December 20, 2000
PROSPECTUS
Citizens International Growth Fund(SM)
[LOGO] Citizens Funds(R)
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Citizens International Growth Fund
Table of Contents
OVERVIEW ............................................... 2
THE FUND
Investment Objective and Principal Investment Strategies 3
Principal Risks ........................................ 5
Performance ............................................ 7
Fees and Expenses ...................................... 8
ADDITIONAL FUND DETAILS
Growth Plus Risk Management ............................ 9
Citizens International Growth Fund ..................... 10
MANAGEMENT OF CITIZENS FUNDS
The Role of the Investment Adviser ..................... 11
Our Sub-Adviser ........................................ 12
The Fund's Fees ........................................ 13
12b-1 Fees and Classes ................................. 13
SHAREHOLDER INFORMATION
Investment Minimums .................................... 14
How We Value Our Shares ................................ 14
How to Buy and Sell Shares ............................. 15
Shareholder Services and Policies ...................... 19
Costs for Services ..................................... 21
Mailing Address and Wiring Instructions ................ 22
DIVIDENDS, DISTRIBUTIONS AND TAXES ..................... 23
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Citizens Funds Prospectus
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OVERVIEW
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Citizens Funds(R)
Our goal at Citizens Funds is to achieve strong financial results by seeking out
securities which we believe have above-average prospects for long-term growth,
and by employing specific risk management methods in the management of our
actively managed portfolios, as well as in the management of our indexes
underlying our passively-managed portfolios. One such method is that the
Citizens International Growth Fund invests only in companies that we deem to
have positive records of corporate responsibility.
The Fund
The Citizens International Growth Fund invests primarily in foreign stocks and
has the objective of capital appreciation.
Risks
There are certain principle risks of the Citizens International Growth Fund:
o The stock markets are sometimes volatile and may change
significantly and unpredictably in response to political,
regulatory, market or economic developments.
o The stocks the Citizens International Growth Fund purchases may go
up or down more or less than the markets as a whole.
o As with all mutual funds, you could lose money by investing in the
Citizens International Growth Fund.
Who May Want to Invest
The Citizens International Growth Fund is designed for investors seeking
long-term growth through a portfolio of non-U.S. securities and who can accept
the volatility associated with international stock investments.
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Citizens Funds Prospectus
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THE FUND
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Investment Objective and Principal Investment Strategies
The Citizens International Growth Fund employs a growth discipline, seeking
companies which the adviser believes have above-average prospects for long-term
growth in earnings and profitability. Such companies typically are leaders in
their markets, have proven business models, innovative technologies, strong
brand franchises, loyal customer relationships and strong financial positions.
Risk management strategies are an integral part of our investment process. The
Citizens International Growth Fund invests only in companies that meet a high
standard for corporate and environmental responsibility meaning that they have
positive environmental, community, and workplace records. We believe that our
socially responsible investing mandate directly complements our efforts to
control risk by avoiding companies whose corporate behavior could become an
impediment to performance.
Change in Investment Objective
The investment objective of the Fund can be changed without the approval of a
majority of the outstanding shares of the Fund.
Citizens International Growth Fund
Objective
The Citizens International Growth Fund's investment objective is capital
appreciation.
Principal Investment Strategies
During normal market conditions, the Citizens International Growth Fund invests
primarily in the common stock of foreign companies. Foreign companies include
companies that are organized outside the United States or whose securities are
principally traded outside the U.S. During normal market conditions, at least
65% of the Fund's total assets will be invested in foreign companies, in a
minimum of five countries. Although the Fund intends to invest substantially all
of its assets in issuers outside the U.S., it may at times invest in U.S.
securities and it may at times invest all of its assets in fewer than five
countries. At times, the Fund may be invested more heavily in some industries or
broader market sectors than in others.
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Citizens Funds Prospectus
In selecting investments, the investment management team is guided by analyses
of international markets, regional economies, countries and industries in which
the Fund may invest, as well as analysis of individual companies. The Fund seeks
to invest in economies that exhibit strong growth potential and in industries
that the Fund expects to be the main beneficiaries of that growth. In
determining whether to invest in a particular country or region, the investment
management team looks at a number of factors, including:
o Prospects for growth (e.g., infrastructure, consumer demand,
resources and environment)
o Economic imbalances (e.g., inflation, trade deficits, public debt)
o Liquidity (e.g., capital spending, consumer spending and financial
liberalization)
o Currency movements
o Government economic policy
With respect to individual companies, the investment management team analyzes
factors such as:
o Growing, sustainable earnings
o Return on equity
o Financial condition (e.g., debt levels, cash flows and
profitability)
o Innovative products, services or business strategies
o Revised corporate strategies (e.g., restructuring, change of focus
and change in management)
o Whether the company is positioned to benefit from political or
important industry or economy-wide trends (e.g., demographic
patterns, trends in consumer preferences and trends in interest
rates)
Risks
The Fund is subject to the following principal risks (for more details see pages
5-7 below):
o Market Risk
o Sector Risk
o Company Risk
o Growth Securities Risk
o Small- and Medium-Sized Company Risk
o Liquidity Risk
o Foreign Investing Risk
o Portfolio Turnover Risk
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Citizens Funds Prospectus
Defensive Positions
In an attempt to protect itself from adverse market or economic conditions, the
Citizens International Growth Fund may temporarily invest in cash or cash
equivalents, such as money market instruments or other high quality, short-term
fixed income securities. These positions may prevent the Fund from achieving its
investment objective or otherwise adversely affect the Fund's performance.
Principal Risks
The principal risks of investing in the Citizens International Growth Fund
include:
" Market Risk. The stock market is sometimes volatile and may change
dramatically and unpredictably in response to political, regulatory,
market or economic developments. The stock of growth companies, as
compared to older, more established companies, tends to be extra sensitive
to these developments in the market because their share prices are based
more on expectations about the futures of these companies. Stock prices
have historically gone up and down more than the value of fixed income
securities. The value of your investment in the Citizens International
Growth Fund will go up or down based on market conditions.
" Sector Risk. Although the Citizens International Growth Fund does not
invest more than 25% of its total assets in a particular industry, the
Fund will at times be invested more heavily in some industries or broader
market sectors than in others, and may be over-weighted in certain sectors
in comparison to the market as a whole, or to other market indices. Since
the outlook for particular sectors will differ due to unique market,
economic, regulatory or competitive environments, there is always the
possibility that the value of a group of related stocks will go down more
than the total market because of developments in a specific sector. These
fluctuations may cause the value of your investment to go down.
Also, although the Fund limits investment in any one industry, industries
may be interrelated such the that Fund has a greater concentration in a
broader market sector, such as technology. In recent periods the
technology sector has enjoyed unusually favorable market conditions which
may not be sustainable and which more recently have been very volatile.
Technology companies may be subject to greater risks than other companies,
including but not limited to obsolescence, short product cycles and more
rapidly changing market conditions.
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Citizens Funds Prospectus
" Company Risk. The value of the stock of an individual company varies with
the prospects of that company and can be more or less volatile than the
market as a whole. The success or failure of each of the companies in
which the Citizens International Growth Fund invests will cause the value
of your investment to go up or down.
" Growth Securities Risk. The Fund's investments in growth securities may
increase the risks of investing in the Fund. Growth securities typically
are sensitive to market movements because their market prices tend to
reflect future expectations. When it appears that those expectations may
not be met, the prices of growth securities typically fall. Growth
securities also may be more volatile than other investments because they
generally do not pay dividends.
" Small- and Medium-Sized Company Risk. The small- and medium-sized
companies that the Citizens International Growth Fund invests in may have
speculative characteristics. Small companies, in particular, have unique
risks. Among others, they may be dependent on an individual, may have
inexperienced management, limited product lines or have a difficult time
obtaining financing or market share. Their shares are also more volatile,
and may not be traded as frequently or in as large a volume as shares of
larger companies. Medium-sized companies generally involve less risk than
smaller companies but their shares are still more volatile and more
subject to changes in the market than larger companies.
" Liquidity Risk. The Citizens International Growth Fund may not be able to
sell its smaller capitalization securities as quickly as companies with
larger capitalizations, especially if investor perceptions about the
issuer worsen. During certain economic downturns it may be more difficult
for the Fund to sell its smaller capitalization, less liquid securities at
their fair value to meet requests for redemptions by shareholders or to
respond to changes in the market.
" Foreign Investing Risk. The Citizens International Growth Fund will invest
in foreign markets. Foreign markets are generally less efficient and more
volatile than those in the United States. Foreign economies and
governments may be less mature and stable than those in the U.S. and
foreign securities may be more significantly impacted by political and
economic events. Settlement and trading costs are generally higher, and
foreign companies may be adversely affected by
6
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Citizens Funds Prospectus
excessive (or inadequate) government regulation, excessive taxation,
nationalization, expropriation or political, economic or social
instability. There is also the risk of currency regulation and exchange
controls or fluctuations in exchange rates between foreign currencies and
the U.S. dollar, which could cause the value of the Fund's investments in
foreign markets to go down. The risks of investing in emerging market
economies are even greater and can include high inflation, high
sensitivity to commodity prices and economic dependence on a few
industries or government-owned industries. These characteristics of
foreign investing will cause the value of your investment to go up or
down.
Certain European countries have joined the European Economic and Monetary
Union (EMU). Each EMU participant's currency began a conversion into a
single European currency, called the euro, on January 1, 1999, to be
completed by July 1, 2002. European financial markets could be adversely
affected if the euro conversion does not continue as planned or if a
participating country chooses to withdraw from the EMU. The value of the
euro has declined significantly since its introduction. This decline may
negatively affect companies that are based in Europe or sell to European
markets.
" Portfolio Turnover Risk. The Citizens International Growth Fund will
likely have relatively high portfolio turnover rates (in excess of 100%).
Funds with high turnover may incur higher transaction costs, such as
brokerage fees, than funds that buy and sell securities less often. High
portfolio turnover may therefore negatively impact the Fund's performance.
Frequent sales of securities held by the Fund may also cause shareholders
to realize higher amounts of taxable ordinary income or capital gains
(including short-term capital gains, which are generally taxed to
shareholders at ordinary income tax rates).
Performance
Performance information is not included for the Citizens International Growth
Fund because it has not been in operation for a full calendar year. For this
reason, a bar chart and table showing performance information and information on
best and worst calendar quarter performance are not included in this prospectus.
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Citizens Funds Prospectus
Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy
and hold shares of the Citizens International Growth Fund. Annual fund operating
expenses are paid out of the assets of the Fund. The Fund does not have a sales
charge (load).
Shareholder Fees
(Fees paid directly from your investment)*
<TABLE>
<CAPTION>
Maximum Maximum
Maximum Sales Account Fee
Sales Maximum Charge (Charged only
Charge Deferred (Load) if account
(Load) Sales Imposed on falls below
Imposed on Charge Reinvested Redemption Exchange minimum
Purchases (Load) Dividends Fee Fee balance)**
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Citizens International
Growth Fund None None None None None $3.00/month
</TABLE>
* See "Costs for Services," on page 21.
** A fee of $3.00/month currently is charged on accounts that fall below a
minimum balance of $2,500 ($1000 minimum balance for Uniform
Gifts/Transfers to Minors Act (UGMA/UTMA) accounts and Automatic
Investment Plan accounts). This fee does not apply to IRA accounts.
Annual Fund Operating Expenses
(Expenses that are deducted from assets)
<TABLE>
<CAPTION>
Total Annual
Management Distribution Other Operating Reimbursements Net
Fees Fees Expenses Expenses Waivers* Expenses
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Citizens International Growth Fund
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<S> <C> <C> <C> <C> <C> <C>
Standard
Class shares 1.05% 0.25% 3.22% 4.52% 2.67% 1.85%
</TABLE>
* See next page
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Citizens Funds Prospectus
For the period of commencement of operations until December 31, 2001, the
investment adviser to the Fund has contractually agreed to waive certain fees
and/or reimburse certain expenses, such as Distribution Fees and Other Expenses
(other than interest expenses, taxes, brokerage commissions and extraordinary
expenses, such as litigation, that do not usually occur in the operations of a
mutual fund). If the 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 waive certain fees and/or reimburse certain expenses for
the amount of the excess.
Net
Fund Expenses
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Citizens International Growth Fund
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Standard Class shares 1.85%
Example: This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year, the Fund's operating expenses
remain the same and all dividends and distributions are reinvested. Contractual
fee waivers and reimbursements are reflected only in the one year amounts.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
One Year Three Years
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Citizens International Growth Fund
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Standard Class shares $188 $1,366
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ADDITIONAL FUND DETAILS
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More information about the Fund's investment strategies and risks appears below
and in the Fund's Statement of Additional Information. Of course, the Fund is
not required to and may not invest in all of the investments or engage in all of
the investment techniques or strategies listed in this prospectus or in the
Statement of Additional Information.
Growth Plus Risk Management
We strive to deliver strong investment performance and we are always cognizant
of risk. We endeavor to reduce risk through specific risk management strategies.
For instance, the Fund employs social and environmental screens to avoid
companies whose corporate behavior could negatively affect their performance.
The Fund also avoids excessive company and industry concentrations.
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Citizens Funds Prospectus
The Citizens International Growth Fund employs proprietary, quantitative
techniques in order to minimize risk relative to value. The Fund seeks to reduce
risk by limiting investments in emerging nations to no more than 25% of total
assets. The Citizens International Growth Fund also employs social screening of
stocks as a risk control measure. Of course, these strategies may not always be
used or may not be successful in minimizing risks when they are used. Investing
in the stock and bond markets is inherently risky, particularly if you do not
plan to invest for the long-term.
Our goal at Citizens Funds is to achieve strong financial results while
investing in companies that are managed in a socially responsible manner. The
Fund will invest only in companies that 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 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.
Citizens International Growth Fund
The Citizens International Growth Fund invests primarily in the common stocks of
foreign companies. We seek companies with growing sustainable earnings;
innovative products, services and business strategies; revised corporate
strategies; or companies that are benefiting from political or economic
conditions. Under normal market conditions, the Fund will allocate at least 65%
of its assets to foreign markets, in most circumstances in a minimum of five
countries. From time to time, the Fund may buy securities other than common
stocks, such as convertible or preferred stocks and short-term debt securities.
To moderate company risk, the Fund restricts its investment in any one issuer to
no more than 5% of its total assets with respect to 75% of its total assets. To
moderate the risks of foreign investing, the Fund restricts its investments in
emerging market countries (such as Russia, Malaysia or Pakistan) to no more than
25% of its total assets.
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CITIZENS INTERNATIONAL GROWTH FUND
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Objective Capital Appreciation
Morningstar Category New Fund
Inception Date 12/20/00
CUSIP 174688 83 8
Manager Team led by Sevgi Ipek
Sales charge No-load
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Citizens Funds Prospectus
The Fund may invest in sponsored American Depository Receipts (ADRs), which are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities of foreign companies that have agreed to have their
securities traded as depository receipts. The Fund may also invest in Yankee
bonds, which are dollar-denominated bonds issued in the U.S. by foreign banks
and governments.
The Fund may invest to a limited extent in initial public offerings (IPOs). The
impact of investments in IPOs may be greater when a fund has a smaller asset
base. If the size of the Fund increases, there is no guarantee that the Fund's
performance will be impacted to the same extent by IPOs or that the Fund will
continue to be able to participate in IPOs. In addition, IPOs are subject to
many of the same risks of investing in companies with smaller market
capitalizations. Securities issued in IPOs have no trading history and
information about the companies may be available for very limited periods. In
addition, the prices of securities sold in IPOs may be highly volatile. The Fund
may not be able to invest in securities issued in IPOs to the extent desired
because, for example, only a small portion of the securities being offered in an
IPO may be made available to the Fund or because under certain market conditions
few companies may issue securities in IPOs.
The Fund is actively managed. This active trading may create tax consequences
for shareholders in the form of increased capital gains and losses. Capital
gains, when distributed, are taxable to shareholders. The trading costs
associated with active management may also lower Fund performance.
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MANAGEMENT OF CITIZENS FUNDS
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The Role of the Investment Adviser
In order to manage the Fund on a day-to-day basis, Citizens Funds has signed a
Management Agreement with Citizens Advisers, Inc., with offices at 230 Commerce
Way, Suite 300, Portsmouth, NH, 03801. Citizens Securities, Inc., a subsidiary
of Citizens Advisers, serves as the Fund's distributor. Citizens Funds, Citizens
Advisers and Citizens Securities are not affiliated with any bank.
In its role as investment adviser to the Fund, Citizens Advisers determines
which companies meet the Fund's social criteria and will be carried on Citizens
Funds "Approved List" of investments.
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Citizens Funds Prospectus
Citizens Advisers performs a wide variety of administrative duties for Citizens
Funds under a separate administrative and shareholder services contract which
provides for reimbursement of out-of-pocket expenses, as well as fees for
services rendered. Citizens Advisers sometimes will perform services under this
administrative contract directly, or may contract to have specialized services
provided by third parties, such as investment advisers for pension funds or
other institutions which maintain omnibus accounts with Citizens Funds.
Our Sub-Adviser
To assist with portfolio management for the Fund, Citizens Advisers has
retained, at its own expense, a sub-adviser.
Clemente Capital, Inc. The sub-adviser for the Citizens International Growth
Fund, Clemente Capital, Inc., is a registered investment adviser organized in
1979. It is jointly owned by Lilia Clemente; Wilmington Trust of Wilmington, DE;
Diaz-Verson Capital Investments, Inc., of Columbus, GA; and Richard W.
McWalters. Clemente Capital also manages the First Philippine, Clemente
Strategic Value and Cornerstone Strategic Return Funds, 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.
Ms. Clemente is the Chair and Global Strategist at Clemente Capital, which she
has led for over two decades.
Sevgi Ipek is the lead portfolio manager responsible for the day-to-day
management of the Citizens International Growth Fund. Ms. Ipek has also been the
lead portfolio manager of the Citizens Global Equity Fund since 1995. Ms. Ipek
is a global equity portfolio manager at Clemente Capital, her employer since
1994. Prior to joining Clemente, Ms. Ipek worked as an analyst and international
economist for the WEFA Group, Inc. Ms. Ipek is a Chartered Financial Analyst.
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Citizens Funds Prospectus
The Fund's Fees
For the services the Adviser and sub-adviser provide to the Citizens
International Growth Fund, the Adviser will receive the following fees (based on
the average annual net assets of the Fund):
<TABLE>
<CAPTION>
Aggregate
Management Administrative Management and
Fee Fee Administrative Fees*
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Citizens International Growth Fund
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<S> <C> <C> <C>
Standard Class shares 1.05% 0.10% 1.15%
</TABLE>
* The Adviser also is paid a per account fee for providing shareholder
services to the Fund.
12b-1 Fees and Classes
The Citizens International Growth Fund offers only Standard Class shares. These
shares are no-load.
Citizens Funds has a 12b-1 Plan which allows the Fund to pay Citizens Securities
and other distributors of the Fund's shares distribution fees for the sale and
distribution of its shares. These fees reimburse these parties for sales-related
expenses including the printing of prospectuses and reports sent to
non-shareholders, as well as other sales material, advertising, communications
and salaries for salespeople and other personnel. Citizens Funds will also pay
commissions to outside brokers or service organizations for similar services.
Because these costs are paid out of the Fund's net assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
With respect to the Standard Class shares of the Fund, 0.25% of the Fund's net
assets is payable under Citizens Funds' 12b-1 Plan and the related Distribution
Agreement with Citizens Securities.
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Citizens Funds Prospectus
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SHAREHOLDER INFORMATION
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The Citizens International Growth Fund is no-load. The Standard Class shares of
the Fund are subject to 12b-1 fees.
Investment Minimums
Standard Class shares
o Minimum Initial Investment. The minimum initial investment in the
Standard Class shares of this Fund is $2,500 ($1,000 for IRA,
UGMA/UTMA and Automatic Investment Plan (AIP) accounts).
o Minimum Subsequent Investment. The minimum subsequent investment for
all accounts, including Automatic Investment Plan accounts, is $50.
o Minimum Balance. If your account falls below the minimum for the
Fund, you will be assessed a monthly fee of $3 until you bring your
balance above the $2,500 minimum ($1,000 for IRA, UGMA/UTMA and AIP
accounts). 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 60 days
notice and an opportunity to bring the account up to the applicable
minimum.
IRAs
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.
How We Value Our Shares
The price of shares in the Fund is called the Net Asset Value. To calculate Net
Asset Value, we add up the total assets of the Fund, subtract all liabilities,
then divide by the number of shares outstanding.
Equity securities are valued at the last sale price on the primary exchange on
which those securities are traded or on the principal over-the-counter market on
which such securities are traded, or, lacking any sales, at the last available
bid price for domestic securities and halfway between the bid and the asked
price for international securities.
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Citizens Funds Prospectus
Fixed income investments are generally valued at the closing bid price for
securities. Debt securities maturing within 60 days are normally valued at
amortized cost. Amortized cost is approximately equal to market value, and is
described in the Statement of Additional Information.
Securities may also be valued on the basis of valuations furnished by a pricing
service that uses both dealer-supplied evaluations and evaluations based on
analysis of market data or other factors, if these valuations are believed to
more accurately reflect the fair value of the securities.
If no market quotation is available for a given security (including restricted
securities that are subject to limitations on their sale), the Fund's Adviser
will fairly value that security in good faith pursuant to the policies
established by Citizens Funds' Board of Trustees.
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,
the 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 the 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.
The value of our shares is determined on each day the New York Stock Exchange is
open for trading, at 4 p.m. Eastern Time, or, if the New York Stock Exchange
closes earlier, at the close of business of the Exchange.
How to Buy and Sell Shares
How to Buy Shares
It's easy to buy shares in the Fund. Just fill out an application and send in
your payment by check, wire transfer, exchange from another Citizens mutual fund
or through arrangements with your investment adviser or broker-dealer. All
checks must be made payable to "Citizens Funds." Citizens Funds is unable to
accept third-party checks. Foreign checks drawn on U.S. dollars are accepted,
but shares purchased with foreign checks may be held in escrow for at least 20
days.
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Citizens Funds Prospectus
Your cost will be the Net Asset Value next determined after your payment is
received by the Fund's transfer agent. You can purchase both full and fractional
shares, which will be rounded to the nearest 1/1000th of a share. If your check
is returned for any reason, you will be assessed a fee of $20.
Citizens Funds has authorized certain brokers, and these brokers have also been
authorized to designate intermediaries, to accept on their behalf purchase and
redemption orders. The Fund 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.
Purchases and sales of fund shares through broker dealers may involve higher
fees.
The Fund is available through many popular fund "supermarkets," including
Charles Schwab's Mutual Fund OneSource(R) and Fidelity Investments
FundsNetwork(R).
Automatic Investment Plan
To enroll in our Automatic Investment Plan, simply check off that box on the
account application and provide us with your bank information, as well as the
amount and frequency of your investment into your chosen fund. We will do the
rest.
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BENEFITS OF AUTOMATIC INVESTING
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Automatic investing, or saving a predetermined amount of money each month
or quarter, offers many advantages:
o It encourages the discipline of saving on a regular basis;
o You can avoid the temptation to time the market;
o Your employer may allow you to deduct directly from your paycheck.
You won't miss what you don't see; and
o It's easy and convenient. Fill out the form and the rest
automatically happens each month.
To get started, visit www.citizensfunds.com or call us at (800) 223-7010.
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Citizens Funds Prospectus
Payroll Deduction
Setting up direct payroll deposit is very easy. Call us for the necessary
information and steps to follow. If you or your payroll administrator have any
questions, please call our Shareholder Service Center at (800) 223-7010. Funds
will be deposited into your Citizens Funds account using the Electronic Funds
Transfer System. We will provide the account number. Your payroll department
will let you know the date of the pay period when your investment begins.
How to Sell Shares
Telephone Redemption
We have a Telephone Exchange and Redemption option on your account application.
Under this option, you can call and tell us how much (up to and including
$25,000) you want to sell (redeem). Certain redemptions under $25,000 also may
require a Medallion Signature Guarantee (see information below), at the
discretion of Citizens Funds. 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 three-day
service via the Automated Clearing House (ACH). You will earn dividends up to
and including the date when we receive your redemption request.
If you do select the Telephone Exchange and Redemption option, you should be
aware it may increase the risk of error or of an unauthorized party gaining
access to your account. For added security you may provide us with a Personal
Identification Number (PIN) which must be verified before processing all
telephone transactions, including balance verification. To keep these problems
to a minimum, we record all telephone calls. Citizens Funds will not be
responsible, nor will our Adviser or Transfer Agent, if we follow the above
precautions and act on telephone instructions we reasonably believe to be
genuine.
During periods of unusual market activity, severe weather or other abnormal
circumstances, it may be difficult for you to reach a representative of Citizens
Funds by telephone. Under such circumstances, please consider sending written
instructions.
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Citizens Funds Prospectus
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, which is a
signature guarantee provided by an eligible guarantor (see list below). We may
require further documentation from corporations, fiduciaries, retirement plans
and/or institutional investors.
Certain requests for redemption under $25,000 also may require a Medallion
Signature Guarantee, at the discretion of Citizens Funds. 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. If you are redeeming shares that were
recently purchased by check, the proceeds may be delayed until the check for
purchase clears; this may take up to 15 days from the date of purchase.
Therefore, if you need your redemption proceeds within seven business days of
your purchase, please invest by wire.
Redeem Your Shares through Broker-Dealers
You may also redeem your shares through participating broker-dealers (who may
charge a fee for this service). Certain broker-dealers may have arrangements
with Citizens Funds that permit them to order redemption of shares by telephone
or other electronic communication. Purchases and sales of fund shares through
broker-dealers may involve higher fees.
Redemption in Kind
The Fund will normally redeem shares for cash, but may pay the redemption price
partly or in whole with portfolio securities where the redemption is for more
than $250,000. If portfolio securities are distributed instead of cash,
shareholders may incur brokerage commissions or other costs in converting the
securities to cash.
18
<PAGE>
Citizens Funds Prospectus
Transactions Requiring Medallion Signature Guarantee
o All requests for redemption over $25,000 (and certain requests under
and including $25,000)
o Changing your account title in any way
o Authorizing a telephone transaction for the first time
o Changing your pre-designated wire or ACH instructions
o Establishing or modifying a systematic withdrawal plan
o Exchanges between accounts which do not have identical titles
Eligible Guarantors
o Commercial Banks
o Trust Companies
o Savings Associations
o Credit Unions
o Broker-Dealers
o Members of domestic stock exchanges
Note: Notaries Public are not eligible guarantors.
You may sell (redeem) your shares on any business day on which the New York
Stock Exchange is open. The redemption price for your shares will be the Net
Asset Value the next time it is calculated after your redemption request, in
proper form, has been received.
Shareholder Services and Policies
We try to demonstrate our commitment to your investment success by offering a
family of mutual funds to meet diverse objectives, and assisting you with a
complete range of convenient services including the following retirement
services:
o Traditional and Roth IRAs
o SEP and SIMPLE IRAs
o 401(k), 403(b) and 457 plans
o Rollover and transfer services
19
<PAGE>
Citizens Funds Prospectus
Please call our Shareholder Service Center for more information at (800)
223-7010.
Exchange Privilege
Since peoples' investment needs change over time, we provide for easy exchanges
among Citizens mutual funds at no charge. You may make an exchange at any time
and to any Citizens Funds mutual fund. (An exchange is considered a purchase and
sale of shares for tax purposes.) Just call us or write us with your request.
The investment minimums and monthly below minimum balance fee remain applicable
to exchange purchases into other Citizens Funds mutual funds.
Excessive Exchanges and Market Timing
Because excessive trading can lower the Fund's performance and harm
shareholders, we reserve the right to suspend or terminate the exchange
privilege of any investor who makes excessive use of the privilege (e.g., more
than five exchanges within a one-year period). Your exchanges may also be
restricted or refused if we perceive a pattern of simultaneous orders affecting
significant portions of the Fund's assets. In particular, a pattern of exchanges
or other transactions evidencing a so-called "market timer" investment strategy,
because they may be particularly disruptive to the Fund, may result in a
termination of exchange privileges or closure of your account. Before
terminating exchange privileges or closing an account, we ordinarily will give
you 30 days notice and an opportunity to respond and discuss the matter with one
of our Shareholder Service Representatives. You may still redeem your shares in
the event that your exchange privileges are suspended or terminated.
We also reserve the right to close your account for any lawful reason,
including, but not limited to, reasonable suspicion of fraud or other illegal
activity in connection with the account.
Systematic Withdrawal Plan
You can send us a written request to automatically redeem a portion of your
shares and make a regular monthly, quarterly or annual payment on your behalf.
Making a Change in Your Account
After your account is set up, you may want to make a change in one of the
options or in the account title. We are pleased to assist you, but to protect
both you and Citizens Funds from fraud, we may require an original Medallion
Signature Guarantee, which is a signature guarantee from an eligible guarantor
(see list above) from all registered owners of the accounts.
20
<PAGE>
Citizens Funds Prospectus
Tax-Sheltered Retirement Plans
Our distributor, Citizens Securities, has arranged for shareholders to have
access to qualified IRAs, Roth IRAs, SEP-IRAs, SIMPLE IRAs and 403(b) plans (for
employees of non-profit organizations). The Fund is suitable for 401(k) and 457
plans, variable annuities, and other types of retirement plans as well. Call us
for a brochure and application.
Escrow
Redemption proceeds of shares purchased by check or ACH transfer are unavailable
for a period of time. See "How to Sell Shares - Requests for Redemption," on
page 18.
--------------------------------------------------------------------------------
COSTS FOR SERVICES
--------------------------------------------------------------------------------
Below $2,500/$1,000 minimum balance fee $ 3.00/mo.
Annual IRA fee (per account) $ 10.00*
Maximum Annual IRA fee (for all accounts) $ 20.00
IRA Closure Fee $ 15.00
Returned checks $ 20.00
Returned Electronic Purchase/Payment - ACH $ 15.00
Outgoing wire transfer $ 10.00
International wire transfer $ 20.00
Copies of statements, checks and tax forms $ 2.00/each (free if
obtained through our
audio response system)
* This fee is waived for total IRA balances of $25,000 and higher, and total
account balances of $50,000 and higher.
21
<PAGE>
Citizens Funds Prospectus
Mailing Address and Wiring Instructions
[X] Regular U.S. Mail:
Please use the business reply envelope provided with this prospectus, or
mail to:
Citizens Funds
PO Box 182456
Columbus, OH 43218-2456
[ICON] Wiring Instructions: Transfer Agent and Dividend Paying Agent:
Citizens Funds BISYS
c/o Fifth Third Bank 3435 Stelzer Road
38 Fountain Square Plaza Columbus, OH 43219
Cincinnati, OH 45263
Routing #: 042000314
For Further Credit
A/C# 999-44-975
Shareholder name/fund name/account number
[ICON] Overnight Delivery Packages (e.g., Federal Express, UPS, Airborne
Express):
Citizens Funds
3435 Stelzer Road
Columbus, OH 43219-3035
Please make all checks payable to "Citizens Funds." We are unable to
accept third-party checks.
22
<PAGE>
Citizens Funds Prospectus
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
Unless you give us other instructions when you fill out your account
application, or by telephone at (800) 223-7010 or in writing thereafter, we will
automatically reinvest your dividends and distributions from the Fund into
additional shares of the Fund, at the Net Asset Value calculated on the date the
dividends or distributions are payable.
We also can pay your dividends and distributions to you by check or electronic
transfer through the Automated Clearing House to your bank account. Information
regarding dividends and other distributions will be included on your statement.
Dividends and distributions of capital gains, if any, normally are declared and
paid on the following schedule:
<TABLE>
<CAPTION>
Dividend Capital Gains Distributions
------------------------ ---------------------------
Declared Paid Long-term Short-term
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Citizens International
Growth Fund Annually Annually Annually Annually
</TABLE>
Tax Matters
The dividends you receive, whether paid in cash or reinvested in shares,
generally will be subject to federal income tax (and any applicable state or
local taxes) unless you are otherwise exempt from such taxes. Dividends
designated as capital gains dividends are taxable as long-term capital gains.
All other dividends are generally taxable as ordinary income. It is not expected
that any dividends will qualify for the dividends received deduction for
corporate shareholders. We will send you a complete statement each January as to
the federal tax status of dividends and distributions paid by the Fund with
respect to the previous calendar year.
Distributions will reduce the Fund's Net Asset Value per share. As a result, if
you purchase shares just before the Fund makes a distribution, you will pay the
full purchase price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
The Fund may be eligible to elect to "pass through" to you foreign income taxes
that it pays. If the Fund makes this election, you will be required to include
your share of those taxes in gross income as a distribution from the Fund. You
will then be allowed to claim a credit (or a deduction, if you itemize
deductions) for such amounts on your federal income tax return, subject to
certain limitations.
23
<PAGE>
Citizens Funds Prospectus
When you redeem, sell or exchange shares of the Fund, it is generally considered
a taxable event. Depending on the purchase price and the sale price for the
shares redeemed, sold or exchanged, you may have a gain or loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
The account application asks each new investor to certify that the investor's
Social Security or taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for failing to report
income to the IRS. The Fund may be required to withhold (and pay over to the IRS
for your credit) 31% of taxable distributions and redemption proceeds it pays
you if you fail to provide this information or otherwise violate IRS
regulations. The Fund will generally withhold U.S. federal income tax at the
rate of 30% if you are neither a citizen nor a resident of the U.S. You may be
able to arrange for a lower withholding rate under an applicable tax treaty if
you supply the appropriate documentation required by the Fund.
Please consult your tax adviser for further information regarding the federal,
state and local tax consequences of an investment in a Citizens mutual fund.
24
<PAGE>
Citizens International Growth Fund's Statement of Additional Information, which
is available free upon request, contains more detailed information about the
Fund and its management and operations. The Statement of Additional Information
is incorporated by reference into this prospectus and is legally part of it.
Additional information about the Fund's investments will be contained in the
Fund's Annual and Semi-Annual Reports to shareholders, when available. In the
Fund's Annual Report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. Citizens Funds' Semi-Annual Report will update information
in the Annual Report for the subsequent six months.
To make inquiries about the Fund or get a copy of the Statement of Additional
Information or Annual or Semi-Annual Reports when available, call (800) 223-7010
or visit Citizens Funds' web site at www.citizensfunds.com.
Information about the Fund (including the Statement of Additional Information)
can be reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. For more information about the operation of
the Public Reference Room you may call the Commission at 1-800-SEC-0330. Reports
and other information about the Fund are available on the Commission's Internet
site at www.sec.gov and copies may be obtained, upon payment of a duplicating
fee by writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
SEC File No. 811-03626.
[LOGO] CITIZENS
FUNDS(R)
(800) 223-7010
www.citizensfunds.com
Citizens International Growth Fund(SM) is available through such
mutual fund supermarkets as Charles Schwab's Mutual Fund
OneSource(R) and Fidelity Investments FundsNetwork(R).
Citizens International Growth Fund(SM) is a service mark of
Citizens Advisers.
Citizens Funds(R) is a registered trademark of
Citizens Advisers.
(C)2000 Citizens Advisers
[ICON] Printed on recycled paper with soy-based inks. [ICON] PRINTED WITH
SOY INK
CIGF 12/00
<PAGE>
Citizens International Growth Fund (sm)
Statement of Additional Information
December 20, 2000
This Statement of Additional Information (SAI) is not a prospectus and should be
read in conjunction with the Citizens International Growth Fund's Prospectus
dated December 20, 2000. A copy of the current Prospectus can be obtained by
calling (800) 223-7010, by writing Citizens Funds, 230 Commerce Way, Suite 300,
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(R)
Citizens International Growth Fund (SM)
Table of Contents Page
Citizens Funds..........................................................2
Investment Strategies, Risks and Fundamental and Non-Fundamental
Policies .............................................................2
Trustees, Officers and Beneficial Owners................................9
Investment Advisory and Other Services..................................11
Brokerage Allocation and Soft Dollars...................................15
Ownership of Shares and Shareholder Rights..............................16
How We Value Fund Shares................................................19
Tax Matters.............................................................20
How We Calculate Performance............................................23
Financial Statements....................................................23
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<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 seven 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), Citizens Small Cap
Core Growth Fund (inception date 12/28/99), and Citizens International Growth
Fund (inception date 12/20/00). On May 28, 1992 the Trust, which had operated as
a money market fund since 1983, changed its name from Working Assets Money Fund
to Working Assets Common Holdings. On October 5, 1995 the Trust changed its name
from Working Assets Common Holdings to Citizens Investment Trust, and on July
14, 1998 it changed its name to Citizens Funds.
This Statement of Additional Information relates only to the Citizens
International Growth Fund Standard Class shares, hereinafter referred to as the
"Fund."
Investment Strategies, Risks and Fundamental and Non-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 Fund may, but need not, invest in any or all of the investments and
use any or all of the investment techniques described below and in the
Prospectus. The choice of investments and use of investment techniques depend
on, among other things, the Fund's investment strategies, conditions and trends
in the economy and financial markets and investments being available on terms
that are acceptable to the Fund.
Money Market Instruments
During periods of unusual market conditions, or for liquidity purposes or
pending the investment of the proceeds of the sale of the Fund's shares, the
Fund may invest all or a portion of its assets in money market instruments,
including, but not limited to:
o obligations of agencies and enterprises of the U.S.
Government;
o Certificates of Deposit of banks;
o commercial paper or other corporate notes of investment
grade quality; and
o Yankee bonds.
Repurchase Agreements
The Fund may also enter into repurchase agreements with primary dealers or
banks which are members of the Federal Reserve, secured by instruments issued or
guaranteed by agencies or instrumentalities of the U.S. Government, the values,
including accrued interest, of which are equal to or greater than 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
Fund, or the purchase and repurchase prices may be the same, with interest at a
standard rate due to the Fund, together with the repurchase price on repurchase.
In either case, the income to the Fund is unrelated to the interest rate on
securities collateralizing the repurchase.
The Trust requires all vendors of repurchase agreements to set aside
collateral in the Fund's name in the form of securities issued or guaranteed by
agencies or instrumentalities of the
- 2 -
<PAGE>
U.S. government equal to 102% of the value of any repurchase agreement. However,
it is important to note that while repurchase agreements may be a useful tool in
managing the Fund, they do have greater risk than directly investing in
securities. If a bank or stockbroker becomes bankrupt, or otherwise defaults
after selling the Fund a repurchase agreement, the Fund may suffer some delay
and expense in liquidating the securities, decline in the value of the
securities and loss of principal or interest.
Derivative Securities
Derivative securities such as options, futures contracts (sometimes
referred to as "futures") and options on futures contracts are financial
instruments whose values depend on or derive from underlying investments,
indexes or currencies. The Fund 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 its investments. The
Fund will maintain segregated accounts consisting of liquid assets (or, as
permitted by applicable regulations, enter into certain offsetting positions to
cover its obligations under derivatives transactions). Derivatives involve
special risks and may result in losses.
Options. The Fund may from time to time buy and write (sell) options on
securities, securities indexes, and foreign currencies that are traded on
recognized securities exchanges and over-the-counter markets. The value of
options is determined by the performance of the underlying financial benchmarks
or indexes to which they are tied. A call option gives the holder (buyer) the
right to purchase a security or currency at a specified price (the exercise
price) at any time until or on a certain date (the expiration date). A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at any time until or on the expiration date. The premium that the
Fund receives for buying or writing a call or put option is deemed to constitute
the market value of an option. Aggregate premiums paid for put and call options
will not exceed 5% of the Fund's total assets at the time of each purchase. The
premium that the Fund will receive from writing a call option will reflect,
among other things, the current market price of the underlying investment, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying investment, and the length of the option period.
Futures Contracts. The Fund may invest in futures contracts and options on
futures contracts, which 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.
Structured Securities. The Fund may also purchase structured securities,
such as interest-only strips or similar vehicles where one or more of the rights
within the underlying securities has been traded through the financial markets
for a different right or series of rights. 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).
Risks. The use of derivative securities depends on the Fund manager's or
sub-adviser's ability to predict correctly the direction of interest rates,
securities prices or other factors. Risks include:
o the risk that interest rates, securities prices or other factors do not
move in the directions being hedged against, in which case the Fund will
have incurred the cost of the derivative (either its purchase price or, by
writing an option, losing the opportunity to profit from increases in the
value of the securities covered) with no tangible benefits;
- 3 -
<PAGE>
o an imperfect correlation between the price of derivatives and the
movements of the securities prices, interest rates or currency exchange
rates being hedged;
o the possible absence of a liquid secondary market for any particular
derivative at any time;
o the potential loss if the counter party to the transaction does not
perform as promised; and
o the possible need to defer closing out certain positions to avoid adverse
tax consequences.
Options may present additional risks because the Fund managers may
determine that exercise of the option will not benefit the Fund, and therefore
the amount invested to acquire the option will be lost. Also, the Fund may be
required to purchase at a loss a security on which it has sold a put option.
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 the Fund receives the money it
initially invested in the security. This may happen if interest rates go down.
The Fund's ability to collect interest payments also will end if an
interest-only strip defaults. Conversely, the 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.
Warrants
The 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 the Fund's books at zero
value when market quotations are unavailable, as the value of these warrants can
only be realized upon their exercise. 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.
Convertible Securities
The Fund may invest in convertible securities. A convertible security is a
fixed income security (a bond or preferred stock) which may be converted at a
stated price within a specified period of time into a certain quantity of common
stock or other equity securities of the same or a different issuer. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to similar non-convertible securities. While providing
a fixed-income stream (generally higher in yield than the income derivable from
common stock but lower than that afforded by a similar non-convertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
attendant upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
- 4 -
<PAGE>
Preferred Stock
The Fund may invest in preferred stocks. Preferred stocks, like debt
obligations, are generally fixed-income securities. Shareholders of preferred
stocks normally have the right to receive dividends at a fixed rate when and as
declared by the company's board of directors, but do not participate in other
amounts available for distribution by the company issuing the preferred stock.
Dividends on the preferred stock may be cumulative, and all cumulative dividends
usually must be paid prior to common shareholders receiving any dividends.
Because preferred stock dividends must be paid before common stock dividends,
preferred stocks generally entail less risk than common stocks. Upon
liquidation, preferred stocks are entitled to a specified liquidation
preference, which is generally the same as the par or stated value, and are
senior in right of payment to common stock. Preferred stocks are, however,
equity securities in the sense that they do not represent a liability of the
issuer and, therefore, do not offer as great a degree or protection of capital
or assurance of continued income as investments in corporate debt securities. In
addition, preferred stocks are subordinated in right of payment to all debt
obligations and creditors of the issuer, and convertible preferred stocks may be
subordinated to other preferred stock of the same issuer.
Foreign Securities
The 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 Fund's share price will tend to reflect the movements of
the different securities markets in which it is invested and, to the degree not
hedged, the foreign currencies in which investments are denominated. As a result
of its investments in foreign securities, the Fund may receive interest or
dividend payments, or the proceeds of the sale or redemption of such securities,
in the foreign currencies in which such securities are denominated. Under
certain circumstances such as where the Fund believes that the applicable
exchange rate is unfavorable at the time the currencies are received or
anticipates, for any other reason, that the exchange rate will improve - the
Fund may hold such currencies for an indefinite period of time. The Fund may
also hold foreign currency in anticipation of purchasing foreign securities.
While the holding of currencies would permit the Fund to take advantage of
favorable movements in the applicable exchange rate, such strategy also would
expose the Fund to risk of loss if exchange rates move in a direction adverse to
the Fund's position. Such losses could reduce any profits or increase any losses
sustained by the Fund from the sale or redemption of securities and could reduce
the dollar value of interest or dividend payments received.
The Fund may invest in issuers located in emerging markets countries. All
of the risks of investing in non-U.S. securities are heightened by investing in
emerging markets countries. Shareholders should be aware that investing in the
equity and fixed income markets of emerging markets countries involves exposure
to economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
emerging markets countries have been more volatile than the markets of developed
countries with more mature economies; such markets often have provided greater
risks to investors. These heightened risks include (i) greater risks of
expropriation, confiscatory taxation and nationalization, and less social,
political and economic stability; (ii) the small current size of markets for
securities of issuers based in emerging markets countries and the currently low
or nonexistent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) the absence
of developed legal structures. Such characteristics can be expected to continue
in the future.
- 5 -
<PAGE>
The 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
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis. When the 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 the 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 Fund does not intend to make such purchases for speculative
purposes and intends to adhere to current regulatory policies with respect to
such purchases, purchases of securities on such a basis may involve more risk
than other types of purchases. For example, the Fund may have to sell assets
that have been set aside to cover its commitments in order to meet redemptions.
Also, if the Fund's 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 the Fund, the Fund
may incur a loss because of market fluctuations since the time the commitment to
purchase the securities was made. When the time comes to pay for when-issued or
forward delivery securities, the Fund will meet its obligations from the
then-available cash flow on the sale of securities or, although it would not
normally expect to do so, from the sale of the when-issued or forward delivery
securities themselves (which may have a value greater or less than the Fund's
payment obligation).
Private Placements and Illiquid Investments
The Fund may invest up to 15% of its net assets in securities for which
there is no readily available market, such as securities subject to contractual
restrictions on resale. The Fund will not buy these illiquid securities unless
the assets in the Fund exceed $10 million at the time of purchase. Illiquid
securities may include privately placed restricted securities for which no
institutional market exists. The absence of a trading market can make it
difficult to determine a market value for illiquid securities. Disposing of
illiquid securities may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Rule 144A Securities
The Fund may purchase securities that are not registered (restricted
securities) under the Securities Act of 1933, 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 Fund's 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 and
Non-Fundamental Policies" below.
Hedging Risk
The 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.
- 6 -
<PAGE>
Euro Conversion Risk
The 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.
Socially Responsible Investing
Our goal at Citizens Funds is to achieve strong financial results while
investing in companies that are managed in a socially responsible manner. In
addition, the Fund 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.
Calculated Risk
Most investors focus on performance but it is as important to understand
how much risk the Fund is taking on in the process. Here are some popular
metrics to help evaluate risk.
Beta: A measure of the magnitude of the 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 the Fund's return, i.e., the
degree to which the 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
the Fund's actual performance and the performance anticipated in light of the
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 mutual fund returns on a "level playing field."
Growth Plus Risk Management
The mission of Citizens Funds is to achieve superior investment returns
for our shareholders. Towards this end, the Citizens International Growth Fund
employs 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 the Fund.
The Citizens International Growth Fund is not intended to be the lowest
risk choice available to investors. Rather, the goal of our risk management
strategies is to attain a reasonable, targeted level of risk commensurate with
the Fund's growth mandates.
- 7 -
<PAGE>
Fundamental and Non-Fundamental Policies
The following items numbered 1. through 6. below are fundamental
investment policies followed by the Fund and the item numbered 7. below is a
non-fundamental investment policy of the Fund. Any policy identified as a
fundamental investment policy of the Fund may be amended with respect to the
Fund only with approval of the holders of a majority of the outstanding shares
of the Fund (a "Majority Shareholder Vote"), which as used herein means the vote
of the lesser of (a) 67% or more of the outstanding voting securities of the
Fund present at a meeting at which the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (b) more than 50% of the outstanding voting securities of the Fund. The term
"voting securities" has the same meaning as in the Investment Company Act of
1940, as amended (the "1940 Act").
1. The Fund may not make loans to other persons if such loans are
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder.
2. The Fund may not issue any senior security (as that term is defined
in the 1940 Act) if such issuance is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder.
3. The Fund may not borrow money if such borrowing is specifically
prohibited by the 1940 Act or the rules and regulations promulgated
thereunder.
4. The Fund may not underwrite securities issued by other persons,
except that all or any portion of the assets of the Fund may be
invested in one or more investment companies, to the extent not
prohibited by the 1940 Act, the rules and regulations thereunder,
and exemptive orders granted under such Act, and except in so far as
the Fund may technically be deemed an underwriter under the
Securities Act in selling a security.
5. The Fund may not concentrate its investments in any particular
industry, but if it is deemed appropriate for the achievement of the
Fund's investment objective, up to 25% of its assets, at market
value at the time of each investment, may be invested in any one
industry, except that positions in futures contracts shall not be
subject to this restriction. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities, and obligations
of domestic branches of domestic banks, are not included in this
limit.
6. The Fund may not purchase or sell real estate (including limited
partnership interests but excluding securities secured by real
estate or interests therein), or interests in oil, gas or mineral
leases in the ordinary course of business; the foregoing shall not
be deemed to preclude the Fund from purchasing or selling futures
contracts or options thereon, and the Fund reserves the freedom of
action to hold and to sell real estate acquired as a result of the
ownership of securities by the Fund.
7. As a non-fundamental policy (which can be amended or removed by the
Trustees, without shareholder approval), no more than 15% of the
assets of the Fund may be invested in illiquid securities. Private
Placements which may be traded pursuant to Rule 144A under the
Securities Act will not be subject to this limitation, if the Fund's
Board of Trustees or the Adviser finds that a liquid trading market
exists for these securities.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in
values or assets will not constitute a violation of that restriction.
- 8 -
<PAGE>
Temporary Defensive Positions
The Fund may invest in cash, cash equivalents, money market instruments
and repurchase agreements as temporary defensive positions during volatile or
other adverse or unusual market, economic, political or economic conditions.
Such temporary defensive positions would be inconsistent with the Fund's
principal investment strategies and may adversely impact Fund performance.
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 Principal Occupation(s)
And Age With Trust 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 (since 1991);
Portsmouth, NH 03801 President, Citizens Funds and Citizens Advisers (1991 to
44 years September 1998)
------------------------------------------------------------------------------------------------------------------------------------
Sean P. Driscoll Treasurer Vice President of Fund Accounting and Compliance, Citizens
230 Commerce Way, Suite 300 Advisers (since November 1998);
Portsmouth, NH 03801 Director of Fund Administration, State Street Bank and Trust
35 years Company (March 1998 to November 1998);
Vice President of Compliance, Putnam Investments (January
1997 to March 1998);
Fund Accountant and Director of Fund Administration, State
Street Bank and Trust Company (1987 to 1997)
------------------------------------------------------------------------------------------------------------------------------------
Pablo S. Eisenberg Trustee Retired (since 1998);
3729 Massachusetts Avenue NW 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. (a bank holding company)
Washington, DC 20015 (since 1997);
58 years President, M.A.J. Capital Management, Inc. (money
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 Investment adviser;
10910 Medfield Court and Trustee Consultant/Director of Marketing, GRW Capital Corporation (a
Austin, TX 78739 broker-dealer) (since 1992)
64 years
------------------------------------------------------------------------------------------------------------------------------------
John M. O'Brien Assistant Vice President of Corporate Finance, Citizens Advisers (since
230 Commerce Way, Suite 300 Treasurer October 1998);
Portsmouth, NH 03801 Services Manager, Bank Boston (January 1998 to October
35 Years 1998);
Business Manager, Fidelity Investments (October 1989 to
January 1998)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 9 -
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Name, Address Position(s) Held Principal Occupation(s)
And Age With Trust During Past 5 Years
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Martha S. Pope Trustee Retired (since 1998);
701 A Street, NE Senior Advisor for the Northern Ireland Peace Negotiations
Washington, DC 20002 (January 1995 to July 1998);
55 years Secretary of the United States Senate (April 1994 to January
1995);
Sergeant at Arms of the United States Senate (January 1991 to
March 1994)
------------------------------------------------------------------------------------------------------------------------------------
Stephen C. Schuyler Secretary Vice President and Senior Counsel, Citizens Advisers (since
230 Commerce Way, Suite 300 January 2000);
Portsmouth, NH 03801 Vice President and Assistant Counsel State Street Bank and
43 years Trust 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);
Member SEC Registration
------------------------------------------------------------------------------------------------------------------------------------
John L. Shields President President and Chief Executive Officer of Citizens Advisers
230 Commerce Way, Suite 300 (since September 1998);
Portsmouth, NH 03801 Senior Consultant, Cerulli Associates, a mutual Fund
47 years 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 through 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
--------------------------------------------------------------------------------
Name of Person and Position Aggregate Compensation
from Citizens Funds
Sophia Collier(1) - Trustee 0
Robert B. Reich(1) (2) - Trustee 0
John L. Shields(1)(2) - Trustee and President 0
Lokelani Devone(2) - Trustee $5,000
Juliana Eades(2) - Trustee $3,000
Pablo S. Eisenberg - Trustee $7,000
William D. Glenn, Jr. (2) - Trustee $5,000
Mitchell A. Johnson - Trustee $7,500
Azie Taylor Morton - Trustee $10,250
Martha S. Pope - Trustee $7,625
Ada Sanchez(2) - Trustee $12,000
- 10 -
<PAGE>
(1) Sophia Collier, Robert B. Reich and John L. Shields, as Interested
Trustees, received no compensation from Citizens Funds.
(2) Robert B. Reich, John L. Shields, Lokelani Devone, Juliana Eades, William
D. Glenn, Jr. and Ada Sanchez are no longer Trustees of Citizens Funds.
The Fund is newly organized and has no shareholders as of the date of this
Statement of Additional Information. As of October 1, 2000, there were
170,883,129 outstanding shares of beneficial interest, representing all the
shares of each series comprising Citizens Funds. Our Trustees and officers as a
group owned less than 1% of the outstanding shares of each series of Citizens
Funds as of October 1, 2000, except for the Citizens Core Growth Fund,
Institutional Class shares, where a single trustee owned 2.09% of the
outstanding shares.
Investment Advisory and Other Services
Adviser
The Fund is advised by Citizens Advisers, Inc. under a contract known as
the Management Agreement. The Adviser's office is at 230 Commerce Way, Suite
300, Portsmouth, New Hampshire 03801. The Adviser is a 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 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 P. 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. 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 a
sub-adviser to assist in the management of the Citizens International Growth
Fund.
- 11 -
<PAGE>
Clemente Capital, Inc.
Our sub-adviser for the Citizens International Growth Fund, Clemente
Capital, Inc., is a registered investment adviser organized in 1979. It is
majority owned by Lilia Clemente with 59.47% ownership; Wilmington Trust of
Wilmington, Delaware with 22.34%, Diaz-Verson Capital Investments, Inc. of
Columbus, Georgia with 13.19% and Richard W. McWalters, CEO, with 5%. Clemente
also manages the First Philippine and Clemente Global Growth Funds, two
closed-end Funds traded on the New York Stock Exchange. Its headquarters are at
Carnegie Hall Tower, 152 West 57th Street, New York, New York.
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
0.40% of the Citizens International Growth Fund's average net assets on assets
up to and including $500 million and 0.35% on assets over $500 million.
Adviser Fees
The Adviser provides the Fund, at its own expense, with all office space,
facilities, equipment and clerical personnel necessary to carry out its duties
under the Management Agreement. Some of the Trust's Trustees and officers are
employees of the Adviser and receive their compensation from the Adviser.
The Fund pays the Adviser a fee for its services at a rate of 1.05% of the
Fund's average annual net assets. The fee is accrued daily and payable monthly.
The Adviser has contractually agreed to limit expenses for the Fund for
the period of commencement of operations until December 31, 2001. If the Fund's
aggregate expenses would exceed on a per annum basis 1.85% of its average daily
net assets, the Adviser will reduce its fee by, or refund, the amount of the
excess.
The Fund is newly organized and has not paid fees to the Adviser as of the
date of this Statement of Additional Information.
Citizens Securities, Inc.
Citizens Securities, Inc., a wholly-owned subsidiary of the Adviser and a
New Hampshire corporation, serves as the Fund's principal underwriter or
distributor. Its offices are located at 230 Commerce Way, Suite 300, Portsmouth,
New Hampshire 03801. John 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 Fund 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 that maintain omnibus accounts with Citizens Funds. These
fees and expenses are payable monthly up to 0.10% of the Fund's average annual
net assets.
The administrative services provided to the Fund 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 Fund audit with Fund auditors; supervision of drafting
and printing of annual and semi annual reports; administrative and
- 12 -
<PAGE>
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. The Adviser has contracted BISYS Fund Services Ohio, Inc. ("BISYS") to
act as a sub-administrator to perform certain administration services for the
Fund.
In addition, Citizens Securities provides a number of administrative
services to the Fund relating primarily to shareholder services and
communications, and is paid a per account fee. These include, but are not
limited to, answering calls from existing shareholders in a timely manner;
maintenance of a toll-free number; responding to shareholder inquiries and
requests; maintenance of computer interface with the transfer agent; retention,
maintenance and research of shareholder records; maintenance of facilities and
equipment to perform all such duties; and similar services.
The Fund is newly organized and has not paid administrative or shareholder
servicing fees as of the date of this Statement of Additional Information.
12b-1 Plan
Pursuant to a Distribution Agreement, Citizens Securities acts as the
distributor of the 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 thereunder. In approving the 12b-1
Plan, the Trustees determined that there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders. Pursuant to this Plan, the
Distributor is authorized to purchase advertising, sales literature and other
promotional material and to pay its own salespeople. In addition, broker-dealers
and other service organizations that enter into written agreements with the
Trust and its Distributor may receive, for administration, shareholder service
and distribution assistance, fees at rates determined by the Trustees.
The Fund will reimburse Citizens Securities for distribution expenditures
and for fees paid to service organizations pursuant to the 12b-1 Plan, up to a
limit of 0.25% of average annual net assets of the Fund.
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 the 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 the Fund, on not more than 60 days notice. The Plan
further provides that, while it is in effect, the selection and nomination of
the Trustees who are not interested persons shall be committed to the discretion
of the Qualified Trustees. The Plan may not be amended to increase materially
the amounts to be spent without shareholder approval, and all amendments must be
approved by the Trustees.
Expenses
Other expenses paid by the Fund include all expenses not expressly assumed
by Citizens Advisers. These include interest, taxes, audit and legal fees,
custodian and transfer agent charges, insurance premiums, cost of registering
shares under federal and state laws, dues and
- 13 -
<PAGE>
any litigation costs, as well as the cost of typesetting, printing and
distributing shareholder reports and prospectuses sent to shareholders.
When a cost is shared by several series of Citizens Funds, the staff at
Citizens Advisers will allocate the expense in a reasonable manner under the
supervision of the Trust's Board of Trustees. The Fund is newly organized and
has not paid expenses as of the date of this Statement of Additional
Information.
Codes of Ethics
The Trust, the Adviser, the sub-adviser 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
Fund. 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 Fund. The custodian's responsibilities include
holding the securities and cash of the Fund, receiving and reporting all
purchases and redemptions and collecting interest and dividends in the Fund. 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 and Fund Accountant
The transfer agent, dividend-paying agent and fund accountant for the Fund
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 Fund shares, preparing and mailing
shareholder confirmations and account statements, paying dividends and other
distributions, and other shareholder and account activities. In its capacity as
fund accountant, BISYS is responsible for providing certain accounting services,
including calculation of the Net Asset Value per share, calculation of the
dividend and capital gain distributions, if any, and of yield, affirmation to
the Fund's custodian of all portfolio trades and cash settlements and
verification and reconciliation with the Fund's custodian of all daily trade
activities
Auditors
PricewaterhouseCoopers LLP audits the financial statements of the Fund and
provides other audit, tax and related services.
Legal Counsel
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110-1726.
- 14 -
<PAGE>
Brokerage Allocation and Soft Dollars
The Adviser seeks to obtain for the Fund the best net price and the most
favorable execution of orders. Purchases are made from issuers, underwriters,
dealers or brokers, and banks that specialize in the types of securities the
Fund buys. Purchases from underwriters include a commission or concession paid
by the issuer to the underwriters. Purchases from dealers include the spread
between the bid and asked prices and purchases from brokers include commissions
paid to the broker based upon the transaction size. If the execution and price
offered by more than one dealer are comparable, the order may be given to a
dealer who has provided research advice, quotations on portfolio securities or
other services.
The Adviser will comply with Rule 17e-1 under the 1940 Act in regard to
brokerage transactions with affiliates, to assure that commissions will be fair
and reasonable to the shareholders. The Fund is newly organized and has not paid
brokerage commissions as of the date of this Statement of Additional
Information.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, the Adviser or the 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 the Fund and/or the other accounts over which the Adviser or the
sub-adviser exercises investment discretion. The Adviser or the sub-adviser may
cause the Fund to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction 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 that the Adviser or the 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
Fund. The sub-adviser 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 the 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 the Fund in this
fashion shall be used solely to purchase brokerage and research services within
the meaning of Section 28(e), and must be of benefit to the Fund. These
brokerage and research services, however, need not exclusively benefit the Fund,
and may also benefit other series of the Trust or other clients of the Adviser
or the 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 Fund 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.
- 15 -
<PAGE>
Ownership of Shares and Shareholder Rights
The Trust's Declaration of Trust permits its Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Trust.
Certificates representing shares are not issued. The Trust may create and issue
series and classes of shares. Each share of each class of each series represents
an equal proportionate interest in the series with each other share of that
class. Shares of each series participate equally in the earnings, dividends and
distribution of net assets of the particular series upon liquidation or
dissolution (except for any differences among classes of shares in a series).
Income and operating expenses are allocated fairly among the series and classes
by the Trustees. Shares of each class are entitled to vote as a class or series
only to the extent required by the 1940 Act, as provided in the Declaration of
Trust, or as permitted by the Trustees.
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 the 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
The Fund normally declares and pays dividends substantially equal to all
net investment income annually. Net investment income consists of non-capital
gain income less expenses. Net realized short-term capital gains, if any, and
net realized long-term capital gains, if any, will be distributed by the Fund at
least annually. Dividends and capital gains distributions are automatically
reinvested at Net Asset Value in additional shares, unless a shareholder elects
cash distributions. Cash distributions will be paid annually.
Shareholder and Trustee Liability
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the Trust. The Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for the Trust's acts or obligations and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Trust or the Trust's Trustees. The
Declaration of Trust provides for indemnification and reimbursement of expenses
by the relevant series of the Trust out of that series' property for any
shareholder held personally liable for that series' obligations. The Declaration
of Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and satisfy the judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholders liability is highly unlikely and is
limited to the relatively remote circumstances in which the Trust would be
unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee
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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 Fund. Just fill out an application and send in
your payment by check, wire transfer, exchange from another Citizens mutual fund
or through arrangements with your investment adviser or broker-dealer. All
checks must be made payable to "Citizens Funds." 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.
Your cost for shares of the Fund 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.
Investment Minimums
The minimum initial investment in the 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 for the Fund, you will be assessed a monthly fee of $3.00 until
you bring your balance above the minimum. (This fee will also be applied to
inactive Automatic Investment Plan accounts.) If you do not bring your balance
up to the minimum, we may close your account by sending you a check for your
balance. Before closing your account, you will receive 60 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.
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 $10.
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 Fund. We will do
the rest.
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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 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. The Fund's obligation to pay for
redemptions can be suspended when the New York Stock Exchange is closed other
than for weekends or holidays or under certain emergency conditions determined
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by the SEC. The holidays on which the New York Stock Exchange is closed are: New
Year's Day, Martin Luther King, Jr.'s Birthday (observed), Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund pays redemption proceeds in cash, except that the Adviser has the
power to decide that conditions exist that would make cash payments undesirable.
In that case, the Fund could send redemption payments in securities from the
Fund, valued in the same way the Fund's Net Asset Value is determined. There
might then be brokerage or other costs to the shareholder in selling these
securities. The Fund has elected to be governed by Rule 18f-1 under the 1940
Act, which requires the Fund to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the Fund's total net assets during any 90 day period for any
one shareholder. A shareholder's redemption proceeds may be more or less than
his or her original cost, depending on the value of the Fund's shares.
The Trust or its Adviser has the right to compel the redemption of shares
of the Fund if the aggregate Net Asset Value of the shares in the account is
less than $2,500 ($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.
How We Value Fund Shares
The value of the fixed income securities in which the Fund may invest will
fluctuate depending in large part on changes in prevailing interest rates. Fixed
income securities may comprise a portion of the assets in the 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 Fund 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 the Fund is determined by adding the
market value of all securities and other assets of the Fund, then subtracting
the liabilities, and then dividing the result by the number of outstanding
shares of the Fund. All expenses are accrued daily and taken into account in
determining Net Asset Value. We expect the Net Asset Value per share in the Fund
to fluctuate.
The value of shares of the Fund is determined at 4 p.m. Eastern Standard
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.
As described in the Prospectus, shares of the Fund are generally valued on
the basis of market values. Equity securities are valued at the closing 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 bid price for securities.
Securities maturing within 60 days are normally valued at amortized cost.
Securities and other assets for which market quotations are not readily
available (including restricted securities, if any) are appraised at their fair
value as determined in good faith under consistently applied procedures under
the general supervision of the Trust's Board of Trustees.
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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.
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, the 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 the
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.
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
the Fund. The discussion is very general, and prospective investors are urged to
consult their tax advisers about the tax consequences that an investment in the
Fund may have in their particular situations.
Taxation of the Fund
Federal Taxes. The Fund is treated as a series of the Trust, and is
treated as a separate entity for federal tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code"). The Fund intends to elect and to qualify
to be treated as a "regulated investment company" under Subchapter M of the Code
for its first and each subsequent taxable year. In order to so qualify, the 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 the 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
the Fund should fail to qualify as a regulated investment company in any year,
it would incur federal income taxes upon its taxable income and distributions
paid to shareholders would generally be taxable as ordinary dividend income.
Massachusetts Taxes. As long as the Fund maintains its status as a
regulated investment company under the Code, it will not be required to pay any
Massachusetts income or excise tax.
Foreign Taxes. Although we do not expect the Fund will pay any federal
income or excise taxes, investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on foreign income; the Fund intends to qualify for such reduced rates
where available. It is not possible, however, to determine the Fund's effective
rate of foreign tax in advance, since the amount of the Fund's assets to be
invested within various countries is not known.
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If the 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 that it pays. If the Fund so elects, its
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 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 the 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 for federal income tax purposes 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. In the event that the Fund invests in U.S.
equity securities, a portion of any ordinary income dividends may be eligible
for the dividends-received deduction for corporations if the recipient otherwise
qualified for that deduction with respect to its holding of Fund 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.
"Buying A Dividend." Any dividend or distribution from the Fund will have
the effect of reducing the per share Net Asset Value of shares in the Fund by
the amount of the dividend or distribution. Shareholders purchasing shares in
the 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 Fund intends 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 Fund 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 the Fund to a Non-U.S. Person also may be
subject to tax under the laws of the Non-U.S. Person's jurisdiction.
Backup Withholding. The Fund is required in certain circumstances to apply
backup withholding at the rate of 31% on taxable dividends and redemption
proceeds paid to any shareholder (including a Non-U.S. Person) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not,
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however, be applied to payments that have been subject to the 30% withholding
applicable to Non-U.S. Persons.
Disposition of Shares. In general, any gain or loss realized upon a
taxable disposition of shares of the Fund by a shareholder that holds such
shares as a capital asset will be treated as a long-term capital gain or loss if
the shares have been held for more than twelve months and otherwise as a
short-term capital gain or loss. However, any loss realized upon a disposition
of the shares in the Fund held for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gain
made with respect to those shares. Any loss realized upon disposition of shares
may also be disallowed under the rules relating to wash sales.
Effects of Certain Investments and Transactions
Certain Debt Instruments. An investment by the Fund in certain 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. The 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 the Fund on the last business day of each
taxable year will be marked to market (e.g., treated as if closed out) on that
day, and any gain or loss associated with the positions will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by the
Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles", and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities, and conversion of short-term into long-term
capital losses. Certain tax elections exist for straddles that may alter the
effects of these rules. The Fund intends to limit its activities in options,
futures and forward contracts to the extent necessary to meet the requirements
of the Code.
Foreign Investments. Special tax considerations apply with respect to
foreign investments of the Fund. 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 in "passive foreign investment
companies" may have to be limited in order to avoid a tax on the Fund. The Fund
may elect to mark to market any investments in passive foreign investment
companies on the last day of each taxable year. This election may cause the Fund
to recognize ordinary income prior to the receipt of cash payments with respect
to those investments; in order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold potentially resulting in additional gain or
loss to the Fund.
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.
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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 the Fund may
be published in advertisements and sales material.
Total Return and Other Quotations
We can express investment results for the Fund in terms of total return.
Total return refers to the total change in value of an investment in the Fund
over a specified period.
In calculating the total return of the Fund, we start with the total
number of shares of the Fund you can buy for $1,000 at the beginning of the
period. We then add all the additional shares you would have purchased within
the period with reinvested dividends and distributions (this takes into account
the Fund's income, if any). Finally, we multiply the number of these shares by
the Net Asset Value on the last day of the period and divide the result by the
initial $1,000 investment to see the Fund's percentage gain or loss. For periods
of more than one year, we adjust the cumulative total return to get an average
annual total return.
These figures will be calculated according to the SEC formula:
P(1 + T)n = ERV
where:
P = A hypothetical initial payment of $1,000. T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year
periods (or fractional portion).
Financial Statements
The Fund is newly organized and has not issued financial statements as of
the date of this Statement of Additional Information.
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