Citizens Trust
The Talking Prospectus
September 27, 1996, as amended March 28, 1997
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 Sincerely,
Sophia Collier] /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.
Our Statement of Additional Information, dated the same as this prospectus and
incorporated herein by reference is filed with the Securities and Exchange
Commission. 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.
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(TM) [LOGO]
603-436-5152
800-223-7010
1
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<PAGE>
The Talking Prospectus
TABLE OF CONTENTS
Dear Friend 1
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Fee Information 3
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Financial Highlights 4
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How We Select Our Investments 6
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Citizens Index Portfolio 7
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Citizens Global Equity Portfolio 8
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E*fund and Working Assets Money Market Portfolio 9
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Citizens Income Portfolio 10
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Citizens Emerging Growth Portfolio 11
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Organization and Management of the Trust 11
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How to Purchase and Redeem Shares 14
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Shareholder Services 16
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Dividends, Distributions and Taxes 16
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Mailing Address/Wiring Instructions 17
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Trustee Profiles 19
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Trustee News
If you are interested in becoming a shareholder in any of the Citizens Trust
portfolios, we'd like to tell you about what our board of trustees has been
working on. The board of trustees meets quarterly and our next meeting is
scheduled for August 4, 1997. Among the matters to be taken up at the August,
1997 meeting will be the assignment of sub-advisory services for two portfolios
of the Trust and the merger of the Trust's two money market portfolios.
The assignment of sub-advisory services for the Citizens Income Portfolio
and the Citizens Emerging Growth Portfolio is proposed simply because our
current sub-adviser, GMG/Seneca Capital Management, L.P. is merging with an
affiliate, GMG/Seneca Capital Management LLC, and this affiliate has in turn
entered into an agreement to be acquired by Phoenix, Duff & Phelps. This merger
and acquisition will not result in a change of the management of the sub-adviser
or a change in the portfolio manager, but it will result in the termination of
the present sub-advisory agreement, and the board of trustees will therefore
consider approving a new one. Should a new agreement be approved, it will then
be submitted to shareholders of the Income Portfolio and the Emerging Growth
Portfolio for their approval.
The board of trustees will also consider a proposal to merge the Trust's two
money market funds by reorganizing the Working Assets Money Market Portfolio
into the E.fund. Should the board approve a plan of reorganization, it will then
be submitted to shareholders of the Working Assets Money Market Portfolio for
their approval. We are excited about this plan and believe it will be of benefit
to shareholders should it be approved.
We do our best to keep our shareholders informed of developments at Citizens
Trust and our board of trustees encourages shareholder participation and ideas.
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. With the exception of the
E*fund, you can invest in any portfolio for as little as $250 if you set up an
Automatic Investment Plan, currently $50 per month.
Escrow Policy
We reserve the right to wait up to 7 (seven) business days to redeem any
investments made by check, and 5 (five) business days for purchases made by ACH
transfer. Therefore, if you need to redeem shares within 7 (seven) business days
of your purchase, please invest by wire. We also reserve the right to close your
account for any lawful reason including, but not limited to, reasonable
suspicion of fraud or other illegal activity in connection with the account.
Please make all checks payable to "Citizens Trust". We are unable to accept
third-party checks.
2
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<PAGE>
Citizens Trust
Fee Information
<TABLE>
<CAPTION>
Working
Assets
Money Emerging Global
Market Income Growth Index E*fund Equity
Shareholder Transaction Expenses
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None None None None
(as a % of offering price)
Maximum Sales Load Imposed on Reinvested 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
Purchase Price or Redemption Proceeds)
Redemption Fees (as a % of amount redeemed) None None None None None None
Exchange Fee (per exchange) None None None None None None
</TABLE>
Costs For Other Services
<TABLE>
<S> <C>
Returned checks (All portfolios)...............................................$10.00
Returned Electronic Purchase - ACH (All portfolios)............................$10.00
Returned Electronic Payment - ACH (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 200 checks (E*fund only)................................................$15.95
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)
Management Fees .............. .35% .65% 1.00% .50% .10% 1.00%
Distribution Expense ......... .25% .25% .25% .25% None .25%
Other Expenses (**after waiver
and reimbursement) .......... .65%* .53%+ .85%+ 1.00% .40% 1.41%+
Total Portfolio
Operating Expenses ........... 1.25%* 1.43% 2.10% 1.75%* .50%** 2.66%
*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 and Global Equity Portfolios are 1.48%, 2.34%, 2.72%, 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 40 121 203 413
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
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
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<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 Realize 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>
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(5) 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
</TABLE>
(1) Period from June 10, 1992 (commencement of operations)
(2) Period from February 8, 1994 (commencement of operations)
(3) Annualized
(4) Period from March 3, 1995 (commencement of operations)
(5) Period from July 1, 1995 (commencement of operations)
<PAGE>
Citizens Trust
Ratios And Supplemental Data
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses Net Income
Net Ratio of to Average Net Income (Loss) to
Assets Expenses Net Assets (Loss) to Average Net
Portfolio End of Period to Average Prior to Average Net Assets Prior to
Turnover Rate (in 000s) 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%
</TABLE>
5
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<PAGE>
The Talking Prospectus
Auditor
[Picture of Auditor]
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 preceeding 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
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<PAGE>
Citizens Trust
Repurchase Agreements
To allow us to earn a return on surplus cash, we usually invest this cash
overnight or for longer periods through an arrangement called a repurchase
agreement, or "repo," with a financially strong company that is either a large
stock broker or a substantial bank that is a member of the Federal Reserve. As
additional security, we always require all vendors of repurchase agreements to
set aside collateral in our name in the form of government securities equal to
102% of the value of any repurchase agreement. However, it is important to note
that while repurchase agreements are a useful tool in managing the portfolio,
they do have some greater risk than direct investing in securities. If a bank or
stockbroker becomes bankrupt, or otherwise defaults after selling us a
repurchase agreement, we may suffer some delay and expense in liquidating our
collateral or have a loss of principal or interest. However, in any default, the
resold securities are expected to provide collateral sufficient to cover the
amount of the repurchase agreement, so we do not feel these risks outweigh the
benefits of repurchase agreements.
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.
Manager
[Picture of Manager]
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
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<PAGE>
The Talking Prospectus
Manager
[Picture of Manager]
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. "
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.
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 (such as 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
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<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
[Picture of Manager]
One member of the team that manages 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
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<PAGE>
The Talking Prospectus
Manager
[Picture of Manager]
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."
Citizens Income Portfolio
Objective: To generate current income and pay a dividend every month.
Citizens 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 Citizens 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.
10
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<PAGE>
<TABLE>
<S> <C>
[CITIZENS New Account Application Return your completed application to:
TRUST LOGO] To avoid delays in processing please complete entire Citizens Trust c/o PFPC Inc. PO Box 8962
application. For assistance call 800-223-7010. Wilmington, DE 19899-8962
1. Open Your Account (Check one box below)
Please Print or Type - Don't forget to sign application in section 6b (& 6c for E(bullet)fund)
[ ] Individual or Joint Account [ ] Institutional ($100,000 minimum)
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|
Owner's Name (First, Middle Initial, Last) Date of Birth
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|
Joint Owner's Name (First, Middle Initial, Last) Date of Birth
[ ] Gift/Transfer to a Minor (UGMA / UTMA)
(Not available for the E(bullet)fund.) Note: Custodial accounts must be in single ownership
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|
Custodian's Name (one custodian only) Date of Birth
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|
as custodian for Minor's Name (First, Middle Initial, Last) Date of Birth
under the |__|__| Uniform Gifts/Transfer to Minors Act.
State
[ ] Trust (Not available for the E(bullet)fund.)
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| as Trustee(s) of
Trustee(s) Name
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| for the benefit of
Name of Trust Agreement
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|
Beneficiary's Name Date of Trust Agreement
(required)
[ ] Corporation or Other Entity (Not available for the E(bullet)fund.)
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|__|__|__|__|
Name of Corporation or Other Entity Type of Entity - Please complete Section 8
Mailing Address
Address (of Owner, Trustee, or Corporation) If P.O. Box, please show street address also.
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
Street Number and Name
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
P.O. Box
|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__| |__|__|__|__|__| |__|__|__|__|
City State Zip (+ 4)
- -------------------------- -------------------------- -------------------------------------------------------------
( ) ( )
- -------------------------- -------------------------- -------------------------------------------------------------
Daytime Phone Evening Phone If not a U.S. citizen, please indicate country of citizenship
2. 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: [ ] I (We) authorize Citizens Trust and its Agent to honor
telephone instructions for my (our) current account. Neither the Trust, its
Adviser, its Distributor; nor its Agent will be liable for properly acting upon
telephone instructions believed to be genuine. Indicate your personal password
to authorize telephone transactions:
[ ] [ ] [ ] [ ]
Any changes to the number you choose will require a signature guaranteed letter.
<PAGE>
3. 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/class)
On the [ ] 15th or [ ] 30th day of each month by transfer from my bank account
shown below on this application. (For payroll and Social Security deposits,
please call 800-223-7010).
4a. Information Required for ACH Transfer
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
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Name of Bank
|__|__|__|__|__|__|__|__|__|__|__|__|__|
Address of Bank
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
Account Number
|__|__|__|__|__|__|__|__|__|
Bank Routing Number Check One: [ ] Checking Account [ ] Savings Account
--------------------------------------------------------
From: (Portfolio Name)
--------------------------------------------------------
Account Number: |__|__|__|__|__|__|__|__|__|__|__|__|__|
----------------------------------------------------------
To: (Portfolio Name)
----------------------------------------------------------
Account Number: |__|__|__|__|__|__|__|__|__|__|__|__|__|
------------- ---------------
To be Deducted on the: [ ] 1st [ ] 10th [ ] 20th Starting Date: / / Amount: $
------------- ---------------
5. 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(bullet)fund, which can only be opened with 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 4a.
The E*fund Money Market Portfolio _________ [ ] [ ] [ ]
(must complete 6a & 6c of application)
Citizens Income Portfolio _________ [ ] [ ] [ ]
Citizens Index Portfolio _________ [ ] [ ] [ ]
(Retail Class)
Citizens Index Portfolio _________ [ ] [ ] [ ]
(Institutional Class)
Citizens Emerging Growth Portfolio _________ [ ] [ ] [ ]
Citizens Global Equity Portfolio _________ [ ] [ ] [ ]
Working Assets Money Market Portfolio _________ [ ] [ ] [ ]
(Retail Class)
Working Assets Money Market Portfolio _________ [ ] [ ] [ ]
(Institutional Class)
<PAGE>
6a. For E*fund Accounts Only (Required)
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 $15.95, in
quantities of 200.
[ ] Please order an additional 200 checks for my E*fund account now. (Checks
must be ordered through an authorized vendor to ensure accurate processing.)
6b. Signatures and Tax Indentification 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
[ ] I am subject to backup withholding.
[ ] I am exempt from paying taxes.
[ ] 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. I understand that
Citizens Securities must first approve my application. I authorize Citizens
Securities to conduct a credit investigation and verify any other information
deemed necessary to establish the validity of my account and all activity
associated with it. I will receive my MasterCard(R) debit card 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 [graphic - hand with pen] -----------------
Date
-----------------
- ---------------------------------------------------------------------- / /
Signature of Individual or Custodian [graphic - hand with pen] -----------------
Date
6c. Required for Check-Writing Privileges
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. No checks will be ordered without a completed signature card.
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
LAST NAME FIRST NAME MIDDLE INITIAL
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
LAST NAME FIRST NAME MIDDLE INITIAL
- ----------------------------------- -----------------------------------
SIGNATURE [graphic - hand with pen] SIGNATURE [graphic - hand with pen]
[ ] Check here if both/all signatures are required on checks.
[ ] 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>
7. Resolution (for Corporation/Partnership/Other)
The undersigned hereby certifies and affirms that she/he is the duly elected |__|__|__|__|__|__|__|__|
Officer or Title
of |__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
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 [graphic - hand with pen] of Certifying Officer Date
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
Printed Name Title
- -------------------------------------------------------------------------------
Signature [graphic - hand with pen]
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|
Printed Name Title
- -------------------------------------------------------------------------------
Signature [graphic - hand with pen]
Corporate Seal (if any)
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 DEALER NUMBER
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|__|__|__|
REGISTERED REPRESENTATIVE NAME REG. REP. NUMBER
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|__|__|__|
BRANCH ADDRESS BRANCH NUMBER
|__|__|__|__|__|__|__|__|__|__|__|__| |__|__| |__|__|__|__|__| |__|__|__|__|
CITY STATE ZIP (+ 4)
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 or ACH will not be available for redemption for a
period of up to 7 business days after the purchase date. Checks written on
uncollected funds may be returned.
</TABLE>
<PAGE>
Citizens Trust
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.
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.
Manager
[Picture of Manager]
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."
11
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<PAGE>
The Talking Prospectus
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, as amended. 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.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Working Assets Money Market Portfolio, E*fund, 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.
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%
Global Equity Portfolio 1.00% .35%
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
12
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<PAGE>
Citizens Trust
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 Citizens
Advisers 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.
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
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.
Manager
[Picture of Manager]
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 PayingA gent:
PFPC Inc.
400 Bellevue Parkway Suite 108
Wilmington, DE 19809
Phone: 800-223-7010
13
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<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.
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. All
checks must be made payable to Citizens Trust. Foreign checks drawn off of U.S.
dollars are accepted, but must be held in escrow for 20 days.
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 (except the E*fund which always requires a $1000
minimum).
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.
Payroll Deduction
Setting up direct payroll deposit is very easy. We will 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.
14
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<PAGE>
Citizens Trust
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 ($15.95 for 200 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. Remember, if you attempt to draw off of escrowed shares your
check may be returned for uncollected funds.
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
Manager
[Picture of Manager]
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
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<PAGE>
The Talking Prospectus
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 predesignated 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.
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 business 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 to protect both
you and Citizens Trust from fraud, we may 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.
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:
Dividend Capital Gains Paid
Declared Paid Long-term Short-term
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
Citizens Global Equity Portfolio Annually Annually Annually Annually
16
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<PAGE>
Citizens Trust
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's Yield
To calculate yield, 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 semi-annual compounding.
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.
Mailing and
Wiring Instructions
Regular U.S. Mail 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.
17
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<PAGE>
The Talking Prospectus
"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 fr ont 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
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!
18
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<PAGE>
Citizens Trust
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)
19
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<PAGE>
[CITIZENS TRUST(TM) LOGO]
Printed on recycled paper with soy-based ink.
[Copy Rights Logo] 1997 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>
Rule 497(b)
File Nos. 333-26077
811-3626
CITIZENS INVESTMENT TRUST
Muir California Tax Free Income Portfolio
One Harbour Place
Portsmouth, New Hampshire 03801
Phone: (800) 223-7010
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on September 10, 1997 at the offices of Citizens Investment Trust,
One Harbour Place, Portsmouth, New Hampshire 03801, at 10:30 am, EDT.
To the Shareholders of Muir California Tax-Free Income Portfolio:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of Muir California
Tax Free Income Portfolio (the "Muir Portfolio") will be held on September 10,
1997 for the following purposes.
ITEM 1.
To decide whether or not to approve the attached Plan of Reorganization ("the
Plan") wherein it is proposed that the Muir Portfolio be reorganized with the
Citizens Income Portfolio (the "Income Portfolio"), another series of Citizens
Investment Trust ("Citizens Trust" or the "Trust").
If shareholders of the Muir Portfolio approve the Plan, they will be approving:
(a) The transfer of all the assets and liabilities of the Muir Portfolio to the
Income Portfolio, in exchange for shares of the Income Portfolio with a value
equal to the value of the assets (minus liabilities) transferred;
(b) The distribution of the shares of equal value in the Income Portfolio to the
shareholders of the Muir Portfolio;
(c) The dissolution of the Muir Portfolio.
ITEM 2.
To transact such other business as may properly come before the Meeting or any
adjournment thereof.
The proposed reorganization and related matters are described in the attached
Combined Proxy Statement/Prospectus. A copy of the Plan is also attached for
your information as Exhibit 1.
Shareholders of record of the Muir Portfolio, as of the close of business on
June 12, 1997, are entitled to notice of, and to vote at, the Special Meeting or
any adjournments thereof.
<PAGE>
The Trustees recommend that shareholders of the Muir Portfolio vote YES on
Item 1.
YOUR VOTE MATTERS! PLEASE READ, COMPLETE AND RETURN PROMPTLY THE ENCLOSED PROXY
CARD WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES OF CITIZENS TRUST. THIS
IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES MAY BE REVOKED AT ANY
TIME BEFORE THEY ARE EXERCISED BY A SIGNED WRITING DELIVERED AT THE MEETING OR
FILED WITH THE SHAREHOLDER SERVICING AGENT.
Sophia Collier
President
July 24, 1997
<PAGE>
PROXY STATEMENT/PROSPECTUS
Dated: July 24, 1997
CITIZENS INVESTMENT TRUST
One Harbour Place, Portsmouth, New Hampshire 03801
Phone: (800) 223-7010
This document is called a Combined Proxy Statement/Prospectus. It is meant to
provide you with two types of information. First, it describes a reorganization
we, the Board of Trustees of Citizens Investment Trust ("Citizens Trust" or the
"Trust"), have approved, subject to shareholder approval, to reorganize Muir
California Tax-Free Income Portfolio (the "Muir Portfolio") into Citizens Income
Portfolio ("Income Portfolio"). Second, it offers the investment disclosures you
will need should the reorganization plan be effected.
We, the Board of Trustees, on behalf of Citizens Trust, are sending you this
Combined Proxy Statement/Prospectus to solicit your proxy to be voted for or
against the reorganization at a Special Meeting of Shareholders to be held on
September 10, 1997 at the offices of Citizens Trust, One Harbour Place,
Portsmouth, New Hampshire 03801, at 10:30 am EDT.
Why Are We Doing This?:
The primary reason for this reorganization is to allow shareholders of the Muir
Portfolio to continue to obtain income from securities that are selected using
both financial criteria and criteria of social responsibility, while combining
the assets of the Muir Portfolio with those of the Income Portfolio in order to
achieve economies of scale and, hopefully, better performance. The performance
of California tax free bonds in recent years has been disappointing and Muir
Portfolio shareholders have not fared well in comparison to shareholders of
other fixed income securities (particularly on a pre-tax basis but also, to some
degree, on a tax-equivalent basis). In order to attempt to provide the Muir
Portfolio shareholders with stronger performance and a better rate of return on
fixed income securities while also lowering their costs, we, the Board of
Trustees, determined that it would be in the best interests of Muir Portfolio
shareholders to merge or reorganize the Muir Portfolio into the Income
Portfolio.
Important Information:
The Income Portfolio may invest up to 35% of its assets in non-investment
grade or speculative securities (commonly referred to as "junk bonds"), whereas
the Muir Portfolio does not invest in securities rated below investment grade.
It should be noted that the proposed reorganization is a taxable event. It
should also be understood that although the Muir Portfolio invests in tax-free
securities, the Income Portfolio does not - dividends and capital gains are
fully taxable.
How the Reorganization Will Work:
The Income Portfolio is an existing series of the Trust, which started
operations on June 10, 1992. If the shareholders vote to go ahead with the
reorganization, all of the assets and
<PAGE>
liabilities of the Muir Portfolio will be transferred to the Income Portfolio.
In exchange, the Muir Portfolio will then be given shares of the Income
Portfolio of equal value to the assets (reduced by the liabilities) which the
Muir Portfolio transferred to the Income Portfolio.
Following the exchange, the Muir Portfolio will make what is called a
liquidating distribution of the shares of the Income Portfolio, such that each
shareholder in the Muir Portfolio at the effective time of the reorganization
will receive a number of full and fractional shares of the Income Portfolio
having a net asset value equal to the value of the shares of the Muir Portfolio
held by that shareholder.
What You Need To Know:
This Combined Proxy Statement/Prospectus sets forth concisely the information
that shareholders of the Muir Portfolio should know before voting on the Plan of
Reorganization and should be retained for future reference. The prospectus for
the Trust, dated September 28, 1996, as amended March 28, 1997, and as further
amended May 1, 1997, is attached as Appendix 1. The Trust's annual report for
the fiscal year ended June 30, 1996 and semi-annual report for the period ended
December 31, 1996 have been earlier sent to you. You may request another copy by
calling us, toll free, at (800) 223-7010, and we will send it to you without
charge.
Additional information is provided in the Statement of Additional Information,
dated September 26, 1996, as amended March 28, 1997. This document is on file
with the Securities and Exchange Commission (the "SEC"). If you would like us to
send you a copy of the Statement of Additional Information you may call us,
again, toll free at (800) 223-7010 and we will be happy to send it to you
without any charge.
The information contained in the enclosed prospectus, the annual report and the
Statement of Additional Information is incorporated herein by reference.
This Combined Proxy Statement/Prospectus is expected to be first sent to
shareholders on or about August 1, 1997
THE SECURITIES OF CITIZENS TRUST HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS COMBINED PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Item: Page
- -----------------------------------------------------------------------------------------------
<S> <C>
Summary............................................................................... 3
Investment Policies and Risk Factors.................................................. 8
The People and Operations of Citizens Trust........................................... 14
Voting Information.................................................................... 18
Description of the Plan of Reorganization............................................. 20
Factors Considered by the Board of Trustees Before Recommending this
Transaction........................................................................... 22
Additional Information about the Transaction.......................................... 23
Manager's Comments.................................................................... 32
Additional Information about the Muir and Income Portfolios.......................... 36
Financial Statements and Expert....................................................... 39
Other Business........................................................................ 39
Shareholders Inquiries................................................................ 39
Exhibit 1 - Plan of Reorganization
Appendix 1 - Prospectus of Citizens Trust
</TABLE>
SUMMARY
THE FOLLOWING MATERIAL IS ONLY A SUMMARY. FOR COMPLETE INFORMATION, PLEASE READ
THIS PROSPECTUS/PROXY STATEMENT IN ITS ENTIRETY, AS WELL AS THE PLAN OF
REORGANIZATION, A COPY OF WHICH IS INCLUDED AS EXHIBIT 1 HERETO, AND THE
ACCOMPANYING PROSPECTUS OF THE TRUST DATED SEPTEMBER 27, 1997, AS AMENDED MARCH
28, 1997, AND AS FURTHER AMENDED MAY 1, 1997, A COPY OF WHICH IS INCLUDED AS
APPENDIX 1 HERETO.
The Plan of Reorganization (the "Plan") provides for the reorganization of the
Muir Portfolio into the Income Portfolio. The investment objective of the Muir
Portfolio is "a high level of current income exempt from both federal and
California state personal income tax." The investment objective of the Income
Portfolio is "to generate income and pay a dividend every month," which income
is, in the case of the Income Portfolio, subject to taxation.
The Plan provides for the transfer of all of the assets of the Muir Portfolio to
the Income Portfolio in exchange for shares of beneficial interest of the Income
Portfolio and the assumption by the Income Portfolio of all of the liabilities
of the Muir Portfolio. The Muir Portfolio would then distribute such shares of
the Income Portfolio to its shareholders in liquidation of the Muir Portfolio.
As a result of the reorganization, each shareholder of the Muir Portfolio will
become the owner of that number of full and fractional shares of the Income
Portfolio having an aggregate value equal to the aggregate value of that
shareholder's shares of the Muir Portfolio immediately prior to the time the
reorganization becomes effective. Following the reorganization, the Muir
Portfolio will be terminated.
For the reasons set forth below under "Reasons for the Reorganization," your
Board of Trustees, including a majority of the Trustees who are not "interested
persons" as that term
3
<PAGE>
is defined in the Investment Company Act of 1940, as amended (the "1940 Act")
(the "Independent Trustees"), has unanimously concluded that the reorganization
would be in the best interests of the Muir Portfolio's shareholders and the
transactions contemplated by the reorganization will not dilute the interests of
the existing shareholders of the Muir Portfolio or the Income Portfolio. The
Board of Trustees has, therefore, submitted the Plan for approval by the
shareholders of the Muir Portfolio. Approval of the reorganization will require
the affirmative vote of the holders of more than 50% of the outstanding shares
of the Muir Portfolio entitled to vote. See "Voting Information."
Fees and Expenses
The following table provides: (1) a summary of the aggregate operating expenses
of the Muir Portfolio; (2) a summary of the aggregate operating expenses of the
Income Portfolio; and (3) a pro forma summary of the aggregate operating
expenses of the Income Portfolio following the reorganization. The table also
illustrates the dollar cost of such expenses on a $1,000 investment in the Muir
Portfolio and the Income Portfolio.
Expense Table
Annual Operating Expenses
(as a percentage of the average daily net assets)
<TABLE>
<CAPTION>
Muir Portfolio Income Portfolio Pro Forma-
-------------- ---------------- ----------
Income Portfolio
----------------
<S> <C> <C> <C>
Management fee 0.65% 0.65% 0.65%
Distribution fee (12b-1) 0.25% 0.25% 0.25%
Other expenses
(after waiver and reimbursement) 0.63%* 0.49% 0.49%
Total 1.53%* 1.39% 1.39%
</TABLE>
*The Trust's investment adviser reimbursed certain expenses, without which
"other expenses" for the Muir Portfolio for the six months ended December 31,
1996 would have been 1.07% and total operating expenses for that period would
have been 1.97%. Operating expenses for the Income Portfolio for the one year
period ending June 30, 1996 are contained in the Prospectus attached hereto as
Appendix 1.
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
Muir Portfolio $16* $48* $83* $182*
Income Portfolio 14 44 76 167
Pro Forma-Income Portfolio 14 44 76 167
* If reimbursements were not in place, the amounts in the example for the Muir
Portfolio would be $20 (1 year), $62 (3 years), $106 (5 years), and $230 (10
years).
4
<PAGE>
The above 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.
Exchange Privileges:
Shareholders of the Muir Portfolio and the Income Portfolio currently are
entitled to exchange their shares for shares of other series of Citizens Trust
that are registered in their state. It is anticipated that, after the
reorganization, the same exchange privileges will continue with respect to
shareholders of the former Muir Portfolio. Any exchange will be a taxable event
for which a shareholder may have to recognize a gain or a loss under federal
income tax provisions. The Trust reserves the right to terminate or modify the
exchange privilege in the future.
Dividends:
Both the Muir Portfolio and the Income Portfolio distribute dividends monthly
and pay out net realized capital gains, if any, once each year. Shareholders of
either the Muir Portfolio or the Income Portfolio may reinvest distributions.
Your existing election in the Muir Portfolio with respect to dividends and/or
capital gains will be continued with respect to the shares of the Income
Portfolio you acquire in connection to the reorganization unless you notify the
Trust of a new election.
Proposed Reorganization:
The Board of Trustees has approved the Plan, which is being recommended to the
shareholders of the Muir Portfolio for approval at the Meeting. Subject to your
approval, the Plan provides for: (a) the acquisition by the Income Portfolio of
all the assets and liabilities of the Muir Portfolio in exchange for shares of
the Income Portfolio; and (b) the distribution of such Income Portfolio shares
to the shareholders of the Muir Portfolio in liquidation of the Muir Portfolio.
As a result of the proposed reorganization, each shareholder of the Muir
Portfolio will become a shareholder of the Income Portfolio and will hold,
immediately after the time the reorganization becomes effective (the "Effective
Time of the Reorganization"), shares of the Income Portfolio having the same
dollar value as the shares of the Muir Portfolio that such shareholder held in
the Muir Portfolio immediately before the Effective Time of the Reorganization.
Reasons for the Reorganization:
As of May 31, 1997, the Income Portfolio had approximately three times the total
net assets of the Muir Portfolio ($32.5 million in the Income Portfolio as
compared to less than $11.4 million in the Muir Portfolio). The Trustees have
considered the issues inherent in the small size of the Muir Portfolio and have
concluded that by combining the Muir Portfolio into the larger Income Portfolio,
assets could be more efficiently managed, expenses reduced and rate of return
increased without increasing (and possibly reducing) risk. The reorganization of
the Muir Portfolio also will allow shareholders to continue the investment goal
of a high level of current income from securities selected according to both
financial criteria and criteria of social responsibility. However, the Income
Portfolio does not share the Muir Portfolio's objective of "a high level of
current income exempt from both federal and California state personal income
tax." The investment objective for the Income Portfolio is to generate current
income and pay a dividend every month. Such income is subject to federal and
state personal income tax.
5
<PAGE>
Although Muir Portfolio shareholders will no longer hold tax free securities
after the reorganization is consummated, in the opinion of the Trustees such tax
consequences are outweighed by the likelihood of lower expenses and the
possibility of higher returns and reduced risks flowing to Muir Portfolio
shareholders once they become shareholders of the Income Portfolio.
Risks:
With regard to risk, the Trustees have considered the changes in the California
bond market subsequent to passage of Proposition 13, which limited the capacity
of local governments to stand behind bond issues and increased the possibilities
of default, which actually occurred in Orange County, California. In the opinion
of the Trustees, this risk to principal will be reduced once the Muir Portfolio
shareholders become shareholders in the Income Portfolio. In the Trustees'
opinion, this reduction in risk, combined with the likelihood of lower expenses
and the possibility of higher returns, outweighs the tax consequences to
shareholders exchanging tax free shares in the Muir Portfolio for taxable
investments in the Income Portfolio.
The Income Portfolio does bear some risks not borne by the Muir Portfolio in
that it may invest up to 35% of its assets in bonds or other debt instruments
rated as below investment grade. These non-investment grade or "junk bond"
securities are considered speculative and therefore add risk. The Income
Portfolio may also invest in warrants, options and interest-only strips, each of
which carries additional investment risks. Notwithstanding these risks, in the
Trustees' opinion the Income Portfolio bears substantially the same or possibly
lower risks than those associated with the Muir Portfolio.
Performance:
Historically, the Income Portfolio has had a better performance track record
than the Muir Portfolio. The average annual total return for the Muir Portfolio
and the Income Portfolio for the 1, 3 and 5 year periods ended 3/31/97 is set
forth below:
30-Day Yield for Tax Equivalent Expense Ratio
period ending Yield for period for six months
3/31/97 ending 3/31/97 ending 12/31/96
Income Portfolio 6.47% 6.47% 1.39%
Muir Portfolio 3.79% 6.89% 1.53%
Average Annual Total Return
for the period ending 3/31/97
1YR. 3YR. 5YR.
Income Portfolio 5.62% 6.73% N/A
Muir Portfolio 3.08% 4.65% 5.24%
Muir Portfolio
Tax-Equivalent Return 6.21% 8.30% 9.03%
- --------------------------------------------------------------------------------
6
<PAGE>
The tax-equivalent yield is computed by dividing that portion of the yield that
is tax-exempt by one minus the highest applicable combined federal and
California income tax rate (45%) and adding the result to that portion of the
yield that is not tax-exempt.
Although past performance is not an indication of future performance, the
Trustees of Citizens Trust believe that the Income Portfolio will offer a
higher, although taxable, yield than the Muir Portfolio and a lower expense
ratio than the Muir Portfolio. A specific example of how lower expenses will be
immediately realized by Muir Portfolio shareholders can be seen in the per
account maintenance fee charged by the Trust's transfer agency, which will be
reduced from approximately $27.48 to $12.00 - a savings to shareholders of over
56%. The Trustees anticipate that other savings will also accrue to Muir
Portfolio shareholders as a result of the reorganization since the combined
costs of the Income Portfolio (including advisory, administration, and
distribution fees) historically have been lower than those of the Muir
Portfolio. Moreover, the Trustees note favorably the downward trend in annual
operating expenses of the Income Portfolio, which is expected to continue.
Federal Income Tax Consequences:
The Muir Portfolio does not expect that the proposed reorganization will qualify
as a "tax free" reorganization under federal income tax law. The Muir Portfolio
anticipates that substantially all of its securities will be sold prior to the
reorganization and that it will realize taxable gain or loss from such sale. The
Muir Portfolio also will recognize taxable gain or loss to the extent ( if at
all) the fair market value of the assets transferred to the Income Portfolio
exceeds or is less than, respectively, the aggregate basis of those assets in
the hands of the Muir Portfolio. The Income Portfolio's basis in the assets
acquired from the Muir Portfolio will be the fair market value of such assets at
the time the reorganization is consummated. Shareholders of the Muir Portfolio
who receive shares of the Income Portfolio will recognize gain (or loss) to the
extent the fair market value of the Income Portfolio shares exceeds (or is less
than) the aggregate basis such shareholders had in their Muir Portfolio shares.
It is anticipated that the tax consequences to the Muir Portfolio will be
minimal given that only unrealized gains (or losses) as of the Effective Time of
the Reorganization will be subject to taxation.
As stated above, the Muir Portfolio's disposition of substantially all of the
Muir Portfolio's securities will result in the realization of taxable gain or
loss with respect to the securities disposed of. The Muir Portfolio will
recognize gain or loss to the extent (if at all) the fair market value of the
assets transferred to the Income Portfolio exceeds or is less than,
respectively, the aggregate basis of those assets in the hands of the Muir
Portfolio. All such gain and loss so recognized will be taken into account in
determining the Muir Portfolio's income and required distributions for its final
taxable year; as is generally the case, dividends of ordinary income and
distributions of net short-term capital gains will be taxable to Muir Portfolio
shareholders as ordinary income for federal income tax purposes, and
distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) will be taxable to Muir Portfolio
shareholders as long-term capital gains for federal income tax purposes without
regard to the length of time such shareholders have held their shares.
It is expected that (a) in accordance with Section 1001 of the Code,
shareholders of the Muir Portfolio who receive shares of the Income Portfolio in
exchange for their Muir
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Portfolio shares will recognize gain (or loss) to the extent the fair market
value of the Income Portfolio shares exceeds (or is less than) the aggregate
basis such shareholders had in their Muir Portfolio shares, and, if their Muir
Portfolio shares were capital assets in their hands, the gain (or loss) will be
long-term capital gain (or loss) if they have held their interest in the Muir
Portfolio shares for more than one year, and short-term capital gain (or loss)
if they have held such interest for one year or less; (b) in accordance with
Section 1032 of the Code, no gain or loss will be recognized by the Income
Portfolio as a result of such transactions; (c) in accordance with Section 1012
of the Code, the basis of the Income Portfolio shares received by each
shareholder of the Muir Portfolio will be the fair market value of such Income
Portfolio shares as of the time of the reorganization; (d) in accordance with
Section 1012 of the Code, the basis of the assets of the Muir Portfolio in the
hands of the Income Portfolio will be the fair market value of the assets at the
time of the reorganization; (e) in accordance with Section 1223 of the Code, the
holding period of the Income Portfolio shares received by each shareholder of
the Muir Portfolio will begin on the date of the reorganization, and will not
include the period for which that shareholder held shares of the Muir Portfolio;
and (f) in accordance with Section 1223 of the Code, the holding period of the
Income Portfolio with respect to the assets of the Muir Portfolio will begin as
of the date of the reorganization, and will not include the period for which the
assets were held by the Muir Portfolio.
The Muir Portfolio and the Income Portfolio have not sought a tax ruling from
the Internal Revenue Service (the "IRS") or an opinion of counsel concerning the
foregoing. Shareholders should consult their own advisers concerning the
potential tax consequences to themselves, including state and local income
taxes.
Shareholder Service Policies:
The Income Portfolio has identical policies to the Muir Portfolio with respect
to purchases, redemptions, wire transfers and other shareholder service issues.
Please see the prospectus for the Trust which is attached hereto as Appendix 1.
Accounting Matters:
The Muir Portfolio and the Income Portfolio use the same method to value their
shares. This method is described in the Trust's prospectus which is attached as
Appendix 1.
INVESTMENT POLICIES AND RISK FACTORS
The Income Portfolio
The Income Portfolio lends money to the agencies and enterprises of the
government and to companies in exchange for interest payments. 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. The
average maturity in the Income Portfolio is usually between 5 and 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 of generating current
income and paying a dividend every month.
Since the goal is to achieve a reliable stream of monthly income, the credit
quality of the debt which the Income Portfolio purchases is analyzed carefully.
At least 65% of the Income Portfolio's assets are invested in securities rated
"investment grade" (BBB or above by Standard & Poor's; Baa or above by Moody's).
Up to 35% may be invested in bonds or other debt instruments rated as below
investment grade. Although bonds rated below BBB (Standard & Poor's) or Baa
(Moody's) are considered speculative (and are commonly referred to as "junk
bonds") and therefore add risk, we believe that, by carefully analyzing the
securities involved and 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. In some cases, debt
securities rated below BBB (Standard & Poor's) or Baa (Moody's) may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investments in investment-grade
debt securities i.e., debt securities, rated BBB (Standard & Poor's), Baa
(Moody's) or higher. Debt securities rated CCC or below
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by Standard & Poor's or Caa or below by Moody's are speculative and may be in
default. These securities may present significant elements of danger with
respect to the repayment of principal and interest.
Corporate debt securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligation (credit risk) and may
also be subject to price volatility due to such factors and interest rate
sensitivity, market perception of the credit worthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated (i.e., junk bond)
securities are more likely to react to developments affecting market and credit
risk than are more highly rated securities, which react primarily to movements
in the general level of interest rates.
Occasionally, the Income Portfolio purchases 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 portfolio.
The Income portfolio will sometimes purchase securities that have "warrants"
attached to them. Warrants are instruments that entitle that holder to buy
underlying equity securities at a specific price for a specific period of time.
The Income Portfolio will also, on occasion, purchase "options" to buy or sell
securities in the future at specified values determined by the performance of
financial bench marks or indexes. Finally, the Income Portfolio may 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 Income Portfolio is a diversified portfolio in that it may not buy the
securities of any company of the Portfolio would then own more than 10% of the
total value of the company's outstanding voting shares, or if the Fund as a
whole (i.e., all portfolios of Citizens Trust combined) would then own more than
10% of the total value of the company's outstanding voting shares. The Income
Portfolio also 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. The Muir Portfolio is not a diversified
fund and, therefore, does not share these fundamental policies regarding
diversification and concentration.
The Income Portfolio may not buy or hold securities if the Trust's officers or
Trustees, or the officers or Directors of Citizens Advisers, Inc. (the
"Adviser") own more than certain limits of these securities. If all of these
individuals who own more than 1/2 of 1% of the shares of a company together own
more than 5% of a company's shares, the Income Portfolio cannot buy, or continue
to own, that company's shares. The Income Portfolio may place only 5% of its
assets in companies which have been in operation, including operations of
predecessors, for less than three years. Again, these fundamental policies of
the Income Portfolio are not shared by the Muir Portfolio.
The Statement of Additional Information dated September 26, 1996, as amended
March 28, 1997, provides more detailed information about each rating agency and
its system of ratings.
Risk Factors:
The Income Portfolio bears both credit risks and interest rate risk. With regard
to credit risk, the Income Portfolio may lend money to an organization and will
not be paid back promptly, if at all. To moderate this risk, the Income
Portfolio invests at least 65% of its assets in "investment grade" securities.
The Income Portfolio also carries interest rate risk. 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. Securities with
longer maturities typically have more fluctuation in market value. Because the
Income Portfolio may invest in bonds or mortgages of any length up to 30 years,
with average maturities usually between 5 and 15 years, it is always subject to
interest rate risk. The portfolio manager watches these risks carefully in order
to monitor their impact on the Income Portfolio.
The use of warrants, options and "interest-only strips" can present additional
risks to the Income Portfolio. Warrants and options, if not exercised, lose
their value and the amount invested to acquire them is lost. Likewise,
interest-only strips may prepay or default and our ability to collect interest
payments will end.
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The Muir Portfolio
The Muir Portfolio only buys securities which have been rated
"investment-grade," or are equivalent to investment-grade in our judgment. (The
Statement of Additional Information contains a full description of bond ratings
and the agencies which provide them.)
The Muir Portfolio generally buys investment-grade bonds issued by cities and
towns in California or other types of organizations that issue tax-exempt
securities. The goal of providing a high level of income exempt from California
or federal taxes, provides a number of very interesting investment opportunities
with high social impact, as well as potentially attractive financial results. In
particular, the portfolio manager looks 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: 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.
In addition to tax-free bonds, the Muir Portfolio also may buy other types of
tax-exempt fixed-income securities. Some of the important examples: The Muir
Portfolio may invest up to 5% of its assets in installment contracts known as
municipal lease/purchase agreements. It may also invest in a type of security
known as a variable - or floating-rate demand note or "VRDN". Another type of
security it sometimes purchases is called a 'participation interest.' In this
case the portfolio buys 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, there are two types of risk. The first is
credit risk: The Muir Portfolio may lend money to an organization and will not
be paid back promptly, or at all. As mentioned above, to moderate this risk the
Muir Portfolio only buys securities which have been rated "investment grade," or
are equivalent to investment-grade in the judgment of the portfolio manager.
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 the Muir Portfolio will
have all or a substantial portion of its assets concentrated in California
municipal securities. In California there have been some changes in the
constitution and other laws, as well as fiscal
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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 the Muir Portfolio will decline, and when
interest rates fall, the market value of the Muir Portfolio will rise.
Securities with longer maturities typically have more fluctuation in market
value. The Muir Portfolio may invest in tax-exempt securities with maturities of
any length up to 30 years, depending upon an assessment of the relative yield on
securities of different maturities as well as an assessment of future changes in
interest rates.
While these are risks, the portfolio manager watches them carefully in order to
monitor their impact on the Muir Portfolio.
Special Tax Considerations
As a matter of fundamental policy, the Muir Portfolio must invest at least 80%
of its 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 total portfolio assets must be invested in bonds. The Muir Portfolio
intends to always meet and usually substantially exceed these minimum
requirements. The Muir 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.
Other Policies:
If sufficient desirable tax-exempt securities issued by California governmental
entities are not available, the Muir Portfolio 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 the Statement of Additional Information under the section
entitled "Investment Objectives and Policies."
The Statement of Additional Information also contains more information about the
risks of California municipal securities as well as a description of municipal
securities ratings.
Comparison of the Muir Portfolio and the Income Portfolio
Investment Goals:
The investment objectives of the Muir Portfolio and the Income Portfolio are
fundamental policies, meaning they cannot be changed without the prior approval
of the respective series' shareholders. The objective of the Muir Portfolio is
"high current income exempt from both federal and California state income tax."
By contrast, the Income Portfolio's objective is "to generate current income and
pay a monthly dividend." Although both portfolios seek a steady flow of income
for their respective shareholders, the primary difference between the Muir
Portfolio and the Income Portfolio is that the income produced from the Income
Portfolio would be subject to federal and state tax.
The Muir Portfolio is not a diversified fund, whereas the Income Portfolio is a
diversified fund. The fundamental policies of the Income Portfolio therefore
include, as discussed above, certain diversification requirements and
restrictions on concentrated investments within a particular industry. Because
it is a diversified fund, the Income Portfolio also has other fundamental
policies regarding investments in companies, as discussed above, that do not
apply to Muir Portfolio investments.
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Risk:
As funds investing in fixed income securities, both the Muir Portfolio and the
Income Portfolio have certain risks associated with this investment strategy.
The first is credit risk. Although the Muir Portfolio and the Income Portfolio
both invest in primarily "investment grade" securities, that is, securities
rated Baa or higher by Moody's Investor Services, Inc. or BBB or higher by
Standard & Poor's Rating Services, there is still the possibility that an
issuing security will be unable to repay its principal interest. The second is
interest rate fluctuation risk. Bond prices react directly to interest rate
fluctuations and also are reflected in the value of the Muir Portfolio and the
Income Portfolio. When interest rates rise, the market value of the Muir
Portfolio and the Income Portfolio will decline, and when interest rates fall,
the market value of the Muir Portfolio and the Income Portfolio will rise.
Because the Muir Portfolio invests primarily in California municipal securities,
the Muir Portfolio is subject to the risks associated with single state
investing. Factors contributing to concerns regarding California municipal
securities include the aftermath of Proposition 13 and the Orange County
bankruptcy, discussed above, as well as speculation over further tax reforms,
state regulatory changes and state fiscal deficits.
Because the Income Portfolio may invest up to 35% of its assets in
non-investment grade securities, its credit risk is greater than that of a
portfolio that invests only in investment grade securities.
Given the similarities of the investment objectives and policies of the Income
Portfolio and the Muir Portfolio, and the fact that the Income Portfolio,
although it may invest a portion of its assets in non-investment grade
securities, does not, like the Muir Portfolio, invest primarily in a single
state, the Trustees believe that an investment in the Income Portfolio involves
investment risks that are substantially the same or possibly lower than those of
the Muir Portfolio.
How to Purchase and Redeem Shares
How to Purchase 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. All
checks must be made payable to Citizens Trust. Foreign checks drawn off of U.S.
dollars are accepted, but must be held in escrow for 20 days.
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.
Investment Minimum:
We encourage every investor to make a minimum investment of $2,500 when
investing in either the Muir Portfolio or the Income 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
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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.
Payroll Deduction:
Setting up direct payroll deposit is very easy. We will send you a form
including the necessary information and steps to follow. Simply complete and
sign the form, then present 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.
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 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.
Written Request for Redemption:
If you do not use Telephone Exchange and Redemption, you still can 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 also may 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.
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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 business days for an ACH transfer. Therefore, if you need your redemption
proceeds within seven business days of your purchase, please invest by wire.
THE PEOPLE AND OPERATIONS OF CITIZENS TRUST
Citizens Investment Trust began as Working Assets Money Fund on November 14,
1982. The Trust is a Massachusetts business trust and an open-end investment
company, registered under the 1940 Act as a diversified management company. The
Trust is set up as a "series" company which means that the Trust can have
several series, or portfolios, each with its own investment objectives, assets
and liabilities.
The Trust has a Management Agreement with Citizens Advisers, Inc. Citizens
Advisers, which prior to 1988 was organized as a limited partnership, has
managed the Trust's affairs since the Trust's inception in 1982.
The Trust is located at One Harbour Place, Portsmouth, New Hampshire 03801.
Management Company Owners:
Citizens Securities Inc., the Trust's Distributor, and its parent, Citizens
Advisers, are both California corporations. Sophia Collier, president of
Citizens Advisers, owns 60% of the outstanding stock of Citizens Advisers. Her
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%.
In its role as investment adviser to the Trust, Citizens Advisers determines
which companies meet the Trust's social and financial criteria and therefore
will be approved for inclusion in the Trust's investment portfolio. Citizens
Advisers also provides additional administrative functions as needed under a
separate Administrative Contract. Citizens Advisers' wholly owned subsidiary,
Citizens Securities, serves as the Trust's Distributor.
To assist Citizens Advisers with portfolio management, sub-investment advisers
(the "Sub-Advisers") have been retained to determine which securities should be
bought and sold for certain series of the Trust. Citizens Advisers has given
special attention to finding people who it believes have the potential to
achieve its financial goals, as well as to respect the Trust's social mission.
GMG/Seneca Capital Management L.P.:
GMG/Seneca Capital Management L.P. ("GMG/Seneca") is the Sub-Adviser to both the
Muir Portfolio and the Income Portfolio. GMG/Seneca also serves as Sub-Adviser
to Working Assets Money Market Portfolio, the Eofund and Citizens Emerging
Growth Portfolio, which are all series of the Trust. A registered investment
adviser established in 1990, GMG/Seneca and a related entity, GMG/Seneca Capital
Management LLC, manage over $4 billion for their clients, which include the Muir
and Income Portfolios. The GMG/Seneca offices are located at 909 Montgomery
Street, San Francisco, California. GMG/Seneca has significant experience in
fixed income and equity management.
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GMG/Seneca Capital Management L.P. is organized as a California limited
partnership. It has three general partners, Gail Seneca, William K. Weinstein,
and Philip C. Stapleton. Prior to starting GMG/Seneca, Gail Seneca was employed
by Wells Fargo Bank as senior investment officer where she headed the fixed
income management group and co-chaired the equity strategy committee.
Gail Seneca is the portfolio manager for both the Muir Portfolio and the Income
Portfolio. Thus, there will be no change in portfolio management as a result of
this reorganization.
Citizens Advisers:
The Management Agreement with Citizens Advisers specifies that they be paid fees
based upon average annual net assets and they in turn pay fees to the
Sub-Adviser, as described below:
Portfolio Adviser Sub-Adviser
- ----------------------------------------------------------
Muir Portfolio .65% .175%
Income Portfolio .65% .17%
In exchange for these fees, Citizens Advisers agrees to provide all office
space, facilities, equipment, and personnel necessary to do its job as
investment adviser. Citizens Advisers is also responsible for all fees paid to
Sub-Advisers.
Citizens Advisers also provides administrative services to the Trust under a
separate Administrative Contract. Under this contract, Citizens Advisers
provides general administrative services, shareholder servicing and
sub-accounting, telephone services and services relating 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 and
are memorialized in the Administrative Contract. For the year ending June 30,
1996, the Trust paid Citizens Advisers $583,266 for administrative services
under the contract for all series of the Trust. The individual series of the
Trust pay all expenses not expressly assumed by Citizens Advisers. These include
interest, taxes, audit and legal fees, custodian and transfer agent charges,
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 series, the staff at Citizens Advisers will allocate
it among the series in a reasonable manner.
12b-1 Fees:
The Trust has a 12b-1 plan. The plan allows the Trust to reimburse Citizens
Securities and other distributors of the Trust's shares for sales related costs
up to 0.25% of the average annual net assets of each series of the Trust, with
the exception of the Eofund.
Sometimes Citizens Securities makes additional promotional expenditures that are
not reimbursed under the 12b-1 plan. These may include paying broker dealers who
employ sales people, called registered representatives, additional fees beyond
the 12b-1 fees or giving them non-cash promotional incentives such as trips or
merchandise for special promotional purposes. Citizens Securities may also make
expense reimbursements to non-dealers for meetings, sales contests, advertising,
and/or other valid promotional purposes.
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Any promotional expenses beyond the limits of the 12b-1 plan will be paid for by
Citizens Securities.
Trustees:
Citizens Trust is governed by a group of Trustees. Their names, dates of
birth and occupations are as follows. The Trustees who are "interested persons,"
as defined in the 1940 Act ("Interested Trustees"), are indicated by an
asterisk.
William D. Glenn, II (9/9/48), 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, California 94903.
Azie Taylor Morton (2/1/36), incoming Chair of the Board as of July 1,
1997, Audit Committee Chair and 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 30 year
career began as a teacher at the State School for Girls in Crockett, Texas. She
went on to work at the AFL-CIO, the White House Conference on Civil Rights and
the 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 - 1992 she was
Director of Resource Coordination at Reading is Fundamental, Inc. She is
currently an investment adviser. Address: 10910 Medfield Court, Austin, Texas
78739.
Sophia Collier* (3/13/56), President, Treasurer and Trustee, is President
and Principal owner of Citizens Advisers. She also serves in an advisory
capacity to RhumbLine 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 unhealthy mass market sodas. Ms. Collier and her partner sold
American Natural Beverage in 1989. Address: One Harbour Place, Portsmouth, New
Hampshire 03801.
Juliana Eades (2/2/53), Trustee, has served as President of the $6
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, the Society for the Protection of New Hampshire Forests, and serves on
the Board of the New Hampshire Charitable Foundation. Address: 79 South State
Street, Concord, New Hampshire 03301.
Lokelani Devone (4/8/57), Trustee, is the Assistant General Counsel at
DFS Group Limited, an international retail business group where she has worked
since 1989. Prior to that, she was an aide to Congresswoman Nancy Pelosi,
D-California. She is also a member of the Board of Continuum HIV Day Services in
San Francisco, where Board
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Chair William Glenn is employed. Ms. Devone is a graduate of the University of
California at Berkeley (B.A. 1978) and the University of California, Davis (J.D
1983) and was an International Research Fellow at the University of Tokyo from
1983 to 1985. Address: 525 Market Street, 33rd floor, San Francisco, California
94105.
J.D. Nelson* (3/28/38), Trustee, is the founder and C.E.O. of RhumbLine
Advisers Corp., an 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 12 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 (8/17/52), Trustee, is the former Director of the Public
Service and Social Change Program at Hampshire College. 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 a Non-Nuclear
World. Address: 16119 Oak Manor Drive, Tampa, Florida 33624.
Our Board of Trustees functions with a Nominating Committee comprised of
the whole Board, but pursuant to our Distribution Plan, we have agreed that
Trustees who are not "interested persons" of the Trust, as defined in the 1940
Act, 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.
The following compensation table discloses the aggregate compensation from the
Trust for services provided through June 30, 1997.
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name of Person and Position Aggregate Compensation from The Trust
- --------------------------------------------------------------------------------
Azie Taylor Morton $4,514.80
- --------------------------------------------------------------------------------
Juliana Eades $4,500.00
- --------------------------------------------------------------------------------
William D. Glenn, Jr. $6,304.90
- --------------------------------------------------------------------------------
Ada Sanchez $4,000.00
- --------------------------------------------------------------------------------
Lokelani Devone $3,500.00
- --------------------------------------------------------------------------------
Sophia Collier* 0
- --------------------------------------------------------------------------------
J.D. Nelson* 0
- --------------------------------------------------------------------------------
Wilma Mankiller** $500.00
- --------------------------------------------------------------------------------
17
<PAGE>
*Sophia Collier and J.D. Nelson are Interested Trustees and received no
compensation from Citizens Trust.
**Wilma Mankiller is no longer a Trustee.
Trustees received no further fees from the fund complex. Each Trustee is a
Trustee of a total of seven series Portfolios of Citizens Trust, two of which
have an additional class of shares.
The Trustees who are not "interested persons" received aggregate fees from the
Trust of $23,319.70 for services provided through June 30, 1997 and also were
reimbursed for out of pocket expenses.
VOTING INFORMATION
This Combined Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Trust's Board of Trustees for use at the
Meeting to be held on September 10, 1997 at the offices of the Trust, One
Harbour Place, Suite 525, Portsmouth New Hampshire, at 10:30 am EDT.
Only shareholders of record at the close of business on June 12, 1997 (the
"Record Date") will be entitled to vote at the Meeting or any adjournments
thereof. On that date, there were outstanding and entitled to be voted 711,427
shares of the Muir Portfolio.
As of the Record Date the officers and Trustees of the Trust beneficially owned
as a group less than 1% of the outstanding shares of the Muir Portfolio and the
Income Portfolio. To the best knowledge of the Trust, as of the Record Date, no
shareholders or "group" (as the term is defined in section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) owned
beneficially or of record more than 5% of the outstanding shares of the Muir
Portfolio or the Income Portfolio.
Holders of each share or fraction thereof are entitled to one vote or fraction
thereof. Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon, or if no specification is made, the
persons named as proxies will vote in favor of the proposal set forth in the
Notice of Meeting. Broker non-votes or abstentions are counted for the purpose
of determination of a quorum and will be considered to be votes against the
proposals. Proxies may be revoked at any time before they are exercised by a
signed writing delivered at the Meeting or filed with the shareholder's
Shareholder Servicing Agent which is the agent of record with respect to the
shares represented by the proxy.
It is expected that the solicitation of proxies will be primarily by mail and
telephone. The Trust's officers and service contractors also may solicit proxies
by telephone, telegraph or personal interview.
Expenses of the shareholders meeting, mailing, and all other expenses related to
the Meeting (estimated to be approximately $15,000) will be paid by the
reorganized Income Portfolio. If the reorganization fails to achieve an
affirmative vote, these expenses will be borne by Citizens Advisers. In
addition, the Income Portfolio will bear all share registration expenses arising
in connection with the reorganization.
18
<PAGE>
If the accompanying proxy is executed and returned in time for the Meeting, the
shares covered thereby will be voted in accordance with the proxy on all matters
that may properly come before the Meeting (or any adjournments thereof).
Shareholder and Board Approvals:
The Plan (and the transactions contemplated therein) are being submitted for
approval at the Meeting by an affirmative vote of the holders of more than 50%
of the outstanding shares of the Muir Portfolio entitled to vote in accordance
with the provisions of the Trust's Declaration of Trust and the requirements of
the 1940 Act.
The vote of the shareholders of the Income Portfolio is not being solicited,
since their approval or consent is not necessary for the reorganization.
The Plan of Reorganization was approved by the Trust's Board of Trustees on May
5, 1997.
Appraisal Rights:
Shareholders are not entitled to any rights of share appraisal under the Trust's
Declaration of Trust or under the laws of the Commonwealth of Massachusetts in
connection with the reorganization. Shareholders have, however, the right to
redeem from the Trust their Muir Portfolio shares at net asset value until the
Effective Time of the Reorganization, and thereafter shareholders may redeem
from the Income Portfolio the shares acquired by them in the reorganization at
net asset value in the manner described in the prospectus for the Income
Portfolio.
Quorum:
In the event that a quorum is not present at the Meeting, or in the event that a
quorum is present at the Meeting but sufficient votes to approve the Plan are
not received, the persons named as proxies, or their substitutes, may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of a majority of
the shares represented at the Meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies which they are
entitled to vote FOR the Plan in favor of such adjournments, and will vote those
proxies required to be voted AGAINST such proposal against any adjournment. A
quorum is constituted by the presence in person or by proxy of the holders of
more than 50% of the outstanding shares of the Portfolio entitled to vote at the
Meeting.
Annual Meetings:
The Trust does not presently intend to hold annual meetings of shareholders for
the election of Trustees and other business unless and until such time as less
than a majority of the Trustees holding office have been elected by the
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Under certain circumstances,
however, shareholders have the right to call a meeting of shareholders to
consider the removal of one or more Trustees and such meetings will be called
when requested by the holders of record of 10% or more of the Trust's
outstanding shares. To the extent required by law and the Trust's undertaking
with the SEC, the Trust will assist in shareholder communications in such
matters. In addition, the Trust will hold special meetings of shareholders when
required under the 1940 Act.
19
<PAGE>
DESCRIPTION OF THE REORGANIZATION
The terms and conditions for the reorganization are contained in the Plan.
Significant provisions of the Plan are summarized below. For full details please
read the complete Plan, a copy of which is attached as Exhibit 1 to this
Combined Proxy Statement/Prospectus.
The Muir Portfolio will transfer assets and liabilities to the Income Portfolio
in exchange for shares in the Income Portfolio.
The Plan provides that at the Effective Time of the Reorganization all of the
assets and liabilities of the Muir Portfolio will be transferred to the Income
Portfolio. In exchange for the transfer of the assets and liabilities of the
Muir Portfolio, the Income Portfolio will simultaneously issue at the Effective
Time of the Reorganization full and fractional shares of the Income Portfolio.
The number of shares so issued will be equal in value to the value of the shares
of beneficial interest of the Muir Portfolio that are outstanding immediately
prior to the Effective Time of the Reorganization.
Shareholders of the Muir Portfolio will receive shares of the Income Portfolio.
Following the transfer of assets and liabilities in exchange for Income
Portfolio shares, the Trust will distribute the shares of the Income Portfolio
so received to the shareholders of the Muir Portfolio. Each shareholder owning
shares of the Muir Portfolio at the Effective Time of the Reorganization will
receive an equivalent dollar value of Income Portfolio shares for each Muir
Portfolio share held by the shareholder, plus the right to receive any unpaid
dividends or distributions which were declared prior to the Effective Time of
the Reorganization on Muir Portfolio shares with a record date and ex-dividend
date prior to the Effective Time of the Reorganization.
The stock transfer books of the Trust with respect to the Muir Portfolio will be
permanently closed as of the close of business on the day immediately preceding
the Effective Time of the Reorganization. Redemption requests received
thereafter by the Trust with respect to the Portfolio will be deemed to be
redemption requests for shares of the Income Portfolio to be distributed to the
former Muir Portfolio shareholders.
The Plan contemplates that advisory and administration services will continue to
be provided to the Income Portfolio after the Effective Time of the
Reorganization by Citizens Advisers as described in the accompanying Prospectus.
The reorganization is subject to the following conditions:
o Approval of the Plan and the transactions contemplated therein by the
shareholders of the Muir Portfolio.
o The receipt of a legal opinion described in Section 4 of the Plan (which
includes the opinion of counsel that Income Portfolio shares issued to Muir
Portfolio shareholders in accordance with the terms of the Plan will be
validly issued, fully paid and non-assessable) except as otherwise
described in this Combined Proxy Statement/Prospectus.
20
<PAGE>
Assuming satisfaction of the conditions in the Plan, the Effective Time of the
Reorganization will be on September 11, 1997 or such other date as is
established by the Trust.
The Trustees retain the option to cancel or modify the Plan.
The Plan and the reorganization described herein may be abandoned at any time
prior to the Effective Time of the Reorganization upon the concurring votes of a
majority of the Board of Trustees. The Plan provides further that at any time
prior to or (to the fullest extent permitted by law) after approval of the Plan
by the shareholders of the Muir Portfolio the Trustees with or without the
approval of their shareholders, may amend any of the provisions of the Plan.
Strategy to effect a transition from the Muir Portfolio to the Income Portfolio:
As is described in this proxy, the Income Portfolio will receive all assets and
liabilities of the Muir Portfolio after the reorganization. Because it is
unlikely that the securities currently held by the Muir Portfolio will be
suitable for the Income Portfolio, it is expected that the Muir Portfolio will
liquidate substantially all of its securities prior to the reorganization.
Thus, the Muir Portfolio primarily will hold cash prior to the reorganization.
FACTORS CONSIDERED BY THE BOARD OF TRUSTEES BEFORE
RECOMMENDING THIS TRANSACTION
Based upon their evaluations of the relevant information presented to them, and
in light of their fiduciary duties under federal and state law, the Board of
Trustees of the Trust has unanimously determined that the proposed
reorganization is in the best interests of the shareholders of the Muir
Portfolio, and recommends the approval of the Plan of Reorganization by such
shareholders at the Meeting.
The following is a summary of the information that was presented to, and
considered by, the Board in making its determination.
At a meeting held on May 5, 1997 the Board of Trustees discussed and considered
the proposed reorganization.
During the course of their review and deliberation, the Trustees evaluated the
potential benefits, detriments, costs and alternatives available to the Muir
Portfolio and its shareholders. The Trustees received from Citizens Advisers
written material containing relevant information about the Income Portfolio and
the proposed reorganization, including fee structure and expense ratio
information.
Citizens Advisers also provided the Trustees with analyses of the benefits to
the shareholders of the Muir Portfolio resulting from the proposed
reorganization, as well as other information relevant to the consideration of
the proposed reorganization.
21
<PAGE>
Cost considerations:
The Trustees of the Trust reviewed the terms of the Plan as it would impact
shareholders of both the Muir Portfolio and the Income Portfolio. This review
included both direct and indirect expenses, such as the expected costs of the
reorganization to be borne by the Income Portfolio, and the anticipated expenses
of the Income Portfolio after the reorganization.
The Trustees evaluated the contractual expense levels of the Income Portfolio
and compared such expense levels with the current actual and contractual expense
levels of the Muir Portfolio. They noted favorably that the combined contractual
costs (including advisory, administration, and distribution fees) of the Income
Portfolio were lower overall than those of the Muir Portfolio.
The Trustees also considered the additional efficiencies and benefits that were
expected to result from the reorganization of the Muir Portfolio. These benefits
include greater potential asset growth with resulting economies of scale, such
as lower per share professional, registration and other non-management expenses;
greater portfolio trading efficiencies, such as quantity discounts, lower
transfer agency costs, better securities execution and reduced portfolio
volatility resulting from shareholder purchase and redemption activity and
broader portfolio diversification.
Investment Considerations:
The Trustees considered the compatibility of the Income Portfolio's investment
objectives, policies, restrictions and portfolio with those of the Muir
Portfolio. It was favorably noted that both Citizens Advisers and GMG/Seneca
would continue as investment manager and Sub-Adviser, respectively. The Trustees
noted that both the Muir Portfolio and the Income Portfolio sought income from
investments selected according to both financial criteria and criteria of social
responsibility. They recognized, however, that the Income Portfolio did not
share the Muir Portfolio's objective of "high current income exempt from both
federal and California state income tax." In this regard, they noted in their
deliberations that the Income Portfolio was expected to offer a higher, although
taxable, yield and a lower expense ratio than the Muir Portfolio. The Trustees
also considered the tax consequences of the proposed reorganization, including
the fact that the reorganization would not be effected on a tax-free basis and
that, in particular, substantially all of the Muir Portfolio's securities were
anticipated to be sold prior to the reorganization, resulting in realization by
both the Muir Portfolio and its shareholders of taxable gain or loss. The
Trustees considered the amounts of gain expected to be realized both by the Muir
Portfolio and by shareholders of the Muir Portfolio in connection with the
proposed reorganization.
The Trustees also considered presentations by representatives of Citizens
Advisers regarding the expected future prospects of the Income Portfolio. In
this regard, a significant overlap in marketing areas and efforts of the Muir
Portfolio and the Income Portfolio was noted. The Trustees also favorably noted
that Citizens Advisers would continue the same social investment criteria for
the Income Portfolio as the Muir Portfolio had used in the past. Overall, the
Trustees concluded that, while the Income Portfolio would not continue the Muir
Portfolio's objective of seeking income exempt from federal and California state
income tax, and while the sales of securities by the Muir Portfolio prior to the
reorganization and the reorganization itself would be taxable events which could
have adverse consequences to shareholders of the Muir Portfolio, the benefits of
the reorganization as noted above outweighed the possible detriments of the
reorganization. The Trustees determined that, were the reorganization not to be
carried through, the most
22
<PAGE>
likely alternative, given the relatively small size of the Muir Portfolio, would
be a termination and liquidation of the Muir Portfolio, which would result in
similar tax consequences to shareholders.
Based upon their evaluation of the relevant information presented to them, and
in light of their fiduciary duties under federal and state law, the Trust's
Board of Trustees, including all members who were not "interested persons" of
the Trust as that term is defined in the 1940 Act, unanimously determined that
the proposed reorganization (1) was in the best interests of the Trust and the
Muir Portfolio and that (2) the interests of existing shareholders of the Muir
Portfolio would not be diluted as a result of their effecting the transaction,
and therefore recommended the approval of the Plan by shareholders at the
Meeting.
ADDITIONAL INFORMATION ABOUT THE TRANSACTION
Capitalization:
The following pages provide pro forma combination statements of assets and
liabilities, of operations, and of investments for the Muir Portfolio and the
Income Portfolio as of December 31, 1996.
23
<PAGE>
Pro-Forma Combination: Citizens Income Portfolio and Muir California Tax-Free
Income Portfolio Statement of Assets and Liabilities-December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Muir California
Tax-Free Citizens
Income Income Pro-Forma Combined
Portfolio Portfolio Adjustments Pro-Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market value
(Identified cost $11,550,087 and $33,549,880) $ 11,810,701 $ 34,114,387 ($11,810,701) $ 34,114,387
Cash -- 741 11,810,701 11,811,442
Receivable for:
Interest 211,633 565,965 -- 777,598
Dividends -- -- -- --
Fund shares sold -- -- -- --
Investment securities sold -- -- -- --
Other -- 3,920 -- 3,920
Deferred organization costs -- -- --
Prepaid expenses 109,588 4,334 8,552** 122,474
------------ ------------ ------------ ------------
Total Assets 12,131,922 34,689,347 8,552 46,829,821
------------ ------------ ------------ ------------
LIABILITIES
Payables:
Investment securities purchased -- -- -- --
Capital shares redeemed -- -- -- --
Distributions 38,352 175,861 -- 214,213
Accrued expenses -- 1,549 15,000 * 16,549
------------ ------------ ------------ ------------
Total Liabilities 38,352 177,410 15,000 230,762
------------ ------------ ------------ ------------
NET ASSETS
Retail Shares
Net assets $ 12,093,570 $ 34,511,937 ($6,448) $ 46,599,059
Shares outstanding 754,548 3,278,486 -- 4,427,323
Net asset value (offering and redemption price) $ 16.03 $ 10.53 -- $ 10.53
============ ============ ============ ============
NET ASSETS
At December 31, 1996 net assets consisted of:
Paid-in capital $12,197,620 $ 34,292,301 -- $ 46,489,920
Undistributed net investment income 76,939 (1,343) (6,448) 69,148
Accumulated realized gain (loss) (441,603) (343,528) -- (785,131)
Net unrealized appreciation of investments 260,615 564,507 -- 825,122
------------ ------------ ------------ ------------
$ 12,093,570 $ 34,511,937 ($6,448) $ 46,599,059
</TABLE>
* Expected cost of the shareholder meeting and the reorganization
**To reflect the economies realized through the reorganization
24
<PAGE>
Pro-Forma Combination: Citizens Income Portfolio and Muir California Tax-Free
Income Portfolio Statement of Operations - December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Muir California
Tax-Free Citizens
Income Income Pro-Forma Combined
Portfolio Portfolio Adjustments Pro-Forma
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Investment Income
Interest $ 330,043 $ 1,297,662 -- $ 1,627,705
Dividends 5,480 -- -- 5,480
----------- ----------- ----------- -----------
Total investment income 335,523 1,297,662 -- 1,633,185
----------- ----------- ----------- -----------
Expenses
Investment management fees 40,772 109,688 -- 150,460
Transfer agent fees 16,247 22,510 (6,260)* 32,497
Custody and accounting fees 18,196 14,361 (15,700)* 16,857
Distribution expense 15,682 42,188 -- 57,870
Administration expense 17,152 35,404 (4,789)* 47,767
Legal & audit fees 3,067 3,756 (3,000)* 3,823
Registration fees 314 5,471 (300)* 5,485
Trustees' fees and expenses 3,915 2,759 (3,198)* 3,476
Printing and postage 2,855 2,285 (2,057)* 3,083
Dues 551 1,122 (550)* 1,123
Insurance 120 207 (120)* 207
Other expenses 19,385 16,885 (15,183)* 21,087
Amortization of organization costs -- -- -- --
----------- ----------- ----------- -----------
Total expenses 138,256 256,636 (51,157) 343,735
Fee Reductions (18,196)** (14,361)** 15,700** (16,857)**
Reimbursement by Adviser (26,936) -- 26,936*** --
----------- ----------- ----------- -----------
Net expenses 93,124 242,275 (8,521)* 326,878
----------- ----------- ----------- -----------
Net investment income 242,399 1,055,387 8,521* 1,306,307
----------- ----------- ----------- -----------
Realized and Unrealized Gain on Investments
Realized gain on investments 94,724 87,772 -- 182,496
Increase in unrealized
appreciation on investments 207,806 702,561 -- 910,367
----------- ----------- ----------- -----------
Net realized and unrealized gain
on investments 302,530 790,333 -- 1,092,863
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations $ 544,929 $ 1,845,720 $ 8,521* $ 2,399,169
=========== =========== =========== ===========
</TABLE>
* To reflect the economies realized through the reorganization
** To reflect reduction in custody fees due to earnings credits
***No reimbursement is necessary in the Combined Pro-Forma Portfolio.
25
<PAGE>
Pro-Forma Combination: Citizens Income Portfolio and Muir California Tax-Free
Income Portfolio
Statement of Investments - December 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Muir California
Principal Security Description Citizens Income Tax-Free Pro-Forma* Combined
Amount Rate, Maturity Date (yy/mm/dd) Portfolio Income Portfolio Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Amusements 7.65%
1,000,000 J.Q. Hammons Hotels 987,500 -- -- 987,500
8.875%,04/02/15
1,000,000 Royal Caribbean 1,072,500 -- -- 1,072,500
11.375%,02/05/15
1,400,000 Time Warner, Inc. 1,506,876 -- -- 1,506,876
9.130%,13/01/15
----------------------------------------------------------
3,566,876 -- -- 3,566,876
----------------------------------------------------------
Broadcasting & Communications 6.10%
1,500,000 Continental Cablevision, Inc. 1,604,778 -- -- 1,604,778
8.300%-10.625%, 02/06/15-06/05/15
200,000 Cablevision Inds. Corp. 211,750 -- -- 211,750
10.750%, 02/01/30
250,000 Jones Intercable, Inc. 272,500 -- -- 272,500
11.500%, 04/07/15
750,000 Sullivan Broadcasting 755,625 -- -- 755,625
10.250%, 05/15/15
----------------------------------------------------------
2,844,653 -- -- 2,844,653
----------------------------------------------------------
Computer, Office & Business Equipment 3.50% ----------------------------------------------------------
1,600,000 Corporate Express, Inc. 1,630,000 -- -- 1,630,000
9.130%, 04/03/15 ----------------------------------------------------------
Financial Services & Insurance 11.86%
1,025,000 Countrywide Funding Corp. 1,033,645 -- -- 1,033,645
6.875%-8.250%, 02/07/15-26/12/15
851,857 DLJ Mortgage Acceptance Corp. 829,326 -- -- 829,326
6.620%, 09/05/25
700,000 Donaldson, Lufkin & Jenrette, Inc. 682,150 -- -- 682,150
6.875%, 05/11/01
100,000 First Chicago NBD Corp. 102,009 -- -- 102,009
7.250%, 04/08/15
161,699 Green Tree Financial Corp. 162,188 -- -- 162,188
5.600%, 19/04/15
</TABLE>
26
<PAGE>
Statement of Investments - December 31, 1996
<TABLE>
<CAPTION>
Muir California
Principal Security Description Citizens Income Tax-Free Pro-Forma* Combined
Amount Rate, Maturity Date (yy/mm/dd) Portfolio Income Portfolio Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1,500,000 Lehman Brothers, Inc. 1,532,221 -- -- 1,532,221
5.040%-8.050%,03/12/15-19/01/15
50,000 Mbia, Inc. 54,070 -- -- 54,070
9.000%,01/02/15
1,000,000 Secured Finance Dels 1,132,500 -- -- 1,132,500
9.050%, 04/12/15
----------------------------------------------------------
5,528,108 -- -- 5,528,108
----------------------------------------------------------
Healthcare 2.80%
50,000 Kaiser Foundation Health Plan 55,136 -- -- 55,136
9.000%, 01/11/01
150,000 Manor Care, Inc. 159,375 -- -- 159,375
9.500%, 02/11/15
1,000,000 Quorum Health Group, Inc. 1,089,063 -- -- 1,089,063
8.750%-11.875%, 02/12/15-05/11/01
----------------------------------------------------------
1,303,574 -- -- 1,303,574
----------------------------------------------------------
Industrial Products 1.75% ----------------------------------------------------------
750,000 MVE, Inc. 817,500 -- -- 817,500
12.500%, 02/02/15 ----------------------------------------------------------
Manufacturing 4.23%
900,000 Scotsman Group, Inc. 918,000 -- -- 918,000
9.500%, 00/12/15
1,000,000 Tyco Toys, Inc. 1,055,000 -- -- 1,055,000
10.125%, 02/08/15
----------------------------------------------------------
1,973,000 -- -- 1,973,000
----------------------------------------------------------
Real Estate 9.70%
1,300,000 ERP Operations Ltd Partnership 1,314,274 -- -- 1,314,274
7.570%, 26/08/15
1,000,000 Merry Land & Investment, Inc. 988,540 -- -- 988,540
6.875%, 03/11/01
1,000,000 Property Trust Of America 943,650 -- -- 943,650
6.875%, 08/02/15
</TABLE>
27
<PAGE>
Statement of Investments - December 31, 1996
<TABLE>
<CAPTION>
Muir California
Principal Security Description Citizens Income Tax-Free Pro-Forma* Combined
Amount Rate, Maturity Date (yy/mm/dd) Portfolio Income Portfolio Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
500,000 Security Cap Pac, Inc. 492,385 -- -- 492,385
7.900%, 16/02/15
800,000 Weingarten Realty 780,824 -- -- 780,824
6.900%, 08/11/24
----------------------------------------------------------
4,519,673 -- -- 4,519,673
----------------------------------------------------------
Retail 10.01%
250,000 Baby Superstore, Inc. 243,438 -- -- 243,438
4.875%, 00/10/01
1,500,000 Hook SuperX, Inc. 1,595,625 -- -- 1,595,625
10.125%, 02/06/01
1,500,000 Orchard Supply 1,593,750 -- -- 1,593,750
9.375%, 02/02/15
472,000 Smiths Food And Drug 522,740 -- -- 522,740
11.250%, 07/05/15
679,000 Vons Companies, Inc. 709,555 -- -- 709,555
9.625%, 02/04/01
----------------------------------------------------------
4,665,108 -- -- 4,665,108
==========================================================
26,848,491 -- -- 26,848,491
==========================================================
SHORT TERM INVESTMENTS 1.08%
204,000 State Street Bank & Trust 204,000 -- -- 204,000
5.150%, 97/01/02
General Electric Capital Corp. 299,895 299,895
6.250% 97/01/03
----------------------------------------------------------
503,895 -- -- 503,895
----------------------------------------------------------
LONG TERM U.S. GOVERNMENT
14.51%
1,600,000 Federal Home Loan Mortgage Corp. 1,500,407 -- -- 1,500,407
6.800%-8.750%, 05/06/15-18/04/15
4,500,000 Federal National Mortgage Assn. 3,537,272 -- -- 3,537,272
6.500%-8.000%, 06/07/25-24/01/25
3,865,000 Government National Mortgage Assn. 1,724,322 -- -- 1,724,322
7.000%-9.500%, 07/04/15-22/10/15
----------------------------------------------------------
6,762,001 -- -- 6,762,001
----------------------------------------------------------
</TABLE>
28
<PAGE>
Statement of Investments - December 31, 1996
<TABLE>
<CAPTION>
Muir California
Principal Security Description Citizens Income Tax-Free Pro-Forma* Combined
Amount Rate, Maturity Date (yy/mm/dd) Portfolio Income Portfolio Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL SECURITIES
Affordable Housing 5.00%
370,000 California Housing Finance -- 388,612 (388,612) --
Agency Revenue 00/02/01, AA-
740,000 California Housing Finance -- 774,155 (774,155) --
Agency Revenue 05/02/01, AA-
500,000 California Housing Finance -- 512,889 (512,889) --
Agency Revenue 00/08/01, AA-
100,000 California State Housing -- 100,926 (100,926) --
07/04/01, A+
10,000 Los Angeles CA Single Family Homes -- 10,604 (10,604) --
05/06/01, AAA
35,000 Riverside County CA Single -- 36,426 (36,426) --
Family Mortgage 16/10/01, AAA
500,000 Thousand Oaks CA Redevelopment -- 508,184 (508,184) --
Agency Tax 10/12/01, AAA
----------------------------------------------------------
-- 2,331,796 (2,331,796) --
----------------------------------------------------------
Airports 1.12% ----------------------------------------------------------
500,000 Los Angeles CA Dept. Of Airports -- 522,151 (522,151) --
09/05/15, AAA ----------------------------------------------------------
Education & Health 4.02%
500,000 Duarte CA Certificate of -- 502,834 (502,834) --
Participation 13/04/01, BAAA1
500,000 Escondido CA United High School Dist. -- 520,614 (520,614) --
09/11/01, AAA
250,000 Madera County CA Certificate -- 279,981 (279,981) --
of Participation 10/03/15, AAA
500,000 University of California Revenue -- 568,310 (568,310) --
Bonds 16/09/01, AAA
----------------------------------------------------------
-- 1,871,739 (1,871,739) --
----------------------------------------------------------
Environmental 14.85%
500,000 Burbank CA Waste Water Treatmnt -- 497,683 (497,683) --
Revenue 15/06/01, AAA
</TABLE>
29
<PAGE>
Statement of Investments - December 31, 1996
<TABLE>
<CAPTION>
Muir California
Principal Security Description Citizens Income Tax-Free Pro-Forma* Combined
Amount Rate, Maturity Date (yy/mm/dd) Portfolio Income Portfolio Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
550,000 California State Public -- 548,141 (548,141) --
Works Lease 14/06/01, Ap
500,000 East Bay CA Municipal Utilities -- 469,745 (469,745) --
Dist. 001 15/04/01, AA
440,000 Kings County CA Waste Mgmt. -- 456,742 (456,742) --
Authority 99/10/01, BBB+
500,000 Los Angeles CA Waste Water -- 483,022 (483,022) --
Systems Revenue 12/02/01, AAA
500,000 Los Angeles County CA Public Works -- 513,684 (513,684) --
15/10/01, AA
300,000 Ontario CA Redevelopment Financing -- 350,492 (350,492) --
Auth. Revenue 11/08/01, AAA
500,000 Metropolitan Water District -- 478,864 (478,864) --
Southern CA 13/07/01, AAA
500,000 Midpeninsula Regional Open Space -- 516,341 (516,341) --
District 14/09/01, AAA
500,000 Mountain View CA Shoreline Park -- 511,097 (511,097) --
10/08/01, AAA
515,000 Pasadena CA Waste Water Revenue -- 477,864 (477,864) --
18/07/01, AA
600,000 Santa Margarita Dana Point CA -- 592,631 (592,631)
14/07/01, AAA
500,000 Southgate CA Public Financing -- 510,616 (510,616) --
Authority 09/10/01, AAA
500,000 Tulare CA Sewer Revenue -- 511,225 (511,225) --
12/11/15, AAA
----------------------------------------------------------
-- 6,918,145 (6,918,145) --
==========================================================
SHORT TERM
MUNICIPAL INVESTMENTS 0.36%
7,786 GOLDMAN SACHS ITA CALIFORNIA -- 7,786 (7,786) --
99/12/31
159,085 MUNICIPAL FUND FOR CALIFORNIA -- 159,085 (159,085) --
INVESTMENTS, INC. 99/12/31
==========================================================
-- 166,872 (166,872) --
</TABLE>
30
<PAGE>
Statement of Investments - December 31, 1996
<TABLE>
<CAPTION>
Muir California
Citizens Income Tax-Free Pro-Forma* Combined
Portfolio Income Portfolio Adjustments Pro-Forma
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investments
(Cost $45,102,226)(a) 34,114,387 11,810,701 (11,810,701) 34,114,387
Other assets, less liabilities 397,550 282,869 11,804,253 12,484,672
----------------------------------------------------------
NET ASSETS $34,511,937 $12,093,570 ($6,448) $46,599,059
==========================================================
Shares Outstanding 3,278,486 745,548 4,427,323
==========================================================
Net asset value and redemption price per share $10.53 $16.03 $10.53
==========================================================
</TABLE>
Key: (a) Cost for federal income tax purposes is the same.
(b) Source of ratings is Standard' s & Poors, Moody's or Fitch Investor
Services.
* It is anticipated that all Muir California Tax-Free Income Portfolio holdings
will be sold.
31
<PAGE>
Waivers and Reimbursements Reflected in Financial Statements:
The financial statements on the previous pages contain certain entries for
expense reimbursements. Under the terms of the Trust's management agreement with
Citizens Advisers (the "Adviser"), the Adviser is paid a monthly fee based on an
annual rate of each portfolio's average net assets. The rate is .65% both for
the Income Portfolio and the Muir Portfolio. 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: Income Portfolio, 1.75% of
the first $75 million of average net assets and 1.25% thereafter; and Muir
Portfolio, 1.55% of average net assets. The Adviser may also voluntarily reduce
its fee or waive reimbursements of distribution costs so that the expenses of a
portfolio are below such limits. Reimbursements for the period ended December
31, 1996 were $22,601 for the Muir Portfolio. (There were no waivers or
reimbursements affecting the Income Portfolio.)
MANAGER'S COMMENTS
The following comments regarding the Income Portfolio and the Muir Portfolio
have been provided by our Sub-Adviser charged with managing the portfolios. Such
information was prepared in connection with and is included within the Trust's
annual report for the fiscal year ended June 30, 1996, and the semi-annual
report for the six months ended December 31, 1996.
Citizens Income Portfolio
Sub-Adviser: GMG/Seneca Capital Management L.P.
Portfolio Manager: Gail Seneca
Objective: High current income
The Ground Rules: Invests at least 65% of its assets in taxable bonds rated as
"investment grade."
The Results: 5.71% for the six months ended 12/31/96; 4.85% for the year ended
12/31/96 and 7.09% average annual return since inception of 6/10/92. The Lehman
Government/Corporate Intermediate Index returned 4.05% for the year ended
12/31/96.
Fiscal Year 1996 Recap (period ending 6/30/96):
The Citizens Income Portfolio provided a total return of 5.48% for the year
ending 6/30/96. This return placed the Income Portfolio in the top quartile of
comparable funds according to Morningstar rankings for the one year period
ending 6/30/96, 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 denoted the top 20% in performance among comparable funds for the one year
and three year periods ending 6/30/96. These competitive results were achieved
with a lower risk strategy, focused on intermediate maturity bonds with
relatively high income payouts.*
- --------------------
*Performance data represents past performance which does not guarantee future
results. The principal value and investment return of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
32
<PAGE>
The benefits of this careful, risk averse strategy are especially obvious during
periods of great volatility in the markets. Fiscal year 1996 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.
The bulk of our analytic work is the identification of bonds which can provide a
steady, long term, and high income stream. During fiscal year 1996, 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
Income 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 during fiscal year 1996 was
below average. This return reflected 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 Income Portfolio thus
far.
Six Month Recap (period ending 12/31/96):
Bond market action in 1996 was extremely volatile. Long term interest rates rose
from less than 6% at the start of the year to over 7% by fall. While this is a
swing of only one percent, readers of our prospectus will recall that the price
of bonds varies inversely with interest rates. For longer term bonds a 1% swing
can cause a change of 15% or more in the price of a bond.
This very difficult environment for bond investors produced a below average
return, of just 2.9%, for the broad bond market, as measured by the Lehman
Government/Corporate Index. The Citizens Income Portfolio outperformed the broad
market, returning 4.85% for the year.
The portfolio achieved these strong results by emphasizing high current income.
Instead of attempting to time the swings in the market, the Citizens Income
Portfolio maintains an intermediate term maturity exposure, and over long
periods, realizes most of its return through current income. Our approach seeks
to ensure that investors will receive a high and steady income stream despite
volatile market conditions.
As noted above, the bulk of our analytic work concentrates on the identification
of bonds which can provide a steady, high income stream. In 1996, the portfolio
invested mainly in corporate bonds and mortgage backed securities. Some of the
best performers over the second half of 1996 included Smiths Food and Drug, MVE
Inc., Orchard Supply and Hardware (purchased by Sears Roebuck and Co.), and
Weingarten Realty Investors. As of 12/31/96 our top holdings included mortgage
backed bonds issued by FHLMC, FNMA and GNMA, as well as corporate issues such as
Corporate Express, Continental Cablevision, Equity Residential Properties,
Orchard Supply and Hook Super-X.
33
<PAGE>
Market volatility will continue in 1997, but we believe rates will probably
fluctuate within a fairly tight range between 6% and 7.25%. Inflation appears
steady at about 3% in the U.S., and has fallen to even lower levels in other
industrialized countries. "Real" or inflation adjusted returns from bonds at 6%
- - 7.25% are therefore quite attractive. Our approach will remain focused on
providing above market returns through the disciplined, low risk strategy which
has proven so beneficial for the Income Portfolio thus far.
[GRAPHIC OMITTED]
Solid rule -- Citizens Income Portfolio
Dashed rule -- Lehman Government/Corporate Intermediate
[left axis]
14,000
13,500
13,000
12,500
12,000
11,500
11,000
10,500
10,000
[bottom axis]
6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 12/31/96
Past performance is not indicative of future results. Standardized total return:
Citizens Income, 1 year 10.45%, since inception 6.8%. Portfolio commenced
operations June 10, 1992.
The Muir California Tax Free Income Portfolio
Sub-Adviser: GMG/Seneca Capital Management L.P.
Portfolio Manager: Gail Seneca
Objective: Current income exempt from California State and Federal Taxes.
The Ground Rules: Invests up to 100% in California municipal securities.
The Results: 4.46% for the six months ended 12/31/96; 3.19% for the year ended
12/31/96 and 6.47% average annual return since inception on 6/10/91. The Lehman
7 Year Municipal Index returned 4.36% for the year ended 12/31/96.
Fiscal Year 1996 Recap (period ending 6/30/96):
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 Muir 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 Muir Portfolio was 3.95%, which translated into a very
attractive tax equivalent return of over 7.2%. (Assuming a combined Federal and
California income tax bracket of 45%.)
34
<PAGE>
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 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.
Six Month Recap (period ending 12/31/96):
The most important news for tax-free investors in 1996 was that the market for
municipal securities seems to have recovered from its long slump. At 12/31/96,
the current distribution rate for the Portfolio was 3.73%, which translates into
a very attractive tax equivalent yield of over 6.93% for California taxpayers.
This means that for the first time in several years investors in high tax
brackets who invest in taxable bonds actually may do better in tax-free bonds.
Although interest rates were volatile during the year, yields on municipal bonds
finished the year only moderately higher than at 1995 year end. More noteworthy,
however, is the fact that the elimination of the prospect of "tax reform" has
caused a pleasant upward revaluation of the municipal market.
However, not all is good news. While an improvement in the California economy
has resulted in credit upgrades by both Moody's and Standard & Poor's in the
rating of issues of the state and its agencies, concerns over the passage of
Prop. 218, which limits the flexibility of the counties to satisfy their
financial obligations, caused the rating agencies to reduce the ratings on the
large counties of San Diego and Los Angeles. To protect the portfolio from this
risk, we have paid particular attention to the essentially of the purposes for
the bonds in which we have invested, concentrating our purchases largely in
essential service revenue bonds. As additional protection, over half of the
bonds in the portfolio are insured and carry an AAA rating.
We continue to perceive good value in California municipals for high tax bracket
individuals. Stable, tax free return, produced by a risk averse strategy focused
on intermediate rather than long maturity bonds, remains our objective.
35
<PAGE>
[GRAPHIC OMITTED]
Solid rule -- Muir California Tax-Free Income Portfolio
Dashed rule -- Lehman 7 Year Municipal Index
[left axis]
16,000
15,000
14,000
13,000
12,000
11,000
10,000
9,000
[bottom axis]
2/8/94 6/30/94 6/30/95 6/30/96 12/31/96
Past performance is not indicative of future results. Standardized total return:
Muir Portfolio, 1 year 5.15%, since inception 6.59%. Portfolio commenced
operations June 10, 1991.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE MUIR AND INCOME PORTFOLIOS
The following tables provide additional financial information for the Muir
Portfolio and the Income Portfolio for the periods indicated. The information is
based on a single share outstanding throughout such periods.
36
<PAGE>
<TABLE>
<CAPTION>
CITIZENS INCOME PORTFOLIO For the six months For the year For the year For the year For the year For the year
ended 12/31/96 ended 6/30/96 ended 6/30/95 ended 6/30/94 ended 6/30/93 ended 6/30/92**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.28 $10.38 $10.04 $10.60 $10.07 $10.00
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations
Net Investment Income 0.33 0.66 0.65 0.55 0.46 0.01
Net Gain (loss) on Securities
(both realized and unrealized) 0.25 -0.10 0.36 -0.54 0.54 0.07
--------------------------------------------------------------------------------------------
Total From Investment Operations 0.58 0.56 1.01 0.01 1.00 0.08
--------------------------------------------------------------------------------------------
Less distributions
Dividends
(from net investment income) (0.33) (0.66) (0.65) (0.55) (0.47) (0.01)
Distributions
(from net realized gains) -- -- (0.02) (0.02) -- --
--------------------------------------------------------------------------------------------
Total Distributions (0.33) (0.66) (0.67) (0.57) (0.47) (0.01)
--------------------------------------------------------------------------------------------
Net Asset Value, End of Period 10.53 10.28 10.38 10.04 10.60 10.07
--------------------------------------------------------------------------------------------
Total Return 5.71% 5.48% 10.45% 5.09% 12.58% 14.60%*
Net Assets, End of Period (000's) $34,512 $32,276 $30,122 $24,410 $12,601 $ 1,030
============================================================================================
Ratio of Expenses
to Average Net Assets 1.39%* 1.43% 1.35% 1.25% 1.42% 1.75%*
Ratio of Expenses
to Average Net Assets
Prior to Reimbursement 1.39%* 1.48% 1.48% 2.01% 2.38% N/A%
Ratio of Net Income (Loss)
to Average Net Assets 6.07%* 6.26% 6.47% 5.43% 4.98% 4.38%*
Ratio of Net Income (Loss)
to Average Net Assets
Prior to Reimbursement 6.07%* 6.21% 6.34% 4.68% 4.02% N/A
Portfolio Turnover Rate 19.02% 41.36% 46.03% 52.62% 22.35% 0.00%
</TABLE>
* Annualized ** Commencement of operations June 10, 1992
37
<PAGE>
<TABLE>
<CAPTION>
MUIR CALIFORNIA TAX FREE For the six months For the year For the year For the period For the year For the year
INCOME PORTFOLIO ended 12/31/96 ended 6/30/96 ended 6/30/95 4/1/94 to 6/30/94 ended 3/31/94 ended 3/31/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.64 $15.53 $15.43 $15.71 $16.67 $15.76
--------------------------------------------------------------------------------------------
Income (loss) from
investment operations
Net Investment Income 0.30 0.62 0.67 0.18 0.84 0.90
Net Gain (loss) on Securities
(both realized and unrealized) 0.39 0.11 0.10 0.01 (0.79) 1.00
--------------------------------------------------------------------------------------------
Total From Investment Operations 0.69 0.73 0.77 0.19 0.05 1.90
--------------------------------------------------------------------------------------------
Less distributions
Dividends
(from net investment income) (0.30) (0.62) (0.67) (0.32) (0.86) (0.91)
Distributions
(from net realized gains) -- -- -- (0.15) (0.15) (0.08)
--------------------------------------------------------------------------------------------
Total Distributions (0.30) (0.62) (0.67) (0.47) (1.01) (0.99)
--------------------------------------------------------------------------------------------
Net Asset Value, End of Period 16.03 15.64 15.53 15.43 15.71 16.67
============================================================================================
Total Return 4.46% 4.71% 5.15% 5.09%* 0.04% 12.58%
Net Assets, End of Period (000's) $12,094 $13,221 $15,241 $17,276 $17,532 $15,455
============================================================================================
Ratio of Expenses
to Average Net Assets 1.53%* 1.55% 1.25% 1.25%* 0.75% 0.46%
Ratio of Expenses
to Average Net Assets
Prior to Reimbursement 1.97%* 1.87% 1.74% 1.86%* 1.62% 1.87%
Ratio of Net Income (Loss)
to Average Net Assets 3.98%* 3.98% 4.37% 4.70%* 4.98% 5.59%
Ratio of Net Income (Loss)
to Average Net Assets
Prior to Reimbursement 3.53%* 3.66% 3.88% 4.09%* 4.11% 4.18%
Portfolio Turnover Rate 48.62% 83.12% 74.94% 38.29% 31.04% 36.24%
</TABLE>
* Annualized
38
<PAGE>
Information about the Income Portfolio is included in the Prospectus dated
September 27, 1996, as amended March 28, 1997 and further amended May 1, 1997,
accompanying this Combined Proxy Statement/Prospectus, which is incorporated by
reference herein. Additional information about the Income Portfolio is included
in the Statement of Additional Information dated September 27, 1996, as amended
March 28, 1997. Additional information about both the Muir Portfolio and the
Income Portfolio is contained in the Trust's annual report for the fiscal year
ended June 30, 1996, and the semi-annual report for the period ended December
31, 1996, copies of which have been provided earlier to shareholders. Additional
copies also may be obtained without charge by writing or calling the Trust at
the address and telephone number shown on the cover page of this Combined Proxy
Statement/Prospectus.
The Trust is subject to the informational requirements of the Exchange Act and
the 1940 Act, as applicable, and, in accordance with such requirements, files
proxy materials, reports and other information with the SEC. These materials can
be inspected and copied at the Public Reference Facilities maintained by the SEC
at 450 Fifth Street, N.W. , Washington, D.C. 20549, at the offices of Citizens
Advisers listed above and at the SEC's Regional Offices at 75 Park Place, Room
1228, New York, New York 10007 and Everett McKinley Dirksen Building, 219 South
Dearborn Street, Room 1204, Chicago, Illinois 60604. Copies of such materials
can also be obtained from Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
FINANCIAL STATEMENTS AND EXPERT
Financial statements for both the Muir Portfolio and the Income Portfolio
(including assets and liabilities, operations, and investments) for the relevant
periods are contained in this Combined Proxy Statement/Prospectus in reliance
upon the reports of Tait, Weller and Baker, independent certified public
accountants, given on the authority of such firm as experts in accounting and
auditing.
OTHER BUSINESS
The Board of Trustees knows of no other business to be brought before the
Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust in writing at the address on
the cover page of this Combined Proxy Statement/Prospectus or by telephoning
(800) 223-7010.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
39
<PAGE>
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
40
<PAGE>
Exhibit 1
---------
PLAN OF REORGANIZATION
Citizens Investment Trust
May 5, 1997
Table of Contents
Item Page
- -------------------------------------------------------------------------------
1. Transfer of Assets of the Portfolio A
2. Liquidating Distributions A
3. Effective Time of the Reorganization B
4. Conditions B
5. Termination of Plan B
6. Amendment B
<PAGE>
This PLAN OF REORGANIZATION (the "Plan") is established as of this fifth day of
May 1997 by Citizens Investment Trust, a Massachusetts business trust (the
"Trust").
The Plan's purpose is to define the steps that will be followed upon the
affirmative vote of the shareholders of the Muir California Tax-Free Income
Portfolio (the "Muir Portfolio") to transfer all of the assets and liabilities
of the Muir Portfolio to the Citizens Income Portfolio (the "Income Portfolio"),
and be acquired and assumed by, the Income Portfolio as stated herein in
exchange for shares of the Income Portfolio which shall thereafter be
distributed to the shareholders of the Muir Portfolio as described in this Plan
(the "Reorganization").
1. Transfer of Assets of the Muir Portfolio.
At the Effective Time of the Reorganization as defined in Section 3, all
property of every description, and all interests, rights, privileges and
powers of the Muir Portfolio, subject to all liabilities of the Muir
Portfolio, whether accrued, absolute, contingent or otherwise (such assets
subject to such liabilities are herein referred to as the "Fund Assets"),
shall be transferred and conveyed by the Muir Portfolio to the Income
Portfolio, such that at and after the Effective Time of the Reorganization:
(a) all assets of the Muir Portfolio shall become and be the assets of
the Income Portfolio; and
(b) all debts, liabilities, obligations and duties of the Muir Portfolio
shall become the debts, liabilities, obligations and duties of the Income
Portfolio as aforesaid and may thenceforth be enforced against the Income
Portfolio to the extent as if the same had been incurred by it. It is
further understood that recourse for the liabilities of the Muir Portfolio
shall, at and after the Effective Time of the Reorganization, be limited to
the Income Portfolio.
In exchange for the transfer of the Fund Assets, the Income Portfolio shall
simultaneously issue at the Effective Time of the Reorganization to the
Muir Portfolio full and fractional shares of beneficial interest of the
Income Portfolio. The number of shares so issued by the Income Portfolio
shall be equal in value to the aggregate value of the shares of beneficial
interest of the Muir Portfolio that are outstanding immediately prior to
the Effective Time of the Reorganization.
2. Liquidating Distribution.
At the Effective Time of the Reorganization, each Muir Portfolio shall make
a liquidating distribution to its shareholders as follows. Each shareholder
of record shall be credited a number of shares of the Income Portfolio
having an aggregate value equal to the aggregate value of the shares of the
Muir Portfolio held of record by such shareholder immediately prior to the
Effective Time of the Reorganization. In addition, each shareholder of
record of the Muir Portfolio shall have the right to receive any unpaid
dividends or other distributions which were declared prior to the Effective
Time of the Reorganization as defined in Section 3 with respect to the
shares of the Muir Portfolio that are held by the shareholder at the
Effective Time of the Reorganization. The Trust shall record on the books
of the Income Portfolio the ownership of Income Portfolio shares by the
shareholders of record of the Muir Portfolio (the "Fund Record Holders").
All of the issued and outstanding shares representing interests in the Muir
Portfolio shall be cancelled on the books of the Muir Portfolio at the
Effective Time of the Reorganization, and the Trust's transfer books with
respect to the Muir Portfolio shall be closed permanently.
2
<PAGE>
3. Effective Time of the Reorganization.
Delivery of the Fund Assets and the shares of the Income Portfolio to be
issued pursuant to Section 1 and the liquidation and termination of the
Muir Portfolio pursuant to Section 2 shall take effect as of 4:00 P.M.,
EDT, on September 11, 1997, or such earlier or later date and time as may
be declared by the Board of Trustees. Such date and time at which such
actions are taken are referred to herein as the "Effective Time of the
Reorganization." To the extent any Fund Assets are, for any reason, not
transferred at the Effective Time of the Reorganization, the Muir Portfolio
shall cause such Fund Assets to be transferred in accordance with this Plan
at the earliest practicable date thereafter.
4. Conditions.
The following conditions must be met in order for the reorganization to be
completed as to the Muir Portfolio:
(a) This Plan shall have been adopted and the transactions contemplated by
this Plan shall have been approved by the shareholders of the Muir
Portfolio in the manner required by the Trust's Declaration of Trust and
applicable law.
(b) The Trust shall have received an opinion of counsel to the Trust, in
form reasonably satisfactory to it, and dated the Effective Time of the
Reorganization, substantially to the effect that the shares of the Income
Portfolio to be delivered to the Muir Portfolio as provided for by this
Agreement are duly authorized and upon delivery will be validly issued,
fully paid and non-assessable (except as otherwise disclosed in the
Registration Statement of the Trust on Form N-1A filed with the Securities
and Exchange Commission).
5. Termination of Plan.
This Plan may be terminated at any time at or prior to the Effective Time
of the Reorganization by a vote of a majority of the Trust's Board of
Trustees.
6. Amendment.
At any time prior to or (to the fullest extent permitted by law) after
approval of this Plan by the shareholders of the Portfolio, the Board of
Trustees may with or without the approval of the shareholders, amend this
Plan.
3
<PAGE>
PRELIMINARY MATERIALS
NOT FOR DISTRIBUTION
CITIZENS INVESTMENT TRUST
MUIR CALIFORNIA TAX-FREE INCOME PORTFOLIO
MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 10, 1997
The undersigned, having received the Notice of the Special Meeting of
Shareholders and the Board of Trustees' Prospectus/Proxy Statement (the "Proxy
Statement") hereby appoints Sophia Collier, William D. Glenn II and Azie Taylor
Morton or any of them, his/her true and lawful agents and proxies with full
power of substitution in each to represent the undersigned at the aforementioned
meeting of the Shareholders to be held September 10, 1997 at 10:30 a.m., EDT, at
the offices of Citizens Investment Trust, One Harbour Place, Portsmouth, New
Hampshire and at any adjournment thereof on all matters coming before the
meeting.
1. To approve the Plan of Reorganization.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
Please sign exactly as your name or names appear on the label. Joint owners each
should sign personally. Corporate accounts should be signed with full corporate
names by an officer of the corporation. Fiduciaries should give full titles as
such.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no decision is indicated, this proxy will be
voted in favor of proposal 1.
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Signature Signature (Joint Owners)
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Date Date
