April , 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.
Sincerely,
Sophia Collier
President
OUR PORTFOLIOS
E[bullet]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.
[side bar]
Citizens Trust
One Harbour Place Portsmouth, NH
03801
<PAGE>
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.
603-436-5152
800-223-7010
<PAGE>
[side bar]
Table of Contents
Dear Friend 1
Fee Information 3
Financial Highlights 4
How We Select Our Investments 6
Citizens Index Portfolio 7
Citizens Global Equity Portfolio 8
E[bullet]fund and Working Assets Money Market Portfolio 9
Citizens
Income Portfolio 10
Citizens Emerging Growth Portfolio 12
Organization and Management of
the Trust 12
How to Purchase and Redeem Shares 15
Shareholder Services 17
Mailing Address/
Wiring Instructions 18
Dividends, Distributions and Taxes 18
Trustee Profiles
William D. Glenn II, chair of the board of trustees, is the executive director
of Continuum HIV Day Services in San Francisco.
Azie Taylor Morton, audit chair, operates an investment management firm, and was
the 36th Treasurer of the United States.
*Sophia Collier is the Trust's president and principal owner of our investment
adviser, Citizens Adviser.
Lokelani Devone is assistant general counsel at DFS Group Limited, an
international retail business group.
Juliana Eades is the executive director of the New Hampshire Community Loan
Fund, one of the country's oldest local community economic development
institutions.
*J.D. Nelson is the chief executive officer of RhumbLine Advisers, an investment
advisory firm specializing in institutional and pension assets.
<PAGE>
Ada Sanchez is director of the Public Service and Social Change Program at
Hampshire College.
*Interested person (inside trustee)
Confidentiality Of Shareholder Transactions
"As Trustees we have a firm `no exceptions' policy stating that no shareholder
transaction information will be sold or shared with anyone, except as required
by law, or with the shareholder's permission."
No Load
All portfolios are no load. All portfolios, except the E[bullet]fund, are
subject to 12b-1 fees.
Minimum Initial Investment
There is a minimum investment of $2,500 for all portfolios except the
E[bullet]fund which requires an initial investment of only $1,000. You can
invest in a portfolio for as little as $250 if you set up an Automatic
Investment Plan, currently $50 per month.
Statement of Additional Information
Our detailed Statement of Additional Information, is dated the same as this
prospectus and is filed with the Securities and Exchange Commission. It is
incorporated into this prospectus by reference. If you would like a copy please
call us toll-free at 800-223-7010.
This prospectus is available electronically at: http://www.efund.com.
The Securities and Exchange Commission maintains a website (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference and other information regarding the portfolios.
<PAGE>
Escrow Policy
We reserve the right to wait up to seven business days to redeem any investments
that have been made by check or five business days for purchases made by ACH
transfer. Therefore, if you need to redeem shares within seven business days of
your purchase, please invest by wire.
FEE INFORMATION
<TABLE>
<CAPTION>
Working
Assets
Money Emerging Global
Market Income Growth Index E[bullet]fund Equity
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
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
Returned checks (All portfolios) $10.00
Outgoing wire transfer (All portfolios) $10.00
Incoming wire (All portfolios) Free
2-day electronic payment-ACH
(All portfolios) 2/month free / $0.50 each thereafter
Per check fee None
Stop payments(Working Assets & E[bullet]fund) $10.00
Checkbooks (Working Assets & E[bullet]fund) First 20 are Free
Box of 100 checks (E[bullet]fund only) $9.95
ATM cost (E[bullet]fund only) $0.65 each /Cash advance: $2.50
Annual fee for E[bullet]fund. $35.00
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[bullet]fund expenses prior to reimbursement are projected at 1.46%
<PAGE>
+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% and 2.72%, respectively.
The purpose of the above table is to assist an investor in understanding the
various costs and expenses that an investor in the portfolios will bear directly
or indirectly.
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[bullet]fund 5 16 28 63
Citizens Income Portfolio 15 45 78 171
Citizens Index Portfolio 18 55 95 206
Citizens Emerging Growth Portfolio 21 66 113 243
Citizens Global Equity Portfolio 27 83 141 299
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[bullet]fund includes the $35 annual fee for the Citizens Access Account.
<PAGE>
FINANCIAL HIGHLIGHTS
Per Share Data
Income (Loss) from Investment Operations Less Distributions
Working Assets Money Market Portfolio
1987 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00
1988 1.00 0.06 0.00 0.06 (0.06) 0.00 (0.06) 1.00
1989 1.00 0.08 0.00 0.08 (0.08) 0.00 (0.08) 1.00
1990 1.00 0.08 0.00 0.08 (0.08) 0.00 (0.08) 1.00
1991 1.00 0.07 0.00 0.07 (0.07) 0.00 (0.07) 1.00
1992 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 1.00
1993 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00
1994 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00
1995 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 1.00
1996 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00
E[bullet]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
<PAGE>
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
(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)
Ratios And Supplemental Data
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%
<PAGE>
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%
<PAGE>
[side bar]
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.
<PAGE>
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.
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.
[side bar]
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."
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).
<PAGE>
Citizens Index Portfolio is invested in 300 companies that make up the Citizens
Index. We believe these companies best represent their industries. Approximately
200 are very large companies that are also included in the S&P 500. The others
are companies selected in order to provide industry diversity that we believe is
essential to a sound investment program.
On a day-to-day basis, the portfolio is run by purchasing and holding common
stock of all the companies in the Index in a percentage, as closely as possible,
equal to each security's total market value divided by the total market value of
all the companies in the Index. In addition, under normal circumstances the
portfolio will usually hold a small amount of cash or money market instruments
(no more than 5%) resulting from shareholder purchase and redemption activity
and a provision for operating expenses. Holding this cash, together with the
costs of operations, will prevent us from ever perfectly tracking the
theoretical performance of the underlying Index. Payment of our operating
expenses will reduce returns. Our small allocation to cash will improve returns
when the market is heading down and hurt them when the market is moving up.
Companies will be deleted from the Index and divested from the portfolio if they
fail our annual social responsibility review. If a company is removed we will
replace it with another company from the same industry which meets all social
criteria. In addition, from time to time we may make other small changes in the
Index to include, for example, exceptional companies, or to reflect changes in
the composition of the S&P 500. We do not expect these changes to exceed 10% of
the members of the Index on an annual basis.
Risk Factors
Like all stock funds, the Net Asset Value of 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.
[side bar]
Lilia Clemente is the Chairman of Clemente Capital, Inc., the lead member of the
team which manages the Citizens Global Equity Portfolio:
"As a person who was born in the Philippines and who has traveled throughout the
world as a global investor, I believe global investment offers an opportunity to
reduce risk and increase returns by linking security and prosperity to the
performance of an array of markets and companies instead of concentrating only
in the U.S. "
CITIZENS GLOBAL EQUITY PORTFOLIO
Objective: Holds U.S. and foreign stocks for capital appreciation.
<PAGE>
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 Citizens Global Equity Portfolio we invest primarily in
common stocks of both U.S. domestic and foreign companies. We seek companies
with growing sustainable earnings, innovative products, services and business
strategies, revised corporate strategies, or beneficiaries of political or
economic conditions. We plan to allocate over half our assets to foreign markets
in most circumstances in a minimum of three countries. From time to time, we may
also buy other securities such as convertible or preferred stocks and short-term
debt securities.
Risk Factors
You should be aware of the potential risks of investing outside of the United
States. Foreign stock markets are generally less efficient and more volatile
than those in the United States. This creates opportunities, but also risk.
Settlement and trading costs are generally higher on foreign exchanges than in
the U.S. The economies and governments of some countries that the portfolio may
invest in may be less mature and stable than the U.S., and when political or
economic changes occur there can be an adverse impact on the portfolio. This
includes exchange control regulation, expropriation, confiscatory taxation and
political or social instability. The risks of investing in emerging market
countries are even greater, and can involve risk of higher inflation, high
sensitivity to commodity prices and economic dependence on few industries or
government owned industries.
To moderate these risks and gain potential benefits we use a number of
investment techniques. One of these is country selection. We restrict our
investments in riskier emerging nations (like Argentina or Singapore) to no more
than 25% of the assets of Citizens Global Equity Portfolio.
When we invest in foreign exchanges we buy securities in the currency of the
local country. Often the local currency will fluctuate against the dollar. To
moderate this risk we sometimes use currency "hedging." We do this by entering
into arrangements to buy or sell a particular currency, security, or securities
index for a stated value against the dollar at a given time. While there is a
cost involved in hedging, and a risk that our hedging strategy may not work and
will add cost or reduce our potential gains, we still think hedging can be a
valuable tool.
[side bar]
The primary manager of our two money market portfolios, Danita Wright, is an
associate at GMG/Seneca Capital Management, L.P. Previously, Danita was employed
by Merus Capital Management.
"Our goal is to earn a market rate of return (or better) for our shareholders by
investing in financially attractive companies whose operations have a positive
impact on the human and natural environment."
<PAGE>
E[bullet]FUND AND 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[bullet]fund Refund
Every time you use the debit card associated with the E[bullet]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 E[bullet]fund's total return,
subject to the limit that the amounts paid to the E[bullet]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 E[bullet]fund and Working Assets Money Market Portfolio are
neither insured nor guaranteed by the U.S. Government and there is no assurance
that
<PAGE>
either portfolio will be able to maintain a stable Net Asset Value of $1.00 per
share, despite our care and caution.
[side bar]
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), Citizens 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.
<PAGE>
[side bar]
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."
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 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
amended, 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,
<PAGE>
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." Citizens
Advisers is also responsible for the day-to-day management of Muir National
Tax-Free Income Portfolio. To assist with portfolio management of the
portfolios, the investment adviser has retained at their own expense these
sub-advisers.
[side bar]
Voting Rights
Our shareholders are entitled to one vote for each full share owned and a
fractional vote for fractional shares. Shares of each portfolio generally vote
separately on matters that only concern that portfolio. However, all
shareholders of the Trust vote together on the selection of trustees and other
matters as required by the Investment Company Act of 1940. The holders of shares
have no preemptive, conversion, or subscription rights, and voting rights are
not cumulative. To save money we do not hold annual meetings. However, a meeting
may be called by our trustees or at the request of 10% of the Trust shares. We
will assist shareholders in communicating with one another to arrange such a
meeting.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Working Assets Money Market Portfolio, E[bullet]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
<PAGE>
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 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[bullet]fund .10% .08%
Income Portfolio .65% .17%
Index Portfolio .50% .10%
Emerging Growth Portfolio 1.00% .35%
Global Equity Portfolio 1.00% .35%
The fees of the Citizens Emerging Growth Portfolio, Citizens Index Portfolio and
Citizens Global Equity Portfolio are higher than the average investment company
and reflect the higher cost of managing these portfolios.
Citizens Advisers also has a separate administrative contract for providing
general administrative services, shareholder servicing and sub-accounting,
telephone services and services related to the organization of a portfolio's
federal and state regulatory filings. The fees paid by the Trust under this
contract are set by the Trustees based upon the services required. Citizens
Advisers will sometimes contract to have specialized services provided by third
parties, such as investment advisers for pension funds, or other institutions
which maintain omnibus accounts with the Trust. Under the administrative
contract, for the year ending June 30, 1996, we paid $583,266 to the adviser for
its administrative services.
The individual portfolios pay all expenses not expressly assumed by Citizens
Advisers. These include interest, taxes, audit and legal fees, custodian and
transfer agent charges, shareholder service and administration, insurance
premiums, cost of registering shares under federal and state laws, dues, and any
litigation costs, as well as the cost of typesetting, printing, and distributing
shareholder reports and prospectuses sent to shareholders. When a cost is shared
by several portfolios, the staff at Citizens Advisers will allocate the expense
in a reasonable manner under the supervision of the board of trustees.
For the Working Assets Money Market Portfolio and Citizens Income Portfolio,
Citizens Advisers has agreed to reimburse the Trust if the costs to be borne by
<PAGE>
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[bullet]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.
[side bar]
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
DividendPayingAgent:PFPC Inc.
400 Bellevue Parkway Suite 108
Wilmington, DE 19809
Phone: 800-223-7010
[side bar]
Use the E[bullet]fund
Debit Card:
<PAGE>
The E[bullet]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.
Shares in the E[bullet]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[bullet]fund is open only to clients of the Citizens Access Account. Many
shareholders take advantage of the "E" in the E[bullet]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[bullet]fund) per portfolio. Shareholders who sign up for our Automatic
Investment Plan can start with an investment balance as low as $250, with an
automatic investment of $50.00 per month.
Investment Maximum
Only the E[bullet]fund has an investment cap. The maximum investment in the
E[bullet]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[bullet]fund as their everyday account the full benefit of the amounts
generated through the E[bullet]fund Refund. We reserve the right to refuse any
order to purchase shares in the E[bullet]fund from any shareholder who makes
more than 35 withdrawals (other than debit card purchases) from the
E[bullet]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 can send you a form including
the necessary information and steps to follow. Simply complete and sign the
form, then give it to your payroll administrator for processing. If you or your
<PAGE>
payroll administrator have any questions please call our shareholder service
department.
Funds will be deposited into your account using the Electronic Funds Transfer
System. We will provide the account number. Your payroll department will let you
know the date of the pay period when your investment begins.
Excepting the E[bullet]fund, if your account fall's 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[bullet]fund or Working Assets Money Market
Portfolio, we will send you a free starter book of 20 checks. E[bullet]fund
shareholders will receive an order form to purchase additional checks ($9.95 for
100 checks). Shareholders in Working Assets Money Market Portfolio can request
additional books of 20 free checks. Although these checks are payable through a
banking agent of Citizens Trust, your account is not FDIC insured and your
shares are subject to fluctuations in value. You can write a check for any
amount and there is no charge per check. There will be a $10.00 charge for any
checks returned for any reason.
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
<PAGE>
documentation from corporations, fiduciaries, pension plans, and/or
institutional investors.
Redeem Your Shares in Person
Investors may also redeem their shares through Citizens Securities, or through
participating broker-dealers (who may charge a fee for this service). Certain
broker-dealers may have arrangements with the Trust that permit them to order
redemption of shares by telephone or facsimile transmission.
However, in rare cases, payments for the redemption of non-money market accounts
may take up to five business days. We also reserve the right to hold your
redemption proceeds for up to seven business days when you redeem any
investments that have been made by check or five days for an ACH transfer.
Therefore, if you need your redemption proceeds within seven business days of
your purchase, please invest by wire.
[side bar]
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."
SHAREHOLDER SERVICES AND POLICIES
Exchange Privilege
Since people's investment needs change over time, we provide for easy exchanges
among our portfolios at no charge. You may make an exchange at any time and to
any portfolio. Just call us or write to us with your request.
Systematic Withdrawal Plan
You can send us a written request to automatically redeem a portion of your
shares and make a regular monthly, quarterly, or annual payment on your behalf.
Making a Change in Your Account
After your account is set up, you may want to make a change in one of the
options or in the account title. We are pleased to assist, but in many cases
will require a signature guarantee from all registered owners of the accounts.
Tax-Sheltered Retirement Plans
Our distributor, Citizens Securities, has arranged for shareholders to have
access to qualified Individual Retirement Accounts (IRAs) and 403(b) plans
<PAGE>
(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.
<TABLE>
<CAPTION>
DIVIDEND CAPITAL GAINS PAID
Declared Paid Long-term Short-Term
<S> <C> <C> <C> <C>
E[bullet]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
</TABLE>
<PAGE>
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[bullet]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[bullet]fund Total Return
We also calculate an annual total return for the E[bullet]fund on a daily basis.
This number is the true reflection of what the E[bullet]fund returns to you. We
calculate total return for the E[bullet]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
For these two portfolios, we start with Net Investment Income per share for the
most recent 30 days and divide it by the maximum offering price per share on the
30th day and annualize the result assuming a semiannual compounding.
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[bullet]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.
<PAGE>
From time to time, we may compare the investment results of our portfolios to
unmanaged market indices, and other data and rankings from recognized
independent publishers.
Tax Matters
The dividends you have earned are taxable to you as dividends (unless of course
you are otherwise not subject to taxes). Remember, the exchange of shares is
treated as a sale and any exchanging shareholder may, therefore, realize a
taxable gain or loss. You may also be subject to state and local taxes on
dividends and distributions from the Trust. Please consult your own tax adviser.
We will send you a complete statement each January as to the federal tax status
of dividends and distributions paid by each portfolio during the previous
calendar year.
We do not expect the Trust itself to pay any federal income or excise taxes
because each year we expect to qualify each portfolio as a separate regulated
investment company under the Internal Revenue Code. To do this, the portfolio
must meet certain income, distribution and diversification requirements such as
distributing all of the portfolio's Net Investment Income and realized capital
gains to shareholders in a timely manner.
That's it!
[side bar]
Common Transactions That Require Signature Guarantees:
[bullet] Written request for redemption
[bullet] Changing your account title in any way
[bullet] Authorizing telephone transaction for the
first time
[bullet] Changing your
pre designated wire or ACH instructions
[bullet] Establishing or modifying a
systematic withdrawal plan
[bullet] Exchanges between accounts which do not have
identical titles
Eligible Guarantors:
[bullet] Commercial Bank
[bullet] Trust Company
[bullet] Savings Associations
[bullet] Credit Unions
[bullet] Members of domestic stock exchange
Note:
Notaries public are
not eligible guarantors.
Mailing and
Wiring Instructions
Regular U.S. Mail Mail:
Please use the Business Reply Envelope
<PAGE>
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. "Mutual Fund
advertisements and stock brokers' offices have many ways of reporting mutual
fund performance. It's no wonder investors can become confused. Remember: When
you look at mutual fund quotations, you are looking at history - how the fund
did in the past. And, as Jim Mahoney said at the front of the prospectus, there
are only two ways you can make money from your investment: through an increase
in Net Asset Value or through `Net Income.' These two elements are the building
blocks of all performance calculations."
- -Sophia Collier
<PAGE>
Printed on recycled paper with soy-based ink.
(C)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>
Statement of Additional Information
September 27, 1996, as amended March 28, 1997
This Statement is not a prospectus and should be read in conjunction with the
Prospectus dated September 27, 1996, as may be amended from time to time. A copy
of the current Prospectus can be obtained by calling (800) 223-7010, or by
writing Citizens Investment Trust (hereafter Citizens Trust), One Harbour Place,
Portsmouth, NH 03801. This Statement and the Citizen Trust Prospectus may be
supplemented from time to time.
Citizens Investment Trust
E[bullet]fund
Working Assets Money Market Portfolio
Citizens Income Portfolio
Citizens Emerging Growth Portfolio
Citizens Global Equity Portfolio
Citizens Index Portfolio
- ---------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
The Fund 2
Investment Objectives and Policies 2
Other Investment Techniques 7
Factors that Affect the Value of Our Investments 9
Turnover and Portfolio Transactions 9
The Value of Our Shares 11
Information About Our Yield and Total Return 12
Dividends and Distributions 15
Federal Taxes 16
Redemption Information 18
Trustees and Officers 19
Additional Information Regarding Citizens Advisers 20
Investment Advisory and Other Services 21
Additional Information 24
Voting Rights 24
Shareholder and Trustee Liability 25
Custodian 25
Auditors 25
Legal Counsel 25
Financial Statements 26
Appendix: Description of Ratings 27
- ---------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
The Fund
Citizens Investment Trust (the "Fund" or "Citizens Trust") presently
consists of seven separate portfolios: Working Assets Money Market Portfolio
(inception date 8/30/83), Citizens Income Portfolio (inception date 6/10/92),
Citizens Emerging Growth Portfolio (inception date 2/8/94), Citizens Global
Equity Portfolio (inception date 2/8/94), Citizens Index Portfolio (inception
date 3/3/95), and the E[bullet]fund (inception date 7/1/95). On May 28, 1992 the
Fund, which had operated as a money market fund since 1983, changed its name
from Working Assets Money Fund. On October 5, 1995 the Fund changed its name
from Working Assets Common Holdings to Citizens Investment Trust.
This Statement of Additional Information relates to the Retail Shares for
the Working Assets Money Market Portfolio and the Citizens Index Portfolio.
- --------------------------------------------------------------------------------
Investment Objectives and Policies
The following are fundamental investment policies followed by each of the
current portfolios of the Fund (each a "Portfolio," and collectively, the
"Portfolios") which supplement those listed in the Prospectus. Any policy
identified as a fundamental investment policy of a Portfolio may be amended only
with approval of the holders of a majority of the outstanding shares of that
Portfolio as defined by the Investment Company Act of 1940, as amended (the
"1940 Act").
Each Portfolio:
1. May not buy the securities of any company if the Portfolio would then
own more than 10% of the total value of all of the company's outstanding
voting securities, or if the Fund as a whole would then own more than 10%
of the total value of all of the company's outstanding voting securities. A
Portfolio may not concentrate its investments by buying the securities of
companies in any one industry if more than 25% of the value of total assets
would then be invested in that industry; however, obligations issued or
guaranteed by the U. S. Government, its agencies and instrumentalities, and
obligations of domestic branches of domestic banks, are not included in
this limit.
2. Will not invest in limited partnerships, including those which own
commodities, real estate and oil, gas and mineral leases.
3. May not make loans other than pursuant to repurchase agreements. When we
buy money market instruments or loan participation interests, we are
investing, not making a loan.
4. May not invest for the purpose of exercising control or management of
other companies.
5. May not buy or continue to hold securities if our Trustees, officers or
the Directors or officers of Citizens Advisers, Inc. (the "Adviser") own
more than certain limits of these securities. If all of these people who
own more than 1/2 of 1% of the shares of a company together own more than
5% of the company's shares, we cannot buy, or continue to own, that
company's shares.
6. May not participate with others on a joint, or a joint and several,
basis in any trading account in any securities.
7. May not underwrite securities, which means we may not sell securities
for others.
2
<PAGE>
8. May borrow only under special circumstances. We do not normally borrow
money, but for temporary purposes a Portfolio may borrow from banks up to
10% of the Portfolio's total assets. If we borrow, we can pledge our assets
up to the amount borrowed. A Portfolio cannot borrow to purchase securities
or to increase its income, but can borrow to pay for shares being redeemed
so that we do not have to sell securities we do not want to sell. Thus, a
Portfolio will not purchase any securities while the Portfolio has
borrowings above 5% of assets outstanding. The interest paid on our
borrowings would reduce our net income.
9. Subject to the provisions of our Declaration of Trust which provides
that we may issue several classes of shares in any one portfolio, we may
not issue senior securities. We may not issue securities that have priority
over others in dividends, redemption rights, or have other privileges. We
must limit our involvement in "illiquid instruments," that is, repurchase
agreements that have a term of more than seven days, and securities that
have restrictions on resale or lack readily available market quotations, to
10% of the total value of a Portfolio's net assets and we will buy no such
securities for a Portfolio unless the assets in the Portfolio exceed $10
million at the time of purchase. Private Placements which may be traded
pursuant to Rule 144A under the Securities Act of 1933 will not be subject
to these limitations, if our Board of Trustees finds that a liquid trading
market exists for these securities. Our Trustees will review on an ongoing
basis any determination by the Adviser to treat a restricted security as a
liquid security, including the Adviser's assessment of current trading
activity and the availability of reliable price information. In determining
whether a privately placed security is properly considered a liquid
security, the Adviser and our Trustees will take into account the following
factors: (i) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer); (ii) dealer undertakings
to make a market in the security; and (iii) the number of dealers willing
to purchase or sell the security and the number of other potential
purchasers. To the extent the Portfolio invests in restricted securities
that are deemed liquid, the general level of illiquidity in the Portfolio
may be increased if qualified institutional buyers become uninterested in
purchasing these securities or the market for these securities contracts.
Acquisitions of such liquid restricted securities will be made from a list
approved by our Trustees.
10. There is a limit on a Portfolio's ability to loan portfolio securities.
If a Portfolio loans securities, then it must maintain collateral at 100%
of the value of the securities and any collateral must be marketable on an
exchange.
The following is a fundamental policy for Working Assets Money Market
Portfolio, the E[bullet]fund, Citizens Income Portfolio, Citizens Global Equity
Portfolio and Citizens Index Portfolio and does not apply to the Citizens
Emerging Growth Portfolio.
A Portfolio may place only 5% of its total assets in companies which have
been in operation, including operations of predecessors, for less than three
years.
As a general policy, none of the Portfolios will invest in real estate
assets or interests therein, excluding readily marketable securities.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in
values or assets will not constitute a violation of that restriction.
3
<PAGE>
The Portfolios
The following discussion elaborates on the description of each Portfolio's
investment objectives and policies as contained in the Prospectus, including any
fundamental investment policies of a Portfolio that supplement the fundamental
policies of the Portfolios in the Prospectus.
Working Assets Money Market Portfolio and the E[bullet]fund
Working Assets Money Market Portfolio ("Money Market Portfolio") and the
E[bullet]fund, as a fundamental investment policy of each Portfolio, may not buy
any securities other than money market securities. Thus, each Portfolio cannot
buy any commodities or commodity futures contracts, any mineral programs or
leases, any shares of other investment companies or any warrants, puts, calls or
combinations of these. Neither of the Portfolios may buy real estate, or real
estate loans, but each Portfolio may buy money market securities even though the
issuer invests in real estate or interests in real estate.
The following are also the present policies of each Portfolio, but may be
changed by our Trustees without a vote of the shareholders of the Portfolios:
1. Each Portfolio may invest in variable amount master demand notes, which
are obligations that permit us to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between us and the
borrower, subject to the 10% limitation referred to in paragraph 3 below.
The interest rates and amounts involved may change daily. We have the right
to increase the amount under the note at any time up to the full amount
provided by the note agreement, or to decrease the amount; and the borrower
may repay up to the full amount of the note without penalty. Because these
types of notes are direct lending arrangements between us and the borrower,
they generally will not be traded and there is no active secondary market
for these notes. However, they are redeemable on demand, and thus
immediately repayable by the borrower, at face value plus accrued interest
at any time. Our right to redeem is dependent on the borrower's ability to
pay principal and interest on demand. Accordingly, our Adviser will
consider and continuously monitor the earning power, cash flow and other
liquidity ratios of the borrower to assess its ability to meet its
obligations on demand. We will invest in these notes only if the Board of
Trustees or its designee determines that they present minimal credit risks
and are of comparable quality to commercial paper having the highest rating
of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("Standard & Poor's").
2. Each Portfolio may not invest more than 10% of its assets in time
deposits maturing in more than two business days but less than seven
business days.
3. Each Portfolio will not enter into a repurchase agreement if it would
cause more than 10% of its assets to be subject to repurchase agreements
having a maturity of more than seven days; included in this 10% limitation
would be any illiquid securities (as described below). See "Other
Investment Techniques--Money Market Instruments and Repurchase Agreements."
4. Each Portfolio will not invest more than 10% of its net assets in
illiquid securities. Generally an illiquid security is any security that
cannot be disposed of promptly and in the ordinary course of business at
approximately the amount at which the Portfolio has valued the instrument.
Subject to this limitation, our Trustees have authorized the Portfolio to
invest in restricted securities, specifically privately placed commercial
paper, where such investment is consistent with each Portfolio's investment
objective, and has authorized such securities to be considered to be liquid
to the extent the Adviser determines that there is a liquid institutional
or other daily market for such securities. For example, restricted
securities which may be freely transferred among qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 and for which
a liquid institutional market has developed may be considered to be liquid
securities. See the discussion relating to the purchase of illiquid
securities in the section regarding the
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fundamental investment policies of the Portfolios under "Investment
Objective and Policies" above.
5. The E[bullet]fund will not invest more than 5% of its assets in variable
rate securities.
Each Portfolio may not sell short or buy on margin and may not write put or
call options.
Portfolio Quality and Required Maturities. Because the Money Market
Portfolio and the E[bullet]fund each uses the amortized cost method of valuation
(see "The Value of Our Shares"), a Portfolio will not purchase any instruments
with a remaining maturity of more than 397 days (13 months), except for certain
exceptions permitted by rules under the 1940 Act. Obligations of U.S. Government
agencies and instrumentalities which have a variable rate of interest which is
adjusted no less frequently than every 762 days are considered to have a
maturity equal to the period remaining until the next adjustment date. A
variable rate instrument which permits us to demand payment of the principal
amount of the instrument at any time or at specified intervals of no more than
397 days (13 months), on no more than 30 days notice, is deemed to have a
maturity of the longer of the period remaining until the interest rate is
adjusted or the period remaining until the principal amount will be paid to us
on demand. A variable rate instrument maturing in 397 days (13 months) or less
is deemed to have a maturity equal to the period remaining until the next
interest adjustment date. A floating rate instrument with a demand feature, and
which has its interest rate pegged to an identified market interest rate, is
deemed to have a maturity equal to the period of time remaining until the
principal amount will be paid to us on demand, provided that our Trustees
determine that the floating rate feature insures that the market value of the
instrument will always approximate par value and that the instrument is of high
quality. Our Trustees will review our holdings of variable rate instruments
quarterly to assure themselves that these instruments continue to be of high
quality. A repurchase agreement is considered to have a maturity equal to the
period remaining until the delivery date on resale. An instrument called for
redemption is considered as maturing on the date on which the redemption payment
must be made. The Money Market Portfolio and the E[bullet]fund will each
maintain a dollar-weighted average portfolio maturity that does not exceed 90
days.
The Money Market Portfolio and the E[bullet]fund each intends to comply
with Rule 2a-7 under the 1940 Act. Under that Rule, each Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except for U.S. Government agency securities. In addition, we may only invest in
securities which are rated within the top two rating categories (or, if unrated,
deemed by our Adviser to be of equivalent credit quality) by at least two
nationally recognized statistical rating organizations ("NRSROs") (for
single-rated securities, one rating organization will suffice; for unrated
securities, our Adviser may rely on its own credit equivalency assessment based
upon procedures approved by our Trustees). If we do invest in securities which
are not rated in (or, if unrated, not deemed equivalent to) the highest rating
category, we will limit such investments so that no more than 1% of the total
assets of each Portfolio is invested in securities of any one issuer rated below
the highest category. In addition, pursuant to our own credit procedures, we
will not invest in any unrated security or in any security rated by only one
rating organization unless such security is on a list approved by our Trustees.
Although Rule 2a-7 allows that 5% may be invested in second tier
securities, each Portfolio's policy is to invest 100% in first tier securities
only.
Citizens Income Portfolio
The objective of Citizens Income Portfolio is to provide as high a level of
current income as we believe to be consistent with prudent investment risk. We
invest in bonds and other debt securities which meet our financial and social
criteria. We intend to purchase primarily intermediate- and long- term
securities and to maintain a weighted average maturity of 5-15 years. However,
at times, we may have a longer or shorter weighted average maturity if we
believe it will help us meet our investment objective.
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We plan to invest at least 65% of the value of the Citizens Income
Portfolio's assets in debt securities that are rated BBB or better by a NRSRO
such as Standard & Poor's or Moody's; unrated securities which we believe are
comparable in credit quality to securities rated BBB or better as described
above; obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; mortgages and other asset backed securities; other debt
securities or cash and cash equivalents. Up to 35% of the Citizens Income
Portfolio's total assets may be invested in debt securities which do not have
the investment characteristics described above. Such debt securities could
include convertible debt securities, convertible preferred and preferred stocks
or other securities.
In pursuit of our investment objective we will sometimes purchase
securities that have warrants attached to them. These warrants are typically
held on our books at a zero value, as the value of the warrants can only be
realized upon their exercise (see "Other Investment Techniques--Warrants"). From
time to time, we will also purchase options to buy or sell securities in the
future at values determined by the performance of financial bench marks or
indexes. The use of options can add risk to the Portfolio because the portfolio
manager may determine that exercise of the option will not benefit the Portfolio
and therefore, the amount invested to acquire the option will be lost. We may
also purchase "structured securities," such as interest-only strips or similar
vehicles where one or more of the rights within the underlying securities has
been traded through the financial markets for a different right or series of
rights. The risk associated with "interest-only strips" is that the security may
prepay or default and our ability to collect interest payments will end.
The Citizens Income Portfolio is authorized to purchase the securities
described above from both U.S. and non-U.S. issuers (see "Other Investment
Techniques--Foreign Securities").
Citizens Emerging Growth Portfolio
The objective of the Citizens Emerging Growth Portfolio is aggressive
growth through investment in small and medium sized companies. Up to 100% of
this Portfolio's assets will be invested in companies in the common and
preferred stock of companies with capitalization in the range of $75 million to
$4 billion. While many of these companies will have already demonstrated their
strength, some will be still unseasoned, and therefore may have some speculative
characteristics.
The net asset value of this Portfolio is subject to significant
fluctuation. Smaller companies have the potential for a much higher reward, as
well as significantly more risk. To moderate this risk we plan to typically hold
between 30-50 companies in the Portfolio, under normal conditions.
At times we will also buy short-term fixed income securities for the
Citizens Emerging Growth Portfolio. Since most of the companies we will purchase
are relatively new, we expect dividend income to be negligible to accomplishing
the Portfolio's objective.
Citizens Global Equity Portfolio
The objective of the Citizens Global Equity Portfolio is capital
appreciation by investing in both foreign and U.S. markets. Investing in foreign
companies and on international exchanges may entail greater risk than investing
solely in the United States (see "Other Investment Techniques--Foreign
Securities").
In the Citizens Global Equity Portfolio we buy primarily common stocks of
U.S. domestic and foreign companies. From time to time, we may also buy other
securities such as convertible or preferred stocks and short-term debt
securities. We plan to allocate over half our assets to foreign markets in most
circumstances in a minimum of three countries.
To moderate these risks as well as gain potential benefits we use a number
of investment techniques. The first of these is country selection. We restrict
our investments in emerging nations
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(those not included in Morgan Stanley's World Index) to no more than 25% of
the assets of Citizens Global Equity Portfolio.
When we invest on foreign exchanges we buy securities in the currency of
the local country. Often the local currency will fluctuate vs. the dollar. To
moderate this risk we engage in currency "hedging" when we feel it is
appropriate to protect the value of our portfolio. We do this by entering into
arrangements to buy or sell a particular currency, security, or securities index
for a stated value at a given point in time. Hedging strategies, if successful,
can reduce the risk of loss by wholly or partially offsetting the negative
effect of unfavorable price movements in the investment being hedged. While
there is a cost involved in hedging, we believe it allows us to moderate the
risk of currency exchange. However, hedging strategies can also reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments (see "Other Investment Techniques--Options
Transactions").
Citizens Index Portfolio
The objective of the Citizens Index Portfolio is capital appreciation by
investing in a specially designed index of 300 socially responsible companies.
The Citizens Index Portfolio invests primarily in a market weighted index
of companies included in the Standard & Poor's Composite Index of 500 Stocks
("S&P 500") that have passed Citizens' social screens in addition to companies
that are not part of the S&P 500 but which pass our social and financial screens
(the "Citizens Index"). Companies outside the S&P 500 are included in the
Citizens Index to add industry diversity and other financial characteristics
that we believe will enable the Portfolio to track the returns of the S&P 500 as
a whole.
Securities will be purchased in a proportion approximately equal to the
weight of each company to the total index. At times we will also buy short-term
fixed income securities for the Citizens Index Portfolio. Under normal
circumstances these short-term investments will amount to no more than 5% of the
Portfolio. Our investment results will usually lag the performance of the
underlying index due to short-term cash investments and the deduction of
portfolio expenses and transaction costs.
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Other Investment Techniques
Money Market Instruments and Repurchase Agreements
During periods of unusual market conditions, or for liquidity purposes or
pending the investment of the proceeds of the sale of its shares, we may invest
all or a portion of assets of the Citizens Income Portfolio, Citizens Emerging
Growth Portfolio, Citizens Global Equity Portfolio, Citizens Index Portfolio,
the E[bullet]fund and Money Market Portfolio in money market instruments,
including: obligations of agencies and instrumentalities of the U.S. Government;
certificates of deposit of banks; and commercial paper or other corporate notes
of investment grade quality. We may also buy such securities subject to
repurchase agreements with primary dealers or banks which are members of the
Federal Reserve, secured by instruments issued or guaranteed by the agencies or
instrumentalities of the U.S. Government, the values including accrued interest,
or which are equal to or greater than the repurchase price agreed to be paid by
the seller. The repurchase price may be higher than the purchase price, the
difference being income to the Portfolio, or the purchase and repurchase prices
may be the same, with interest at a standard rate due to the Portfolio together
with the repurchase price on repurchase. In either case, the income to the
Portfolio is unrelated to the interest rate on securities collateralizing the
repurchase. In the event of bankruptcy or other default by the vendor of a
repurchase agreement, there may be possible delays and expenses in liquidating
the resold securities, decline in the value of the resold securities and loss of
principal or interest. However, in the opinion of management, these risks are
not material; upon default, the resold securities constitute collateral for the
repurchase obligation.
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Options Transactions
Each Portfolio, other than Money Market Portfolio and the E[bullet]fund,
may from time to time buy and write (sell) call and put options on securities,
security indices, and foreign currencies that are traded on recognized
securities exchanges and over-the-counter markets. A call option gives the
holder (buyer) the right to purchase a security or currency at a specified price
(the exercise price) at any time until or on a certain date (the expiration
date). A put option gives the purchaser of the option the right to sell, and the
writer (seller) the obligation to buy, the underlying security or currency at
the exercise price at any time until or on the expiration date. The premium that
a Portfolio receives for buying or writing a call or put option is deemed to
constitute the market value of an option. Aggregate premiums paid for put and
call options will not exceed 5% of the Portfolio's total assets at the time of
each purchase. The premium that a Portfolio will receive from writing a call
option will reflect, among other things, the current market price of the
underlying investment, the relationship of the exercise price to such market
price, the historical price volatility of the underlying investment, and the
length of the option period. These instruments are often referred to as
"derivatives" which may be defined as financial instruments whose performance is
derived, at least in part, from the performance of another asset (such as a
security, currency or an index of securities). The Portfolios may use these
techniques to hedge against changes in interest rates, foreign currency exchange
rates, changes in securities prices or other factors affecting the value of
their investments, or as part of their overall investment strategies. Each
Portfolio will maintain segregated accounts consisting of liquid assets (or, as
permitted by applicable regulations, enter into certain offsetting positions to
cover its obligations under derivatives transactions) to avoid "leveraging" the
Portfolio.
Risks in the use of these derivative securities depends on the Adviser's
ability to predict correctly the direction of interest rates, securities prices
or other factors. Risks include: a) the risk that interest rates, securities
prices or other factors do not move in the directions being hedged against, in
which case the Portfolio will have incurred the cost of the derivative (either
its purchase price or, by writing an option, losing the opportunity to profit
from increases in the value of the securities covered) with no tangible
benefits; b) an imperfect correlation between the price of derivatives and the
movements of the securities prices, interest rates or currency exchange rates
being hedged; c) the possible absence of a liquid secondary market for any
particular derivative at any time; d) the potential loss if the counterparty to
the transaction does not perform as promised; and e) the possible need to defer
closing out certain positions to avoid adverse tax consequences.
Warrants
Citizens Income Portfolio may invest in warrants. Warrants are instruments
which entitle the holder to buy underlying equity securities at a specific price
for a specific period of time. A warrant tends to be more volatile than its
underlying securities and ceases to have value if it is not exercised prior to
its expiration date. In addition, changes in the value of a warrant do not
necessarily correspond to changes in the value of the underlying securities.
Foreign Securities
Each Portfolio, other than the E[bullet]fund, may invest in foreign
securities which meet our social and financial criteria. As discussed in the
Prospectus, investing in foreign securities generally presents a greater degree
of risk than investing in domestic securities due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As a
result of its investments in foreign securities, a Portfolio may receive
interest or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
Under certain circumstances, such as where we believe that the applicable
exchange rate is unfavorable at the time the currencies are received or we
anticipate, for any other reason, that the exchange rate will improve, a
Portfolio may hold such currencies for an indefinite period of time. A Portfolio
may also hold foreign currency in anticipation of purchasing foreign securities.
While the holding of currencies will permit the Portfolio to take advantage of
favorable movements in the applicable exchange rate,
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such strategy also exposes the Portfolio to risk of loss if exchange rates
move in a direction adverse to the Portfolio's position. Such losses could
reduce any profits or increase any losses sustained by the Portfolio from the
sale or redemption of securities and could reduce the dollar value of interest
or dividend payments received.
When-Issued Securities
Each Portfolio, other than the Money Market Portfolio and the
E[bullet]fund, may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, in many cases, a Portfolio purchasing
securities on a when-issued basis, will take delivery of such securities. When a
Portfolio commits to purchase a security on a when-issued or on a forward
delivery basis, it will set up procedures consistent with current policies of
the Securities and Exchange Commission (the "SEC") concerning such purchases.
Since that policy currently recommends that an amount of a fund's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
the commitment, we intend that a Portfolio will always have cash, short-term
money market instruments or high quality debt securities sufficient to cover any
commitments or to limit any potential risk. However, although we do not intend
to make such purchases for speculative purposes and we intend to adhere to
current regulatory policies with respect to such purchases, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, we may have to sell assets which have been set aside to cover our
commitments in order to meet redemptions. Also, if we were to determine that it
is necessary to sell the when-issued or forward delivery securities before
delivery to a Portfolio, the Portfolio may incur a loss because of market
fluctuations since the time the commitment to purchase such securities was made.
When the time comes to pay for when-issued or forward delivery securities, a
Portfolio will meet its obligations from the then-available cash flow on the
sale of securities, or, although it would not normally expect to do so, from the
sale of the when-issued or forward delivery securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).
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Factors That Affect the Value of Our Investments
Money Market Instruments and Fixed Income Securities
The value of the fixed income securities in which we invest will fluctuate
depending in large part on changes in prevailing interest rates. Fixed income
securities comprise all assets in the Money Market Portfolio, the E[bullet]fund
and Citizens Income Portfolio and a portion of assets in the Citizens Emerging
Growth Portfolio, Citizens Index Portfolio and Citizens Global Equity Portfolio
under normal conditions. If these rates go up after we buy a security, its value
may go down. On the other hand, if the rates go down, the security's value may
go up. Changes in value and yield based on changes in interest rate may have
different effects on short-term obligations than on long-term obligations.
Long-term obligations, which often have higher yields, may fluctuate in value
more than short-term ones. We do not expect changes in interest rates to
significantly affect the value of our shares in the Money Market Portfolio and
the E[bullet]fund, since we use the amortized cost method, which is described in
the section "The Value of Our Shares." However, changes in interest rates can
have a significant effect on the value of non-money market fixed income
securities.
The value of equity securities held in the Citizens Emerging Growth, Global
Equity and Index Portfolios will fluctuate based upon market conditions and
issues specific to the issuer. These include changes in the management and
fundamental financial condition of the issuing company, prevailing economic and
competitive conditions in the industry sectors in which the company does
business and other factors which affect individual securities and the equity
market as a whole.
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Turnover and Portfolio Transactions
With regard to the Money Market Portfolio and the E[bullet]fund, we
generally purchase investments and hold them until they mature. Historically,
securities of U.S. Government agencies or
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instrumentalities have involved minimal risk when they have been held by
investors to maturity. However, we may from time to time sell securities and
purchase others to attempt to take advantage of short-term market variations. We
may also sell securities prior to maturity to meet redemptions or as a result of
a revised evaluation of the issuer by our Adviser.
For the Citizens Income Portfolio we purchase fixed income securities and
for Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio and the
Citizens Index Portfolio, we may purchase both equity and fixed income
securities and hold them until such time as we believe it is advisable to sell
them in order to realize a gain or loss whereupon we reinvest these assets in
other securities.
The Citizens Index Portfolio seeks to have a turnover of less than 25% per
year. The Global Equity Portfolio is expected to have a portfolio turnover rate
of 200%. Higher portfolio turnover rate increases transaction costs and may
increase taxable gains. For the fiscal years ended June 30, 1995 and 1996, the
Portfolios had the following portfolio turnover rates: Citizens Income Portfolio
- -- 46.03% and 41.36%; Citizens Emerging Growth Portfolio -- 231.30% and 337.41%;
and Citizens Global Equity Portfolio -- 22.10% and 85.92%. For the period from
March 3, 1995 (commencement of operations) through June 30, 1995 and the fiscal
year ended June 30, 1996, Citizens Index Portfolio had portfolio turnover rates
of 64.95% and 6.44%, respectively.
Our Adviser seeks to obtain for us the best net price and the most
favorable execution of orders. Purchases are made from issuers, underwriters,
dealers or brokers, and banks who specialize in the types of securities we buy.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriters. Purchases from dealers include the spread between
the bid and asked prices and purchase from brokers include commissions paid to
the broker based upon the transaction size. If the execution and price offered
by more than one dealer are comparable, the order may be given to a dealer who
has provided research advice, quotations on portfolio securities or other
services. Our Adviser will comply with Rule 17e-1 under the 1940 Act in regards
to brokerage transactions with affiliates, to assure that commissions will be
fair and reasonable to the shareholders.
Our Adviser may allocate transactions to broker/dealers in exchange for
services. By allocating transactions to obtain services, the Adviser is able to
supplement its own efforts. While it is not possible to place a dollar value on
these services, it is the opinion of the Adviser that the receipt of these
services does not materially reduce the Adviser's overall expenses. These
services may or may not be useful to us or to our Adviser and its affiliates
which engage in securities activities. For the fiscal years ended June 30, 1993,
1994, 1995 and 1996, all portfolio purchases, as described above, were made
directly from issuers or from dealers, and we paid commissions in aggregate as
follows: 1993-$79,300, 1994-$329,000, 1995-$250,000 and 1996-$171,957.
It is the policy of Citizens Advisers and the Trust to seek to obtain the
benefit of "soft dollar" payments for a Portfolio when consistent with obtaining
best execution and the best execution policy and when doing so is within the
"safe harbor" created by Section 28(e) of the Securities Exchange Act of 1934.
To that end, Citizens Advisers will maintain an account for each Portfolio with
one or more broker-dealers which agree to provide or pay for third-party
research which benefits the Portfolio. Sub-advisers will be informed in writing
of the name of the broker-dealer and provided with account information to allow
the execution of trades through that broker-dealer. In the event that best
execution of an equity transaction is available through a broker-dealer which
has been so identified, a sub-adviser shall place the transaction with that
broker-dealer. No transactions shall be placed with such broker-dealer other
than on an agency basis.
Any "soft dollars" generated in this fashion shall be used solely to
purchase research, within the meaning of Section 28(e), which benefits the
Portfolio on whose behalf the transaction is made. For these purposes, research
means that which provides assistance to Citizens Advisers, or a sub-adviser, in
the performance of decision making responsibilities. If a product or service
serves non-research as well as research functions, "soft dollars" shall be used
to pay for the product or service only to the extent that it constitutes
research.
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The Value of Our Shares
The value of our shares is expressed as net asset value. The net asset
value per share is computed by subtracting total liabilities from total assets
and dividing that number by the total number of our outstanding shares. All
expenses are accrued daily and taken into account in determining net asset
value.
We attempt to keep the net asset value of our Money Market Portfolio and
the E[bullet]fund fixed at $1.00 per share, while we expect the net asset value
per share in our other Portfolios to fluctuate.
The value of our shares for each Portfolio, other than the Money Market
Portfolio and the E[bullet]fund, is determined at 4:00 p.m. Eastern Time on each
day on which the New York Stock Exchange is open for regular trading and at such
other times as we feel may be necessary or appropriate.
The value of our shares for the Money Market Portfolio and the
E[bullet]fund is determined at 4:00 p.m. Eastern Time on each day that the
Portfolios are open. The Portfolios are currently open on each day, Monday
through Friday, except New Year's Day, Martin Luther King, Jr's. Birthday
(observed), Presidents' Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day.
Money Market Portfolio and the E[bullet]fund
Our Trustees have determined that it is appropriate for us to value our
Money Market Portfolio and the E[bullet]fund using the amortized cost method and
that this method represents the fair value of each Portfolio's shares. This
method values a security at the time of its purchase at cost and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. This method does not take into account unrealized gains and
losses.
While the amortized cost method provides certainty in valuation, there may
be periods during which value, as determined by the amortized cost method, is
higher or lower than the price we would receive if we sold the instrument.
During periods of declining interest rates, the daily yield on our shares may
tend to be higher than a like computation made by a fund with identical
investments which uses a method of valuation based on market prices and which
reflects capital changes in its dividends. Thus, if the use of amortized cost by
us resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in our shares would be able to obtain a somewhat higher
yield from us than he would from investment in the other fund, and existing
investors in our shares would receive less investment income. The converse would
apply in a period of rising interest rates.
To use the amortized cost method, our Board of Trustees must establish
procedures designed to stabilize the net asset value of the Money Market
Portfolio and the E[bullet]fund at $1.00 per share, to the extent reasonably
possible. These procedures must include review of the Portfolio by the Board at
intervals it deems appropriate and reasonable in the light of market conditions
to determine how much the net asset value using available market quotations
deviates from the net asset value based on amortized cost. For this purpose,
when market quotations are available, securities are valued at bid price. If
market quotations are not available, investments are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision and responsibility of our Board of Trustees, including being
valued at prices based on market quotations for investments of similar type,
yield and maturity.
Under the procedures which our Trustees have adopted in connection with
valuation of our securities at amortized cost, our dividend policy will change
under certain circumstances. If on any day there is a deviation of more than
3/10th of 1% between the net asset value of a share computed on the amortized
cost basis and that computed on an available market price basis, the amount of
the deviation in excess of $0.003 will be added to or subtracted from the
dividend for that day in order to reduce the
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deviation to within $0.003. If on any day the dividend is not large enough
to absorb any such reduction and the deviation is more than $0.005, our Board
will be required, under a rule of the SEC, to consider taking other action. Such
action could include the sale of portfolio securities, reducing or eliminating
dividends or establishing a net asset value per share based on market
quotations.
To use the amortized cost method, we must also limit our portfolio
investments, including repurchase agreements, to those U.S. dollar denominated
instruments which our Board of Trustees determines present minimal credit risks
and which are of "high quality," e.g., portfolio investments rated in one of the
top two rating categories by at least two rating organizations or, if not rated
or created by only one rating agency, are of comparable quality in the judgment
of our Adviser and Trustees. A rated instrument that is subject to some external
agreement (such as a bank letter of credit), which agreement was not considered
in rating the instrument, is considered unrated and the Board of Trustees and
our Adviser will determine whether the external agreement makes the instrument
of comparable quality.
Citizens Income Portfolio, Citizens Emerging Growth Portfolio,
Citizens Global Equity Portfolio and the Citizens Index Portfolio
As described in the Prospectus, the Citizens Income Portfolio, Citizens
Emerging Growth Portfolio, Citizens Global Equity Portfolio and Citizens Index
Portfolio are generally valued on the basis of market values. Equity securities,
if any, in a Portfolio are valued at the last sales price on the exchange on
which they are primarily traded or on the NASDAQ system for unlisted national
market issues, or at the last quoted bid price for listed securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. Debt securities are generally valued at their most recent
closing sale prices, or, if there is no closing sale price, at the bid price, in
the principal market in which such securities are normally traded. Fixed income
securities maturing within 60 days are normally valued at cost, plus or minus
any amortized discount or premium. Securities and other assets for which market
quotations are not readily available (including restricted securities, if any)
are appraised at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Fund's Board of
Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer supplied valuations and evaluation based
upon expert analysis of market data or other factors if such valuations are
believed to reflect more accurately the fair value of such securities.
Use of a pricing service has been approved by the Fund's Board of Trustees.
There are a number of pricing services available, and the Trustees and officers
of the Fund acting on behalf of the Trustees, may use or discontinue the use of
any pricing service now, or in the future, employed.
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Information About Our Yield and Total Return
We report the investment performance of each Portfolio in several ways. All
performance reported in advertisements is historical and not intended to
indicate future returns.
Yield
From time to time the "yield" and "compounded effective yield" of the
Portfolios may be published in advertisements and sales material. For the Money
Market Portfolio and the E[bullet]fund, the yield is usually quoted for a seven
day period. For Citizens Income Portfolio we usually report for a 30 day period.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
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<PAGE>
Our yield is calculated by using the SEC formula:
Yield = 2[ (a-b + 1)6 - 1]
cd
where:
a = interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive income distributions.
d = the maximum offering price per share on the last day of the period.
Compounded effective yield, which we may also quote, is determined by
taking the base period return (computed as described above) and calculating the
effect of assumed compounding.
The formula for effective yield is:
[ (base period return + 1) 365/7 - 1]
Current yield and effective yield which are calculated according to a
formula prescribed by the SEC are not indicative of the amounts that actually
may be paid to our shareholders. Amounts paid to shareholders are reflected in
the quoted current distribution rate.. The current distribution rate is computed
by dividing the total amount of dividends per share we paid during the past
twelve months by a current maximum offering price. Under certain circumstances,
such as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to annualize
the dividends paid over the period such policies were in effect, rather than
using the dividends during the past twelve months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from additional sources (i.e., sources other than dividends and
interest, such as short-term capital gains), and is calculated over a different
period of time.
The following table sets forth various measures of performance for the
Portfolios as of June 30, 1996:
Compounded
Effective
Portfolio 7-Day Yield Yield 30-Day Yield
--------- ----------- ----- ------------
Working Assets Money Market 4.02% 4.10% NA
Portfolio
E[bullet]fund 5.24% 5.38% NA
Citizens Income Portfolio NA NA 6.42%
The current yield of the Money Market Portfolio and the E[bullet]fund for a
specific period of time is calculated based on a hypothetical account containing
exactly one share at the beginning of the period. The net change in the value of
the account during the period is determined by subtracting this beginning value
from the value of the account at the end of the period including a hypothetical
charge reflecting deductions from shareholder accounts. Capital changes (i.e.,
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) are excluded from the calculation. Because the
change will not reflect any capital changes, the dividends used in the yield
computation may not be the same as the dividends actually declared. The
dividends used in the yield calculation will be those which would have been
declared if there had been no capital changes included in our actual dividends.
The net
13
<PAGE>
change in the account value is then divided by the value of the account
at the beginning of the period and the resulting figure is called the "base
period return." The base period return is then multiplied by (365/7) for a seven
day effective yield with the resulting yield figure carried to the nearest
hundredth of one percent.
The "compounded effective yield" for the Money Market Portfolio and the
E[bullet]fund is determined by annualizing the base period return and assuming
that dividends earned are reinvested daily. Compounded effective yield is
calculated by adding 1 to the base period return (which is derived in the same
manner as discussed above) raising the sum to a power equal to 365 divided by 7
and subtracting 1 from the result.
Compounded effective yield information is useful to investors in reviewing
the performance of our Money Market Portfolio and the E[bullet]fund since the
yield is calculated on the same basis as those of other money market funds.
However, shareholders should take a number of factors into account in using our
yield information as a basis for comparison with other investments.
Since our Money Market Portfolio and the E[bullet]fund are invested in
short-term money market instruments, our yield will fluctuate with money market
rates. Therefore, the compounded effective yield is not an indication of future
yields. Other investment alternatives such as savings certificates provide a
fixed yield if held full term, but there may be penalties if redeemed before
maturity, whereas there is no penalty for withdrawal at any time in the case of
our Portfolios.
The yield quotation for the Citizens Income Portfolio is based on the
annualized net investment income per share of the Portfolio over a 30 day
period. The yield is calculated by dividing the net investment income per share
of the Portfolio earned during the period by the public offering price per share
of the Portfolio on the last day of that period. The resulting figure is then
annualized. Net investment income per share is determined by dividing (i) the
dividends and interest earned by the Portfolio during the period, minus accrued
expenses for the period, by (ii) the average number of the Portfolio's shares
entitled to receive dividends during the period multiplied by the public
offering price per share on the last day of the period. Income is calculated for
the purposes of yield calculations in accordance with standardized methods
applicable to all stock and bond funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses are generally excluded from the
calculation as these are reflected in the Portfolio's net asset value per share.
Total Return and Other Quotations
We also can express the investment results in terms of "total return." We
do this for the Citizens Income Portfolio, Citizens Emerging Growth Portfolio,
Citizens Global Equity Portfolio and Citizens Index Portfolio to take account of
fluctuations in share value in addition to income from interest and dividends.
Total return refers to the total change in value of an investment in the
Portfolio over a specified period, while the yield calculation only reflects the
income component.
We compute total return by taking the total number of shares purchased by a
hypothetical $1,000 investment after deducting any applicable sales charge,
adding all additional shares purchased within the period with reinvested
dividends and distributions, calculating the value of these shares at the end of
the period, and dividing the result by the initial $1,000 investment. For
periods of more than one year, we adjust the cumulative total return to
calculate average annual total return during that period.
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<PAGE>
These figures will be calculated according to the SEC formula:
P(1 + T)n = ERV where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year
periods
We also calculate an annual total return for the E[bullet]fund on a daily
basis. This number is the true reflection of what the E[bullet]fund returns to
you. We calculate total return for the E[bullet]fund by adding the net
investment income together with the Portfolio's other income, including income
from debit card transactions, and other income and capital changes, if any. For
the period ended December 31, 1996, the E[bullet]fund had a one year return of
%.
For the period ended June 30, 1996 the Portfolios had the following
performance:
<TABLE>
<CAPTION>
Hypothetical
Annualized Investment Return
Total Return on $1,000 for the 1
Portfolio 1 Year Total Return Since Inception Year Period
--------- ------------------- --------------- -----------
<S> <C> <C> <C>
Citizens Income 5.48% 6.54% $1,054.80
Portfolio
Citizens Emerging 42.53% 26.19% $1,425.30
Growth Portfolio
Citizens Global 12.64% 8.36% $1,126.40
Equity Portfolio
Citizens Index 23.79% 25.58% $1,237.90
Portfolio
</TABLE>
When we quote each Portfolio's yield or total return we are referring to
its past results and not predicting our future performance. We quote total
return for the most recent one year period as well as average annual total
return for the most recent five- and ten-year periods, or from the time when we
first offered shares, whichever is shorter. Sometimes we advertise our actual
return quotations for annual or quarterly periods or quote cumulative return for
various periods. When we do this, we also always present the standardized total
return quotations at the same time.
When we quote our investment results we sometimes will compare them to
unmanaged market indices such as the Dow Jones Industrial Average and the S&P
500, and other data and rankings from recognized independent publishers, sources
such as Bank Rate Monitor, Money Magazine, Morningstar, Forbes Magazine, Lipper
Analytical Services and others.
- -------------------------------------------------------------------------------
Dividends and Distributions
Money Market Portfolio and the E[bullet]fund
As described in the Prospectus, net income is determined and accrued daily
and paid monthly. This dividend is payable to everyone who was a shareholder at
4:00 p.m. Eastern time on the day the dividend is declared. Accordingly, when
shares are purchased dividends begin to accrue on the day the Transfer
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Agent receives payment for the shares, provided that the payment is
received by 4:00 p.m. Eastern time. When shares are redeemed, the shares are
entitled to the dividend declared on the day the redemption request is received
by the Transfer Agent, provided that the request is received after 4:00 p.m.
Eastern time. Dividends are automatically reinvested in shares, at net asset
value, unless a shareholder otherwise instructs the Transfer Agent in writing.
Shareholders so requesting will be mailed checks in the amount of the
accumulated dividends. For the purpose of calculating dividends, our daily net
investment income consists of: (a) all interest income accrued on investments
(including any discount or premium ratably amortized to the date of maturity or
determined in such other manner as the Trustees may determine); and (b) minus
all liabilities accrued, including interest, taxes and other expense items,
amounts determined and declared as dividends or distributions and reserves for
contingent or undetermined liabilities, all determined in accordance with
generally accepted accounting principles; and (c) plus or minus all realized and
unrealized gains or losses on investments.
Citizens Income Portfolio
The Citizens Income Portfolio distributes to its shareholders monthly
dividends substantially equal to all of its net investment income. The
Portfolio's net investment income consists of non-capital gain income less
expenses. Net realized short-term capital gains, if any, and net realized
long-term capital gains, if any, will be distributed by the Portfolio at least
annually. Dividends and capital gains distributions are automatically reinvested
at net asset value in additional shares, unless a shareholder elects cash
distributions. Cash distributions will be paid at the close of the appropriate
monthly or annual period.
Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio and
Citizens Index Portfolio
The Citizens Emerging Growth Portfolio, Citizens Global Equity Portfolio
and the Citizens Index Portfolio normally declare and pay dividends
substantially equal to all net investment income annually. Net investment income
consists of non-capital gain income less expenses. Net realized short-term
capital gains, if any, and net realized long-term capital gains, if any, will be
distributed by the Portfolios at least annually. Dividends and capital gains
distributions are automatically reinvested at net asset value in additional
shares, unless a shareholder elects cash distributions. Cash distributions will
be paid annually.
- -------------------------------------------------------------------------------
Federal Taxes
Status as a "Regulated Investment Company"
Each of the Portfolios intends to qualify as a "Regulated Investment
Company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). We plan to continue this election in the future for all Portfolios
of the Fund.
To qualify for the tax treatment afforded a "regulated investment company"
under the Code, a Portfolio must annually distribute at least 90% of its net
investment income and net short-term capital gains and meet certain requirements
with respect to sources of income, diversification of assets, and distributions
to shareholders. If a Portfolio elects and qualifies for such tax treatment, the
Portfolio will not be subject to federal income tax with respect to amounts
distributed. Under current law, in order to qualify, a Portfolio must (a) derive
at least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock or
securities, and income from certain other sources; (b) derive less than 30% of
its gross income from the sale or other disposition of stock, or securities and
certain other investment held less than three months; and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the fund's assets is represented by cash, U.S. Government
securities, and other securities, limited, in respect of any one issuer, to an
amount not greater than 5% of the fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities).
16
<PAGE>
Options that are held by a Portfolio at the end of its taxable year are
subject to section 1256 of the Code and will be deemed to have been sold at
market value for federal income tax purposes. Sixty percent of any net gain or
loss recognized on these deemed sales, and 60% of any net gain or loss realized
from any actual sales of Section 1256 Contracts, will be treated as long-term
capital gain or loss, and the balance will be treated as short-term capital gain
or loss.
A Portfolio that qualifies as a "qualified investment company," may
nonetheless be subject to certain federal excise taxes unless the Portfolio
meets certain additional distribution requirements. Under the Code, a
nondeductible excise tax of 4% is imposed on the excess of a regulated
investment company's "required distribution" for the calendar year ending within
the regulated investment company's taxable year over the "distributed amount"
for such calendar year. The term "required distribution" means the sum of (i)
98% of ordinary income (generally net investment income) for the calendar year,
(ii) 98% of capital gain net income (both long-term and short-term) for the
one-year period ending on October 31 (as though the one-year period ending on
October 31 were the regulated investment company's taxable year), and (iii) the
excess, if any, of the sum of the taxable income of the regulated investment
company for the previous calendar year plus all amounts from previous years that
were not distributed over the amount actually distributed for such preceding
calendar year. The term "distributed amount" generally means the sum of (i)
amounts actually distributed by a Portfolio from the Portfolio's current year's
ordinary income and capital gain net income and (ii) any amount on which the
Portfolio pays income tax for the year. We intend to meet these distribution
requirements, to avoid the excise tax liability, with respect to each of the
Portfolios. As long as a Portfolio maintains its status as a regulated
investment company and distributes all of its income, the Portfolio will not be
subject to any Massachusetts income or excise tax.
Distributions of Net Investment Income
Dividends derived from net investment income and any excess of net
short-term capital gains over net long-term capital losses will be taxable to
shareholders as ordinary income. For each of the Portfolios other than Money
Market Portfolio, the E[bullet]fund and Citizens Income Portfolio, a portion of
these ordinary income dividends is normally eligible for the dividends received
deduction for corporations if the recipient otherwise qualified for that
deduction with respect to its holding of a Portfolio's shares. Availability of
the deduction to particular corporate shareholders is subject to certain
limitations and deductible amounts may be subject to the alternative minimum tax
and result in certain basis adjustments. Since the investment income of the
Money Market Portfolio, the E[bullet]fund and Citizens Income Portfolio is
derived from interest rather than dividends, no portion of the dividends
received from these Portfolios will be eligible for the dividends received
deduction. Moreover, to the extent that a Portfolio derives investment income
from sources within foreign countries, such Portfolio's dividends and
distributions will not qualify for such deduction.
Shareholders will be taxed for federal income tax purposes on dividends in
the same manner whether such dividends are received as shares or in cash.
Distributions from the Portfolios will also be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
Any dividend or distribution (except for dividends of net investment income
declared by the Money Market Portfolio and the E[bullet]fund) will have the
effect of reducing the per share net asset value of shares in a Portfolio by the
amount of the dividend or distribution. Shareholders purchasing shares in any of
the Portfolios shortly before the record date of any taxable dividend or other
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
Any loss realized upon a redemption of the shares in a Portfolio held for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gain made with respect to those shares. Any
loss realized upon redemption of shares may also be disallowed under the rules
relating to wash sales.
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<PAGE>
Special tax considerations apply with respect to foreign investments of
those Portfolios which permit such investments. For example, foreign exchange
gains and losses realized by a Portfolio generally will be treated as ordinary
income or losses. In addition, investment income received by a Portfolio from
sources within foreign countries may be subject to foreign income taxes withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle a Portfolio to a reduced rate of tax or an exemption
from tax on such income.
Non-U.S. Shareholders
Distributions of net investment income to non-resident aliens and foreign
corporations will be subject to U.S. tax. For shareholders who are not engaged
in a trade or business in the U.S. to which the distribution is effectively
connected, this tax is withheld at the rate of 30% upon the gross amount of the
distribution in the absence of a Tax Treaty providing for a reduced rate or
exemption from U.S. taxation. However, if the distribution is effectively
connected with the conduct of the shareholder's trade or business within the
United States, the distribution will be included in the net income of the
shareholder and subject to U.S. income tax at the applicable marginal rate.
The foregoing is limited to a discussion of federal taxation. It should not
be viewed as a comprehensive discussion of the items referred to nor as covering
all provisions relevant to investors. Dividends and distributions may also be
subject to state or local taxes. Shareholders should consult their own tax
advisers for additional details on their particular tax status.
================================================================================
Redemption Information
The redemption information below supplements the information contained in
the Prospectus. We pay redemption proceeds within five business days after we
receive a proper redemption request. Our obligation to pay for redemptions can
be suspended when the New York Stock Exchange is closed other than for weekends
or holidays or under certain emergency conditions determined by the SEC. The
holidays on which the New York Stock Exchange is closed currently are: New
Year's Day, Presidents' Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In addition, to
the above mentioned holidays, Money Market Portfolio and the E[bullet]fund are
also closed on Martin Luther King, Jr's. Birthday (observed), Columbus Day and
Veterans Day. We pay redemption proceeds in cash, except that our Board of
Trustees has the power to decide that conditions exist which would make cash
payments undesirable. In that case, we could send redemption payments in
securities from our portfolio, valued in the same method as we used to determine
our net asset value. There might then be brokerage or other costs to the
shareholder in selling these securities. We have elected to be governed by Rule
18f-1 under the 1940 Act, which requires us to redeem shares solely in cash up
to the lesser of $250,000 or 1% of our total net assets during any 90 day period
for any one shareholder. Your redemption proceeds may be more or less than your
cost, depending on the value or our shares.
If any of the shares being redeemed were recently purchased by check or
electronic funds transfer, we may delay sending the redemption proceeds for up
to ten business days while we determine whether the check or electronic funds
transfer used to purchase the shares has been honored by the bank on which it
was drawn or made. You can eliminate any possible delay by making your
investment by wire.
We have the right to compel the redemption of shares of each Portfolio,
other than the E[bullet]fund, held in an amount if the aggregate net asset value
of the shares in the account is less than $2,500. If our Adviser decides to do
this, we will advise shareholders who would be affected to increase the size of
their accounts to the $2,500 minimum.
18
<PAGE>
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Trustees and Officers
We have a Board of Trustees which provides broad supervision over our
affairs. Our officers are elected by the Board and are responsible for day to
day operations. The Trustees and officers are listed below, together with their
date of birth and principal occupations during at least the past five years.
(Their titles may have varied during that period.) The address of each, except
where an address is indicated, is One Harbour Place, Portsmouth, New Hampshire
03801.
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), Co-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.
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. Please see the section entitled "Additional
Information Regarding The Management Company" for more information regarding Ms.
Collier.
Juliana Eades (2/2/53), Trustee, has served as Executive Director of the $4
million New Hampshire Community Loan Fund since its inception in 1984. In this
capacity she has been a leading force in the creation of jobs and affordable
housing in New Hampshire. Prior to accepting her position at the Loan Fund, Ms.
Eades was Program Manager at the N.H. Governor's Council on Energy. In other
community activities, Ms. Eades is a member of the Campaign for Rate Payers'
Rights and the Society for the Protection of New Hampshire Forests. Address: 79
South State Street, Concord, New Hampshire 03301.
Lokelani Devone (4/8/57), Trustee, is the Assistant General Counsel at DFS
Group Limited, an international retail business group where she has worked since
1989. Address: 525 Market Street, 33rd floor, San Francisco, California 94105.
Azie Taylor Morton (2/1/36), Co-Chair of the Board, 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 U.S. Equal
Employment Opportunity Commission. She has served as the Commissioner of the
Virginia Department of Labor and Industry as well as Executive Director of the
Human Rights Project, Inc. In 1990 - 92 she was Director of Resource
Coordination at Reading is Fundamental, Inc. She is currently an investment
adviser. Address: 10910 Medfield Court, Austin, Texas 78739.
J.D. Nelson* (3/28/38), Trustee, is the founder and C.E.O. of RhumbLine
Advisers Corp., a minority-owned investment firm specializing in the management
of institutional pension assets using indexed and quantitative techniques. Mr.
Nelson was formerly Senior Vice President and Director of Public Funds Services
at State Street Bank and Trust Company in Boston. Prior to his twelve years at
State Street, he was the Administrator of the Democratic National Committee. He
currently serves on
19
<PAGE>
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 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 (see "Our Distributor")
below, we have agreed that Trustees who are not "interested persons" of the
Fund, 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
Fund for services provided through June 30, 1996.
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
================================================================================
Name of Person and Aggregate Compensation Total Compensation Paid to
Position from the Fund Trustees
Azie Taylor Morton $4,000 $4,000
Juliana Eades $4,000 $4,000
William D. Glenn, Jr. $6,500 $6,500
Ada Sanchez $4,000 $2,000
Lokelani Devone $ 750 $ 750
Sophia Collier* 0 0
J.D. Nelson* 0 0
===============================================================================
* Sophia Collier is an Interested Trustee and received no compensation from
Citizens Trust.
The Trustees who are not "interested persons" received aggregate fees from
us of $23,750 for services provided through June 30, 1996 and were also
reimbursed for out of pocket expenses. Our Trustees and officers as a group
owned less than 1% of our outstanding shares as of June 30, 1996.
Other Officers of the Fund
Suzan M. Barron (9/5/64), Vice President, is Legal Counsel of Citizens
Advisers and joined the Adviser in January, 1997. From March, 1993 to October,
1996, Ms. Barron held the position of Legal Counsel with Signature Financial
Group, Inc., a mutual fund administrator and distributor. Prior to that time,
Ms. Barron was a Legal Administration Officer with The Boston Company.
- -------------------------------------------------------------------------------
Additional Information Regarding Citizens Advisers
Sophia Collier individually owns 60% of the outstanding stock of Citizens
Advisers, Inc. Ms. Collier is the founder of American Natural Beverage Corp.,
the maker of Soho Natural Soda, a company which Ms. Collier co-founded in her
Brooklyn kitchen when she was 21 years old and built up over the
20
<PAGE>
next 12 years to an enterprise with 52 employees and retail sales of $25
million. Soho Soda was the first natural soda in America and was created as an
alternative to unhealthful mass market sodas. Ms. Collier and her partners sold
American Natural Beverage Corp. in 1989.
Four other individuals own the remaining 40% of the outstanding stock of
Citizens Advisers, Inc., as follows: John F. Dunfey (12%); Robert J. Dunfey, Sr.
(12%); Gerald F. Dunfey (12%); and William B. Hart, Jr. (4%). John, Robert and
Gerald Dunfey, brothers, now serve as directors of the Dunfey Group, a venture
capital and investment company. The Dunfey family has been associated, over a
number of years, with progressive social and political causes and has actively
participated in organizations dedicated to world peace, human and civil rights,
and economic justice. The family founded and continues to sponsor New England
Circle, a forum for the "discussion of social, political, literary and
educational topics that can lead to constructive change in our lives, our nation
and our world."
- -------------------------------------------------------------------------------
Investment Advisory and Other Services
We are advised by Citizens Advisers, Inc. (the "Adviser") under a contract
known as the Management Agreement. The Adviser has offices at 111 Pine Street,
San Francisco, California 94111 and One Harbour Place, Portsmouth, New Hampshire
03801. The Adviser is a California corporation. Citizens Securities, Inc., a
wholly-owned subsidiary and a California corporation, serves as the Fund's
distributor.
The Management Agreement provides for the Adviser, which is subject to the
control of our Board of Trustees, to decide what securities will be bought and
sold, and when, and requires the Adviser to place purchase and sale orders. At
the Adviser's discretion and sole expense, these duties may be delegated to a
sub-adviser.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Money Market, E[bullet]fund, Citizens Income and
Emerging Growth Portfolios is GMG/Seneca Capital Management, L.P., 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, California. 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,
Ms. Seneca 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% ownership; Wilmington Trust of Wilmington,
Delaware with 24% and Diaz-Verson Capital Investments, Inc. of Columbus, Georgia
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, New
York.
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, Massachusetts. RhumbLine is owned in excess of 97% by J.D.
Nelson, who is also an interested trustee of the Trust.
The Adviser (or the sub-adviser) provides us, at the Adviser's expense,
with all office space, facilities and equipment and clerical personnel necessary
to carry out its duties under the Management Agreement. Some of our Trustees and
our officers are employees of our Adviser and receive their compensation from
the Adviser. Our custodian bank maintains, as part of its services for which we
pay
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a fee, many of the books and records that we are required to have and
computes our net asset value and dividends per share.
We pay the Adviser a fee for its services at a percentage of each
Portfolio's average annual net assets as follows:
Money Market Portfolio--0.35%; the E[bullet]fund--0.10%; Citizens Income
Portfolio--65%; Citizens Emerging Growth Portfolio--1.00%; Citizens Global
Equity Portfolio--1.00%; and Citizens Index Portfolio--0.50%. The fee is accrued
daily and paid at least monthly. The Adviser has agreed to limit our expenses
each year. If expenses exceed this limit, the Adviser will reduce its fee by, or
refund, the amount of the excess. The limit on our expenses, pursuant to the
Management Agreement, is as follows: Money Market Portfolio: 1.50% of the first
$40 million or our average annual net assets and 1% thereafter; and Citizens
Income Portfolio: 1.75% of the first $75 million of average net assets and 1.25%
thereafter.
There is no limit on expenses for the E[bullet]fund, Citizens Emerging
Growth Portfolio, Citizens Global Equity Portfolio and Citizens Index Portfolio.
Not all our expenses are subject to this limit. Interest expenses, taxes,
brokerage commissions, and extraordinary expenses, such as litigation, that do
not usually occur in the operations of a mutual fund are not included. We are
also subject to a statutory expense limitation imposed by the State of
California. This expense limitation requires the Adviser to reduce its fee to
the extent the aggregate annual expenses of a Portfolio exceed 2.50% of the
first $30 million of average net assets in the Portfolio, 2% of the next $70
million of average net assets, and 1.50% of the remaining average net assets in
a Portfolio in any fiscal year.
For the fiscal years ended June 30, 1994, 1995 and 1996, the Adviser
received the following fees: Money Market Portfolio, 1994-$619,206,
1995-$526,422, 1996-$423,731; Citizens Income Portfolio, 1994-$125,495,
1995-$167,280, 1996-$207,386; Citizens Emerging Growth Portfolio, 1994-$7,696,
1995-$67,908, 1996-$197,492; Citizens Global Equity Portfolio,
1994-$12,569,1995-$78,349, 1996-$118,662; and Citizens Index Portfolio, 1994-$0,
1995-$760,572, 1996-$689,466. For the fiscal period ended June 30, 1996, the
Adviser accrued expenses of $4,018 on behalf of the E[bullet]fund, all of which
was waived by the Adviser.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable for any loss sustained by the
purchase, sale or retention of any security and permits the Adviser to act as
investment adviser and/or principal underwriter for any other person, firm or
corporation. The Management Agreement provides that we will indemnify the
Adviser to the full extent permitted under the Declaration of Trust. The
Management Agreement also states that it is agreed that the Adviser shall have
no responsibility or liability for the accuracy or completeness of our
Registration Statement under the Securities Act of 1933 and the 1940 Act except
for information supplied by the Adviser for inclusion therein.
There are similar provisions with respect to the liability of the
sub-adviser, and the obligation of the Fund to indemnify the sub-adviser.
Administrative Services Agreement
The Adviser has also entered into an Administrative Services Agreement with
Citizen Trust, whereby it provides the Trust with the following facilities and
services: 1. Receipt of calls from existing shareholders in a timely manner; 2.
Maintenance of a toll-free number; 3. Response to shareholder questions; 4.
Maintenance of computer interface with the Trust's transfer agent; 5. Execution
of appropriate shareholder requests. 6; Organizational services for any new
series, including, but not limited to the drafting of the prospectus and
statement of additional information, the filing of all required documents,
soliciting proxies, and clerical duties associated with the filing of any such
documents; and 7. Blue sky reporting services as required for the issuer of
securities in the states
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and territories. In addition to the fees paid pursuant to the foregoing,
the Trust has agreed to reimburse Citizens Advisers for out-of pocket expenses,
including but not limited to postage, forms, telephone, and records storage and
any other expenses incurred by Citizens Advisers at the request or with the
consent of the Trust. The Trust also pays to the Adviser shareholder servicing
fees at the following fixed rates: Citizens Income Portfolio, Citizens Emerging
Growth Portfolio and Citizens Global Equity Portfolio, 0.10% of average assets;
and Citizens Index Portfolio, 0.65% of average assets.
For the fiscal years ended June 30, 1994, 1995 and 1996, the Administrator
accrued the following fees: Money Market Portfolio, 1994-$61,382, 1995-$28,499,
1996-$186,145; Citizens Income Portfolio, 1994-$36,725, 1995-$25,295,
1996-$74,254; Citizens Emerging Growth Portfolio, 1994-$4,463, 1995-$24,120,
1996-$117,910; and Citizens Global Equity Portfolio, 1994-$4,673,1995-$22,815,
1996-$68,745. Citizens Index Portfolio paid fees in the amounts of $28,607 and
$903,081 for the period from March 3, 1995 (commencement of operations) through
June 30, 1995 and the fiscal year ended June 30, 1996. The E[bullet]fund paid
fees in the amounts of $6,931 for the period from July 1, 1995 (commencement of
operations) through June 30, 1996.
Distribution Plan
Citizens Securities, Inc. (the "Distributor"), a wholly owned subsidiary of
Citizens Advisers, Inc., acts as the distributor of our shares. There is no
sales charge imposed on any of the Portfolios of the Fund, either when you
purchase or redeem shares.
Broker-dealer and other organizations, known as Service Organizations,
which assist in the distribution of our shares may receive fees from us or our
Distributor. Our Board of Trustees has adopted a Distribution Plan under Section
12(b) of the 1940 Act and Rule 12b-1 thereunder. In approving the Plan, the
Trustees determined, in the exercise of their business judgment and in light of
their fiduciary duties, that there is a reasonable likelihood that the Plan will
benefit us and our shareholders. Pursuant to this Plan, Service Organizations
that enter into written agreements with us and our Distributor may receive, for
administration, shareholder service and distribution assistance, fees at rates
determined by our Trustees. In addition, our Distributor is authorized to
purchase advertising, sales literature and other promotional material and to pay
its own salespeople. We will reimburse the Distributor for these expenditures
and for fees paid to Service Organizations, up to a limit of 0.25% on an annual
basis of our average daily net assets. In addition, if and to the extent that
the fee we pay our Distributor as well as other payments we make are considered
as indirectly financing any activity which is primarily intended to result in
the sale of our shares, such payments are authorized under the Plan.
The Plan was approved on July 5, 1983, by our Trustees, including a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) and who have no financial interest in the operation of the Plan or in
any agreement related to the Plan. These Trustees are known as "Qualified
Trustees." The Plan was approved by a majority of our shareholders at our annual
meeting on April 24, 1984, and has been continued from year to year thereafter
subject to annual approval by a majority vote of our Trustees, including a
majority of the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan was approved by the shareholders of the
Citizens Income Portfolio, on June 11, 1992. Agreements related to the Plan must
also be approved in the same manner by a vote of the Trustees and the Qualified
Trustees. These agreements will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of the
majority of the Qualified Trustees or a vote of our outstanding voting
securities on not more than 60 days notice.
Each Portfolio is responsible for the cost of preparing and setting in type
prospectuses and reports to shareholders and distributing copies of the
prospectuses and reports to shareholders. The Distributor pays the cost of
printing and distributing all other copies of prospectuses and reports, as well
as the costs of supplemental sales literature and advertising. The Fund pays all
of our other expenses not expressly assumed by the Adviser such as interest,
taxes, audit and legal fees and
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expenses, charges of our custodian, our shareholder servicing, transfer and
record-keeping agent costs, insurance premiums, stock issuance and redemption
costs, certain printing costs, costs of registering our shares under federal and
state laws, and dues and assessments of the Investment Company Institute, as
well as any non-recurring expenses, including litigation.
The Plan provides that the Distributor shall provide and the Trustee shall
review quarterly reports setting forth the amounts, payments and the purpose for
which the amounts were expended. The Plan further provides that while it is in
effect the selection and nomination of the Trustees who are not interested
persons shall be committed to the discretion of the Qualified Trustees. The Plan
may not be amended to increase materially the amounts to be spent without
shareholder approval, as set forth above, and all amendments must be approved by
the Trustees, as described above. The Plan only permits reimbursement of actual
expenses and does not permit expenses to be carried forward from one fiscal
period to another. For the years ended June 30, the following fees were approved
and paid under this Plan, 1991-$474,900, 1992-$508,374, 1993-$ 606,018,
1994-$713,847, 1995-$783,111 and 1996-$683,515. The major categories of expenses
for 1996 were as follows: advertising, printing and mailing prospectuses to
other than current shareholders, compensation to broker/dealers and compensation
to sales personnel.
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Additional Information
Our Declaration of Trust permits our Trustees to issue an unlimited number
of full and fractional shares of beneficial interest and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Fund. Each share represents an
interest in the Fund. Certificates representing our shares are not issued. In
the event of our liquidation, all shareholders would share pro rata in our net
assets available for distribution to shareholders. The Trustees also have the
power to designate "series" of the Fund which will function as separate
Portfolios, each having it's own assets and liabilities. They may also create
additional classes of shares which may differ from each other as to dividends.
Shares of each class are entitled to vote as a class or series only to the
extent required by the 1940 Act or as provided in our Declaration of Trust or as
permitted by our Trustees. Income and operating expenses are allocated fairly
among the series and classes by our Trustees. We intend to manage our Portfolios
in such a way as to be a "diversified" investment company, as defined in the
1940 Act. As of June 30, 1996, there were 108,006,752 outstanding shares of our
Common Stock, representing all the shares of all of the Citizens Trust
Portfolios. The following are the shareholders who owned beneficially or of
record 5% or more of the outstanding shares: Money Market Portfolio, the
E[bullet]fund, Citizens Index Portfolio and Citizens Income Portfolio - no
holders of 5% or more. Citizens Emerging Growth Portfolio - Charles Schwab & Co,
Inc., 9.0%; and Citizens Global Equity Portfolio - Charles Schwab & Co, Inc.,
17.9%.
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Voting Rights
Shareholders are entitled to one vote for each full shares held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. Voting is generally
by class and series except as otherwise provided by the provisions of the 1940
Act. The Trustees will call a meeting of shareholders to vote on the removal of
a Trustee upon the written request of the record holders of ten percent of our
shares. No amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of our outstanding shares. The
holders of shares have no preemptive or conversion rights. Shares when issued
are fully paid and non assessable, except as set forth under "Shareholder and
Trustee Liability" below. The Fund may be terminated upon the sale of its assets
to another issuer, if such sale is approved by the vote of the holders or more
than 50% of our outstanding shares, or upon liquidation and distribution of our
assets, if approved by the vote of the holders of more than 50% of our
outstanding shares. If not so terminated, the Fund will continue indefinitely.
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Shareholder and Trustee Liability
We are an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. Our Declaration of Trust contains an express disclaimer of shareholder
liability for our acts or obligations and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by us or our Trustees. The Declaration of Trust provides for
indemnification and reimbursement of expenses by the relevant Portfolio out of
the Portfolio's property for any shareholder held personally liable for the
Portfolio's obligations. The Declaration of Trust also provides that we shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of ours and satisfy our judgment thereon. Thus, the risk
of a shareholder incurring financial loss on account of shareholders liability
is highly unlikely and is limited to the relatively remote circumstances in
which we would be unable to meet our obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
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Custodian
State Street Bank and Trust of Boston, Massachusetts, is the custodian of
the assets of the Fund. The custodian takes no part in determining the
investment policies of the Fund or in deciding which securities are purchased or
sold by the Fund. We, however, may invest in obligations of the custodian and
may purchase or sell securities from or to the custodian.
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Auditors
Tait, Weller & Baker of Philadelphia, Pennsylvania serves as our Fund's
independent auditors, providing audit services including (1) examination of the
annual financial statements and limited review of unaudited semi-annual
financial statements (2) assistance and consultation in connection with SEC
filings and (3) review of the federal and state income tax returns filed on our
behalf.
The financial statements of the Fund incorporated here by reference, have
been examined by Tait, Weller & Baker, independent auditors, as stated in their
report which is incorporated by reference, and have been so incorporated in
reliance upon such report given upon their authority as experts in accounting
and auditing.
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Legal Counsel
Bingham, Dana & Gould LLP of Boston, Massachusetts.
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Financial Statements
The following financial statements of the Fund and the opinion of its
independent auditors, included in the Annual Report to the shareholders for the
year ended June 30, 1996 are incorporated herein by reference and are provided
to each person to whom the Statement of Additional Information is sent or given:
Statement of Investments - June 30, 1996
Statement of Assets and Liabilities - June 30,1996
Statement of Operations for the year ended - June 30, 1996
Statement of Changes in Net Assets for the years ended June 30, 1995 and 1996.
Notes to Financial Statements
Report of Independent Certified Public Accountants
Management Discussion
It is the policy of the Fund to provide a management discussion of the
strategy and performance of each Portfolio in the Annual Report.
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APPENDIX A: Description of Ratings
Description of Bond Ratings
We use the ratings provided by national rating services as one of several
indicators of the investment quality of fixed income securities. The following
is a description of the ratings of the two services we use most frequently. When
considering any rating, it is important to remember that the ratings of Moody's
and Standard & Poor's represent their opinions as to the quality of various debt
instruments. It should be emphasized, however, that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments with the same
maturity and coupon with different ratings may have the same yield.
Moody's
"Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa granted they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A posses many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
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Conditional Ratings: Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operations experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
Absence of Rating: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications. Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude satisfactory analysis; if
there is no longer available reasonable up-to-date data to permit a judgment to
be formed; if a bond is called for redemption; or for other reasons.
Standard & Poor's
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
BB, B, CCC, CC AND C: Debt rated BB, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures for adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major on-going uncertainties or exposure
to adverse business, financial, or economic
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conditions which could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category also used for debt subordinated to
senior debt that is assigned as actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but has the capacity to
meet interest payments and principal repayments. Adverse business, financial or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBb or BB rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that it assigned an actual or implied
B or B rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
NR: indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Note: The Standard & Poor's ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating
categories.
Fitch Investors Service, Inc.:
AAA: (highest quality) The obligor has an extraordinary ability to pay interest
and repay principal which is unlikely to be affected by reasonably foreseeable
events.
AA: (high quality) The obligor's ability to pay interest and repay principal,
while very strong, is somewhat less than for AAA rated securities or more
subject to possible change over the term of the issue.
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A: (good quality) The obligor's ability to pay interest and repay principal is
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: (satisfactory bonds) The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to weaken this ability than bonds
with higher ratings.
Commercial Paper
Moody's:
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment
P-2 (Prime-2): Strong capacity for repayment
P-3 (Prime-3) Acceptable capacity for repayment
Standard & Poor's:
Standard & Poor's ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. Ratings
are graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues within the "A" category are delineated
with the numbers 1, 2 and 3 to indicate the relative safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information.
30
