<PAGE>
Rule 497(e)
File Nos. 2-80886
811-03626
CITIZENS FUNDS-REGISTERED TRADEMARK-
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 2000
This Statement of Additional Information (SAI) is not a prospectus and
should be read in conjunction with the Citizens Funds' Prospectus dated November
1, 2000. A copy of the current Prospectus can be obtained by calling (800)
223-7010, by writing Citizens Funds, 230 Commerce Way, Portsmouth, New Hampshire
03801 or by visiting the Citizens Funds Internet site at www.citizensfunds.com.
This SAI and the Prospectus may be amended or supplemented from time to time.
Certain disclosure has been incorporated by reference into this SAI
from the Citizens Funds' annual report. For a free copy of the annual report,
please call (800) 223-7010.
CITIZENS FUNDS-Registered Trademark-
Citizens Core Growth Fund -SM-(FORMERLY KNOWN AS CITIZENS INDEX FUND)
Citizens Emerging Growth Fund -SM-
Citizens Small Cap Core Growth Fund -SM-
(FORMERLY KNOWN AS CITIZENS SMALL CAP INDEX FUND)
Citizens Global Equity Fund -SM-
Citizens Income Fund -SM-
Citizens Money Market Fund -SM-
(FORMERLY KNOWN AS WORKING ASSETS MONEY MARKET FUND)
TABLE OF CONTENTS PAGE
Citizens Funds................................................... 2
Investment Strategies, Risks and Fundamental Policies ........... 2
Trustees, Officers and Beneficial Owners......................... 13
Investment Advisory and Other Services........................... 18
Brokerage Allocation and Soft Dollars............................ 24
Ownership of Shares and Shareholder Rights....................... 25
How We Value Fund Shares......................................... 30
Tax Matters...................................................... 32
How We Calculate Performance..................................... 35
Financial Statements............................................. 38
Appendix A: Description of Ratings.............................. 39
-1-
<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: Citizens 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 Core Growth Fund (inception date 3/3/95), and Citizens Small
Cap Core Growth Fund (inception date 12/28/99). 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.
Each of the series of Citizens Funds is referred to herein as a "Fund," or,
collectively, the "Funds."
This Statement of Additional Information relates to all six Funds and to
Standard, Administrative 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 that are described below.
The Funds 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, a particular 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 a Fund's shares, a Fund
may invest all or a portion of its assets in money market instruments,
including, but not limited to:
- Obligations of agencies and enterprises of the U.S. Government;
- Certificates of Deposit of banks;
- Commercial paper or other corporate notes of investment grade quality;
and
- Yankee bonds.
REPURCHASE AGREEMENTS
The Funds 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 102%
of the value of 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 particular 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 a Fund is
unrelated to the interest rate on securities collateralizing the repurchase.
-2-
<PAGE>
The Trust requires all vendors of repurchase agreements to deliver
collateral in the applicable 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 a
Fund, they do have greater risk than directly investing in securities. If a bank
or stockbroker becomes bankrupt, or otherwise defaults after selling a 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. The Funds may use derivative securities to hedge against
changes in interest rates, foreign currency exchange rates, changes in
securities prices or other factors affecting the value of their investments.
Each 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). Derivatives involve
special risks and may result in losses.
OPTIONS. Each Fund, other than Citizens Money Market 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 a 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 a Fund's total assets at the time of
each purchase. The premium that a 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.
FUTURES CONTRACTS. Each Fund, other than Citizens Money Market Fund, may
purchase or sell futures contracts and options on futures contracts. These
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the right,
in exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. Index futures are
futures contracts for various indices that are traded on registered securities
exchanges.
WARRANTS. Each Fund, other than Citizens Money Market Fund, 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 a Fund's books at zero value when market
quotations are unavailable, as the value of these warrants can only be realized
upon their exercise.
STRUCTURED SECURITIES. Each Fund, other than Citizens Money Market Fund,
may purchase structured securities, such as interest-only strips or similar
vehicles where one or more of the rights within the underlying securities has
been traded through the financial markets for a different right or series of
rights. In the most extreme cases, some classes of stripped mortgage-backed
securities may receive only interest payments (called IOs because they receive
interest only) and other classes of stripped mortgage-backed securities may
receive only principal payments (called POs because they receive principal
only).
-3-
<PAGE>
RISKS. The use of derivative securities depends on the Fund manager's or
a sub-adviser's ability to predict correctly the direction of interest rates,
securities prices or other factors. Risks include:
- the risk that interest rates, securities prices or other factors do not
move in the directions being hedged against, in which case the Fund will
have incurred the cost of the derivative (either its purchase price or, by
writing an option, losing the opportunity to profit from increases in the
value of the securities covered) with no tangible benefits;
- an imperfect correlation between the price of derivatives and the movements
of the securities prices, interest rates or currency exchange rates being
hedged;
- the possible absence of a liquid secondary market for any particular
derivative at any time;
- the potential loss if the counter party to the transaction does not perform
as promised; and
- 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.
STRUCTURED SECURITIES, or STRIPS may be affected by changes in interest
rates. The value of an interest-only strip generally will go down as interest
rates go up. A rapid rate of principal payments (including prepayments) may
cause an interest-only strip to mature before a Fund receives the money it
initially invested in the security. This may happen if interest rates go down. A
Fund's ability to collect interest payments also will end if an interest-only
strip defaults. Conversely, a Fund's investment in principal-only strips may be
adversely affected by a lower than expected rate of principal payments
(including prepayments) on the underlying pool of mortgage loans. A lower rate
of principal payments (including prepayments) effectively extends the maturity
of a principal-only strip, making it worth less money in today's dollars.
Securities with longer maturities are more susceptible to changes in interest
rates. Changes in interest rates affect the value of principal-only strips more
than traditional mortgage-backed securities or other debt obligations that pay
interest at regular intervals.
FOREIGN SECURITIES
Each Fund, other than Citizens Money Market Fund, and especially the
Citizens Global Equity Fund and the Citizens Emerging Growth Fund, may invest in
foreign securities that 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. The
Citizens Global Equity Fund's share price will tend to reflect the movements of
the different securities markets in which they are invested and, to the degree
not hedged, the foreign currencies in which investments are denominated. As a
result of its investments in foreign securities, a 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 a 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. A 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
-4-
<PAGE>
the sale or redemption of securities and could reduce the dollar value of
interest or dividend payments received.
The Citizens Global Equity Fund and the Citizens Emerging Growth Fund may
invest in foreign companies through investments in American Depositary Receipts
(ADRs). These securities are not usually denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. ADRs are subject to many of the same risks that apply to other
investments in non-U.S. securities.
WHEN-ISSUED SECURITIES
Each Fund, other than Citizens Money Market Fund, may purchase securities
on a "when-issued" or on a "forward delivery" basis. It is expected that, in
many cases, a Fund will take delivery of securities it has purchased on a
when-issued basis. When a Fund commits to purchase a security on a when-issued
or forward delivery basis it will follow procedures consistent with current
policies of the Securities and Exchange Commission (SEC) concerning such
purchases. Since those policies currently recommend that an amount of a fund's
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Trust intends that a Fund 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 Trust 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 a basis may involve more risk
than other types of purchases. For example, a Fund may have to sell assets that
have been set aside to cover its commitments in order to meet redemptions. Also,
if the Funds' adviser, Citizens Advisers, Inc. (referred to as "Citizens
Advisers" or the "Adviser") were to determine that it is necessary to sell the
when-issued or forward delivery securities before delivery to a 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, a 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
Each Fund may invest up to 10% of its net assets in securities for which
there is no readily available market, such as securities subject to contractual
restrictions on resale. A 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 a Fund to sell them promptly at an
acceptable price.
RULE 144A SECURITIES
Each Fund may purchase securities that are not registered (restricted
securities) under the Securities Act of 1933, as amended (the "Securities Act"),
but can be offered and sold to "qualified institutional buyers" under Rule 144A
under the Securities Act. Restricted securities, which may be traded pursuant to
Rule 144A, will not be considered illiquid if the Funds' Board of Trustees finds
that a liquid trading market exists for these securities. The Trustees have
adopted guidelines and, subject to oversight by the Trustees, have delegated to
the Adviser and to any applicable sub-adviser the daily function of determining
and monitoring liquidity of restricted securities. See "Fundamental Policies"
below.
-5-
<PAGE>
REAL ESTATE SECURITIES
The Citizens Income Fund may invest in equity securities of companies in
the real estate industry, including real estate investment trusts (REITs). These
securities are sensitive to changes in real estate values, property taxes,
interest rates, real estate asset cash flows, occupancy rates, governmental
regulations and the management skill and creditworthiness of the issuer. REITs
also may be subject to liability under environmental and hazardous waste laws.
HEDGING RISK
The Citizens Global Equity Fund may (but is not required to) enter into
hedging transactions, or arrangements to buy or sell a particular currency,
security or securities index for a stated value against the U.S. dollar at a
given time. Hedging may not achieve its objective of reducing the effects of
currency fluctuations on the Fund, and may create losses or reduce the Fund's
potential gains.
EURO CONVERSION RISK
The Citizens Global Equity Fund may invest in securities of European
issuers. Certain European countries that are a part of the European Economic
Union have agreed to participate in the conversion to a single European
currency, the euro. This conversion is to be completed by July 1, 2002 and its
effects on investments in the securities of European issuers and foreign
currencies are currently unclear. The Fund may be adversely affected if the
conversion to the euro is not successfully completed or if the computer or other
data processing systems used in European financial markets or by the Fund are
not able to process transactions involving the euro.
GROWTH PLUS RISK MANAGEMENT
The mission of Citizens Funds is to achieve superior investment returns
for our shareholders. Towards this end, our active Funds and the indexes
underlying our passively managed funds employ a growth discipline, seeking
companies with above-average prospects for long-term growth in earnings and
profitability. While we strive to deliver strong investment performance, we are
attentive to risk in the process. Risk management strategies are integral to how
we manage each Fund. However, these strategies may not be successful in reducing
risk. Some of the risk management strategies that we may employ are as follows:
CITIZENS CORE GROWTH FUND
- Limits investment exposure in any one company to no more than 5% of
total assets, with respect to 75% of the Fund's total assets.
- Limits investment exposure in any one industry to no more than 25% of
total assets.
- Holds large basket of attractive companies without over-concentration
in any one sector.
- Employs social and environmental screens to avoid companies whose
corporate behavior could become an impediment to performance.
CITIZENS EMERGING GROWTH FUND
- Limits investment exposure in any one company to no more than 5% of
total assets, with respect to 75% of the Fund's total assets.
- Limits investment exposure in any one industry to no more than 25% of
total assets.
- Analyzes portfolio for its overall level of diversification. If the
portfolio is not reasonably diversified relative to the market as
defined by R-squared, growth stocks from diversifying industry groups
are integrated. R-squared is a statistical measure that indicates the
extent to which the variability of a security or portfolio's returns
is explained by the variability of the market. The value will be
between 0 and 1. The higher the number, the greater the extent to
which portfolio returns are related to the market return. An R-Squared
value of .75 indicates that 75% of the fluctuation in a portfolio's
return is explained by market action. An R-Squared of 1.0 indicates
that portfolio returns are
-6-
<PAGE>
entirely related to the market and are not influenced by other
factors. An R-Squared of 0 indicates that no relationship exists
between the portfolio's returns and the market return. Note: That
R-Squared measures the strength and not the positive or negative
direction of the relationship between assets and the market.
- Uses relative valuation techniques favoring companies that are rapidly
growing their earnings potential but are currently trading at prices
that accurately reflect their earnings growth potential. Companies
that are overpriced are ranked lower than their more attractively
priced counterparts, and generally do not reach the purchasing stage
of the process.
- Employs social and environmental screens to avoid companies whose
corporate behavior could become an impediment to performance.
CITIZENS SMALL CAP CORE GROWTH FUND
- Limits investment exposure in any one company to no more than 5% of
total assets, with respect to 75% of the Fund's total assets.
- Limits investment exposure in any one industry to no more than 25% of
total assets.
- Holds large basket of attractive companies without over-concentration
in any one sector.
- Employs social and environmental screens to avoid companies whose
corporate behavior could become an impediment to performance.
CITIZENS GLOBAL EQUITY FUND
- Limits investment exposure in any one company to no more than 5% of
total assets, with respect to 75% of the Fund's total assets.
- Limits investment exposure in any one industry to no more than 25% of
total assets.
- Limits investments in emerging nations to no more than 25% of total
assets.
- Employs social and environmental screens to avoid companies whose
corporate behavior could become an impediment to performance.
CITIZENS INCOME FUND
- Limits investment exposure in any one company to no more than 5% of
total assets, with respect to 75% of the Fund's total assets.
- Limits duration risk to small deviations around a pre-selected target.
- Controls default risk with proprietary credit analysis process.
- Limits high-yield securities to no more than 35% of total assets.
- Employs social and environmental screens to avoid companies whose
corporate behavior could become an impediment to performance.
Citizens Funds are not intended to be the lowest risk choices available
to investors. Rather, the goal of our risk management strategies is to attain a
reasonable, targeted level of risk commensurate with our Funds' growth mandates.
The above-stated risk management strategies may not always be employed, or if
employed, may not be effective at all times.
Our goal at Citizens Funds is to achieve strong financial results while
investing in companies that are managed in a socially responsible manner. The
Funds will invest only in companies we deem 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.
-7-
<PAGE>
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 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 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 upper
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.
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.
CALCULATED RISK
Most investors focus on performance but it is as important to understand
how much risk your Fund is taking on in the process. Here are some popular
metrics to help evaluate risk.
BETA: A measure of the magnitude of a Fund's share price ups and downs relative
to swings in the market. The market is assigned a beta of 1.00. If a portfolio
has a beta of 1.20%, its share price has increased (or decreased) 12% if the
market has increased (or decreased) 10%.
STANDARD DEVIATION: A measure of the dispersion of a Fund's return, i.e., the
degree to which a Fund's return varies from its historical average. A higher
standard deviation indicates a wider dispersion of past returns and thus greater
historical volatility.
ALPHA: A risk-adjusted performance measure representing the difference between a
Fund's actual performance and the performance anticipated in light of a Fund's
risk posture (beta). A positive alpha indicates that the Fund has produced a
rate of return that is more than commensurate with its risk profile.
SHARPE RATIO: A measure of reward per unit of risk. The higher the Sharpe ratio,
the greater the return per unit of risk. The Sharpe ratio is often used to
compare fund returns on a "level playing field."
FUNDAMENTAL POLICIES
The following are fundamental investment policies followed by each of the
Funds (unless otherwise noted below) that supplement those listed in the
Prospectus. Any policy identified as a fundamental investment policy of a Fund
may be amended with respect to the Fund only with
-8-
<PAGE>
approval of the holders of a majority of the outstanding shares of that 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 the Funds' Declaration of Trust, which
provides that we may issue several classes of shares in any one Fund,
the Funds may not issue senior securities. They may not issue
securities that have priority over others in dividends, redemption
rights, or have other privileges.
2. The Funds must limit their involvement in illiquid instruments, that
is, repurchase agreements that have a term of more than seven days,
and securities that have restrictions on resale or lack readily
available market quotations, to 10% of the total value of a Fund's net
assets and we will buy no such securities for a Fund unless the assets
in that 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
the Funds' Board of Trustees finds that a liquid trading market exists
for these securities. The Funds' Trustees will review on an ongoing
basis any determination by the Adviser to treat a restricted security
as a liquid security, including the Adviser's assessment of current
trading activity and the availability of reliable price information.
In determining whether a privately placed security is properly
considered a liquid security, the Adviser and the Funds' 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 a 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 the Funds' Trustees.
3. The Funds may borrow only under special circumstances. The Funds do
not normally borrow money, but for temporary purposes a Fund may
borrow from banks up to 10% of the Fund's total assets. If a Fund
does borrow, it can pledge its assets up to the amount borrowed. A
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. A Fund will not
purchase any securities while the Fund has borrowings above 5% of
assets outstanding. The interest paid on a Fund's borrowings would
reduce that Fund's net income.
4. The Funds may not underwrite securities, which means they may not sell
securities for others.
5. The Funds may not buy the securities of any company if the particular
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. A Fund may not concentrate
its investments by buying the securities of companies in any one
industry if more than 25% of the value of its 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.
-9-
<PAGE>
6. As a general policy, the Funds will not invest in real estate assets
or interests therein. This policy does not preclude a 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 Funds may not invest in limited partnerships, including those that
own commodities, oil, gas and mineral leases or real estate. This
restriction is not interpreted to prevent a 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 Funds may not make loans other than pursuant to repurchase
agreements. When a Fund buys money market instruments or loan
participation interests, it is investing, not making a loan.
9. The Funds may not invest for the purpose of exercising control or
management of other companies.
10. The Funds may not buy or continue to hold securities if the Funds'
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.
11. The Funds may not participate with others on a joint, or a joint and
several, basis in any trading account in any securities.
12. The Funds 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 a Fund's ability to loan Fund securities. If a
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.
14. The following is a fundamental policy for the Citizens Core Growth
Fund, Citizens Global Equity Fund, Citizens Income Fund and the
Citizens Money Market Fund but does not apply to the Citizens Emerging
Growth Fund or the Citizens Small Cap Core Growth Fund: a Fund may
place only 5% of its total assets in companies which have been in
operation, including operations of predecessors, for less than three
years.
15. The Citizens Money Market Fund may not buy any securities other than
money market securities. Thus, the Fund cannot buy any commodities or
commodity futures contracts, any mineral programs or leases, any
shares of other investment companies or any warrants, puts, calls or
combinations of these. The Fund also may not buy real estate, or real
estate loans, but may buy money market securities even though the
issuer invests in real estate or interests in real estate.
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
Each Fund may invest in cash, cash equivalents, money market instruments
and repurchase agreements as temporary defensive positions during volatile or
other adverse or
-10-
<PAGE>
unusual market, economic, political or economic conditions. Such temporary
defensive positions would be inconsistent with a Fund's principal investment
strategies (other than the Citizens Money Market Fund) and may adversely impact
Fund performance.
PORTFOLIO TURNOVER
With regard to the Citizens Money Market Fund, we generally purchase
investments and hold them until they mature. Historically, securities of U.S.
Government agencies or instrumentalities have involved minimal risk when they
have been held by investors to maturity. However, we may from time to time sell
securities and purchase others to attempt to take advantage of short-term market
variations. We may also sell securities prior to maturity to meet redemptions or
as a result of a revised evaluation of the issuer by the Adviser or a
sub-adviser.
For the Citizens Income Fund we purchase fixed income securities and for
the Citizens Core Growth Fund, Citizens Emerging Growth Fund, Citizens Global
Equity Fund and the Citizens Small Cap Core Growth Fund, we may purchase both
equity and fixed income securities and hold them until such time as we believe
it is advisable to sell them in order to realize a gain or loss whereupon we
reinvest these assets in other securities.
Portfolio turnover rates will vary, depending on the type of Fund and its
particular investment objective. For example, the Citizens Core Growth Fund
seeks to have a turnover rate of less than 25% per year, whereas the Citizens
Emerging Growth Fund's turnover rate may be in excess of 200%. Higher portfolio
turnover rates increase transaction costs and may increase taxable gains. For
the fiscal years ended June 30, 1998, 1999 and 2000, the Funds had the following
portfolio turnover rates: Citizens Core Growth Fund -- 13.64%, 18.04% and
20.04%; Citizens Emerging Growth Fund -- 245.30%, 208.49% and 159.95%; Citizens
Global Equity Fund -- 72.33%, 64.07% and 120.69%; Citizens Income Fund --
80.14%, 44.07%, 52.96% and Citizens Small Cap Core Growth Fund - 20.16% (from
December 28, 1999, commencement of operations, to June 30, 2000).
MORE DETAILS ON THE CITIZENS MONEY MARKET FUND
The following are present policies of the Citizens Money Market Fund, but
may be changed by the Trust's Trustees without a vote of the shareholders of the
Fund:
1. The Fund may invest in variable amount master demand notes, which are
obligations that permit the Fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between the Fund and
the borrower. If the principal of a variable amount master demand note
cannot be demanded within seven days, the note is treated as illiquid and
subject to the 10% limitation referred to in paragraph four (4) below.
The interest rates and amounts involved may change daily. The Fund has
the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount;
and the borrower may repay up to the full amount of the note without
penalty. Because these types of notes are direct arrangements between the
Fund and the borrower, they generally will not be traded and there is no
active secondary market for these notes. However, they are redeemable on
demand, and thus immediately repayable by the borrower, at face value
plus accrued interest at any time. The Fund's right to redeem is
dependent on the borrower's ability to pay principal and interest on
demand. Accordingly, the Fund's Adviser will consider and continuously
monitor the earning power, cash flow and other liquidity ratios of the
borrower to assess its ability to meet its obligations on demand. The
Fund will invest in these notes only if the Board of Trustees or the
Adviser determines that they present minimal credit risks and are of
comparable quality to commercial paper having the highest rating of
Moody's Investors
-11-
<PAGE>
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("Standard &
Poor's") or any other Nationally Recognized Statistical Rating
Organization.
2. The Fund may not invest more than 10% of its assets in time deposits
maturing in more than two business days but less than seven business
days.
3. The Fund will not enter into a repurchase agreement if it would cause
more than 10% of its assets to be subject to repurchase agreements having
a maturity of more than seven days; included in this 10% limitation would
be any illiquid securities (as described below). See "Investment
Strategies, Risks and Fundamental Policies - Repurchase Agreements."
4. The Fund will not invest more than 10% of its net assets in illiquid
securities. Generally an illiquid security is any security that cannot be
disposed of promptly and in the ordinary course of business at
approximately the amount at which the Fund has valued the instrument.
Subject to this limitation, the Fund's Trustees have authorized the Fund
to invest in restricted securities, specifically privately placed
commercial paper, where such investment is consistent with the Fund's
investment objective, and has authorized such securities to be considered
to be liquid to the extent the Adviser determines that there is a liquid
institutional or other daily market for such securities. For example,
restricted securities which may be freely transferred among qualified
institutional buyers pursuant to Rule 144A under the Securities Act of
1933 and for which a liquid institutional market has developed may be
considered to be liquid securities. See the discussion relating to the
purchase of illiquid securities in the section regarding the fundamental
investment policies of the Funds under "Investment Strategies, Risks and
Fundamental Policies" above.
5. The Fund may not sell short or buy on margin and may not write put or
call options.
QUALITY AND MATURITY OF SECURITIES. Because the Citizens Money Market
Fund uses the amortized cost method of valuation (see "How We Value Fund
Shares"), the Fund will not purchase any instruments with a remaining maturity
of more than 397 days (approximately 13 months) or maintain a dollar-weighted
average maturity of the entire Fund in excess of 90 calendar days. Except as
provided below, the maturity of a security is deemed to be the period remaining
until the date on which, in accordance with the terms of the security, the
principal amount must unconditionally be paid or, if called for redemption, the
date on which the redemption must be made. Obligations of U.S. Government
agencies and instrumentalities (Government Securities) with variable rates of
interest which are adjusted no less frequently than every 762 calendar days are
deemed to have a maturity equal to the period remaining until the next
readjustment. Government Securities that are Floating Rate Securities, or
securities whose terms provide for adjustment of their interest rates when a
specified rate changes and whose market value can reasonably be expected to
approximate amortized cost, are deemed to have a remaining maturity of one day.
Variable Rate Securities, which are securities whose terms provide for
adjustment of their interest rate on set dates and whose market value can be
reasonably expected to approximate amortized cost, wherein the principal amount
must unconditionally be paid in 397 calendar days or less, are deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand, whichever is earlier. A Variable Rate Security subject
to a demand feature, wherein the principal amount is scheduled to be paid in
more than 397 calendar days, is deemed to have a maturity equal to the longer of
the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand. A
Floating Rate Security wherein the principal amount must unconditionally be paid
in 397 calendar days or less is deemed to have a maturity of one day. A Floating
Rate Security subject to a demand feature wherein the principal amount is
scheduled to be paid in more than 397 days, is deemed to have a maturity equal
to the period remaining until the principal amount can be recovered through
demand. A repurchase agreement is deemed to have a maturity equal to the period
remaining until the date on which the repurchase of the securities is scheduled
to occur or, where the agreement is subject to demand,
-12-
<PAGE>
the notice period applicable to a demand for repurchase of the securities. A
portfolio lending agreement is deemed to have a maturity equal to the period
remaining until the date on which the loaned securities are scheduled to be
returned or, where the agreement is subject to a demand, the notice period
applicable to the demand.
The Citizens Money Market Fund may not invest more than 5% of its assets
in securities of any one issuer, except for U.S. Government securities. With
respect to securities subject to a guarantee or demand feature, the Fund may not
invest more than 10% of its assets in the institution that issued the guarantee
or demand feature unless the underlying security was issued by a person who does
not control or is not controlled by that institution.
The Citizens Money Market Fund also may only invest in securities which
are rated in the top rating category by at least two nationally recognized
statistical rating organizations (NRSROs). Such securities are called First Tier
Securities. If only one NRSRO has rated a security, the Fund may purchase that
security only if it is rated in that NRSRO's top rating category and the
acquisition is approved or ratified by the Fund's Board of Trustees. If a
security is not rated by any NRSRO, the Fund may purchase that security only if
the Adviser determines that it is of comparable quality to a First Tier Security
and the Board approves or ratifies the acquisition. If a security is rated by
more than two NRSROs, the Fund may purchase that security if it is rated in the
top rating category by any two NRSROs and no more than one other NRSRO rates it
in the second highest category or lower. If a security is subject to a guarantee
or a conditional demand feature, the Fund may purchase the security only if the
guarantee or conditional demand feature meets the criteria set forth above or,
in the case of a security subject to a conditional demand feature and issued
after February 10, 1998, only if the Adviser determines and periodically
confirms that there is minimal risk that the conditions preventing exercise of
the demand feature will occur and either (a) the conditions limiting exercise
can be readily monitored by the Fund or relate to the taxability of interest
payments on the security or (b) the terms of the conditional demand feature
require that the Fund will receive notice of the occurrence of the condition and
the opportunity to exercise the demand feature.
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>
------------------------------------------- ----------------------------- -----------------------------------------------------
NAME, ADDRESS POSITION(S) HELD WITH TRUST PRINCIPAL OCCUPATION(S)
AND AGE DURING PAST 5 YEARS
------------------------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
Sophia Collier* Trustee Portfolio Manager, Citizens Funds (since 1995);
230 Commerce Way, Suite 300 Chair of the Board of Directors, Citizens Advisers
Portsmouth, NH 03801 (since 1991);
44 years President, Citizens Funds and Citizens Advisers
(1991 to September 1998)
------------------------------------------- ----------------------------- -----------------------------------------------------
Sean P. Driscoll Treasurer Director of Fund Accounting and Compliance,
230 Commerce Way, Suite 300 Citizens Advisers (since November 1998);
Portsmouth, NH 03801 Director of Fund Administration, State Street Bank
35 years and Trust Company (March 1998 to November 1998);
Vice President of Compliance, Putnam Investments
(January
------------------------------------------- ----------------------------- -----------------------------------------------------
-13-
<PAGE>
------------------------------------------- ----------------------------- -----------------------------------------------------
1997 to March 1998); Fund Accountant and Director of
Fund Administration, State Street Bank and Trust
Company (1987 to 1997)
------------------------------------------- ----------------------------- -----------------------------------------------------
Pablo S. Eisenberg Retired (since 1998);
3729 Massachusetts Avenue NW Trustee Executive Director for Community Change (since 1975)
Washington, DC 20016
68 years
------------------------------------------- ----------------------------- -----------------------------------------------------
Mitchell A. Johnson* Trustee Retired (since 1995);
2753 Unicorn Lane NW Director, Eldorado Bancshares, Inc. (since 1997);
Washington, DC 20015 President, M.A.J. Capital Management, Inc. (money
58 years management firm) (1994 to 1995);
Senior Vice President of Corporate Finance, Student
Loan Marketing Association (1987 to 1994)
------------------------------------------- ----------------------------- -----------------------------------------------------
Azie Taylor Morton* Chair of the Board and Investment adviser;
10910 Medfield Court Trustee Consultant/Director of Marketing, GRW Capital
Austin, TX 78739 Corporation (since 1992)
64 years
------------------------------------------- ----------------------------- -----------------------------------------------------
John M. O'Brien Assistant Treasurer Vice President of Corporate Finance, Citizens
230 Commerce Way, Suite 300 Advisers (since October 1998); Services Manager,
Portsmouth, NH 03801 Bank Boston (January 1998 to October 1998);
35 Years Business Manager, Fidelity Investments (October
1989 to January 1998)
------------------------------------------- ----------------------------- -----------------------------------------------------
Samuel Pierce Assistant Vice President Senior Social Analyst, Citizens Advisers (since
230 Commerce Way, Suite 300 July 1998); Assistant Vice President, Wellington
Portsmouth, NH 03801 Management Company, LLC (November 1992 to July 1998)
32 years
------------------------------------------- ----------------------------- -----------------------------------------------------
Martha S. Pope Trustee Retired (since 1998);
701 A Street, NE Senior Advisor for the Northern Ireland Peace
Washington, DC 20002 Negotiations (January 1995 to July 1998); Secretary
55 years of the United States Senate (April 1994 to January
1995); Sergeant at Arms of the United States Senate
(January 1991 to March 1994)
------------------------------------------- ----------------------------- -----------------------------------------------------
Ada Sanchez Trustee Program Officer, The Proteus Fund (since 1999)
11 Stagecoach Road Student (1996 - 1999);
Amherst, MA 01002 Director of Public Service and Social Change
48 years Program, Hampshire College (1987 to 1996)
------------------------------------------- ----------------------------- -----------------------------------------------------
Stephen C. Schuyler Secretary Vice President and Senior Counsel, Citizens
230 Commerce Way, Suite 300 Advisers (since January 2000); Vice President and
Portsmouth, NH 03801 Assistant Counsel State Street Bank and Trust
43 years Company (April 1998 to January 2000); Scudder
Kemper, Inc. (April 1996 to April 1998); Attorney
Adviser Securities and Exchange Commission
(September 1995 to April 1996)
------------------------------------------- ----------------------------- -----------------------------------------------------
-14-
<PAGE>
------------------------------------------- ----------------------------- -----------------------------------------------------
John L. Shields* Trustee and President President and Chief Executive Officer of Citizens
230 Commerce Way, Suite 300 Advisers (since September 1998); Senior
Portsmouth, NH 03801 Consultant, Cerulli Associates, a mutual
47 years 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)
------------------------------------------- ----------------------------- -----------------------------------------------------
</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 during the fiscal year ended June 30, 2000.
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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
NAME OF PERSON AND POSITION AGGREGATE COMPENSATION FROM
FROM CITIZENS FUNDS
-----------------------------------------------------------------------------------
<S> <C>
Sophia Collier* - Trustee 0
-----------------------------------------------------------------------------------
Robert B. Reich** 0
-----------------------------------------------------------------------------------
John L. Shields* - Trustee and President 0
-----------------------------------------------------------------------------------
Lokelani Devone** - Trustee $5,000
-----------------------------------------------------------------------------------
Juliana Eades** - Trustee $3,000
-----------------------------------------------------------------------------------
Pablo S. Eisenberg - Trustee $7,000
-----------------------------------------------------------------------------------
William D. Glenn Jr.** - Trustee $5,000
-----------------------------------------------------------------------------------
Mitchell A. Johnson - Trustee $7,500
-----------------------------------------------------------------------------------
Azie Taylor Morton - Trustee $10,250
-----------------------------------------------------------------------------------
Martha S. Pope - Trustee $7,625
-----------------------------------------------------------------------------------
Ada Sanchez - Trustee $12,000
-----------------------------------------------------------------------------------
</TABLE>
* Sophia Collier, Robert B. Reich and John L. Shields are Interested Trustees
and received no compensation from Citizens Funds.
** Robert B. Reich, Lokelani Devone, Juliana Eades, and William D. Glenn Jr. are
former Trustees of Citizens Funds.
As of October 1, 2000, there were 170,883,129 outstanding shares of
beneficial interest, representing all the shares of all the Funds comprising
Citizens Funds. As of October 1, 2000 the following shareholders owned
beneficially or of record 5% or more of the outstanding shares of a Fund:
-15-
<PAGE>
<TABLE>
<CAPTION>
--------------------------------- ------------------------------ ----------------------------------------- -------------------
PERCENTAGE
FUND: SHAREHOLDER: ADDRESS: OWNERSHIP:
--------------------------------- ------------------------------ ----------------------------------------- -------------------
<S> <C> <C> <C>
Citizens Core Growth Fund, Charles Schwab & Co., Inc. Special Custody Account FBO Customers 14.32%
Standard Class shares 101 Montgomery St.
San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Core Growth Fund, National Financial Services One World Financial Ctr 5.10%
Standard Class Corp. 200 Liberty St. 5th Floor
Shares New York, NY 10281-1003
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Core Growth Fund, Guy Bell Plan 8515E Orchard Rd. 29.78%
Institutional Class shares Administrator Englewood, CO 80111
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Core Growth Fund, Northern Trust Company P.O. Box 92956 16.14%
Institutional Class shares 801 S. Canal St.
Chicago, IL 60675
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Core Growth Fund, Wendel & Co. Mutual Fund/Reorganization Dept. 11.80%
Institutional Class shares P.O. Box 1066
New York, NY 10268
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Core Growth Fund, Charles Schwab & Co., Inc. 101 Montgomery St. 6.08%
Institutional Class shares San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Core Growth Fund, Chase Manhattan Bank One Chase Square 99.54%
Administrative Class shares Rochester, NY 14643
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, Charles Schwab & Co., Inc. Special Custody Account FBO Customers 21.43%
Standard Class shares 101 Montgomery St.
San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, National Financial Services One World Financial Ctr 8.98%
Standard Class shares Corp. 200 Liberty St. 5th Floor
New York, NY 10281-1003
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, Northern Trust P.O. Box 92956 51.62%
Institutional Class shares Chicago, IL 60675
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, DBTCO 1398 Central Ave. 18.87%
Institutional Class shares Dubuque, IA 52004-0747
--------------------------------- ------------------------------ ----------------------------------------- -------------------
-16-
<PAGE>
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, Laird Norton Trust Co. 801 2nd Ave. 16th Floor 15.65%
Institutional Class shares Seattle, WA 98104
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, Charles Schwab & Co, Inc. 101 Montgomery St. 5.47%
Institutional Class shares San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Emerging Growth Fund, Chase Manhattan Bank One Chase Square 99.89%
Administrative Class shares Rochester, NY 14643
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Small Cap Core Growth National Financial Service One World Financial Ctr 25.13%
Fund, Standard Class shares Corp. 200 Liberty St. 5th Floor
New York, NY 10281-1003
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Small Cap Core Growth Charles Schwab & Co., Inc. 101 Montgomery St. 9.49%
Fund, Standard Class shares san Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Small Cap Core Growth Sophia Collier One Harbor Place Ste 475 6.71%
Fund, Standard Class shares Portsmouth, NH 03801
--------------------------------- ------------------------------ ----------------------------------------- -------------------
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Charles Schwab & Co., Inc. Special Custody Account FBO Customers 50.53%
Standard Class shares 101 Montgomery St.
San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, National Financial Service One World Financial Ctr 11.66%
Standard Class shares Corp. 200 Liberty St. 5th Floor
New York, NY 10281-1003
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Caroline & Sigmund Schott 678 Massachusetts Ave. Ste 301 28.84%
Institutional Class shares Foundation Cambridge, MA 02139
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Northern Trust P.O. Box 92956 23.23%
Institutional Class shares Chicago, IL 60675
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Dr. Phillips Inc. P.O. Box l3753 15.93%
Institutional Class shares 60 West ST.
Orlando, FL 32801
--------------------------------- ------------------------------ ----------------------------------------- -------------------
-17-
<PAGE>
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Charles Schwab & Co. 101 Montgomery St. 13.40%
Institutional Class shares San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Laird Norton Trust Co. 801 2nd Ave. 16th Floor 10.54%
Institutional Class shares Seattle, WA 98104
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Wachovia Securities Inc. P.O. Box 1220 7.31%
Institutional Class shares Charlotte, NC 28201-1220
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Fleet National Bank as 200 Liberty St., 5th Floor 53.82%
Administrative Class shares Trustee of AETNA One World Financial Center
New York, NY 10281-1003
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Global Equity Fund, Chase Manhattan Bank One Chase Square 46.12%
Administrative Class shares Rochester, NY 14643
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Income Fund Charles Schwab & Co., Inc. Special Custody Account FBO Customers 13.91%
101 Montgomery St.
San Francisco, CA 94104-4122
--------------------------------- ------------------------------ ----------------------------------------- -------------------
Citizens Money Market Fund, Bankers Trust Co. of Cattee 34 Exchange Place, 6th Floor 27.79%
Institutional Class shares Jersey City, NJ 07302
--------------------------------- ------------------------------ ----------------------------------------- -------------------
</TABLE>
Our Trustees and officers as a group owned less than 1% of the
outstanding shares of each Fund and class as of October 1, 2000, except for the
Citizens Small Cap Core Growth Fund, Institutional Class shares, where a single
trustee owned 6.71% of the outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISER
The Funds are advised by Citizens Advisers, Inc. under a contract known
as the Management Agreement. The Adviser's office is at 230 Commerce Way,
Portsmouth, New Hampshire 03801. The Adviser is a New Hampshire 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
-18-
<PAGE>
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 L. Shields is 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.
At the Adviser's discretion and sole expense, it may delegate certain of
its Fund management duties to sub-advisers, and Citizens Advisers has retained
two sub-advisers to assist in the management of certain Funds.
SENECA CAPITAL MANAGEMENT, LLC
Seneca Capital Management is structured as a California Limited Liability
Corporation. The firm is owned by its investment professionals; and, as of July
15, 1997, Phoenix Investment Partners acquired a majority interest in the firm,
with existing Seneca senior management retaining a significant equity interest,
an enhanced compensation package, and most important, day-to-day control of the
organization. Gail Seneca serves as President, Chief Executive Officer and Chief
Investment Officer. Sandy Monticelli is the firm's Chief Operating Officer who
has the responsibility for the firm's Operations, Administration, Compliance and
Information Systems groups and has been with the firm since 1994. Seneca
continues to operate as an independent entity, headquartered in San Francisco.
As of June 30, 2000 Seneca Capital Management had over $13 billion of assets
under management.
Under a Sub-Advisory Agreement between the Adviser and Seneca Capital
Management, LLC, the Adviser pays Seneca the following sub-advisory fees based
on an annual rate of the applicable Fund's average net assets:
Citizens Income Fund (until December 1, 2000)
.175% of average net assets
Citizens Emerging Growth Fund
0.35% on the first $100 million
0.25% on remaining assets
CLEMENTE CAPITAL, INC.
Our sub-adviser for the Citizens Global Equity Fund, Clemente Capital,
Inc., is a registered investment adviser organized in 1979. It is majority owned
by Lilia Clemente; Wilmington Trust of Wilmington, Delaware; Diaz-Verson Capital
Investments, Inc. of Columbus, Georgia; and Richard
-19-
<PAGE>
W. McWalters, CEO. Clemente also manages the First Philippine Fund, Clemente
Strategic Value Fund and Cornerstone Strategic Return Fund, three closed-end
Funds traded on the New York Stock Exchange. Its headquarters are at Carnegie
Hall Tower, 152 West 57th Street, New York, New York.
Under a Sub-Advisory Agreement between the Adviser and Clemente Capital,
Inc., the Adviser pays Clemente a sub-advisory fee based on an annual rate of
0.35% of the Citizens Global Equity Fund's average net assets on assets up to
and including $500 million and 0.25% on assets over $500 million.
ADVISER FEES
The Adviser provides the Trust, 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 custodian bank for each Fund maintains, as part of its services for which
the Trust pays a fee, many of the books and records that each Fund is required
to have and computes each Fund's Net Asset Value and dividends per share.
Each Fund pays the Adviser a fee for its services as a percentage of each
Fund's average annual net assets as follows:
Citizens Core Growth Fund --0.50%; Citizens Emerging Growth Fund--1.00%;
Citizens Small Cap Core Growth Fund--0.50%; Citizens Global Equity Fund--1.00%;
Citizens Income Fund--0.65%; and Citizens Money Market Fund--0.35%.
The fee is accrued daily and payable monthly.
The Adviser has contractually agreed to limit expenses for the classes of
the Funds listed below for the fiscal year ending June 30, 2001. If a Fund's
aggregate expenses for the relevant class would exceed on a per annum basis the
percentage of average daily net assets specified below, the Adviser will reduce
its fee by, or refund, the amount of the excess. The limit on Fund expenses,
pursuant to an Expense Reimbursement Agreement, is as follows:
<TABLE>
<S> <C>
---------------------------------------------------------------------- ------------------------------------
Citizens Core Growth Fund, Standard Class shares 1.34%
---------------------------------------------------------------------- ------------------------------------
Citizens Core Growth Fund, Administrative Class shares 0.94%
---------------------------------------------------------------------- ------------------------------------
Citizens Core Growth Fund, Institutional Class shares 0.68%
---------------------------------------------------------------------- ------------------------------------
Citizens Emerging Growth Fund, Administrative Class shares 1.55%
---------------------------------------------------------------------- ------------------------------------
Citizens Emerging Growth Fund, Institutional Class shares 1.30%
---------------------------------------------------------------------- ------------------------------------
Citizens Small Cap Core Growth Fund, Standard Class shares 1.34%
---------------------------------------------------------------------- ------------------------------------
Citizens Global Equity Fund, Standard Class shares 2.05%
---------------------------------------------------------------------- ------------------------------------
Citizens Global Equity Fund, Administrative Class shares 1.68%
---------------------------------------------------------------------- ------------------------------------
Citizens Global Equity Fund, Institutional Class shares 1.39%
---------------------------------------------------------------------- ------------------------------------
Citizens Income Fund, Standard Class shares 1.40% of the first $100 million of
assets and 1.25% thereafter
---------------------------------------------------------------------- ------------------------------------
Citizens Money Market Fund, Standard Class shares 1.50% of the first $40 million of
assets and 1% thereafter
---------------------------------------------------------------------- ------------------------------------
</TABLE>
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.
-20-
<PAGE>
For the fiscal years ended June 30, 1998, 1999 and 2000, the Adviser
incurred the following advisory fees: Citizens Core Growth Fund,
1998-$1,439,749, 1999-$2,442,486 and 2000-$3,815,543; Citizens Emerging Growth
Fund*, 1998-$741,296, 1999-$989,594 and 2000-$2,415,821; Citizens Global Equity
Fund, 1998-$372,017, 1999-$606,181 and 2000-$2,225,034; Citizens Income Fund,
1998-$290,174, 1999-$384,180 and 2000-$405,808; and Citizens Money Market Fund,
1998-$392,811, 1999-$440,357 and 2000-$456,568. For the period from December 28,
1999 (commencement of operations of Citizens Small Cap Core Growth Fund) to June
30, 2000, the Adviser received the following fee: Citizens Small Cap Core Growth
Fund, $10,082.
* For the fiscal years ending June 30, 1999 and June 30, 2000 the Adviser
voluntarily waived 0.10% of its fee when the Fund's monthly average net assets
exceeded $100 million.
CITIZENS SECURITIES, INC.
Citizens Securities, Inc., a wholly-owned subsidiary of the Adviser and a
New Hampshire corporation, serves as each Fund's principal underwriter or
distributor. Its offices are located at 230 Commerce Way, Suite 300, Portsmouth,
New Hampshire 03801. John L. Shields, 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. 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 advisors for pension funds or
other institutions which maintain omnibus accounts with Citizens Funds. These
fees (based on average annual net assets) and expenses are payable monthly up to
the following amounts:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------- ------------------------
Fund Administrative Fee
--------------------------------------------------------------------------------------------- ------------------------
<S> <C>
Citizens Core Growth Fund - Standard Class shares 0.20%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Core Growth Fund - Institutional Class and Administrative Class shares 0.20%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Emerging Growth Fund - Standard Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Emerging Growth Fund - Institutional Class and Administrative Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Small Cap Core Growth Fund - Standard Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Global Equity Fund - Standard Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Global Equity Fund - Institutional Class and Administrative Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Income Fund - Standard Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Money Market Fund - Standard Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
Citizens Money Market Fund - Institutional Class shares 0.10%
--------------------------------------------------------------------------------------------- ------------------------
</TABLE>
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 the Custodian and Transfer Agent including daily
monitoring of Net Asset Value, sales, redemptions, dividends and quality
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 paid a per account fee
-21-
<PAGE>
except the Citizens Core Growth Fund which pays a percentage on average annual
net assets. 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 Citizens Core Growth Fund, Standard Class shares are charged a
shareholder service fee of up to 0.35% of average annual net assets.
For the fiscal years ended June 30, 1998, 1999 and 2000, the Adviser
incurred the following administrative and shareholder service fees: Citizens
Core Growth Fund, 1998-$1,635,911, 1999-$2,556,669 and 2000-$3,521,523; Citizens
Emerging Growth Fund, 1998-$193,896, 1999-$227,489 and 2000-$354,588; Citizens
Global Equity Fund, 1998-$86,805, 1999-$120,167 and 2000-$286,182; Citizens
Income Fund, 1998-$101,909, 1999-$113,106 and 2000-$94,546; Citizens Money
Market Fund, 1998-$278,850, 1999-$308,642 and 2000-$214,476. For the period from
December 28, 1999 (commencement of operations of the Citizens Small Cap Core
Growth Fund) to June 30, 2000, the Adviser accrued the following administrative
and shareholder service fees: Citizens Small Cap Core Growth Fund, $3,936.
12b-1 PLAN
Pursuant to a Distribution Agreement, Citizens Securities acts as the
distributor of each Fund's shares.
The Trust's Board of Trustees has adopted a Distribution Plan under
Section 12(b) of the 1940 Act and Rule 12b-1 there under. 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 Trust will reimburse Citizens Securities for distribution
expenditures and for fees paid to service organizations pursuant to the 12b-1
Plan, up to a limit of 0.25% of average annual net assets for Standard Class
shares and Administrative Class shares of each series of the Trust offering the
same. As of July 1, 2000, the distributor is not reimbursed for expenses under
the Distribution Agreement for the Citizens Money Market Fund, although the
12b-1 Plan continues to permit fees for this Fund if authorized by the Board.
There is no provision under the Distribution Plan for reimbursing Citizens
Securities for expenditures on behalf of the Trust'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
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. For the year ended June 30, 2000 the
Trust approved and paid to Citizens Securities $3,097,441 under its 12b-1 Plan,
broken down by category as follows:
-22-
<PAGE>
Marketing, advertising and public relations $1,528,451
Printing and mailing of Prospectuses $170,797
and sales literature to non-shareholders
Compensation to broker/dealers $371,137
and service organizations
Compensation to sales personnel $904,494
Other $122,562
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 with respect to a Fund 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 that 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 Funds 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.
Administrative and Institutional Class shareholders in the Funds pay
their pro rata portion of Fund expenses, as well as any class expenses
attributable to that class of shares only. Class expenses include, but are not
limited to, transfer agent fees, distribution fees and administrative and
shareholder fees and expenses.
When a cost is shared by several Funds, the staff at Citizens Advisers
will allocate the expense in a reasonable manner under the supervision of the
Trust's Board of Trustees. For the fiscal year ended June 30, 2000, the
following annualized expense ratios were paid by the Funds after waivers and
reimbursements (based on average annual net assets of the respective Funds):
Citizens Core Growth Fund (Standard Class shares), 1.49%; Citizens Core Growth
Fund (Institutional Class shares), 0.74 %; Citizens Core Growth Fund
(Administrative Class shares), 0.99%; Citizens Emerging Growth Fund (Standard
Class shares), 1.69%; Citizens Emerging Growth Fund (Institutional Class
shares), 1.24%; Citizens Emerging Growth Fund (Administrative Class shares),
1.55%; Citizens Global Equity Fund (Standard Class shares), 1.82%; Citizens
Global Equity Fund (Institutional Class shares), 1.39%, Citizens Global Equity
Fund (Administrative Class shares), 1.68%; Citizens Income Fund (Standard Class
shares), 1.45%; Citizens Money Market Fund (Standard Class shares), 1.17%;
Citizens Money Market Fund (Institutional Class shares), 0.81%; and Citizens
Small Cap Core Growth Fund (Standard Class shares) from December 28, 1999
(commencement of operations) to June 30, 2000, 1.49%.
-23-
<PAGE>
CODES OF ETHICS
The Funds, the Adviser, the sub-advisers and the distributor have each
adopted a Code of Ethics (collectively, the Codes of Ethics) under Rule 17j-1 of
the 1940 Act. The Codes of Ethics permit personnel subject to the Codes to
invest in securities, including securities that may be purchased or held by the
Funds. The Codes of Ethics can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at (202) 942-8090. The Codes
of Ethics are available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of the Codes of Ethics may be obtained, after
paying a duplication fee, by electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
OTHER SERVICE PROVIDERS
CUSTODIAN
Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, is
the custodian of the assets of the Trust. The custodian is responsible for
holding the securities and cash of each Fund, receiving and reporting all
purchases and redemptions, calculating the daily Net Asset Value of each 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
Until December 9, 2000 the transfer agent and dividend-paying agent for
the Trust is PFPC Inc., 400 Bellevue Parkway, Suite 108, Wilmington, DE 9809. As
of December 9, 2000 the transfer agent and dividend-paying agent for the Trust
is BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8012. In its capacity as
transfer agent and dividend-paying agent, BISYS 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.
AUDITORS
The financial highlights of each Fund included in the Funds' Prospectus
and the financial statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, Massachusetts 02110, independent accountants for the periods after June
30, 1997, given on the authority of said firm as experts in auditing and
accounting. PricewaterhouseCoopers LLP audits the financial statements of each
Fund and provides other audit, tax and related services.
LEGAL COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110-1726.
BROKERAGE ALLOCATION AND SOFT DOLLARS
The Adviser seeks to obtain for the Trust 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
Funds buy. Purchases from underwriters include a commission or concession paid
by the issuer to the underwriters. Purchases from dealers include the spread
between the bid and asked prices and purchases from brokers include commissions
paid to the broker based upon the transaction size. If the execution and price
-24-
<PAGE>
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. There have been no brokerage commissions
paid to affiliated brokers during the past three fiscal years.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, the Adviser or a sub-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 a Fund and/or the other accounts over which the Adviser or a
sub-adviser exercises investment discretion. The Adviser or a sub-adviser may
cause a Fund to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for a 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 or a sub-adviser has with respect
to accounts over which they exercise 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 that benefit the
Funds. Sub-advisers will be informed in writing of the names of the
broker-dealers and provided with account information to allow the execution of
trades through those broker-dealers. In the event that best execution of an
equity transaction is available through a broker-dealer that has been so
identified, the Adviser or a sub-adviser, as the case may be, may place the
transaction with that 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 a 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 that Fund. These
brokerage and research services, however, need not exclusively benefit that
Fund, and may also benefit other series of the Trust or other clients of the
Adviser or its sub-adviser. For these purposes, brokerage and research services
mean those that provide assistance to the Adviser, or a sub-adviser, in the
performance of decision-making responsibilities. If a product or service serves
non-research as well as research functions, soft dollars shall be used to pay
for the product or service only to the extent that it constitutes research.
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. The Adviser would, through the use of such
services, avoid the additional expenses that 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
-25-
<PAGE>
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.
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 a Fund's shares. 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
CITIZENS CORE GROWTH FUND, CITIZENS EMERGING GROWTH FUND, CITIZENS SMALL CAP
CORE GROWTH FUND AND CITIZENS GLOBAL EQUITY FUND
The Citizens Core Growth Fund, Citizens Emerging Growth Fund, Citizens
Small Cap Core Growth Fund and Citizens Global Equity Fund normally declare and
pay dividends substantially equal to all net investment income annually. Net
investment income consists of non-capital gain income less expenses. Net
realized short-term capital gains, if any, and net realized long-term capital
gains, if any, will be distributed by the Funds 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.
CITIZENS INCOME FUND
The Citizens Income Fund distributes to its shareholders monthly
dividends substantially equal to all of its net investment income. The Fund's
net investment income consists of non-capital gain income less expenses. Net
realized short-term capital gains, if any, and net realized long-term capital
gains, if any, will be distributed by the 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 at the close of the appropriate monthly or annual
period.
CITIZENS MONEY MARKET FUND
Net income for the Citizens Money Market Fund is determined and accrued
daily and paid monthly. This dividend is payable to everyone who was a
shareholder at 4:00 p.m. Eastern time on the day the dividend is declared.
Dividends begin to accrue on the first day following the date of purchase,
provided that the payment is received by 4:00 p.m. Eastern time. When shares are
redeemed, the shares are entitled to a dividend declared on the day of the
redemption. Dividends are automatically reinvested in shares, at Net Asset
Value, unless a shareholder otherwise instructs the Transfer Agent in writing.
Shareholders so requesting will be mailed checks in the amount of the
accumulated dividends. For the purpose of calculating dividends, the Funds'
daily net investment income consists of: (a) all interest income accrued on
investments (including any discount or premium ratably amortized to the date of
maturity or determined in such other manner as the Trustees may determine); and
(b) minus all expenses accrued, including interest, taxes and other expense
items, amounts determined and declared as dividends and reserves for contingent
or undetermined liabilities, all determined in accordance
-26-
<PAGE>
with generally accepted accounting principles; and (c) plus or minus all
realized and unrealized gains or losses on investments.
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 Fund out of that Fund's property for any shareholder held
personally liable for that Fund's 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 of the Funds. 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." Citizens
Funds is unable to accept third-party checks. 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. For an initial wire to open an account, please call
our Shareholder Service Center at (800) 223-7010 prior to initiating the wire
transfer.
Shares in the Citizens Money Market Fund cost $1.00 per share. For all
other Funds, your cost will be the Net Asset Value next determined after your
payment is received. (Net Asset Value is determined at 4 p.m. Eastern time, or,
if the New York Stock Exchange closes earlier, at the close of business of the
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 $20.00.
The Trust has authorized certain brokers, and these 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 an order 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.
Investors may be charged a fee if they buy, sell or exchange Fund shares
through a broker or agent.
-27-
<PAGE>
INVESTMENT MINIMUMS
The minimum initial investment for Standard Class shares in each Fund is
$2,500 ($1,000 for IRA, Uniform Gifts/Transfers to Minors Act (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 $2,500 minimum balance for the Fund ($1,000 for UGMA/UTMA and
AIP), 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, you will receive 30 days notice and an opportunity to
bring the account up to the applicable minimum. 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 Administrative Class and Institutional
Class shares is $1,000,000 (less than $1,000,000 for registered investment
advisers and retirement plan sponsors, as well as certain other third-party
solicitors, at the discretion of the Trust). There is no minimum subsequent
investment. With respect to accounts that fall below $1,000,000 (or less than
$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 Administrative or Institutional Class and convert them to
Standard Class 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 your chosen 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 administrators have any
questions, please call the Citizens' 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 (up to $25,000) 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
-28-
<PAGE>
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. Neither the Trust, the Adviser or the Fund's Transfer Agent
will be responsible if we properly act on telephone instructions we reasonably
believe to be genuine.
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 redeem your shares by sending us a written request at
any time, although the process will take longer. Requests for redemption of
shares worth more than $25,000 must be accompanied by an original Medallion
Signature Guarantee. We may require further documentation from corporations,
fiduciaries, retirement plans and/or institutional investors.
Certain requests for redemption under $25,000 - both written and
telephonic - may also require a Medallion Signature Guarantee, at the discretion
of the Trust. To avoid delays, have all written requests for redemption
Medallion Signature Guaranteed.
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
The Trust pays redemption proceeds within five business days (seven
business days with respect to the proceeds of 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. A 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 Funds pay redemption proceeds in cash, except that the Adviser has
the power to decide that conditions exist which would make cash payments
undesirable. In that case, a 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 Funds have elected to be governed by Rule 18f-1 under the 1940
Act, which requires the Funds to redeem shares solely in cash up to the lesser
of $250,000 or 1% of a 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.
The Trust or its Adviser has the right to compel the redemption of shares
of each Fund if the aggregate Net Asset Value of the shares in the account is
less than $2,500 for Standard Class shares ($1,000 for IRA, 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 Administrative Class and
Institutional Class shares, we also have the right to transfer these accounts
and to convert them to Standard Class shares if the aggregate Net Asset Value of
the shares in the
-29-
<PAGE>
account is less than $1,000,000 ( or less for registered investment advisers and
retirement plan sponsors, as well as certain other third-party solicitorsat the
discretion of the Trust).
HOW WE VALUE FUND SHARES
The value of the fixed income securities in which the Funds may invest
will fluctuate depending in large part on changes in prevailing interest rates.
Fixed income securities comprise a significant portion of assets in the Citizens
Money Market Fund and Citizens Income Fund and may comprise a portion of assets
in the Citizens Core Growth Fund, Citizens Emerging Growth Fund, Citizens Small
Cap Core Growth Fund and Citizens Global Equity Fund under normal conditions. If
interest rates go up, the value of fixed income 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.
The value of equity securities held in the Citizens Core Growth, Citizens
Emerging Growth, Citizens Small Cap Core Growth and Citizens Global Equity Funds
will fluctuate based upon market conditions and matters specific to the issuer.
These include changes in the management and fundamental financial condition of
the issuing company, prevailing economic and competitive conditions in the
industry sectors in which the company does business and other factors that
affect individual securities and the equity market as a whole.
The Net Asset Value per share of a 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. Since these expenses differ by Class, the Net Asset Value of Standard,
Administrative and Institutional Class shares will vary and are computed
separately.
We attempt to keep the Net Asset Value of the Citizens Money Market Fund
fixed at $1.00 per share, while we expect the Net Asset Value per share in the
other Funds to fluctuate.
The value of the shares for each Fund is determined at 4 p.m. Eastern
Time, or, if the New York Stock Exchange closes earlier, at the close of
business of the Exchange on each day on which the New York Stock Exchange is
open for regular trading.
CITIZENS CORE GROWTH FUND, CITIZENS EMERGING GROWTH FUND, CITIZENS SMALL CAP
CORE GROWTH FUND, CITIZENS GLOBAL EQUITY FUND AND CITIZENS INCOME FUND
As described in the Prospectus, shares of the Citizens Core Growth Fund,
Citizens Emerging Growth Fund, Citizens Small Cap Core Growth Fund, Citizens
Global Equity Fund and Citizens Income Fund are generally valued on the basis of
market values. Equity securities are valued at the last sale 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 closing bid price for securities.
Securities maturing within 60 days (and all securities held by the Citizens
Money Market Fund) 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 valuations based
upon analysis of market data or other factors if these valuations are believed
to more accurately reflect the fair value of such securities.
-30-
<PAGE>
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.
The values of foreign securities are converted from the local currency
into U.S. dollars using current exchange rates. If trading in the currency is
restricted, a Fund will use a rate believed to reflect the currency's fair value
in U.S. dollars. Trading may take place in foreign securities held by a Fund on
days when the Fund is not open for business. As a result, the Fund's Net Asset
Value may change on days on which shareholders are not able to purchase or sell
Fund shares. If events materially affecting the value of foreign securities
occur between the time when the exchange on which they are traded closes and the
time when the Fund's Net Asset Value is calculated, the securities may be valued
at fair value.
CITIZENS MONEY MARKET FUND
The Trust's Trustees have determined that it is appropriate for the
Citizens Money Market Fund to value its shares using the amortized cost method
and that this method approximates the fair value of the Fund's shares. This
method values a security at the time of its purchase at cost and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. This method does not take into account unrealized gains and
losses.
While the amortized cost method generally approximates the market value
of short-term securities, there may be periods during which value, as determined
by the amortized cost method, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield on the Fund's shares may tend to be higher than a like
computation made by a Fund with identical investments which uses a method of
valuation based on market prices. Thus, if the use of amortized cost by the Fund
on a particular day resulted in a lower aggregate Fund value than were the Fund
to value at market prices, a prospective investor in the Fund's shares would be
able to obtain a somewhat higher yield from the Fund than he would from a Fund
valued at market price. The converse would apply in a period of rising interest
rates.
The Board of Trustees has established procedures designed to stabilize
the Net Asset Value of the Citizens Money Market Fund at $1.00 per share, to the
extent reasonably possible. These procedures include review of the Fund by the
Board at intervals it deems appropriate and reasonable in the light of market
conditions to determine how much the Net Asset Value, using available market
quotations, deviates from the Net Asset Value based on amortized cost. For this
purpose, when market quotations are available, securities are valued at the mean
between the bid and the asked price. If market quotations are not available,
investments are valued at their fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Board of Trustees, including being valued at prices based on market
quotations for investments of similar type, yield and maturity.
Under the procedures that the Trustees have adopted in connection with
the valuation of the Fund's securities using the amortized cost method, the
Fund, through its Custodian and Accounting Agent, conducts weekly mark-to-market
appraisals to compare its determination of Net Asset Value per share with the
amortized cost-based Net Asset Value. In the event a deviation between the
market value and the amortized cost value exceeds 0.10%, or if the Adviser
believes the deviation may result in dilution or other unfair results to
shareholders or investors, the Board of Trustees must be notified and daily
mark-to-market appraisals will be conducted until the deviation falls below
0.10%. If the deviation from $1.00 per share exceeds 0.25% for the total market
value of the Fund, the Board of Trustees must be notified immediately. If the
deviation from the amortized cost value per share exceeds 0.30%, the Board of
Trustees must be notified and may consider taking remedial action. If the
deviation from the amortized cost value per share exceeds 0.50%, the Board of
Trustees will take such action as it deems
-31-
<PAGE>
appropriate to eliminate or reduce any material dilution of shares or other
unfair results to shareholders or investors, including without limitation:
redeeming shares in kind; selling securities prior to maturity to realize
capital gains or losses or to shorten the average maturity of the Fund;
withholding dividends or payment of distributions; determining Net Asset Value
per share utilizing market quotations or equivalents; reducing or increasing the
number of shares outstanding on a pro rata basis; offsetting each shareholder's
pro rata portion of the deviation from their accrued dividend account or from
future dividends; or some combination of the foregoing.
The Citizens Money Market Fund also limits its investments, including
repurchase agreements, to those U.S. dollar-denominated securities which the
Adviser determines to present minimal credit risks to the Fund, which are First
Tier Securities and which meet the maturity and diversification requirements set
forth in Rule 2a-7 and included herein (see pages 11-13).
TAX MATTERS
The following discussion is a brief summary of the federal and, where noted,
state income tax considerations relevant to a shareholder investing in a Fund.
The discussion is very general, and prospective investors are urged to consult
their tax advisers about the tax consequences that an investment in a Fund may
have in their particular situations.
TAXATION OF THE FUNDS
FEDERAL TAXES. Each Fund is treated as a separate entity for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
Code). Each Fund has elected to be treated and intends to qualify to be treated
each year as a "regulated investment company" under Subchapter M of the Code. In
order to so qualify, each Fund must meet various requirements of Subchapter M
relating to the nature of the Fund's gross income, the amount of its
distributions, and the composition of its portfolio assets.
If a Fund qualifies to be treated as a regulated investment company for a
given year, it 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
shareholders in accordance with the timing requirements imposed by the Code. If
a 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.
MASSACHUSETTS TAXES. As long as a Fund maintains its status as a
regulated investment company under the Code, the Fund will not be required to
pay any Massachusetts income or excise tax.
FOREIGN TAXES. Although we do not expect the Funds will pay any federal
income or excise taxes, investment income received by a 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 that
may entitle a Fund to a reduced rate of tax or an exemption from tax on foreign
income; the Funds intend to qualify for such reduced rates where available. It
is not possible, however, to determine any Fund's effective rate of foreign tax
in advance, since the amount of a Fund's assets to be invested within various
countries is not known.
Except in the case of the Citizens Global Equity Fund, we do not expect
that any Fund that incurs foreign income taxes will be able to pass those taxes
through to shareholders for foreign tax credit purposes. If the Citizens Global
Equity Fund holds more than 50% of its assets in foreign stock and securities at
the close of a taxable year, it may elect to pass through to its shareholders
the foreign income taxes paid. If the Citizens Global Equity Fund so elects, its
-32-
<PAGE>
shareholders will be required to treat their pro rata portions of the foreign
income taxes paid by the Fund as part of the amounts distributed by them from
the Fund and thus includable in their gross income for federal income tax
purposes. Shareholders who itemize deductions would then be allowed to claim a
deduction or credit (but not both) on their federal income tax returns for such
amounts, subject to certain limitations. Shareholders who do not itemize
deductions would (subject to such limitations) be able to claim a credit but not
a deduction. No deduction for such amounts will be permitted to individuals in
computing their alternative minimum tax liability. If the Citizens Global Equity
Fund does not qualify or elect to pass through to its shareholders foreign
income taxes that it pays, shareholders will not be able to claim any deduction
or credit for any part of such taxes.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of a Fund will generally have to
pay federal income taxes, and any state or local 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 for federal
income tax purposes without regard to the length of time the shareholders have
held their shares. Any 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. For each of the Funds other than Citizens
Money Market Fund and Citizens Income Fund, a portion of any ordinary income
dividends is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualified for that deduction with
respect to its holding of a 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. Since the investment income of each of Citizens Money Market
Fund and Citizens Income Fund is derived from interest rather than dividends, no
portion of the dividends received from these Funds will be eligible for the
dividends received deduction. Moreover, the portion of any 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 a Fund other than
the Citizens Money Market 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 a Fund shortly before the
record date of any 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 Funds intend to withhold U.S. federal income tax at the
rate of 30% on taxable dividends and other payments to Non-U.S. Persons that are
subject to such withholding. The Funds will withhold at a lower tax treaty rate
if a shareholder provides documentation acceptable to the Fund demonstrating the
applicability of such a rate to a particular distribution. Any amounts over
withheld may be recovered by the shareholder by filing a claim for refund with
the U.S. Internal Revenue Service within the time period appropriate to such
claims. Distributions from a Fund to a Non-U.S. Person also may be subject to
tax under the laws of the Non-U.S. Person's jurisdiction.
-33-
<PAGE>
BACKUP WITHHOLDING. The Funds are required in certain circumstances to
apply backup withholding at the rate of 31% on taxable dividends and (except in
the case of the Citizens Money Market Fund) 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 a 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 a 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 a Fund in certain stripped
securities and certain securities purchased at a market discount will 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. A Fund's 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 a 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 a
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. Each 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
foreign investments of those Funds which are permitted to make such investments.
For example, foreign exchange gains and losses generally will be treated as
ordinary income or loss. Use of non-U.S. currencies for non-hedging purposes and
investments by a Fund in "passive foreign investment companies" may have to be
limited in order to avoid a tax on a Fund. A 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.
THE FOREGOING IS A LIMITED SUMMARY OF FEDERAL (AND, WHERE INDICATED,
STATE) INCOME TAX CONSIDERATIONS. IT SHOULD NOT BE VIEWED AS A COMPREHENSIVE
DISCUSSION OF THE ITEMS REFERRED TO, NOR AS COVERING, ALL PROVISIONS RELEVANT TO
INVESTORS. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS FOR ADDITIONAL
DETAILS ON THEIR PARTICULAR TAX STATUS.
-34-
<PAGE>
HOW WE CALCULATE PERFORMANCE
All performance reported in advertisements is historical and not intended
to indicate future returns.
From time to time the yield and compounded effective yield of our Funds
may be published in advertisements and sales material. For the Citizens Income
Fund the yield is usually reported over a 30 day period, whereas for the
Citizens Money Market Fund the yield is quoted over a seven day period.
CITIZENS INCOME FUND'S YIELD
To calculate the Citizens Income Fund's yield, we start with net
investment income per share for the most recent 30 days and divide it by the
maximum offering price per share on the 30th day, then annualize the result
assuming a semi-annual compounding.
The yield quotation for the Citizens Income Fund is based on the
annualized net investment income per share of the Fund over a 30-day (or
one-month) period. The yield is calculated by dividing the net investment income
per share of the Fund earned during the period by the public offering price per
share of the Fund on the last day of that period. The resulting figure is then
annualized. Net investment income per share is determined by dividing (i) the
dividends and interest earned by the Fund during the period, minus accrued
expenses for the period, by (ii) the average number of the Fund's shares
entitled to receive dividends during the period multiplied by the public
offering price per share on the last day of the period. Income is calculated for
the purpose of yield calculations in accordance with standardized methods
applicable to all stock and bond Funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. Capital gains and losses are generally excluded from the
calculation as these are reflected in the Fund's Net Asset Value per share.
Expenses accrued for the period includes any fees charged to all shareholders
during the base period.
The Citizens Income Fund's yield is calculated according to the following SEC
formula:
Yield = 2[ (a-b + 1)6 - 1]
------------------
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive income distributions
d = the maximum offering price per share on the last day of the period
CITIZENS MONEY MARKET FUND'S YIELD
Every business day, the Citizens Money Market Fund quotes a "7-day yield"
and a "7-day effective yield." To calculate the 7-day yield, we take the Fund's
net investment income per share for the most recent 7 days, annualize it and
then divide by the Fund's Net Asset Value per share (expected always to be
$1.00) to get a percentage. The effective yield assumes you have reinvested your
dividends.
The current yield of the Citizens Money Market Fund for a specific period
of time is calculated based on a hypothetical account containing exactly one
share at the beginning of the period. The net change in the value of the account
during the period is determined by subtracting this beginning value from the
value of the account at the end of the period including a
-35-
<PAGE>
hypothetical charge reflecting deductions from shareholder accounts. Capital
changes (I.E., realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) are excluded from the calculation.
Because the change will not reflect any capital changes, the dividends used in
the yield computation may not be the same as the dividends actually declared.
The dividends used in the yield calculation will be those which would have been
declared if there had been no capital changes included in a Fund's actual
dividends. The net change in the account value is then divided by the value of
the account at the beginning of the period and the resulting figure is called
the "base period return." The base period return is then multiplied by (365/7)
for a seven day effective yield with the resulting yield figure carried to the
nearest hundredth of one percent.
Compounded effective yield, which may be quoted for the Citizens Money
Market Fund, is determined by taking the base period return (computed as
described above) and calculating the effect of assumed compounding. This is
accomplished by annualizing the base period return and assuming that dividends
earned are reinvested daily. Compounded effective yield is calculated by adding
1 to the base period return (which is derived in the same manner as discussed
above) raising the sum to a power equal to 365 divided by 7 and subtracting 1
from the result.
The formula for effective yield is:
365/7
[(base period return + 1) ] - 1
Compounded effective yield information is useful to investors in
reviewing the performance of the Citizens Money Market Fund since the yield is
calculated on the same basis as those of other money market funds. However,
shareholders should take a number of factors into account in using the Fund's
yield information as a basis for comparison with other investments.
Since the Citizens Money Market Fund is invested in short-term money
market instruments, our yield will fluctuate with money market rates. Therefore,
the compounded effective yield is not an indication of future yields. Other
investment alternatives such as savings certificates provide a fixed yield if
held full term, but there may be penalties if redeemed before maturity, whereas
there is no penalty for withdrawal at any time in the case of our Funds.
Current yield and effective yield, which are calculated according to a
formula prescribed by the SEC, may differ from the amounts that actually may be
paid to our shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is computed by
dividing the total amount of dividends per share we paid during the past twelve
months by a current maximum offering price. Under certain circumstances, such as
when there has been a change in the amount of dividend payout, or a major change
in investment policies, it might be appropriate to annualize the dividends paid
over the period such policies were in effect, rather than using the dividends
during the past twelve months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from additional sources (I.E., sources other than dividends and interest, such
as short-term capital gains), and is calculated over a different period of time.
The following table sets forth various measures of performance for
certain classes of the Funds as of June 30, 2000:
<TABLE>
<CAPTION>
FUND 7-DAY YIELD EFFECTIVE YIELD 30-DAY YIELD
---- ----------- --------------- ------------
<S> <C> <C> <C>
Citizens Money Market Fund (Standard
Class shares) 5.58% 5.73% N/A
Citizens Money Market Fund
(Institutional Class shares) 5.56% 5.72% N/A
-36-
<PAGE>
Citizens Income Fund (Standard Class
shares) N/A N/A 6.83%
</TABLE>
TOTAL RETURN AND OTHER QUOTATIONS
We can express investment results for our four equity Funds and the
Citizens Income Fund in terms of "total return." Total return refers to the
total change in value of an investment in a Fund over a specified period.
In calculating the total return of a class of shares of a 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:
n
P(1 + T) = 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).
For the period ended June 30, 2000 certain classes of the Funds had the
following performance:
<TABLE>
<CAPTION>
5 YEAR AVERAGE ANNUAL
ONE YEAR AVERAGE ANNUAL TOTAL RETURN SINCE
FUND TOTAL RETURN TOTAL RETURN INCEPTION
<S> <C> <C> <C>
Citizens Core Growth
Fund (Standard Class 12.82% 27.68% 27.93%
shares) (3/3/95)
Citizens Core Growth
Fund (Institutional 13.67% N/A 29.26%
Class shares) (1/25/96)
Citizens Emerging Growth
Fund (Standard Class 82.19% 37.29% 32.27%
shares) (2/8/94)
Citizens Global Equity
Fund (Standard Class 53.27% 25.58% 20.89%
shares) (2/8/94)
-37-
<PAGE>
Citizens Income Fund
(Standard Class shares) 3.35% 5.86% 6.25%
(6/10/92)
</TABLE>
When we quote a Fund's yield or 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 a 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 (S&P) 500 Index, S&P MidCap 400 Index, S&P SmallCap 600 Index, Financial
Times World Index, Lehman U.S. Aggregate Index and the Russell 2000, as well as
other data and rankings from recognized independent publishers or sources such
as MORNINGSTAR, INC., LIPPER, INC., 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, and others.
FINANCIAL STATEMENTS
The financial statements of Citizens Funds and the opinion of its
independent auditors, included in the Annual Report to the shareholders for the
year ended June 30, 2000, are incorporated herein by reference and are provided
to each person to whom the Statement of Additional Information is sent or given.
-38-
<PAGE>
APPENDIX A: DESCRIPTION OF RATINGS
DESCRIPTION OF BOND RATINGS
We use the ratings provided by national rating services as one of several
indicators of the investment quality of fixed income securities. The following
is a description of the ratings of the three services we use most frequently.
When considering any rating, it is important to remember that the ratings of
Moody's, Standard & Poor's and Fitch IBCA represent their opinions as to the
quality of various debt instruments. It should be emphasized, however, that
ratings are not absolute standards of quality. Consequently, debt instruments
with the same maturity, coupon and rating may have different yields while debt
instruments with the same maturity and coupon with different ratings may have
the same yield.
MOODY'S
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
Fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (I.E.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
-39-
<PAGE>
RATING REFINEMENTS: Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through Caa. The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and modifier 3 indicates a ranking in
the lower end of that generic rating category.
STANDARD & POOR'S LONG-TERM ISSUE CREDIT RATINGS
AAA: An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC AND C: Obligations rated BB, B, CCC, CC and C are regarded as
having significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The rating C may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D: An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
-40-
<PAGE>
r: The r is attached to highlight derivatives, hybrids and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities whose principal or interest return is indexed to
equities, commodities or other instruments. The absence of an "r" symbol should
not be taken as an indication that an obligation will exhibit no volatility or
variability in total return.
FITCH IBCA INTERNATIONAL LONG-TERM CREDIT RATINGS
AAA: Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA: Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. The capacity is not significantly vulnerable to foreseeable events.
A: High credit quality. "A" ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB: Good credit quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
PLUS (+) OR MINUS (-): Plus and minus signs may be appended to a rating to
denote relative status within the major rating categories. Such suffixes are not
added to the "AAA" long-term rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM--TAXABLE DEBT & DEPOSITS GLOBALLY
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. The obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on Funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics
-41-
<PAGE>
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protections measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
NOTE: Moody's ratings are opinions, not recommendations to buy or sell, and
their accuracy is not guaranteed. A rating should be weighed solely as one
factor in an investment decision and you should make your own study and
evaluation of any issuers whose securities or debt obligations you consider
buying or selling.
STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
Standard & Poor's short-term issue credit ratings are a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded as follows:
A-1: A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B: A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period had not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
-42-
