As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 33- _____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14 AE24
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CITIZENS INVESTMENT TRUST
(Exact name of registrant as specified in charter)
One Harbour Place
Suite 525
Portsmouth, N.H. 03801
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(603) 436-5152
Sophia Collier
One Harbour Place
Suite 525
Portsmouth, N.H. 03801
(Name and address of Agent for Service)
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Accordingly, no fee is payable herewith.
Registrant's Rule 24f-2 Notice for the fiscal year ended June 30, 1996 was filed
with the Commission on August 29, 1996.
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CITIZENS INVESTMENT TRUST
FORM N-14 CROSS-REFERENCE PAGE
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Item 1. Cover Page Cover page
Item 2. Back Page Back page
Item 3. Synopsis & Risk Factors Summary; Investment Policies
& Risk Factors
Item 4. Information about the Comparison of the Portfolio and
Transaction the Income Portfolio
Item 5. Information about the Investment Policies and Risk Factors;
Registrant Comparison of the Portfolio and Income
Portfolio;The People and Operations
of Citizens Trust
Item 6. Information about the Investment Policies and Risk Factors;
Company Being Acquired Comparison of the Portfolio and Income
Portfolio;The People and Operations
of Citizens Trust
Item 7. Voting Information Voting Information
Item 8. Interest of Certain Description of the Plan of
Persons and Experts Reorganization
Item 9. Additional Information
on Reoffering Underwriters Not Applicable
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PART B: INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information Management of the Trust
about the Registrant
Item 13. Additional Information Not Applicable
about the Company Being
Acquired
Item 14. Financial Statements Financial Statements
PART C: OTHER INFORMATION
Item 15. Indemnification Not Applicable
Item 16. Exhibits Reorganization Agreement; Prospectus
of Citizens Trust
Item 17. Undertakings Undertakings
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CITIZENS TRUST
Muir California Tax-Free Income Portfolio
One Harbour Place
Portsmouth, New Hampshire 03801
Phone: (800) 223-7010
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on July 31, 1997 at the offices of Citizens Trust, One Harbour Place,
Portsmouth, New Hampshire 03801, at 10:30 am, EST.
To the Shareholders of Muir California Tax-Free Income Portfolio:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of Muir California
Tax Free Income Portfolio (the "Portfolio") will be held on July 31, 1997 for
the following purposes.
ITEM 1.
To decide whether or not to approve the attached Plan of Reorganization ("the
Plan") wherein it is proposed that the Muir California Tax Free Income Portfolio
be reorganized with the Citizens Income Portfolio (the "Income Portfolio"),
another series portfolio of Citizens Investment Trust (the "Trust").
If shareholders of the Portfolio approve the Plan, they will be approving:
(a) The transfer of all the assets and liabilities of the Portfolio to the
Income Portfolio, in exchange for shares of the Income Portfolio with a
value equal to the value of the assets (minus liabilities);
(b) The distribution of the shares of equal value in the Income Portfolio to the
shareholders of the Portfolio;
(c) The dissolution of the Portfolio.
ITEM 2.
To transact such other business as may properly come before the Special Meeting
or any adjournment thereof.
The proposed reorganization and related matters are described in the attached
Combined Proxy Statement/Prospectus. A copy of the Plan is also attached for
your information as Exhibit 1.
Shareholders of record in the Portfolio, as of the close of business on May
30, 1997 (the "Record Date") are entitled to notice of, and to vote at, the
Special Meeting or any adjournment thereof.
The Trustees recommend that shareholders of the Portfolio vote YES on Item 1.
YOUR VOTE MATTERS! PLEASE READ, COMPLETE AND RETURN PROMPTLY THE ENCLOSED PROXY
CARD WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES OF CITIZENS TRUST. THIS
IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES MAY BE REVOKED AT ANY
TIME BEFORE THEY ARE EXERCISED BY A SIGNED WRITING DELIVERED AT THE MEETING OR
FILED WITH THE SHAREHOLDER SERVICING AGENT.
Sophia Collier
President
June 15, 1997
THE SECURITIES OF CITIZENS TRUST HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS COMBINED PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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PROXY STATEMENT/PROSPECTUS
Dated: June 15, 1997
CITIZENS TRUST
One Harbour Place, Portsmouth, New Hampshire 03801
Phone: (800) 223-7010
This document is called a Combined Proxy Statement/Prospectus. It is meant to
provide you with two types of information. First, it describes a reorganization
we have approved, subject to shareholder approval, to reorganize Muir California
Tax-Free Income Portfolio (the "Portfolio) into Citizens Income Portfolio
("Income Portfolio"). Second, it offers the investment disclosures you will need
should the reorganization plan be effected.
We, the Board of Trustees, on behalf of Citizens Investment Trust (the "Trust"),
are sending you this Combined Proxy Statement/Prospectus to solicit your proxy
to be voted for or against the reorganization at a Special Meeting of
Shareholders to be held on July 31, 1997.
Why Are We Doing This?:
The primary reason for this reorganization is to allow us to pursue an
investment strategy that is similar to that of the Portfolio -- investment in
fixed income securities to generate income and pay a monthly dividend -- and one
that we believe will assist in seeking to increase our rate of return without
increasing our risk.
How the Reorganization Will Work:
The Income Portfolio is an existing series portfolio of the Trust, which started
operations on June 10, 1992. If the shareholders vote to go ahead, all of the
assets and liabilities of the Portfolio will be transferred to Income Portfolio.
In exchange, the Portfolio will then be given shares of the Income Portfolio of
equal value to the assets (reduced by the liabilities) which they each
transferred.
Following the exchange, the Portfolio will make what is called a
liquidating distribution of the shares of the Income Portfolio, such that each
shareholder in the Portfolio at the effective time of the reorganization will
receive a number of full and fractional shares of the Income Portfolio having a
net asset value equal to the value of the shares of the Portfolio held by that
shareholder.
What You Need To Know:
This Combined Proxy Statement/Prospectus sets forth concisely the information
that shareholders of the Portfolio should know before voting on the Plan of
Reorganization and should be retained for future reference. The prospectus for
the Trust is attached as Appendix 1.
Additional information is provided in the Statement of Additional Information,
dated September 26, 1996. This document is on file with the Securities and
Exchange Commission (the "SEC"). If you would like us to send you a copy of the
Statement of Additional Information or the Annual or Semi-Annual Reports, please
call us, toll free at (800) 223-7010 and we will be happy to send them to you
without any charge.
The information contained in the enclosed prospectus and the Statement of
Additional Information is incorporated herein by reference.
This Combined Proxy Statement/Prospectus is expected to first be sent to
shareholders on or about June 15, 1997.
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TABLE OF CONTENTS
Item: Page
- ------------------------------------------------------------------------------
Summary ..................................................................
Investment Policies and Risk Factors .....................................
Comparison of the Portfolio and Income Portfolio .........................
The People and Operations of Citizens Trust ..............................
Voting Information .......................................................
Description of the Reorganization Agreement ..............................
Board Consideration ......................................................
Additional Information about the Income Portfolio and the Portfolio ......
Exhibit 1 - Plan of Reorganization .......................................
Appendix 1 - Prospectus of Citizens Trust ................................
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, THE PLAN OF
REORGANIZATION, A COPY OF WHICH IS EXHIBIT 1 TO THIS PROSPECTUS/PROXY STATEMENT
AND THE ACCOMPANYING PROSPECTUS OF THE TRUST DATED SEPTEMBER 27, 1997.
The Plan of Reorganization (the "Plan") provides for the transfer of all or
substantially all of the assets of the Portfolio to the Income Portfolio in
exchange for shares of beneficial interest on the Income Portfolio and the
assumption by the Income Portfolio of certain scheduled liabilities of the
Portfolio. The Portfolio would then distribute such shares of the Income
Portfolio to its shareholders in liquidation of the Portfolio. As a result of
the reorganization, each shareholder of the Portfolio will become the owner of
that number of full and fractional shares of the Income Portfolio having an
aggregate value equal to the aggregate value of the shareholders shares of the
Portfolio as of the close of business on the date that the Portfolio's assets
are exchanged for the shares of the Income Portfolio. Following the
reorganization, the Portfolio will be terminated.
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Trustees, including a majority of the Trustees who are not "interested
persons" as that term in the Investment Company Act of 1940, as amended (the
"1940 Act") (the "Independent Trustees"), has unanimously concluded that the
reorganization would be in the best interests of the Portfolio's shareholders
and the transactions contemplated by the reorganization will not dilute the
interests of the existing shareholders of the Portfolio or the Income Portfolio.
The Board of Trustees has, therefore, submitted the Plan for approval by the
shareholders of the Portfolio.
Approval of the reorganization will require the affirmative "vote of a majority
of the outstanding voting securities" (as defined in the 1940 Act) ("Majority
Shareholder Vote") of the Portfolio. Majority Shareholder Vote means that to be
approved, the proposal must receive the affirmative vote of the lesser of: (i)
67% of the shares of the Portfolio present at the Meeting, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy; or (ii) more than 50% of the outstanding shares of the
Portfolio. See "Voting Information."
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Fees and Expenses
The following table provides: (1) a summary of the aggregate operating expenses
of the Portfolio; (2) a summary of the aggregate operating expenses of the
Income Portfolio; and (3) a pro forma summary of the aggregate operating
expenses of the Income Portfolio following the reorganization. The table also
illustrates the dollar cost of such expenses on a $1,000 investment in the
Portfolios.
Expense Table
Annual Operating Expenses
(as a percentage of the average daily net assets of the Portfolio)
The Portfolio Income Portfolio Pro Forma
------------- ---------------- ---------
Management fee 0.65% 0.65% 0.65%
Distribution fee (12b-1) 0.25% 0.25% 0.25%
Other expenses (after
waiver and reimbursement) 0.65% 0.53% 0.53%
Total 1.55% 1.43% 1.43%
The Trust's investment adviser waived certain fees and reimbursed expenses,
without which total operating expenses for the year ended June 30, 1996 would
have been 1.48% for the Income Portfolio and 1.87% for the Portfolio.
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
Portfolio $16 $49 $84 $185
Income Portfolio 15 45 78 171
Pro Forma 15 45 78 171
This information is intended to assist you in understanding your various direct
and indirect costs and expenses of a $1,000 investment in the Trust. 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.
Exchange Privileges:
Shareholders of the Portfolio and the Income Portfolio currently are entitled to
exchange their shares for shares of other Portfolios in the Citizens Trust
registered in their state. It is anticipated that, after the reorganization, the
same exchange privileges will continue with respect to shareholders of the
Portfolio. Any exchange will be a taxable event for which a shareholder may have
to recognize a gain or a loss under federal income tax provisions. The Trust
reserves the right to terminate or modify the exchange privilege in the future.
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Dividends:
Both the Portfolio and the Income Portfolio distribute dividends monthly and pay
out net realized capital gains, if any, once each year. Shareholder of either
Portfolio may reinvest distributions. Your existing election in the Portfolio
with respect to dividends and/or capital gains will be continued with respect to
the shares of the Income Portfolio you acquire in connection to the
reorganization unless you notify the Trust of a new election.
Proposed Reorganization:
The Board of Trustees have approved the Plan, which is being recommended to the
shareholders of the Portfolio for approval at the Meeting. Subject to your
approval, the Plan provides for: (a) the acquisition by the Income Portfolio of
all the assets and liabilities of the Portfolio in exchange for shares of the
Income Portfolio; and (b) the distribution of such Income Portfolio shares to
the shareholders of the Portfolio in liquidation of the Portfolio.
As a result of the proposed reorganization, each shareholder of the Portfolio
will become a shareholder of the Income Portfolio and will hold, immediately
after the time the reorganization becomes effective (the "Effective Time of the
Reorganization"), the same dollar value of the Income Portfolio that such
shareholder held in the Portfolio immediately before the Effective Time of the
Reorganization.
Reasons for Reorganization:
The Trustees have considered the issues inherent in the small size of the
Portfolio and have concluded that by combining the Portfolio into the larger
Income Portfolio, the assets could be more efficiently managed, expenses reduced
and our rate of return increased without increasing our risk. The reorganization
of the Portfolio will also allow shareholders to continue their investment goal
of a high level of current income while maintaining their status as socially
responsible investors. At March 31, 1997, the Income Portfolio had approximately
three times the total net assets of the Portfolio ($34,231,871 million in the
Income Portfolio as compared to $11,460,158 million in the Portfolio). Unlike
the Portfolio, the Income Portfolio is not a tax exempt investment. Shareholders
of the Portfolio will benefit from the better performance track record of the
Income Portfolio ([]% tax adjusted average annual total return for the Income
Portfolio for the 3 year period ending 5/30/97 verses []% tax adjusted average
annual total return for the Portfolio for the three year period ending 5/30/97)
with relatively less risk.
Federal Income Tax Consequences:
Consummation of the reorganization is subject to the condition that the Trust
receives an opinion from counsel to the effect that the reorganization will not
give rise to the recognition of income, gain or loss for federal income tax
purposes to either of the Portfolio, the Income Portfolio or their respective
shareholders.
Capitalization:
The following table shows the capitalization of the Portfolio and the Income
Portfolio as of May 30, 1997 ("Record Date"), and on a pro forma basis as of
that date, giving effect to the proposed acquisition of assets at net asset
value.
===============================================================================
Income
Portfolio Portfolio Pro Forma
(unaudited) (unaudited) (unaudited)
- -------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
Net assets $ $ $
- -------------------------------------------------------------------------------
Net asset value per share
- -------------------------------------------------------------------------------
Shares outstanding
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As of May 30, 1997 ("Record Date") the officers and Trustees of the Trust
beneficially owned as a group less than 1% of the outstanding shares of the
Portfolio and the Income Portfolio. To the best knowledge of the Trust, as of
the Record Date, other than as set forth below, no shareholders or "group" (as
the term is defined in section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) owned beneficially or of record more than 5% of
the outstanding shares of the Portfolio. [list beneficial owners of Muir] To the
best knowledge of the Trust, as of the Record Date, other than as set forth
below, no shareholders or "group" (as the term is defined in section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) owned
beneficially or of record more than 5% of the outstanding shares of the Income
Portfolio. [list beneficial owners of Income]. After the Reorganization, [common
owner] is expected to beneficially own [ %] of the combined portfolio.
INVESTMENT POLICIES AND RISK FACTORS
Comparison of the Portfolio and the Income Portfolio
Similar Investment Goal - Different Strategies to Attain it.
The Portfolio and the Income Portfolio are both designed to seek current income,
however, they each have their own approach to accomplish this goal. The
investment objective of the Portfolio and the Income Portfolio are each a
fundamental policy which means that they cannot be changed without the prior
approval of the respective series' shareholders.
The objective of the Portfolio is "high current income exempt from both federal
and California state income tax." By contrast, the Income Portfolio's objective
is "to generate current income and pay a monthly dividend." Although both
portfolios seek a steady flow of income for their respective shareholders, the
primary difference between the Portfolio and the Income Portfolio is that the
income produced from the Income Portfolio would be subject to federal and state
tax.
As funds investing in fixed income securities, both the Portfolio and the Income
Portfolio have certain risks associated with this investment strategy. The first
is credit risk. Although the Portfolio and the Income Portfolio both invest in
primarily "investment grade" securities, that is, securities rated BBB or higher
by Moody's Investor Services, Inc. or Standard & Poor's Corporation, there is
still the possibility that an issuing security will be unable to repay its
principal interest. The second is interest rate fluctuation risk. Bond prices
react directly to interest rate fluctuations and are also reflected in the value
of the Portfolio and the Income Portfolio. When interest rates rise, the market
value of the Portfolio and the Income Portfolio will decline, and when interest
rates fall, the market value of the Portfolio and the Income Portfolio will
rise.
Because the Portfolio invests primarily in California municipal securities, the
Portfolio is subject to greater risk associated with single state investing.
Overall, there has not been a favorable outlook for municipal securities
investing due to speculation over tax reforms. In particular, there has been an
ongoing concern regarding California municipal securities due to State
regulatory changes and a fiscal deficit that has raised the question as to
whether California state municipal issuers will be able to honor their financial
obligations.
Due to the Portfolio's limited investment objective, the Portfolio has received
an overall lower rating of two stars, which is a ranking of 78 among 172 state
municipal bond funds from Morningstar for the period ended February 27, 1997.
For the same period, the Income Portfolio received a rating of 4 stars,
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which is a ranking of 44 among 429 income funds from Morningstar. Of course,
past performance is not a guarantee of future results.
It is important to relate risk to return. In order to determine whether your
return on your investment in the Portfolio was sufficient to reward you for the
degree of risk incurred we have compiled the following comparisons to assist you
in that determination. As the chart below indicates, the Portfolio's excess
return in comparison to the standard deviation of the Portfolio's performance
for the 3 year period ended February 28, 1997 versus that of the Income
Portfolio for the same period was lower. Standard deviation is a way of showing
the measure of volatility compared to the Portfolio's mean performance over the
period indicated.
==============================================================================
Portfolio Sharpe Ratio = 0.43
- ------------------------------------------------------------------------------
Income Portfolio Sharpe Ratio = 0.46
==============================================================================
As the degree of risk in comparison to return for the Portfolio is higher than
that of the Income Portfolio, we feel that the Reorganization of the Portfolio
into the Income Portfolio is in the best interest of shareholder when
considering risk assessment.
Given the similarities of the investment objectives and policies of the Income
Portfolio and the Portfolio, and the lower risk profile of the Income Portfolio,
the Trustees believe that an investment in the Income Portfolio involves
investment risks that are substantially the same or lower than those of the
Portfolio.
Comparison of the Portfolio's and the Income Portfolio's shareholder service
policies:
The Income Portfolio has identical policies to the Portfolio with respect to
purchases, redemptions, wire transfers and other shareholder service issues.
Strategy to effect a smooth transition from the Portfolio to the Income
Portfolio:
As is described in this proxy, the Income Portfolio will receive all assets and
liabilities of the Portfolio after the reorganization. In order to insure a
smooth transition we will employ what is referred to as a "natural" strategy to
sell the assets of the Portfolio which are not members of the Income Portfolio's
underlying portfolio of investments or are overweighted. This means they will be
sold gradually in the ordinary course of business, so as not to adversely affect
the market for these securities or the investment performance of the Income
Portfolio.
THE PEOPLE AND OPERATIONS OF CITIZENS TRUST:
Citizens Investment Trust began as Working Assets Money Fund on November 14,
1982. The Trust is a Massachusetts business trust and an open-end investment
company, registered under the 1940 Act as a diversified management company. The
Trust is set up as a "series" company which means that the Trust can have
several portfolios, each with its own investment objectives, assets and
liabilities.
The Trust has a Management Agreement with Citizens Advisers, Inc.
Citizens Advisers, which prior to 1988 was organized as a limited partnership,
has managed the Trust's affairs since the Trust's inception in 1982.
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The Trust is located at One Harbour Place, Portsmouth, New Hampshire 03801.
Owners:
Citizens Securities Inc. and its parent, Citizens Advisers, are both California
corporations. Sophia Collier, president of Citizens Advisers, owns 60% of the
outstanding stock of Citizens Advisers. Her fellow shareholders are three
brothers, John P. Dunfey, Robert J. Dunfey Sr., and Gerald F. Dunfey, who own
12% each and William B. Hart, who owns 4%.
In its role as investment adviser to the Trust, Citizens Advisers determines
which companies meet the Trust's social and financial criteria and therefore
will be approved for inclusion in the Trust's portfolios of investment. Citizens
Advisers also provides additional administrative functions as needed under a
separate Administrative Contract. Citizens Advisers' wholly owned subsidiary,
Citizens Securities, serves as the Trust's Distributor.
To assist Citizens Advisers with portfolio management, sub-investment advisers
("the Sub-Advisers") have been retained to determine which securities should be
bought and sold for the individual Portfolios. Citizens Advisers has given
special attention to finding people who it believes have the potential to
achieve its financial goals, as well as to respect the Trust's social mission.
GMG/Seneca Capital Management
GMG/Seneca Capital Management is the Sub-Adviser to both the Portfolio and
Income Portfolio. GMG/Seneca also serves as Sub-Adviser to Working Assets Money
Market Portfolio, the Eofund and Citizens Emerging Growth Portfolio, which are
all series of the Trust. A registered investment adviser, established in 1990,
GMG/Seneca manages over $3 billion for its clients which include the Portfolio.
Its offices are located at 909 Montgomery Street, San Francisco, California.
GMG/Seneca has significant experience in fixed income management and equity
selection.
GMG/Seneca Capital Management is organized as a California limited partnership.
It 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 senior investment
officer where she headed the fixed income management group and co-chaired the
equity strategy committee.
Citizens Advisers
The Management Agreement with Citizens Advisers specifies that they be paid fees
based upon average annual net assets and they in turn pay fees to the
Sub-Adviser, as described below:
Portfolio Adviser Sub-Adviser
- ------------------------------------------------------------------------------
Muir California Tax-Free Income Portfolio .65% .175%
Citizens Income Portfolio .65% .17%
In exchange for these fees, Citizens Advisers agrees to provide all office
space, facilities, equipment, and personnel necessary to do its job as
investment adviser. Citizens Advisers is also responsible for all fees paid to
Sub-Adviser.
Citizens Advisers also provides administrative services to the Trust under a
separate Administrative Contract. Under this contract, Citizens Advisers
provides general administrative services, shareholder servicing and
sub-accounting, telephone services and services relating to the organization of
a portfolio's federal and state regulatory filings. The fees paid by the Trust
under this contract are set by the Trustees based upon the services required.
For the year ending June 30, 1996 the Trust paid Citizens Advisers $583,266 for
its administrative services under this contract for all series of the Trust.
The individual Portfolios of the Trust pay all expenses not expressly assumed by
Citizens Advisers. These include interest, taxes, audit and legal fees,
custodian and transfer agent charges, insurance premiums, cost of registering
shares under federal and state laws, dues, and any litigation costs, as well as
the cost of typesetting, printing, and distributing shareholder reports and
prospectuses sent to shareholders. When a
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cost is shared by several Portfolios, the staff at Citizens Advisers will
allocate it among the Portfolios in a reasonable manner.
12b-1 Fees
The Trust has a 12b-1 plan. The plan allows the Trust to reimburse Citizens
Securities and other distributors of the Trust's shares for sales related costs
up to 0.25% of the average annual net assets of each series of the Trust, with
the exception of the E[bullet]fund.
Sometimes Citizens Securities makes additional promotional expenditures that are
not reimbursed by the 12b-1 plan. This may include paying dealers who employ
sales people, called registered representatives, additional fees beyond the
12b-1 fees or giving them non-cash promotional incentives such as trips or
merchandise for special promotional purposes. They may also make expense
reimbursements to non-dealers for meetings, sales contests, advertising, and
other valid promotional purposes. Any promotional expenses beyond the limits of
the 12b-1 plan will be paid for by Citizens Securities.
Trustees
Citizens Trust is governed by a group of Trustees. Their names, dates of
birth and occupations are as follows: The 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
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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 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.
10
<PAGE>
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
- -------------------------------------------------------------------------------
===============================================================================
Name of Person Aggregate Compensation Total Compensation Paid
and Position from The Fund to 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
===============================================================================
* 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.
Accounting Matters:
The Portfolio and the Income Portfolio use the same method to value their
shares. This method is described in the Portfolio and the Income Portfolio's
prospectus which are attached as Appendix 1.
VOTING INFORMATION
This Combined Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Trust's Board of Trustees for use at a
Special Meeting of Shareholders of the Portfolio to be held on July 31, 1997 at
the offices of the Trust, One Harbour Place, Suite 525, Portsmouth New
Hampshire, at 10:30 am.
Only Shareholders of record at the close of business on May 30, 1997 will be
entitled to vote at the Meeting or any adjournment thereof.
Holders of each share or fraction thereof are entitled to one vote or fraction
thereof. Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon, or if no specification is made, the
persons named as proxies will vote in favor of the proposal set forth in the
Notice of Meeting. Broker non-votes or abstentions are counted for the purpose
of determination of a quorum and will not be counted as either for or against
the proposals. Proxies may be revoked at any time before they are exercised by a
signed writing delivered at the Meeting or filed with the shareholder's
Shareholder Servicing Agent which is the agent of record with respect to the
shares represented by the proxy.
It is expected that the solicitation of proxies will be primarily by mail and
telephone. The Trust's officers and service contractors may also solicit proxies
by telephone, telegraph or personal interview. Any shareholder giving a proxy
may revoke it at any time before it is exercised by a signed writing delivered
at the Meeting or filed with the Shareholder Servicing Agent prior to the
Meeting.
11
<PAGE>
If the accompanying proxy is executed and returned in time for the Meeting, the
shares covered thereby will be voted in accordance with the proxy on all matters
that may properly come before the Meeting (or any adjournment thereof).
Shareholder and Board Approvals
The Plan of Reorganization (and the transactions contemplated therein) are being
submitted for approval at the Meeting by a Majority Shareholder Vote in
accordance with the provisions of the Trust's Declaration of Trust and the
requirements of the 1940 Act. Shareholder Vote Majority means the lesser of (i)
67% of the shares of the Portfolio present at the Meeting, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or by
proxy, or (ii) more than 50% of the outstanding shares of the Portfolio.
The vote of the shareholders of the Income Portfolio is not being solicited,
since their approval or consent is not necessary for the reorganization.
The Plan of Reorganization was approved by the Trust's Board of Trustees on May
5, 1997.
Appraisal Rights
Shareholders are not entitled to any rights of share appraisal under the Trust's
Declaration of Trust or under the laws of the Commonwealth of Massachusetts in
connection with the reorganization. Shareholders have, however, the right to
redeem from the Trust their Portfolio shares at net asset value until the
Effective Time of the Reorganization, and thereafter shareholders may redeem
from the Income Portfolio the shares acquired by them in the reorganization at
net asset value subject to the forward pricing requirements of Rule 22c-1 under
the 1940 Act.
Quorum
In the event that a quorum is not present at the Meeting, or in the event that a
quorum is present at the Meeting but sufficient votes to approve the Plan of
Reorganization are not received, William D. Glenn II and Sophia Collier, the
persons named as proxies, or their substitutes, may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of the shares
represented at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to vote
FOR the Plan of Reorganization in favor of such adjournments, and will vote
those proxies required to be voted AGAINST such proposal against any
adjournment. Under the By-Laws of the Trust, a quorum is constituted by the
presence in person or by proxy of the holders of more than 50% of the
outstanding shares of the Portfolio entitled to vote at the meeting.
Annual Meetings
The Trust does not presently intend to hold annual meetings of shareholders for
the election of trustees and other business unless and until such time as less
than a majority of the Trustees holding office have been elected by the
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Under certain circumstances,
however, shareholders have the right to call a meeting of shareholders to
consider the removal of one or more trustees and such meetings will be called
when requested by the holders of record of 10% or more of the Trust's
outstanding shares. To the extent required by law and the Trust's undertaking
with the SEC, the Trust will assist in shareholder communications in such
matters. In addition, the Trust will hold special meetings of shareholders when
required under the 1940 Act.
DESCRIPTION OF THE REORGANIZATION AGREEMENT
The terms and conditions for the reorganization are contained in the Plan of
Reorganization. Significant provisions of this Plan are summarized below. For
full details please read the complete Plan of Reorganization, a copy of which is
attached as Exhibit 1 to this Combined Proxy Statement/Prospectus.
[bullet] The Portfolio will transfer assets and liabilities to the Income
Portfolio in exchange for shares in the Income Portfolio.
The Plan of Reorganization provides that at the Effective Time of the
Reorganization all of the assets and liabilities of the Portfolio will
be transferred to the Income Portfolio. In exchange for the transfer of
the
12
<PAGE>
assets and liabilities of the Portfolio, the Income Portfolio will
simultaneously issue at the Effective Time of the Reorganization full
and fractional shares in the Income Portfolio.
The number of shares so issued will be equal in value to the number of
full and fractional shares of beneficial interest of the Portfolio that
are outstanding immediately prior to the Effective Time of the
Reorganization.
[bullet] Shareholders of the Portfolio will receive shares in the Income
Portfolio
Following the transfer of assets and liabilities in exchange for Income
Portfolio shares, the Trust will distribute the shares of the Income
Portfolio so received to the shareholders of the Portfolio. Each
shareholder owning shares of the Portfolio at the Effective Time of the
Reorganization will receive an equivalent dollar value of Income
Portfolio shares for each Portfolio share held by the shareholder, plus
the right to receive any unpaid dividends or distributions which were
declared prior to the Effective Time of the Reorganization on Portfolio
shares with a record date and ex-dividend date prior to the Effective
Time of the Reorganization.
The stock transfer books of the Trust with respect to the Portfolio
will be permanently closed as of the close of business on the day
immediately preceding the Effective Time of the Reorganization.
Redemption requests received thereafter by the Trust with respect to
the Portfolio will be deemed to be redemption requests for shares of
the Income Portfolio to be distributed to the former Portfolio
shareholders. If any Portfolio shares held by a former Portfolio
shareholder are represented by a share certificate, the certificate
must be surrendered to the Income Portfolio's transfer agent for
cancellation before the Income Portfolio shares issued to the
shareholder in the reorganization will be redeemed.
The Plan of Reorganization contemplates that advisory and
administration services will continue to be provided to the Income
Portfolio after the Effective Time of the Reorganization by Citizens
Advisers as described in the accompanying Prospectus.
The reorganization is subject to the following conditions:
[bullet] Approval of the Plan of Reorganization and the transactions
contemplated therein by the shareholders of the Portfolio.
[bullet] the receipt of certain legal opinions described in Section 5 of the
Plan of Reorganization (which includes the opinion of counsel that
Income Portfolio shareholders in accordance with the terms of the Plan
or Reorganization will be validly issued, fully paid and
non-assessable) except as otherwise described in this Combined Proxy
Statement/Prospectus.
Assuming satisfaction of the conditions in the Plan of Reorganization, the
Effective Time of the Reorganization will be on July 31, 1997 or such other date
as is agreed to by the parties.
Expenses of the shareholders meeting, mailing, special trustee meeting and all
other expenses of the Meeting (estimated to be approximately $25,000) will be
paid by the reorganized Income Portfolio. If the reorganization fails to achieve
an affirmative vote, these expenses will be borne by Citizens Advisers.
In addition, the Income Portfolio will bear all share registration expenses
arising in connection with the reorganization.
The Trustees retain the option to cancel or modify the Plan of Reorganization.
The Plan of Reorganization and the reorganization described herein may be
abandoned at any time prior to the Effective Time of the Reorganization upon the
concurring votes of a majority of the Board of Trustees. The Plan of
Reorganization provides further that at any time prior to or (to the fullest
extent permitted by law) after approval of the Plan of Reorganization by the
shareholders of the Portfolio (a) the Trustees with or without the approval of
their shareholders, may amend any of the provisions of the Plan of
Reorganization and (b) any party may waive any default by any other party for
the failure to satisfy any of the conditions to its obligations (such waiver to
be in writing and authorized by the Trustees without the approval of the
shareholders).
13
<PAGE>
FACTORS CONSIDERED BY THE BOARD OF TRUSTEES BEFORE
RECOMMENDING THIS TRANSACTION:
Based upon their evaluations of the relevant information presented to them, and
in light of their fiduciary duties under federal and state law, the Board of
Trustees of the Trust has unanimously determined that the proposed
reorganization is in the best interests of the shareholders of the Portfolio,
and recommends the approval of the Plan of Reorganization by such shareholders
at the Meeting.
The following is a summary of the information that was presented to, and
considered by, the Board in making its determination.
At meetings held on January 19, 1997 and May 5, 1997 the Board of Trustees
discussed and considered the proposed reorganization.
During the course of their review and deliberation, the Trustees evaluated the
potential benefits, detriments, costs and alternatives available to the
Portfolio and its shareholders. The Trustees requested and received from
Citizens Advisers written material containing relevant information about the
Income Portfolio and the proposed reorganization, including fee structure and
expense ratio information.
Citizens Advisers also provided the Trustees with analyses of the benefits to
the shareholders of the Portfolio resulting from the proposed reorganization,
and a variety of other information relevant to the consideration of the proposed
reorganization.
Cost considerations:
The Trustees of the Trust reviewed the terms of the Plan of Reorganization, the
expected costs of the reorganization to the Portfolio, and the anticipated
expenses of the Income Portfolio after the reorganization that would be borne
directly and indirectly by the shareholders of the Portfolio.
The Trustees evaluated the contractual expense levels of the Income Portfolio
and compared such expense levels with the current actual and contractual expense
levels of the Portfolio. They noted favorably that the combined contractual
costs (including advisory, administration, and distribution fees) were lower
overall than those of the Portfolio.
The Trustees also considered the additional efficiencies and benefits that were
expected to result from the reorganization of the Portfolio. These benefits
include greater potential asset growth with resulting economies of scale, such
as lower per share professional, registration and other non-management expenses;
greater portfolio trading efficiencies, such as quantity discounts, better
securities execution and reduced portfolio volatility resulting from shareholder
purchase and redemption activity and broader portfolio diversification.
Investment Considerations:
The Trustees considered the compatibility of the Income Portfolio's investment
objectives, policies, restrictions and portfolio with those of the Portfolio.
They noted that the Portfolio and the Income Portfolio had the same investment
objective of current income. It was also favorably noted that both Citizens
Advisers and GMG/Seneca would continue as investment manager and Sub-Adviser,
respectively. This continuity should help minimize any disruption in investment
management as a result of the merger.
The Trustees also noted that the Trust would be provided with an opinion of its
counsel with respect to the tax treatment of the reorganization.
The Trustees also considered presentations by representatives of Citizens
Advisers regarding the expected future prospects of the Income Portfolio. In
this regard, a significant overlap in marketing areas and efforts of the
Portfolio and the Income Portfolio was noted. The Trustees also favorably noted
that Citizens Advisers would continue the same social investment criteria for
the Income Portfolio as the Portfolio had used in the past.
14
<PAGE>
Based upon their evaluation of the relevant information presented to them, and
in light of their fiduciary duties under federal and state law, the Trust's
Board of Trustees, including all members who were not "interested persons" of
the Trust as that term is defined in the 1940 Act, unanimously determined that
the proposed reorganization (1) was in the best interests of the Trust and the
Portfolio and that (2) the interests of existing shareholders of the Portfolio
would not be diluted as a result of their effecting the transaction, and
therefore recommended the approval of the Plan of Reorganization by shareholders
at the Meeting.
Federal Income Tax Consequences
Consummation of the reorganization is subject to the condition that the Trust
receive an opinion from counsel to the effect that for federal income tax
purposes:
1. the transfer of all of the assets and liabilities of the Portfolio to the
Income Portfolio in exchange for shares of the Income Portfolio and the
distribution to shareholders of the Portfolio of the shares of the Income
Portfolio so received, as described in the Plan of Reorganization, will
constitute a reorganization within the meaning of Section 368 (a) (1) (C),
Section 368 (a) (1) (D) or Section 368 (a) (1) (F) of the Internal Revenue
Code of 1986, as amended;
2. no gain or loss will be recognized by the Portfolio as a result of such
transactions;
3. no gain or loss will be recognized by the Income Portfolio as a result of
such transactions;
4. no gain or loss will be recognized by the shareholders of either Portfolio
on the distribution to them by the Portfolio of shares of the Income
Portfolio in exchange for their shares of the Portfolio;
5. the basis of the Income Portfolio shares received by a shareholder of the
Portfolio will be the same as the basis of the shareholder's Portfolio
shares immediately before the reorganization;
6. the basis to the Income Portfolio of the assets of the Portfolio received
pursuant to such transactions will be the same as the basis of the assets
in the hands of the Portfolio immediately before such transactions;
7. a shareholder's holding period for Income Portfolio shares will be
determined by including the period for which the shareholder held the
Portfolio shares exchanged therefor, provided s/he held such Portfolio
shares as a capital asset; and
8. the Income Portfolio's holding period with respect to the assets received
in the reorganization will include the period for which such assets were
held by the Portfolio.
The Trust has not sought a tax ruling from the Internal Revenue Service ("IRS").
The opinion of counsel is not binding on the IRS and does not preclude the IRS
from adopting a contrary position. Shareholders should consult their own
advisors concerning the potential tax consequences to them, including state and
local income tax consequences.
ADDITIONAL INFORMATION ABOUT THE INCOME PORTFOLIO
Information about the Income Portfolio is included in the Prospectus
accompanying this Combined Proxy Statement/Prospectus, which is incorporated by
reference herein. Additional information about the Income Portfolio is also
included in its Statement of Additional Information dated September 27, 1996
which has been filed with the SEC. A copy of the Statement of Additional
Information may be obtained without charge by writing or calling the Trust at
the address and telephone number shown on the cover page of this Combined Proxy
Statement/Prospectus.
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, as applicable, and, in accordance with
such requirements, files proxy materials, reports and other information with the
SEC. These materials can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W. , Washington, D.C.
20549, at the offices of Citizens Advisers listed above and at the SEC's
Regional Offices at 75 Park Place, Room 1228, New York, New York 10007 and
Everett McKinley Dirksen Building, 219 South Dearborn Street, Room 1204,
Chicago, Illinois 60604. Copies of such materials can also be obtained from
Public Reference Branch, Office of
15
<PAGE>
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
INFORMATION ABOUT THE PORTFOLIO
Information about the Trust is included in the Prospectus and Statement of
Additional Information dated September 27, 1996, copies of which have previously
been provided to shareholders. Reports and other information filed by the Trust
can be inspected and copied at the Public Reference Facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
material can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
The number of shares outstanding as of record date, May 30, 1997 for the
Portfolio were [ ]
16
<PAGE>
Following is the financial information for the Portfolio and the Income
Portfolio periods indicated. It is based on a single share outstanding
throughout such period.
<TABLE>
<CAPTION>
================================================================================================================================
Citizens Index Portfolio Muir California Tax-Free Income Portfolio
================================================================================================================================
Year ending June 30 1995(2) 1996 1992(3) 1993(3) 1994(3) 1994(4) 1995 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value Beginning of 10.00 10.94 15.00 15.76 16.67 15.71 15.43 15.53
Period
- --------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 0.01 0.08 0.67 0.90 0.84 0.18 0.67 0.62
- --------------------------------------------------------------------------------------------------------------------------------
Net Gains (Losses) 0.93 2.47 0.53 1.00 (0.79) 0.01 0.10 0.11
on Securities
(both Realized and Unrealized)
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment 0.94 2.55 1.20 1.90 0.05 0.19 0.77 0.73
Operations
- --------------------------------------------------------------------------------------------------------------------------------
Dividends (from Net Income) 0.00 (0.03) (0.04) (0.91) (0.86) (0.32) (0.67) (0.62)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions (from Net 0.00 (0.05) 0.00 (0.08) (0.15) (0.15) 0.00 0.00
Realized Gain)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions 0.00 (0.08) (0.44) (0.99) (1.01) (0.47) (0.67) (0.62)
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets Value, End of 10.94 13.41 15.76 16.67 15.71 15.43 15.53 15.64
Period
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 64.95% 6.44% 28.97% 36.24% 31.04% 38.29% 74.94% 83.12%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets 106,096 136,980 6,135 15,455 17,532 17,276 15,241 13,221
End of Period (in 000's)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average 1.75%(1) 1.82% 0.27%(1) 0.46% 0.75% 1.25%(1) 1.25% 1.55%
Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average NA 1.82% 5.83%(1) 1.87% 1.62% 1.86%(1) 1.74% 1.87%
Net Assets Prior To
Reimbursement
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Income (Loss) to 0.98%(1) 0.68% 6.90%(1) 5.59% 4.98% 4.70%(1) 4.37% 3.98%
Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of Net Income (Loss) to NA 0.68% 1.34%(1) 4.18% 4.11% 4.09%(1) 3.88% 3.66%
Average Net Assets Prior to
Reimbursement
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 9.40% 23.41% 8.00% 12.58% 0.04% 1.21% 5.15% 4.71%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
(2) Period from March 3, 1995 (Commencement of Operations)
(3) Period ending March 31, 1994 (prior to merge)
FINANCIAL STATEMENTS AND EXPERTS
The statement of assets and liabilities of the Portfolio, including the schedule
of investments, as of December 31, 1996 (unaudited), the related statement of
operations for the period ended December 31, 1996, the statements of changes in
net assets for the year ended June 30, 1996 and the period ended December 31,
1996 and the financial highlights for the fiscal years ended March 31, 1992,
1993 and 1994, the fiscal years ended June 30, 1995 and 1996 and the six-month
period ended December 31, 1996, are included in the Statement of Additional
Information relating to this Prospectus/Proxy Statement in reliance upon the
reports of Tait, Weller and Baker. independent public accountants, given on the
authority of such firm as experts in accounting and auditing. The statement of
assets and liabilities of the Income Portfolio, including the schedule of
portfolio investments, as of December 31, 1996 (unaudited), the related
statement of operations for the period ended December 31, 1996, the statements
of changes in net assets for the year ended June 30, 1996 and the period ended
December 31, 1996 and the financial highlights for fiscal years ended June 30,
1992, 1993, 1994, 1995, 1996 and the six-month period ended December 30, 1996,
are included in the Statement of Additional Information relating to this
Prospectus/Proxy Statement in reliance upon the reports of Tait, Weller and
Baker, independent public accountants, given on the authority of such firm as
experts in accounting and auditing
OTHER BUSINESS
The Board of Trustees knows of no other business to be brought before the
Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
18
<PAGE>
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust in writing at the address on
the cover page of this Combined Proxy Statement/Prospectus or by telephoning
(800) 223-7010.
THE BOARD OF TRUSTEES OF THE ACQUIRED FUND, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
1
<PAGE>
PLAN OF REORGANIZATION
Citizens Investment Trust
Dated May 5, 1997
<PAGE>
Table of Contents
Item Page
- ------------------------------------------------------------------------------
1. Transfer of Assets of the Portfolio
2. Liquidating Distributions
3. Valuation Time
4. Effective Time of the Reorganization
5. Conditions
6. Termination of Plan
7. Amendment
<PAGE>
This PLAN OF REORGANIZATION (the "Plan") is established as of this fifth day of
May 1997 by Citizens Investment Trust, a Massachusetts business Trust, (the
"Trust").
The Plan's purpose is to define the steps that will be followed upon the
affirmative vote of the shareholders of the Muir California Tax-Free Income
Portfolio (the "Portfolio") to transfer all of the assets and liabilities of the
Portfolio to the Citizens Income Portfolio, and be acquired and assumed by, the
Citizens Income Portfolio as stated herein in exchange for shares of the
Citizens Income Portfolio (the "Income Portfolio") which shall thereafter be
distributed to the shareholders of the Portfolio as described in this Plan (the
"Reorganization");
1. Transfer of Assets of the Portfolio.
At the Effective Time of the Reorganization as defined in Section 8, all
property of every description, and all interests, rights, privileges and
powers of the Portfolio, subject to all liabilities of the Portfolio, whether
accrued, absolute, contingent or otherwise (such assets subject to such
liabilities are herein referred to as the "Fund Assets"), shall be
transferred and conveyed by the Portfolio to the Income Portfolio, such that
at and after the Effective Time of the Reorganization:
(a) all assets of the Portfolio shall become and be the assets of the Income
Portfolio; and
(b) all debts, liabilities, obligations and duties of the Portfolio shall
become the debts, liabilities, obligations and duties of the Income Portfolio
as aforesaid and may thenceforth be enforced against such portfolio to the
extent as if the same had been incurred by it. It is further understood that
recourse for the liabilities of the Portfolio shall, at and after the
Effective Time of the Reorganization, be limited to the Income Portfolio.
In exchange for the transfer of the Fund Assets, the Income Portfolio shall
simultaneously issue at the Effective Time of the Reorganization to the
Portfolio full and fractional shares of beneficial interest in the Income
Portfolio. The number of shares so issued by the Income Portfolio shall be
equal in value to the number of full and fractional shares of beneficial
interest of the Portfolio that are outstanding immediately prior to the
Effective Time of the Reorganization.
2. Liquidating Distribution.
At the Effective Time of the Reorganization, each Portfolio shall make a
liquidating distribution to its shareholders as follows. Each shareholder of
record shall be credited a number of shares of the Income Portfolio equal to the
cash value of the shares of that Portfolio held of record by such shareholders
immediately prior to the reorganization of full and fractional shares of the
Income Portfolio. In addition, each shareholder of record of the Portfolio shall
have the right to receive any unpaid dividends or other distributions which were
declared prior to the Effective Time of the Reorganization as defined in Section
4 with respect to the shares of the Portfolio that are held by the shareholder
at the Effective Time of the Reorganization. The Trust shall record on the books
of the Income Portfolio the ownership of Income Portfolio shares by the
shareholders of record of the Portfolio (the "Fund Record Holders") and, upon
request, shall issue certificates for such shares to the Fund Record Holders in
accordance with the Trust's normal procedures. No redemption or repurchase of
any Income Portfolio shares credited to Fund Record Holders with respect to the
Portfolio shares represented by unsurrendered share certificates shall be
permitted until such certificates have been surrendered to the Income
Portfolio's transfer agent for cancellation. All of the issued and outstanding
shares representing interests in the Portfolio shall be canceled on the books of
the Portfolio at the Effective Time of the Reorganization, and the Trust's
transfer books with respect to the Portfolio shall be closed permanently.
2
<PAGE>
3. Valuation Time.
The Valuation Time shall be 4:00 P.M., Eastern Time, on July 31, 1997, or
such earlier or later date and time as may be declared by the Board of
Trustees.
4. Effective Time of the Reorganization.
Delivery of the Fund Assets and the shares of the Income Portfolio to be
issued pursuant to Section 1 and the liquidation and termination of the
Portfolio pursuant to Section 2 shall occur at 2:00 p.m., at One Harbor
Place, Portsmouth, New Hampshire on the next day following the Valuation
Time, or at such other place, time and date declared by the Board of
Trustees. The date and time at which such actions are taken are referred to
herein as the "Effective Time of the Reorganization." To the extent any Fund
Assets are, for any reason, not transferred at the Effective Time of the
Reorganization, the Portfolio shall cause such Fund Assets to be transferred
in accordance with this Plan at the earliest practicable date thereafter.
5. Conditions.
The following conditions must be met in order for the reorganization to be
completed as to the Portfolio:
(a) This Plan shall have been adopted and the transactions contemplated by
this Plan shall have been approved by the shareholders of the Portfolio in
the manner required by the Trust's Declaration of Trust and applicable law.
(b) The Trust shall have received an opinion of counsel to the Trust, in form
reasonably satisfactory to it, and dated the Effective Time of the
Reorganization, to the effect that for federal income tax purposes (i) the
transfer of all of the Portfolio's Fund Assets to the Income Portfolio in
exchange for shares of the Income Portfolio, and the distribution of said
shares to the shareholders of the Portfolio, as provided in this Plan, will
constitute a reorganization within the meaning of Section 368(a)(1)(C),
Section 368(a)(1)(D) or Section 368(a)(1)(F) of the Code; (ii) in accordance
with Section 357(a) of the Code, no gain or loss will be recognized by the
Portfolio as a result of such transactions; (iii) in accordance with Section
1032 of the Code, no gain or loss will be recognized by the Income Portfolio
as a result of such transactions; (iv) in accordance with Section 354(a)(1)
of the Code, no gain or loss will be recognized by the shareholders of the
Portfolio on the distribution to them by the Portfolio of shares of the
Income Portfolio in exchange for their shares of the Portfolio; (v) in
accordance with Section 358(a)(1) of the Code, the basis of the Income
Portfolio shares received by a shareholder of the Portfolio will be the same
as of the basis of the shareholder's Portfolio shares immediately prior to
the transactions; (vi) in accordance with Section 362(b) of the Code, the
basis of the Income Portfolio of the Portfolio's Assets will be the same as
the basis of such Assets in the hands of the Portfolio immediately prior to
the exchange; (vii) in accordance with Section 1223 of the Code, a
shareholder's holding period for Income Portfolio shares will be determined
by including the period for which the shareholder held the shares of the
Portfolio exchanged therefor, provided that the shareholder held such shares
of the Portfolio as a capital asset; (viii) in accordance with Section 1223
of the Code the holding period of the Income Portfolio with respect to the
Portfolio's Fund Assets will include the period for which such Assets were
held by the Portfolio.
6. Termination of Plan.
This Plan may be terminated at any time at or prior to the Effective Time of
the Reorganization by a vote of a majority of the Trust's Board of Trustees.
7. Amendment
At any time prior to or (to the fullest extent permitted by law) after
approval of this Plan by the shareholders of the Portfolio, the Board of
Trustees may with or without the approval of there shareholders, amend this
Plan.
3
<PAGE>
Signed by:
- ------------------------------- -------------------------------
William D. Glenn II Azie Taylor Morton
Co-Chair, Board of Trustees Co-Chair, Board of Trustees
Citizens Investment Trust Citizens Investment Trust
May 5, 1997 May 5, 1997
<PAGE>
The Talking Prospectus
September 27, 1996
Dear Friend,
This prospectus is a bit different from other mutual fund prospectuses. It is
written - not by a lawyer - but by the people who work for the Trust. I hope
you'll take some time to read it carefully (and retain it for your future
reference). I think you'll find we have some new and interesting ideas about how
to make money investing in mutual funds.
We believe there is a revolution going on in business today, and only certain
companies will be able to thrive in this faster-paced and environmentally
concerned business environment. At Citizens Trust, we identify and invest in
these companies - businesses with the potential to produce strong financial
results today, as well as create a world we want to live in tomorrow.
We truly believe that understanding your investments starts right here with our
own prospectus. You deserve not only lucid, concise prose, but an informative,
even enjoyable, reading experience.
[photo of Sophia Collier]
Sincerely,
/s/Sophia Collier
Sophia Collier
President
Our Portfolios
The E[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.
Muir California Tax-Free Income Portfolio seeks a high level of current income
exempt from both federal and California state personal income tax.
Citizens Trust
CITIZENS TRUST
One Harbour Place
Portsmouth, NH
03801
For Shareholder
Service and
New Account
Information:
1-800-223-7010
For Broker-Dealer
Sales & Service:
1-800-982-7200
CITIZENS TRUST IS AN OPEN-ENDED, DIVERSIFIED MANAGEMENT COMPANY, NOT A BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Citizens Trust logo]
603-436-5152
800-223-7010
1
<PAGE>
The Talking Prospectus
TABLE OF CONTENTS
Dear Friend 1
Fee Information 3
Financial Highlights 4
How We Select Our
Investments 6
Citizens Index Portfolio 7
Citizens Global Equity
Portfolio 8
E[bullet]fund and Working Assets
Money Market Portfolio 9
Citizens
Income Portfolio 10
Muir California Tax-Free
Income Portfolio 10
Citizens Emerging Growth
Portfolio 12
Organization and
Management of
the Trust 12
How to Purchase and
Redeem Shares 15
Shareholder Services 17
Mailing Address/
Wiring Instructions 18
Dividends, Distributions and
Taxes 18
Trustee Profiles
William D. Glenn II, chair of the board of trustees, is the executive director
of Continuum HIV Day Services in San Francisco.
Azie Taylor Morton, audit chair, operates an investment management firm, and was
the 36th Treasurer of the United States.
*Sophia Collier is the Trust's president and principal owner of our investment
adviser, Citizens Adviser.
Lokelani Devone is assistant general counsel at DFS Group Limited, an
international retail business group.
Juliana Eades is the executive director of the New Hampshire Community Loan
Fund, one of the country's oldest local community economic development
institutions.
*J.D. Nelson is the chief executive officer of RhumbLine Advisers, an investment
advisory firm specializing in institutional and pension assets.
Ada Sanchez is director of the Public Service and Social Change Program at
Hampshire College.
*INTERESTED PERSON (INSIDE TRUSTEE)
Confidentiality of Shareholder Transactions
"As Trustees we have a firm 'no exceptions' policy stating that no shareholder
transaction information will be sold or shared with anyone, except as required
by law, or with the shareholder's permission."
No Load
All portfolios are no load. All portfolios, except the E[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.
Escrow Policy
We reserve the right to wait up to seven business days to redeem any investments
that have been made by check or five business days for purchases made by ACH
transfer. Therefore, if you need to redeem shares within seven business days of
your purchase, please invest by wire.
2
<PAGE>
Citizens Trust
Fee Information
<TABLE>
<CAPTION>
WORKING
ASSETS MUIR CA
MONEY EMERGING GLOBAL TAX-FREE
MARKET INCOME GROWTH INDEX E[bullet]FUND EQUITY INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None None None None None None
(as a % of offering price)
Maximum Sales Load Imposed on Reinvested None None None None None None None
Dividends(as a % of offering price)
Deferred Sales Load (as a % of the original None None None None None None None
Purchase Price or Redemption Proceeds)
Redemption Fees (as a % of amount redeemed) None None None None None None None
Exchange Fee (per exchange) None None None None None None None
</TABLE>
Costs For Other Services
<TABLE>
<S> <C>
Returned checks (All portfolios).......................................................$10.00
Outgoing wire transfer (All portfolios)................................................$10.00
Incoming wire (All portfolios)...........................................................Free
2-day electronic payment-ACH (All portfolios)............2/month free / $0.50 each thereafter
Per check fee............................................................................None
Stop payments(Working Assets & E[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
</TABLE>
Annual Portfolio Operating Expenses
(as a percentage of Average Net Assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees .35% .65% 1.00% .50% .10% 1.00% .65%
Distribution Expense .25% .25% .25% .25% None .25% .25%
Other Expenses (**after waiver and reimbursement) .65%* .53%+ .85%+ 1.00%* .40%** 1.41%+ .65%+
Total Portfolio
Operating Expenses 1.25%* 1.43% 2.10% 1.75%* .50%** 2.66% 1.55%
</TABLE>
*Restated to reflect current fees and expenses
**E[bullet]fund expenses prior to reimbursement are projected at 1.46%
+The Adviser waived certain fees and reimbursed certain expenses. The ratio
prior to reimbursement for year ending June 30, 1996 for the Income, Emerging
Growth, Global Equity and Muir Portfolios are 1.48%, 2.34%, 2.72%, 1.87%
respectively.
Example: You would have paid the following expenses on a $1,000 investment
assuming a 5% annual return and redemption at the end of each period:
1 Year 3 Years 5 Years 10 Years
-------------------------------------
Working Assets Money Market Portfolio $13 $40 $69 $151
E[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
Muir California Tax-Free
Income Portfolio 16 49 84 185
The example should not be considered a representation of past or future expenses
or past or future return. Actual expenses and actual return may be greater or
less than those included in the example above. The example for the E[bullet]fund
includes the $35 annual fee for the Citizens Access Account.
3
<PAGE>
The Talking Prospectus
Financial Highlights
Per Share Data
Income (Loss) from Investment Operations Less Distributions
<TABLE>
<CAPTION>
Net Gains
(Losses)
Net Asset on Securities Distributions
Year Value, Net (both Total from Dividends (from Net Net Asset
Ending Beginning of Income Realized and Investment (from Net Realized Total Value, End
June 30 Period (Loss) Unrealized) Operations Income) Gain) Distributions of Period
Working Assets Money Market Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00
1988 1.00 0.06 0.00 0.06 (0.06) 0.00 (0.06) 1.00
1989 1.00 0.08 0.00 0.08 (0.08) 0.00 (0.08) 1.00
1990 1.00 0.08 0.00 0.08 (0.08) 0.00 (0.08) 1.00
1991 1.00 0.07 0.00 0.07 (0.07) 0.00 (0.07) 1.00
1992 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 1.00
1993 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00
1994 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02) 1.00
1995 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04) 1.00
1996 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00
E[bullet]fund
1996(7) 1.00 0.06 0.00 0.06 (0.06) 0.00 (0.06) 1.00
Citizens Income Portfolio
1992(1) 10.00 0.01 0.07 0.08 (0.01) 0.00 (0.01) 10.07
1993 10.07 0.46 0.54 1.00 (0.47) 0.00 (0.47) 10.60
1994 10.60 0.55 (0.54) 0.01 (0.55) (0.02) (0.57) 10.04
1995 10.04 0.65 0.36 1.01 (0.65) (0.02) (0.67) 10.38
1996 10.38 0.66 (0.10) 0.56 (0.66) 0.00 (0.66) 10.28
Citizens Index Portfolio
1995(4) 10.00 0.01 0.93 0.94 0.00 0.00 0.00 10.94
1996 10.94 0.08 2.47 2.55 (0.03) (0.05) (0.08) 13.41
Citizens Emerging Growth
1994(2) 10.00 0.01 (0.08) (0.07) 0.00 0.00 0.00 9.93
1995 9.93 0.07 2.18 2.25 (0.09) (0.22) (0.31) 11.87
1996 11.87 (0.13) 4.72 4.59 0.00 (1.59) (1.59) 14.87
Citizens Global Equity Portfolio
1994(2) 10.00 0.01 (0.21) (0.20) 0.00 0.00 0.00 9.80
1995 9.80 (0.01) 0.96 0.95 0.00 (0.06) (0.06) 10.69
1996 10.69 (0.10) 1.43 1.33 0.00 (0.13) (0.13) 11.89
Muir California Tax-Free Income Portfolio
1992(5) 15.00 0.67 0.53 1.20 (0.44) 0.00 (0.44) 15.76
1993(5) 15.76 0.90 1.00 1.90 (0.91) (0.08) (0.99) 16.67
1994(5) 16.67 0.84 (0.79) 0.05 (0.86) (0.15) (1.01) 15.71
1994(6) 15.71 0.18 0.01 0.19 (0.32) (0.15) (0.47) 15.43
1995 15.43 0.67 0.10 0.77 (0.67) 0.00 (0.67) 15.53
1996 15.53 0.62 0.11 0.73 (0.62) 0.00 (0.62) 15.64
(1) Period from June 10, 1992 (commencement of operations) (4) Period from March 3, 1995 (commencement of operations)
(2) Period from February 8, 1994 (commencement of operations) (5) Period ending March 31, 1994 (prior to merger)
(3) Annualized (6) Period ending June 30, 1994
(7) Period from July 1, 1995 (commencement of operations)
</TABLE>
4
<PAGE>
Citizens Trust
Ratios And Supplemental Data
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses Ratio of Net Income
Net Ratio of to Average Net Net Income (Loss) to
Assets Expenses Assets (Loss) to Average Net
Portfolio End of Period to Average Prior to Average Net Assets Prior to
Turnover Rate (in 000's) Net Assets Reimbursement Assets Reimbursement Total Return
<S> <C> <C> <C> <C> <C> <C>
NA 108,533 1.15% 1.15% 5.31% 5.31% 5.44%
NA 123,861 1.15% 1.15% 5.98% 5.98% 6.19%
NA 166,285 1.13% 1.13% 7.74% 7.74% 8.02%
NA 214,603 1.05% 1.05% 7.50% 7.50% 7.81%
NA 243,194 1.02% 1.02% 6.47% 6.47% 6.67%
NA 223,951 1.07% 1.07% 4.09% 4.09% 4.16%
NA 152,625 1.11% 1.11% 2.41% 2.41% 2.43%
NA 103,766 1.16% 1.16% 2.31% 2.31% 2.35%
NA 97,611 1.16% 1.16% 4.39% 4.39% 4.51%
NA 78,326 1.21% 1.21% 4.56% 4.56% 4.60%
NA 11,082 0.00% 1.55% 6.02% 4.64% 6.10%
0.00% 1,030 1.75%(3) NA 4.38%(3) NA 0.80%
22.35% 12,601 1.42% 2.38% 4.98% 4.02% 10.08%
52.62% 24,410 1.25% 2.01% 5.43% 4.68% 0.04%
46.03% 30,122 1.35% 1.48% 6.47% 6.34% 10.45%
41.36% 32,276 1.43% 1.48% 6.26% 6.21% 5.48%
64.95% 106,096 1.75%(3) NA 0.98%(3) NA 9.40%
6.44% 136,980 1.82% 1.82% 0.68% 0.68% 23.41%
33.35% 3,754 1.89%(3) 3.81%(3) 0.63%(3) (1.29%)(3) (0.70%)
231.30% 10,638 1.90% 2.93% 0.53% (0.50%) 23.24%
337.41% 36,409 2.10% 2.34% (1.64%) (1.88%) 42.43%
0.00% 5,639 2.50%(3) 3.16%(3) 0.25%(3) (0.41%)(3) (2.00%)
22.10% 9,503 2.50% 2.99% 0.00% (0.49%) 9.77%
85.92% 15,595 2.72% 2.72% (1.01%) (1.01%) 12.52%
28.97% 6,135 0.27%(3) 5.83%(3) 6.90%(3) 1.34%(3) 8.00%
36.24% 15,455 0.46% 1.87% 5.59% 4.18% 12.58%
31.04% 17,532 0.75% 1.62% 4.98% 4.11% 0.04%
38.29% 17,276 1.25%(3) 1.86%(3) 4.70%(3) 4.09%(3) 1.21%
74.94% 15,241 1.25% 1.74% 4.37% 3.88% 5.15%
83.12% 13,221 1.55% 1.87% 3.98% 3.66% 4.71%
</TABLE>
5
<PAGE>
The Talking Prospectus
Auditor
[photo of Jim Mahoney]
A partner at the firm Tait, Weller & Baker, Jim Mahoney has served as the
Trust's Certified Public Accountant and Auditor since 1986.
"While I have learned that most people do not share my fascination with tables
of numbers, I think two columns from the 'Financial Highlights' table should be
of interest to any prospective investor. They reflect the two ways your shares
can earn you money. They are Net Income and Net Asset Value. Your share of the
Trust's Net Income can be paid to you in cash or be reinvested in the Trust. In
order to realize your profits from increases in Net Asset Value, you will need
to sell your shares."
About The "Financial Highlights" Table
The "Financial Highlights" on the preceding page are for the fiscal year ended
June 30, 1996. The complete statements and our auditor's opinion on the
condensed financial information for the most recent five years appear in the
1996 Annual Report to Shareholders for each of the portfolios and are part of
this prospectus. For a copy of the Annual Report, please call the Trust's
toll-free number. It contains a full discussion of each portfolio's performance.
How We Select Our Investments
Financially Sound
Citizens Trust has certain policies that we consider fundamental such as
consistently applying both social and financial screens to all our investment
decisions. This, together with each portfolio's investment objective and other
technical investment policies described in the Statement of Additional
Information, cannot be changed without the approval of a majority of the
outstanding shares of each portfolio that would be affected by the change. In
addition to the specific policies for each portfolio, we also have some general
policies that we use to manage all of our portfolios.
Socially Responsible
We are always seeking profitable investments for our shareholders. To find them,
we favor companies which make good and useful products and have positive
environmental, community and workplace records. We avoid companies which engage
in discrimination or union busting; whose primary business is the manufacture of
alcohol, tobacco, firearms or nuclear power; and those that use animals to test
personal care products or otherwise treat animals in an inhumane manner.
Additional Investment Policies
We try not to put all our eggs in one basket. This means that 75% of a
portfolio's assets will never hold more than 5% of any one company. We do not
invest more than 25% of the value of any one portfolio in one industry with the
exception of securities of U.S. government agencies or enterprises, or in our
money market portfolios, domestic banks.
We believe Citizens Trust's role is to be a conscientious and alert investor,
not a controlling manager; therefore, across all our portfolios, we will not
accumulate more than 10% of the voting securities of any one company.
We sometimes purchase securities issued by companies that do not trade in the
public market. To maintain a good investment balance, we will limit these and
all other illiquid securities to a total of no more than 10% of each portfolio's
assets.
Each of our portfolios may, from time to time, invest in money market securities
such as the ones we use in our money market funds.
Each portfolio may temporarily borrow money from banks (and pledge its assets to
secure such borrowing) to meet redemption requests, or for other purposes. We
will keep this borrowing down to no more than 10% of the value of each
portfolio's total assets and make no purchases while we have any outstanding
loans.
6
<PAGE>
Citizens Trust
Citizens Index Portfolio
Objective: A market weighted portfolio of 300 companies, with the objective of
long-term capital appreciation (Income from dividends will be similar to the
income of the S&P 500).
The Citizens Index Portfolio is invested in 300 companies that make up the
Citizens Index. We believe these companies best represent their industries.
Approximately 200 are very large companies that are also included in the S&P
500. The others are companies selected in order to provide industry diversity
that we believe is essential to a sound investment program.
On a day-to-day basis, the portfolio is run by purchasing and holding common
stock of all the companies in the Index in a percentage, as closely as possible,
equal to each security's total market value divided by the total market value of
all the companies in the Index. In addition, under normal circumstances the
portfolio will usually hold a small amount of cash or money market instruments
(no more than 5%) resulting from shareholder purchase and redemption activity
and a provision for operating expenses. Holding this cash, together with the
costs of operations, will prevent us from ever perfectly tracking the
theoretical performance of the underlying Index. Payment of our operating
expenses will reduce returns. Our small allocation to cash will improve returns
when the market is heading down and hurt them when the market is moving up.
Companies will be deleted from the Index and divested from the portfolio if they
fail our annual social responsibility review. If a company is removed we will
replace it with another company from the same industry which meets all social
criteria. In addition, from time to time we may make other small changes in the
Index to include, for example, exceptional companies, or to reflect changes in
the composition of the S&P 500. We do not expect these changes to exceed 10% of
the members of the Index on an annual basis.
RISK FACTORS
Like all stock funds, the Net Asset Value of the Citizens Index Portfolio will
fluctuate based on market and economic conditions, or other factors that affect
particular companies or industries.
We are always pleased to send interested investors a current list of the members
of our Index.
Manager
[photo of Edwin Ek]
Portfolio manager for Citizens Index Portfolio, EDWIN EK spent eight years at
Wilshire Associates before joining the RhumbLine team in October, 1994. He
oversees the day to day operations of the Citizens Index Portfolio.
"The Citizens Index Portfolio is highly diversified, both by industry and in the
number of individual companies. We think it presents lower risk than a portfolio
with fewer holdings or more industry concentration."
7
<PAGE>
The Talking Prospectus
Manager
[photo of Lilia Clemente]
LILIA CLEMENTE is the Chairman of Clemente Capital, Inc., the lead member of the
team which manages the Citizens Global Equity Portfolio:
"As a person who was born in the Philippines and who has traveled throughout the
world as a global investor, I believe global investment offers an opportunity to
reduce risk and increase returns by linking security and prosperity to the
performance of an array of markets and companies instead of concentrating only
in the U.S."
Citizens Global Equity Portfolio
Objective: Holds U.S. and foreign stocks for capital appreciation.
The world is changing rapidly with new companies - and even new countries -
being created every year. We expect that tremendous value will be created and
earned by those companies and investors who are successful at understanding
these new markets. In the Citizens Global Equity Portfolio we invest primarily
in common stocks of both U.S. domestic and foreign companies. We seek companies
with growing sustainable earnings, innovative products, services and business
strategies, revised corporate strategies, or beneficiaries of political or
economic conditions. We plan to allocate over half our assets to foreign markets
in most circumstances in a minimum of three countries. From time to time, we may
also buy other securities such as convertible or preferred stocks and short-term
debt securities.
RISK FACTORS
You should be aware of the potential risks of investing outside of the United
States. Foreign stock markets are generally less efficient and more volatile
than those in the United States. This creates opportunities, but also risk.
Settlement and trading costs are generally higher on foreign exchanges than in
the U.S. The economies and governments of some countries that the portfolio may
invest in may be less mature and stable than the U.S., and when political or
economic changes occur there can be an adverse impact on the portfolio. This
includes exchange control regulation, expropriation, confiscatory taxation and
political or social instability. The risks of investing in emerging market
countries are even greater, and can involve risk of higher inflation, high
sensitivity to commodity prices and economic dependence on few industries or
government owned industries.
To moderate these risks and gain potential benefits we use a number of
investment techniques. One of these is country selection. We restrict our
investments in riskier emerging nations (like Argentina or Singapore) to no more
than 25% of the assets of Citizens Global Equity Portfolio.
When we invest in foreign exchanges we buy securities in the currency of the
local country. Often the local currency will fluctuate against the dollar. To
moderate this risk we sometimes use currency "hedging." We do this by entering
into arrangements to buy or sell a particular currency, security, or securities
index for a stated value against the dollar at a given time. While there is a
cost involved in hedging, and a risk that our hedging strategy may not work and
will add cost or reduce our potential gains, we still think hedging can be a
valuable tool.
8
<PAGE>
Citizens Trust
The E[bullet]fund and the Working Assets Money Market Portfolio
Objective: Current income consistent with safety and liquidity.
These are good vehicles for short-term cash management and for investors who
need stability of principal. Checking services are available.
In our money market portfolios, we only invest in short-term money market
instruments (short-term debt issued by branches of the government, corporations,
banks, or other financial institutions) that we believe present minimal risk and
we maintain a weighted average maturity of 90 days or less for the portfolio as
a whole.
U.S. Government Securities
When we look at government securities, we only buy those that are issued or
guaranteed, as to both interest and principal, by agencies or other enterprises
of the United States government.
Commercial Paper
We will also buy high quality "commercial paper," which is short-term debt
issued by well-established corporations. One hundred percent of this short-term
debt must be rated A-1 by Standard & Poor's Corporation or have a comparably
high rating by another nationally recognized rating service. If a security is
only rated by one agency, it must be rated in one of the two highest ratings by
that agency. If a security is not rated, it must be as good as A-1 in our
judgment. We also use our own research and experience to help assure our money
market securities have only a minimal credit risk.
Other types of debt that offer us a yield advantage are sometimes issued by
banks. These include certificates of deposit, time deposits, and bankers'
acceptances of U.S. banks or thrift institutions.
The E[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 the 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 the E[bullet]fund and the Working Assets Money Market Portfolio
are neither insured nor guaranteed by the U.S. Government and there is no
assurance that either portfolio will be able to maintain a stable Net Asset
Value of $1.00 per share, despite our care and caution.
Manager
[photo of Danita Wright]
The primary manager of our two money market portfolios, DANITA WRIGHT, is an
associate at GMG/Seneca Capital Management, L.P. Previously, Danita was
employed by Merus Capital Management.
"Our goal is to earn a market rate of return (or better) for our shareholders by
investing in financially attractive companies whose operations have a positive
impact on the human and natural environment."
9
<PAGE>
The Talking Prospectus
Manager
[photo of Gail Seneca]
The managing partner of our sub-adviser GMG/Seneca Capital Management, L.P.
GAIL SENECA is the primary manager of the Citizens Income Portfolio.
"Since our goal is to achieve a reliable stream of monthly income, we analyze
carefully the credit quality of the debt we purchase."
GAIL SENECA is also the primary manager of the Muir California Tax-Free Income
Portfolio.
"Our goal of providing a high level of income exempt from California or federal
taxes, gives me a number of very interesting investment opportunities with high
social impact, as well as potentially attractive financial results."
The Income Portfolio
Objective: To generate current income and pay a dividend every month.
The Income Portfolio is similar to the money market portfolios in that it lends
money to the agencies and enterprises of the government and to companies in
exchange for interest payments. However, unlike the money market portfolio
(which only makes short-term loans), the Income Portfolio invests most of its
money in bonds or mortgages that are due within 2-30 years, although at times it
will hold short-term securities as well. Our average maturity in the Citizens
Income Portfolio is usually between 5 and 15 years. By committing money for this
longer period, we can generally earn higher interest than in the money market
portfolios.
At least 65% of the Income Portfolio's assets are invested in securities rated
"investment grade" (BBB or above). Up to 35% may be invested in bonds or other
debt instruments rated as below investment grades. Although bonds rated below
BBB are considered speculative (and are commonly referred to as "junk bonds")
and therefore add risk, we believe that by limiting the overall portfolio
exposure to a maximum level of 35%, the higher yield usually available in these
securities can benefit the portfolio and more than compensate for the greater
risk.
Occasionally, we buy securities that are not rated. In these cases, the security
must be of comparable quality, in our judgment, to the rated securities we buy
for the applicable portfolio.
In our Statement of Additional Information we give more detailed information
about each rating agency and its system of ratings.
RISK FACTORS
Bond prices, like stock prices, go up and down in value. These market price
fluctuations will be reflected in the value of the Citizens Income Portfolio.
When interest rates rise the market value of our Income Portfolio will decline,
and when interest rates fall the market value of our Income Portfolio will rise.
Muir California Tax-Free Income Portfolio
Objective: High level of current income exempt from both federal and
California state personal income tax.
The Muir California Tax-Free Income Portfolio only buys securities which have
been rated "investment-grade," or are equivalent to investment-grade in our
judgment. (Our Statement of Additional Information contains a full description
of bond ratings and the agencies which provide them.)
In addition to tax-free bonds, we may also buy other types of tax-exempt
fixed-income securities. Some of the important examples: We may invest up to 5%
of our assets in installment contracts known as municipal lease/purchase
agreements. We may also invest in a type of security known as a variable - or
floating-rate demand note or "VRDN". Another type of security we sometimes buy
is called a 'participation interest.' In this case we are buying
10
<PAGE>
Citizens Trust
part of a large loan made by a bank. Interest development bonds are
good examples of this particular type of investment.
RISK FACTORS
As with all fixed-income investing, we have two types of risk. The first is
credit risk: We will lend money to an organization and we won't be paid back
promptly, or at all. As we mentioned before, to moderate this risk we only buy
securities which have been rated "investment grade," or are equivalent to
investment-grade in our judgment. Many tax-exempt securities are ultimately
backed by the issuing town's or city's authority to tax its residents in order
to pay its principal interest.
Some types of tax-exempt securities are not backed by taxing power. These
include revenue bonds that are payable from a particular facility or a special
excise or other specific revenue source. Another example is industrial
development bonds, which in most cases are revenue bonds that do not carry the
pledge of the credit of the issuing municipality, but generally are guaranteed
by the corporate entity on whose behalf they are issued.
As a California fund, under normal market conditions we will have all or a
substantial portion of our assets concentrated in California municipal
securities. Here in California there have been some changes in the constitution
and other laws, as well as fiscal deficits and other problems, that have raised
questions about the ability of California state and municipal issuers to pay
their obligations.
The other risk in fixed-income investing is interest rate risk. When interest
rates rise, the market value of our Muir California Tax-Free Income Portfolio
will decline, and when interest rates fall, the market value of the Muir
California Tax-Free Income Portfolio will rise. Securities with longer
maturities typically have more fluctuation in market value. We may invest in
tax-exempt securities with maturities of any length up to 30 years, depending
upon our assessment of the relative yield on securities of different maturities
and our expectations of future changes in interest rates.
While these are risks, we watch them carefully in order to monitor their impact
on the portfolio.
Special Tax Considerations
As a matter of fundamental policy, we must invest at least 80% of our assets in
securities, the interest on which is exempt from regular federal and California
state personal income taxes and which is not subject to the federal alternative
minimum tax. During normal market conditions, at least 65% of our total assets
must be invested in bonds. We intend to always meet and usually substantially
exceed these minimum requirements. The Muir California Tax-Free Income Portfolio
will invest up to a maximum of 20% of its assets in private activity bonds which
may be subject to the federal alternative minimum tax.
MUIR INVESTMENT BONDS
The Muir California Tax-Free Income Portfolio generally buys investment-grade
bonds issued by cities and towns in California or other types of organizations
that issue tax-exempt securities. In particular, we look for bonds that are
issued for three basic purposes:
Education: Tax-exempt securities that finance projects like construction of
public and private educational facilities, as well as tax exempt securities used
to provide student loans.
Environment: Projects that foster the buying and building of parks, the
preservation of ancient forests and wildlife habitats, and the creation of
public transit. We also purchase pollution control bonds.
Housing: In our opinion, the availability of quality, low-cost housing is
critical to a peaceful and more just society. For this reason, we invest in
securities financing low-income housing.
11
<PAGE>
The Talking Prospectus
Manager
[photo of Rick Little]
Part of the team that manages the Citizens Emerging Growth Portfolio, RICK
LITTLE has worked in the investment field for 24 years. He has been with
GMG/Seneca Capital Management, L.P. since its inception in 1990 and was
previously a senior vice president at NatWest Securities. He explains the
investment approach used to manage the Emerging Growth Portfolio:
"We are looking to build a portfolio of companies that have special
characteristics, and therefore have the ability to grow their sales and earnings
at a rapid rate. These are the companies that we hope can become 'the next
Microsoft,' developing new and innovative products and services."
Other Policies
If sufficient desirable tax-exempt securities issued by California governmental
entities are not available, we may invest in other types of securities which
meet our social and financial criteria and are exempt from federal and personal
income tax. These and other investment policies are more fully discussed in our
Statement of Additional Information under the section entitled "Investment
Objectives and Policies." Our Statement of Additional Information also contains
more information about the risks of California municipal securities as well as a
description of municipal securities ratings.
Citizens Emerging Growth Portfolio
Objective: Aggressive growth through investment in small and medium-sized
companies.
Our Citizens Emerging Growth Portfolio looks for aggressive gains with long-term
investing in mid-cap companies. During normal market conditions, at least 65% of
this portfolio's assets will be invested in the common or preferred stock of
companies that average at least $2 billion in market capitalization.
RISK FACTORS
While many of these companies will have strong businesses, some will still be
unseasoned, and therefore may have some speculative characteristics. Investing
in smaller companies is a long-term process with the potential for significant
gains. However, the value of this portfolio can have significant fluctuation
because smaller companies have unique risks. They may be dependent on individual
managers or have a harder time obtaining financing and market share. Further,
their shares are more volatile and thinly traded. To moderate this risk we plan
typically to hold between 30 and 50 companies in the portfolio.
Since most of the companies we will purchase for the Citizens Emerging Growth
Portfolio are relatively new, we don't expect much, if any, dividend income. At
times we may also buy short-term fixed-income securities for the portfolio.
Organization and Management of the Trust
Citizens Investment Trust began November 24, 1982. Today, it's affectionately
known as Citizens Trust. We are a Massachusetts business trust and an open end
investment company, registered under the Investment Company Act of 1940 as a
diversified management company. The Trust is also a "series" company which means
that we can have several portfolios, each with its own investment objective,
assets, and liabilities. The Trust is supervised by a board of trustees.
In order to manage the Trust on a day-to-day basis, we have signed a Management
Agreement with our investment adviser, Citizens Advisers, with offices at 111
Pine Street, San Francisco, CA 94111 and One Harbour Place, Portsmouth, NH
03801. Citizens Advisers has managed the Trust's assets since the Trust's
inception.
12
<PAGE>
Citizens Trust
Citizens Advisers and its wholly-owned subsidiary, Citizens Securities, are
both California corporations. Sophia Collier is the 60% owner. Fellow
shareholders are three brothers, John P. Dunfey, Robert J. Dunfey, Sr., and
Gerald F. Dunfey, who own 12% each, and William B. Hart, who owns 4%.
The Role of Investment Adviser
Our investment adviser's job is to determine which companies meet the Trust's
investment criteria and will be carried on our "Approved List." To assist with
portfolio management they have retained at their own expense these sub-advisers.
GMG/Seneca Capital Management, L.P.
Our sub-adviser for the Working Assets Money Market Portfolio, E[bullet]fund,
Muir California Tax-Free Income, Citizens Income and Emerging Growth Portfolios,
GMG/Seneca Capital Management, L.P. is a registered investment adviser
established in 1990. It is a wholly owned subsidiary of GMG Capital Management,
LLC, which manages over $3 billion from their offices at 909 Montgomery Street,
San Francisco, CA. Organized as a California limited partnership, GMG/Seneca
Capital Management, L.P. has two general partners, Gail Seneca and Genesis
Merchant Group, L.P., an Illinois Limited Partnership. Genesis Merchant Group,
in turn, has three general partners: William K. Weinstein, Gail Seneca, and
Philip C. Stapleton. Prior to starting GMG/Seneca, Gail was employed by Wells
Fargo Bank as a senior investment officer.
Clemente Capital, Inc.
Our sub-adviser for the Citizens Global Equity Portfolio, Clemente Capital, Inc.
is a registered investment adviser organized in 1979. It is majority owned by
Lilia Clemente with 61.15%; Wilmington Trust of Wilmington, DE with 24% and
Diaz-Verson Capital Investments, Inc. of Columbus, GA with 14.85%. Clemente also
manages the First Philippine and Clemente Global Growth Funds, two closed-end
funds traded on the New York Stock Exchange. Its headquarters are at Carnegie
Hall Tower, 152 West 57th Street, New York, NY.
RhumbLine Advisers, Inc.
The Citizens Index Portfolio is sub-advised by RhumbLine Advisers, a registered
investment adviser established in 1990 with offices at 30 Rowes Wharf, Boston,
MA. RhumbLine is owned in excess of 97% by J.D. Nelson, who is also an
interested trustee of the Trust.
Citizens Advisers also provides administrative services and acts as the Trust's
distributor through its subsidiary, Citizens Securities.
Voting Rights
Our shareholders are entitled to one vote for each full share owned and a
fractional vote for fractional shares. Shares of each portfolio generally vote
separately on matters that only concern that portfolio. However, all
shareholders of the Trust vote together on the selection of trustees and other
matters as required by the Investment Company Act of 1940. The holders of shares
have no preemptive, conversion, or subscription rights, and voting rights are
not cumulative. To save money we do not hold annual meetings. However, a meeting
may be called by our trustees or at the request of 10% of the Trust shares. We
will assist shareholders in communicating with one another to arrange such a
meeting.
13
<PAGE>
The Talking Prospectus
Manager
[photo of Azie Taylor Morton]
Azie Taylor Morton chair of the Audit Committee, explains the Trust's
relationship with its advisers.
"One of the Trust's most important contracts is our Management Agreement with
Citizens Advisers. It states that Citizens Advisers has authority to manage our
portfolios and will provide all necessary office space, facilities, equipment
and personnel to do so."
Transfer Agent:
PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Dividend Paying Agent:
PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Phone: 800-223-7010
Citizens Trust's Management Agreement
Citizens Trust's Management Agreement with Citizens Advisers specifies fees as
follows (based on average annual net assets of the respective portfolios):
Trust Adviser
Pays Pays
Portfolio Adviser Sub-Adviser
Working Assets
Money Market Portfolio .35% .08%
E[bullet]fund Money Market Portfolio .10% .08%
Income Portfolio .65% .17%
Index Portfolio .50% .10%
Emerging Growth Portfolio 1.00% .35%
Muir California Tax Free Portfolio .65% .175%
Global Equity Portfolio 1.00% .35%
The fees of the Citizens Emerging Growth Portfolio, Citizens Index Portfolio and
Citizens Global Equity Portfolio are higher than the average investment company
and reflect the higher cost of managing these portfolios.
Citizens Advisers also has a separate administrative contract for providing
general administrative services, shareholder servicing and sub-accounting,
telephone services and services related to the organization of a portfolio's
federal and state regulatory filings. The fees paid by the Trust under this
contract are set by the Trustees based upon the services required. Citizens
Advisers will sometimes contract to have specialized services provided by third
parties, such as investment advisers for pension funds, or other institutions
which maintain omnibus accounts with the Trust. Under the administrative
contract, for the year ending June 30, 1996, we paid $583,266 to the adviser for
its administrative services.
The individual portfolios pay all expenses not expressly assumed by Citizens
Advisers. These include interest, taxes, audit and legal fees, custodian and
transfer agent charges, shareholder service and administration, insurance
premiums, cost of registering shares under federal and state laws, dues, and any
litigation costs, as well as the cost of typesetting, printing, and distributing
shareholder reports and prospectuses sent to shareholders. When a cost is shared
by several portfolios, the staff at Citizens Advisers will allocate the expense
in a reasonable manner under the supervision of the board of trustees.
For the Working Assets Money Market Portfolio and Citizens Income Portfolio,
Citizens Advisers has agreed to reimburse the Trust if the costs to be borne by
the portfolios exceed a specified limit in the ordinary course of business.
Please see the Statement of Additional Information for a full description.
12b-1 Fees
Citizens Trust has a 12b-1 plan which allows us to reimburse Citizens Securities
and other distributors of the Trust's shares for sales related costs. These
costs include the printing of prospectuses and reports not sent to current
shareholders, as well as other sales material, advertising, and salaries for
salespeople and other personnel. We will also pay commissions to outside brokers
or service organizations for similar services.
14
<PAGE>
Citizens Trust
Amounts paid fiscal year ended June 30, 1996:
Working Assets Money Market Portfolio $182,653
E[bullet]fund none
Income Portfolio 79,764
Index Portfolio 273,219
Emerging Growth Portfolio 49,373
Global Equity Portfolio 29,666
The Muir California Tax Free Income Portfolio 36,286
Sometimes Citizens Securities makes additional promotional expenditures that are
not reimbursed by the 12b-1 plan such as expense reimbursements to non-dealers
for meetings, advertising, and other valid promotional purposes.
How to Purchase and Redeem Shares
How to Buy Shares
It's easy to buy shares in Citizens Trust Portfolios. Just fill out an
application and send in your payment by check, wire transfer, exchange from
another portfolio, or through arrangement with your investment dealer.
Shares in the E[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.
Manager
[photo of David Parker]
Customer Service Manager, DAVID PARKER, oversees the Citizens Trust Call
Center.
"We talk to thousands of people from almost every circumstance and stage of
life. If you need help or have any questions, please call us. We are available
Monday through Friday from 9 AM to 8 PM, Eastern Time.
Our goal is to serve you in a caring and responsible manner that respects your
time and needs. Our service people pride themselves on getting the job done for
you in a quick, efficient manner."
15
<PAGE>
The Talking Prospectus
Use the E[bullet]fund
Debit Card:
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.
Payroll Deduction
Setting up direct payroll deposit is very easy. We can send you a form including
the necessary information and steps to follow. Simply complete and sign the
form, then give it to your payroll administrator for processing. If you or your
payroll administrator have any questions please call our shareholder service
department.
Funds will be deposited into your account using the Electronic Funds Transfer
System. We will provide the account number. Your payroll department will let you
know the date of the pay period when your investment begins.
Excepting the E[bullet]fund, if your account falls below $2,500 per portfolio,
we may ask you to open an Automatic Investment Plan or bring your balance back
up over $2,500. If you decide not to go ahead with either option, we may close
your account by sending you a check for your balance.
How to Redeem Shares
We offer you several convenient ways to redeem your shares in any of the
Citizens Trust Portfolios.
Call Us
We have a Telephone Exchange and Redemption option on your account application.
Under this option you can call us and tell us how much you want us to redeem.
Depending upon your instructions, we will then deposit your redemption into
another Citizens Trust Portfolio account, mail you a check, or electronically
transfer your redemption to your pre-designated account. One day wired funds
cost $10, or, we offer two day service via the Automated Clearing House (ACH).
You will earn dividends up to and including the date when we receive your
redemption request.
If you do select the Telephone Exchange and Redemption option, you should be
aware that it may increase the risk of error or of an unauthorized party gaining
access to your account. To keep these problems to a minimum we record all
telephone calls. But please remember, neither the Trust, our Adviser, nor our
Transfer Agent will be responsible if we properly act on telephone instructions
we reasonably believe to be genuine. Normally, we will send you your redemption
on the next business day after we receive your request.
Write a Check
When you open an account in the E[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.
16
<PAGE>
Citizens Trust
Written Request for Redemption
If you do not use Telephone Exchange and Redemption, you can still redeem your
shares at any time, although the process will take longer. Send us a written
request together with a signature guarantee. We may require further
documentation from corporations, fiduciaries, pension plans, and/or
institutional investors.
Redeem Your Shares in Person
Investors may also redeem their shares through Citizens Securities, or through
participating broker-dealers (who may charge a fee for this service). Certain
broker-dealers may have arrangements with the Trust that permit them to order
redemption of shares by telephone or facsimile transmission.
However, in rare cases, payments for the redemption of non-money market accounts
may take up to five business days. We also reserve the right to hold your
redemption proceeds for up to seven business days when you redeem any
investments that have been made by check or five days for an ACH transfer.
Therefore, if you need your redemption proceeds within seven business days of
your purchase, please invest by wire.
Shareholder Services and Policies
Exchange Privilege
Since people's investment needs change over time, we provide for easy exchanges
among our portfolios at no charge. You may make an exchange at any time and to
any portfolio. Just call us or write to us with your request.
Systematic Withdrawal Plan
You can send us a written request to automatically redeem a portion of your
shares and make a regular monthly, quarterly, or annual payment on your behalf.
Making a Change in Your Account
After your account is set up, you may want to make a change in one of the
options or in the account title. We are pleased to assist, but in many cases
will require a signature guarantee from all registered owners of the accounts.
Tax-Sheltered Retirement Plans
Our distributor, Citizens Securities, has arranged for shareholders to have
access to qualified Individual Retirement Accounts (IRAs) and 403(b) plans
(non-profit employees). Our portfolios are also suitable for other types of
retirement plans as well.
Common
Transactions That
Require Signature
Guarantees:
[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.
17
<PAGE>
The Talking Prospectus
Mailing and
Wiring Instructions
Regular U.S. Mail:
Please use the Business Reply Envelope
provided with this Prospectus, or mail to:
Citizens Trust
c/o PFPC Inc.
PO Box 8962
Wilmington, DE
19899-8962
Our Wiring Address:
Instructions:
PNC Bank, N.A.
Philadelphia, PA
ABA#: 031000053
For Further Credit
A/C# 86-1030-3646
Shareholder
name/acct. number
Overnight Delivery Package (i.e., Federal Express, UPS, Airborne Express, etc.)
No U.S. mail, please.
Send to:
Citizens Trust
c/o PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Phone: 800-223-7010
Please send overnight delivery packages only to this address. Regular U.S. Mail
will not be accepted at this address and may be returned to you.
Dividends, Distributions and Taxes
Unless you give us other instructions, we will automatically reinvest your
dividends and distributions at the Net Asset Value, calculated on the dividend's
payable date.
We can also pay your dividends and distributions to you by check or electronic
transfer through the Automated Clearing House to your bank account. The details
of your dividends and other distributions will be included on your statement.
Payment of dividends and distribution of capital gains, if any, are declared and
paid on the following schedule.
<TABLE>
<CAPTION>
DIVIDEND CAPITAL GAINS PAID
Declared Paid Long-term Short-term
<S> <C> <C> <C> <C>
E[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
Muir California
Tax-Free Income Portfolio Daily Monthly Annually Annually
Citizens Global Equity
Portfolio Annually Annually Annually Annually
</TABLE>
How We Report Investment Results
There are a number of ways of reporting performance, and we'll walk through each
one that we use, but, when you look at any mutual fund, remember, actual mileage
may vary.
Every business day the Working Assets Money Market Portfolio and the
E[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 and the
Muir California Tax-Free Income Portfolio Yield
For these two portfolios, we start with Net Investment Income per share for the
most recent 30 days and divide it by the maximum offering price per share on the
30th day and annualize the result assuming a semiannual compounding.
18
<PAGE>
Citizens Trust
Total Return and Other Quotations
For all portfolios except the money markets, we start with the total number of
shares that you can buy for $1,000 at the beginning of the period. We then add
all the additional shares that you would have purchased within the period with
reinvested dividends and distributions (this takes into account the portfolio's
income, if any). Finally, we multiply the number of these shares by the Net
Asset Value on the last day of the period and divide the result by the initial
$1,000 investment to see our percentage gain or loss. For periods of more than
one year, we adjust the cumulative Total Return to get an average annual Total
Return.
Valuation of Shares
To calculate our Net Asset Value, we add up the total assets of the portfolio,
subtract all liabilities and then divide by the number of shares outstanding. To
value money market securities we use an accounting system called the amortized
cost method. This system is described in the Statement of Additional
Information. To calculate the amount of the E[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.
From time to time, we may compare the investment results of our portfolios to
unmanaged market indices, and other data and rankings from recognized
independent publishers.
Tax Matters
The dividends you have earned are taxable to you as dividends (unless of course
you are otherwise not subject to taxes). Remember, the exchange of shares is
treated as a sale and any exchanging shareholder may, therefore, realize a
taxable gain or loss. You may also be subject to state and local taxes on
dividends and distributions from the Trust. Please consult your own tax adviser.
We will send you a complete statement each January as to the federal tax status
of dividends and distributions paid by each portfolio during the previous
calendar year.
We do not expect the Trust itself to pay any federal income or excise taxes
because each year we expect to qualify each portfolio as a separate regulated
investment company under the Internal Revenue Code. To do this, the portfolio
must meet certain income, distribution and diversification requirements such as
distributing all of the portfolio's Net Investment Income and realized capital
gains to shareholders in a timely manner.
That's it!
"Mutual Fund advertisements and stock brokers' offices have many ways of
reporting mutual fund performance. It's no wonder investors can become confused.
Remember: When you look at mutual fund quotations, you are looking at history -
how the fund did in the past. And, as Jim Mahoney said at the front of the
prospectus, there are only two ways you can make money from your investment:
through an increase in Net Asset Value or through 'Net Income.' These two
elements are the building blocks of all performance calculations."
- -Sophia Collier
19
<PAGE>
[Citizens Trust logo]
[recycle logo]
Printed on recycled paper with soy-based ink.
(C)1996 Citizens Securities
Working Assets is a registered trademark of Working Assets Funding Service.
Used under license.
The Talking Prospectus is a trademark of Citizens Securities.
<PAGE>
Statement of Additional Information
September 27, 1996, as amended February 7, 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
Muir California Tax-Free Income Portfolio
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Table of Contents Page
The Fund 2
Investment Objective and Policies 2
Other Investment Techniques 9
Factors that Affect the Value of Our Investments 14
Turnover and Portfolio Transactions 14
The Value of Our Shares 15
Information About Our Yield and Total Return 17
Dividends and Distributions 20
Federal Taxes 21
Redemption Information 24
Trustees and Officers 25
Additional Information Regarding the Management Company 27
Investment Advisory and Other Services 28
Additional Information 31
Voting Rights 31
Shareholder and Trustee Liability 31
Custodian 32
Auditors 32
Legal Counsel 32
Financial Statements 32
Appendix: Description of Ratings 33
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The Fund
Citizens Investment Trust (the "Fund" or "Citizens Trust") presently
consists of seven separate portfolios: Working Assets Money Market Portfolio
(inception date 8/30/83), Citizens Income Portfolio (inception date 6/10/92),
Citizens Emerging Growth Portfolio (inception date 2/8/94), Citizens Global
Equity Portfolio (inception date 2/8/94), Muir National Tax-Free Income
Portfolio (inception date 4/ /97), 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.
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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 (with the exception of the Muir California Tax-Free Income
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.
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7. May not underwrite securities, which means we may not sell securities
for others.
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 Eofund, Citizens Income Portfolio, Citizens Global Equity
Portfolio and Citizens Index Portfolio and do not apply to the Citizens Emerging
Growth Portfolio and the Muir California Tax-Free Income 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.
The Muir California Tax-Free Income Portfolio may not:
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1. Make loans to others, except (a) through the purchase of debt
securities in accordance with our investment objectives and policies, and
(b) to the extent the entry into a repurchase agreement is deemed to be a
loan.
2. Borrow money, except temporarily for extraordinary or emergency (not
leveraging) purposes from a bank and then not in excess of 5% of our
total assets (at the lower of cost or fair market value).
3. Purchase securities on margin, sell securities short, participate on a
joint or joint and several basis in any securities trading account, or
underwrite securities except insofar as we may be technically deemed an
underwriter under the federal securities laws in connection with the
disposition of portfolio securities. (This is an operating restriction
and does not preclude us from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio
securities.)
4. Buy or sell interests in commodities or commodity contracts, oil, gas
or mineral exploration or development programs, or real estate, provided
that this limitation shall not prohibit the purchase of municipal and
other debt securities secured by real estate or interests therein.
5. Invest more than 10% of our net assets in illiquid securities, a term
which means securities that cannot be disposed of within seven days in
the normal course of business at approximately the amount at which we
have valued our securities, and includes, among other things, (i)
repurchase agreements maturing in more than seven days, and (ii)
municipal lease/purchase agreements, VRDNs (as defined below) and
Participating VRDNs (as defined below) which the sub-adviser has
determined are illiquid because there is an inefficient or thin trading
market.
6. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit us from (a) entering into
permitted borrowings, mortgages or pledges, (b) purchasing securities on
a when-issued or delayed-delivery basis or (c) entering into repurchase
transactions.
As an operation policy, the Muir California Tax-Free Income Portfolio may
not:
1. Purchase or sell common stocks, preferred stocks, warrants or other
equity securities, or futures contracts, or purchase or write put, call,
straddle or spread options, except that we may purchase, hold and dispose
of "obligations with puts attached" in accordance with our investment
policies as described in the Prospectus.
2. Invest in securities of other investment companies (except as they may
be acquired as part of a merger, consolidation or acquisition of assets)
which would result in our (i) owning more than 3% of the total
outstanding voting stock of another registered investment company; (ii)
investing more than 5% of our total assets in the securities of a single
registered investment company; or (iii) investing more than 10% or our
total assets in the securities (other than treasury stock) of registered
investment companies. Within these limitations, we may invest in other
investment companies.
3. Invest in any issuer for purposes of exercising control or management.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in
values or assets will not constitute a violation of that restriction.
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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 and 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. Each Portfolio may not buy real estate, or real estate
loans, but may buy money market securities even though the issuer invests in
real estate or interests in real estate.
The following are also the present policies of 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
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the discussion relating to the purchase of illiquid securities in the
section regarding the 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 Eofund 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
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which meet our financial and social criteria. We intend to purchase primarily
intermediate- and long- term securities and to maintain a weighted average
maturity of 5-15 years. However, at times, we may have a longer or shorter
weighted average maturity if we believe it will help us meet our investment
objective.
We plan to invest at least 65% of the value of the Citizens Income
Portfolio's assets in debt securities that are rated BBB or better by a 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").
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In the Citizens Global Equity Portfolio we buy primarily common stocks of
U.S. domestic and foreign companies. From time to time, we may also buy other
securities such as convertible or preferred stocks and short-term debt
securities. We plan to allocate over half our assets to foreign markets in most
circumstances in a minimum of three countries.
To moderate these risks as well as gain potential benefits we use a
number of investment techniques. The first of these is country selection. We
restrict our investments in emerging nations (those not included in Morgan
Stanley's World Index) to no more than 25% of the assets of Citizens Global
Equity Portfolio.
When we invest on foreign exchanges we buy securities in the currency of
the local country. Often the local currency will fluctuate vs. the dollar. To
moderate this risk we engage in currency "hedging" when we feel it is
appropriate to protect the value of our portfolio. We do this by entering into
arrangements to buy or sell a particular currency, security, or securities index
for a stated value at a given point in time. 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. Companies outside the S&P 500 are used in the Citizens Index Portfolio
to add industry diversity and other financial characteristics that we believe
will enable the Portfolio to track the returns of the S&P 500 as a whole.
Securities will be purchased in a proportion equal to the weight of each
company to the total index. At times we will also buy short-term fixed income
securities for the Citizens Index Portfolio. Under normal circumstances these
short-term investments will amount to no more than 5% of the 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.
Muir California Tax-Free Income Portfolio
Our objective is to provide a high level of current income exempt from
both federal and California state personal income tax. We seek to achieve this
objective by investing primarily in securities which our Trustees believe will
provide social, environmental and economic benefits.
We Will Not Compromise the Quality of Our Portfolio. While we place a
high premium on the economic and social benefit of our investments, we do not
sacrifice the quality of our portfolio to achieve our social, environmental and
economic agenda. Our securities portfolio contains only Tax-Exempt Securities
(as defined below) which have been rated "investment grade." Investment grade
securities are securities which, at the time of purchase, have been rated in one
of the four highest rating categories (i.e., "Baa" or higher) by Moody's,
Standard & Poor's or Fitch Investors Service, Inc. or if not rated, are
determined by our sub-adviser to be at least of equivalent quality.
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We do not invest in "junk bonds" (i.e. securities rated below investment
grade). However, Tax-Exempt securities rated in the fourth highest rating
category (the lowest rating category in which we may invest) have speculative
characteristics. With respect to these securities, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher rated
Tax-Exempt Securities. If we invest in any Tax-Exempt Security the rating of
which subsequently drops below investment grade, our Board of Trustees will be
notified and shall promptly determine on a case by case basis whether the
security should be retained or sold. We maintain an operating policy that no
more than 5% of our securities portfolio may consist of securities which,
although rated investment grade when purchased, subsequently drop below
investment grade.
Many Tax-Exempt Securities are not rated by any credit rating agency.
Although we are permitted to invest up to 10% of our total assets in unrated
Tax-Exempt Securities, we currently do not invest in any such unrated securities
and do not intend to do so in the foreseeable future. If we were to invest in
unrated securities, the sub-adviser first would determine that these unrated
Tax-Exempt Securities meet our credit quality standards by performing an
independent credit analysis of the issuer of the security (and any institution
giving a credit enhancement to the security) in accordance with procedures
adopted by our Board of Trustees and reviewed by the Adviser.
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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 Eofund 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.
Options Transactions
Each Portfolio, other than Money Market Portfolio and Eofund, 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
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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 Eofund, 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, 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
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Each Portfolio, other than the Money Market Portfolio and the Eofund, 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).
Special Considerations Regarding Tax-Exempt Securities; Muir California Tax-Free
Income Portfolio
"Tax-Exempt Securities," as this term is used in this Statement of
Additional Information, includes debt obligations issued by the State of
California, its political subdivisions, authorities and corporations, the
interest on which is, in the opinion of bond counsel to the issuer, exempt from
federal and State of California personal income taxes. Tax-Exempt Securities are
generally issued to obtain funds for various public purposes. An inverse
relationship exists between the value of debt obligations, including Tax-Exempt
Securities, and interest rates (i.e., when interest rates decline, the value of
debt obligations generally will tend to increase and when interest rates
increase, the value of debt obligations generally will tend to decline).
Municipal Notes. We may invest in different types of municipal notes
including (i) tax anticipation notes; (ii) revenue anticipation notes; (iii)
bond anticipation notes; (iv) construction loan notes; (v) short-term discount
notes; and (vi) variable rate demand notes.
Tax anticipation notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer secured by the issuer's taxing power for the payment
of principal and interest. Revenue anticipation notes are issued in expectation
of receipt of other kinds of revenue, such as federal revenues available under
the federal Revenue Sharing Program. They also are usually general obligations
of the issuer.
Bond anticipation notes normally are issued to provide interim financing
until long-term financing can be arranged. The long-term bonds then provide the
money for the repayment of the notes.
Construction loan notes are sold to provide construction financing for
specific projects. After successful completing and acceptance, many projects
receive permanent financing through the Federal Housing Administration under the
Federal National Mortgage Association or the Government National Mortgage
Association.
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Short-term discount notes (tax-exempt commercial paper) are short-term
(365 days or less) promissory notes issued by municipalities to supplement their
cash flow.
We may also invest up to 5% of our total assets in variable or floating
rate demand notes ("VRDNs"). VRDNs are tax-exempt securities that contain a
floating or variable interest rate adjustable formula and an unconditional right
of demand to receive payment of the unpaid principal balance plus accrued
interest upon a short notice period prior to specified dates, either from the
issuer or by drawing on a bank letter of credit, a guarantee or insurance issued
with respect to such instrument. The interest rate on a VRDN is adjusted
periodically based on a specific external rate (e.g., bank prime rate) to
maintain the VRDN's market value at approximately par. We decide which VRDNs to
purchase in accordance with procedures prescribed by our Board of Trustees,
which are intended to minimize credit risks. These procedures include, among
other things, both a credit analysis of any financial institution that is giving
credit support and a requirement that a VRDN be investment grade, as determined
in accordance with procedures adopted by the Board of Trustees with respect to
both its long-term and short-term aspects; (except that where credit support for
the instrument is provided even in the event of default on the underlying
security, we may rely only on the investment grade character of the short-term
aspect of the VRDN, i.e., the demand feature.) VRDNs which are unrated must have
quality characteristics similar to rated VRDNs in accordance with procedures
adopted by our Board of Trustees.
We may also invest in participation interests ("Participating VRDNs") in
variable or floating rate tax-exempt obligations held by a financial
institution, typically a commercial bank ("institution"). Participating VRDNs
provide us with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the Participating VRDNs from the institution upon a
specified number of days notice. In addition, the Participating VRDN is backed
by an irrevocable letter of credit or guarantee of the institution. The
institution typically retains fees out of the interest paid on the obligation
for servicing the obligation, providing the letter of credit and issuing the
repurchase commitment. Our sub-adviser performs a credit analysis of the
institution involved, following procedures adopted by our Board of Trustees.
Municipal Bonds. Municipal bonds meet longer-term capital needs and
generally have maturities of more than one year when issued. Municipal bonds
have three principal classifications: (i) general obligation bonds; (ii) revenue
bonds; and (iii) industrial development bonds.
General obligation bonds are issued by states, counties, cities, towns,
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects, including construction or improvement of schools,
and water and sewer systems. The basic security behind general obligation bonds
is the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. The taxes that can be levied for the payment
of debt service may be limited or unlimited as to the rate or amount of special
assessments.
Revenue bonds are not secured by the full faith, credit and taxing power
of their issuer. Rather, the principal security for revenue bonds is generally
the net revenue derived from a particular facility, group of facilities, or, in
some cases, the proceeds of a special excise tax or other specific revenue
source. Revenue bonds are issued to finance a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund whose money may
be used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or the net
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revenues from housing or other public projects. Some authorities are provided
further security in the form of a state's assurance (although without
obligation) to make up deficiencies in the debt service reserve fund.
Industrial development bonds are in most cases revenue bonds and are
issued by or on behalf of public authorities to raise money to finance various
privately-operated facilities for business, manufacturing, housing, sports, and
pollution control. These bonds are also used to finance public facilities such
as airports, mass transit systems, ports, and parking. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of the
real and personal property so financed as security for such payment. Tax-exempt
industrial development bonds, in most cases, are revenue bonds and generally do
not carry the pledge of the credit of the issuing municipality, but generally
are guaranteed by the corporate entity on whose behalf they are issued. The
social performance of any such corporate guarantor will be considered in
accordance with procedures adopted by our Board of Trustees before we make an
investment decision with respect to any guaranteed securities. We will not
purchase industrial development bonds to the extent that the interest paid by
particular bonds is not excluded from gross income for federal regular income
tax purposes. We will not invest 25% or more of our total assets in industrial
development bonds.
Tax-Exempt Securities include municipal lease/purchase agreements which
are similar to installment purchase contracts for property or equipment issued
by municipalities. Our investment in municipal lease/purchase agreements will
not exceed 5% of our total assets.
While we may invest in Tax-Exempt Securities with maturities of any
length, securities with longer maturities typically exhibit more fluctuation in
market value and therefore the inclusion of such securities in our portfolio may
increase the fluctuation of our net asset value. We invest in Tax-Exempt
Securities with maturities of up to 30 years depending upon our assessment of
the relative yield on securities of different maturities and our expectations of
future changes in interest rates.
There may, of course, be other types of municipal securities, similar to
the foregoing described municipal securities, which may become available and
could be included in our investment portfolio.
In the event that desirable Tax-Exempt Securities issued by California
governmental entities are not available, we may invest in other types of
securities (meeting, to the extent possible, the social responsibility criteria
outlined above) which are exempt from federal and California state personal
income tax. These securities may include U.S. Territorial obligations including
obligations of Puerto Rico, Guam and the Virgin Islands and the obligations of
the U.S. Government and agencies, instrumentalities or authorities of the U.S.
Government authorized by federal law to issue obligations exempt from any
state's personal income tax.
It is also possible, although not anticipated, that under normal market
conditions up to 20% of our net assets could be invested in state and municipal
obligations of other states (which would generate income exempt from federal
income tax but not exempt from California state personal income taxes), other
securities on which the interest is a tax preference item under the federal
alternative minimum tax, U.S. Treasury obligations, high quality commercial
paper, obligations of U.S. banks (including commercial banks and savings
institutions insured by the Federal Deposit Insurance Corporation ("FDIC") with
assets of $1 billion or more, and repurchase agreements secured by U.S.
Government securities. Some of the foregoing investments generate income that
would be subject to California and possibly federal personal income taxes when
distributed to our shareholders.
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For temporary defensive purposes only, we may invest up to 100% of our
assets in (i) obligations issued or guaranteed by the full faith and credit of
the U.S. Government, its agencies, instrumentalities or authorities, highest
rated commercial paper, certificates of deposits of domestic banks with assets
of $1 billion or more and repurchase agreements (subject to the limitations
described below) the interest on which is subject to federal tax and may be
subject to California state personal income taxes; and (ii) securities the
interest on which is exempt from regular federal income taxes but not
California's personal income taxes, such as tax-exempt municipal securities
issued by other states and their agencies and instrumentalities.
We may purchase shares of no-load, open-end investment companies which
invest in Tax-Exempt Securities with remaining maturities of one year or less
(commonly known as "money market funds"). We will invest in such tax-exempt
money market funds only as a short-term measure if our Adviser or sub-adviser
determines that such money market funds provide a better combination of yield
and liquidity than direct investment in short-term, Tax-Exempt Securities. Our
Adviser will waive its management fee on any portion of our assets invested in
such money market funds. We will not invest more than 10% of our total assets in
shares issued by money market funds nor will we invest more than 5% of our total
assets in a single money market fund.
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Factors That Affect the Value of Our Investment
Money Market Instruments and Fixed Income Securities
The value of the fixed income securities in which we invest will
fluctuate depending in large part on changes in prevailing interest rates. Fixed
income securities comprise all assets in the Money Market Portfolio, the
E[bullet]fund, Citizens Income Portfolio and Muir California Tax-Free 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 Eofund, 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 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 and Muir California Tax-Free 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.
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.
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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
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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 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, the Citizens Index Portfolio and the Muir
California Tax-Free Income Portfolio
As described in the Prospectus, the Citizens Income Portfolio, Citizens
Emerging Growth Portfolio, Citizens Global Equity Portfolio, the Citizens Index
Portfolio and the Muir California Tax-Free Income 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
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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 the Citizens Income Portfolio and the Muir California Tax-Free
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.
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]
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In addition, we may also quote a tax equivalent yield for the Muir
California Tax-Free Income Portfolio which demonstrates the taxable yield
necessary to produce an after-tax yield equivalent to that of a fund which
invests in tax-exempt obligations. Such yield is computed by dividing that
portion of our yield (computed as indicated above) that is tax-exempt by one
minus the highest applicable income tax rate and adding the product to that
portion of our yield that is not tax-exempt.
Current yield, effective yield and tax equivalent yield which are
calculated according to a formula prescribed by the SEC are not indicative of
the amounts that actually may be paid to our shareholders. Amounts paid to
shareholders are reflected in the quoted current distribution rate or taxable
equivalent distribution rate. The current distribution rate is computed by
dividing the total amount of dividends per share we paid during the past twelve
months by a current maximum offering price. A taxable equivalent distribution
rate demonstrates the taxable distribution rate equivalent to our current
distribution rate (calculated as indicated above). Under certain circumstances,
such as when there has been a change in the amount of dividend payout, or a
fundamental change in investment policies, it might be appropriate to annualize
the dividends paid 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
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Working Assets Money Market Portfolio 4.02% 4.10% NA
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E[bullet]fund 5.24% 5.38% NA
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Citizens Income Portfolio NA NA 6.42%
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Muir California Tax-Free Income Portfolio NA NA 3.42%
===============================================================================
The current yield of the Money Market Portfolio and the Eofund 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
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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 and the Muir
California Tax-Free Income Portfolio is based on the annualized net investment
income per share of a Portfolio over a 30 day period. The yield is calculated by
dividing the net investment income per share of a 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 a
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 each
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, Citizens Index Portfolio and Muir California
Tax-Free Income 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.
20
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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.
21
<PAGE>
For the fiscal year ended June 30, 1996 the Portfolios had the following
performance:
<TABLE>
<CAPTION>
==============================================================================================================
Hypothetical Investment
Annualized Return on $1,000 for the 1
Total Return Year Period
Portfolio 1 Year Total Return Since Inception
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Citizens Income Portfolio 5.48% 6.54% $1,054.80
- --------------------------------------------------------------------------------------------------------------
Citizens Emerging 42.53% 26.19% $1,425.30
Growth Portfolio
- --------------------------------------------------------------------------------------------------------------
Citizens Global Equity 12.64% 8.36% $1,126.40
Portfolio
- --------------------------------------------------------------------------------------------------------------
Citizens Index Portfolio 23.79% 25.58% $1,237.90
- --------------------------------------------------------------------------------------------------------------
Muir California Tax-Free 4.71% 6.22% $1,047.90
Income 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 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
22
<PAGE>
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.
23
<PAGE>
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.
Muir California Tax-Free Income Portfolio
The Portfolio intends to declare a dividend daily, payable monthly, equal
to substantially all of its net investment income and to distribute
substantially all net realized long-term capital gains (and any short-term
capital gains) at least once each calendar year. Dividends and capital gains are
automatically reinvested in additional shares at net asset value per share on
the reinvestment date unless the shareholder has previously requested in writing
that the payment be made in cash.
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). 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
24
<PAGE>
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 distribute all of its income, the Portfolio will not be
subject to any Massachusetts or California income or excise tax.
The Code permits the character of tax-exempt interest received by a
regulated investment company to flow through as tax-exempt dividends when
distributed to its shareholders, provided that at least 50% of the value of its
assets at the end of each quarter of its taxable year is invested in state,
municipal and other obligations, the interest on which is exempt under Section
103 (a) of the Code. We intend to satisfy this 50% requirement in order to
permit our distributions of tax-exempt interest to be treated as such for
federal income tax purposes in the hands of our shareholders. Distributions to
shareholders of tax-exempt interest earned by us for the taxable year are
therefore not subject to federal income tax, although such distributions may be
subject to the individual and corporate alternative minimum taxes described
below. A portion of original issue discount relating to stripped municipal bonds
and their coupons may be treated as taxable income under certain circumstances.
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, Citizens Income Portfolio and Muir
California Tax-Free 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, Citizens Income Portfolio and Muir California
Tax-Free 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.
25
<PAGE>
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.
The exemption of the tax-exempt interest component of our dividends for
federal or California state personal income tax purposes does not necessarily
result in exemption under other federal or California tax laws or the income or
other tax laws of any other state or local taxing authority. You should bear in
mind that you may be subject to such other taxes.
If we acquire securities that produce taxable income, we will be able to
designate only a portion of our dividends as tax-exempt to you. We will
designate the tax-exempt percentage on an actual earned basis and will notify
you of the percentage by January 31st of the following year. Under this
designation method, the percentage designated as tax-exempt for any particular
distribution may be substantially different from the percentage of our income
that was tax-exempt during the period covered by the distribution.
Section 147 (a) of the Code prohibits exemption from taxation of interest
on certain governmental obligations to persons who are "substantial users" (or
persons related thereto) of facilities financed by such obligations. We have not
undertaken any investigations as to the users of the facilities financed by
tax-exempt bonds in its portfolio.
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.
26
<PAGE>
State Taxation; Muir California Tax-Free Income Portfolio
The portion of our exempt-interest dividends equal to the proportion
which the interest on our California municipal bonds bears to all of our
tax-exempt interest will be exempt from California personal income taxes if, at
the close of each quarter of our taxable year, at least 50% of the value of our
total assets consists of California municipal bonds. We intend to invest as
least 50% of our assets in California municipal bonds at all times.
Shareholders not subject to California taxation do not benefit from the
fact that dividends distributed by us are exempt from taxation in California.
Most states other than California will not treat our dividends as tax-free.
Accordingly, if you are taxable in a state other than California, your after-tax
rate of return from our shares may be lower. Residents of New York,
Pennsylvania, Michigan and the District of Columbia may purchase shares of the
fund and the dividends will be free from federal taxation. Dividends will also
be free from District of Columbia taxation. We will inform shareholders annually
regarding the portion of our distributions which constitutes "exempt-interest
dividends" and which is exempt from California income taxes.
Unlike federal law, the Portfolio's exempt-interest dividends will not
constitute a tax preference item for California personal income tax purposes.
Moreover, an individual's Social Security benefits are not subject to California
personal income tax, so that the receipt of exempt-interest dividends will have
no effect on the California personal income taxation of Social Security
benefits. If you receive Social Security benefits, you must take all
distributions including tax-exempt dividends from us into account in determining
whether your total income exceeds the income level at which Social Security
benefits are partially taxable for federal personal income tax purposes. In
addition, for California personal income tax purposes the shareholders of the
Portfolio will not be subject to tax, or receive a credit for tax paid by the
Portfolio, on any undistributed capital gains of the Portfolio.
A small portion of our assets may from time to time be temporarily
invested in fixed-income obligations, the interest on which, when distributed to
our shareholders, will be subject to federal and California income taxes. We may
purchase so-called "non-essential" or "private activity" bonds the interest on
which would constitute a preference item for shareholders in determining their
federal alternative minimum tax. We may invest up to 20% of our assets in
private activity bonds.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject (a) to California state franchise tax;
(b) to state taxes in states other than California; or (c) to local taxes in
cities other than those in California. Accordingly, our investors, including
corporate investors which may be subject to California franchise tax, should
consult their tax advisers with respect to the application of such taxes to the
receipt of Portfolio dividends and as to their California tax situation in
general.
After the end of each calendar year, each shareholder receives
information for tax purposes on the dividends and distributions for that year,
including any portion taxable as ordinary income, any portion taxable as capital
gains, any portion representing a return of capital, any amount of dividends
eligible for the dividends-received deduction for corporations. Shareholders of
the Muir California Tax-Free Income Portfolio will also receive information
regarding the federal income tax status of all distributions, including a
statement of the percentage of the prior calendar year's distributions which we
have designated as tax-exempt, and the percentage of such tax-exempt
distributions treated as a tax-preference item for purposes of the alternative
minimum tax.
- ------------------------------------------------------------------------------
Redemption Information
27
<PAGE>
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 Eofund 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.
- ------------------------------------------------------------------------------
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
28
<PAGE>
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 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.
29
<PAGE>
The following compensation table disclosed the aggregate compensation
from the Fund for services provided through June 30, 1996.
30
<PAGE>
CITIZENS INVESTMENT TRUST - COMPENSATION TABLE
- -------------------------------------------------------------------------------
===============================================================================
Aggregate Compensation Total Compensation
Name of Person and Position from The Fund Paid to 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. J.D. Nelson did not become an Interested Trustee until March
1995 and received compensation from the Fund prior to his change in status to an
interested trustee.
The Trustees who are not "interested persons" received aggregate fees
from us of $23,750 for services provided through June 30, 1996 and were also
reimbursed for out of pocket expenses. Our Trustees, officers and members of the
Board of Advisors as a group owned less than 1% of our outstanding shares as of
June 30, 1996.
Other Officers of The Fund
Christine Pratt (1/6/47), Secretary, is Senior Vice President of Citizens
Advisers and began working for Citizens Advisers in June of 1996. Prior to that
time, Ms. Pratt was employed by BayBanks, where she headed up the lending and
servicing division for BayBanks Consumer Lending and Mortgage subsidiaries.
Suzan 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 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
31
<PAGE>
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."
- ------------------------------------------------------------------------------
32
<PAGE>
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, Muir California
Tax-Free Income, 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 and facilities and equipment and clerical personnel
necessary to carry out its duties under the Management Agreement. Some of our
Trustees and our officers are employees of our Adviser and receive their
compensation from the Adviser. Our custodian bank maintains, as part of its
services for which we pay a fee, many of the books and records as we are
required to have and computes our net assets value and dividends per share.
We pay the Adviser a fee for its services at 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%; Citizens Index Portfolio--0.50%; and Muir California
Tax-Free Income Portfolio--0.65%. The fee is accrued daily and paid at least
monthly. The Adviser has agreed to limit our expenses each year. If expenses
exceed this
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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; Citizens Income Portfolio: 1.75% of the first $75
million of average net assets and 1.25% thereafter; and Muir California Tax-Free
Income Portfolio: 0.65% of the Portfolio's average daily net assets.
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; Citizens Index Portfolio, 1994-$0,
1995-$760,572, 1996-$689,466; and Muir California Tax-Free Income Portfolio,
1994-$30,129, 1995-$105,984, 1996-$94,344. For the fiscal period ended June 30,
1996, the Adviser accrued expenses of $4,018 on behalf of the Eofund, 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 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, Citizens Global Equity Portfolio
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and Muir California Tax-Free Income Portfolio, 0.10% of average assets; and
Citizens Index Portfolio, 0.65% of average assets.
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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 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
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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, 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, Muir California Tax-Free Income Portfolio and Citizens Income
Portfolio - no holders of 5% or more. Citizens Emerging Growth Portfolio -
Charles Schwab & Co, Inc., 9.0%. Citizens Global Equity Portfolio - Charles
Schwab & Co, Inc., 17.9%. Citizens Index Portfolio - Charles Schwab & Co, Inc.,
2.3%.
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Voting Rights
Shareholders are entitled to one vote for each full shares held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. Voting is generally
by class and series except as otherwise provided by the provisions of the 1940
Act. The Trustees will call a meeting of shareholders to vote on the removal of
a Trustee upon the written request of the record holders of ten percent of our
shares. No amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of our outstanding shares. The
holders of shares have no preemptive or conversion rights. Shares when issued
are fully paid and non assessable, except as set forth under "Shareholder and
Trustee Liability" below. The Fund may be terminated upon the sale of its assets
to another issuer, if such sale is approved by the vote of the holders or more
than 50% of our outstanding shares, or upon liquidation and distribution of our
assets, if approved by the vote of the holders of more than 50% of our
outstanding shares. If not so terminated, the Fund will continue indefinitely.
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Shareholder and Trustee Liability
We are an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. Our Declaration of Trust contains an express disclaimer of shareholder
liability for our acts or obligations and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by us or our Trustees. The Declaration of Trust provides for
indemnification and reimbursement of expenses by the relevant Portfolio out of
the Portfolio's property for any shareholder held personally liable for the
Portfolio's obligations. The Declaration of Trust also provides that we shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of ours and satisfy our
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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 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 is 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 to 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.
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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."
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.
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While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures for adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major on-going uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category also used for debt subordinated to senior debt that is assigned
as actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but has the capacity to
meet interest payments and principal repayments. Adverse business, financial or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBb or BB rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that it assigned an actual or implied
B or B rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless 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.:
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AAA: (highest quality) The obligor has an extraordinary ability to pay interest
and repay principal which is unlikely to be affected by reasonably foreseeable
events.
AA: (high quality) The obligor's ability to pay interest and repay principal,
while very strong, is somewhat less than for AAA rated securities or more
subject to possible change over the term of the issue.
A: (good quality) The obligor's ability to pay interest and repay principal is
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: (satisfactory bonds) The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to weaken this ability than bonds
with higher ratings.
Municipal Notes
Moody's:
Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in short
term-borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used will be
as follows:
MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
Standard & Poor's:
SP-1: Issues carrying this designation have a strong or very strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Commercial Paper
Moody's:
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment
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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.
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Appendix B: Special Considerations Relating to California Municipal Obligations
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in the adverse effects described below. The following information constitutes
only a brief summary, does not purport to be a complete description and is based
exclusively upon information drawn from official statements and prospectuses
relating to securities offerings of the State of California and various local
agencies in California that have come to our attention and were available as of
the date of this Statement of Additional Information. While we have not
independently verified such information, we have no reason to believe that such
information is not correct in all material respects.
Certain California Municipal Securities may be obligations of issuers
which rely in whole or in part on California state revenues for payment of these
obligations. Property tax revenues and a portion of the State's General Fund
surplus are distributed to counties, cities and their various taxing entities,
and the state assumes certain obligations theretofore paid out of local funds.
Whether and to what extent a portion of the state's General Fund will be
distributed in the future in counties, cities and their various entities, is
unclear.
State Budgetary Considerations
1990-91 Budget. The 1990-91 Budget Act projected General Fund
expenditures of approximately $42.0 billion and Special Fund Expenditures of
approximately $8.8 billion. However, revenues for the 1990-91 fiscal year were
substantially lower than the estimates made when the Budget Act was adopted. As
a result of new calculations of revenues and expenditures, the Governor has
projected the estimated budget gap at $14.3 billion.
The California State Controller has reported that the General Fund ended
the 1990-91 fiscal year with a negative fund balance of about $1.316 billion on
a budget basis. In order to pay necessary cash expenses through June 1991,
including payment of $4.1 billion 1990 Revenue Anticipation Notes which were due
June 28, 1991, the General Fund borrowed $1.390 billion from California's
Special Fund for Economic Uncertainties and $3.266 billion from other Special
Funds. Data on General Fund revenues for the 1990-91 fiscal year show that
revenues in all major categories (except insurance taxes) were lower than
receipts in 1989-90.
1991-92 Budget. The State Governor's Budget for the 1991-92 Fiscal Year,
submitted on January 10, 1991, indicated that the State's financial condition
deteriorated significantly since enactment of the 1990-91 Budget Act on July 31,
1990. The 1991-1992 Budget Act projected General Fund expenditures of $43.4
billion and Special Fund expenditures of $10.6 billion. The $14.3 billion
estimated budget gap between revenues over the two fiscal years 1990-91 and
1991-92 and established program needs based on existing laws, including
restoration of a prudent reserve for economic uncertainties, was closed through
a combination of temporary and permanent changes in laws and some one-time
budget adjustments. The California Department of Finance has estimated, as of
January 10, 1992, that General Fund expenditures for the 1991-92 fiscal year
exceeded revenues and transfers by about $85 million, increasing the deficit in
the General Fund to about $1.344 billion. The 1992/93 budget summary of
September 2, 1992 projects a 1991/92 year end deficit in the General Fund of
$2.191 billion. The Governor's Budget Summary for the 1993/94 fiscal year,
prepared by the State Department of Finance and issued on January 8, 1993,
projects a 1991-92 year-end deficit in the General Fund of $2.2 billion. In
order to meet a cash-flow deficit on June 30, 1992, the State issued short-term
registered reimbursement warrants in the amount of $475 million. The warrants
matured and were repaid on July 24, 1992.
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The foregoing discussion of the 1991-92 fiscal year Budget is based on
estimates and projections of revenues and expenditures for that fiscal year and
should not be construed as a statement of fact. In addition, there have been
strong indications that California's state budgetary goals will not be met and
that economic recovery will be more sluggish than anticipated, with cash
receipts significantly below projections.
1992-1993 Budget. The State Governor's Budget for the 1992/93 Fiscal
year, submitted on January 9,1992, indicates that the State's financial
condition has further deteriorated. The Governor's Budget forecast that the
revenues for the full 1991/92 Fiscal year would be $2.7 billion below budgeted
levels. The 1992/93 Governor's Budget projects General Fund expenditures of
$43.8 billion and Special Fund expenditures of $12.5 billion. The 1992/93
Governor's Budget eliminates the deficit from 1991/92 and estimates $105.4
million as a year-end balance in the Special Fund for Economic Uncertainties,
representing approximately 0.2% of General Fund expenditures. On May 20, 1992,
the State Department of Finance issued its "May Revision," which estimated that
General Fund revenues and transfers in the 1991-92 fiscal year would be $1.6
billion less than the January estimate, and expenditures would be $500 million
higher. These estimates, added to the estimated negative fund balance of $1.3
billion from the Governor's proposed 1992-93 budget, resulted in a projected
negative fund balance of $1.3 billion from the Governor's proposed 1992-93
budget, resulted in a projected negative fund balance at June 30, 1992 of about
$3.4 billion. The May Revision further estimated that, in addition to the $5.2
billion of expenditure costs and increases in revenues projected in the
Governor's proposed 1992-93 budget, another $5.7 billion of budget actions would
be needed in order to end the 1992-93 fiscal year without a budget deficit.
The Commission on State Finance issued a report in May 1992 which, among
other things, estimated that if economic conditions led to a stagnant economy
through 1993 (the "pessimistic forecast") rather than slow recovery starting in
late 1992 (the "primary forecast"), there could be a negative impact on the
General Fund of approximately $2.1 billion. The Commission on State Finance
released an updated staff report on October 15, 1992, which forecasts that the
State's economy will remain stagnant through 1994. The report projects that as a
result the General Fund deficit for the 1992-93 fiscal year will be about $2.4
billion and the General Fund Deficit for the 1993-94 fiscal year will be about
$1.7 billion. The report projects that as the recession worsens the General Fund
deficit might exceed $7.4 billion for the two-year period. The California
Legislative Analyst recently predicted that the General Fund deficit might be
about $7.5 billion by June 30, 1994, and the State Treasury shortage as early as
next Spring, which would again necessitate the use of "registered warrants" to
pay certain State obligations.
The 1992/93 Fiscal Year began on July 1, 1992. The California Legislature
and State Governor were unable to agree upon a budget for the 1992/93 Fiscal
Year until September 2, 1992, however. As a result of the delay in adopting a
budget, the State of California issued about $3.8 billion of "registered
warrants" to pay many of its creditors, suppliers, and employees. Although most
banks honored these "registered warrants," in August 1992, several large
California banks stopped doing so. A United States District Court recently ruled
that the State violated federal labor law when it used "registered warrants " to
pay it employees. This ruling is not final, however, and the State might appeal
it.
The final 1992/93 budget projects 1992/93 General Fund revenues and
transfers of $43.421 billion, expenditures of $40.795 billion, and a year-end
reserve for economic uncertainties of $28 million. The 1991/92 year-end deficit
in the General Fund is projected to be eliminated. The final 1992/93 budget also
projects Special Fund expenditures of $12.631 billion.
The 1992-93 Budget Act, however, was based upon the assumption that a
modest recovery would begin in the state in late 1992. The Commission on State
Finance October 15, 1992 staff report
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forecasts that recovery will not begin in 1992 and, consequently, the state will
end 1992-93 with a general fund deficit of $2.4 billion. The Governor's Budget
Summary for the 1993-94 fiscal year projects a 1992-93 year-end deficit in the
General Fund of $2.1 billion, a decrease of $2.6 billion in the General Fund
reserve from the Proposed 1992-93 Budget. On May 20, 1993, the California
Department of Finance released its "May Revision" to the Governor's proposed
1993-94 budget, and projected that the 1992-94 year-end deficit in the general
fund would be about $2.229 billion.
The foregoing discussion of the 1992-93 fiscal year Budget is based on
estimates and projections of revenues and expenditures for that fiscal year and
should not be construed as a statement of fact.
1993-1994 Budget. On January 8, 1993, the Governor submitted to the
California Legislature his proposed budget for the 1993-94 fiscal year (the
"Proposed 1993-94 Budget"). The Proposed 1993-94 Budget indicates that the
California economy has not begun to recover, that the recession will likely be
prolonged through much of 1993 and that is could be early 1996 before California
employment is fully restored to its pre-recession level.
The Proposed 1993-94 Budget includes General Fund revenues and transfers
of $39.874 billion (down 2.6 percent from the 1992-93 level) and General Fund
expenditures of $37.333 billion (down 8.5 percent from the 1992-93 level), with
a year-end reserve of $31 million. The Proposed 1993-94 Budget would among other
things, end the post-Proposition 13 fiscal relief provided to local agencies by
shifting about $2.6 billion in property tax revenue from counties, cities,
special districts and redevelopment agencies. This shift would be accomplished
by (i) reducing property tax allocations to redevelopment agencies by $300
million, (ii) eliminating $150 million in property tax allocations to enterprise
special districts (primarily waste disposal and water utility districts),
excluding transit districts and hospital districts, (iii) shifting $2.075
billion in property tax revenue from cities, counties and special districts to
school and community college districts, which will necessitate major policy
decisions to allocate remaining local revenues, and (iv) making a one-time $70
million adjustment from certain counties to account for increases in certain
federal funding to those counties. The Proposed 1993-94 budget does not call for
increased taxes, and would also (i) allow a 1/2-cent temporary sales tax
increase to expire on June, 30 1993, resulting in a revenue loss of over $1
billion, (ii) require enactment of legislation to correct technical errors in
the 1992-93 school finance legislation, the failure of which would increase the
State's deficit by almost $3 billion, and (iii) be predicted upon the receipt of
$1.5 billion in additional federal assistance to fund federally-mandated
services to immigrants, refugees and their families. If that additional federal
assistance is not provided by May 15, 1993, severe reductions in non-federally
mandated services must be made. The recently proposed federal budget does not
include the entire $1.5 billion requested additional assistance. The Proposed
1993-94 Budget also would assure Proposition 98 funding at its current level.
A budget bill for the 1993-94 fiscal year was passed on June 30, 1993.
The budget bill and related legislation include many of the provisions included
in the proposed 1993-94 Budget, including the shift of about $2.6 billion in
property tax revenue from cities, counties and special school districts. The
budget bill and related legislation also extend the 1/2-cent temporary sales tax
increase to December 31, 1993. As of July 9, 1993, not all of the legislation
related to the 1993-94 budget bill had been enacted, however.
The foregoing discussion of the 1993-94 fiscal year budget is based on
estimates and projections of revenues and expenditures and should not be
construed as a statement of fact. The assumptions used to construct a budget may
be affected by numerous factors, including future economic conditions in
California and the nation, and there can be no assurance that the estimates will
be achieved.
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1995-1996 Budget. On January 10, 1995, the Governor submitted to the
California Legislature his proposed budget for the 1995-1996 fiscal year (the
"Proposed 1995-96 Budget"). The Proposed 1995-96 Budget reflects Governor
Wilson's view that California's recession is over.
The Proposed 1995-96 Budget includes General Fund revenues and transfers
of $42.5 billion (up 2.8% from the 1994-95 level) and General Fund expenditures
of $41.7 billion (up 0.1% from the 1994-95 level), with an operating surplus of
$812 million.
The Proposed 1995-96 Budget calls for the initial installment of a 15%
income tax cut (total savings of $225 million for individuals and corporations
in the first year), the first funding boost for education in four years (per
pupil increase of 2.2%), cuts to welfare ($1.3 billion), and a 1,200 worker
reduction (6%) at the Department of Transportation. The budget anticipates that
the state will receive $732 million from the federal government to "cover the
costs of illegal immigration" and also plans on sending $241 million less than
last year to the state's 58 counties. The Proposed 1995-96 Budget earmarks $2.2
billion to be spent constructing new prisons.
On July 1, 1995, California enters fiscal year 1995-96 without a spending
plan for the eighth time in the last nine years. Due to shortfalls in the
1994-95 budget and a projected shortfall between revenue and spending in fiscal
1995-96, the Legislative Analyst's Office is now predicting a deficit of just
under $2 billion. Finally, on August 2, 1995, Governor Wilson signs a $57.3
billion budget passed by the legislature. The final budget does not include the
tax cut originally proposed by the governor, but does include cuts to welfare
and increases in spending on education. The final budget also forecasts the
elimination of California's debt. Finance officials state that the new budget
seeks to pay off the $1 billion in debt that was rolled into the fiscal 1995-96
budget by Spring 1996.
Concerns remain, primarily due to the budget's tiny "emergency reserve"
of $28 million, its assumption of $518 million in federal reimbursements for
immigrant services (some think the feds will be less generous) and $394 million
in savings from welfare and disability grants (which require congressional
action or federal waivers--neither easy to come by), and pending court decisions
which could cost the state up to $1.7 billion.
Another factor for concern is the Orange County bankruptcy. While
apparently an isolated event, the fact that it took many by surprise has cast a
shadow over California municipal securities in general. The effect of this
investor concern remains undetermined.
1996-1997 Budget. The 1996 Budget Bill signed by the Governor on July 15,
1996 represents the positive growth in the state's economy and an improved state
fiscal condition.
Major elements in the budget include the required funding of proposition
98, reducing class sizes for K-12 education; a 5% reduction in the corporate tax
rate beginning January 1, 1997 reducing expected revenues by $85 million in
1996-97 ; and the continued spending on judiciary and criminal justice programs,
increasing 5.3% over 1995-96 expenditures.
The budget reflects an unanticipated increase in General Fund revenues in
the current year. Revised General Fund revenues for the current year are listed
as $45 billion. The forecast for FY '96-'97 is an increase of underlying General
Fund revenue growth of 3.3%. Expenditures are expected to grow by 4.0%. The
General Fund is expected to end 1996-97 with a reserve of about $300 million.
The economic outlook for the state, as reflected by the budget, forecasts
moderate growth and an improved General Fund outlook. Personal income is
expected to increase 5.7 percent in 1996 and 5.9 percent in 1997. Although not
as robust as last year, these numbers still reflect an expanding economy.
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Business activity as measured by taxable sales is estimated at 5 to 5.5 percent,
another indicator of moderate growth.
Despite the growing economy, it is estimated that one million California
residents will be unable to find work during 1996. This will pressure state
social services. The budget forecasts an unemployment rate of 7.3 percent for
the current year, dropping to 6.9 percent in 1997.
Other concerns include the cut backs in some social services to fund tax
cuts and the budgeting of program reductions in advance of federal approval.
California Property Tax Revenue
Certain California Tax-Exempt Securities may be obligations of issuers
who rely in whole or in part on ad valorem real property taxes as a source of
revenue. On June 6, 1978, California voters approved an amendment to the
California Constitution know as Proposition 13, which added Article XIII A to
the California Constitution. The effect of Article XIII A is to limit ad valorem
taxes on real property, and to restrict the ability of taxing entities to
increase real property tax and other tax revenues.
Section 1 of Article XIII A limits the maximum ad valorem tax on real
property to 1% of full cash value (as defined in Section 2), to be collected by
the countries and appointed according to law; provided that the 1% limitation
does not apply to ad valorem taxes or special assessment to pay the interest and
redemption charges on (i) any assessments to pay the interest and redemption
charges on (i) any indebtedness approved by the voters prior to July 1, 1978, or
(ii) any bonded indebtedness for the acquisition or improvement of real property
approved on or after July 1, 1978, by two-thirds of the votes cast by the voters
voting on the proposition. Section 2 of Article XIII A defines "full cash value"
to mean "the county assessor's valuation of real property as shown on the
1975-76 tax bill under 'full cash value' or thereafter, the appraised value of
real property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The full cash value may be adjusted
annually to reflect inflation at a rate not to exceed 2% per year, or reduction
in the consumer price index or comparable local data, or reduced in the event of
declining property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article
XIII A provides that notwithstanding any other law, local agencies may not levy
any ad valorem property tax except to pay debt service on indebtedness approved
by the voters prior to July 1, 1978, and that each county will levy the maximum
tax permitted by Article XIII A of $4.00 per $100 assessed valuation (based on
the former practice of using 25%, instead of 100%, of full cash value as the
assessed value for tax purposed). The legislation further provides that, for the
1978/79 fiscal year only, the tax levied by each county was to be apportioned
among all taxing agencies within the county in proportion to their average share
of taxes levied in certain previous years. The apportionment of property taxes
for fiscal years after 1978/79 has been revised pursuant to Statutes of 1979,
Chapter 282 which provided relief funds from state monies beginning in fiscal
year 1979/80 and is designed to provide a permanent system for sharing state
taxes and budget funds with local agencies. Under Chapter 282, cities and
counties receive more of the remaining property tax revenues collected under
Proposition 13 instead of direct state aid. School districts receive a
correspondingly reduced amount of property taxes, but receive compensation
directly from the state and are given additional relief. As discussed above,
however, the 1993-94 budget would end the post-Proposition 13 fiscal relief.
The U.S. Supreme Court has struck down as a violation of equal protection
certain property tax assessment practices in West Virginia which had resulted in
vastly different assessments of similar
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properties. Because Proposition 13 provides that property may only be reassessed
up to 2% per year, except upon change of ownership or new construction, recent
purchasers may pay substantially higher property taxes than long-time owners of
comparable property in the same community. The U.S. Supreme Court in the West
Virginia case expressly declined to comment in any way on the constitutionality
of Proposition 13. The United States Supreme Court recently held, however, that
notwithstanding the disparate property tax burdens on comparable properties,
those provisions of Proposition 13 do not violate the Equal Protection Clause of
the United States Constitution.
It is not possible to predict the outcome of litigation or the ultimate
scope and impact of Article XIII A, and its implementing legislation. However,
the outcome of such litigation could substantially impact the ability of local
property governments and districts to make future payments on outstanding debt
obligations.
On November 6, 1979, an initiative known as "Proposition 4" or the "Gann
Initiative" was approved by the California voters, which added Article XIII B to
the California Constitution. Under Article XIII B, state and local governmental
entities have an annual "appropriations limit" and are not able to spend certain
monies, called "appropriations subject to limitation," in an amount higher than
their respective "appropriations limit." Article XIII B does not affect the
appropriation of monies which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is based on certain 1986/87 expenditures, and is adjusted annually to
reflect changes in consumer prices, population and certain services provided by
these entities. Article XII B also provides that if these entities' (other than
the state's) revenues in any year exceed the amounts permitted to be spent, the
excess would have to be returned (i) in the case of the state, 50% to the public
through a revision of tax rates or fee schedules over the subsequent two years
and 50% to the State School Fund for allocation to elementary school, high
school, and community colleges, and (ii) in the case of local governmental
entities, to the public through a revision of tax rates or fee schedules over
the subsequent two years.
At the November 8, 1988 general election, California voters approved an
initiative known as Proposition 98, and on June 5, 1990, California voters
approved Proposition 111. The initiatives amend Article XIII B to require that
(i) the California Legislature establish a prudent state reserve fund in an
amount as it shall deem reasonable and necessary and (ii) 50% of revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIII B by revision of tax rates or fee schedules, be
transferred and allocated to the State School Fund and be expended solely for
purposes of instructional improvement and accountability. Any excess revenues so
allocated are not added to the base when computing the minimum funding guarantee
in future years. Any funds allocated to the State School Fund shall cause the
appropriation limits established in Article X111 B to be annually increased for
any such allocation made in the prior year.
These initiatives also amended Article XVI to require that the State of
California provide a minimum level of funding for public schools and community
colleges. State monies to support school districts and community college
districts shall equal or exceed the lesser of (i) an amount equaling the
percentage of state general fund revenue for school and community college
districts in fiscal year 1986/87 (40.3%), (ii) an amount equal to the prior
fiscal year's state general fund proceeds of taxes appropriated under Article
XIII B plus allocated proceeds of local taxes, after adjustment under Article
XIII B, or (iii) in any year in which the percentage growth in California per
capita state general fund revenues plus one-half of one percent, an amount equal
to the prior fiscal year's proceeds of taxes apportioned under Article XIII B
plus an additional one-half of one percent thereof, after adjustment under
Article XIII B. The initiatives generally permit the enactment of legislation,
by a two-thirds vote, to suspend the minimum funding requirement for one year.
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Article XIII B, like Article XIII A, may require further interpretation
by both the Legislature and the courts to determine its applicability to
specific situations involving the state and local taxing authorities. Depending
upon the interpretation, Article XIII B may limit significantly a governmental
entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.
In June 1982 the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, a California death tax. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount by which personal income tax brackets will be adjusted annually in an
effort to index tax brackets will be adjusted annually in an effort to index tax
brackets to account for the effects of inflation. The voters also passed an
initiative measure, subsequently amended, affecting for taxation purposes the
valuation of real property taken through eminent domain proceedings. Decreases
in state and local revenues in future fiscal years as a consequence of these
initiatives may result in reductions in allocations of state revenues to
California municipal issuers or in the ability of such California issuers to pay
their obligations.
In the years immediately after enactment of Article XIII B , few
California government entities neared their appropriations limit. Now, however,
many local government entities are at or near the limits. The state exceeded its
appropriation limit for the fiscal year 1986-87. The excess, in the amount of
$1.138 billion, was largely returned to taxpayers as a tax rebate. The state was
below its appropriations limit for 1987-88. State revenues may equal or exceed
the spending limit for current periods. To the extent the state remains
contained by its appropriations limit, the absolute level, or the rate of
growth, of assistance to local governments may be reduced.
On November 4, 1986, California voters approved an initiative statute
known as Proposition 62. This initiative requires that any tax for general
governmental purposes imposed buy local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as taxes levied for specific purposed)
imposed by a local governmental entity be approved by a two-thirds vote of the
voters within that jurisdiction, (iii) restricts the use of revenues from a
special tax to the purposes or for the service for which the special tax is
imposed, (iv) prohibits the imposition of ad valorem taxes on real property by
local governments of transaction taxes and sales taxes on the sale of real
property, (vi) requires that any tax imposed by a local government on or after
August 1, 1985 and before November 4, 1986 be ratified by a majority vote of the
electorate within two years of the adoption of the initiative or be terminated
by November 15, 1988, (vii) requires that, in the event a local government fails
to comply with the provisions of this measure, a reduction in the amount of
property tax revenue allocated to such local government occurs in an amount
equal to the revenues received by such entity attributable to the tax levied in
violation of the initiative, and (viii) permits these provisions to be amended
exclusively by the voters of the State of California.
While several recent decisions of the California Courts of Appeal have
held that parts of Proposition 62 are unconstitutional, the California Supreme
Court has yet to decide on those matters. On December 19, 1991, the California
Supreme Court declared unconstitutional a 1988 San Diego County ballot measure
that raised sales taxes to construct criminal detention and courthouse
facilities, because it did not receive two-thirds voter approval. The court
concluded that the special tax violated Article XIII A because the agency
established to finance the facilities was a special district created to
circumvent Article XIII A. On March 3, 1992, however, a California Court of
Appeal upheld a Los Angeles County sales tax increase passed by majority vote in
1990, because the agency entitled to collect the additional tax was not formed
to circumvent Article XIII A, and therefore the increased tax
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was not subject to the two-thirds voter approval requirement. These decisions
may continue to cast some doubt on their projects around the state that may have
been financed with sales tax increases imposed without two-thirds voter
approval.
Revenues of Health Care Institutions
Certain California tax-exempt securities may be obligations which are
payable solely from the revenues of health care institutions. Certain provisions
under California law may adversely affect such revenues and, consequently,
payment on those Municipal Obligations.
The federally-sponsored Medicare program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program..
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reduction or limitations may be imposed
on payment for services rendered to Medi-Cal beneficiaries in the future.
Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate funding therefore.
In February 1987, the Governor of the State of California announced that
payments to Medi-Cal providers for certain services (not including hospital cure
inpatient services) would be decreased by ten percent through June 1987.
However, a federal district court issued a preliminary injunction preventing
application of any cuts until a trial on the merits can be held. If the
injunction is deemed to have been granted improperly, the State of California
would be entitled to recapture the payment differential for the intended
reduction period. It is not possible to predict at this time whether any
decreases will ultimately be implemented.
California enacted legislation in 1982 that authorizes private health
plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations"("PPOs"), which offer financial incentives for
subscribers who use only the hospitals that contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payers limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO and PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
Such California Municipal Securities may also be insured by the State of
California pursuant to an insurance program implemented by the Office of
Statewide Health Planning and Development for health facility construction
loans. If a default occurs on insured California Municipal Securities, the state
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treasurer will issue debentures payable out of a reserve fund established under
the insurance program or from unappropriated state funds. At the request of the
Office of statewide Health Planning and Development, Arthur D. Little, Inc.
prepared a study in December 1983 to evaluate the adequacy of the reserve fund
established under the insurance program and, based on certain formulations and
assumptions, found the reserve fund substantially underfunded. In September of
1986, Arthur D. Little, Inc. prepared an update for the study and concluded that
an additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation method.
Revenues Secured by Deeds of Trust
Certain California obligations may be obligations which are secured in
whole or in part by a mortgage or deed of trust on real property. California has
five statutory provisions which limit the remedies of a credit secured by a
mortgage or deed of trust. Two limit the creditor's right to obtain a deficiency
judgment, one limitation being based on the method of foreclosure and the other
on the type of debt secured. Under the former, a deficiency judgment is barred
when the foreclosed mortgage or deed of trust secures certain purchase money
obligations. Another California statute, commonly known as the "one form of
action" rule, requires creditors secured by real property to exhaust their real
property security by foreclosure before bringing a personal action against the
debtor. The fourth statutory provision limits any deficiency judgment obtained
by a creditor secured by real property following a judicial sale of such
property to the excess of the outstanding debt over the fair value of the
property at the time of the sale, thus preventing the creditor from obtaining a
large deficiency judgment against the debtor as the result of low bids at a
judicial sale. The fifth statutory provision gives the debtor the right to
redeem the real property from any judicial foreclosure sale as to which a
deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. Therefore, the
effective minimum period for foreclosing on a mortgage could be in excess of
seven months after the initial default.
In addition, a court could find that there is sufficient involvement of
the issuer in the nonjudicial sale of property securing a home mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
federal or state constitution, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain California Municipal Securities may be obligations which finance
the acquisition of single family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above, applicable to obligations secured by real property. Under
California anti-deficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, nonjudicial foreclosure.
Under California law, mortgage loans secured by single family,
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to
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voluntary prepayments made during the first five years during the term of the
mortgage loan, and cannot in any event exceed six months' advance interest on
the amount prepaid in excess of 20% of the original principal amount of the
mortgage loan. This limitation could affect the flow of revenues available to an
issuer for debt service on the outstanding debt obligations which financed such
home mortgages.
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CITIZENS INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
Article VII, Section 12 of the Agreement and Declaration of Trust
provides that the Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding by reason of the fact that such
person is or was an agent of the Trust, against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with such proceeding if that person acted in good faith and reasonably believe
her/his conduct to be in the best interest of the Trust. Indemnification will
not be provided in certain circumstances, however, including instance of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the duties
involved in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the trustees, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable in the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16. Exhibits
(1) declaration of trust: material currently on file
(2) by-laws: material currently on file
(3) not applicable
(4) copies of the agreement of merger: attached as Exhibit 1 to the
Combined Proxy Statement/Prospectus
(5) not applicable
(6) management agreement: material currently on file
(7) distribution agreement: material currently on file
(8) not applicable
(9) custodian agreement: material currently on file
(10) Rule 12b-1 distribution plan: material currently on file
(11) opinion and consent of counsel as to the legality of the
securities being registered: material currently on file
(12) opinion and consent of counsel supporting the tax matters:
To be filed by amendment
(13) other material contracts:
a) administrative agreement: material currently on file
(14) consent of independent certified public accountants as to use of
their report: to be filed by amendment
(15) not applicable
(16) power of attorneys: material currently on file
<PAGE>
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Portsmouth, and State of New Hampshire, on the 23rd
day of April, 1997.
CITIZENS INVESTMENT TRUST
By /s/ Sophia Collier
------------------------------
Sophia Collier, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Sophia Collier *
- -------------------------------- Trustee April 23, 1997
Sophia Collier President and
Principal Executive
Principal Accounting Officer
Principal Financial Officer
/s/ William Glenn *
- -------------------------------- Trustee April 23, 1997
(William Glenn)
/s/ Ada Sanchez
- -------------------------------- Trustee April 23, 1997
(Ada Sanchez)
/s/ J.D. Nelson *
- -------------------------------- Trustee April 23, 1997
(J.D. Nelson)
/s/ Azie Taylor Morton *
- -------------------------------- Trustee April 23, 1997
(Azie Taylor Morton)
/s/ Juliana Eades *
- -------------------------------- Trustee April 23, 1997
(Juliana Eades)
/s/ Lokelani Devone *
- -------------------------------- Trustee April 23, 1997
(Lokelani Devone )
* By Sophia Collier Attorney in Fact
See Power of Attorney dated May 15, 1992, filed with the commission on May 15,
1992 as part of Registrant's Post Effective Amendment #12.
See Power of Attorney dated November 12, 1992, filed with the commission on
November 12, 1992 as part of Registrant's Post Effective Amendment #14.
