,475 Pharmaceutical Distribution
8,500 Biomet Inc 122,187 Medical Equipment and Supplies
1,400 Church & Dwight Inc 29,225 Baking Soda Products
10,600 Community Psychiatric Centers 100,700 Psychiatric Hospitals
2,400 Idexx Laboratories Corp 94,200 Animal Health
7,200 Invacare Corp 169,200 Medical Equipment and Supplies
4,700 Manor Care Inc 185,063 Healthcare Facilities
18,500 Medtronic Inc 1,036,000 Pacemakers
98,800 Merck & Co Inc 6,384,950 Pharmaceuticals
150 Natures Sunshine Products 3,825 Herbs and Vitamins
2,300 Owens & Minor Inc 26,737 Medical Supplies Distributor
2,900 Physician Corp of America 38,425 HMO
4,800 R.P. Scherer Corp 217,800 Drug Delivery Systems
29,400 Schering-Plough Corp 1,844,850 Pharmaceuticals
5,800 Sofamor/Danek Group 160,950 Spinal Implants
6,450 St Jude Medical Inc 216,075 Medical Equipment and Supplies
</TABLE>
12 See accompanying notes to financial statements.
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2,700 Sun Healthcare Group $ 38,475 Long Term Healthcare
1,300 Sunrise Medical Inc 25,025 Medical Equipment and Supplies
1,000 Target Therapeutics 41,000 Medical Equipment and Supplies
11,700 U.S. Healthcare 643,500 HMO
1,500 Ventritex Inc 25,688 Biomedical Devices
2,550 Vivra Inc 83,831 Home Healthcare
------------
12,405,031
------------
Industrial Products 2.64%
8,700 Air Products & Chemicals 502,425 Industrial Gases
2,100 Betz Laboratories Inc 92,137 Water Treatment
34,300 Minnesota Mining & Manufacturing 2,366,700 Multi-Industry
5,000 Nalco Chemical Co 157,500 Water Treatment
10,500 Praxair Inc 443,625 Industrial Gases
3,700 Sigma Aldrich Corp 197,950 Specialty Chemicals
2,500 Wellman Inc 58,438 Recycled Plastics
------------
3,818,775
------------
Insurance 2.98%
16,700 American General Corp. 607,463 Multi-Line Insurance
13,900 Chubb Corp. 693,263 Property and Casualty Insurance
6,300 General RE Corp. 959,175 Property and Casualty Insurance
5,400 Jefferson Pilot Corp. 278,775 Life Insurance
7,400 Providian Corp. 317,275 Life Insurance
9,200 Safeco Corp. 325,450 Property and Casualty Insurance
6,500 St. Paul Cos Inc. 347,750 Property and Casualty Insurance
5,700 Unum Corp 354,825 Multi-Line Insurance
11,600 USF&G Corp 189,950 Property and Casualty Insurance
7,150 USLIFE Corp 235,056 Life Insurance
------------
4,308,982
------------
Media 3.42%
17,500 Comcast Corp 323,750 Cable Networks
7,500 Dow Jones & Co 313,125 Publishing/Newspaper
2,700 King World Productions 98,213 Media/Production
3,700 Knight Ridder Inc 268,250 Publishing/Newspaper
7,600 McGraw-Hill Inc 347,700 Publishing
2,000 Meredith Corp 83,500 Publishing/Magazines
7,500 New York Times Co 244,687 Publishing/Newspapers
1,200 Scholastic Corp 74,400 Publishing/Educational
30,900 Time Warner Inc 1,212,825 Media/Production
8,500 Times Mirror Co 369,750 Publishing/Newspapers
15,600 Turner Broadcast Sys-Cl B 429,000 Television Network
30,200 Viacom Inc-Cl B 1,174,025 Media
------------
4,939,225
------------
Motor Vehicles 0.69%
3,000 Cummins Engine 121,125 Diesel Engines
800 Envirotest Systems Corp 2,200 Vehicle Emissions Testing
2,700 Federal-Mogul Corp 49,613 Engine/Transmission Products
3,500 Fleetwood Enterprises 108,500 Mobile Homes
9,400 Genuine Parts Inc 430,050 Auto Parts Distribution
5,800 Harley Davidson Inc 238,525 Motorcycles
900 SPX Corp 22,050 Auto Service Tools
1,200 Standard Products Co 27,900 Auto Parts
------------
999,963
------------
</TABLE>
See accompanying notes to financial statements. 13
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Non-Ferrous Metals 0.18%
10,950 Engelhard Corp $ 251,850 Engineered materials
800 IMCO Recycling Inc 14,400 Aluminum Recycling
------------
266,250
------------
Optical & Photo 0.16%
2,200 C-Cube Microsystems 72,600 Digital Imaging Circuits
3,500 Polaroid Corp 159,688 Photography Products
------------
232,288
------------
Paper & Forest Products 0.82%
10,000 Alco Standard Corp 452,500 Paper Distribution
1,900 Caraustar Industries Inc 50,350 Recycled Paperboard
3,300 Consolidated Papers Inc 171,600 Printing paper
10,900 Fort Howard Corp 216,638 Tissue Paper Products
3,000 Sealed Air Corp 100,875 Packaging
6,910 Sonoco Products Co 196,071 Recycled Paper Products
------------
1,188,034
------------
Producer Goods 3.15%
4,000 Avery-Dennison Corp 219,500 Office Products
2,500 Cincinnati Milacron Inc 60,000 Machine Tools
20,300 Deere & Co 812,000 Agricultural Equipment
1,400 Duriron Inc 33,600 Pumps and Valves
17,500 Emerson Electric Co 1,581,563 Commercial/Industrial Components
2,400 Fedders Corp 17,100 Air Conditioners
800 ICC Technologies Inc 4,700 Air Conditioners
1,400 Idex Corp 53,200 Pumps and Valves
8,700 Illinois Tool Works 588,337 Metal Components and Assemblies
1,000 Ionics Inc 47,000 Water Purification
8,700 Keystone International Inc 180,525 Pumps and Valves
1,800 Miller (Herman) Inc 55,125 Office Furniture
3,400 Millipore Corp 142,375 Fluid Analysis Products
1,300 Nordson Corp 73,450 Adhesive Application Systems
3,300 Raychem Corp 237,188 Electronic Components
300 Recovery Engineering Inc 3,975 Water Purification
3,200 Snap-On Tools Corp 151,600 Tools
1,600 Tecumseh Products 86,000 Compressors
200 Tennant Co 5,200 Floor Maintenance
2,300 Timken Co 89,125 Steel Bearings
3,000 Trinity Industries Inc 102,000 Metal Components
------------
4,543,563
------------
Recreation & Entertainment 1.40%
5,400 American Greetings Corp. 147,825 Greeting Cards
600 Bell Sports Corp 4,350 Bicycle Helmets
5,200 Callaway Golf Company 172,900 Golf Clubs
2,000 Coleman Inc 84,750 Camping Products
400 Fresh Choice Inc 2,800 Restaurants
3,500 Handleman Company 24,063 Entertainment Distribution
5,500 Harcourt General Inc 275,000 Publishing/Entertainment
6,600 Hasbro Inc 235,950 Toys
1,000 Huffy Corp 12,875 Bicycles
3,400 Jostens Inc 67,150 School Products
</TABLE>
14 See accompanying notes to financial statements.
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1,800 Luby's Cafeterias Inc $ 42,300 Restaurants
21,375 Mattel Inc 611,859 Toys
12,300 Rubbermaid Inc 335,175 Household Products
------------
2,016,997
------------
Services 0.38%
15,400 CUC International 546,700 Consumer Services
------------
Retail 6.98%
2,200 Barnes & Nobles Inc 78,925 Bookstores
7,800 Bruno's Inc 108,225 Supermarkets
11,800 Charming Shoppes Inc. 83,337 Apparel Retailer
7,300 Circuit City Stores 263,712 Electronics Retailer
15,800 Federated Department Stores, Inc. 539,175 Department Stores
22,200 Gap Inc 713,175 Apparel Retailer
4,400 Giant Food Inc 157,850 Supermarkets
2,900 Great Atlantic & Pacific Tea 95,338 Supermarkets
3,100 Hannaford Brothers Co 101,137 Supermarkets
9,400 Kroger Corp 371,300 Supermarkets
26,100 Limited Inc 561,150 Apparel Retailer
1,500 Longs Drug Stores 66,938 Drug Stores
14,000 Lowe's Companies Inc 505,750 Retail/Hardware
19,900 May Department Stores 870,625 Department Stores
8,100 Melville Corp 328,050 Drug Stores
6,200 Nordstrom Inc 275,900 Department Stores
17,800 J.C. Penney Co 934,500 Department Stores
2,896 Payless Shoesource, Inc. 91,948 Shoe Retailer
14,200 Price Costco Inc. 307,075 Wholesale Stores
6,400 Rite Aid Corp 190,400 Drug Stores
31,200 Sears Roebuck & Co 1,517,100 Department Stores
5,600 Tandy Corp. 265,300 Electronic Retailer
5,300 TJX Companies Inc 178,875 Apparel Retailer
21,200 Toys R Us 604,200 Toy Stores
19,600 Walgreen Co 656,600 Drug Stores
9,700 Woolworth Corp 218,250 General/Specialty Retailer
------------
10,084,835
------------
Software & Data Processing 7.17%
5,300 Adobe Systems Inc 190,138 Desktop Publishing Systems
6,400 America Online Inc 280,000 On-Line Computer Services
3,500 Autodesk Inc 104,562 Design Automation Software
23,200 Automatic Data Processing 896,100 Data Processing
8,000 Block H & R Inc 261,000 Information processing
1,500 Broderbund Software 48,375 Educational and Business Software
8,200 Davidson & Associates Inc 246,000 Educational Software
6,200 Deluxe Check Corp. 220,100 Data Processing
1,100 Dialogic Corp 65,588 Call Processing
13,600 Dun & Bradstreet Corp 850,000 Information Services
2,300 Harland John H Company 56,637 Check Printing
47,900 Microsoft Corp 5,753,988 Computer Software
7,500 Moore Corp Limited 141,562 Business Forms
10,200 Network General Corp 219,300 Business Software
10,100 Parametric Technology 438,088 Design Software
5,200 Qualcomm Inc 276,250 Wireless Communication Software
1,700 Shared Medical Systems Corp 109,225 Data Processing
1,800 Stratus Computer Inc 52,200 On-Line Computer Services
</TABLE>
See accompanying notes to financial statements. 15
<PAGE>
Citizens Index Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
5,100 Sybase Inc $ 120,487 Business Software
2,800 Symantec Corp 35,000 Programming Utilities
------------
10,364,600
------------
Steel 0.41%
3,300 Inland Steel Industries 64,762 Steel
7,700 Nucor Corp 389,812 Steel
6,700 Worthington Industries Inc 139,862 Steel
------------
594,436
------------
Telephone 11.60%
39,500 Airtouch Communications 1,115,875 Cellular Telephone
13,800 Alltel Corp 424,350 Telecommunications
44,800 Ameritech Corp 2,660,000 Telephone Regional Bell Company
34,900 Bell Atlantic Corp 2,224,875 Telephone Regional Bell Company
79,800 Bellsouth Corp 3,381,525 Telephone Regional Bell Company
11,300 Mobile Telecom Tech 165,262 Wireless Data Communications
34,400 Pacific Telesis Group 1,161,000 Telephone Regional Bell Company
48,400 SBC Communications Inc 2,383,700 Telephone Regional Bell Company
7,200 Tellabs Inc 481,500 Voice and Data Networking Products
74,600 U.S. West Inc 1,876,475 Telephone Regional Bell Company
16,000 Worldcom, Inc. 886,000 Telecommunications
------------
16,760,562
------------
Tires & Rubber 0.16%
2,000 Bandag Inc 96,000 Tire Retread Equipment
6,200 Cooper Tire & Rubber 137,950 Tires
------------
233,950
------------
Transportation 0.80%
2,900 Caliber Systems Inc. 98,600 Transportation and Logistics Services
5,100 Federal Express Corp 418,200 Overnight Delivery
4,650 Illinois Central Corp 131,944 Regional Railroad
1,700 Roadway Services Inc 24,012 Trucking
5,800 Ryder System Inc 163,125 Truck Rental
10,900 Southwest Airlines 317,462 Regional Airline
------------
1,153,343
------------
Total Equities (Cost $ 115,517,115 ) 143,810,136
------------
Total Investments 99.52%
(Cost $ 115,517,115 )(a) 143,810,136
Other assets, less liabilities 0.48% 693,842
------ ------------
NET ASSETS 100.00% $144,503,978
====== ============
</TABLE>
Key: (a) Cost for federal income tax purposes is the same. (b) Non-income
producing security. (c) Restricted security, see Note 4.
16 See accompanying notes to financial statements.
<PAGE>
Citizens Emerging Growth Portfolio
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Equities 62.66%
Apparel & Textiles 3.00%
17,400 Kenneth Cole Productions Inc. (b) $ 343,650 Footwear
11,600 Gucci Group NV (b) 748,200 Apparel and accessories
------------
1,091,850
------------
Broadcasting & Communications 9.06%
14,800 Cincinnati Bell Inc. 771,450 Telephone company
3,200 Clear Channel Communications (b) 263,600 Broadcasting
13,990 Evergreen Media Corp. (b) 598,073 Radio stations
10,000 HBO & Co. 677,500 Information systems & technology
30,000 Paxson Communications Corp. (b) 318,750 Television stations
10,000 Tellabs, Inc. (b) 668,750 Voice and Data Networking Products
------------
3,298,123
------------
Computer, Office & Business Equipment 17.79%
23,565 Cadence Design Systems Inc. (b) 795,319 Software
25,720 Checkpoint Systems, Inc. (b) 884,125 Electronic Surveillance Systems
18,000 Corporate Express Inc. (b) 720,000 Office products supplier
11,700 Danka Business Systems 342,225 Office Equipment
25,000 Data Documents Inc. Del (b) 306,250 Business forms
10,000 Dell Computer Corp. (b) 508,750 Computers
12,500 Macromedia (b) 273,437 Software
5,000 Microsoft Corp. 600,625 Computer software
18,600 Sterling Comm. Inc. (b) 690,525 Software
12,300 Sun Microsystems Inc. (b) 724,162 Computers
7,400 U.S. Robotics Corp. (b) 632,700 Data communications products
------------
6,478,118
------------
Construction & Housing 1.97%
10,260 HFS, Inc. (b) 718,200 Hotel franchise
------------
Financial Services & Insurance 6.09%
26,000 Charles Schwab Corp. 637,000 Discount broker
31,300 Checkfree Corp. (b) 622,088 Electronic commerce services
33,435 PMTServices Inc. (b) 957,077 Credit and authorization systems
------------
2,216,165
------------
Healthcare 12.30%
19,700 Amerisource Health Co. (b) 655,025 Drug wholesaler
33,700 Amisys Managed Care Sys. Inc. (b) 867,775 Healthcare information systems
30,000 Envoy Corp. New (b) 877,500 Electronic transaction processing
13,000 Express Scripts (b) 598,000 Managed care
20,200 Matrix Pharmaceuticals (b) 363,600 Drug delivery systems
1,850 Meridian Diagnostic 28,328 Immuno diagnostic test kits
12,675 Phycor Inc. (b) 481,650 Medical clinic management
16,000 Watson Pharmaceuticals Inc. (b) 606,000 Pharmaceuticals
------------
4,477,878
------------
Industrial 2.51%
13,400 BMC Industries 914,250 Multi-industry
------------
</TABLE>
See accompanying notes to financial statements. 17
<PAGE>
Citizens Emerging Growth Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Retailers 3.44%
23,300 Orchard Supply Hardware (b) $ 701,913 Hardware stores
16,170 Saks Holding, Inc. (b) 551,801 Apparel and accessory stores
------------
1,253,714
------------
Services 4.92%
6,750 Accustaff, Inc. 183,937 Employment agency
15,000 Alternative Res. Corp. (b) 551,250 Employment agency
15,700 Corestaff, Inc. (b) 702,575 Employment agency
10,000 Outdoor Systems, Inc. (b) 352,500 Advertising
------------
1,790,262
------------
Transportation 1.58%
10,000 Atlas Air, Inc. (b) 575,000 Air transportation
------------
Total Equities 22,813,560
------------
(Cost $ 20,990,868)
Index Options 23.15%
2,400 S&P 500 Sept. 675 Call 4,200,000
2,400 S&P 500 Sept. 680 Put 4,230,000
------------
Total Index Options 8,430,000
------------
(Cost $10,665,360)
Total Investments 85.81% 31,243,560
(Cost $ 31,656,228) (a)
Other assets, less liabilities 14.19% 5,165,717
NET ASSETS 100.00% $36,4005,277
====== ============
</TABLE>
Key: (a) Cost for federal income tax purposes is the same. (b) Non-income
producing security.
<TABLE>
<CAPTION>
Index Options written at 6/30/96
- ----------------------------------------------------------------------------------------
Shares Subject
Index/Expiration Date/Excise Price To Call/Put Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500/Sept/675/Put 2,400 $3,720,000
S&P 500/Sept/680/Call 2,400 3,510,000
----------
Total (premiums received $9,473,684) $7,230,000
==========
</TABLE>
Citizens Global Equity Portfolio
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Equities 84.83%
Belgium 2.25%
2,186 Barco N.V. (Barco Industries) 350,274 Technologies
------------
Canada 1.69%
17,200 Royal Plastics (b) 263,236 Building materials
------------
</TABLE>
18 See accompanying notes to financial statements.
<PAGE>
Citizens Global Equity Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
France 5.18%
825 Ecco Ste $ 207,528 Employment services
2,000 Legrand 358,191 Misc. manufacturing
265 Salomon SA 242,192 Ski bindings
------------
807,911
------------
Germany 1.85%
1,950 SAP AG 289,142 Software
------------
Great Britain 4.47%
16,000 Reed International 267,627 Publishing
35,500 Reuters Holdings 429,696 Media
------------
697,323
------------
Hong Kong 1.64%
150,000 HongKong and Shanghai Hotels Ltd. 255,797 Construction
------------
Ireland 3.89%
45,000 Bank of Ireland 306,794 Banking
65,750 Independent Newspapers PLC 299,365 Media
------------
606,159
------------
Italy 5.27%
20,000 Arn Mondadori Edit 151,342 Publishing
11,200 Bvlgari Spa 179,001 Watches and jewelry
112,000 Telecom Italia Mo B 250,236 Telecommunications
112,000 Telecom Italia 240,738 Telecommunications
------------
821,317
------------
Japan 12.26%
16,000 Canon Inc. 332,599 Business equipment
6,200 Familymart Co. 275,853 Convenience stores
6,000 Ito-Yokado Co. 361,592 Retail stores
26,000 NEC Corp. 282,090 Electronic products
25,000 Sumitomo Marine & Fire 217,676 Insurance
4,000 TDK Corp. 238,509 Electronic components
7,000 Tokyo Electronics 203,590 Semiconductors
------------
1,911,909
------------
Netherlands 4.35%
3,927 Aegon NV 180,824 Insurance
4,500 Polygram 265,733 Music
15,000 Ver Ned Uitgevers 232,868 Media
------------
679,425
------------
Norway 2.60%
40,000 Tomra Systems 406,383 Recycling vending machines
------------
Philippines 3.53%
370,000 C&P Homes Inc. 321,289 Home builder
150,000 Pilipino Telephone (b) 229,015 Telecommunications
------------
550,304
------------
Portugal 1.00%
6,000 Portugal Telecom (b) 156,725 Telecommunications
------------
</TABLE>
See accompanying notes to financial statements. 19
<PAGE>
Citizens Global Equity Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Share Security Description Value Primary Products/
Amount (Note 1) Line of Trade
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Singapore 3.21%
55,000 DBS Land $ 188,601 Real Estate
25,000 Development Bank of Singapore, Ltd. 311,738 Development bank
------------
500,339
------------
Spain 5.50%
5,000 Aguas De Barcelona 185,632 Water management
4,500 BCO Santander SA 209,889 Banking
2,200 Gas Natural SDG SA 461,583 Natural gas
------------
857,104
------------
United States 26.14%
4,200 Banco Latinoamericano de Exportaciones 236,250 Bank
3,000 Computer Assoc. International Inc. 213,750 Computers
4,700 Deere & Co. 188,000 Agricultural equipment
4,700 Enron Corporation 192,112 Natural gas
10,000 Group Industrial Maseca SA ADR 157,500 Corn flour
3,600 Home Depot Inc 194,400 Home supply retailer
6,000 Intel Corp. 440,625 Microprocessors
12,000 Kenneth Cole Productions Inc (b) 237,000 Footwear
3,000 Luxottica Group ADR 220,125 Eyeglass frames
6,500 Merck & Co., Inc. 420,062 Pharmaceuticals
6,000 Perusahaan Perseroan ADR 201,000 Telecommunications
6,600 Southwest Airlines Co. 192,225 Regional airline
3,500 Sun Microsystems Inc. (b) 206,063 Computers
5,000 Suntrust Banks Inc. 185,000 Commercial bank
8,200 Telecomunicacoes Brasileiras ADR 570,925 Telecommunications
4,000 Worldcom, Inc. (b) 221,500 Telecommunications
------------
4,076,537
------------
Total Investments 84.83% 13,229,885
------------
(Cost $ 10,815,956) (a)
Other assets, less liabilities 15.17% 2,365,448
------------
NET ASSETS 100.00% $ 15,595,333
============
</TABLE>
Key: (a) Cost for federal income tax purposes is the same. (b) Non-income
producing security.
Muir California Tax Free Income Portfolio
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Yield Maturity Value Purpose Rating
Amount Date (Note 1) (b)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
Municipal Securities 95.27%
Environmental 55.95%
$250,000 California State General Obligation 5.10% 10/1/08 $244,193 General obligation A+
500,000 East Bay, California, Municipal Utility District 001 5.00% 4/1/15 450,375 Sewer improvement AA
540,000 East Bay, California, Regional Park District,
Series C, FGIC 5.50% 9/1/08 543,433 Parks AAA
500,000 Fairfield, California, Water Revenue, AMBAC 5.375% 4/1/17 472,200 Water AAA
440,000 Kings County, California, Waste Management AMT 6.00% 10/1/99 455,579 Materials recovery BBB+
500,000 Los Angeles County, California, Public Works
Financing Revenue, Regional Park & Open Space 6.00% 10/1/15 501,843 Parks AA
500,000 Metropolitan Waterworks Revenue, California, MBIA 5.00% 7/1/13 459,155 Water AAA
300,000 Ontario, California, Redevelopment Financing
Authority, Project No. 1, MBIA 6.95% 8/1/11 342,197 Redevelopment AAA
</TABLE>
20 See accompanying notes to financial statements.
<PAGE>
Muir California Tax Free Income Portfolio (continued)
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Yield Maturity Value Purpose Rating
Amount Date (Note 1) (b)
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
$515,000 Pasadena, California, Water Revenue 5.00% 7/1/18 $ 455,395 Water AA-
500,000 Rancho, California, Water District
Financing Authority, FGIC 6.50% 11/1/05 551,073 Water AA-
500,000 San Diego, Open Space Park Facilities 5.75% 1/1/07 516,629 Parks AAA
600,000 Santa Margarita, Dana Point Authority,
California Refunding, AMBAC 5.375% 7/1/14 573,982 Sewer AA+
650,000 Southern California Rapid Transit
Revenue, AMBAC 5.75% 9/1/05 682,056 Public transit AAA
500,000 Southgate California Public Financing
Revenue, FGIC 5.375% 10/1/09 490,900 Water AAA
625,000 Vista, California, Community Development, MBIA 6.00% 9/1/10 657,951 Redevelopment AAA
-----------
7,396,961
-----------
Affordable Housing 17.78%
5,000 Barstow, California, Multifamily Housing
Revenue, Villa Vista 9.875% 12/1/96 5,042 Multi-family housing A-
745,000 California Housing Finance Agency Revenue 6.00% 2/1/05 777,962 Single-family housing AA-
500,000 California Housing Finance Agency Revenue,
Home Mortgage Series E-1 5.40% 8/1/00 510,443 Single-family housing AA-
385,000 California Housing Finance Agency Revenue 7.35% 2/1/00 402,929 Single-family housing AA-
100,000 California State Vet. General Obligation 7.25% 4/1/07 101,583 Housing A+
10,000 Los Angeles, California, Single Family
Home Mortgage Revenue 6.75% 6/1/05 10,578 Single-family housing AAA-
40,000 Riverside County, California, Single Family Revenue 6.85% 10/1/16 41,148 Single-family housing AAA
500,000 Thousand Oaks, California, Redevelopment
Agency, SFMR-GNMA 5.50% 12/1/10 500,816 Single-family housing AAA
-----------
2,350,501
-----------
Education and Health 21.54%
220,000 Arcadia, California, Unified School District FGIC 5.45% 7/1/08 221,629 Schools AAA
500,000 John C. Fremont Hospital District 6.00% 6/1/04 515,536 Hospital A
250,000 Madera County, California, Common Trust
Funds, Valley Childrens Hospital, MBIA 6.50% 3/15/10 274,844 Hospital AAA
500,000 Oakland California Museum, COP, AMBAC 6.25% 4/1/05 536,728 Museum AAA
275,000 Oak Park, California, School District MBIA 5.35% 5/1/09 273,214 Schools AAA
500,000 University of California Revenue Bonds,
Multiple Purpose Projects, MBIA 6.875% 9/1/16 565,032 University AAA
500,000 University of California Revenue Bonds,
Multiple Purpose Projects, C-AMBAC 5.25% 9/1/16 461,915 University AAA
-----------
2,848,898
-----------
Total Municipal Securities (Cost $ 12,543,552) 12,596,360
-----------
Short Term Investments 2.34%
21,887 Goldman Sachs ITA California 21,887 Mutual fund
287,085 Provident California Money Market Fund 287,085 Mutual fund
-----------
Total Short Term Investments (Cost $ 308,972) 308,972
-----------
Total Investments 97.61% 12,905,332
(Cost $ 12,852,524) (a)
Other assets, less liabilities 2.39% 315,934
-----------
NET ASSETS 100.00% $13,221,266
===========
</TABLE>
Key: (a) Cost for federal income tax purposes is the same. (b) Source of ratings
is Standard & Poors, Moody's, or Fitch Investor Services.
See accompanying notes to financial statements. 21
<PAGE>
E[bullet]fund
Statement of Investments - June 30, 1996
<TABLE>
<CAPTION>
Principal Security Description Yield Maturity Date Value (a) Primary Products/
Amount (Note 1) Line of Trade
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
Commercial Paper: 83.36%
$450,000 Allergan, Inc. 5.32%-5.38% 7/30/96-8/20/96 $ 446,905 Ophthalmic
500,000 Aristar 5.42% 7/26/96 498,118 Banking products
350,000 Banc One Corp 5.28% 7/19/96 349,076 Banking products
460,000 Barnett Banks Inc. 5.37% 7/09/96 459,451 Regional banking
100,000 Bellsouth Telecomm Inc. 5.28% 7/19/96 99,736 Telephone company
500,000 B.I. Funding Inc. 5.42% 7/31/96 497,742 Apparel
250,000 Conag Finance 5.39% 7/02/96 249,963 Natural gas
350,000 Consolidated Natural Gas Co. 5.32% 7/11/96 349,483 Natural gas
400,000 Cooperative Assoc. of Tractor Dealers 5.35% 8/02/96 398,098 Tractor dealer
450,000 Countrywide Funding Corp. 5.43% 9/06/96 445,452 Mortgage lending
300,000 CPC International Inc. 5.30% 9/24/96 296,246 Food processing
450,000 Dean Witter Discover Co. 5.33% 7/31/96 448,001 Consumer finance
400,000 Harley Davidson Dealer FDG 5.34% 7/11/96 399,407 Motorcycles
160,000 Home Depot (The) 5.45% 7/01/96 160,000 Retail stores
200,000 Idaho Power 5.38% 7/29/96 199,163 Energy
100,000 J.C. Penney 5.40% 7/11/96 99,850 Department store
375,000 John Hancock 5.33% 7/25/96 373,667 Insurance
330,000 Lehman Holdings 5.37% 7/08/96 329,655 Commercial finance
450,000 McGraw Hill Inc. 5.42% 10/16/96 442,751 Publishing
500,000 Nordstrom Cr Inc. 5.35% 7/16/96 498,885 Department stores
350,000 Pitney Bowes Cr Corp. 5.28% 9/13/96 346,201 Office equipment
350,000 Rubbermaid Inc. 5.32% 7/16/96 349,224 Household products
400,000 Sonoco Prods. Co. 5.33% 7/16/96 399,112 Recycled paper products
305,000 Stanley Works 5.29% 7/25/96 303,924 Hardware
450,000 Toys R Us Inc. 5.30% 7/26/96 448,344 Toy stores
350,000 US West Capital Fdg. Inc. 5.28% 7/17/96 349,179 Telecommunications
-----------
Total Commercial Paper (Cost $ 9,237,633) 9,237,633
-----------
Certificates of Deposit: 0.90%
100,000 South Shore Bank (Cost $ 100,000) 5.35% 12/15/96 100,000 Community bank
-----------
U.S. Government Agencies: 6.36%
210,000 Federal Home Loan Bank 5.30% 7/29/96 209,134 Mortgage lending
500,000 Federal National Mortgage Assn. 5.305% 8/26/96 495,874 Mortgage lending
-----------
Total U.S. Government Agencies
(Cost $ 705,008) 705,008
-----------
Small Business Administration (b)(c): 3.20%
351,276 Variable Rate Notes (Cost $ 354,602) 7.0%-9.376% (b) 354,602 Small business lending
-----------
Total Investments 93.82% 10,397,243
(Cost $ 10,397,243) (e)
Other assets, less liabilities 6.18% 684,979
-----------
NET ASSETS 100.00% $11,082,222
====== ===========
</TABLE>
Key: (a) Investments are based upon amortized cost method. (b) Variable interest
rates are subject to change every 7 to 90 days. (c) Includes a total of 6 notes.
22 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Statement of Assets and Liabilities -June 30, 1996
<TABLE>
<CAPTION>
Working Assets Citizens Citizens Citizens
Money Market Income Index Emerging Growth
Portfolio Portfolio Portfolio Portfolio
----------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market value
(Identified cost $91,747,629 $31,902,163 $115,517,115
and $31,656,228 respectively) (Note 1) $91,747,629 $31,764,109 $143,810,136 $31,243,560
Cash 1,383,920 596,451 507,280 11,683,459
Receivable for:
Interest 282,248 501,733 - -
Dividends - - 211,898 1,494
Fund shares sold 317,955 2,554 80,401 728,886
Investment securities sold - - - -
SBA principal paydowns 134,808 - - -
Deferred organization costs (Note 1) 23,381 13,975 43,590 11,928
Other assets 53,959 35,323 - 33,177
----------- ---------- ------------ -----------
Total Assets 93,943,900 32,914,145 144,653,305 43,702,504
----------- ---------- ------------ -----------
LIABILITIES
Payables:
Investment securities purchased - 540,634 38,348 -
Capital shares redeemed 998,028 12,078 30,850 11,516
Distributions 3,755 26,370 - -
Call options written (premiums received $9,473,684) - - - 7,230,000
Accrued expenses 64,035 30,877 76,965 39,233
Due to investment adviser 13,069 28,334 3,164 12,478
----------- ---------- ------------ -----------
Total Liabilities 1,078,887 638,293 149,327 7,293,227
----------- ---------- ------------ -----------
NET ASSETS $92,865,013 $32,275,852 $144,503,978 $36,409,277
=========== ========== ============ ===========
Retail Shares
Net assets $ 78,326,048 $ 32,275,852 $136,980,167 $36,409,277
Shares outstanding 78,326,048 3,140,161 10,211,416 2,448,943
Net asset value, offering and
redemption price per share $1.00 $10.28 $13.41 $14.87
=========== ========== ============ ===========
Institutional Shares
Net assets $ 14,538,965 - $ 7,523,811 -
Shares outstanding 14,538,965 - 683,733 -
Net asset value, offering and redemption price per share $1.00 - $11.00 -
=========== ========== ============ ===========
NET ASSETS
At June 30, 1996 net assets consisted of:
Paid-in capital $92,865,013 $32,845,364 $115,183,733 $30,184,553
Undistributed net investment income - - 690,075 -
Accumulated realized gain (loss) - (431,458) 337,149 4,393,708
Net unrealized appreciation (depreciation) of investments - (138,054) 28,293,021 1,831,016
----------- ---------- ------------ -----------
$92,865,013 $32,275,852 $144,503,978 $36,409,277
=========== ========== ============ ===========
</TABLE>
See accompanying notes to financial statements. 23
<PAGE>
Citizens Trust
Statement of Assets and Liabilities - June 30, 1996
<TABLE>
<CAPTION>
Muir California
Citizens Tax-Free
Global Equity Income
Portfolio Portfolio E[bullet]fund
----------------- ------------------- ------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at market value
(Identified cost $10,815,956 ; $12,852,524 ;
and $10,397,243 respectively) (Note 1) $13,229,885 $12,905,332 $10,397,243
Cash (including foreign currencies) 2,784,116 - 283,888
Receivable for:
Interest - 246,247 21,413
Dividends 42,877 -
Fund shares sold 8,469 531 228,856
Investment securities sold - - -
SBA principal paydowns - - 54,018
Due from investment adviser - - -
Deferred organization costs (Note 1) 11,928 63,691 178,427
Prepaid expenses and others 26,298 42,396 33,111
----------- ----------- -----------
Total Assets 16,103,573 13,258,197 11,196,956
----------- ----------- -----------
LIABILITIES
Payables:
Investment securities purchased 457,551 - -
Capital shares redeemed 8,654 6,132 110,938
Distributions - 6,556 2,680
Accrued expenses 39,429 24,243 1,116
Due to investment adviser 2,606 - -
----------- ----------- -----------
Total Liabilities 508,240 36,931 114,734
----------- ----------- -----------
NET ASSETS
Applicable to 1,311,458 ; 845,278 and
11,082,222 outstanding shares, respectively $15,595,333 $13,221,266 $11,082,222
=========== =========== ===========
Net asset value, offering and redemption
price per share $11.89 $15.64 $1.00
=========== =========== ===========
NET ASSETS
At June 30, 1996 net assets consisted of:
Paid-in capital $13,468,311 $13,704,783 $11,082,222
Accumulated realized gain (loss) of
investments and foreign currencies (285,977) (536,326) -
Net unrealized appreciation of
investments and foreign currencies 2,412,999 52,809 -
----------- ----------- -----------
$15,595,333 $13,221,266 $11,082,222
=========== =========== ===========
</TABLE>
24 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Statement of Operations - Year Ended June 30, 1996
<TABLE>
<CAPTION>
Working Assets Citizens Citizens Citizens
Money Market Income Index Emerging Growth
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income
Interest $ 5,518,126 $ 2,436,440 $ 18,406 $ 51,519
Dividends -- -- 3,074,950 23,134
------------ ------------ ------------ ------------
Total investment income 5,518,126 2,436,440 3,093,356 74,653
------------ ------------ ------------ ------------
Expenses
Investment management fees (Note 2) 423,731 207,386 689,466 197,492
Transfer agent fees 193,037 35,706 187,224 29,787
Custody and accounting fees 37,846 20,964 53,379 22,287
Distribution expense (Note 2) 182,653 79,764 273,219 49,373
Administration expense (Note 2) 186,145 74,254 903,081 117,910
Legal and audit fees 23,974 10,714 41,128 5,802
Registration fees 17,626 13,178 20,784 12,063
Trustees' fees and expenses 5,221 5,207 7,665 5,207
Printing and postage 54,911 14,148 54,906 14,326
Dues 5,133 1,981 6,659 1,300
Insurance 1,826 281 1,599 255
Amortization of organization costs -- 6,500 7,806 4,500
------------ ------------ ------------ ------------
Total expenses 1,132,103 470,083 2,246,916 460,302
Fee Reductions (Note 6) (29,137) (16,347) (38,487) (16,643)
Reimbursement by Adviser (Note 2) -- (13,086) -- (47,125)
------------ ------------ ------------ ------------
Net expenses 1,102,966 440,650 2,208,429 396,534
------------ ------------ ------------ ------------
Net investment income (loss) 4,415,160 1,995,790 884,927 (321,881)
------------ ------------ ------------ ------------
Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on investments -- 53,207 337,150 5,895,322
Increase in unrealized
appreciation on investments -- (422,710) 24,446,708 1,140,522
------------ ------------ ------------ ------------
Net realized and unrealized gain
on investments -- (369,503) 24,783,858 7,035,844
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations $ 4,415,160 $ 1,626,287 $ 25,668,785 $ 6,713,963
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements. 25
<PAGE>
Citizens Trust
Statement of Operations - Year Ended June 30, 1996
<TABLE>
<CAPTION>
Muir California
Citizens Tax-Free
Global Equity Income
Portfolio Portfolio E[bullet]fund
----------- ----------- -----------
<S> <C> <C> <C>
Income
Interest $ 46,954 $ 790,029 $ 222,553
Dividends 135,395 _ _
Other income (Note 2) _ _ 16,057
----------- ----------- -----------
Total income 182,349 790,029 238,610
----------- ----------- -----------
Expenses
Investment management fees (Note 2) 118,662 94,344 4,018
Transfer agent fees 26,913 25,798 1,076
Custody and accounting fees 42,630 35,412 6,930
Distribution expense (Note 2) 29,666 36,286 _
Administration expense (Note 2) 68,745 28,658 6,931
Legal and audit fees 3,922 5,171 14,035
Registration fees 11,563 417 1,755
Trustees' fees and expenses 5,207 5,207 1,350
Printing and postage 11,310 14,173 11,105
Dues 837 964 242
Insurance 215 1,278 _
Amortization of organization costs 4,500 23,800 13,951
----------- ----------- -----------
Total expenses 324,170 271,508 61,393
Fee reductions (Note 6) (21,678) (14,903) (6,720)
Reimbursement by Adviser (Note 2) _ (45,402) (54,673)
----------- ----------- -----------
Net expenses 302,492 211,203 _
----------- ----------- -----------
Net income (loss) (120,143) 578,826 238,610
----------- ----------- -----------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions
Realized gain (loss) on investments
and foreign currency transactions (271,000 175,608 _
Increase in unrealized
appreciation on investments and
foreign currencies 1,867,659 (53,230) _
----------- ----------- -----------
Net realized and unrealized gain on
investments and foreign currencies 1,596,659 122,378 _
Net increase in net assets
----------- ----------- -----------
resulting from operations $ 1,476,516 $ 701,204 $ 238,610
=========== =========== ===========
</TABLE>
26 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Working Assets
Money Market Portfolio Citizens Income Portfolio
------------------------------- ----------------------------------
For the For the For the For the
year ended year ended year ended year ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 4,415,160 $ 4,479,491 $ 1,995,790 $ 1,674,276
Realized gain (loss) on investments _ _ 53,207 (484,665)
Unrealized appreciation (depreciation)
of investments _ _ (422,710) 1,405,185
Change in net assets from
------------- ------------- ------------- -------------
investment activities 4,415,160 4,479,491 1,626,287 2,594,796
------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income-Retail (4,158,569) (4,479,491) (1,995,790) (1,674,963)
Net investment income-Institutional (256,591) _ _ -
Net realized gain on investments-Retail _ _ _ (43,006)
Total distributions (4,415,160) (4,479,491) (1,995,790) (1,717,969)
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from capital share
transactions (Note 5) (4,746,296) (6,155,104) 2,523,000 4,835,278
------------- ------------- ------------- -------------
Total increase (decrease) in net assets (4,746,296) (6,155,104) 2,153,497 5,712,105
Net Assets
Beginning of year 97,611,309 103,766,413 30,122,355 24,410,250
------------- ------------- ------------- -------------
End of year $ 92,865,013 $ 97,611,309 $ 32,275,852 $ 30,122,355
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements. 27
<PAGE>
Citizens Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Citizens Index Portfolio Citizens Emerging Growth Portfolio
------------------------------- ----------------------------------
For the For the For the For the
year ended period ended year ended year ended
June 30, 1996 June 30, 1995* June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 884,927 $ 95,086 ($ 321,881) $ 36,416
Realized gain (loss) on investments 337,150 535,007 5,895,322 825,127
Unrealized appreciation (depreciation)
of investments 24,446,708 3,615,754 1,140,522 686,690
------------- ------------ ------------ -----------
Change in net assets from
investment activities 25,668,785 4,245,847 6,713,963 1,548,233
------------- ------------ ------------ -----------
Distributions to shareholders from:
Net investment income-Retail (289,938) _ _ (41,305)
Net realized gain on investments-Retail (535,008) _ (1,851,960) (151,326)
------------- ------------ ------------ -----------
Total distributions (824,946) _ (1,851,960) (192,631)
------------- ------------ ------------ -----------
Increase in net assets resulting from
capital share transactions (Note 5) 13,564,332 101,849,960 20,909,575 5,527,994
------------- ------------ ------------ -----------
Total increase in net assets 38,408,171 106,095,807 25,771,578 6,883,596
Net Assets
Beginning of year 106,095,807 _ 10,637,699 3,754,103
------------- ------------ ------------ -----------
End of year $ 144,503,978 $106,095,807 $ 36,409,277 $10,637,699
============= ============ ============ ===========
Undistributed net investment income
End of year $ 690,075 $ 95,086 _ _
============= ============ ============ ===========
</TABLE>
* Commencement of operations March 3, 1995
28 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Muir California
Citizens Global Equity Portfolio Tax-Free Income Portfolio
----------------------------- ---------------------------
For the For the For the For the
year ended year ended year ended year ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations
Net investment income (loss) ($ 120,143) ($ 252) $ 578,826 $ 712,288
Realized gain (loss) on investments
and foreign currencies (271,000) 155,508 175,608 (185,122)
Unrealized appreciation (depreciation)
of investments and foreign currencies 1,867,659 652,979 (53,230) 236,452
----------- ----------- ----------- -----------
Change in net assets from
investment activities 1,476,516 808,235 701,204 763,618
----------- ----------- ----------- -----------
Distributions to shareholders from:
Net investment income _ _ (578,826) (712,288)
Net realized gain on investments (126,086) (47,352) _ _
----------- ----------- ----------- -----------
Total distributions (126,086) (47,352) (578,826) (712,288)
----------- ----------- ----------- -----------
Increase (decrease) in net assets resulting
from capital share transactions (Note 5) 4,741,741 3,103,712 (2,142,157) (2,085,823)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets 6,092,171 3,864,595 (2,019,779) (2,034,493)
Net Assets
Beginning of year 9,503,162 5,638,567 15,241,045 17,275,538
----------- ----------- ----------- -----------
End of year $15,595,333 $ 9,503,162 $13,221,266 $15,241,045
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements. 29
<PAGE>
Citizens Trust
Statement of Changes in Net Assets
E[bullet]fund
----------------
For the
year ended
June 30, 1996*
----------------
Operations
Net income $238,610
Realized gain (loss) on investments _
Unrealized appreciation (depreciation)
of investments _
-----------
Change in net assets from operating activities 238,610
-----------
Distributions to shareholders from:
Net income (238,610)
Net realized gain on investments -
Total distributions (238,610)
-----------
Increase in net assets resulting
from capital share transactions (Note 5) 11,082,222
-----------
Total increase in net assets 11,082,222
Net Assets
Beginning of year -
-----------
End of year $11,082,222
===========
* Commencement of operations - July 1, 1995
30 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Financial Highlights
<TABLE>
<CAPTION>
Working Assets Money Market Portfolio
-----------------------------------------------------------------------
For the years ended June 30,
-----------------------------------------------------------------------
Retail Shares 1996 1995 1994 1993 1992
----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations
Net investment income 0.045 0.044 0.023 0.024 0.041
Less distributions
Dividends (from net
investment income) (0.045) (0.044) (0.023) (0.024) (0.041)
------- ------- -------- -------- --------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======== ======== ========
Total return 4.60% 4.51% 2.35% 2.43% 4.16%
Ratios and Supplemental Data
Net assets, end of year (000's) $78,326 $97,611 $103,766 $152,625 $223,951
Ratio of expenses to average net assets 1.21% 1.16% 1.16% 1.11% 1.07%
Ratio of net income to average net assets 4.56% 4.39% 2.31% 2.41% 4.09%
Institutional Shares 1996*
-------
Selected Per-Share Data
Net asset value, beginning of period $1.00
Income from investment operations
Net investment income 0.021
Less distributions
Dividends (from net
investment income) (0.021)
-------
Net asset value, end of period $1.00
=======
Total return 2.09%
Ratios and Supplemental Data
Net assets, end of period (000's) $14,539
Ratio of expenses to average net assets 0.50%**
Ratio of net income to average net assets 5.16%**
</TABLE>
* For the period from February 1, 1996 to June 30, 1996.
** Annualized
See accompanying notes to financial statements. 31
<PAGE>
Citizens Trust
Financial Highlights
<TABLE>
<CAPTION>
Citizens Income Portfolio
------------------------------------------------------------------------------------
For the For the year For the year For the year For the period*
year ended ended ended ended ended
June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992
---------------- ----------------- ---------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net assets value,
beginning of period $10.38 $10.04 $10.60 $10.07 $10.00
------- ------- ------- ------- ------
Income (loss) from investment operations
Net investment income (loss) 0.66 0.65 0.55 0.46 0.01
Net gain (loss) on securities
(both realized and unrealized) (0.10) 0.36 (0.54) 0.54 0.07
------- ------- ------- ------- ------
Total from investment operations 0.56 1.01 0.01 1.00 0.08
------- ------- ------- ------- ------
Less distributions
Dividends (from net
investment income) (0.66) (0.65) (0.55) ( 0.47) ( 0.01)
Distributions (from
net realized gains) -- (0.02) (.02) -- --
------- ------- ------- ------- ------
Total distributions ( 0.66) (0.67) (0.57) ( 0.47) ( 0.01)
------- ------- ------- ------- ------
Net asset value, end of period $10.28 $10.38 $10.04 $10.60 $10.07
======= ======= ======= ======= ======
Total Return 5.48% 10.45% 0.04% 10.08% 14.60%***
Ratios and Supplemental Data
Net assets, end of period (thousands) $32,276 $30,122 $24,410 $12,601 $1,030
Ratio of expenses to
average net assets 1.43% 1.35% 1.25% 1.42% 1.75%***
Ratio of expenses to
average net assets
prior to reimbursement 1.48% 1.48% 2.01% 2.38% N/A
Ratio of net income (loss)
to average net assets 6.26% 6.47% 5.43% 4.98% 4.38%***
Ratio of net income (loss)
to average net assets
prior to reimbursement 6.21% 6.34% 4.68% 4.02% N/A
Portfolio turnover rate 41.36% 46.03% 52.62% 22.35% 0.00%
</TABLE>
* Commencement of operations June 10, 1992
** Commencement of operations March 3, 1995
*** Annualized.
<TABLE>
<CAPTION>
Citizens Index Portfolio
Retail Shares
---------------------------------
For the For the period**
year ended ended
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
Selected Per-Share Data
Net assets value,
beginning of period $10.94 $10.00
-------- --------
Income (loss) from investment operations
Net investment income (loss) 0.08 0.01
Net gain (loss) on securities
(both realized and unrealized) 2.47 0.93
-------- --------
Total from investment operations 2.55 0.94
-------- --------
Less distributions
Dividends (from net
investment income) (0.03) --
Distributions (from
net realized gains) (0.05) --
-------- --------
Total distributions (0.08) --
-------- --------
Net asset value, end of period $13.41 $10.94
======== ========
Total Return 23.41% 9.40%
Ratios and Supplemental Data
Net assets, end of period (thousands) $136,980 $106,096
Ratio of expenses to
average net assets 1.82% 1.75%***
Ratio of expenses to
average net assets
prior to reimbursement 1.82% N/A
Ratio of net income (loss)
to average net assets .68% 0.98%***
Ratio of net income (loss)
to average net assets
prior to reimbursement .68% N/A
Portfolio turnover rate 6.44% 64.95%
</TABLE>
* Commencement of operations June 10, 1992
** Commencement of operations March 3, 1995
*** Annualized.
32 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Financial Highlights
<TABLE>
<CAPTION>
Citizens Emerging Growth Portfolio
For the For the year For the period*
year ended ended ended
June 30, 1996 June 30, 1995 June 30, 1994
--------------- ------------------ ------------------
<S> <C> <C> <C>
Selected Per-Share Data
Net assets value, beginning of period $11.87 $9.93 $10.00
------- ------- ------
Income (loss) from investment operations
Net investment income (loss) (0.13) 0.07 0.01
Net gain (loss) on securities (both
realized and unrealized) 4.72 2.18 (0.08)
------- ------- ------
Total from investment operations 4.59 2.25 (0.07)
Less distributions
Dividends (from net investment income) - (0.09) -
Distributions (from net realized gains) (1.59) (0.22) -
------- ------- ------
Total distributions (1.59) (0.31) -
Net asset value, end of period $14.87 $11.87 $9.93
======= ======= ======
Total Return 42.43% 23.24% (1.80%)**
Ratios and Supplemental Data
Net assets, end of period (thousands) $36,409 $10,638 $3,754
Ratio of expenses to average net assets 2.10% 1.90% 1.89%**
Ratio of expenses to average net assets
prior to reimbursement 2.34% 2.93% 3.81%**
Ratio of net income (loss) to average net assets (1.64%) 0.53% 0.63%**
Ratio of net income (loss) to average
net assets prior to reimbursement (1.88%) (0.50%) (1.29%)**
Portfolio turnover rate 337.41% 231.30% 33.35%
</TABLE>
* Commencement of operations February 8, 1994
** Annualized
<TABLE>
<CAPTION>
Citizens Global Equity Portfolio
-----------------------------------------------------
For the For the year For the period*
year ended ended ended
June 30, 1996 June 30, 1995 June 30, 1994
---------------- ----------------- ----------------
<S> <C> <C> <C>
Selected Per-Share Data
Net assets value, beginning of period $10.69 $9.80 $10.00
------- ------ ------
Income (loss) from investment operations
Net investment income (loss) (0.10) (0.01) 0.01
Net gain (loss) on securities (both
realized and unrealized) 1.43 0.96 (0.21)
------- ------ ------
Total from investment operations 1.33 0.95 (0.20)
Less distributions
Dividends (from net investment income) - - -
Distributions (from net realized gains) (0.13) 0.06) -
------- ------ ------
Total distributions (0.13) 0.06) -
Net asset value, end of period $11.89 10.69 $9.80
======= ====== ======
Total Return 12.52% 9.77% (5.14%)**
Ratios and Supplemental Data
Net assets, end of period (thousands) $15,595 $9,503 $5,639
Ratio of expenses to average net assets 1.66% 2.50% 2.50%**
Ratio of expenses to average net assets
prior to reimbursement 1.66% 2.99% 3.16%**
Ratio of net income (loss) to average net assets (.61%) (0.00%) 0.25%**
Ratio of net income (loss) to average
net assets prior to reimbursement (.61%) (0.49%) (0.41%)**
Portfolio turnover rate 85.92% 22.10% 0.00%
</TABLE>
* Commencement of operations February 8, 1994
** Annualized
See accompanying notes to financial statements. 33
<PAGE>
Citizens Trust
Financial Highlights
<TABLE>
<CAPTION>
Muir California Tax-Free Income Portfolio
-------------------------------------------------------------------------------------------
For the For the year For the period For the year For the year For the period
year ended ended April 1, 1994 to ended ended ended
June 30, 1996 June 30, 1995 June 30, 1994 March 31, 1994 March 31, 1993 March 31, 1992*
---------------- ------------- ---------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net assets value, beginning of period $ 15.53 $ 15.43 $ 15.71 $ 16.67 $ 15.76 $ 15.00
------- -------- --------- ---------- ---------- ---------
Income (loss) from investment operations
Net investment income 0.62 0.67 0.18 0.84 0.90 0.67
Net gain (loss) on securities (both
realized and unrealized) 0.11 0.10 0.01 (0.79) 1.00 0.53
------- -------- --------- ---------- ---------- ---------
Total from investment operations 0.73 0.77 0.19 0.05 1.90 1.20
Less distributions
Dividends (from net
investment income) (0.62) (0.67) (0.32) (0.86) (0.91) (0.44)
Distributions (from
net realized gains) -- -- (0.15) (0.15) (0.08) --
------- -------- --------- ---------- ---------- ---------
Total distributions (0.62) (0.67) (0.47) (1.01) (0.99) (0.44)
Net asset value, end of period $ 15.64 $ 15.53 $ 15.43 $ 15.71 $ 16.67 $ 15.76
======= ======== ========= ========== ========== =========
Total Return 4.71% 5.15% 5.09%** 0.04% 12.58% 10.24%**
Ratios and Supplemental Data
Net assets, end of period (thousands) $13,221 $ 15,241 $ 17,276 $ 17,532 $ 15,455 $ 6,135
Ratio of expenses to average net assets 1.55% 1.25% 1.25%** 0.75% 0.46% 0.27%**
Ratio of expenses to average net assets
prior to reimbursement 1.87% 1.74% 1.86%** 1.62% 1.87% 5.83%**
Ratio of net income (loss)
to average net assets 3.98% 4.37% 4.70%** 4.98% 5.59% 6.90%**
Ratio of net income (loss)
to average net assets prior
to reimbursement 3.66% 3.88% 4.09%** 4.11% 4.18% 1.34%**
Portfolio turnover rate 83.12% 74.94% 38.29% 31.04% 36.24% 28.97%
</TABLE>
* Commencement of operations June 10, 1991
** Annualized
34 See accompanying notes to financial statements.
<PAGE>
Citizens Trust
Financial Highlights
<TABLE>
<CAPTION>
Citizens Index Portfolio
E[bullet]fund Institutional Class
------------------ ------------------
For the year For the period
ended ended
June 30, 1996* June 30, 1996**
------------------ ------------------
<S> <C> <C>
Selected Per-Share Data
Net asset value, beginning of period $1.00 $10.00
Income from operations
Net income 0.059 0.08
Net gain on securities (both realized and unrealized) - 0.92
------ ------
0.059 1.00
Less distributions
Dividends (from net income) (0.059) -
------ ------
Net asset value, end of period $1.00 11.00
====== ======
Total return 6.10% 10.00%
Ratios and Supplemental Data
Net assets, end of period (000's) $11,082 $7,524
Ratio of expenses to average net assets 0.00% 1.01% ***
Ratio of expenses to average net assets
prior to reimbursement 1.55% 1.01% ***
Ratio of net income (loss) to average net assets 6.02% 2.37% ***
Ratio of net income (loss) to average net assets
prior to reimbursement 4.64% 2.37% ***
</TABLE>
* Commencement of operations July 1, 1995
** Commencement of operations January 25, 1996
*** Annualized.
See accompanying notes to financial statements. 35
<PAGE>
CITIZENS TRUST
Notes to Financial Statements
June 30, 1996
NOTE 1 - Summary of Significant Accounting Policies
Organization
Working Assets Money Market Portfolio, Citizens Income Portfolio, Citizens
Index Portfolio, Citizens Emerging Growth Portfolio, Citizens Global Equity
Portfolio, Muir California Tax-Free Income Portfolio and E[bullet]fund (the
"Portfolios") are each a series of shares of beneficial interest of Citizens
Investment Trust ("Citizens Trust" or the "Trust"), formerly known as Working
Assets Common Holdings. The Trust is registered as an open-end management
company under the Investment Company Act of 1940, as amended. The Trust was
organized as a Massachusetts business trust on November 24, 1982, and is
authorized to issue an unlimited number of no par value shares in one or more
series and one or more classes within the series. During the current fiscal year
Money Market and Index Portfolios added Institutional Classes of shares. The
following is a summary of significant accounting policies followed by the
Portfolios.
Primary Objectives of Portfolios
Working Assets Money Market Portfolio and E[bullet]fund - current income
consistent with safety and liquidity. Citizens Income Portfolio - invests in
fixed income securities to generate current income and pay a dividend every
month. Citizens Index Portfolio- market-weighted portfolio of 300 companies with
the objective of income and long-term capital appreciation. Citizens Emerging
Growth Portfolio - invests in promising small and medium-sized companies with
the objective of aggressive growth. Citizens Global Equity Portfolio - holds
U.S. and foreign stocks for capital appreciation. Muir California Tax-Free
Income Portfolio - provides a high level of current income exempt from both
federal and California state personal income tax.
Security Valuation
Working Assets Money Market Portfolio's and E[bullet]fund's securities are
valued at amortized cost (premiums and discounts are amortized on a
straight-line basis), which has been determined by the Board of Trustees to
represent fair value. With respect to the other Portfolios, securities for which
market quotations are readily available are valued at the most recent closing
sale price or, if there is no closing sale price, at the bid price except for
municipal bonds which are valued at the mean between the bid and asked price.
Fixed income securities maturing within sixty days are normally valued at cost,
plus or minus any amortized discount or premium, provided that the Board of
Trustees determines that amortized cost equals market value. All securities for
which market quotations are not readily available will be fairly valued by the
Adviser in good faith under the supervision of the Board of Trustees. The Muir
California Tax-Free Income Portfolio invests in debt instruments of municipal
issuers. The issuers' abilities to meet their obligations may be affected by
economic developments in the state of California.
Security Transactions, Investment Income and Other
Security transactions are recorded on the trade date. Interest income is
recorded on an accrual basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Realized gains and losses are recorded on
the identified cost basis. The Money Market Portfolio and E[bullet]fund seek to
maintain a continuous net asset value per share of $1.00 and intend to comply
with the maturity, diversification and quality requirements of Rule 2a-7 under
the Investment Company Act of 1940, in order to be considered a money market
fund. If net asset value per share using available market information deviates
from $1.00 by $.005 or more, the Board of Trustees would consider what steps, if
any, should be taken to restore net asset value per share to $1.00.
Call and Put Options
Citizens Emerging Growth Portfolio - When the Portfolio writes a call or put
option, an amount equal to the premium received is reflected as a liability. The
amount of the liability is subsequently "marked to market" to reflect the
current market value of the option written. If an option which the Portfolio has
written either expires on its stipulated expiration date, or if the Portfolio
enters into a closing purchase transaction, the Portfolio realized a gain (or
loss if the cost of the closing transaction exceeds the premium received when
the option is sold), and the liability related to such option is extinguished.
If a call option which the Portfolio has written is exercised, the Portfolio
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received. If a
put option which the Portfolio has written is exercised, the amount of the
premium originally received reduces the cost of the security which the Portfolio
purchases upon exercise of the options.
36 See accompanying notes to financial statements.
<PAGE>
The premium paid by the Portfolio for the purchase of a call or put option is
recorded as an investment and subsequently "marked to market" to reflect the
current market value of the option purchased. If an option which the Portfolio
has purchased expires on the stipulated expiration date, the Portfolio realizes
a loss in the amount of the cost of the option. If the Portfolio enters into a
closing transaction, it realizes a gain (loss) if the proceeds from the sale are
greater (less) than the cost of the option purchased. If the Portfolio exercises
a put option, it realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. If the Portfolio exercises a call option, the cost of the
security purchased upon exercise is increased by the premium originally paid.
These option contracts may be listed for trading on a national securities
exchange or traded over-the-counter. Over-the-counter options are transacted
directly with dealers and not with a clearing corporation, and there is a risk
of nonperformance by the dealer. The Portfolio as writer of a call option, loses
the potential for gain on the underlying security above the exercise price while
the option is outstanding. By writing a put option, the Portfolio might become
obligated to purchase the underlying security at an exercise price that exceeds
the then current market price.
Distributions
Citizens Income Portfolio distributes net investment income to shareholders
monthly and net capital gains, if any, annually. With respect to Citizens Index
Portfolio, Citizens Emerging Growth Portfolio and Citizens Global Equity
Portfolio, distributions to shareholders from net investment income and net
capital gains, if any, are distributed annually. With respect to the Working
Assets Money Market Portfolio, E[bullet]fund and the Muir California Tax-Free
Income Portfolio, dividends from net investment income are accrued daily and are
reinvested in additional shares or paid in cash monthly. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for net operating
losses and deferral of post-October losses.
Federal Income Taxes
No provision has been made for Federal taxes on the Portfolios' income since
it is the policy of the Portfolios to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of their taxable income to their shareholders.
Deferred Organization Costs
All costs incurred in connection with the organization, registration and/or
reorganization of the Portfolios have been paid by the Portfolios. These costs
are being amortized on a straight line basis over a period not to exceed sixty
months.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements, as well as the reported amounts of income and expenses during the
period. Actual results may differ from these estimates.
NOTE 2 - Investment Advisory Fee and Other Transactions with Affiliates
Citizens Advisers (the "Adviser"), formerly known as Working Assets
Management Company, serves as Adviser to each of the Portfolios. Citizens
Securities (the "Distributor"), formerly known as Working Assets Capital
Management, is a wholly owned subsidiary of the Advisor and serves as the
Distributor of each of the Portfolios' shares. Under the terms of the management
contract, the Adviser is paid a monthly fee based on an annual rate of each
Portfolio's average net assets. Those rates are a follows: Working Assets Money
Market Portfolio, .35%; E[bullet]fund, .10%; Citizens Income Portfolio and Muir
California Tax-Free Income Portfolio, .65%; Citizens Index Portfolio, .50%;
Citizens Emerging Growth Portfolio and Citizens Global Equity Portfolio, 1.00%;
Prior to the inception of the Institutional Class Shares of Working Assets Money
Market Portfolio and Citizens Index Portfolio their advisory fee rates were .50%
and .70% of average daily net assets, respectively. The Adviser has agreed to
reduce or eliminate its fee to the extent that the total expenses of a Portfolio
for any fiscal year (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) exceed the following limits: Working Assets Money Market
Portfolio, 1.50% of the first $40 million of average net assets and 1%
thereafter; Citizens Income Portfolio, 1.75% of the first $75 million of average
net assets and 1.25% thereafter; E[bullet]fund Portfolio 0.50%; Citizens
Emerging Growth Portfolio, Citizens Global Equity Portfolio and Muir California
Tax-Free Income Portfolio, 1.90%, 2.50% and 1.25%, respectively, of average net
assets. The Adviser may also voluntarily reduce its fee or waive reimbursement
of distribution costs so that the total expenses of a Portfolio are below such
limits. Such voluntary reimbursements may cease at any time. Reimbursements for
the period ended June 30, 1996 were $13,086, $47,125, $45,402 and $54,673 for
the Citizens Income, Citizens Emerging Growth, Muir California Tax-Free Income
and E[bullet]fund Portfolios, respectively.
See accompanying notes to financial statements. 37
<PAGE>
GMG/Seneca Capital Management serves as the Sub-Adviser for Working Assets
Money Market Portfolio, Citizens Income Portfolio, Citizens Emerging Growth
Portfolio, Muir California Tax-Free Income Portfolio and E[bullet]fund. Clemente
Capital, Inc. serves as the Sub-Adviser for Citizens Global Equity Portfolio and
RhumbLine Advisers serves as the Sub-Adviser for Citizens Index Portfolio. For
their services, the Sub-Advisers receive fees, paid by the Adviser as follows:
Percent of average Percent of management
net assets fee paid Adviser
------------------ ---------------------
Money Market Portfolio and
E[bullet]fund .08% _
Income Portfolio .165% _
Index Portfolio .10% _
Emerging Growth Portfolio _ 35%
Global Equity Portfolio .35% _
Muir California Tax-Free Portfolio .175% _
The Trust has a distribution agreement with the Adviser which allows the
Adviser to be reimbursed for distribution-related expenses up to .25% of the
average daily net assets of the Working Assets Money Market Portfolio and up to
.35% of the average daily net assets of the other Portfolios, with the exception
of the E[bullet]fund and the Institutional Classes of the Money Market Portfolio
and the Citizens Index Portfolio, which have no distribution-related expenses.
Pursuant to an Administrative Services Agreement, the Adviser assumes a
number of general administrative services for each Portfolio relating primarily
to shareholder communications and other administrative services for which the
Adviser is reimbursed the cost of providing such service.
Shareholders of the E[bullet]fund are issued Mastercard debit cards. The
distributor collects and forwards to the Portfolio 1% of the amount of debit
card purchases, subject to the limit that the amounts paid the Portfolio,
together with any other "non-qualifying" income received by the Portfolio in any
fiscal year will not exceed 9.75% for the Portfolio's gross income for that
year.
Certain officers and trustees of the Trust are "affiliated persons," as
defined in the Act, of the Adviser. Currently, each trustee who is not an
"affiliated person" receives an annual retainer of $2,000 and $500 for each day
there is a trustee's meeting.
NOTE 3 - Investment Securities
Purchases of investments, other than short-term securities, aggregated
$17,319,403, $21,358,151, $58,430,774, $12,035,552 and $11,325,185 for the
Citizens Income Portfolio, Citizens Index Portfolio, Citizens Emerging Growth
Portfolio, Citizens Global Equity Portfolio, and Muir California Tax-Free Income
Portfolio, respectively, for the period ended June 30, 1996. Sales of
investments, other than short term securities, aggregated $12,715,520,
$7,928,134, $52,272,642, $8,634,373, and $13,356,788 for the Citizens Income
Portfolio, Citizens Index Portfolio, Citizens Emerging Growth Portfolio,
Citizens Global Equity Portfolio, and Muir California Tax-Free Income Portfolio,
respectively, for the period ended June 30, 1996.
The amount of unrealized appreciation (depreciation) of investments as of
June 30, 1996 is as follows:
Income Index Emerging Growth
Portfolio Portfolio Portfolio
--------- --------- ---------
Gross Appreciation $ 404,437 $ 30,841,345 $5,034,788
Gross Depreciation (542,491) (2,548,324) (3,203,772)
-------- - --------- ----------
Net Appreciation (Depreciation) $(138,054) $ 28,293,021 $1,831,016
========= ============= ==========
Global Equity Muir California Tax-
Portfolio Free Income Portfolio
--------- ---------------------
Gross Appreciation $ 2,645,395 $ 184,037
Gross Depreciation (231,466) (131,228)
----------- -----------
Net Appreciation $ 2,413,929 $ 52,809
=========== ===========
Investments have the same cost for tax and financial statement purposes.
38 See accompanying notes to financial statements.
<PAGE>
NOTE 4 - Restricted Securities
On June 30, 1996 the Citizens Index Portfolio held restricted securities
(i.e., securities which may not be publicly sold without registration under the
Federal Securities Act of 1933 ( the `33 Act") or without an exemption under the
`33 Act). These securities are valued at fair value as determined by the Board
of Trustees. On June 30, 1996, and on the acquisition dates of the restricted
securities, there were no market quotations available for unrestricted
securities of the same class. Dates of acquisition and costs of restricted
securities are as follows:
Date of
Acquisition Cost
----------- ----
Energia Global, Series A Conv. Pfd. April 1, 1993 $250,000
Vulcan Power Co., Class A June 1, 1993 300,000
--------
Total $550,000
========
At June 30, 1996, the cost and market value of Energia Global were the same.
Vulcan Power had a market value on June 30, 1996 of $25,000. Total restricted
securities represented 0.19% of net assets.
NOTE 5 - Capital Shares
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Working Assets Money Market Portfolio Working Assets Money Market Portfolio
------------------------------------------------------------------ ---------------------------
Retail Class Institutional Class
------------------------------------------------------------------ ---------------------------
1996 1995 1996
----------------------------- ------------------------------ ---------------------------
Shares Value Shares Value Shares Value
----------- ----------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 89,524,066 $89,524,066 102,295,056 $102,295,056 18,169,824 $18,169,824
Shares redeemed (112,854,324) (112,854,324) (112,804,920) (112,804,920) (3,884,469) (3,884,469)
Shares issued in
reinvestment of
distributions 4,044,997 4,044,997 4,354,760 4,354,760 253,610 253,610
----------- ------------ ---------- ----------- ---------- -----------
Net increase (decrease) (19,285,261) $(19,285,261) (6,155,104) $(6,155,104) 14,538,965 $14,538,965
=========== ============ ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Citizens Income Portfolio Citizens Index Portfolio-Retail Class
----------------------------------------------- -------------------------------------------------
1996 1995 1996 1995
-------------------- ------------------------ ---------------------- ----------------------
Shares Value Shares Value Shares Value Shares Value
------- ---------- -------- --------- --------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 960,101 $10,068,858 1,069,820 $10,836,296 2,251,655 $27,976,155 758,284 $7,841,137
Shares issued in connection
with acquisition of Citizens
Growth Portfolio and
Citizens Balanced
Portfolio - - - - - - 9,106,314 95,798,428
Shares redeemed (888,785) (9,292,285 (750,267) (7,512,032) (1,805,346) (22,418,230) (166,230) (1,789,605)
Shares issued in
reinvestment of
distributions 167,102 1,746,427 151,011 1,511,014 66,739 808,873 - -
------- ---------- ------- ---------- ------- ---------- --------- ------------
Net increase 238,418 $2,523,000 470,564 $4,835,278 513,048 $6,366,798 9,698,368 $101,849,960
======= ========== ======= ========== ======= ========== ========= ============
</TABLE>
See accompanying notes to financial statements. 39
<PAGE>
<TABLE>
<CAPTION>
Citizens Index Portfolio-Institutional Class Citizens Emerging Growth Portfolio
----------------------------------- --------------------------------------------------
1996 1996 1995
------------------------- ------------------------ ---------------------
Shares Value Shares Value Shares Value
<S> <C> <C> <C> <C> <C> <C>
Shares sold 687,394 $7,237,544 1,982,405 $27,359,334 575,120 $6,159,563
Shares redeemed (3,661) (40,010) (584,334) (8,250,469) (75,450) (817,778)
Shares issued in
reinvestment of
distributions - - 154,700 1,800,710 18,455 186,209
------- ---------- --------- ----------- ------- ----------
Net increase 683,733 $7,197,534 1,552,771 $20,909,575 518,125 $5,527,994
======= ========== ========= =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Citizens Global Equity Portfolio Muir California Tax-Free Income Portfolio
----------------------------------------------- -----------------------------------------------
1996 1995 1996 1995
Shares Value Shares Value Shares Value Shares Value
-------- -------- -------- ---------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 568,325 $6,383,820 433,721 $4,299,560 58,015 $915,810 99,429 $1,530,379
Shares redeemed (157,671) (1,763,879) (124,638) (1,241,778) (224,461) (3,534,455) (274,731) (4,190,408)
Shares issued in
reinvestment of
distributions 11,437 121,800 4,818 45,930 30,073 476,088 37,451 574,206
------ ------- ----- ------ ------ ------- ------ -------
Net increase (decrease) 422,091 $4,741,741 313,901 $3,103,712 (136,373) $(2,142,557) (137,851) $(2,085,823)
======= ========== ======= ========== ======== =========== ======== ===========
</TABLE>
E[bullet]fund
-----------------------------
1996
-----------------------------
Shares Value
----------- -----------
Shares sold 19,817,895 $19,817,895
Shares redeemed (8,955,215) (8,955,215)
Shares issued in
reinvestment of
distributions 219,542 219,542
---------- -----------
Net increase 11,082,222 $11,082,222
========== ===========
NOTE 6 - Custody of Securities
Under an agreement with the Custodian Bank, custody fees are reduced by credits
for cash balances. Such reductions totalled $143,915, for the Trust during the
year ended June 30, 1996.
NOTE 7 - Reorganization - Citizens Growth Portfolio and Citizens Balanced
Portfolio into Citizens Index Portfolio
On May 30, 1995, a majority of the shareholders of the Citizens Growth
Portfolio and the Citizens Balanced Portfolio approved a plan of reorganization
with the Citizens Index Portfolio effective May 30, 1995. The reorganization was
accomplished by a tax-free exchange of all the assets and liabilities of the
Citizens Balanced Portfolio and Citizens Growth Portfolio including combined
unrealized appreciation of $230,559 for shares of the Citizens Index Portfolio.
The Citizens Index is a non-diversified series of shares of beneficial interest
of Citizens Trust. Shareholders of the Citizens Growth Portfolio and the
Citizens Balanced Portfolio received shares of the Citizens Index Portfolio with
a value equal to the value of the assets (minus the liabilities) of the Citizens
Growth and Balanced Portfolios. The aggregate net assets of the Citizens Index
Portfolio immediately after the reorganization was $101,963,087.
40 See accompanying notes to financial statements.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
Citizens Investment Trust
We have audited the accompanying statements of assets and liabilities of
Working Assets Money Market Portfolio, Citizens Income Portfolio, Citizens Index
Portfolio, Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio,
Muir California Tax-Free Income Portfolio and Efund, each a series of shares of
beneficial interest of Citizens Investment Trust, formerly Working Assets Common
Holdings, including the statements of investments, as of June 30, 1996 and the
related statements of operations for the year then ended, the statements of
changes in net assets for the periods indicated thereon, and the financial
highlights for the periods indicated thereon. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Working Assets Money Market Portfolio, Citizens Income Portfolio, Citizens Index
Portfolio, Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio,
Muir California Tax Free Income Portfolio and Efund as of June 30, 1996, the
results of their operations for the year then ended, the changes in their net
assets for the periods referred to above, and their financial highlights for the
periods referred to above, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
August 14, 1996
This report and the financial statements contained herein are for the general
information of the shareholders of the funds named above. This report is not
authorized for distribution to prospective investors in a fund unless or
accompanied by a currently effective prospectus.
See accompanying notes to financial statements. 41
<PAGE>
DISTRIBUTOR
Citizens Securities
One Harbour Place, Portsmouth, NH 03801
800-223-7010 o 603-436-5152
MANAGER
Citizens Advisers
111 Pine Street, San Francisco, CA 94111
One Harbour Place, Portsmouth, NH 03801
800-223-7010
TRUSTEES
William D. Glenn II, Chair; Sophia Collier; Juliana Eades; Wilma
Mankiller; Azie Taylor Morton; J.D. Nelson; Ada Sanchez
Aileen Hernandez, Chair Emerita
CUSTODIAN
State Street Bank and Trust Company
Boston, MA
TRANSFER AGENT & DIVIDEND DISBURSING AGENT
PFPC Inc.
Wilmington, DE
LEGAL COUNSEL
Morrison & Foerster
San Francisco, CA
INDEPENDENT AUDITORS
Tait, Weller & Baker
Philadelphia, PA
World Wide Web Address: http://www.efund.com
[Copyright Symbol] 1996 Citizens Advisers
[Recycle Symbol] Printed on recycled paper using soy-based inks.
<PAGE>
This Page Intentionally Left Blank
<PAGE>
Presorted
First Class
U.S. Postage
Paid
Nashua, NH
Permit #375
[Virtue Logo]
has
had
its rewards...*
Citizens Trust
One Harbour Place
Suite 525
Portsmouth, NH
03801
[Citizens Trust Logo}
1996 Annual Report
*So says our winged Emerging Growth Portfolio mascot.
<PAGE>
<PAGE>
CITIZENS INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(A) Audited Financial Statements: the following audited Financial
statements are incorporated by reference to the Registrant's Annual
Report to shareholders for the period ended June 30, 1996: material
currently on file
Statement of Investments - June 30, 1996
Statement of Assets and Liabilities - June 30, 1996
Statement of Operations for the year ended June 30, 1996
Statement of Changes in Net Assets for the year ended June 30, 1996
Selected per Share Data and Ratios from Inception through
June 30, 1996
Notes to Financial Statements: June 30, 1996
Auditors Report: June 30, 1996
(B) Exhibits
***(1) declaration of trust, as amended
*(2) by-laws
(3) not applicable
(4) not applicable
(5) management agreement
*(a) management agreement
***(b) renewal of management agreement
***(c) amendment to management agreement dated May 30, 1996
***(d) form of sub-investment advisory agreement
(6) distribution agreement
*(a) distribution agreement, as amended
***(b) renewal of distribution agreement
***(c) amendment to distribution agreement dated May 6, 1996
***(d) amendment to distribution agreement dated May 30, 1996
(7) not applicable
(8) custodian agreement: material currently on file
(9) other material contracts:
*(a) administrative agreement as amended
***(b) amendment to administrative agreement
*(10) opinion and consent of counsel as to the legality of the
securities being registered: material currently on file
(11) consent of independent certified public accountants
(12) not applicable
*(13) copies of written assurance from initial stockholders
*(14) copies of model plan used in establishment of retirement plan
*(15) Rule 12b-1 distribution plan
(16) Schedule for computation of each performance quotation
provided in the registration statement (in response to
Item 22): provided in Statement of Additional Information.
- ----------------
* Incorporated by reference to Amendment No.27 to the Registrant's
Registration Statement (File No. 2-80886), as filed with the Securities and
Exchange Commission.
** Incorporated by reference to Amendment Nos. 12 and 14 to the Registrant's
Registration Statement (File No. 2-80886), as filed wit the Securities and
Exchange Commission.
*** Incorporated by reference to Amendment No. 34 to the Registrant's
Registration Statement (File No. 2-80886), as filed with the Securities and
Exchange Commission.
<PAGE>
CITIZENS INVESTMENT TRUST
PART C (CONT'D)
Item 25: Persons controlled by or under common control with Registrant: None
Item 26: Number of holders of securities as of September 26, 1996:
Number of
Title Record Holders
Working Assets Money Market Portfolio 9040
Citizens Income Portfolio 2368
Citizens Emerging Growth Portfolio 6133
Citizens Global Equity Portfolio 2476
Muir California Tax-Free Income Portfolio 926
Citizens Index Portfolio 12413
E[bullet]fund 1965
Item 27: Indemnification.
Article VII, Section 12 of the Agreement and Declaration of Trust of
Citizens Investment Trust provides that the Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any proceeding by
reason of the fact that such person is or was an agent of the Trust, against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and reasonably believe her/his conduct to be in the best interest of
the Trust. Indemnification will not be provided in certain circumstances,
however, including instances of willful misfeasance, bad faith, gross
negligence, and reckless disregard of the duties involved in the conduct of the
particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Trustees, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable in the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insure 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.
Item 28: Business and Other Connections of Investment Adviser. Citizens
Securities, Inc., 111 Pine Street, San Francisco, California 94111, and One
Harbour Place, Portsmouth, New Hampshire 03801, a registered broker/dealer, is
the principal underwriter for Citizens Investment Trust ("Registrant") and is a
wholly owned subsidiary of Citizens Advisers, Inc., the Investment Adviser, a
California corporation. The officers and directors of Citizens Securities having
other business of a substantial nature are as follows:
<PAGE>
CITIZENS INVESTMENT TRUST
PART C (CONT'D)
Name and Principal
Business Address: Nature of Other Business:
Sophia Collier President and Director
One Harbour Place, Suite 525 of Registrant
Portsmouth, N.H. 03801
Item 29: Principal Underwriters
(A) Not Applicable
(B)
Positions and
Name and Principal Positions and Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ---------------- ----------
Sophia Collier President and Director of President and
See Item 28 underwriter Director
(C) Not Applicable
Item 30: Location of Accounts and Records: The account, books, or other
documents required to be maintained by Section 31(a) of the 1940 Act and the
rules thereunder are kept by the Registrants Transfer and Dividend Distributing
Agent, Norwest Bank Minnesota, N.A., Mutual Fund Services - Transfer Agent,
PFPC, Inc., 400 Bellevue Pkwy., Wilmington, DE 19809.
Item 31: Management Services.
Not applicable
Item 32: Undertakings.
(A) If the information called for by item 5A of Form N-1A is contained in the
latest Annual Report to shareholders, the Registrant undertakes to furnish each
person to whom a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Portsmouth, and State of New Hampshire, on the 27th
day of September 1996.
CITIZENS INVESTMENT TRUST
By /s/ Sophia Collier
Sophia Collier, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Sophia Collier*
___________________________ Trustee
Sophia Collier President and September 27, 1996
Principal Executive
Principal Accounting Officer
Principal Financial Officer
s/ William Glenn*
___________________________ Trustee September 27, 1996
(William Glenn)
/s/ Ada Sanchez
___________________________ Trustee September 27, 1996
(Ada Sanchez)
/s/ J.D. Nelson*
___________________________ Trustee September 27, 1996
(J.D. Nelson)
/s/ Azie Taylor Morton*
___________________________ Trustee September 27, 1996
(Azie Taylor Morton)
/s/ Juliana Eades*
___________________________ Trustee September 27, 1996
(Juliana Eades)
* By Sophia Collier Attorney in Fact /s/ Sophia Collier
See Power of Attorney dated May 15, 1992, filed with the commission on May
15, 1992 as part of Citizens Trust Post Effective Amendment #12.
See Power of Attorney dated November 12, 1992, filed with the commission on
November 12, 1992 as part of Citizens Trust Post Effective Amendment #14.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(8) Custodian agreement
(11) Consent of independent
certified public accountants
(27) Financial Data Schedule
Exhibit 8
CUSTODIAN CONTRACT
Between
CITIZENS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE of CONTENTS
(page 1)
Page
1. Employment of Custodian and Property to be
Held by It 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 4
2.4 Bank Accounts 5
2.5 Availability of Federal Funds 5
2.6 Collection of Income 5
2.7 Payment of Fund Monies 6
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased 7
2.9 Appointment of Agents 7
2.10 Deposit of Securities in U.S. Securities Systems 7
2.11 Fund Assets Held in the Custodian's Direct Paper System 9
2.12 Segregated Account 9
2.13 Ownership Certificates for Tax Purposes 10
2.14 Proxies 10
2.15 Communications Relating to Portfolio Securities 10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States 11
3.1 Appointment of Foreign Sub-Custodians 11
3.2 Assets to be Held 11
3.3 Foreign Securities Systems 11
3.4 Holding Securities 11
3.5 Agreements with Foreign Banking Institutions 12
3.6 Access of Independent Accountants of the Fund 12
3.7 Reports by Custodian 12
3.8 Transactions in Foreign Custody Account 12
3.9 Liability of Foreign Sub-Custodians 13
3.10 Liability of Custodian 13
3.11 Reimbursement for Advances 13
3.12 Monitoring Responsibilities 14
3.13 Branches of U.S. Banks 14
3.14 Tax Law 14
<PAGE>
TABLE of CONTENTS
(page 2)
Page
4. Payments for Sales or Repurchases or Redemptions of Shares
of the Fund 15
5. Proper Instructions 15
6. Actions Permitted Without Express Authority 16
7. Evidence of Authority 16
8. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income 16
9. Records 17
10. Opinion of Fund's Independent Accountant 17
11. Reports to Fund by Independent Public Accountants 17
12. Compensation of Custodian 18
13. Responsibility of Custodian 18
14. Effective Period, Termination and Amendment 19
15. Successor Custodian 20
16. Interpretive and Additional Provisions 21
17. Additional Funds 21
18. Massachusetts Law to Apply 21
19. Prior Contracts 21
20. Shareholder Communications Election 22
<PAGE>
CUSTODIAN CONTRACT
This Contract between Citizens Trust, a Massachusetts business trust
having its principal place of business at One Harbour Place, Portsmouth, New
Hampshire 03801 (the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, as of the date hereof the Fund intends to offer shares in
seven (7) series, E[bullet]fund, The Muir California Tax-Free Income Portfolio,
Working Assets Money Market Portfolio, Citizens Income Portfolio, Citizens
Index Portfolio, Citizens Emerging Growth Portfolio and Citizens Global Equity
Portfolio (such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with
Article 17, being herein referred to as the "Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust (the Declaration of Trust"). The Fund on behalf of the Portfolio(s) agrees
to deliver to the Custodian all securities and cash of the Portfolios, and all
payments of income, payments of principal or capital distributions received by
it with respect to all securities owned by the Portfolio(s) from time to time,
and the cash consideration received by it for such new or treasury shares of
beneficial interest of the Fund representing interests in the Portfolios
("Shares") as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of a Portfolio held or received by the Portfolio
and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in
Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians located in the United States,
provided that the Custodian shall have no more or less responsibility or
liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities and
other assets on behalf of the applicable Portfolio(s) the foreign banking
institutions and foreign securities depositories designated in Schedule A
hereto, but only in accordance with the provisions of Article 3.
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States, including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained pursuant
to Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury (each, a "U.S. Securities System") and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts
as issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "Direct
Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account (the "Direct Paper System
Account") only upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
2
<PAGE>
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
3
<PAGE>
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent (the
"Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of Shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the applicable
Portfolio ("Prospectus"), in satisfaction of requests by
holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees of the Fund, or of the Executive
Committee thereof, signed by an officer of the Fund and
certified by the Fund's Secretary or an Assistant Secretary (a
"Certified Resolution"), specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
4
<PAGE>
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"). Funds held by the Custodian for a Portfolio may be
deposited by it to its credit as Custodian in the banking department of
the Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act and that each such bank or trust company
and the funds to be deposited with each such bank or trust company
shall on behalf of each applicable Portfolio be approved by vote of a
majority of the Board of Trustees of the Fund (the "Board"). Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
5
<PAGE>
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the 1940 Act
to act as a custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities, or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio; or (e) for transfer to a time deposit account
of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares as set forth in
Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant
to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a Certified Resolution specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be
made.
6
<PAGE>
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a
custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided,
however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission (the
"SEC") under Section 17A of the Exchange Act which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "U.S. Securities System" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
7
<PAGE>
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
the Direct Paper System Account, which account shall not
include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for customers;
8
<PAGE>
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the applicable
Portfolio, a Certified Resolution setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
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<PAGE>
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
Neither the Custodian nor any nominee of the Custodian shall vote any
of the Portfolio securities held hereunder by or for the account of a
Portfolio.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Article 5 hereof,
together with a Certified Resolution, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Portfolio's assets.
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<PAGE>
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 of
the 1940 Act, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Portfolio's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside of the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
Foreign Sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers; provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
Foreign Sub-custodian be held separately from any assets of the Foreign
Sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
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3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
(d) With respect to the securities held pursuant to this Article 3, the
Custodian shall use reasonable efforts in accordance with market
practice to collect income and other payments to which a Portfolio
shall be entitled, and shall credit such income or payment, as
collected, to the applicable Portfolio.
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3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by Section 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this Section 3.10, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
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3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the SEC is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the 1940
Act meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by Article 1 hereof.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by
it of payments for Shares of such Portfolio.
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From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
pursuant thereto, the Custodian shall, upon receipt of instructions from the
Transfer Agent, make funds available for payment to holders of Shares who have
delivered to the Transfer Agent a request for redemption or repurchase of their
Shares. In connection with the redemption or repurchase of Shares of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the Fund to the holder of
Shares, when presented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between the Fund and the
Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. Upon receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board accompanied by a detailed
description of procedures approved by the Board, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board and the Custodian are satisfied that such
procedures afford adequate safeguards for the Portfolios' assets. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.12.
6. Actions Permitted Without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
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3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board as
conclusive evidence (a) of the authority of any person to act in accordance with
such vote or (b) of any determination or of any action by the Board pursuant to
the Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of written
notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board to keep the books of account of
each Portfolio and/or compute the net asset value per share of the outstanding
Shares of each Portfolio or, if directed in writing to do so by the Fund on
behalf of the Portfolio, shall itself keep such books of account and/or compute
such net asset value per share. If so directed, the Custodian shall also
calculate daily the net income of the Portfolio as described in the Prospectus
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described in the Prospectus.
9. Records and Reports
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Portfolio and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations. The Custodian shall with respect to each Portfolio provide the
Fund with such reports as may agreed to by the Fund and the Custodian from time
to time.
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10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to
any other requirements of the SEC.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
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Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, or computer viruses or communications disruptions;
(ii) errors by the Fund or the Investment Advisor in their instructions to the
Custodian provided such instructions were in the form of Proper Instructions;
(iii) the insolvency of or acts or omissions by a Securities System; (iv) any
delay or failure of any broker, agent or intermediary, central bank or other
commercially prevalent payment or clearing system to deliver to the Custodian's
sub-custodian or agent securities purchased or in the remittance or payment made
in connection with securities sold; (v) any delay or failure of any company,
corporation, or other body in charge or registering or transferring securities
in the name of the Custodian, the Fund, the Custodian's sub-custodians, nominees
or agents or agents or any consequential losses arising out of such delay or
failure to transfer such securities including non-receipt of bonus, dividends
and rights and other accretions or benefits; (vi) delays or inability to perform
its duties due to any disorder in market infrastructure with respect to any
particular security or Securities System; and (vii) any change in any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or any other country, or political subdivision
thereof or of any court of competent jurisdiction. Regardless of whether assets
are maintained in the custody of a foreign banking institution or a foreign
securities depository, the Custodian shall not be liable for "country risk",
i.e. any loss, damage, cost, expense, liability or claim resulting from, or
caused by, the direction of or authorization by the Fund to maintain custody of
any securities or cash of the Fund or of a Portfolio in a foreign country
including, but not limited to, losses resulting from nationalization,
expropriation, imposition of currency controls or restrictions, acts of war or
terrorism, riots, revolutions, work stoppages, natural disasters or other
similar events or acts.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
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The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event that the Fund elects to assume the defense of any such suit and retain
counsel, the Custodian or any of its affiliated persons named as defendant or
defendants in the suit may retain its own counsel but shall itself bear the fees
and expenses of such representation unless the Fund shall have specifically
authorized the retaining of such counsel. In the event that the Fund assumes the
defense of a claim, the Custodian shall provide the Fund with all reasonable
assistance requested in the defense of such claim
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board has approved the initial use
of a particular Securities System by such Portfolio, as required by Rule 17f-4
under the 1940 Act and that the Custodian shall not with respect to a Portfolio
act under Section 2.11 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board has
approved the initial use of the Direct Paper System by such Portfolio; provided
further, however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Declaration of Trust, and further provided, that the Fund on behalf of
one or more of the Portfolios may at any time by action of the Board (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
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Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities of each applicable Portfolio then held by
it hereunder and shall transfer to an account of the successor custodian all of
the securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board, deliver
at the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the Custodian
on or before the date when such termination shall become effective, then the
Custodian shall have the right to deliver to a bank or trust company, which is a
"bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
If this Contract is terminated pursuant to Article 14 hereof, the
Custodian will, at the Fund's expense, make available to the Fund for
examination and copying all records maintained by the Custodian in connection
with the performance of its duties under this Contract for a reasonable period
of time not less than six (6) months.
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16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to E[bullet]fund, The Muir California Tax-Free Income Portfolio,
Working Assets Money Market Portfolio, Citizens Income Portfolio, Citizens Index
Portfolio, Citizens Emerging Growth Portfolio and Citizens Global Equity
Portfolio with respect to which it desires to have the Custodian render services
as custodian under the terms hereof, it shall so notify the Custodian in
writing, and if the Custodian agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Shareholder Communications Election
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
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YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
21. Assignability
This Contract shall not be assigned by either party without the prior
written consent of the other, except that either party may assign its rights and
obligations hereunder to a party controlling, controlled by, or under common
control with such party.
22. Representations of the Custodian
The Custodian represents to the Fund that:
(a) It is a Massachusetts trust company duly organized,
existing and in good standing under the laws of The
Commonwealth of Massachusetts;
(b) It is empowered under applicable law and pursuant to its
charter and by-laws to enter into and perform the duties set
forth in this Contract, and all requisite corporate action has
been taken to authorize the Custodian to enter into and
perform the duties set forth in this Contract; and
(c) It is duly authorized to act as a Custodian under the 1940
Act.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of January 8, 1996.
CITIZENS TRUST
By: __________________________________
Name: Sophia Collier
Title: President
STATE STREET BANK AND TRUST COMPANY
By: __________________________________
Name: Ronald E. Logue
Title: Executive Vice President
Exhibit 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 14, 1996, accompanying the financial
statements and financial highlights of Working Assets Money Market Portfolio,
Citizens Income Portfolio, Citizens Index Portfolio, Citizens Emerging Growth
Portfolio, Citizens Global Equity Portfolio, Muir California Tax-Free Income
Portfolio, and E[bullet]Fund, each a series of shares of beneficial interest of
Citizens Trust, appearing in the Annual Report to Shareholders for the year
ended June 30, 1996 which is incorporated by reference in the Post-Effective
Amendment to the Registration Statement on Form N-1A and related Prospectus of
Citizens Trust. We consent to the use of the aforementioned report and to the
references to our Firm in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
September 24, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 001
<NAME> Working Assets Money Market Portfolio
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 002
<NAME> Citizens Income Portfolio
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 003
<NAME> Citizens Index Portfolio
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
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<PER-SHARE-NII> 0.08
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 004
<NAME> Citizens Emerging Growth Portfolio
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
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<INVESTMENTS-AT-VALUE> 31,243,560
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<NET-INVESTMENT-INCOME> (321,881)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 005
<NAME> Citizens Global Equity Portfolio
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 10,815,956
<INVESTMENTS-AT-VALUE> 13,229,885
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 006
<NAME> Muir California Tax-Free Income Portfolio
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711202
<NAME> Citizens Investment Trust
<SERIES>
<NUMBER> 007
<NAME> E-Fund
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<CURRENCY> U.S. Dollars
<S> <C>
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