Rule 497(c)
File Nos. 2-80886 and 811-3626
PROSPECTUS
CITIZENS FUNDS
Citizens Small Cap Index Fund
July 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
<PAGE>
Contents
THE FUND
Investment Objective of the Fund................................ 3
Principal Investment Strategies................................. 3
Principal Risks................................................. 5
Performance..................................................... 6
Fees and Expenses............................................... 6
MANAGEMENT OF CITIZENS FUNDS
The Role of Investment Adviser.................................. 8
Citizens Funds' Management Fees................................. 9
12b-1 Fees and Classes.......................................... 9
SHAREHOLDER INFORMATION
Investment Minimums............................................. 10
How We Value Our Shares......................................... 10
How to Buy and Sell Shares...................................... 11
Costs For Services.............................................. 13
Shareholder Services and Policies............................... 13
Mailing Address and Wiring Instructions......................... 15
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................. 16
THE YEAR 2000....................................................... 17
<PAGE>
THE FUND
Our goal at Citizens Funds is to achieve strong financial results while
investing in companies that are managed in a socially responsible manner.
Citizens Small Cap Index Fund is designed for long-term investors who share
this goal and who can accept the greater risks associated with common stock
investments.
INVESTMENT OBJECTIVE OF THE FUND
The Citizens Small Cap Index Fund's investment objective is capital
appreciation. To pursue this objective, the fund tries to match the performance
of the Citizens Small Cap IndexTM and primarily invests in the companies that
make up the Index.
The investment objective of the fund cannot be changed without the approval of
a majority of the outstanding shares of the fund.
PRINCIPAL INVESTMENT STRATEGIES
The Citizens Small Cap Index Fund follows a passive approach to investing. What
this means is that the fund does not actively purchase and sell stocks based on
the expectation that share prices will go up or down. Instead, the fund
purchases and holds the common stock of approximately 300 small-sized companies
that make up the Citizens Small Cap Index. The fund invests in these companies
in proportion to their market capitalizations, which means that relatively
larger companies have greater representation in the fund than smaller ones. The
fund will buy and sell securities as the composition of the Index changes. The
fund's turnover rate is not expected to exceed 20% annually.
During normal market conditions, at least 65% of the fund's assets will be
invested in companies whose market capitalizations, at the time the fund
invests in them, are in the capitalization range of the S&P SmallCap 600 Index.
There will be at least an 80% match between the holdings of the fund and the
composition of the Citizens Small Cap Index, and the fund seeks to achieve a
95% correlation, before expenses, with the performance of the Index. A 100%
correlation would mean that the fund and the Index are perfectly correlated.
Although the fund seeks at all times to duplicate the performance of the
Citizens Small Cap Index by investing in the companies that make up the Index,
fees and expenses associated with operating the fund will prevent exact
correlation and will generally result in the fund slightly underperforming the
Index.
The Citizens Small Cap Index is a market-weighted index of approximately 300
companies, most of which are also included in the S&P SmallCap 600 Index. The
others are companies selected in order to provide appropriate industry and
<PAGE>
sector diversity, which we believe is essential to a sound indexing strategy.
The range of market capitalizations in the S&P SmallCap 600 Index as of June
21, 1999 was $38 million to $2.6 billion, and as of that date at least 65% of
the total market capitalization of the companies that comprise the Citizens
Small Cap Index was within this range. All of these companies have passed our
rigorous social and environmental screens, and we believe these companies best
represent their industries.
DEFENSIVE POSITIONS
In an attempt to protect itself from adverse market, economic, political or
other conditions, the fund may on occasion take temporary defensive positions
in cash, high quality money market instruments or other fixed income
securities. These positions may prevent the fund from achieving its investment
objective or otherwise adversely affect fund performance.
SOCIALLY RESPONSIBLE INVESTING
Our goal at Citizens Funds is to achieve strong financial results while
investing in companies that are managed in a socially responsible manner. The
Citizens Small Cap Index Fund will invest only in companies that Citizens Funds
deems to be socially and environmentally responsible.
To find these investments, we SEEK companies that have positive environmental,
community and workplace records. At the same time, we AVOID companies whose
primary business is the manufacture or distribution of alcohol, tobacco,
nuclear power, oil or conventional or nuclear weaponry. We also avoid companies
on the AFL-CIO's national boycott list and companies that lack diversity (i.e.,
representation by women or people of color) on their corporate boards or in
upper management. Finally, we avoid companies that use animals to test
personal-care products or otherwise treat animals in an inhumane manner.
Some of the social and environmental screens we use to assess a company's
environmental record, community involvement and workplace practices include the
following:
Environment
We will try to avoid investing in companies with consistent or significant
violations of environmental laws and regulations, companies with below average
environmental records for their industry and companies whose products or
processes are particularly damaging to the environment. We seek companies, on
the other hand, that are committed to recycling, waste reduction, energy
efficiency and other sustainable business practices.
Workplace
We will try to avoid investing in companies that discriminate on the basis of
gender, race, religion, disability or sexual orientation, that engage in unfair
labor practices or that lack diversity on their board of directors or in senior
management. Instead, we seek companies that have positive records with respect
to employee health, safety, compensation and other benefits, and that
proactively work to eliminate sweatshop conditions among their overseas
subsidiaries, vendors and contract suppliers.
<PAGE>
Community
We try to avoid investing in companies with less than satisfactory records
under the Community Reinvestment Act, or companies that have displayed
insensitivity to community priorities and concerns. Rather, we seek companies
with positive records of local involvement, charitable giving and support for
community development initiatives.
Companies that pass our social and environmental screens are placed on the
Citizens Funds "Approved List" and are eligible for investment; those that fail
to pass our screens are placed on a "Rejected List" and are not eligible for
investment.
More information about the fund's investment strategies and risks appears in
the fund's Statement of Additional Information. Of course the fund may not, and
is not required to, invest in all of the investments or engage in all of the
investment techniques listed in this prospectus or in the Statement of
Additional information.
PRINCIPAL RISKS
As with all mutual funds, you could lose money by investing in the fund. The
principal risks of investing in the fund are summarized below.
o Market Risk. The stock market is sometimes volatile and may change
dramatically and unpredictably in response to political, regulatory,
market or economic developments. Equity securities have historically
gone up and down more than fixed income securities. The value of your
investment in the Citizens Small Cap Index Fund will go up and down
based on market conditions.
o Company Risk. The value of an individual stock varies with the
prospects of its issuer and can be more or less volatile than the
market as a whole. The success or failure of companies in which the
fund invests will cause the value of your investment to go up and
down.
o Passive Investing Risk. Because it is passively managed, the Citizens
Small Cap Index Fund generally will not sell stocks of companies even
though they may be experiencing financial trouble or their share
prices are declining. In addition, tracking error, cash positions,
fees and expenses will prevent the fund from exactly duplicating or
matching the performance of the underlying Index.
o Smaller-Sized Company Risk. Small-sized companies have unique risks
and may have speculative characteristics. Compared to larger
companies, small-sized companies are more subject to erratic market
movements. They may be dependent on individual managers who may have
less experience than managers of larger companies, have a difficult
time obtaining financing or market share, and have limited product
lines and distribution channels.
<PAGE>
Their shares are more volatile than the shares of larger companies
and may not be traded as frequently or in as large a volume as the
shares of larger companies. There also may be less publicly available
information about small companies. As a result, they often are harder
to sell at a fair price and have greater price fluctuations and
greater exposure to market fluctuations than stocks of larger
companies. An investment in small companies therefore may involve
greater risk than an investment in larger companies.
o Year 2000 Risk. Citizens Funds and its service providers could be
harmed if their computer systems do not properly process information
on and after January 1, 2000 (known as the Y2K problem). Failure to
successfully address the Y2K problem could result in interruptions to
and other material adverse effects on Citizens Funds' business and
operations, including problems in calculating Net Asset Value and in
implementing the fund's purchase and redemption procedures. Failure
to successfully address the Y2K problem also could adversely affect
the business and operations of the companies in which Citizens Funds
invests.
PERFORMANCE
Citizens Small Cap Index Fund has not yet commenced operations and therefore
does not have annual returns for a full calendar year. For this reason, a bar
chart and table showing performance information and information on best and
worst calendar quarter performance is not provided in this prospectus.
FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the fund. Annual fund operating expenses are paid out of the
assets of the fund. The fund does not have a sales charge (load).
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Citizens Small Cap Citizens Small
Index Fund - Cap Index Fund -
Standard shares Institutional Class shares
SHAREHOLDER FEES
(fees paid directly
from your investment)*
Maximum Sales Charge (Load)
Imposed on Purchases None None
Maximum Deferred Sales
Charge (Load) None None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None
Redemption Fee None None
Exchange Fee None None
Maximum Account Fee
(Charged only if account falls below
a minimum balance)** $3.00/month $3.00/month
ANNUAL FUND
OPERATING EXPENSES
(expenses that are
deducted from fund assets)
Management Fees .50% .50%
Distribution
(12b-1) Fees .25% None
Other Expenses 2.54% 2.14%
Total Annual Fund
Operating Expenses 3.29% 2.64%
Fee Waiver and Expense
Reimbursement+ 1.74% 1.74%
Net Expenses 1.55% .90%
</TABLE>
- --------------------------------------
* See "Costs for Services," on page 13.
** A fee of $3.00/month currently is charged on accounts that fall below a
minimum balance of $2,500 ($1,000 for Individual Retirement Accounts
(IRAs), Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) accounts and
Automatic Investment Plan accounts).
+ The investment adviser to the fund has contractually agreed to waive
certain fees and reimburse certain expenses for the fiscal year commencing
July 1, 1999 and ending June 30, 2000.
<PAGE>
EXAMPLE: This Example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year, the fund's operating expenses
remain the same and all dividends and distributions are reinvested. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year 3 Years
Citizens Small Cap Index Fund
Standard shares $158 $1,013
Institutional Class shares $92 $820
MANAGEMENT OF CITIZENS FUNDS
THE ROLE OF INVESTMENT ADVISER
In order to manage Citizens Funds on a day-to-day basis, we have signed a
Management Agreement with Citizens Advisers, Inc., with offices at 230 Commerce
Way, Suite 300, Portsmouth, NH, 03801. Citizens Advisers has managed Citizens
Funds' assets since the Funds' inception in 1982. Citizens Securities, Inc., a
subsidiary of Citizens Advisers, serves as Citizens Funds' distributor.
Citizens Funds, Citizens Advisers and Citizens Securities are not affiliated
with any bank.
In its role as investment adviser, Citizens Advisers determines which companies
meet the fund's social criteria and will be carried on Citizens Funds'
"Approved List" of investments. Each company that is included in the Citizens
Small Cap Index must be on the Citizens Funds' Approved List in order to be
eligible for investment.
Citizens Advisers performs a wide variety of administrative duties for Citizens
Funds under a separate administrative and shareholder services contract which
provides for reimbursement of out-of-pocket expenses as well as fees for
services rendered. Citizens Advisers sometimes will perform services under this
administrative contract directly, or may contract to have specialized services
provided by third parties, such as investment advisers for pension funds or
other institutions which maintain omnibus accounts with Citizens Funds.
Sophia Collier is the lead manager of the team that manages the Citizens Small
Cap Index Fund. Ms. Collier was the president of Citizens Funds and its
investment adviser, Citizens Advisers, from 1991 until September, 1998.
Currently she is the principal owner and chair of the board of directors of
Citizens Advisers.
<PAGE>
CITIZENS FUNDS' MANAGEMENT FEES
For the services the Adviser provides to the fund it may be paid the following
fees (based on the average annual net assets of the fund):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Advisory Administrative
Fee Fee Aggregate Fees
Citizens Small Cap Index Fund
Standard shares .50% .10% .60%
Institutional Class shares .50% .10% .60%
</TABLE>
The Adviser also is reimbursed for the cost of providing shareholder services
to the fund.
12B-1 FEES AND CLASSES
The fund offers Standard shares and Institutional Class shares. The minimum
initial investments for these classes differ, as discussed below. Each of the
classes is no-load. The Standard shares of the fund are subject to 12b-1 fees,
as discussed below.
Citizens Funds has a 12b-1 Plan which allows us to pay Citizens Securities and
other distributors of the fund's Standard shares distribution fees for the sale
and distribution of its shares. These fees reimburse these parties for
sales-related expenses including the printing of prospectuses and reports sent
to non-shareholders, as well as other sales material, advertising and salaries
for salespeople and other personnel. We also will pay commissions to outside
brokers or service organizations for similar services. Because these costs are
paid out of the fund's net assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
Under Citizens Funds' 12b-1 Plan and the related Distribution Agreement with
Citizens Securities, the following amounts are payable by the fund (expressed
as a percentage of net assets):
Citizens Small Cap Index Fund
Standard shares .25%
Institutional Class shares N/A
<PAGE>
SHAREHOLDER INFORMATION
INVESTMENT MINIMUMS
The minimum initial investment for the fund is $2,500 ($1,000 for IRA and
UGMA/UTMA and Automatic Investment Plan accounts). The minimum subsequent
investment for all accounts, including Automatic Investment Plan accounts, is
$50. If your account falls below the minimum for the fund, you will be assessed
a monthly fee of $3.00 until you bring your balance above the minimum. (This
fee will also be applied to inactive Automatic Investment Plan accounts.) If
you do not bring your balance up to the minimum, we may close your account by
sending you a check for your balance. Before closing your account, we will give
you 30 days notice and an opportunity to bring the account up to the applicable
minimum.
The minimum initial investment in Institutional Class shares is $1 million
($250,000 for registered investment advisers and retirement plans, at the
discretion of Citizens Funds). There is no minimum subsequent investment. With
respect to accounts that fall below $1 million (or $250,000 for registered
investment advisers and retirement plans, at the discretion of Citizens Funds),
Citizens Funds reserves the right to transfer these accounts from the
Institutional Class and convert them to Standard shares. Before converting an
account to Standard shares, we will give you 30 days notice and an opportunity
to bring the account up to the required minimum balance.
There is an annual fee of $10 for each Individual Retirement Account (IRA),
with a maximum IRA account fee of $20 per shareholder. This fee is waived for
total IRA balances of $25,000 and higher and total account balances of $50,000
and higher. There is also an IRA closure fee of $15.00.
HOW WE VALUE OUR SHARES
The price of shares in the fund is called the Net Asset Value. To calculate Net
Asset Value, we add up the total assets of the fund, subtract all liabilities,
then divide by the number of shares outstanding. Since expenses differ for
Institutional Class shares, the Net Asset Value for Standard and Institutional
Class shares vary and are computed separately.
Equity securities are valued at the closing sales price on the primary exchange
on which those securities are traded or on the principal over-the-counter
market on which such securities are traded, or, lacking any sales, at the last
available bid price for domestic securities and halfway between the bid and the
asked price for international securities. If no market quotation is available
for a given security (including restricted securities which are subject to
limitations on their sale), our Adviser will fairly value that security in good
faith pursuant to the policies established by Citizens Funds' board of
trustees.
<PAGE>
Fixed income investments are generally valued at the bid price for securities.
Debt securities maturing within 60 days normally are valued at amortized cost.
Amortized cost is approximately equal to market value.
Securities may also be valued on the basis of valuations furnished by a pricing
service that uses both dealer-supplied evaluations and evaluation based on
analysis of market data or other factors if such valuations are believed to
reflect more accurately the fair value of such securities.
The value of our shares for the fund is determined at the close of business of
the New York Stock Exchange on each day on which it is open for trading.
HOW TO BUY AND SELL SHARES
HOW TO BUY SHARES
It's easy to buy shares in the fund. Just fill out an application and send in
your payment by check, wire transfer, exchange from another Citizens mutual
fund or through arrangements with your investment adviser or broker-dealer. All
checks must be made payable to "Citizens Funds." Foreign checks drawn in U.S.
dollars are accepted but shares purchased with foreign checks may be held in
escrow for at least 20 days.
Your cost will be the Net Asset Value next determined after your payment is
received by the fund's transfer agent. You can purchase both full and
fractional shares, which will be rounded to the nearest 1/1000th of a share. If
your check is returned for any reason, you will be assessed a fee of $15.00.
Citizens Funds has authorized certain brokers, and such brokers have also been
authorized to designate intermediaries, to accept on its behalf purchase and
redemption orders. The fund will be deemed to have received such orders when
the broker or broker designee accepts the order, which shall be priced at the
Net Asset Value next computed after the broker or designee accepts the order.
Purchases and sales of fund shares through broker-dealers may involve higher
fees.
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, as well as the
amount and frequency of your investment into the fund. We will do the rest.
Payroll Deduction
Setting up direct payroll deposit is very easy. Call us for the necessary
information and steps to follow. If you or your payroll administrator have any
questions, please call our Shareholder Service Center at 1-800-223-7010.
<PAGE>
Funds will be deposited into your Citizens Funds 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.
HOW TO SELL SHARES
Telephone Redemption
We have a Telephone Exchange and Redemption option on your account application.
Under this option, you can call and tell us how much you want to sell (redeem).
Depending upon your instructions, we will deposit the amount of your redemption
into another Citizens Funds account, mail you a check or electronically
transfer your redemption to your pre-designated account. Normally, we will send
you your redemption on the next business day after we receive your request.
One-day wired funds cost $10, or we offer free 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 it may increase the risk of error or of an unauthorized party gaining
access to your account. For added security you may provide us with a Personal
Identification Number (PIN) which must be verified before processing all
telephone transactions, including balance verification. To keep these problems
to a minimum, we record all telephone calls. But please remember, none of
Citizens Funds, our Adviser or our Transfer Agent will be responsible if we
properly act on telephone instructions we reasonably believe to be genuine.
During periods of unusual market activity, severe weather or other abnormal
circumstances, it may be difficult for you to reach a representative of the
Citizens Funds by telephone. In this case, please consider sending written
instructions.
Redeem Your Shares through Broker-Dealers
You may also redeem your shares through participating broker-dealers (who may
charge a fee for this service). Certain broker-dealers may have arrangements
with Citizens Funds that permit them to order redemption of shares by telephone
or other electronic communication. Purchases and sales of fund shares through
broker-dealers may involve higher fees.
Requests for Redemption
If you do not use the Telephone Exchange and Redemption option, you can still
redeem your shares at any time, although the process will take longer. Send us
a written request together with a Medallion Signature Guarantee, which is a
signature guarantee provided by an eligible guarantor (see list on page 15). We
may require further documentation from corporations, fiduciaries, retirement
plans and/or institutional investors.
We reserve the right to wait up to seven business days before paying the
proceeds of any redemption on any investments made by check and five business
<PAGE>
days for purchases made by ACH transfer. If you pay by check, you will not
receive your redemption proceeds until after your check clears. Therefore, if
you need your redemption proceeds within seven business days of your purchase,
please invest by wire.
Redemption in Kind
The fund will normally redeem shares for cash, but may pay the redemption price
partly with portfolio securities. If portfolio securities are distributed
instead of cash, shareholders may incur brokerage commissions or other costs in
converting the securities to cash.
COSTS FOR SERVICES
Below $2,500/$1,000 minimum balance fee $3.00/mo.
Annual IRA fee (per account) $10.00
Maximum Annual IRA fee (for all accounts) $20.00
IRA Closure Fee $15.00
Returned checks $15.00
Returned Electronic Purchase/Payment - ACH $15.00
Outgoing wire transfer $10.00
International wire transfer $20.00
Stop payments $10.00
Copies of statements, checks and tax forms $2.00/each
(free if ordered through our
audio response system)
SHAREHOLDER SERVICES AND POLICIES
We try to demonstrate our commitment to your investment success by offering a
full family of socially responsible mutual funds and providing you with a
complete range of convenient services including the following retirement
services:
o Traditional and Roth IRAs
o SEP and SIMPLE IRAs
o 401(k), 403(b) and 457 plans
o Rollover and transfer services
Please call our Shareholder Service Center for more information at
1-800-223-7010.
EXCHANGE PRIVILEGE
Since peoples' investment needs change over time, we provide for easy exchanges
among Citizens' mutual funds at no charge. You may make an exchange at any time
and to any Citizens mutual fund. Just call us or write us with your request for
<PAGE>
a prospectus for the fund you would like to exchange into. The investment
minimums and monthly below minimum balance fee remain applicable to exchange
purchases into other Citizens funds.
EXCESSIVE EXCHANGES AND MARKET TIMING
Because excessive trading can lower the fund's performance and harm
shareholders, we reserve the right to suspend or terminate the exchange
privilege of any investor who makes excessive use of the privilege (e.g., more
than five exchanges within a one-year period). Your exchanges may also be
restricted or refused if we perceive a pattern of simultaneous orders affecting
significant portions of the fund's assets. In particular, a pattern of
exchanges or other transactions evidencing a so-called "market timer"
investment strategy, because they may be particularly disruptive to the fund,
may result in a termination of exchange privileges or closure of your account.
Before terminating exchange privileges or closing an account, we will give you
30 days notice and an opportunity to respond and discuss the matter with one of
our shareholder service representatives. You may still redeem your shares or
purchase new shares in the event that your exchange privileges are suspended or
terminated.
We also reserve the right to close your account for any lawful reason,
including, but not limited to, reasonable suspicion of fraud or other illegal
activity in connection with the account.
SYSTEMATIC WITHDRAWAL PLAN
You can send us a written request to automatically redeem a portion of your
shares and make a regular monthly, quarterly or annual payment on your behalf.
MAKING A CHANGE IN YOUR ACCOUNT
After your account is set up, you may want to make a change in one of the
options or in the account title. We are pleased to assist, but to protect both
you and Citizens Funds from fraud, we may require a Medallion Signature
Guarantee, which is a signature guarantee from an eligible guarantor (see list
below) 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), Roth IRAs, SIMPLE
IRAs and 403(b) plans (for employees of non-profit organizations). The fund is
suitable for 401(k) plans and other types of retirement plans as well. Call us
for a brochure and application.
ESCROW
Redemption proceeds of shares purchased by check or ACH transfer are
unavailable for a period of time. See "How to Sell Shares - Requests for
Redemption," above.
TRANSACTIONS THAT REQUIRE MEDALLION SIGNATURE GUARANTEES
o Written request for redemption
o Changing your account title in any way
o Authorizing a telephone transaction for the first time
<PAGE>
o Changing your predesignated wire or ACH instructions
o Establishing or modifying a systematic withdrawal plan
o Exchanges between accounts which do not have identical titles
ELIGIBLE GUARANTORS
o Commercial Bank
o Trust Company
o Savings Associations
o Credit Unions
o Members of domestic stock exchange
Note: Notaries public are not eligible guarantors.
MAILING ADDRESS AND WIRING INSTRUCTIONS
REGULAR U.S. MAIL:
Please use the business reply envelope provided with this prospectus, or mail
to:
Citizens Funds
c/o PFPC Inc.
PO Box 8962
Wilmington, DE 19899-8962
WIRING INSTRUCTIONS:
Citizens Funds
c/o PNC Bank, N.A.
Philadelphia, PA
ABA#: 031000053
For Further Credit
A/C# 86-1030-3646
Shareholder name/account number
<PAGE>
OVERNIGHT DELIVERY PACKAGES (i.e., Federal Express, UPS, Airborne Express):
Send to:
Citizens Funds
c/o PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Please send only overnight delivery packages to the above address. Regular U.S.
Mail will not be accepted at this address and may be returned to you.
Please make all checks payable to "Citizens Funds." We are unable to accept
third-party checks.
TRANSFER AGENT AND DIVIDEND PAYING AGENT:
PFPC Inc.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
DIVIDENDS, DISTRIBUTIONS AND TAXES
Unless you give us other instructions when you fill out your account
application (or by telephone or in writing thereafter), we will automatically
reinvest your dividends and distributions at the Net Asset Value, calculated on
the date the dividends or distributions are payable.
We also can pay your dividends and distributions to you by check or electronic
transfer through the Automated Clearing House to your bank account. Information
regarding dividends and other distributions will be included on your statement.
Dividends and distributions of capital gains, if any, are declared and paid
annually.
TAX MATTERS
The dividends you receive, whether paid in cash or reinvested in shares,
generally will be subject to federal income tax (and any applicable state or
local taxes) unless you are otherwise exempt from such taxes. Some dividends
received may qualify for the dividends received deduction for corporate
shareholders. Dividends designated as capital gains dividends are taxable as
long-term capital gains. All other dividends are generally taxable as ordinary
income. We will send you a complete statement each January as to the federal
tax status of dividends and distributions paid by the fund with respect to the
previous calendar year.
<PAGE>
Distributions will reduce the fund's Net Asset Value per share. If you purchase
shares just before the fund makes a distribution, therefore, you will pay the
full purchase price for the shares and then receive a portion of the purchase
price back as a taxable distribution.
When you redeem, sell or exchange shares of a Citizens fund, it is generally
considered a taxable event. Depending on the purchase price and the sale price
for the shares redeemed, sold or exchanged, you may have gain or loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
The account application asks each new investor to certify that the investor's
Social Security or taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for failing to report
income to the IRS. The fund may be required to withhold (and pay over to the
IRS for your credit) 31% of certain distributions and proceeds it pays you if
you fail to provide this information or otherwise violate IRS regulations.
Please consult your own tax adviser for further information regarding the
federal, state and local tax consequences of an investment in Citizens Funds.
THE YEAR 2000
At Citizens Funds, we take Y2K preparedness very seriously and have endeavored
to focus the entire company on Y2K awareness and readiness. Our Y2K efforts to
date have included forming a Y2K committee and attendance at conferences and
seminars related to Y2K preparedness; preparation of a written Y2K Plan;
adoption of Y2K budgets for 1999 and 2000; preparation of a written contingency
plan; communications and coordination with our transfer agent, custodian,
sub-advisers, vendors and other third parties with whom our systems interface;
and reporting to our Board of Trustees on Y2K preparedness.
Our Y2K Plan includes inventory and assessment of all internal and external
systems, both mission-critical and non mission-critical; training; internal
testing; point-to-point testing; correction and replacement of systems; vendor
and third party assessment and monitoring; contingency planning and
implementation. Included within this Y2K Plan is an assessment and monitoring
of the Y2K preparedness of all companies whose securities are recommended for
inclusion in our mutual fund portfolios. Vendor and third party assessment and
monitoring includes written requests for information and statements, periodic
reporting and regularly scheduled teleconferences.
As of this date, all of Citizens Funds' business critical computer hardware is
fully Year 2000 compliant as certified by the National Software Testing
Laboratories (NSTL) YMARK2000 program (www.nstl.com). Moreover, we designed our
internal software with Year 2000 in mind. Our remaining software is compliant
to the extent of each software manufacturer's compliance.
<PAGE>
With respect to all systems with external connections, the following calendar
and deadlines have been established: Assessment of all mission-critical systems
was completed by December 31, 1998 and all testing is expected to be completed
by June 30, 1999. With respect to non mission-critical systems, assessment was
completed by March 31, 1999 and all testing is expected to be completed by
September 30, 1999. Out Y2K contingency plan, which covers mission-critical
systems and communications systems, was recently completed and will undergo
ongoing review for applicability prior to year end.
Although many companies have made significant progress and are confident that
their systems will be ready, no fund company can guarantee that its operations
will be free of all problems. This is because of the interconnected nature of
the financial industry and its computer systems. Even if a fund company's
internal systems are ready, a breakdown of any systems belonging to its
business partners can potentially disrupt operations. For example, if there is
a problem in the systems of one of the major stock exchanges, mutual fund
shareholders may be temporarily unable to obtain the price of their fund. If
the phone company has a problem with its phone lines, shareholders may not be
able to conduct transactions by phone or through the Internet. As a result of
this uncertainty, Citizens Funds has prepared a Y2K contingency plan to respond
to, and hopefully minimize the impact of, failures in essential services, just
as we would in the case of a power failure or weather-related problems. Our Y2K
contingency plan, which covers mission-critical systems and communications, was
recently completed and will undergo ongoing review for applicability prior to
year end.
As a security measure, we recommend keeping all printed statements from all
your financial institutions from now into the 21st century. This will enable
you to compare records after January 1, 2000 to verify an accurate record of
your information.
CITIZENS FUNDS
(C)1999 Citizens Advisers
Citizens Small Cap Index(TM) is a trademark of Citizens Advisers.
<PAGE>
Citizens Funds' Statement of Additional Information, which is available free
upon request, contains more detailed information about the fund and its
management and operations. The Statement of Additional Information is
incorporated by reference into this prospectus and is legally part of it.
To make inquiries about the fund or get a copy of the Statement of Additional
Information, call 1-800-223-7010 or visit Citizens Funds' web site at
www.citizensfunds.com.
Information about Citizens Funds (including the Statement of Additional
Information) can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. For more information
about the operation of the Public Reference Room you may call the Commission at
1-800-SEC-0330. Reports and other information about Citizens Funds are
available on the Commission's Internet site at www.sec.gov and copies may be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the Commission, Washington, D.C. 20549-6009.
SEC File No. 811-3626
<PAGE>
Rule 497(c)
File Nos. 2-80886 and 811-3626
Citizens Funds
Citizens Small Cap Index Fund
Statement of Additional Information
July 1, 1999
This Statement is not a prospectus and should be read in conjunction with the
Citizens Small Cap Index Fund's Prospectus dated July 1, 1999. A copy of the
current Prospectus can be obtained by calling (800) 223-7010, or by writing
Citizens Funds, 230 Commerce Way, Suite 300, Portsmouth, New Hampshire 03801.
This Statement of Additional Information and the Prospectus may be amended or
supplemented from time to time.
Table of Contents Page
Citizens Funds............................................................. 2
Investment Strategies, Risks and Fundamental Policies ..................... 2
Trustees, Officers and Beneficial Owners................................... 7
Investment Advisory and Other Services.....................................10
Brokerage Allocation and Soft Dollars......................................14
Ownership of Shares and Shareholder Rights.................................15
How We Value Fund Shares...................................................18
Tax Matters................................................................19
How We Calculate Performance...............................................22
Financial Statements.......................................................23
<PAGE>
Citizens Funds
Citizens Funds (the "Trust"), a Massachusetts business trust organized on
November 19, 1982, is an open-end investment company registered under the
Investment Company Act of 1940 as a diversified management company. Citizens
Funds presently consists of six separate series, each with its own investment
objective, assets and liabilities: Working Assets Money Market Fund (inception
date 8/30/83), Citizens Income Fund (inception date 6/10/92), Citizens Emerging
Growth Fund (inception date 2/8/94), Citizens Global Equity Fund (inception
date 2/8/94), Citizens Index Fund (inception date 3/3/95) and Citizens Small
Cap Index Fund (inception date 7/1/99). On May 28, 1992 the Trust, which had
operated as a money market fund since 1983, changed its name from Working
Assets Money Fund to Working Assets Common Holdings. On October 5, 1995 the
Trust changed its name from Working Assets Common Holdings to Citizens
Investment Trust, and on July 14, 1998 it changed its name to Citizens Funds.
This Statement of Additional Information relates to Citizens Small Cap
Index Fund (the "fund"), and to its Standard and Institutional Class shares.
Investment Strategies, Risks and Fundamental Policies
Investment Strategies and Risks
In addition to the principal investment strategies and risks described in
the Prospectus, Citizens Funds will from time to time employ other investment
strategies which are described below.
The fund may, but need not, invest in any or all of the investments and
use any or all of the investment techniques described below and in the
Prospectus. The choice of investments and use of investment techniques depend
on, among other things, the fund's investment strategies, conditions and trends
in the economy and financial markets and investments being available on terms
that are acceptable to the fund.
Money Market Instruments
During periods of unusual market conditions, or for liquidity purposes or
pending the investment of the proceeds of the sale of fund shares, the fund may
invest all or a portion of its assets in money market instruments, including,
but not limited to:
o obligations of the U.S. Government or its agencies;
o certificates of deposit of banks; and
o commercial paper or other corporate notes of investment grade
quality.
Repurchase Agreements
The fund may also enter into repurchase agreements with primary dealers or
banks which are members of the Federal Reserve, secured by instruments issued
or guaranteed by agencies or instrumentalities of the U.S. Government, the
values, including accrued interest, of 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 fund, or the
purchase and repurchase prices may be the same, with interest at a standard
rate due to the fund, together with the repurchase price on repurchase. In
either case, the income to the fund is unrelated to the interest rate on
securities collateralizing the repurchase.
<PAGE>
The fund requires all vendors of repurchase agreements to set aside
collateral in the fund's name in the form of government securities equal to
102% of the value of any repurchase agreement. However, it is important to note
that while repurchase agreements may be a useful tool in managing the fund,
they do have some greater risk than directly investing in securities. If a bank
or stockbroker becomes bankrupt, or otherwise defaults after selling the fund a
repurchase agreement, the fund may suffer some delay and expense in liquidating
the securities, decline in the value of the securities and loss of principal or
interest.
Derivative Securities
Derivative securities such as futures, options and warrants are financial
instruments whose values depend on or derive from underlying investments,
indexes or currencies. Derivatives involve special risks and may result in
losses.
Options. The fund may from time to time buy and write (sell) options on
securities, securities indexes, and foreign currencies that are traded on
recognized securities exchanges and over-the-counter markets. The value of
options is determined by the performance of the underlying financial benchmarks
or indexes to which they are tied. 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
the fund receives for buying or writing a call or put option is deemed to
constitute the market value of an option. Aggregate premiums paid for put and
call options will not exceed 5% of the fund's total assets at the time of each
purchase. The premium that the fund 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 fund 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 its investments, or
as part of its overall investment strategies. The fund 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).
Warrants. The fund also may invest in warrants. Warrants are instruments
that entitle the holder to buy underlying equity securities at a specific price
for a specific period of time. Such warrants are typically held on the fund's
books at zero value when market quotations are unavailable, as the value of
these warrants can only be realized upon their exercise.
Risks. The use of derivative securities depends on the fund manager's
ability to predict correctly the direction of interest rates, securities prices
or other factors. Risks include:
o the risk that interest rates, securities prices or other factors do not
move in the directions being hedged against, in which case the fund
will have incurred the cost of the derivative (either its purchase
price or, by writing an option, losing the opportunity to profit from
increases in the value of the securities covered) with no tangible
benefits;
<PAGE>
o an imperfect correlation between the price of derivatives and the
movements of the securities prices, interest rates or currency exchange
rates being hedged;
o the possible absence of a liquid secondary market for any particular
derivative at any time;
o the potential loss if the counterparty to the transaction does not
perform as promised; and
o the possible need to defer closing out certain positions to avoid
adverse tax consequences.
Options may present additional risks because the fund managers may
determine that exercise of the option will not benefit the fund, and therefore
the amount invested to acquire the option will be lost. Also, the fund may be
required to purchase at a loss a security on which it has sold a put option.
Warrants tend to be more volatile than the underlying securities on which
they are based and cease to have value if they are not exercised prior to their
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
The fund may invest in foreign securities which meet the Trust's social
and financial criteria. Investing in foreign securities generally presents a
greater degree of risk than investing in domestic securities due to possible
exchange rate fluctuations or controls, less publicly available information,
more volatile markets, less securities regulation, less favorable tax
provisions, war or expropriation. As a result of any investments in foreign
securities, the fund 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 the fund believes that the applicable exchange rate is unfavorable at the
time the currencies are received or anticipates, for any other reason, that the
exchange rate will improve - the fund may hold such currencies for an
indefinite period of time. The fund may also hold foreign currency in
anticipation of purchasing foreign securities. While the holding of currencies
would permit the fund to take advantage of favorable movements in the
applicable exchange rate, such strategy also would expose the fund to risk of
loss if exchange rates move in a direction adverse to the fund's position. Such
losses could reduce any profits or increase any losses sustained by the fund
from the sale or redemption of securities and could reduce the dollar value of
interest or dividend payments received.
When-Issued Securities
The fund may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, in many cases, the fund will take
delivery of securities it has purchased on a "when-issued" basis. When the fund
commits to purchase a security on a when-issued or forward delivery basis it
will set up procedures consistent with current policies of the Securities and
Exchange Commission (the "SEC") concerning such purchases. Since those policies
currently recommend that an amount of fund assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
fund intends that it 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 the fund does not intend to make such
purchases for speculative purposes and intends 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, the fund may
have to sell assets which have been set aside to cover its commitments in order
to meet redemptions. Also, if the fund's adviser, Citizens Advisers, Inc.
("Citizens Advisers" or the "Adviser"), were to determine that it is necessary
<PAGE>
to sell the when-issued or forward delivery securities before delivery to the
fund, the fund may incur a loss because of market fluctuations since the time
the commitment to purchase the securities was made. When the time comes to pay
for when-issued or forward delivery securities, the fund 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 fund's payment obligation).
Private Placements and Illiquid Investments
The fund may invest up to 10% of its net assets in securities for which
there is no readily available market. The fund will not buy these illiquid
securities unless the assets in the fund exceed $10 million at the time of
purchase. Illiquid securities may include privately placed restricted
securities for which no institutional market exists. The absence of a trading
market can make it difficult to determine a market value for illiquid
securities. Disposing of illiquid securities may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
fund to sell them promptly at an acceptable price.
Rule 144A Securities
The fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, the fund will not invest more than 10% of its net assets (taken at
market value) in illiquid investments, which include securities for which there
is no readily available market, securities subject to contractual restrictions
on resale and restricted securities, unless, in the case of restricted
securities, the Board of Trustees of the Trust determines, based on the trading
markets for the specific restricted security, that it is liquid. The Trustees
have adopted guidelines and, subject to oversight by the Trustees, have
delegated to the Adviser the daily function of determining and monitoring
liquidity of restricted securities. See "Fundamental Policies" below.
Fundamental Policies
The following are fundamental investment policies followed by the fund.
Any policy identified as a fundamental investment policy of the fund may be
amended only with approval of the holders of a majority of the outstanding
shares of the fund (a "Majority Shareholder Vote"), which as used herein means
the vote of the lesser of (a) 67% or more of the outstanding voting securities
of the fund present at a meeting at which the holders of more than 50% of the
outstanding voting securities of the fund are present or represented by proxy,
or (b) more than 50% of the outstanding voting securities of the fund. The term
"voting securities" has the same meaning as in the Investment Company Act of
1940, as amended (the "1940 Act").
1. Subject to the provisions of our Declaration of Trust, which provides
that we may issue several classes of shares in any one fund, the fund
may not issue senior securities. It may not issue securities that
have priority over others in dividends, redemption rights, or have
other privileges.
2. The fund must limit its 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 the fund's
net assets and we will buy no such securities for the fund unless the
assets in the fund 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
<PAGE>
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 fund invests in restricted securities that are deemed
liquid, the general level of illiquidity in the fund 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.
3. The fund may borrow only under special circumstances. We do not
normally borrow money, but for temporary purposes the fund may borrow
from banks up to 10% of the fund's total assets. If we borrow, we can
pledge our assets up to the amount borrowed. The fund 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. The fund will not purchase any
securities while the fund has borrowings above 5% of assets
outstanding. The interest paid on our borrowings would reduce our net
income.
4. The fund may not underwrite securities, which means we may not sell
securities for others.
5. The fund may not buy the securities of any company if the fund would
then own more than 10% of the total value of all of the company's
outstanding voting securities, or if the Trust as a whole would then
own more than 10% of the total value of all of the company's
outstanding voting securities. The fund 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.
6. As a general policy, the fund will not invest in real estate assets
or interests therein. This policy does not preclude the fund from
investing in debt instruments secured by real estate or holding
interests in real estate investment trusts or other real estate
companies.
7. The fund may not invest in limited partnerships, including those
which own commodities, oil, gas and mineral leases or real estate.
This restriction is not interpreted to prevent the fund from
investing in fixed income securities or other debt instruments issued
by limited partnerships provided that it does not become a general or
limited partner.
8. The fund 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.
9. The fund may not invest for the purpose of exercising control or
management of other companies.
10. The fund may not buy or continue to hold securities if our Trustees
or officers or the Directors or officers of 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.
<PAGE>
11. The fund may not participate with others on a joint, or a joint and
several, basis in any trading account in any securities.
12. The fund may not, in managing 75% of its assets, invest more than 5%
in any one company; however, obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities are not included
in this limit.
13. There is a limit on the fund's ability to loan fund securities. If
the fund loans securities, then it must maintain collateral at 100%
of the value of the securities and any collateral must be marketable
on an exchange.
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.
Temporary Defensive Positions
The fund may invest in cash, cash equivalents, money market instruments
and repurchase agreements as temporary defensive positions during volatile or
other adverse or unusual market, economic, political or economic conditions.
Such temporary defensive positions would be inconsistent with the fund's
principal investment strategies and may adversely impact fund performance.
Portfolio Turnover
The fund may purchase both equity and fixed income securities and hold
them until such time as the Adviser believes it is advisable to sell them in
order to realize a gain or loss whereupon the fund reinvests these assets in
other securities.
Trustees, Officers and Beneficial Owners
A Board of Trustees oversees and monitors the management of the Trust.
These oversight responsibilities include selection of the investment adviser
and election of officers, who are in turn responsible for the day to day
operations of the Trust. The Trustees and officers are listed below. The
Trustees who are "interested persons" of the Trust, as defined in the 1940 Act
("Interested Trustees"), are indicated by an asterisk.
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------- ----------------------- --------------------------------------------
Name, Address Position(s) Held With Principal Occupation(s)
And Age Trust During Past 5 Years
- ------------------------------------- ----------------------- --------------------------------------------
Azie Taylor Morton, Chair of the Board and Investment adviser
10910 Medfield Court, Austin, Trustee
TX 78739
63 years
- ------------------------------------- ----------------------- --------------------------------------------
William D. Glenn, II Trustee Psychotherapist and Executive Director of
915 Las Ovejas, San Rafael, CA Continuum HIV Day Services, a non-profit
94903 corporation promoting AIDS awareness,
51 years treatment and research
- ------------------------------------- ----------------------- --------------------------------------------
Sophia Collier* Trustee Portfolio Manager Citizens Funds (since
230 Commerce Way, Suite 300 1995);
<PAGE>
Portsmouth, NH 03801 Chair of the Board of Directors, Citizens
43 years Advisers (since 1991);
President, Citizens Funds and Citizens
Advisers (1991 to September 1998)
- ------------------------------------- ----------------------- --------------------------------------------
John L. Shields* Trustee and President President and Chief Executive Officer of
230 Commerce Way, Suite 300 Citizens Advisers (since September 1998);
Portsmouth, NH 03801 Senior Management Consultant, Cerulli
46 years Associates, a mutual fund consulting firm
(1995 to 1998);
Senior Vice President and Chief
Administrative Officer, Chief Operating
Officer and Chief Financial Officer, State
Street Research Investment Services, Inc.
(1991 to 1995)
- ------------------------------------- ----------------------- --------------------------------------------
Juliana Eades Trustee Executive Director, New Hampshire
7 Wall Street, Concord, Community Loan Fund (since 1984), a
NH 03301 non-profit corporation promoting
46 years community investment and development
- ------------------------------------- ----------------------- --------------------------------------------
Lokelani Devone Trustee Assistant General Counsel, DFS Group
525 Market Street, 33rd floor Limited (international retail business
San Francisco, CA 94105 group) (since 1989)
42 years
- ------------------------------------- ----------------------- --------------------------------------------
Ada Sanchez Trustee Student (since 1996);
111 90th Avenue, Treasure Director of Public Service and Social
Island, FL 33706 Change Program, Hampshire College (1987
47 years to 1996)
- ------------------------------------- ----------------------- --------------------------------------------
Robert B. Reich* Trustee University Professor and the Maurice B.
4 Mercer Circle, Cambridge, MA Hexter Professor of Social and Economic
02138 Policy, Brandeis University and its Heller
53 years Graduate School (since 1996);
U.S. Secretary of Labor (1993 to 1996)
- ------------------------------------- ----------------------- --------------------------------------------
Mitchell Johnson, Trustee President, M.A.J. Capital Management,
2753 Unicorn Lane NW, Inc.(money management firm) (since
Washington, DC 20015 August 1994);
57 years Senior Vice President of Corporate
Finance, Student Loan Marketing
Association (1987 to 1994)
- ------------------------------------- ----------------------- --------------------------------------------
Joseph F. Keefe Secretary Executive Vice President and General
230 Commerce Way, Suite 300 Counsel, Citizens Advisers (since May
Portsmouth, NH 03801 1997);
45 years Partner, Hall, Hess, Kenison, Stewart,
Murphy & Keefe (law firm) (1984 to 1997)
- ------------------------------------- ----------------------- --------------------------------------------
Sean Driscoll Treasurer Fund Accountant, Vice President, Director
230 Commerce Way, Suite 300 of Fund Administration and Director of
Portsmouth, NH 03801 Fund Accounting, Citizens Advisers (since
<PAGE>
34 years October 1998);
Director of Fund Administration, State
Street Bank
and Trust Company (March
1998 to November 1998);
Vice President of Compliance, Putnam
Investments (January 1997 to March 1998);
Fund Accountant and Director of Fund
Administration, State Street Bank and Trust
Company (1987 to 1997)
- ------------------------------------- ----------------------- --------------------------------------------
Crescentia True Vice President Executive Vice President, Operations,
230 Commerce Way, Suite 300 Citizens Advisers (since 1994)
Portsmouth, NH 03801
35 Years
- ------------------------------------- ----------------------- --------------------------------------------
Samuel Pierce Assistant Vice Senior Social Analyst, Citizens Advisers
230 Commerce Way, Suite 300 President (since July 1998); Assistant Vice
Portsmouth, NH 03801 President, Wellington Management Company, LLC
31 years (November 1992 to July 1998)
- ------------------------------------- ----------------------- --------------------------------------------
</TABLE>
The Board of Trustees functions with a Nominating Committee comprised of
the whole Board, but pursuant to the Trust's Distribution Plan, the Trust has
agreed that Trustees who are not "interested persons," as defined in the 1940
Act, of the Trust and who have no direct or indirect financial interest in the
operation of the Distribution Plan or any agreement relating to the Plan (the
"Independent Trustees") shall have responsibility for the selection and
nomination of other Independent Trustees. This agreement will continue for so
long as the Distribution Plan is in effect.
The following compensation table discloses the aggregate compensation from
the Trust for services provided through June 30, 1999. None of the Trustees
receive pension or retirement benefits or any other compensation beyond that
listed below. Trustees were, however, reimbursed the costs of travel, meals and
lodging associated with attendance at meetings.
CITIZENS FUNDS- COMPENSATION TABLE
Name of Person and Aggregate Compensation from
Position Citizens Funds
Azie Taylor Morton $15,295
Juliana Eades $11,500
William D. Glenn, Jr. $11,500
Ada Sanchez $11,500
Lokelani Devone $11,500
Mitchell Johnson $11,500
Sophia Collier* 0
John S. Shields* 0
Robert B. Reich* 0
<PAGE>
* Sophia Collier, John Shields and Robert B. Reich are Interested Trustees and
received no compensation from Citizens Funds.
The amount of fund shares owned by trustees and officers of the fund, as a
group, is less than 1% of each class of shares.
Investment Advisory and Other Services
Adviser
The fund is advised by Citizens Advisers, Inc. under a contract known as
the Management Agreement. The Adviser's office is at 230 Commerce Way, Suite
300, Portsmouth, New Hampshire 03801. The Adviser is a California corporation.
The Management Agreement provides that the Adviser, subject to the control of
the Trust's Board of Trustees, will decide which securities will be bought and
sold, and when, and requires the Adviser to place purchase and sale orders. The
Adviser also manages the day-to-day operations of the Trust.
Sophia Collier individually owns 60% of the outstanding stock and is Chair
of the Board of Directors of Citizens Advisers, Inc. She is the former
President of Citizens Funds and remains on the Board of Trustees, serving as an
Interested Trustee. 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 William B. Hart, Jr. (4%). John, Robert
and Gerald Dunfey, brothers, now serve as directors of the Dunfey Group, a
venture capital and investment firm. John P. Dunfey is also a member of the
Board of Directors of Citizens Advisers. 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."
John Shields is the President and Chief Executive Officer of Citizens
Advisers, Inc. and President of Citizens Funds. He also serves on the Board of
Trustees of Citizens Funds as an Interested Trustee. Prior to joining Citizens
Advisers in 1998, Mr. Shields was a senior management consultant with Cerulli
Associates, a mutual fund consulting firm located in Boston, Massachusetts. He
also held executive and other managerial positions with State Street Research
Investment Services, Inc. and Fidelity Investments.
Adviser Fees
The Adviser provides the fund, at its own expense, with all office space,
facilities, equipment and clerical personnel necessary to carry out its duties
under the Management Agreement. Some of the Trust's Trustees and officers are
employees of the Adviser and receive their compensation from the Adviser. The
<PAGE>
custodian bank for the fund maintains, as part of its services for which the
Trust pays a fee, many of the books and records that the fund is required to
have and computes the fund's Net Asset Value and dividends per share.
The fund pays the Adviser a fee for its services of 0.50% of the fund's
average annual net assets.
The Adviser has contractually agreed to limit the fund's expenses in the
fiscal year ending June 30, 2000. If expenses exceed this limit, the Adviser
will reduce its fee by, or refund, the amount of the excess. The limit on
expenses is as follows:
- ------------------------------------ -------------------------------------
Expense Limitation
- ------------------------------------ -------------------------------------
Standard shares 1.55% of average annual net assets
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
Institutional Class shares .90% of average annual net assets
- ------------------------------------ -------------------------------------
Not all fund expenses are subject to the limits described above. 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.
The fund has not yet commenced operations and therefore will not pay any
fees to the Adviser until fiscal year 2000.
Citizens Securities, Inc.
Citizens Securities, Inc. ("Citizens Securities" or the "Distributor"), a
wholly-owned subsidiary of the Adviser and a California corporation, serves as
the fund's principal underwriter or distributor. Its offices are located at 230
Commerce Way, Suite 300, Portsmouth, New Hampshire 03801. John Shields, the
President and CEO of Citizens Advisers, is also President and CEO of Citizens
Securities.
Administrative and Shareholder Services
Citizens Advisers also performs a wide variety of administrative duties
for the Trust under a separate administrative and shareholder services contract
which provides for reimbursement of out of pocket expenses as well as fees for
services rendered. These fees and expenses are payable monthly and are based on
average annual net assets in the following amounts:
- ------------------------------------ -------------------------------------
Administrative Fee
- ------------------------------------ -------------------------------------
Standard shares 0.10%
Institutional Class shares 0.10%
- ------------------------------------ -------------------------------------
The administrative services provided to the Trust include but are not
limited to the following: daily fund accounting duties including payment and
budgeting of fund operating expenses and calculation of expense accruals;
administration of annual Trust audit with Trust Auditors; supervision of
drafting and printing of annual and semi annual reports; administrative and
contractual interface with Custodian and Transfer Agent including daily
monitoring of Net Asset Value, sales, redemptions, dividends and quality
<PAGE>
control; and compliance with federal and state regulatory requirements.
Citizens Advisers is also reimbursed at cost for state Blue Sky filing and
reporting services; vendor relations; drafting and filing of Prospectuses and
statements of additional information, proxies and other regulatory filings; and
special projects.
In addition, Citizens Securities provides a number of administrative
services to the Trust relating primarily to shareholder services and
communications, and is reimbursed a flat fee approximating the "market price"
of such services. These include but are not limited to answering calls from
existing shareholders in a timely manner; maintenance of a toll-free number;
responding to shareholder inquiries and requests; maintenance of computer
interface with the Transfer Agent; retention, maintenance and research of
shareholder records; maintenance of facilities and equipment to perform all
such duties; and similar services.
The fund has not yet commenced operations and therefore will not pay any
administrative and shareholder service fees until fiscal year 2000.
The fund 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 fund's distributor, Citizens
Securities, pays the cost of printing and distributing copies of Prospectuses
and reports to non-shareholders, as well as the costs of supplemental sales
literature and advertising. The Trust pays all of the fund's other expenses not
expressly assumed by the Adviser such as interest, taxes, audit and legal fees
and expenses, charges of the fund's custodian, the fund's shareholder
servicing, transfer and record-keeping agent costs, insurance premiums, stock
issuance and redemption costs, certain printing costs, costs of registering
shares of the fund under federal and state laws, and dues and assessments of
the Investment Company Institute, as well as any non-recurring expenses,
including litigation.
12b-1 Plan
Pursuant to a Distribution Agreement, Citizens Securities distributes the
fund's shares on a continuous basis.
The Trust's Board of Trustees has adopted a Distribution Plan under
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. In approving the 12b-1
Plan, the Trustees determined that there is a reasonable likelihood that the
Plan will benefit the Trust and its shareholders. Pursuant to this Plan, the
Distributor is authorized to purchase advertising, sales literature and other
promotional material and to pay its own salespeople. In addition,
broker-dealers and other service organizations that enter into written
agreements with the Trust and its Distributor may receive, for administration,
shareholder service and distribution assistance, fees at rates determined by
the Trustees.
The fund will reimburse Citizens Securities for distribution expenditures
and for fees paid to service organizations, up to a limit of 0.25% of average
annual net assets for the fund's Standard shares. There is no provision under
the Distribution Plan for reimbursing Citizens Securities for expenditures on
behalf of the fund's Institutional Class shares. In addition, if and to the
extent that the fee the fund pays the Distributor as well as other payments the
fund makes are considered as indirectly financing any activity which is
primarily intended to result in the sale of fund shares, such payments are
authorized under the Plan.
The 12b-1 Plan provides that the Distributor shall provide and the
Trustees shall review quarterly reports setting forth the amounts, payments and
<PAGE>
the purpose for which the amounts were expended. The Plan only permits
reimbursement of actual expenses and does not permit expenses to be carried
forward from one fiscal period to another.
The 12b-1 Plan will continue in effect if approved at least annually by
the 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." 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 the majority of outstanding
securities of the Trust, or the fund, on not more than 60 days notice. 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, and all
amendments must be approved by the Trustees.
Expenses
Other expenses paid by the fund include 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.
Institutional Class shareholders in the fund pay their pro rata portion of
fund expenses, as well as any class expenses attributable to Institutional
Class shares only. Class expenses include, but are not limited to, transfer
agent fees and administrative and shareholder fees and expenses such as the
cost of registering shares under state laws, the cost of typesetting, printing
and distributing shareholder reports and Prospectuses.
When a cost is shared by several series of the Trust, the staff at
Citizens Advisers will allocate the expense in a reasonable manner under the
supervision of the Board of Trustees.
Other Service Providers
Custodian
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts, is the custodian of the assets of the Trust. The custodian is
responsible for holding the securities and cash of the fund, receiving and
reporting all purchases and redemptions, calculating the daily Net Asset Value
of the fund and other accounting activities related to the management of the
Trust. The custodian takes no part in determining the investment policies of
the Trust or in deciding which securities are purchased or sold by the Trust.
The Trust, however, may invest in obligations of the custodian and may purchase
or sell securities from or to the custodian.
Transfer Agent
The transfer agent and dividend-paying agent for the Trust is PFPC, Inc.,
400 Bellevue Parkway, Suite 108, Wilmington, DE 19809. In its capacity as
transfer agent and dividend-paying agent, PFPC is responsible for processing
daily purchases, redemptions and transfers of Trust shares, preparing and
mailing shareholder confirmations and account statements, paying dividends and
other distributions, and other shareholder and account activities.
<PAGE>
Auditors
The Trust has retained as its Independent Accountants the firm of
PricewaterhouseCoopers LLP, One Post Office Square, Boston, Massachusetts,
02109. PricewaterhouseCoopers LLP will conduct an annual audit of the financial
statements of the fund, will prepare the fund's federal and state income tax
returns and consult with management of the fund as to matters of accounting,
regulatory filings, and federal and state income taxation.
Legal Counsel
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts.
Brokerage Allocation and Soft Dollars
The Adviser seeks to obtain for the fund 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 the
fund buys. 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 purchases 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.
The 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.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, the Adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) to the fund
and/or the other accounts over which the Adviser exercises investment
discretion. The Adviser may pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for
the fund that is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Adviser has with respect to accounts
over which it exercises investment discretion.
The Adviser will maintain an account with one or more broker-dealers who
agree to provide or pay for brokerage and research services which benefit the
fund. The Adviser may place a transaction with such a broker-dealer after
determining in good faith that the amount of the commission is reasonable in
relation to the value of the brokerage and research services provided. These
research services are sometimes referred to as "soft dollars."
Any "soft dollars" generated by transactions on behalf of the fund in this
fashion shall be used solely to purchase brokerage and research services within
the meaning of Section 28(e), and must be of benefit to the fund. These
brokerage and research services, however, need not exclusively benefit the
fund, and may also benefit other series of the Trust or other clients of the
<PAGE>
Adviser. For these purposes, brokerage and research services mean those which
provide assistance to the 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.
The investment management or advisory fee that the Trust pays to the
Adviser will not be reduced as a consequence of the Adviser's receipt of
brokerage and research services. While such services are not expected to reduce
the expenses of the Adviser, the Adviser would, through the use of such
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff or obtain such
services independently.
Ownership of Shares and Shareholder Rights
The Trust's Declaration of Trust permits its 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 Trust.
Certificates representing shares are not issued. The Trust may create and issue
series and classes of shares. Each share of each class of each series
represents an equal proportionate interest in the series with each other share
of that class. Shares of each series participate equally in the earnings,
dividends and distribution of net assets of the particular series upon
liquidation or dissolution (except for any differences among classes of shares
in a series). Income and operating expenses are allocated fairly among the
series and classes by the Trustees. Shares of each class are entitled to vote
as a class or series only to the extent required by the 1940 Act, as provided
in the Declaration of Trust, or as permitted by the Trustees. The Trust intends
to manage its series in such a way as to be a "diversified" investment company,
as defined in the 1940 Act.
Voting Rights
Shareholders are entitled to one vote for each full share 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 and the Trust's Declaration of Trust. The Trust does not hold
annual shareholder meetings. However, 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 a Majority Shareholder Vote. The holders of
shares have no preemptive, conversion or subscription rights and votes are not
cumulative. Shares when issued are fully paid and non assessable, except as set
forth under "Shareholder and Trustee Liability" below. The Trust may be
terminated upon the sale or transfer of its assets, if such sale or transfer is
approved by a Majority Shareholder Vote. If not so terminated, the Trust will
continue indefinitely.
Dividends and Distributions
The fund normally declares 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 fund
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.
<PAGE>
Shareholder and Trustee Liability
The Trust is 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. The Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for the Trust's acts or obligations and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or the Trust's Trustees.
The Declaration of Trust provides for indemnification and reimbursement of
expenses by the relevant series out of that series' property for any
shareholder held personally liable for that series' obligations. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust and satisfy the 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 the
Trust would be unable to meet its 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.
How to Purchase and Redeem Shares
How to Buy Shares
It's easy to buy shares in the fund. Just fill out an application and send
in your payment by check, wire transfer, exchange from another Citizens mutual
fund or through arrangements with your investment adviser or broker-dealer. All
checks must be made payable to "Citizens Funds." Foreign checks drawn in U.S.
dollars are accepted but shares purchased with foreign checks may be held in
escrow for at least 20 days.
Your cost will be the Net Asset Value next determined after your payment
is received. (Net Asset Value is determined at the close of the New York Stock
Exchange.) You can purchase both full and fractional shares, which will be
rounded to the nearest 1/1000th of a share. If your check is returned for any
reason, you will be assessed a fee of $15.00.
The Trust has authorized certain brokers, and such brokers have also been
authorized to designate intermediaries, to accept on its behalf purchase and
redemption orders and such brokers are also authorized to designate
intermediaries to accept orders on the Trust's behalf. The Trust will be deemed
to have received such orders when the broker or broker designee accepts the
order, which shall be priced at the Net Asset Value next computed after the
broker or designee accepts the same.
Investors may be charged a fee if they buy, sell or exchange fund shares
through a broker or agent.
Investment Minimums
The minimum initial investment for Standard shares in the fund is $2,500
($1,000 for Individual Retirement Accounts (IRAs), Uniform Gifts/Transfers to
Minors Act (UGMA/UTMA) accounts and Automatic Investment Plan accounts). The
minimum subsequent investment for all accounts, including Automatic Investment
Plan accounts, is $50. If your account falls below the minimum, you will be
assessed a monthly fee of $3.00 until you bring your balance back up over the
<PAGE>
minimum. If you do not bring your balance up to the minimum, we may close your
account by sending you a check for your balance. The investment minimums and
monthly below minimum balance fee are applicable per account and also apply to
an exchange purchase of shares in another series of Citizens Funds.
The minimum initial investment in Institutional Class shares is $1 million
($250,000 for registered investment advisers and retirement plans, at the
discretion of the Trust). There is no minimum subsequent investment. With
respect to accounts that fall below $1 million (or $250,000 for registered
investment advisers and retirement plans, at the discretion of the Trust), the
Trust reserves the right to transfer these accounts from the Institutional
Class and convert them to Standard shares. We will give adequate notice to the
shareholder, allowing the opportunity to bring the account up to the required
minimum balance.
There is an annual fee of $10 for each Individual Retirement Account
(IRA), with a maximum IRA account fee of $20 per shareholder. This fee is
waived for total IRA balances of $25,000 and higher and total account balances
of $50,000 and higher. There is also an IRA closure fee of $15.
Automatic Investment Plan
To enroll in the Trust's Automatic Investment Plan, simply check off that
box on the account application and provide us with your bank information, as
well as the amount and frequency of your investment into the fund. We will do
the rest.
Payroll Deduction
Setting up direct payroll deposit is very easy. Call us for the necessary
information and steps to follow. If you or your payroll administrator have any
questions, please call the Trust's 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.
How to Sell Shares
Telephone Exchange and Redemption. We have a Telephone Exchange and
Redemption option on your account application. Under this option, you can call
and tell us how much you want to redeem. Depending upon your instructions, we
will deposit the amount of your redemption into another Citizens Funds account,
mail you a check or electronically transfer your redemption to your
pre-designated account. Normally, we will send you your redemption on the next
business day after we receive your request. One-day wired funds cost $10, or we
offer free 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 it may increase the risk of error or of an unauthorized party gaining
access to your account. For added security you may provide us with a Personal
Identification Number (PIN) which must be verified before processing all
telephone transactions, including balance verification. To keep these problems
to a minimum, we record all telephone calls. But please remember, neither the
Trust, the Adviser nor the fund's Transfer Agent will be responsible if we
properly act on telephone instructions we reasonably believe to be genuine.
<PAGE>
Redeem Your Shares through Broker-Dealers. You may also redeem your shares
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 other electronic communication.
Requests for Redemption. If you do not use the Telephone Exchange and
Redemption option, you can still redeem your shares at any time, although the
process will take longer. Send us a written request together with a Medallion
Signature Guarantee. We may require further documentation from corporations,
fiduciaries, retirement plans and/or institutional investors.
We reserve the right to wait up to seven business days before paying the
proceeds of any redemption on any investments made by check and five business
days for purchases made by ACH transfer. Therefore, if you need your redemption
proceeds within seven business days of your purchase, please invest by wire.
Additional Redemption Information
We pay redemption proceeds within five business days (seven business days
with respect to redemptions of investments made by check) after we receive a
proper redemption request so long as the redemption request is received by 4
p.m., Eastern Time. The fund's 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 are: New Year's Day,
Martin Luther King, Jr.'s. Birthday (observed), Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The fund pays redemption proceeds in cash, except that the Board of
Trustees has the power to decide that conditions exist which would make cash
payments undesirable. In that case, the fund could send redemption payments in
securities from that fund, valued in the same way the fund's Net Asset Value is
determined. There might then be brokerage or other costs to the shareholder in
selling these securities. The fund has elected to be governed by Rule 18f-1
under the 1940 Act, which requires the fund to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the fund's total net assets during any 90
day period for any one shareholder. A shareholder's redemption proceeds may be
more or less than his or her original cost, depending on the value of the
fund's shares.
We have the right to compel the redemption of shares of the fund if the
aggregate Net Asset Value of the shares in the account is less than $2,500 for
Standard shares ($1,000 for IRAs and UGMA/UTMA and Automatic Investment Plan
accounts). If the Adviser decides to do this, we will provide notice to the
shareholder, who will be given an opportunity to bring the account up to the
applicable minimum. With respect to Institutional Class shares, we also have
the right to transfer these accounts and to convert them to Standard shares if
the aggregate Net Asset Value of the shares in the account is less than $1
million ($250,000 for registered investment advisers and retirement plans, at
the discretion of the Trust).
How We Value Fund Shares
The value of the fixed income securities the fund may invest in will
fluctuate depending in large part on changes in prevailing interest rates.
Fixed income securities may comprise a portion of assets in the fund under
normal conditions. If interest rates go up, the value of fixed income
<PAGE>
securities generally goes down. Conversely, if interest rates go down, the
value of fixed income securities generally goes up. Long-term obligations,
which often have higher yields, may fluctuate in value more than short-term
ones. 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 fund will fluctuate based upon
market conditions and 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.
The Net Asset Value per share of the fund is determined for each class by
adding the market value of all securities and other assets attributable to the
class, then subtracting the liabilities attributable to that class, and then
dividing the result by the number of outstanding shares of the class. All
expenses are accrued daily and taken into account in determining Net Asset
Value.
The Net Asset Value of the fund is determined at the time the New York
Stock Exchange closes 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.
As described in the Prospectus, shares of the fund are generally valued on
the basis of market values. Equity securities are valued at the last sales
price on the primary exchange on which such securities are traded or on the
principal over-the-counter market on which such securities are traded, or,
lacking any sales, at the last available bid price for domestic securities and
halfway between the bid and asked price for international securities. Fixed
income investments are generally valued at the bid price for securities.
Securities maturing within 60 days are normally valued at amortized cost.
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 Trust'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 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 Trust's Board of
Trustees. There are a number of pricing services available, and the Trustees
and officers of the Trust acting on behalf of the Trustees, may use or
discontinue the use of any pricing service now, or in the future, employed.
Tax Matters
Taxation of the Fund
Federal Taxes. The fund is treated as a separate entity for federal tax
purposes under the Internal Revenue Code of 1986, as amended (the "Code").
Further, the fund has elected to be treated and intends to qualify as a
"regulated investment company" under Subchapter M of the Code. The fund plans
to continue this election in the future. As a regulated investment company, the
fund will not be subject to any federal income or excise taxes on its net
investment income and net realized capital gains that it distributes to
<PAGE>
shareholders in accordance with the timing requirements imposed by the Code. If
the fund should fail to qualify as a regulated investment company in any year,
the fund would incur federal income taxes upon its taxable income and
distributions from the fund would generally be taxable as ordinary dividend
income to shareholders.
Foreign Taxes. Although we do not expect the fund will pay any federal
income or excise taxes, investment income, if any, received by the fund 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 may entitle the fund to a reduced rate of tax or
an exemption from tax on foreign income; the fund intends to qualify for treaty
reduced rates where available. It is not possible, however, to determine the
fund's effective rate of foreign tax in advance, since the amount, if any, of
the fund's assets to be invested within various countries is not known. If the
fund incurs foreign income taxes we do not expect that it will be able to pass
through to shareholders foreign tax credits with respect to such foreign taxes.
Massachusetts Taxes. As long as the fund maintains its status as a
regulated investment company under the Code and distributes all of its income,
the fund will not be required to pay any Massachusetts income or excise tax.
Taxation of Shareholders
Taxation of Distributions. Shareholders of the fund will generally have to
pay federal income taxes on the dividends and capital gain distributions they
receive from the fund. Dividends from ordinary income and any distributions
from net short-term capital gains are taxable to shareholders as ordinary
income for federal income tax purposes, whether the distributions are made in
cash or in additional shares. Distributions of net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses),
whether made in cash or in additional shares, are taxable to shareholders as
long-term capital gains without regard to the length of time the shareholders
have held their shares. Any fund dividend that is declared in October,
November, or December of any calendar year, that is payable to shareholders of
record in such a month, and that is paid the following January, will be treated
as if received by the shareholders on December 31 of the year in which the
dividend is declared.
Dividends-Received Deduction. A portion of any ordinary income dividends
paid by the fund is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualified for that deduction with
respect to its holding of the fund's shares. Availability of the deduction to
particular corporate shareholders is subject to certain limitations and
deducted amounts may be subject to the alternative minimum tax and result in
certain basis adjustments. Any portion of the fund's dividends that is derived
from investments in foreign corporations will not qualify for such deduction.
"Buying A Dividend." Any dividend or distribution from the fund will have
the effect of reducing the per share Net Asset Value of shares in the fund by
the amount of the dividend or distribution. Shareholders purchasing shares in
such the fund 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.
Special Considerations for Non-U.S. Persons. Dividends and certain other
payments to persons who are not citizens or residents of the United States or
U.S. entities ("Non-U.S. Persons") are generally subject to U.S. tax
withholding at the rate of 30%. The fund intends to withhold U.S. federal
income tax at the rate of 30% (or at such lower rate as may be permitted under
<PAGE>
an applicable treaty) on taxable dividends and other payments to Non-U.S.
Persons that are subject to such withholding. Any amounts overwithheld may be
recovered by such persons by filing a claim for refund with the U.S. Internal
Revenue Service within the time period appropriate to such claims.
Distributions from the fund to a Non-U.S. Person also may be subject to tax
under the laws of the Non-U.S. Person's jurisdiction.
Backup Withholding. The fund is required in certain circumstances to apply
backup withholding at the rate of 31% on taxable dividends and redemption
proceeds paid to any shareholder (including a Non-U.S. Person) who does not
furnish to the fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to the 30% withholding applicable to
Non-U.S. Persons.
Disposition of Shares. In general, any gain or loss realized upon a
taxable disposition of shares of the fund by a shareholder that holds such
shares as a capital asset will be treated as a long-term capital gain or loss
if the shares have been held for more than twelve months and otherwise as a
short-term capital gain or loss. However, any loss realized upon a disposition
of the shares in the fund 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 disposition of shares
may also be disallowed under the rules relating to wash sales.
Effects of Certain Investments and Transactions
Certain Debt Instruments. An investment by the fund in certain securities
purchased at a market discount would cause the fund to recognize income prior
to the receipt of cash payments with respect to those securities. In order to
distribute this income and avoid a tax on the fund, the fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the fund.
Options, Etc. Any fund transactions in options, futures and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of fund income and distributions to shareholders. For
example, certain positions held by the fund on the last business day of each
taxable year will be marked to market (e.g., treated as if closed out) on that
day, and any gain or loss associated with the positions will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by
the fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of fund losses, adjustments in the
holding periods of fund securities, and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles that may alter the
effects of these rules. The fund intends to limit its activities in options,
futures and forward contracts to the extent necessary to meet the requirements
of the Code.
Foreign Investments. Special tax considerations apply with respect to any
foreign investments of the fund. For example, any foreign exchange gains and
losses realized by the fund generally will be treated as ordinary income or
loss. Use of non-U.S. currencies for non-hedging purposes and investments by
the fund in "passive foreign investment companies" may have to be limited in
order to avoid a tax on the fund. The fund may elect to mark to market any
investments in "passive foreign investment companies" on the last day of each
taxable year. This election may cause the fund to recognize ordinary income
prior to the receipt of cash payments with respect to those investments; in
order to distribute this income and avoid a tax on the fund, the fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold potentially resulting in additional gain or loss to the fund.
<PAGE>
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.
How We Calculate Performance
All performance reported in advertisements is historical and not intended
to indicate future returns.
Total Return and Other Quotations
We can express investment results in terms of "total return." Total return
refers to the total change in value of an investment in the fund over a
specified period.
In calculating the total return of a class of shares of the fund, we start
with the total number of shares of the fund you can buy for $1,000 at the
beginning of the period. We then add all the additional shares you would have
purchased within the period with reinvested dividends and distributions (this
takes into account the particular fund'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 the fund's
percentage gain or loss. For periods of more than one year, we adjust the
cumulative total return to get an average annual total return.
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 (or fractional portion).
Because the fund is newly organized, performance information is not
available as of the date of this Statement of Additional Information.
When we quote the fund's total return we are referring to its past results
and not predicting the fund's 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 the fund's 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 investment results, we sometimes will compare them to
unmanaged market indices such as the Dow Jones Industrial Average, Standard &
Poor's 500 ("S&P 500") Index, S&P MidCap 400 Index, S&P SmallCap 600 Index,
Financial Times World Index, Lehman Government/Corporate Intermediate Index and
the Russell 2000, as well as other data and rankings from recognized
independent publishers or sources such as Morningstar, Inc., Lipper, Inc.,
<PAGE>
IBC's Money Fund Report, Bloomberg Magazine, Money Magazine, Mutual Funds
Magazine, Kiplinger's Personal Finance Magazine, Worth Magazine, Your Money
Magazine, Smart Money Magazine, Forbes Magazine, Fortune Magazine, Co-Op
America Quarterly, The Green Money Journal and others.
Financial Statements
The fund has not yet issued financial statements.
