<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999
File Nos. 2-90518
811-4006
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 36
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 37
CITIFUNDS TRUST I*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on May 3, 1999
pursuant to paragraph (b) of Rule 485.
The Premium Portfolios, on behalf of Balanced Portfolio, has also executed
this Registration Statement.
- --------------------------------------------------------------------------------
* This filing relates solely to shares of the Trust's series designated
CitiFunds Balanced Portfolio.
<PAGE>
----------
PROSPECTUS
----------
MAY 3, 1999
CitiFunds(SM)
Balanced Portfolio
CITIBANK, N.A., INVESTMENT ADVISER
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and
any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS ACCOUNT ................................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 19
HOW THE PRICE OF YOUR SHARES IS CALCULATED ......................... 20
HOW TO SELL SHARES .................................................. 21
REINSTATING RECENTLY SOLD SHARES .................................... 23
EXCHANGES ........................................................... 23
DIVIDENDS ........................................................... 24
TAX MATTERS ......................................................... 25
MANAGEMENT OF THE FUND ................................................. 27
INVESTMENT ADVISER .................................................. 27
ADVISORY FEES ....................................................... 28
MORE ABOUT THE FUND .................................................... 29
PRINCIPAL INVESTMENT STRATEGIES ..................................... 29
RISKS ............................................................... 35
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
----------------
FUND AT A GLANCE
----------------
This summary briefly describes CitiFunds Balanced Portfolio
and the principal risks of investing in it. Please note that
the Fund invests in securities through an underlying mutual
fund. For more information about the Fund's investment
strategies, risks, and investment structure, see MORE ABOUT
THE FUND on page 29.
CitiFunds(SM)
Balanced Portfolio
FUND GOAL
The Fund's goals are to provide high current income by
investing in a broad range of securities, to preserve capital,
and to provide growth potential with reduced risk. Of course,
there is no assurance that the Fund will achieve its goals.
MAIN INVESTMENT STRATEGIES
CitiFunds Balanced Portfolio invests in a broadly diversified
portfolio of stocks and fixed-income securities. In selecting
stocks, Citibank uses a value-oriented approach, and
emphasizes the securities of established, large cap U.S.
issuers, that Citibank believes have above-average prospects
for growth or current income, or both. The Fund's fixed income
securities include U. S. Treasury and government agency
obligations, investment grade corporate bonds and asset-backed
and mortgage-backed securities, as well as preferred stock.
Normally, about 60% of the Fund's assets is invested in equity
securities and at least 25% of its assets is invested in fixed
income securities, although the Fund's blend of stocks and
bonds is expected to shift from time to time to take advantage
of a strong market or based on Citibank's outlook for risk and
return.
The Fund's fixed income portfolio may include collateralized
mortgage obligations or CMOs, and the interest portion or
principal portion of debt obligations, commonly called IOs and
POs. The Fund may use other derivatives, such as futures,
options and swap agreements in order to protect (or "hedge")
against changes in the prices of securities held or to be
bought, or changes in interest rates, or to manage the
maturity or duration of fixed income securities. The Fund may
also invest in stock index futures for non-hedging purposes,
to enhance yields. The Fund's ability to use derivatives
successfully depends on a number of factors, including
derivatives being available at prices that are not too costly,
tax considerations, the availability of liquid markets, and
Citibank accurately predicting movements in interest rates,
stock prices and other economic factors.
The Fund may also invest in foreign equity and debt
securities, including securities of companies in developing
countries.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See page 35 for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation. The value
of the Fund's shares will change daily as the value of its
underlying securities changes. This means that your shares of the
Fund may be worth more or less when you sell them than when you
bought them.
o EQUITY SECURITIES. Equity securities are subject to market risk
that historically has resulted in greater price volatility than
exhibited by fixed income securities.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise.
Longer term obligations are usually more sensitive to interest
rate changes. A change in interest rates could cause the Fund's
share price to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Fund, causing a loss. Or, an issuer's financial
condition may deteriorate, lowering the credit quality of a
security and leading to greater volatility in the price of the
security and in shares of the Fund. If the credit quality of a
security deteriorates below investment grade, the Fund may
continue to hold this security, commonly known as a junk bond. The
prices of lower rated securities, especially junk bonds, often are
more volatile than those of higher rated securities.
o VALUE INVESTING. The success of the Fund's investment strategy
depends largely on Citibank's skill in identifying securities of
companies that are in fact undervalued, but have good longer term
business prospects. A security may not achieve its expected value
because the circumstances causing it to be underpriced worsen
(causing the security's price to decline further) or do not change
or because the portfolio managers are incorrect in their
determinations. In addition, the Fund may underperform certain
other stock funds (those emphasizing growth stocks, for example)
during periods when value stocks are out of favor.
o PREPAYMENT RISK. The issuers of debt securities held by the Fund
may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The Fund
may not be able to reinvest that principal at attractive rates,
reducing income to the Fund, and the Fund may lose any premium
paid. On the other hand, rising interest rates may cause
prepayments to occur at slower than expected rates. This
effectively lengthens the maturities of the affected securities,
making them more sensitive to interest rate changes and the Fund's
share price more volatile.
Mortgage-backed securities, including CMOs, are particularly
susceptible to prepayment risk and their prices may be very
volatile. The prices of IOs, which are the interest only component
of stripped mortgage-backed securities, go down when interest
rates decline and principal payments accelerate, causing a
reduction in the interest payment stream. The prices of POs go
down when interest rates are rising and prepayments are slower,
causing the maturity of the POs to lengthen.
o DERIVATIVES. The Fund's use of derivatives such as futures, stock
index futures, options, swap agreements, forward currency exchange
contracts, IOs and POs, particularly when used for non-hedging
purposes, may be risky. This practice could result in losses that
are not offset by gains on other portfolio assets, causing the
Fund's share price to go down. In addition, the Fund's ability to
use derivatives successfully depends on Citibank's ability to
accurately predict movements in stock prices, interest rates and
other economic factors and the availability of liquid markets. If
Citibank's predictions are wrong, or if the derivatives do not
work as anticipated, the Fund could suffer greater losses than if
the Fund had not used derivatives. If the Fund invests in
over-the- counter derivatives, there is also the risk that a
counterparty may fail to honor its contract.
o LIQUIDITY RISK. Securities that are thinly traded can be difficult
to sell at reasonable prices or within a short time-frame. The
Fund could have difficulty in selling thinly traded securities if
it needed to sell securities to meet redemptions. Also, if there
is not an established market price for thinly traded securities,
an accurate valuation of these securities may be difficult.
o FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to adverse political, social and economic
developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign
issuers and markets are subject. These risks may include
expropriation of assets, confiscatory taxation, withholding taxes
on dividends and interest paid on Fund investments, fluctuations
in currency exchange rates, currency exchange controls and other
limitations on the use or transfer of assets by the Fund or
issuers of securities, and political or social instability. There
may be rapid changes in the value of foreign currencies or
securities, causing the Fund's share price to be volatile. Also,
in certain circumstances, the Fund could realize reduced or no
value in U.S. dollars from its investments in foreign securities,
causing the Fund's share price to go down.
The Fund may invest in issuers located in emerging, or developing,
markets. All of the risks of investing in foreign securities are
heightened by investing in these markets.
Please note that an investment in the Fund is not a deposit of
Citibank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in CitiFunds
Balanced Portfolio is not a complete investment program.
You should consider investing in CitiFunds Balanced Portfolio if:
o You are seeking current income, but also are looking for long-term
growth potential.
o You want to direct a portion of your overall investment portfolio
to stocks of large cap issuers.
o You are prepared to accept daily share price fluctuations and
possible losses.
o Your investment horizon is longer term -- typically at least five
years.
Don't invest in CitiFunds Balanced Portfolio if:
o You are not prepared to accept volatility of the Fund's share
price and possible losses.
o You are looking for an aggressive investment that provides the
maximum potential for long-term return.
o Your investment horizon is shorter term (less than five years).
<PAGE>
Fund Performance
The following bar chart and table can help you evaluate the
risks of investing in the Fund, and how its returns have
varied over time.
o The bar chart shows changes in the Fund's performance from year to
year over the last eight calendar years. The chart and related
information do not take into account any sales charges that you
may be required to pay. Any sales charges will reduce your return.
o The table shows how the Fund's average annual returns for the
periods indicated compare to those of a value stock index and a
bond index, both of which provide a broad measure of market
performance. Please remember that, unlike the Fund, the market
indexes do not include the costs of buying and selling securities
and other Fund expenses or sales charges.
o In both the chart and table, the returns shown for the Fund are
for periods before the creation of share classes on January 4,
1999. All existing Fund shares were designated Class A shares on
that date. Prior to that date, there were no sales charges on the
purchase or sale of Fund shares. The returns for Class A in the
table, but not the bar chart, have been adjusted to reflect the
maximum front-end sales charge currently applicable to the Class A
shares.
o The Class B shares are newly offered commencing January 4, 1999.
Class B performance would have been lower than that shown for
Class A shares, because of higher fund expenses and the effects of
the contingent deferred sales charge.
When you consider this information, please remember that the
Fund's past performance is not necessarily an indication of
how it will perform in the future.
<PAGE>
TOTAL RETURN (WITHOUT SALES CHARGE)
(per calendar year -- Class A)
[Graphic Omitted]
CITIFUNDS BALANCED PORTFOLIO
1991 1992 1993 1994 1995 1996 1997 1998
29.61% 6.82% 8.48% (2.06%) 22.66% 7.59% 20.85% 7.83%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS (WITHOUT SALES CHARGE)
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 12.34% June 30, 1997
..............................................................................
Lowest (8.61%) September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year 5 Years October 19, 1990
..............................................................................
Class A (with maximum sales charge) 2.44% 9.86% 12.08%
..............................................................................
Class B N/A N/A N/A
..............................................................................
S&P Barra Value Index 14.68% 19.88% *
..............................................................................
Lehman Aggregate Bond Index 9.47% 7.30% *
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
................................................................................
SHARE CLASS (Class descriptions begin on page 13) Class A Class B
................................................................................
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
................................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS(3)
................................................................................
Management Fees 0.40% 0.40%
................................................................................
Distribution (12b-1) Fees (including service fees) 0.25% 1.00%
................................................................................
Other Expenses 0.57% 0.57%
................................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.22% 1.97%
- --------------------------------------------------------------------------------
*Because some of the Fund's expenses were waived or
reimbursed, actual total operating expenses for the prior
year were (or, in the case of Class B shares, would
have been): 1.02% 1.77%
These fee waivers and reimbursements may be reduced or terminated at any time.
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) The Fund invests in an underlying mutual fund, Balanced Portfolio. This
table reflects the expenses of the Fund and Balanced Portfolio.
- --------------------------------------------------------------------------------
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you
own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year -- the assumption of a
5% return is required by the SEC for the purpose of this example
and is not a prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the Fund Fees and Expenses
table remain the same before taking into consideration any fee
waivers or reimbursements.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
................................................................................
Class A $618 $868 $1,137 $1,903
................................................................................
Class B
................................................................................
Assuming redemption at end of $700 $918 $1,162 $2,060
period
................................................................................
Assuming no redemption $200 $618 $1,062 $2,060
- --------------------------------------------------------------------------------
<PAGE>
----------------------
YOUR CITIFUNDS ACCOUNT
----------------------
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE:
o Front-end load -- there is an initial sales charge of 5.00% or
less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 5% to 1% over five years,
and is eliminated if you hold your shares for six years or more
o Annual distribution/service fee of up to 1.00%
o Automatic conversion to Class A shares after 8 years
<PAGE>
- --------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/
SERVICE FEES that are paid under a 12b-1 PLAN. These are
fees, also called 12B-1 FEES, that are deducted from Fund
assets and are used to compensate those financial
professionals who sell fund shares and provide ongoing
services to shareholders and to pay other marketing and
advertising expenses. Because you pay these fees during the
whole period that you own the shares, over time you may pay
more than if you had paid other types of sales charges. For
this reason, you should consider the effects of 12b-1 fees
as well as sales loads when choosing a share class.
- --------------------------------------------------------------------------------
SALES CHARGES -- CLASS A SHARES
o Class A shares are sold at net asset value plus a front- end, or
initial, sales charge. The rate you pay goes down as the amount of
your investment in Class A shares goes up. The table below shows
the rate of sales charge that you pay, depending on the amount
that you purchase.
o The table below also shows the amount of broker/dealer
compensation that is paid out of the sales charge. This
compensation includes commissions and other fees that financial
professionals who sell shares of the Fund receive. The distributor
keeps up to approximately 10% of the sales charge imposed on Class
A shares. Financial professionals that sell Class A shares will
also receive the service fee payable on Class A shares at an
annual rate equal to 0.25% of the average daily net assets
represented by the Class A shares sold by them.
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 5.00% 5.26% 4.50%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
..............................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
..............................................................................
$500,000 or more none* none* up to 1.00%
- --------------------------------------------------------------------------------
*A contingent deferred sales charge may apply in certain instances. See below.
o After the initial sales charge is deducted from your investment,
the balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares rather
than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any
initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) of 1% of the purchase price, or the
sale price, whichever is less, if you sell within the first year.
Under certain circumstances, waivers may apply. Other policies
regarding the application of the CDSC are the same as for Class B
shares. Please read the discussion below on Class B shares for
more information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares that represent capital
appreciation or the reinvestment of dividends or capital gains
distributions on those shares.
SALES CHARGES -- CLASS B SHARES
Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The
table below shows the rates that you pay, as a percentage of
your original purchase price (or the sale price, whichever is
less), depending upon when you sell your shares.
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 5.00%
..............................................................................
2nd year since purchase 4.00%
..............................................................................
3rd year since purchase 3.00%
..............................................................................
4th year since purchase 2.00%
..............................................................................
5th year since purchase 1.00%
..............................................................................
6th year (or later) since purchase None
- --------------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a
commission of 4.50% of the purchase price of the Class B shares
that they sell, except for sales exempt from the CDSC. Financial
professionals also receive a service fee at an annual rate equal
to 0.25% of the average daily net assets represented by the Class
B shares that they have sold.
o When you sell your shares, the CDSC will be based on either your
original purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends and capital gain distributions or on shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Class B shares with the lowest CDSC to fill your
sell requests.
o You do not pay a CDSC at the time you exchange your Class B shares
for Class B shares of certain CitiFunds--any payment will be
deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
From time to time, the Fund's distributor or Citibank may
provide additional promotional bonuses, incentives or payments
to dealers that sell shares of the Fund. These may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered
representatives and their guests to locations within and
outside the United States for meetings or seminars of a
business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or
may sell significant amounts of shares. Certain dealers may
not sell all classes of shares.
The Fund's distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers,
including certain tax-exempt organizations, certain employee
benefit plans, certain entities or persons with a qualifying
affiliation or relationship with Citibank, and, under certain
circumstances, investors using the proceeds of a redemption from
another mutual fund for their purchase of Class A shares. Further
information about eligible purchasers may be found in the Appendix
to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds Balanced Portfolio are offered
continuously and purchases may be made Monday through Friday,
except on certain holidays. Shares may be purchased from the
Fund's distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please
specify whether you are purchasing Class A or Class B shares.
If you fail to so specify, Class A shares will be purchased
for your account. The Fund and the distributor have the right
to reject any purchase order or cease offering Fund shares at
any time.
Shares are purchased at net asset value (NAV) the next time it
is calculated after your order is received and accepted by the
Fund's transfer agent. NAV is the value of a single share of
the Fund. If you are purchasing Class A shares, the applicable
sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for
Fund shares until it receives the purchase price in federal or
other immediately available funds. If you pay by check, the
Service Agent transmits the order when the check clears,
usually within two business days.
If you are a customer of a Service Agent, your Service Agent
will establish and maintain your account and be the
shareholder of record. If you wish to transfer your account,
you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly
with the Fund's transfer agent.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time. NAV is calculated separately
for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the
financial markets in which the Fund invests close early, NAV
will be calculated as of the close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security.
For foreign securities the values are translated from the
local currency into U.S. dollars using current exchange rates.
If trading in the currency is restricted, the Fund uses 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 NAV may change on days on which it is not possible
to purchase or sell shares of the Fund. 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 in accordance with
procedures established by and under the general supervision of
the Board of Trustees.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to the CDSC on the shares withdrawn under the
Plan. For more information, please contact the Fund's transfer
agent or, if you are a customer of a Service Agent, your
Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. The Fund has
the right to pay your redemption proceeds by giving you
securities instead of cash. In that case, you may incur costs
(such as brokerage commissions) converting the securities into
cash. You should be aware that you may have to pay taxes on
your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of shares redeemed, without paying any sales
charges. To take advantage of this reinstatement privilege,
you must notify the Fund in writing at the time you wish to
repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain other CitiFunds. You may also be able to exchange your
Class A shares for shares of certain CitiFunds that offer only
a single class of shares, unless your Class A shares are
subject to a CDSC. You may not exchange Class B shares for
shares of CitiFunds that offer only a single class of shares.
You may also acquire Fund shares through an exchange from
another fund managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Class A shares
were purchased prior to January 4, 1999, you will not have to
pay a sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
CitiFunds Balanced Portfolio pays substantially all of its net
income (if any) from dividends and interest to its
shareholders of record as a dividend quarterly at the end of
March, June, September and December.
The Fund's net realized short-term and long-term capital
gains, if any, will be distributed to Fund shareholders semi-
annually. The Fund may also make additional distributions to
shareholders to the extent necessary to avoid the application
of the 4% non-deductible excise tax on certain undistributed
income and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional Fund shares.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
The IRS Form 1099 that is mailed to you every January details
your distributions for the prior year and how they are treated
for federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transaction.
<PAGE>
----------------------
MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
CitiFunds Balanced Portfolio draws on the strength and
experience of Citibank. Citibank is the investment adviser of
the Fund, and subject to policies set by the Fund's Trustees,
Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently
manages more than $327 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citigroup Inc.
Citigroup Inc. was formed as a result of the merger of
Citicorp and Travelers Group, Inc., which was completed on
October 8, 1998. "CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates may have banking and investment
banking relationships with the issuers of securities that are
held in the Fund. However, in making investment decisions for
the Fund, Citibank does not obtain or use material inside
information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and
its affiliates may have loans outstanding that are repaid with
proceeds of securities purchased by the Fund.
Barbara G. Marcin and Mark Lindbloom are the managers of
CitiFunds Balanced Portfolio. Ms. Marcin has managed the
equity portion of the portfolio since January 1998. Ms. Marcin
is a Senior Portfolio Manager responsible for managing over
$600 million in U.S. equity and balanced accounts for
individuals, and is a member of Citibank's Global Investment
Committee. Since 1995, she has been head of Citibank's U.S.
Equity Value Investments team. During 1994, Ms. Marcin was a
portfolio manager for U.S. equity and balanced accounts. Prior
to joining Citibank as a Vice President and portfolio manager
in 1993, she was a Vice President and portfolio manager at
Fiduciary Trust Company International. Prior to that, she was
with E.F. Hutton for three years in the Personal Financial
Management Group. Mr. Lindbloom, a Vice President of Citibank,
N.A. and a portfolio manager, has managed the fixed income
portion of the portfolio since June 1993. Mr. Lindbloom has
more than 19 years of investment management experience. Prior
to joining Citibank, Mr. Lindbloom was a Fixed Income
Portfolio Manager with Brown Brothers Harriman & Co., where he
managed fixed income assets for discretionary corporate
portfolios.
ADVISORY FEES
For the investment advisory services Citibank provided to the
Fund and its underlying mutual fund during the fiscal year
ended December 31, 1998, Citibank received a total of 0.40% of
the Fund's average daily net assets.
<PAGE>
----------------------
MORE ABOUT THE FUND
----------------------
The Fund's goal, principal investments and risks are
summarized in FUND AT A GLANCE. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Balanced Portfolio's principal investment strategies
are the strategies that, in the opinion of Citibank, are most
likely to achieve the Fund's investment goal. Of course, there
can be no assurance that the Fund will achieve its goal.
Please note that the Fund may also use strategies and invest
in securities that are not described below but that are
described in the Statement of Additional Information. Of
course, Citibank may decide, as a matter of investment
strategy, not to use the investments and investment techniques
described below and in the Statement of Additional Information
at any particular time. The Fund's goal and strategies may be
changed without shareholder approval.
The Fund invests in a broadly diversified portfolio of stocks
and fixed-income securities. Under normal circumstances, about
60% of the Fund's total assets is invested in equity
securities of large cap issuers (having market capitalizations
within the top 1,000 stocks in the equity market), and at
least 25% of the Fund's total assets is invested in fixed
income investments, although the Fund's blend of stocks and
bonds may shift from time to time to take advantage of a
strong market or based on Citibank's outlook for risk and
return.
- --------------------------------------------------------------------------------
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest
(or a right to acquire an ownership interest) in an issuer,
and include COMMON STOCKS, SECURITIES CONVERTIBLE INTO COMMON
STOCKS, PREFERRED STOCKS, WARRANTS for the purchase of stock
and DEPOSITARY RECEIPTS (receipts which represent the right to
receive the securities of foreign issuers deposited in a U.S.
bank or a local branch of a foreign bank). While equity
securities historically have been more volatile than fixed
income securities, they historically have produced higher
levels of total return.
- --------------------------------------------------------------------------------
The Fund's equity securities consist primarily of common
stocks, but may also include securities convertible into
common stocks, preferred stocks, warrants for the purchase of
stock and depositary receipts. Convertible securities in the
Fund's equity portfolio are not required to be investment
grade securities.
- --------------------------------------------------------------------------------
WHAT ARE FIXED INCOME SECURITIES?
FIXED INCOME SECURITIES generally represent a debt obligation
of an issuer, and include BONDS, SHORT-TERM OBLIGATIONS,
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, AND PREFERRED
STOCK. Fixed income securities, in general, offer a fixed
stream of cash flow. Most bond investments focus on generating
income. The potential for capital appreciation is a secondary
objective. The value of fixed income securities generally goes
up when interest rates go down, and down when rates go up. The
value of these securities also fluctuates based on other
market and credit factors.
- --------------------------------------------------------------------------------
The Fund may invest in several types of fixed-income
securities, including asset-backed and mortgage-backed
securities, corporate bonds, U.S. government and government
agency obligations, and notes. The Fund's long-term non-
convertible debt securities must be investment grade when the
Fund purchases them. Investment grade securities are those
rated Baa or better by Moody's, BBB or better by Standard &
Poor's, or which Citibank believes to be of comparable
quality. The Fund intends to limit its debt securities that
are rated Baa by Moody's or BBB by Standard & Poor's to less
than 5% of its assets. The Fund may purchase fixed income
securities on a "when issued" or "to be announced" basis.
The Fund's fixed income portfolio may include collateralized
mortgage obligations, also called CMOs. The Fund may also
purchase stripped mortgage-backed securities which represent
interests in a pool of mortgage-backed securities, the cash
flow of which has been separated into its interest and
principal components. Interest only securities (IOs) receive
the interest portion of the cash flow and principal only
securities (POs) receive the principal portion.
The Fund may invest up to 25% of its assets in foreign equity
and debt securities including depositary receipts (receipts
representing the right to receive securities of foreign
issuers deposited in a U.S. bank or a local branch of a
foreign bank). Foreign securities may be issued by issuers in
developing countries. The Fund may also invest in a limited
amount in closed-end investment companies that invest in
foreign securities.
The Fund invests primarily in securities with a record of
earnings and dividend payments but may, from time to time,
invest in securities that pay no dividends or interest.
The Fund generally invests in large capitalization common
stocks and fixed income securities for which there is a ready
market. However, the Fund may also purchase securities which
are not registered for sale to the general public, or, to a
limited extent, securities that are not readily marketable.
The Fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse
repurchase agreements for cash management purposes. The Fund
may also lend its portfolio securities or sell its securities
short, as long as, in the case of a short sale, the fund owns,
or has the right to obtain, the securities being sold short.
DERIVATIVES. The Fund may use derivatives in order to protect
(or "hedge") against declines in the value of securities held
by the Fund or increases in the cost of securities to be
purchased in the future. These derivatives include financial
futures, options, swap agreements, forward currency exchange
contracts and stock index futures. The Fund may also use IOs
and POs, which may be deemed to be derivatives, for non-
hedging purposes, to enhance yields and price sensitivity and
may use stock index futures for non-hedging purposes in order
to enhance potential gain.
In some cases, the derivatives purchased by the Fund are
standardized contracts traded on commodities exchanges or
boards of trade. This means that the exchange or board of
trade guaranties counterparty performance. Over-the-counter
derivatives, however, are not guaranteed. Derivatives may not
be available on terms that make economic sense (for example,
they may be too costly).
DEFENSIVE STRATEGIES. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the
Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE. The Fund does not invest directly in
securities but instead invests through an underlying mutual
fund, Balanced Portfolio, having the same investment goals and
strategies as the Fund. Balanced Portfolio buys, holds and
sells securities in accordance with these goals and
strategies. The Fund may stop investing in its underlying
mutual fund at any time, and will do so if the Fund's Trustees
believe that to be in the best interests of the Fund's
shareholders. The Fund could then invest in another mutual
fund or pooled investment vehicle or invest directly in
securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when selecting securities to purchase. In selecting
equity securities to buy for the Fund, Citibank uses a value-
oriented approach and evaluates securities using fundamental
analysis. The portfolio managers look for securities that they
believe are currently undervalued relative to the company's
cash flow, potential earnings prospects, growth rate and/or
dividend paying ability. Citibank believes that securities of
companies which are temporarily out of favor due to earnings
declines, cyclical business downturns or other adverse factors
may provide a higher return over time than securities or
companies whose positive attributes are more accurately
reflected in the security's current price.
In selecting securities to buy for the fixed income portion of
the Fund's portfolio, the portfolio managers combine a "top-
down" economic view with a "bottom-up" sector and company
view. The portfolio managers first review the Fund's duration
and yield curve relative to the Fund's fixed income benchmark.
The managers next determine the sector weighting of the
portfolio. The managers then look at individual companies
within those sectors or industries and select individual
securities based on their relative value.
The portfolio managers use these same approaches when deciding
which securities to sell. Securities are sold when the Fund
needs cash to meet redemptions, or when the managers believe
that better opportunities exist or that the security no longer
fits within the managers' overall strategies for achieving the
Fund's goals. For more information about the portfolio
managers, see "Investment Adviser" on page 27.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
Citibank may use brokers or dealers for Fund transactions who
also provide brokerage and research services to the Fund or
other accounts over which Citibank exercises investment
discretion. The Fund may "pay up" for brokerage services,
meaning that it is authorized to pay a broker or dealer who
provides these brokerage and research services a commission
for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged.
However, the Fund will "pay up" only if Citibank determines in
good faith that the higher commission is reasonable in
relation to the brokerage and research services provided,
viewed in terms of either the particular transaction or all of
the accounts over which Citibank exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing,
you should consider the risks you will assume. Certain of
these risks are described below. More information about risks
appears in the Fund's Statement of Additional Information.
Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in
this Fund.
Please remember that an investment in the Fund is not a
deposit of Citibank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
MARKET RISK. This is the risk that the prices of securities
will rise or fall due to changing economic, political or
market conditions, or due to a company's individual situation.
The value of the Fund's shares will change daily as the value
of its underlying securities change. This means that your
shares of the Fund may be worth more or less when you sell
them than when you bought them.
EQUITY SECURITIES. Equity securities are subject to market
risk that historically has resulted in greater price
volatility than exhibited by fixed income securities.
INTEREST RATE RISK. In general, the prices of debt securities
rise when interest rates fall, and fall when interest rates
rise. Longer term obligations are usually more sensitive to
interest rate changes. A change in interest rates could cause
the Fund's share price to go down.
CREDIT RISK. The Fund invests in investment grade debt
securities. It is possible that some issuers will not make
payments on debt securities held by the Fund, causing a loss.
Or, an issuer may suffer adverse changes in its financial
condition that could lower the credit quality of a security,
leading to greater volatility in the price of the security and
in shares of the Fund. If the credit quality of a security
deteriorates below investment grade, the Fund may continue to
hold this security, commonly known as a junk bond. The prices
of lower rated securities, especially junk bonds, often are
more volatile than those of higher rated securities. A change
in the quality rating of a bond or other security can also
affect the security's liquidity and make it more difficult for
the Fund to sell. The lower quality debt securities in which
the Fund may invest are more susceptible to these problems
than higher quality obligations.
VALUE INVESTING. The success of the Fund's investment strategy
depends largely on Citibank's skill in identifying securities
of companies that are in fact undervalued, but have good
longer term business prospects. A security may not achieve its
expected value because the circumstances causing it to be
underpriced worsen (causing the security's price to decline
further) or do not change or because the portfolio managers
are incorrect in their determinations. In addition, the Fund
may underperform certain other stock funds (those emphasizing
growth stocks, for example) during periods when value stocks
are out of favor.
PREPAYMENT RISK. The issuers of debt securities held by the
Fund may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The
Fund may not be able to reinvest that principal at attractive
rates, reducing income to the Fund, and resulting in a loss of
any premium paid. On the other hand, rising interest rates may
cause prepayments to occur at slower than expected rates. This
effectively lengthens the maturities of the affected
securities, making them more sensitive to interest rate
changes and the Fund's share price more volatile.
Mortgage-backed securities, including CMOs, are particularly
susceptible to prepayment risk and their prices may be very
volatile. The price of IOs, which are the interest only
component of stripped mortgage-backed securities, goes down
when interest rates decline and principal payments accelerate,
causing a reduction in the interest payment stream. The price
of POs goes down when interest rates are rising and
prepayments are slower, causing the maturity of POs to
lengthen.
CONVERTIBLE SECURITIES. Convertible securities, which are debt
securities that may be converted into stock, are subject to
the market risk of stocks, and, like other debt securities,
are also subject to interest rate risk and the credit risk of
their issuers. Call provisions may allow the issuer to repay
the debt before it matures.
DERIVATIVES. The Fund's use of derivatives such as futures,
stock index futures, options, swap agreements, forward
currency exchange contracts, IOs and POs, particularly when
used for non-hedging purposes, may be risky. This practice
could result in losses that are not offset by gains on other
portfolio assets, causing the Fund's share price to go down.
In addition, the Fund's ability to use derivatives
successfully depends on Citibank's ability to accurately
predict movements in stock prices, interest rates and other
economic factors and the availability of liquid markets. If
Citibank's predictions are wrong, or if the derivatives do not
work as anticipated, the Fund could suffer greater losses than
if the Fund had not used derivatives. If the Fund invests in
over-the-counter derivatives, there is also the risk that a
counterparty may fail to honor its contract.
LIQUIDITY RISK. Securities that are thinly traded can be
difficult to sell at reasonable prices or within a short time-
frame. The Fund could have difficulty in selling thinly traded
securities if it needed to sell securities to meet
redemptions. Also, if there is not an established market price
for thinly traded securities, an accurate valuation of these
securities may be difficult.
FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to political, social and economic developments
abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and
markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on fund
investments, currency exchange controls and other limitations on
the use or transfer of Fund assets and political or social
instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there
may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be
special problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest
earned, and gains and losses realized on the sale of securities.
An increase in the U.S. dollar relative to these other currencies
will adversely affect the value of the Fund. In addition, some
foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchanges or
governmental intervention in currency markets. Controls or
intervention could limit or prevent the Fund from realizing value
in U.S. dollars from its investment in foreign securities. The
Fund may also be adversely affected by the introduction of the
Euro.
o The Fund may invest in issuers located in emerging, or developing,
markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization cycles
with low per capita income.
o All of the risks of investing in foreign securities are heightened
by investing in developing countries.
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
YEAR 2000. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers are
not programmed to accurately process information on or after
January 1, 2000. The Fund, and its service providers, are
making efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not
solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems. Because the Fund may
invest in foreign securities, it may be particularly
susceptible to these potential Year 2000 problems.
<PAGE>
----------------------
FINANCIAL HIGHLIGHTS
----------------------
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Class A Fund share. The total returns
in the table represent the rate that an investor would have earned or lost on
an investment in the Fund (assuming investment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Fund's financial statements, is included in
the annual report which is incorporated by reference in the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
CitiFunds Balanced Portfolio
..................................................................................................................................
Year Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994+
..................................................................................................................................
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $15.77 $15.61 $15.71 $13.52 $14.24
..................................................................................................................................
Income From Operations:
Net investment income 0.420 0.421 0.497 0.486 0.399
Net realized and unrealized gain (loss) 0.795 2.726 0.680 2.540 (0.695)
..................................................................................................................................
Total from operations 1.215 3.147 1.177 3.026 (0.296)
..................................................................................................................................
Less Distributions From:
Net investment income (0.380) (0.421) (0.497) (0.495) (0.394)
Net realized gain (2.365) (2.566) (0.780) (0.341) (0.030)
..................................................................................................................................
Total distributions (2.745) (2.987) (1.277) (0.836) (0.424)
..................................................................................................................................
Net Asset Value, end of period $14.24 $15.77 $15.61 $15.71 $13.52
..................................................................................................................................
Total return (A) 7.83% 20.85% 7.59% 22.66% (2.06%)
..................................................................................................................................
<PAGE>
<CAPTION>
CitiFunds Balanced Portfolio
..................................................................................................................................
Year Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994+
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $236,359 $226,790 $230,382 $246,002 $227,309
Ratio of expenses to average net assets (B) 1.02% 1.02% 1.02% 1.02% 1.02%
Ratio of net investment income to average
net assets 2.61% 2.44% 3.04% 3.21% 2.82%
Portfolio turnover (C) 133% 134% 241% 210% 105%
Note: If agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees the net investment income
per share and the ratios would have been as follows:
Net investment income $0.390 $0.387 $0.464 $0.463 $0.378
RATIOS:
Expenses to average net assets 1.22%(B) $1.22%(B) 1.22%(B) 1.17%(B) 1.17%(B)
Net investment income to average net assets 2.41% 2.24% 2.84% 3.06% 2.67%
..................................................................................................................................
(A) Total return does not include the maximum sales charge of 5.00% effective January 4, 1999.
(B) Includes the Fund's share of Balanced Portfolio allocated expenses for the periods indicated.
(C) The portfolio turnover rates for the periods beginning May 1, 1994 represent the rate of portfolio activity of the Balanced Por
tfolio, the underlying portfolio through which the Fund invests. The Fund's portfolio turnover for the period January 1, 1994 to
April 30, 1994 was 29%, which represents the rate of portfolio activity for the period the Fund was making investments directly
in securities.
+ On May 1, 1994 the Fund began investing all of its investable assets in Balanced Portfolio.
</TABLE>
<PAGE>
--------
APPENDIX
--------
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A. or any subsidiary or
affiliate of Citibank acts as trustee and exercises discretionary
investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees for
acting as custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or
affiliate of Citibank serves as the investment adviser or as a
service or shareholder servicing agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired employees
of Citibank and its affiliates or CFBDS and its affiliates
(including immediate families of any of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances in
selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's Board
of Trustees or by the Board of Trustees of any other CitiFund or
mutual fund managed or advised by Citibank (all of such funds
being referred to herein as CitiFunds) the terms of which entitle
those shareholders to purchase shares of the Fund or any other
CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4, 1999
[] employee benefit plans qualified under Section 401 of the Internal
Revenue Code, including salary reduction plans qualified under
Section 401(k) of the Code, subject to minimum requirements as may
be established by CFBDS with respect to the amount of purchase;
currently, the amount invested by the qualified plan in the Fund
or in any combination of CitiFunds must total a minimum of $1
million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however,
a contingent deferred sales charge will be imposed on the
investments in the event of certain share redemptions within 12
months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the total
cost of the shares; the contingent deferred sales charge on Class
A shares will be waived under the same circumstances as the
contingent deferred sales charge on Class B shares will be waived;
in determining whether a contingent deferred sales charge on Class
A shares is payable, and if so, the amount of the charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by other
shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A shares
of another CitiFund and deducted from the redemption proceeds
when the exchanged shares are subsequently redeemed
(assuming the contingent deferred sales charge is then
payable)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other
than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge or
a deferred sales charge (whether or not actually imposed),
and
o the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from another
investment firm within six months prior to the date of purchase by
the investor, if:
o the investor redeems shares of another mutual fund sold
through the investme nt firm that previously employed that
investment consultant or other registered representative,
and either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales charge
or redemption fee with respect to the redemption proceeds
o the redemption is made within 60 days prior to the investment
in the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds
of the redemption
<PAGE>
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. 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.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at
http://www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. You can get information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You can receive copies of this information by
sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009.
SEC File Number: 811-4006 CFP-BAL 5/99
<PAGE>
Statement of
Additional Information
May 3, 1999
CITIFUNDS(SM) BALANCED PORTFOLIO
CitiFunds(SM) Balanced Portfolio (the "Fund") is a series of CitiFunds
Trust I (the "Trust"). The address and telephone number of the Trust are 21
Milk Street, Boston, Massachusetts 02109, (617) 423-1679. The Trust invests
all of the investable assets of the Fund in Balanced Portfolio (the
"Portfolio"), which is a separate series of The Premium Portfolios (the
"Portfolio Trust"). The address of the Portfolio Trust is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
TABLE OF CONTENTS PAGE
- ----------------- ----
1. The Trust ........................................................... 2
2. Investment Objective and Policies; Special Information Concerning
Investment Structure ................................................ 2
3. Description of Permitted Investments and Investment Practices ....... 3
4. Investment Restrictions ............................................. 14
5. Performance Information ............................................. 15
6. Determination of Net Asset Value; Valuation of Securities ........... 17
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs ................................................ 18
8. Management .......................................................... 25
9. Portfolio Transactions .............................................. 31
10. Description of Shares, Voting Rights and Liabilities ................ 32
11. Tax Matters ......................................................... 33
12. Certain Bank Regulatory Matters ..................................... 35
13. Financial Statements ................................................ 35
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Fund's Prospectus, dated May 3, 1999, by which shares of the Fund are offered.
This Statement of Additional Information should be read in conjunction with
the Prospectus. This Statement of Additional Information incorporates by
reference the financial statements described on page 35 hereof. These
financial statements can be found in the Fund's Annual Report to Shareholders.
An investor may obtain copies of the Fund's Prospectus and Annual Report
without charge by calling toll-free 1-800-625-4554.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
CitiFunds Trust I (the "Trust") is an open-end management investment
company that was organized as a business trust under the laws of the
Commonwealth of Massachusetts on April 13, 1984. Prior to March 2, 1998, the
Trust was called Landmark Funds I. This Statement of Additional Information
describes CitiFunds Balanced Portfolio (the "Fund"), a series of the Trust.
Prior to March 2, 1998, the Fund was called Landmark Balanced Fund. References
in this Statement of Additional Information to the "Prospectus" are to the
Prospectus, dated May 3, 1999, of the Fund.
The Fund is a diversified fund. The Fund is permitted to seek its
investment objectives by investing all or a portion of its assets in one or
more investment companies to the extent not prohibited by the Investment
Company Act of 1940, as amended (the "1940 Act") the rules and regulations
thereunder, and exemptive orders granted under the 1940 Act. Currently, the
Fund invests all of its investable assets in Balanced Portfolio (the
"Portfolio"). The Portfolio is a series of The Premium Portfolios (the
"Portfolio Trust") and is an open-end, diversified management investment
company. The Portfolio has the same investment objectives and policies as the
Fund.
Under the 1940 Act, a diversified management investment company must
invest at least 75% of its assets in cash and cash items, U.S. Government
securities, investment company securities and other securities limited as to
any one issuer to not more than 5% of the total assets of the investment
company and not more than 10% of the voting securities of the issuer.
Because the Fund invests through the Portfolio, all references in this
Statement of Additional Information to the Fund include the Portfolio, unless
the context otherwise requires. In addition, references to the Trust include
the Portfolio Trust, unless the context otherwise requires.
Citibank, N.A. ("Citibank" or the "Adviser") is investment adviser to the
Portfolio. The Adviser manages the investments of the Portfolio from day to
day in accordance with the Portfolio's investment objectives and policies. The
selection of investments for the Portfolio and the way it is managed depend on
the conditions and trends in the economy and the financial marketplaces.
CFBDS, Inc. ("CFBDS"), the administrator of the Fund (the
"Administrator"), and Signature Financial Group (Cayman) Ltd. ("SFG"), the
administrator of the Portfolio (the "Portfolio Administrator"), supervise the
overall administration of the Fund and the Portfolio, respectively. The Boards
of Trustees of the Trust and the Portfolio Trust provide broad supervision
over the affairs of the Fund and the Portfolio, respectively. Shares of the
Fund are continuously sold by CFBDS, the Fund's distributor (the
"Distributor").
2. INVESTMENT OBJECTIVES
The investment objectives of the Fund are to provide high current income
by investing in a broad range of securities, to preserve capital, and to
provide growth potential with reduced risk.
The investment objectives of the Fund may be changed without approval by
the Fund's shareholders, but shareholders will be given written notice at
least 30 days before any change is implemented. Of course, there can be no
assurance that the Fund will achieve its investment objectives.
The Prospectus contains a discussion of the principal investment
strategies of the Fund and the principal risks of investing in the Fund. The
following supplements the information contained in the Prospectus concerning
the investment policies and techniques of the Fund. The policies described
herein and those described below under "Description of Permitted Investments
and Investment Practices" are not fundamental and may be changed without
shareholder approval.
As noted above, the Fund does not invest directly in securities, but
instead invests all of its investable assets in the Portfolio, which has the
same investment objective and policies as the Fund. The Portfolio, in turn,
buys, holds and sells securities in accordance with this objective and these
policies. Of course, there can be no assurance that the Fund or the Portfolio
will achieve its objective. The Trustees of the Fund believe that the
aggregate per share expenses of the Fund and the Portfolio will be less than
or approximately equal to the expenses that the Fund would incur if the assets
of the Fund were invested directly in the types of securities held by the
Portfolio.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the
best interests of the Fund to do so. Upon any such withdrawal, the Fund's
assets would continue to be invested in accordance with its investment
objective and policies, either directly in securities or in another mutual fund
or pooled investment vehicle having the same investment objective and policies.
If the Fund were to withdraw, the Fund could receive securities from the
Portfolio instead of cash, causing the Fund to incur brokerage, tax and other
charges or leaving it with securities which may or may not be readily marketable
or widely diversified.
The Portfolio may change its investment objective and certain of its
investment policies and restrictions without approval by its investors, but
the Portfolio will notify the Fund (which in turn will notify its
shareholders) and its other investors at least 30 days before implementing any
change in its investment objective. A change in investment objective, policies
or restrictions may cause the Fund to withdraw its investment in the
Portfolio.
Certain investment restrictions of the Portfolio described below under
"Investment Restrictions" are fundamental and cannot be changed without
approval by the investors in the Portfolio. When the Fund is asked to vote on
certain matters concerning the Portfolio, the Fund either will hold a
shareholder meeting and vote in accordance with shareholder instructions or
otherwise vote in accordance with applicable rules and regulations. Of course,
the Fund could be outvoted, or otherwise adversely affected by other investors
in the Portfolio.
The Portfolio may sell interests to investors in addition to the Fund.
These investors may be mutual funds which offer shares to their shareholders
with different costs and expenses than the Fund. Therefore, the investment
return for all investors in funds investing in the Portfolio may not be the
same. These differences in returns are also present in other mutual fund
structures. Information about other holders of interests in the Portfolio is
available from the Fund's distributor, CFBDS.
3. DESCRIPTION OF PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
The Fund may, but need not, invest in any or all of the investments and
utilize any or all of the investment techniques described below and in the
Prospectus. The selection of investments and the utilization of investment
techniques depend on, among other things, the Adviser's investment strategies
for the Fund, conditions and trends in the economy and financial markets and
investments being available on terms that, in the Adviser's opinion, make
economic sense.
The Fund's policy is to invest its assets, under normal circumstances, in
a broadly diversified portfolio of income-producing securities, including
common and preferred stocks, bonds and short-term obligations. Under normal
circumstances, at least 25% of the Fund's total assets is invested in fixed
income securities.
FUTURES CONTRACTS
The Fund may enter into interest rate futures contracts and stock index
futures contracts. These investment strategies may be used for hedging
purposes and for nonhedging purposes, subject to applicable law. Because the
value of a futures contract changes based on the price of the underlying
security, futures contracts are commonly referred to as "derivatives". Futures
contracts are a generally accepted part of modern portfolio management and are
regularly utilized by many mutual funds and other institutional investors.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for
by the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are
very seldom made. Generally, a futures contract is terminated by entering into
an offsetting transaction. Brokerage fees will be incurred when the Fund
purchases or sells a futures contract. At the same time such a purchase or
sale is made, the Fund must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may
be as low as 1% or less of a contract's face value. Daily thereafter, the
futures contract is valued through a process known as "marking to market," and
the Fund may receive or be required to pay additional "variation margin" as
the futures contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was entered into.
The Fund may purchase or sell futures contracts to attempt to protect
itself from fluctuations in interest rates, or to manage the effective
maturity or duration of the Fund's portfolio in an effort to reduce potential
losses or enhance potential gain, without actually buying or selling
securities. For example, if interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a
sale would have much the same effect as if the Fund sold bonds that it owned,
or as if the Fund sold longer-term bonds and purchased shorter-term bonds. If
interest rates did increase, the value of the Fund's debt securities would
decline, but the value of the futures contracts would increase, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. Similar results could be accomplished by selling bonds, or by
selling bonds with longer maturities and investing in bonds with shorter
maturities. However, by using futures contracts, the Fund avoids having to
sell its securities.
Similarly, when it is expected that interest rates may decline, the Fund
might enter into futures contracts for the purchase of debt securities. Such a
purchase would be intended to have much the same effect as if the Fund
purchased bonds, or as if the Fund sold shorter-term bonds and purchased
longer-term bonds. If interest rates did decline, the value of the futures
contracts would increase.
The Fund may enter into stock index futures contracts to gain stock market
exposure while holding cash available for investments and redemptions to
attempt to increase investment return, and may sell such contracts to protect
against a decline in the stock market. Positions in index futures may be
closed out only on an exchange or board of trade which provides a secondary
market for such futures.
Although the use of futures for hedging, if correctly used, should tend to
minimize the risk of loss due to a decline in the value of the hedged position
(e.g., if the Fund sells a futures contract to protect against losses in the
debt securities held by the Fund), they do not eliminate the risk of loss and
at the same time the futures contract limits any potential gain which might
result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Fund's securities. If
the security underlying a futures contract is different than the security
being hedged, they may not move to the same extent or in the same direction.
In that event, the Fund's hedging strategy might not be successful and the
Fund could sustain losses on these hedging transactions which would not be
offset by gains on the Fund's other investments or, alternatively, the gains
on the hedging transaction might not be sufficient to offset losses on the
Fund's other investments. It is also possible that there may be a negative
correlation between the security underlying a futures contract and the
securities being hedged, which could result in losses both on the hedging
transaction and the securities. In these and other instances, the Fund's
overall return could be less than if the hedging transactions had not been
undertaken. Similarly, even where the Fund enters into futures transactions
other than for hedging purposes, the effectiveness of its strategy may be
affected by lack of correlation between changes in the value of the futures
contracts and changes in value of the securities which the Fund would
otherwise buy or sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, there is the potential that the
liquidity of the futures market may be lacking. Prior to expiration, a futures
contract may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the contract market on which
the futures contract was originally entered into. While the Fund will
establish a futures position only if there appears to be a liquid secondary
market therefor, there can be no assurance that such a market will exist for
any particular futures contract at any specific time. In that event, it may
not be possible to close out a position held by the Fund, which could require
the Fund to purchase or sell the instrument underlying the futures contract or
to meet ongoing variation margin requirements. The inability to close out
futures positions also could have an adverse impact on the ability effectively
to use futures transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. The trading of futures contracts also is subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times
make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Investments in futures contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates,
equity markets or other economic factors is incorrect, the Fund's overall
performance may be poorer than if any such contract had not been entered into.
For example, if the Fund hedged against the possibility of an increase in
interest rates which would adversely affect the price of the Fund's bonds and
interest rates decrease instead, part or all of the benefit of the increased
value of the Fund's bonds which were hedged will be lost because the Fund will
have offsetting losses in its futures positions. Similarly, if the Fund
purchases futures contracts expecting a decrease in interest rates and
interest rates instead increased, the Fund will have losses in its futures
positions which will increase the amount of the losses on the securities in
its portfolio which will also decline in value because of the increase in
interest rates. In addition, in such situations, if the Fund has insufficient
cash, the Fund may have to sell bonds from its investments to meet daily
variation margin requirements, possibly at a time when it may be
disadvantageous to do so.
Each contract market on which futures contracts are traded has established
a number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Adviser
does not believe that these trading and position limits would have an adverse
impact on the Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that the Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit the Fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions)
if, immediately thereafter, the sum of the amount of initial margin required
to establish the Fund's non-hedging futures positions would exceed 5% of the
Fund's net assets.
The Fund will comply with this CFTC requirement, and the Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or liquid securities will be maintained by the Fund in a segregated
account so that the amount so segregated, plus the applicable margin held on
deposit, will be approximately equal to the amount necessary to satisfy the
Fund's obligations under the futures contract. The second is that the Fund
will not enter into a futures contract if immediately thereafter the amount of
initial margin deposits on all the futures contracts held by the Fund would
exceed approximately 5% of the net assets of the Fund. The third is that the
aggregate market value of the futures contracts held by the Fund not exceed
approximately 50% of the market value of the Fund's total assets other than
its futures contracts. For purposes of this third policy, "market value" of a
futures contract is deemed to be the amount obtained by multiplying the number
of units covered by the futures contract times the per unit price of the
securities covered by that contract.
The use of futures contracts potentially exposes the Fund to the effects
of "leveraging," which occurs when futures are used so that the Fund's
exposure to the market is greater than it would have been if the Fund had
invested directly in the underlying securities. "Leveraging" increases the
Fund's potential for both gain and loss. As noted above, the Fund intends to
adhere to certain policies relating to the use of futures contracts, which
should have the effect of limiting the amount of leverage by the Fund.
The use of futures contracts may increase the amount of taxable income of
the Fund and may affect the amount, timing and character of the Fund's income
for tax purposes, as more fully discussed herein in the section entitled "Tax
Matters."
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by securities
in which the Fund may otherwise invest. Repurchase agreements are agreements
by which the Fund purchases a security and simultaneously commits to resell
that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed-upon date within a number of days (usually
not more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed-upon market rate of interest which is unrelated
to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security,
usually U.S. Government or Government agency issues. Under the 1940 Act,
repurchase agreements may be considered to be loans by the buyer. The Fund's
risk is limited to the ability of the seller to pay the agreed-upon amount on
the delivery date. If the seller defaults, the underlying security constitutes
collateral for the seller's obligation to pay although the Fund may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered into
by the Fund are fully collateralized, with such collateral being marked to
market daily. In the event of the bankruptcy of the other party to a
repurchase agreement, the Fund could experience delays in recovering the
resale price. To the extent that, in the meantime, the value of the securities
purchased has decreased, the Fund could experience a loss.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements subject to the
Fund's investment restriction on borrowing. Reverse repurchase agreements
involve the sale of securities held by the Fund and the agreement by the Fund
to repurchase the securities at an agreed-upon price, date and interest
payment. When the Fund enters into reverse repurchase transactions, securities
of a dollar amount equal in value to the securities subject to the agreement
will be segregated. The segregation of assets could impair the Fund's ability
to meet its current obligations or impede investment management if a large
portion of the Fund's assets are involved. Reverse repurchase agreements are
considered to be a form of borrowing. In the event of the bankruptcy of the
other party to a reverse repurchase agreement, the Fund could experience
delays in recovering the securities sold. To the extent that, in the meantime,
the value of the securities sold has changed, the Fund could experience a
loss.
SECURITIES OF NON-U.S. ISSUERS
The Fund may invest in securities of non-U.S. issuers. The Fund does not
intend to invest more than 25% of its assets in non-U.S. securities, including
depositary receipts.
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in U.S. investments. For example, the value of such securities
fluctuates based on the relative strength of the U.S. dollar. In addition,
there is generally less publicly available information about non-U.S. issuers,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Non-U.S. issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. Investments in securities of non-U.S. issuers also
involve the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Fund, political or financial instability or
diplomatic and other developments which would affect such investments.
Further, economies of other countries or areas of the world may differ
favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the
U.S., and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Prices at which the Fund may acquire securities may
be affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the
Fund. Non-U.S. securities trading practices, including those involving
securities settlement where the Fund's assets may be released prior to receipt
of payments, may expose the Fund to increased risk in the event of a failed
trade or the insolvency of a non-U.S. broker-dealer. In addition, non-U.S.
brokerage commissions are generally higher than commissions on securities
traded in the U.S. and may be non-negotiable. In general, there is less
overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.
The Fund may invest in issuers located in developing countries. All of the
risks of investing in non-U.S. securities are heightened by investing in
developing countries. Shareholders should be aware that investing in the
equity and fixed income markets of developing 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
developing 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 developing countries and the currently low or
non-existent 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.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those attributable to U.S. investing. As a result, the operating expense
ratios of the Fund may be higher than those of investment companies investing
exclusively in U.S. securities.
The Fund may invest up to 5% of its assets in closed-end investment
companies which primarily hold non-U.S. securities. Investments in closed-end
investment companies which primarily hold securities of non-U.S. issuers may
entail the risk that the market value of such investments may be substantially
less than their net asset value and that there would be duplication of
investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Fund to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by
a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs and GDRs are European and global receipts, respectively,
evidencing a similar arrangement. ADRs, EDRs and GDRs are subject to many of
the same risks that apply to other investments in non-U.S. securities.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of
a sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts.
The Fund may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the
same class that are not subject to such restrictions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds
in currencies other than the U.S. dollar, the Fund may enter into currency
exchange transactions to convert U.S. currency to non-U.S. currency and non-
U.S. currency to U.S. currency, as well as convert one non-U.S. currency to
another non-U.S. currency. The Fund either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the currency exchange
markets, or uses forward contracts to purchase or sell non-U.S. currencies.
The Fund also may, but is not obligated to, enter into currency hedging
transactions in an attempt to protect the value of its assets as measured in
U.S. dollars from unfavorable changes in currency exchange rates and control
regulations. (Although the Fund's assets are valued daily in terms of U.S.
dollars, the Trust does not intend to convert the Fund's holdings of non-U.S.
currencies into U.S. dollars on a daily basis.) It is not currently intended
that the Fund speculate in currency exchange rates or forward contracts.
The Fund may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize
a profit based on the difference (the "spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a currency at one rate, while offering a lesser rate of exchange should
the Fund desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. Because these contracts are traded in the interbank market and not
on organized commodities or securities exchanges, these contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures
contracts described herein. A forward contract generally has no deposit
requirement, and no fees or commissions are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-
U.S. currency involved in the underlying security transaction, the Fund may be
able to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on
which payment is made or received.
When the Adviser believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, the Fund may enter into
a forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of the Fund's
securities denominated in such non-U.S. currency. The projection of a short-
term hedging strategy is highly uncertain. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated in
the investment decisions made with regard to overall diversification
strategies. However, the Adviser believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served.
The Fund generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund will
either sell the security and make delivery of the non-U.S. currency, or retain
the security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If the Fund retains the security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
If the Fund engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the non-U.S. currency. Should forward
prices decline during the period between the date the Fund enters into a
forward contract for the sale of the non-U.S. currency and the date it enters
into an offsetting contract for the purchase of such currency, the Fund will
realize a gain to the extent the selling price of the currency exceeds the
purchase price of the currency. Should forward prices increase, the Fund will
suffer a loss to the extent that the purchase price of the currency exceeds
the selling price of the currency.
It is impossible to forecast with precision the market value of the Fund's
securities at the expiration of a forward contract. Accordingly, it may be
necessary for the Fund to purchase additional non-U.S. currency on the spot
market if the market value of the security is less than the amount of non-U.S.
currency the Fund is obligated to deliver and if a decision is made to sell
the security and make delivery of such currency. Conversely, it may be
necessary to sell on the spot market some of the non-U.S. currency received
upon the sale of the security if its market value exceeds the amount of such
currency the Fund is obligated to deliver.
The Fund has established procedures consistent with policies of the
Securities and Exchange Commission ("SEC") concerning forward contracts. Those
policies currently require that an amount of the Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment or that the Fund covers its position in accordance with applicable
regulations and policies.
The Fund may also purchase put options on a non-U.S. currency in order to
protect against currency rate fluctuations. If the Fund purchases a put option
on a non-U.S. currency and the value of the non-U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects
of adverse movements in exchange rates. However, the benefit to the Fund from
purchases of non-U.S. currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund
could sustain losses on transactions in non-U.S. currency options which would
require it to forgo a portion or all of the benefits of advantageous changes
in such rates.
The Fund may write options on non-U.S. currencies for hedging purposes or
otherwise to achieve its investment objectives. For example, where the Fund
anticipates a decline in the value of the U.S. dollar value of a non-U.S.
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund may be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the
underlying security is primarily traded, the Fund could write a put option on
the relevant currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased cost up to the
amount of the premium.
The writing of put or call options on non-U.S. currencies by the Fund will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may
be exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium.
Through the writing of options on currencies, the Fund also may be required to
forgo all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
Put and call options on non-U.S. currencies written by the Fund will be
covered by segregation of cash and liquid securities in an amount sufficient
to discharge the Fund's obligations with respect to the option, by acquisition
of the non-U.S. currency or of a right to acquire such currency (in the case
of a call option) or the acquisition of a right to dispose of the currency (in
the case of a put option), or in such other manner as may be in accordance
with the requirements of any exchange on which, or the counterparty with
which, the option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, a decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other currency remains constant, and
thus will reduce the value of the receipts covering such securities. The Fund
may employ any of the above described non-U.S. currency hedging techniques to
protect the value of its assets invested in depositary receipts.
The Fund may also engage in currency swaps and other similar transactions
as more fully described under "Swaps and Related Transactions" below.
Of course, the Fund is not required to enter into any transactions in
foreign currencies and does not do so unless deemed appropriate by the
Adviser. It should be realized that under certain circumstances, hedging
arrangements to protect the value of the Fund's securities against a decline
in currency values may not be available to the Fund on terms that make
economic sense (they may be too costly). It should also be realized that these
methods of protecting the value of the Fund's securities against a decline in
the value of a currency do not eliminate fluctuations in the underlying prices
of the securities. Additionally, although such contracts, if correctly used,
may tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they do not eliminate the risk of loss and also tend to limit
any potential gain which might result should the value of such currency
increase.
SWAPS AND RELATED TRANSACTIONS
The Fund may enter into interest rate swaps, currency swaps, equity swaps
and other types of available swap agreements, such as caps, collars and
floors, for the purpose of attempting to obtain a particular desired return at
a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest. An equity swap is an agreement to exchange cash flows on
a principal amount based on changes in the values of the reference index. A
currency swap is an agreement to exchange cash flows on a principal amount
based on changes in the values of the currency exchange rates. In a typical
cap or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from
the counterparty selling such interest rate cap. The sale of an interest rate
floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
The Fund will maintain liquid assets with its custodian or otherwise cover
its current obligations under swap transactions in accordance with current
regulations and policies applicable to the Fund.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity, currency or other
factor that determines the amount of payments to be made under the
arrangement. If the Adviser is incorrect in its forecasts of such factors, the
investment performance of the Fund would be less than what it would have been
if these investment techniques had not been used. If a swap agreement calls
for payments by the Fund, the Fund must be prepared to make such payments when
due. The Fund will not enter into any swap unless the Adviser deems the
counterparty to be creditworthy. If the counterparty's creditworthiness
declines, the value of the swap agreement would be likely to decline,
potentially resulting in losses. If the counterparty defaults, the Fund's risk
of loss consists of the net amount of payments that the Fund is contractually
entitled to receive. The Fund anticipates that it will be able to eliminate or
reduce its exposure under these arrangements by assignment or other
disposition or by entering into an offsetting agreement with the same or
another counterparty.
Swap agreements are subject to the Fund's overall limit that not more than
15% of its net assets may be invested in illiquid securities.
Engaging in swap and related transactions may involve leveraging.
Leveraging adds increased risks to the Fund, because the Fund's losses may be
out of proportion to the amount invested in the instrument--a relatively small
investment may lead to much greater losses.
SECURITIES RATED BAA OR BBB
The Fund may purchase securities rated Baa by Moody's Investors Service,
Inc. or BBB by Standard & Poor's Ratings Group and securities of comparable
quality, which may have poor protection of payment of principal and interest.
These securities are often considered to be speculative and involve greater
risk of default or price changes than securities assigned a higher quality
rating due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-rated securities and may
decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Less than 5% of the Fund's
investments consist of securities rated Baa by Moody's or BBB by Standard &
Poor's.
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.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. Interests in pools of
mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of
the prepayment feature. For instance, when interest rates decline, the value
of a GNMA certificate likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a GNMA certificate originally purchased at a premium to
decline in price to its par value which may result in a loss.
A portion of the Fund's assets may be invested in collateralized mortgage
obligations ("CMOs"), which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by certificates issued by GNMA, FNMA, or FHLMC but also may be collateralized
by whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). The Fund may also
invest a portion of its assets in multi-class pass-through securities which
are interests in a trust composed of Mortgage Assets. CMOs (which include
multi-class pass-through securities) may be issued by agencies, authorities or
instrumentalities of the U.S. Government or by private originators of or
investors in mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multi-class pass-through
securities. In a CMO, a series of bonds or certificates is usually issued in
multiple classes with different maturities. Each class of a CMO, often
referred to as a "tranche," is issued at a specific fixed or floating coupon
rate and has a stated maturity or final distribution date. Principal
prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in various ways.
In a common structure, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of the series
of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class
of CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The prices of mortgage-backed securities
may not increase as much as prices of other debt obligations when interest
rates decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates
go up, mortgage-backed securities experience lower rates of prepayment. This
has the effect of lengthening the expected maturity of a mortgage-backed
security. This particular risk, referred to as "maturity extension risk," may
effectively convert a security that was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, rising interest rates would not
only likely decrease the value of the Fund's fixed income securities, but
would also increase the inherent volatility of the Fund by effectively
converting short-term debt instruments into long-term debt instruments. As a
result, prices of mortgage-backed securities may decrease more than prices of
other debt obligations when interest rates go up.
The Fund may invest a portion of its assets in stripped mortgage-backed
securities, which are derivative multiclass mortgage securities. Stripped
mortgage-backed securities are usually structured with two classes that
receive different proportions of the interest and principal distributions from
a pool of Mortgage Assets. A common type of stripped mortgage-backed security
will have one class receiving some of the interest and the remainder of the
principal from the Mortgage Assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (an interest only security, or "IO")
while the other class will receive all of the principal (a principal only
security, or "PO"). The risk of early prepayments is the primary risk
associated with IOs. In some instances early prepayments may result in a
complete loss of investment in certain of these securities. The primary risks
associated with POs are the potential extension of average life and/or
depreciation due to rising interest rates.
CORPORATE ASSET-BACKED SECURITIES
As described in the Prospectus, certain of the Fund's assets may be
invested in corporate asset-backed securities. These securities, issued by
trusts and special purpose corporations, are backed by a pool of assets,
including but not limited to credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the assets backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
The underlying assets (e.g., loans) are also subject to prepayments which
shorten the securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default ensures payment through insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties. No additional or separate fees will be paid for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Fund, in accordance with applicable investment restrictions, may engage in
short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position is maintained for the Fund by the custodian or qualified sub-
custodian. While the short sale is open, an amount of securities equal in kind
and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities are maintained in a segregated
account for the Fund. These securities constitute the Fund's long position.
The Fund does not engage in short sales against the box for investment
purposes. The Fund may, however, make a short sale against the box as a hedge,
when it believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund (or a security convertible or
exchangeable for such security). In such case, any future losses in the Fund's
long position should be reduced by a gain in the short position. Conversely,
any gain in the long position should be reduced by a loss in the short
position. The extent to which such gains or losses are reduced depends upon
the amount of the security sold short relative to the amount the Fund owns.
There are certain additional transaction costs associated with short sales
against the box, but the Fund endeavors to offset these costs with the income
from the investment of the cash proceeds of short sales.
The Adviser does not expect that more than 40% of the Fund's total assets
would be involved in short sales against the box. The Adviser does not
currently intend to engage in such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks
of the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested
in high quality short-term instruments. Either party has the right to
terminate a loan at any time on customary industry settlement notice (which
will not usually exceed three business days). During the existence of a loan,
the Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and with respect to cash
collateral would also receive compensation based on investment of the
collateral (subject to a rebate payable to the borrower). Where the borrower
provides the Fund with collateral consisting of U.S. Treasury obligations, the
borrower is also obligated to pay the Fund a fee for use of the borrowed
securities. The Fund would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower fail financially. However, the loans would be made only to entities
deemed by the Adviser to be of good standing. In addition, the Fund could
suffer loss if the borrower terminates the loan and the Fund is forced to
liquidate investments in order to return the cash collateral to the buyer. The
Adviser will make loans only when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. If the Adviser determines to make loans, it is not
intended that the value of the securities loaned by the Fund would exceed 30%
of the market value of its total assets.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, meaning that delivery of the securities occurs beyond normal
settlement times. In general, the Fund does not pay for the securities until
received and does not start earning interest until the contractual settlement
date. It is expected that, under normal circumstances, the Fund would take
delivery of such securities but the Fund may sell them before the settlement
date. When the Fund commits to purchase a security on a "when-issued" or on a
"forward delivery" basis, it sets up procedures consistent with SEC policies.
Since those policies currently require that an amount of the Fund's assets
equal to the amount of the purchase be held aside or segregated to be used to
pay for the commitment, the Fund expects always to have cash or liquid
securities sufficient to cover any commitments or to limit any potential risk.
However, even though the Fund does not intend to make such purchases for
speculative purposes and intends to adhere to the provisions of SEC policies,
purchases of securities on such bases may involve more risk than other types
of purchases. The when-issued securities are subject to market fluctuations,
and no interest accrues on the security to the purchaser during this period.
The payment obligation and the interest rate that will be received on the
securities are each fixed at the time the purchaser enters into the
commitment. Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields available in the market when
the delivery takes place may actually be higher than those obtained in the
transaction itself. In that case, there could be an unrealized loss at the
time of delivery. An increase in the percentage of the Fund's assets committed
to the purchase of securities on a when-issued basis may increase the
volatility of its net asset value.
RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act
("Rule 144A securities"). However, the Fund does not invest more than 15% of
its net assets (taken at market value) in illiquid investments, which include
securities for which there is no readily available market, securities subject
to contractual restrictions on resale and Rule 144A securities, unless, in the
case of Rule 144A securities, the Board of Trustees of the Trust determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The Trustees have adopted guidelines and, subject to oversight by the
Trustees, have delegated to the Adviser the daily function of determining and
monitoring liquidity of Rule 144A securities.
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. These 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 ascertain a
market value for illiquid investments. Disposing of illiquid investments 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.
DEFENSIVE STRATEGIES
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, the Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and short-term
instruments. These investments may result in a lower yield than would be
available from investments in a lower quality or longer term.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trust, on behalf of
the Portfolio, have each adopted the following policies which may not be
changed with respect to the Fund or the Portfolio without approval by holders
of a majority of the outstanding voting securities of the Fund or Portfolio,
which as used in this Statement of Additional Information means the vote of
the lesser of (i) 67% or more of the outstanding voting securities of the Fund
or Portfolio present at a meeting at which the holders of more than 50% of the
outstanding voting securities of the Fund or Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Fund or Portfolio. The term "voting securities" as used in
this paragraph has the same meaning as in the 1940 Act.
Neither the Fund nor the Portfolio may:
(1) Borrow money, except that as a temporary measure for extraordinary
or emergency purposes it may borrow in an amount not to exceed 1/3 of the
current value of its net assets, including the amount borrowed (nor
purchase any securities at any time at which borrowings exceed 5% of the
total assets of the Fund or Portfolio, taken at market value). It is
intended that the Fund or Portfolio would borrow money only from banks and
only to accommodate requests for the repurchase of shares of the Fund or
beneficial interests in the Portfolio while effecting an orderly
liquidation of portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of
the Fund's or Portfolio's total assets (taken at market value), (b)
through the use of repurchase agreements or the purchase of short-term
obligations or (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial
institutions. The purchase of short-term commercial paper or a portion of
an issue of debt securities which is part of an issue to the public shall
not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund or
Portfolio more than 10% of the voting securities of such issuer to be held
by the Fund or Portfolio, except that, with respect to the Fund, the Trust
may invest all or substantially all of the Fund's assets in another
registered investment company having the same investment objectives and
policies and substantially the same investment restrictions as those with
respect to the Fund (a "Qualifying Portfolio").
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's or Portfolio's total assets
more than 5% of the Fund's or Portfolio's assets (taken at market value)
to be invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or
political subdivision thereof, or any political subdivision of any such
state, or any agency or instrumentality of the United States or of any
state or of any political subdivision of any state), except that, with
respect to the Fund, the Trust may invest all or substantially all of the
Fund's assets in a Qualifying Portfolio.
(5) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's or Portfolio's
investment objectives, up to 25% of its assets, at market value at the
time of each investment, may be invested in any one industry.
For purposes of restriction (1) above, arrangements with respect to
securities lending are not treated as borrowing.
As an operating policy, the Fund will not invest more than 15% of its net
assets (taken at market value) in securities for which there is no readily
available market. This policy is not fundamental and may be changed without
shareholder approval.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in the Prospectus is adhered to at the
time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund is not considered a
violation of policy. If the value of the Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the
time of acquisition due to subsequent fluctuations in value or other reasons,
the Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
5. PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of yield, effective yield or total rate of
return. All performance information is historical and is not intended to
indicate future performance. Yield and total rates of return fluctuate in
response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund may provide its period, annualized, cumulative, and average annual
"total rates of return." The "total rate of return" refers to the change in
the value of an investment in the Fund over a stated period, reflects any
change in net asset value per share and is compounded to include the value of
any shares purchased with any dividends or capital gains declared during such
period. Period total rates of return may be "annualized." An "annualized"
total rate of return assumes that the period total rate of return is generated
over a one-year period. Average annual total return figures represent the
average annual percentage change over the specified period. Cumulative total
return figures are not annualized and represent the aggregate percentage or
dollar value change over a stated period of time.
A total rate of return quotation for the Fund is calculated for any period
by (a) dividing (i) the sum of the net asset value per share on the last day
of the period and the net asset value per share on the last day of the period
of shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such
period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the public offering price per share on the first
day of such period, and (b) subtracting 1 from the result. Any annualized
total rate of return quotation is calculated by (x) adding 1 to the period
total rate of return quotation calculated above, (y) raising such sum to a
power which is equal to 365 divided by the number of days in such period, and
(z) subtracting 1 from the result.
Average annual total return is a measure of the Fund's performance over
time. It is determined by taking the Fund's performance over a given period
and expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by
SEC rules. The average annual total return for a specific period is found by
taking a hypothetical $1,000 initial investment in Fund shares on the first
day of the period, reducing the amount to reflect the maximum sales charge,
and computing the redeemable value of that investment at the end of the
period. The redeemable value is then divided by the initial investment, and
this quotient is taken to the Nth root (N representing the number of years in
the period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains
distributions have been reinvested in Fund shares at net asset value on the
reinvestment dates during the period.
The Fund may provide annualized "yield" and "effective yield" quotations.
The "yield" of the Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period (which period is stated in any such
advertisement or communication). This income is then annualized, that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of
the public offering price on the last day of that period. The "effective
yield" is calculated similarly, but when annualized the income earned by the
investment during that 30-day or one-month period is assumed to be reinvested.
The effective yield is slightly higher than the yield because of the
compounding effect of this assumed reinvestment. A "yield" quotation, unlike a
total rate of return quotation, does not reflect changes in net asset value.
Any current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of
the average daily number of shares outstanding during the period that were
entitled to receive dividends and the public offering price per share on the
last day of the period, (b) subtracting 1 from the result, and (c) multiplying
the result by 2.
Set forth below is average annual total rate of return information for
Class A shares of the Fund for the periods indicated, assuming that dividends
and capital gains distributions, if any, were reinvested. All outstanding
shares were designated Class A shares on January 4, 1999. The return
information relates to periods prior to January 4, 1999, when there were no
sales charges on the purchase or sale of the Fund's shares. The Class A
performance for past periods has therefore been adjusted to reflect the
maximum sales charge currently in effect. The Class B shares were newly
offered on January 4, 1999. Performance results include any applicable fee
waivers or expense subsidies in place during the time period, which may cause
the results to be more favorable than they would otherwise have been.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
OF A HYPOTHETICAL
AVERAGE ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
OF RETURN THE PERIOD
--------- ----------
<S> <C> <C>
October 19, 1990 (commencement of operations) to December 31, 1998 .. 12.08% $2,550
Five Years Ended December 31, 1998 .................................. 9.86% $1,600
One Year Ended December 31, 1998 .................................... 2.44% $1,024
</TABLE>
The annualized yield of the shares of the Fund for the 30-day period ended
on December 31, 1998 was 2.65%.
Comparative performance information may be used from time to time in
advertising shares of the Fund, including data from Lipper Analytical
Services, Inc. and other industry sources and publications. From time to time
the Fund may compare its performance against inflation with the performance of
other instruments against inflation, such as FDIC-insured bank money market
accounts. In addition, advertising for the Fund may indicate that investors
should consider diversifying their investment portfolios in order to seek
protection of the value of their assets against inflation. From time to time,
advertising materials for the Fund may refer to or discuss current or past
economic or financial conditions, developments and events. The Fund's
advertising materials also may refer to the integration of the world's
securities markets, discuss the investment opportunities available worldwide
and mention the increasing importance of an investment strategy including non-
U.S. investments.
For advertising and sales purposes, the Fund will generally use the
performance of Class A shares. All outstanding Fund shares were designated
Class A shares on January 4, 1999. Performance prior to that date will be
adjusted to include the sales charges currently in effect. Class A shares are
sold at net asset value plus a current maximum sales charge of 5.00%.
Performance will typically include this maximum sales charge for the purposes
of calculating performance figures. If the performance of Class B shares is
used for advertising and sales purposes, performance after class inception on
January 4, 1999 will be actual performance, while performance prior to that
date will be Class A performance, adjusted to reflect the differences in sales
charges (but not the differences in fees and expenses) between the classes.
For these purposes, it will be assumed that the maximum contingent deferred
sales charge applicable to the Class B shares is deducted at the times, in the
amount, and under the terms stated in the Prospectus. Class B share
performance generally would have been lower than Class A performance, had the
Class B shares been offered for the entire period, because the expenses
attributable to Class B shares are higher than the expenses attributable to
the Class A shares. Fund performance may also be presented in advertising and
sales literature without the inclusion of sales charges.
6. DETERMINATION OF NET ASSET VALUE;
VALUATION OF SECURITIES
The net asset value per share of the Fund is determined for each class on
each day during which the New York Stock Exchange is open for trading (a
"Business Day"). As of the date of this Statement of Additional Information,
the Exchange is open for trading every weekday except for the following
holidays (or the days on which they are observed): New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. This determination is made
once each day as of the close of regular trading on the Exchange (normally
4:00 p.m. Eastern time) by adding the market value of all securities and other
assets attributable to the class (including its interest in the Portfolio),
then subtracting the liabilities attributable to that class, and then dividing
the result by the number of outstanding shares of the class. The net asset
value per share is effective for orders received and accepted by the
Distributor prior to its calculation.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined at the same time and on the same days as the net asset value per
share of the Fund is determined. The net asset value of the Fund's investment
in the Portfolio is equal to the Fund's pro rata share of the net assets of
the Portfolio.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates or if there are no market rates,
at fair value, at the time of valuation. Equity securities are valued at the
last sale price on the exchange on which they are primarily traded or on the
NASDAQ system for unlisted national market issues, or at the last quoted bid
price for securities in which there were no sales during the day or for
unlisted securities not reported on the NASDAQ system. Securities listed on a
foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Bonds and other fixed income securities
(other than short-term obligations) are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Trustees of the Trust. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques that
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees of the Trust. Futures contracts are normally valued at the settlement
price on the exchange on which they are traded. Securities for which there are
no such valuations are valued at fair value as determined in good faith by or
at the direction of the Board of Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the Exchange is
closed. 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, such securities may be
valued at fair value in accordance with procedures established by and under
the general supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for the Fund is determined
on the basis of interest accrued plus amortization of "original issue
discount" (generally, the difference between issue price and stated redemption
price at maturity) and premiums (generally, the excess of purchase price over
stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization
of any premium.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE
OF FUND SHARES AND SHAREHOLDER PROGRAMS
As described in the Prospectus, the Fund provides you with alternative
ways of purchasing shares based upon your individual investment needs.
Each class of shares of the Fund represents an interest in the same
portfolio of investments. Each class is identical in all respects except that
each class bears its own class expenses, including distribution and service
fees, and each class has exclusive voting rights with respect to any
distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per
share, dividends per share and net asset value per share will vary for each
class of shares. There are no conversion, preemptive or other subscription
rights, except that Class B shares automatically convert to Class A shares in
eight years as more fully described below.
Shareholders of each class will share expenses proportionately for
services that are received equally by all shareholders. A particular class of
shares will bear only those expenses that are directly attributable to that
class, where the type or amount of services received by a class varies from
one class to another. The expenses that may be borne by specific classes of
shares may include (i) transfer agency fees attributable to a specific class
of shares, (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class of shares, (iii) SEC
and state securities registration fees incurred by a specific class, (iv) the
expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal
expenses relating to a specific class of shares, (vi) accounting expenses
relating to a specific class of shares and (vii) any additional incremental
expenses subsequently identified and determined to be properly allocated to
one or more classes of shares.
CLASS A SHARES
You may purchase Class A shares at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. You may qualify for a
reduced sales charge depending upon the amount of your purchase, or the sales
charge may be waived in its entirety, as described below under "Sales Charge
Waivers." If you qualify to purchase Class A shares without a sales load, you
should purchase Class A shares rather than Class B shares because Class A
shares pay lower fees. Class A shares are also subject to an annual
distribution/service fee of up to 0.25%. See "Distributor." Set forth below is
an example of the method of computing the offering price of the Class A shares
of the Fund. The example assumes a purchase on December 31, 1998 of Class A
shares from the Fund aggregating less than $25,000 subject to the schedule of
sales charges set forth below.
<TABLE>
<CAPTION>
CITIFUNDS BALANCED PORTFOLIO
----------------------------
<S> <C>
Net Asset Value per share ............................................. $14.24
Per Share Sales Charge -- 5.00% of public offering price
(5.26% of net asset value per share) ................................ $ 0.75
Per Share Offering Price to the Public ................................ $14.99
</TABLE>
The Fund receives the entire net asset value of all Class A shares that
are sold. The Distributor retains the full applicable sales charge from which
it pays the uniform reallowances shown in the table below.
The front-end sales charge for Class A shares expressed as a percentage of
offering price and net asset value, and the dealer reallowance expressed as a
percentage of the offering price is set forth in the table below. The Fund has
established certain shareholder programs that may permit you to take advantage
of the lower rates available for larger purchases, as described under
"Shareholder Programs" below.
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER REALLOWANCE
AMOUNT OF AS A % OF AS A % OF AS A % OF
INVESTMENT OFFERING PRICE INVESTMENT OFFERING PRICE
- ---------- -------------- ---------- --------------
<S> <C> <C> <C>
Less than $25,000 ................................ 5.00% 5.26% 4.50%
$25,000 to less than $50,000 ..................... 4.00% 4.17% 3.60%
$50,000 to less than $100,000 .................... 3.50% 3.63% 3.15%
$100,000 to less than $250,000 ................... 3.00% 3.09% 2.70%
$250,000 to less than $500,000 ................... 2.00% 2.04% 1.80%
$500,000 or more ................................. none* none* up to 1.00%
</TABLE>
- ----------
*A contingent deferred sales charge may apply in certain instances. See "Sales
Charge Waivers -- Class A" below.
CLASS B SHARES
Class B shares are sold without a front-end, or initial, sales charge, but
you are charged a contingent deferred sales charge (CDSC) when you sell shares
within five years of purchase. The rate of CDSC goes down the longer you hold
your shares. The table below shows the rates that you pay, as a percentage of
the purchase price (or the sale price, whichever is less), depending upon when
you sell your shares.
SALE DURING CDSC ON SHARES BEING SOLD
- ----------- -------------------------
1st year since purchase 5.00%
2nd year since purchase 4.00%
3rd year since purchase 3.00%
4th year since purchase 2.00%
5th year since purchase 1.00%
6th year (or later) since purchase None
Class B shares pay distribution/service fees of up to 1.00% of the average
daily net assets of the Fund represented by the Class B shares. The
Distributor pays commissions to brokers, dealers and other institutions of
4.50% of the offering price of Class B shares sold by these entities. These
commissions are not paid on exchanges from other CitiFunds or on sales of
Class B shares to investors exempt from the CDSC. The Distributor is
compensated for these payments through the receipt of the ongoing distribution
fees from the Fund, and through the CDSC, if any. The Distributor will also
advance the first year service fee to dealers at an annual rate equal to 0.25%
of the average daily net assets represented by Class B shares sold by them. As
a result, the total amount paid to a dealer upon the purchase of Class B
shares may be a maximum of 4.75% of the purchase price of the Class B shares.
When you sell your shares, the CDSC will be based on either your purchase
price, or the sale price, whichever is less. You do not pay a CDSC on shares
acquired through reinvestment of dividends, capital gain distributions or on
shares representing capital appreciation. The Fund will assume that a
redemption of Class B shares is made:
[ ] first, of Class B shares representing capital appreciation
[ ] next, of shares representing the reinvestment of dividends and capital
gains distributions
[ ] finally, of other shares held by the investor for the longest period
of time.
Under certain circumstances, as set forth below in "Sales Charge Waivers," the
CDSC will be waived.
The holding period of Class B shares of the Fund acquired through an
exchange with another CitiFund will be calculated from the date that the Class
B shares were initially acquired in the other CitiFund, and Class B shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in the
other fund. When determining the amount of the CDSC, the Fund will use the
CDSC schedule of any fund from which you have exchanged shares that would
result in you paying the highest CDSC.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will
with persons or entities with which Citibank or the Distributor or their
affiliates have business relationships, or because the sales effort, if any,
involved in making such sales is negligible, or, in the case of certain CDSC
waivers, because the circumstances surrounding the sale of Fund shares were
not foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
CLASS A--FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares acquired
through the reinvestment of dividends and capital gains distributions.
o Eligible Purchasers. Class A shares may be purchased without a sales charge
by:
[] tax exempt organizations under Section 501(c)(3-13) of the Internal
Revenue Code
[] trust accounts for which Citibank or any subsidiary or affiliate of
Citibank acts as trustee and exercises discretionary investment
management authority
[] accounts for which Citibank or any subsidiary or affiliate of Citibank
performs investment advisory services or charges fees for acting as
custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any investment
company for which Citibank or any subsidiary or affiliate of Citibank
serves as the investment adviser or as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including immediate
families of any of the foregoing), and retired employees of Citibank
and its affiliates or CFBDS, Inc. and its affiliates (including
immediate families of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund shares as
an investment option based on an investor's balances in selected
Citigroup Inc. products and services
[] employees of members of the National Association of Securities Dealers,
Inc., provided that such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that
the securities will not be resold except through redemption or
repurchase
[] separate accounts used to fund certain unregistered variable annuity
contracts
[] direct rollovers by plan participants from a 401(k) plan offered to
Citigroup employees
[] shareholder accounts established through a reorganization or similar
form of business combination approved by the Fund's Board of Trustees
or by the Board of Trustees of any other CitiFund or mutual fund
managed or advised by Citibank (all of such funds being referred to
herein as CitiFunds) the terms of which entitle those shareholders to
purchase shares of the Fund or any other CitiFund at net asset value
without a sales charge
[] employee benefit plans qualified under Section 401(k) of the Internal
Revenue Code with accounts outstanding on January 4, 1999
[] employee benefit plans qualified under Section 401 of the Internal
Revenue Code, including salary reduction plans qualified under Section
401(k) of the Code, subject to minimum requirements as may be
established by CFBDS with respect to the amount of purchase; currently,
the amount invested by the qualified plan in the Fund or in any
combination of CitiFunds must total a minimum of $1 million
[] accounts associated with Copeland Retirement Systems
[] investors purchasing $500,000 or more of Class A shares; however, a
contingent deferred sales charge will be imposed on the investments in
the event of certain share redemptions within 12 months following the
share purchase, at the rate of 1% of the lesser of the value of the
shares redeemed (not including reinvested dividends and capital gains
distributions) or the total cost of the shares; the contingent deferred
sales charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class B shares
will be waived; in determining whether a contingent deferred sales
charge on Class A shares is payable, and if so, the amount of the
charge:
+ it is assumed that shares not subject to the contingent deferred
sales charge are the first redeemed followed by other shares held for
the longest period of time
+ all investments made during a calendar month will age one month on
the last day of the month and each subsequent month
+ any applicable contingent deferred sales charge will be deferred upon
an exchange of Class A shares for Class A shares of another CitiFund
and deducted from the redemption proceeds when the exchanged shares
are subsequently redeemed (assuming the contingent deferred sales
charge is then payable)
+ the holding period of Class A shares so acquired through an exchange
will be aggregated with the period during which the original Class A
shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other than
a CitiFund), if:
+ the redeemed shares were subject to an initial sales charge or a
deferred sales charge (whether or not actually imposed), and
+ the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from another
investment firm within six months prior to the date of purchase by the
investor, if:
+ the investor redeems shares of another mutual fund sold through the
investment firm that previously employed that investment consultant
or other registered representative, and either paid an initial sales
charge or was at some time subject to, but did not actually pay, a
deferred sales charge or redemption fee with respect to the
redemption proceeds
+ the redemption is made within 60 days prior to the investment in the
Fund, and
+ the net asset value of the shares of the Fund sold to that investor
without a sales charge does not exceed the proceeds of the redemption
CONTINGENT DEFERRED SALES CHARGE:
o Reinvestment. There is no CDSC on shares representing capital appreciation
or on shares acquired through reinvestment of dividends or capital gains
distributions.
o Waivers. The CDSC will be waived in connection with:
[] a total or partial redemption made within one year of the death of the
shareholder; this waiver is available where the deceased shareholder is
either the sole shareholder or owns the shares with his or her spouse
as a joint tenant with right of survivorship, and applies only to
redemption of shares held at the time of death
[] a lump sum or other distribution in the case of an Individual
Retirement Account (IRA), a self-employed individual retirement plan
(Keogh Plan) or a custodian account under Section 403(b) of the
Internal Revenue Code, in each case following attainment of age 59 1/2
[] a total or partial redemption resulting from any distribution following
retirement in the case of a tax-qualified retirement plan
[] a redemption resulting from a tax-free return of an excess contribution
to an IRA
[] redemptions made under the Fund's Systematic Withdrawal Plan
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the Fund approximately eight years after the date of issuance. At
the same time, a portion of all Class B shares representing dividends and
other distributions paid in additional Class B shares will be converted in
accordance with procedures from time to time approved by the Fund's Trustees.
The conversion will be effected at the relative net asset values per share of
the two classes on the first business day of the month in which the eighth
anniversary of the issuance of the Class B shares occurs. If a shareholder
effects one or more exchanges among Class B shares of the CitiFunds during the
eight-year period, the holding periods for the shares so exchanged will be
counted toward the eight-year period. Because the per share net asset value of
the Class A shares may be higher than that of the Class B shares at the time
of conversion, a shareholder may receive fewer Class A shares than the number
of Class B shares converted, although the dollar value will be the same.
SHAREHOLDER PROGRAMS
The Fund makes the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Class A shares, to
exchange Fund shares for shares of other CitiFunds, without, in many cases,
the payment of a sales charge or to provide for the automatic withdrawal of
cash. These programs may be changed or discontinued at any time. For more
information, please contact your Service Agent.
REDUCED SALES CHARGE PLAN
A qualified group may purchase shares as a single purchaser under the
reduced sales charge plan. The purchases by the group are lumped together and
the sales charge is based on the lump sum. A qualified group must:
[] have been in existence for more than six months
[] have a purpose other than acquiring Fund shares at a discount
[] satisfy uniform criteria that enable CFBDS to realize economies of
scale in its costs of distributing shares
[] have more than ten members
[] be available to arrange for group meetings between representatives of
the Fund and the members
[] agree to include sales and other materials related to the Fund in its
publications and mailings to members at reduced or no cost to the
distributor
[] seek to arrange for payroll deduction or other bulk transmission of
investments to the Fund
LETTER OF INTENT
If an investor anticipates purchasing $25,000 or more of Class A shares of
the Fund alone or in combination with Class B shares of the Fund or any of the
classes of other CitiFunds or of any other mutual fund managed or advised by
Citibank (all of such funds being referred to herein as CitiFunds) within a
13-month period, the investor may obtain the shares at the same reduced sales
charge as though the total quantity were invested in one lump sum by
completing a letter of intent on the terms described below. Subject to
acceptance by CFBDS, Inc., the Fund's distributor, and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the
letter of intent.
[] The shareholder or, if the shareholder is a customer of a Service
Agent, his or her Service Agent must inform CFBDS that the letter of
intent is in effect each time shares are purchased.
[] The shareholder makes no commitment to purchase additional shares, but
if his or her purchases within 13 months plus the value of shares
credited toward completion of the letter of intent do not total the sum
specified, an increased sales charge will apply as described below.
[] A purchase not originally made pursuant to a letter of intent may be
included under a subsequent letter of intent executed within 90 days of
the purchase if CFBDS is informed in writing of this intent within the
90-day period.
[] The value of shares of the Fund presently held, at cost or maximum
offering price (whichever is higher), on the date of the first purchase
under the letter of intent, may be included as a credit toward the
completion of the letter, but the reduced sales charge applicable to
the amount covered by the letter is applied only to new purchases.
[] Instructions for issuance of shares in the name of a person other than
the person signing the letter of intent must be accompanied by a
written statement from the Transfer Agent or a Service Agent stating
that the shares were paid for by the person signing the letter.
[] Neither income dividends nor capital gains distributions taken in
additional shares will apply toward the completion of the letter of
intent.
[] The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the letter of intent
are deducted from the total purchases made under the letter of intent.
If the investment specified in the letter of intent is not completed
(either prior to or by the end of the
13-month period), the Transfer Agent will redeem, within 20 days of the
expiration of the letter of intent, an appropriate number of the shares in
order to realize the difference between the reduced sales charge that would
apply if the investment under the letter of intent had been completed and the
sales charge that would normally apply to the number of shares actually
purchased. By completing and signing the letter of intent, the shareholder
irrevocably grants a power of attorney to the Transfer Agent to redeem any or
all shares purchased under the letter of intent, with full power of
substitution.
RIGHT OF ACCUMULATION
A shareholder qualifies for cumulative quantity discounts on the purchase
of Class A shares when his or her new investment, together with the current
offering price value of all holdings of that shareholder in the CitiFunds,
reaches a discount level. For example, if a Fund shareholder owns shares
valued at $50,000 and purchases an additional $50,000 of Class A shares of the
Fund, the sales charge for the $50,000 purchase would be at the rate of 3.00%
(the rate applicable to single transactions from $100,000 to less than
$250,000). A shareholder must provide the Service Agent with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
SYSTEMATIC WITHDRAWAL PLAN
The Fund's Systematic Withdrawal Plan permits you to have a specified
dollar amount (minimum of $100 per withdrawal) automatically withdrawn from
your account on a regular basis if you have at least $10,000 in your Fund
account at the time of enrollment. You are limited to one withdrawal per month
under the Plan.
If you redeem Class A or Class B shares under the Plan that are subject to
a CDSC, you are not subject to any CDSC applicable to the shares redeemed, but
the maximum amount that you can redeem under the Plan in any year is limited
to 10% of the average daily balance in your account.
You may receive your withdrawals by check, or have the monies transferred
directly into your bank account. Or you may direct that payments be made
directly to a third party.
To participate in the Plan, you must complete the appropriate forms
provided by the Transfer Agent or your Service Agent.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed (with a credit
for any contingent deferred sales charge paid) by purchasing Class A shares of
the Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Service Agents in
writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of
certain other CitiFunds that are made available by the Transfer Agent or your
Service Agent, or may be acquired through an exchange of shares of the same
class of those funds. Class A shares also may be exchanged for shares of
certain CitiFunds that offer only a single class of shares, unless the Class A
shares are subject to a contingent deferred sales charge. Class B shares may
not be exchanged for shares of CitiFunds that offer only a single class of
shares.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares are being acquired and the sales charge for
Class A of the fund being exchanged into is greater than the current sales
charge of the Fund (in which case an initial sales charge will be imposed at a
rate equal to the difference). Investors whose shares are outstanding on
January 4, 1999 will be able to exchange those Class A shares, and any shares
acquired through capital appreciation and the reinvestment of dividends and
capital gains distributions on those shares, into Class A shares of the other
funds without paying any sales charge.
No CDSC is imposed on Class B shares at the time they are exchanged for
Class B shares of certain other CitiFunds that are made available by your
Service Agent. However, you may be required to pay a CDSC when you sell those
shares. When determining the amount of the CDSC, the Fund will use the CDSC
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
You must notify your Service Agent at the time of exchange if you believe
that you qualify for share prices which do not include the sales charge or
which reflect a reduced sales charge, because the Fund shares you are
exchanging were: (a) purchased with a sales charge, (b) acquired through a
previous exchange from shares purchased with a sales charge, (c) outstanding
as of January 4, 1999, or (d) acquired through capital appreciation or the
reinvestment of dividends and capital gains distributions on those shares. Any
such qualification may be subject to confirmation, through a check of
appropriate records and documentation, of your existing share balances and any
sales charges paid on prior share purchases.
This exchange privilege may be modified or terminated at any time, and is
available only in those jurisdictions where such exchanges legally may be
made. Before making any exchange, shareholders should contact their Service
Agents to obtain more information and prospectuses of the funds to be acquired
through the exchange. An exchange is treated as a sale of the shares exchanged
and could result in taxable gain or loss to the shareholder making the
exchange.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate written disclosure of any fees that it
may charge them directly. Each Service Agent is responsible for transmitting
promptly orders of its customers. Your Service Agent is the shareholder of
record for the shares of the Fund that you own.
Investors may be able to establish new accounts in the Fund under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and
certain other qualified pension and profit-sharing plans. Investors should
consult with their Service Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the Transfer Agent or, if they are
customers of a Service Agent, their Service Agent. During periods of drastic
economic or market changes or severe weather or other emergencies,
shareholders may experience difficulties implementing a telephone exchange or
redemption. In such an event, another method of instruction, such as a written
request sent via an overnight delivery service, should be considered. The
Fund, the Transfer Agent and each Service Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These procedures may include recording of the telephone instructions and
verification of a caller's identity by asking for his or her name, address,
telephone, Social Security number, and account number. If these or other
reasonable procedures are not followed, the Fund, the Transfer Agent or the
Service Agent may be liable for any losses to a shareholder due to
unauthorized or fraudulent instructions. Otherwise, the shareholder will bear
all risk of loss relating to a redemption or exchange by telephone.
Subject to compliance with applicable regulations, the Trust and the
Portfolio Trust have each reserved the right to pay the redemption price of
shares of the Fund or beneficial interests in the Portfolio, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares or
beneficial interests being sold. If a holder of shares or beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.
The Trust or the Portfolio Trust may suspend the right of redemption or
postpone the date of payment for shares of the Fund or beneficial interests in
the Portfolio more than seven days during any period when (a) trading in the
markets the Fund or Portfolio normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of the Fund's or Portfolio's investments or determination of its net
asset value not reasonably practicable; (b) the New York Stock Exchange is
closed (other than customary weekend and holiday closings); or (c) the SEC has
by order permitted such suspension.
8. MANAGEMENT
The Trustees and officers of the Trust and the Portfolio Trust, their ages
and their principal occupations during the past five years are set forth
below. Their titles may have varied during that period. Asterisks indicate
that those Trustees and officers are "interested persons" (as defined in the
1940 Act) of the Trust or the Portfolio Trust. Unless otherwise indicated
below, the address of each Trustee and officer is 21 Milk Street, Boston,
Massachusetts. The address of the Portfolio Trust is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 72 -- Vice President and General Counsel, Corporate Property
Investors (November 1988 to December 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December 1987). His address is 4041 Gulf Shore Boulevard
North, Naples, Florida.
DIANA R. HARRINGTON; 59 -- Professor, Babson College (since September 1993);
Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, The Highland Family of Funds (March 1997 to March 1998). Her address
is 120 Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 47 -- President, Global Research Associates, Inc. (Investment
Research) (since August 1990); Manager, Rockefeller & Co. (March 1988 to July
1990); Trustee, Mainstay Institutional Funds (since December 1990). Her
address is P.O. Box 9572, New Haven, Connecticut.
HEATH B. MCLENDON*; 65 - Chairman, President, and Chief Executive Officer of
SSBC Fund Management, Inc. (formerly known as Mutual Management Corp.) (since
March 1996); Managing Director of Salomon Smith Barney (since August 1993);
and Chairman, President and Chief Executive Officer of fifty-eight investment
companies sponsored by Salomon Smith Barney. His address is 388 Greenwich
Street, New York, New York.
C. OSCAR MORONG, JR.; 64 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trust; Managing Director, Morong Capital Management (since
February 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired, January 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive West, Mountainside, New Jersey.
E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR.; 78 -- Vice President-Investments, Sun Company, Inc.
(retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUST
ELLIOTT J. BERV; 56 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
MARK T. FINN; 55 -- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading
Advisory Firm) (since March 1997); Director, Vantage Consulting Group, Inc.
(since October 1988). His address is 3500 Pacific Avenue, P.O. Box 539,
Virginia Beach, Virginia.
C. OSCAR MORONG, JR.; 64 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trust; Managing Director, Morong Capital Management (since
February 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired, January 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive West, Mountainside, New Jersey.
WALTER E. ROBB, III; 72 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE A. DRAPEAU*; 28 -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trust; Vice President, Signature Financial Group,
Inc. (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996).
TAMIE EBANKS-CUNNINGHAM*; 26 -- Assistant Secretary of the Trust and the
Portfolio Trust; Office Manager, Signature Financial Group (Cayman) Ltd.
(since April 1995); Administrator, Cayman Islands Primary School (prior to
April 1995). Her address is P.O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, B.W.I.
JOHN R. ELDER*; 50 -- Treasurer of the Trust and the Portfolio Trust; Vice
President, Signature Financial Group, Inc. (since April 1995); Assistant
Treasurer, CFBDS (since April 1995); Treasurer, Phoenix Family of Mutual Funds
(Phoenix Home Life Mutual Insurance Company) (1983 to March 1995).
LINDA T. GIBSON*; 33 -- Secretary of the Trust and the Portfolio Trust; Senior
Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
JAMES E. HOOLAHAN*; 52 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Senior Vice President,
Signature Financial Group, Inc.
SUSAN JAKUBOSKI*; 35 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994).
MOLLY S. MUGLER*; 47 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN*; 30 -- Assistant Secretary of the Trust and the Portfolio
Trust; Office Manager, Signature Financial Group (Europe) Limited. Her address
is 117 Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON*; 50 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Assistant Vice President, Signature Financial
Group, Inc.
JULIE J. WYETZNER*; 39 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group, Inc.
The Trustees and officers of the Trust and the Portfolio Trust also hold
comparable positions with certain other funds for which CFBDS, SFG or their
affiliates serve as the distributor or administrator.
The following table shows Trustee compensation for the periods indicated.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION
FROM THE FROM TRUST
TRUSTEE FUND(1) AND COMPLEX(1)(2)
------- -------- --------
<S> <C> <C>
Philip W. Coolidge $ 0 $ 0
Riley C. Gilley 1,899 41,500
Diana R. Harrington 2,560 59,000
Susan B. Kerley 2,431 55,000
Heath B. McLendon(3) 0 0
C. Oscar Morong, Jr. 3,096 71,000
E. Kirby Warren 2,301 49,000
William S. Woods, Jr. 2,307 54,000
- ------------
(1) For the fiscal year ended December 31, 1998.
(2) Messrs. Coolidge, Gilley, McLendon, Morong, Warren and Woods, and Mses. Harrington and Kerley are
Trustees of 50, 34, 22, 41, 41, 27, 29 and 29 funds and portfolios, respectively, in the family
of open-end registered investment companies advised or managed by Citibank.
(3) Mr. McLendon was appointed as Trustee in February, 1999.
</TABLE>
As of April 9, 1999, all Trustees and officers as a group owned less than
1% of the outstanding shares of the Fund. As of the same date, more than 95%
of the outstanding shares of the Fund were held of record by Citibank, N.A. or
its affiliates as Service Agents of the Fund for the accounts of their
respective clients.
The Declaration of Trust of each of the Trust and the Portfolio Trust
provides that each of the Trust and the Portfolio Trust, as the case may be,
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because
of their offices with the Trust or the Portfolio Trust, as the case may be,
unless, as to liability to the Trust, the Portfolio Trust or their respective
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Trust or the Portfolio Trust,
as the case may be. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination, based
upon a review of readily available facts, by vote of a majority of
disinterested Trustees of the Trust or the Portfolio Trust, or in a written
opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
ADVISER
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees of the Portfolio Trust may determine, the Adviser manages
the securities of the Portfolio and makes investment decisions for the
Portfolio. The Adviser furnishes at its own expense all services, facilities
and personnel necessary in connection with managing the Portfolio's
investments and effecting securities transactions for the Portfolio. Unless
otherwise terminated, the Advisory Agreement will continue in effect
indefinitely as long as such continuance is specifically approved at least
annually by the Board of Trustees of the Portfolio Trust or by a vote of a
majority of the outstanding voting securities of the Portfolio, and, in either
case, by a majority of the Trustees of the Portfolio Trust who are not parties
to the Advisory Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio Trust when
authorized either by a vote of a majority of the outstanding voting securities
of the Portfolio or by a vote of a majority of the Board of Trustees of the
Portfolio Trust, or by the Adviser on not more than 60 days' nor less than 30
days' written notice, and will automatically terminate in the event of its
assignment. The Advisory Agreement provides that neither the Adviser nor its
personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives an
investment advisory fee, which is accrued daily and paid monthly, of 0.40% of
the Fund's average daily net assets on an annualized basis for the Fund's
then-current fiscal year. For the fiscal years ended December 31, 1996, 1997
and 1998, the fees paid to Citibank under the Advisory Agreement with respect
to the Portfolio were $996,840, $998,042 and $1,030,889, respectively.
ADMINISTRATOR
Pursuant to administrative services agreements (the "Administrative
Services Agreements"), CFBDS and SFG provide the Trust and the Portfolio
Trust, respectively, with general office facilities, and CFBDS and SFG
supervise the overall administration of the Trust or the Portfolio Trust,
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of, the Trust's or the
Portfolio Trust's independent contractors and agents; the preparation and
filing of all documents required for compliance by the Trust or the Portfolio
Trust with applicable laws and regulations; and arranging for the maintenance
of books and records of the Trust or the Portfolio Trust. The Administrator
and the Portfolio Administrator provide persons satisfactory to the Board of
Trustees of the Trust or the Portfolio Trust to serve as Trustees and officers
of the Trust and the Portfolio Trust, respectively. Such Trustees and
officers, as well as certain other employees and Trustees of the Trust and the
Portfolio Trust, may be directors, officers or employees of CFBDS, SFG or
their affiliates.
For its services under the Administrative Services Agreement, CFBDS
receives fees accrued daily and paid monthly of 0.25% of the average daily net
assets of the Fund on an annualized basis for the Fund's then-current fiscal
year. For the fiscal years ended December 31, 1996, 1997 and 1998, the fees
payable by the Fund to CFBDS under the Administrative Services Agreement with
respect to the Fund were $592,565 (of which $237,026 was voluntarily waived),
$570,130 (of which $228,507 was voluntarily waived) and $577,968 (of which
$231,585 was voluntarily waived), respectively.
For its services under the Administrative Services Agreement, CFBDS
receives fees accrued daily and paid monthly of 0.05% of the assets of the
Portfolio on an annualized basis for the Portfolio's then-current fiscal year.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Portfolio
Trust paid the Portfolio Administrator $124,605, $124,755 and $128,861,
respectively, with respect to the Portfolio under the Portfolio Trust's
Administrative Services Agreement.
The Administrative Services Agreement with the Trust continues in effect
with respect to the Fund if such continuance is specifically approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
the outstanding voting securities of the Trust and, in either case, by a
majority of the Trustees who are not parties to the Administrative Services
Agreement or interested persons of any such party. The Administrative Services
Agreement with the Trust terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the outstanding voting
securities of the Trust or by either party on not more than 60 days' nor less
than 30 days' written notice. The Administrative Services Agreement with the
Trust also provides that neither CFBDS, as the Administrator, nor its
personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except
for willful misfeasance, bad faith or gross negligence in the performance of
its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Trust's Administrative Services Agreement.
The Administrative Services Agreement with the Portfolio Trust provides
that SFG may render administrative services to others. The Administrative
Services Agreement with the Portfolio Trust terminates automatically if it is
assigned and may be terminated without penalty by a vote of a majority of the
outstanding voting securities of the Portfolio Trust or by either party on not
more than 60 days' nor less than 30 days' written notice. The Administrative
Services Agreement with the Portfolio Trust also provides that neither SFG, as
the Portfolio Administrator, nor its personnel shall be liable for any error
of judgment or mistake of law or for any act or omission in the administration
or management of the Portfolio Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Portfolio Trust's Administrative Services Agreement.
CFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group,
Inc. SFG is a company organized under the laws of the Cayman Islands. Its
principal place of business is in George Town, Grand Cayman, British West
Indies.
Pursuant to a sub-administrative services agreement, Citibank performs
such sub-administrative duties for the Trust and the Portfolio Trust as from
time to time are agreed upon by Citibank and, respectively, CFBDS or SFG.
Citibank's sub-administrative duties may include providing equipment and
clerical personnel necessary for maintaining the Trust's and the Portfolio
Trust's organization, participation in the preparation of documents required
for compliance by the Trust and the Portfolio Trust with applicable laws and
regulations, the preparation of certain documents in connection with meetings
of Trustees and shareholders, and other functions which would otherwise be
performed by the Administrator. For performing such sub-administrative
services, Citibank receives compensation as from time to time is agreed upon
by CFBDS or SFG, not in excess of the amount paid to CFBDS or SFG for its
services under the Administrative Services Agreements with the Trust and the
Portfolio Trust. All such compensation is paid by CFBDS or SFG.
DISTRIBUTOR
CFBDS, 21 Milk Street, Boston, MA 02109, serves as the Distributor of the
Fund's shares pursuant to a Distribution Agreement with the Trust with respect
to each class of shares of the Fund (each, a "Distribution Agreement"). In
those states where CFBDS is not a registered broker-dealer, shares of the Fund
are sold through Signature Broker-Dealer Services, Inc., as dealer. Under the
Distribution Agreements, CFBDS is obligated to use its best efforts to sell
shares of each class of the Fund.
Either party may terminate a Distribution Agreement on not less than
thirty days' nor more than sixty days' prior written notice to the other
party. Unless otherwise terminated, each Distribution Agreement will continue
from year to year upon annual approval by the Trust's Board of Trustees and by
the vote of a majority of the Board of Trustees of the Trust who are not
parties to the Agreement or interested persons of any party to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval. Each Distribution Agreement will terminate in the
event of its assignment, as defined in the 1940 Act.
Each class of the Fund has a Distribution Plan (each, a "Distribution
Plan") adopted in accordance with Rule 12b-1 under the 1940 Act. Under the
Plans, the Fund may pay monthly fees at an annual rate not to exceed 0.25% of
the average daily net assets of the Fund attributable to that class in the
case of the Plan relating to Class A shares, and not to exceed 1.00% of the
average daily net assets of the Fund attributable to that class in the case of
the Plan relating to Class B shares. Such fees may be used to make payments to
the Distributor for distribution services, to securities dealers and other
industry professionals (called Service Agents) that have entered into service
agreements with the Distributor and others in respect of the sale of shares of
the Fund, and to other parties in respect of the sale of shares of the Fund,
and to make payments for advertising, marketing or other promotional activity,
and payments for preparation, printing and distribution of prospectuses,
statements of additional information and reports for recipients other than
regulators and existing shareholders. The Fund also may make payments to the
Distributor, Service Agents and others for providing personal service or the
maintenance of shareholder accounts. The amounts paid by the Distributor to
each recipient may vary based upon certain factors, including, among other
things, the levels of sales of Fund shares and/or shareholder services
provided. Recipients may receive different compensation for sales for Class A
and Class B shares.
The Distribution Plan with respect to Class A shares also provides that
the Distributor, broker-dealers, banks and other financial intermediaries may
receive the sales charge paid by Class A investors as partial compensation for
their services in connection with the sale of shares. The Distribution Plan
with respect to Class B shares provides that the Distributor, dealers and
others may receive all or a portion of the deferred sales charges paid by
Class B investors.
The Distribution Plans permit the Fund to pay fees to the Distributor,
Service Agents and others as compensation for their services, not as
reimbursement for specific expenses incurred. Thus, even if their expenses
exceed the fees provided for by the applicable Plan, the Fund will not be
obligated to pay more than those fees and, if their expenses are less than the
fees paid to them, they will realize a profit. The Fund will pay the fees to
the Distributor and others until the applicable Plan or Distribution Agreement
is terminated or not renewed. In that event, the Distributor's or other
recipient's expenses in excess of fees received or accrued through the
termination date will be the Distributor's or other recipient's sole
responsibility and not obligations of the Fund.
Each Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to the Plan
(for purposes of this paragraph "Qualified Trustees"). Each Distribution Plan
requires that the Trust and the Distributor provide to the Board of Trustees,
and the Board of Trustees review, at least quarterly, a written report of the
amounts expended (and the purposes therefor) under the Distribution Plan. Each
Distribution Plan further provides that the selection and nomination of the
Qualified Trustees is committed to the discretion of such Qualified Trustees
then in office. A Distribution Plan may be terminated with respect to any
class of the Fund at any time by a vote of a majority of the Trust's Qualified
Trustees or by a vote of a majority of the outstanding voting securities of
that class. A Distribution Plan may not be amended to increase materially the
amount of the permitted expenses of the class thereunder without the approval
of a majority of the outstanding securities of that class and may not be
materially amended in any case without a vote of a majority of both the
Trustees and Qualified Trustees. The Distributor will preserve copies of any
plan, agreement or report made pursuant to the Distribution Plans for a period
of not less than six years, and for the first two years the Distributor will
preserve such copies in an easily accessible place.
As contemplated by the Distribution Plans, CFBDS acts as the agent of the
Trust in connection with the offering of shares of the Fund pursuant to the
Distribution Agreements. For the fiscal years ended December 31, 1996, 1997
and 1998 the fees payable to CFBDS under the Distribution Agreement with
respect to the Fund were $355,539 (of which $237,026 was voluntarily waived),
$342,078 (of which $228,204 was voluntarily waived) and $346,780 (of which
$231,320 was voluntarily waived), respectively.
The Distributor may enter into agreements with Service Agents and may pay
compensation to such Service Agents for accounts for which the Service Agents
are holders of record. Payments may be made to the Service Agents or for other
distribution expenses out of the distribution fees received by the Distributor
and out of the Distributor's past profits or any other source available to it.
Previously, the Trust had entered into a shareholder servicing agreement
with certain shareholder servicing agents pursuant to which those shareholder
servicing agents provided shareholder services, including answering customer
inquiries, assisting in processing purchase, exchange and redemption
transactions and furnishing Fund communications to shareholders. For the
fiscal years ended December 31, 1996, 1997 and 1998, the aggregate fees paid
to shareholder servicing agents with respect to the Fund were $592,565,
$570,130 and $577,968, respectively.
EXPENSES
In addition to amounts payable under the Advisory Agreement and its
Distribution Plans, the Fund is responsible for its own expenses, including,
among other things, the costs of securities transactions, the compensation of
Trustees that are not affiliated with Citibank or the Fund's Distributor,
government fees, taxes, accounting and legal fees, expenses of communication
with shareholders, interest expense, and insurance premiums.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street"), pursuant to which State
Street acts as Transfer Agent for the Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street,
pursuant to which custodial and fund accounting services, respectively, are
provided for the Fund. Among other things, State Street calculates the daily
net asset value for the Fund. Securities may be held by a sub-custodian bank
approved by the Trustees.
The Portfolio Trust, on behalf of the Portfolio, has entered into a
Custodian Agreement with State Street pursuant to which State Street acts as
custodian for the Portfolio. The Portfolio Trust, on behalf of the Portfolio,
also has entered into a Fund Accounting Agreement with State Street Cayman
Trust Company, Ltd. ("State Street Cayman") pursuant to which State Street
Cayman provides fund accounting services for the Portfolio. State Street
Cayman also provides transfer agency services to the Portfolio.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.
AUDITORS
PricewaterhouseCoopers LLP are the independent accountants for the Fund,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of PricewaterhouseCoopers LLP
is 160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP
are the chartered accountants for the Portfolio Trust. The address of
PricewaterhouseCoopers LLP is Suite 3000, Box 82, Royal Trust Towers, Toronto
Dominion Center, Toronto, Ontario, Canada M5X 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the Fund.
9. PORTFOLIO TRANSACTIONS
The Trust trades securities for the Fund if it believes that a transaction
net of costs (including custodian charges) will help achieve the Fund's
investment objectives. Changes in the Fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. Specific decisions to
purchase or sell securities for the Fund are made by a portfolio manager who
is an employee of the Adviser and who is appointed and supervised by its
senior officers. The portfolio manager may serve other clients of the Adviser
in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Fund and/or the other
accounts over which Citibank or its affiliates exercise investment discretion.
Citibank is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for
the Fund which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Citibank
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities which Citibank and its
affiliates have with respect to accounts over which they exercise investment
discretion. The Trustees of the Trust periodically review the commissions paid
by the Fund to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits to the Fund.
The investment 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. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an
investment for the Fund as well as for one or more of the Adviser's other
clients. Investment decisions for the Fund and for the Adviser's other clients
are made with a view to achieving their respective investment objectives. It
may develop that a particular security is bought or sold for only one client
even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable in a security for the
Fund. When purchases or sales of the same security for the Fund and for other
portfolios managed by the Adviser occur contemporaneously, the purchase or
sale orders may be aggregated in order to obtain any price advantages
available to large volume purchases or sales.
For the fiscal years ended December 31, 1996, 1997, and 1998 the Portfolio
paid brokerage commissions of $283,659, $371,439 and $666,058, respectively.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (without
par value) of each series and to divide or combine the shares of any series
into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series. The Trust has
reserved the right to create and issue additional 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).
Shares of each series are entitled to vote separately to approve advisory
agreements or changes in investment policy, and shares of a class are entitled
to vote separately to approve any distribution or service arrangements
relating to that class, but shares of all series may vote together in the
election or selection of Trustees and accountants for the Trust. In matters
affecting only a particular series or class, only shares of that particular
series or class are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust
would not be able to elect any Trustee. The Trust is not required to hold, and
has no present intention of holding, annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances (e.g., upon the
application and submission of certain specified documents to the Trustees by a
specified number of shareholders), the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of
each series affected by the amendment. (See "Investment Restrictions.") At any
meeting of shareholders of any series, a Service Agent may vote any shares of
which it is the holder of record and for which it does not receive voting
instructions proportionately in accordance with the instructions it received
for all other shares of which that Service Agent is the holder of record.
Shares have no preference, pre- emptive, conversion or similar rights. Shares,
when issued, are fully paid and non-assessable, except as set forth below.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's (or the
affected series) outstanding shares would be sufficient. The Trust or any
series of the Trust, as the case may be, may be terminated (i) by a vote of a
majority of the outstanding voting securities of the Trust or the affected
series or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated, the Trust will continue
indefinitely.
The Fund's Transfer Agent maintains a share register for shareholders of
record. Share certificates are not issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as partners
for its obligations and liabilities. However, the Declaration of Trust of the
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Trust and provides for indemnification and reimbursement of
expenses out of Trust property for any shareholder held personally liable for
the obligations of the Trust. The Declaration of Trust of the Trust also
provides that the Trust may maintain appropriate insurance (e.g., fidelity
bonding and errors and omissions insurance) for the protection of the Trust,
its shareholders, Trustees, officers, employees and agents covering possible
tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action
or failure to act, but nothing in the Declaration of Trust of the Trust
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Portfolio is a series of the Portfolio Trust, organized as a trust
under the laws of the State of New York. The Portfolio Trust's Declaration of
Trust provides that investors in the Portfolio (e.g., other investment
companies (including the Fund), insurance company separate accounts and common
and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account
of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
It is not expected that the liabilities of the Portfolio would ever exceed its
assets.
Each investor in the Portfolio, including the Fund, may add to or withdraw
from its investment in the Portfolio on each Business Day. As of the close of
regular trading on each Business Day, the value of each investor's beneficial
interest in the Portfolio is determined by multiplying the net asset value of
the Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals that are to be effected on that day are then
effected. The investor's percentage of the aggregate beneficial interests in
the Portfolio is then re-computed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the close of regular trading on such day plus or minus, as the
case may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the close of
regular trading on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the
Portfolio as of the close of regular trading on the next following Business
Day.
11. TAX MATTERS
TAXATION OF THE FUND AND PORTFOLIO
FEDERAL TAXES. The Fund has elected to be treated, and intends to qualify
each year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets. Provided all such requirements are
met, no U.S. federal income or excise taxes generally will be required to be
paid by the Fund. If the Fund should fail to qualify as a "regulated
investment company" for any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary income to shareholders. The Portfolio Trust
believes the Portfolio also will not be required to pay any U.S. federal
income or excise taxes on its income.
FOREIGN TAXES. Investment income and gains received by the Fund from non-
U.S. securities may be subject to non-U.S.taxes. The United States has entered
into tax treaties with many other countries that may entitle the Fund to a
reduced rate of tax or an exemption from tax on such income. The Fund intends
to qualify for treaty reduced rates where available. It is not possible,
however, to determine the Fund's effective rate of non-U.S. tax in advance
since the amount of the Fund's respective assets to be invested within various
countries is not known. Shareholders will not be able to claim any deduction
or credit for any part of the foreign taxes paid by the Fund.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of the Fund will generally have to
pay federal income taxes and any state or local taxes on the dividends and
capital gain distributions they receive from the Fund. Dividends from ordinary
income and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the
length of time the shareholders have held their shares. Any Fund dividend that
is declared in October, November, or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January, will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared.
DIVIDENDS-RECEIVED DEDUCTION. The portion of the Fund's ordinary income
dividends attributable to dividends received in respect of equity securities
of U.S. issuers is normally eligible for the dividends received deduction for
corporations subject to U.S. federal income taxes. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax and result in
certain basis adjustments.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
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.
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 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 a disposition of shares
may also be disallowed under rules relating to wash sales. Gain may be
increased (or loss reduced) upon a redemption of Class A Fund shares held for
90 days or less followed by any purchase of shares of the Fund or another of
the CitiFunds, including purchases by exchange or by reinvestment, without
payment of a sales charge which would otherwise apply because of any sales
charge paid on the original purchase of the Class A Fund shares.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
OPTIONS, ETC. The Fund's transactions in options, futures contracts, short
sales "against the box" 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 (i.e.,
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 will
limit its activities in options, futures contracts and forward contracts to
the extent necessary to meet the requirements of Subchapter M of the Code.
FOREIGN INVESTMENTS. Special tax considerations apply with respect to non-
U.S. investments of the Fund. Foreign exchange gains and losses realized by
the Fund will generally be treated as ordinary income and loss. Use of non-
U.S. currencies for non-hedging purposes and investment by the Fund in certain
"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 taxable gain or loss to the Fund.
SPECIAL CONSIDERATIONS FOR NON-U.S. PERSONS. The Fund will withhold tax
payments at the rate of 30% (or any lower rate permitted under an applicable
treaty) on taxable dividends and other payments subject to withholding taxes
that are made to persons who are not citizens or residents of the United
States. Distributions received from the Fund by non-U.S. persons also may be
subject to tax under the laws of their own jurisdiction.
BACKUP WITHHOLDING. The account application asks each new shareholder to
certify that the shareholder'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. If a shareholder fails to
provide this information, or otherwise violates IRS regulations, the Fund may
be required to withhold tax at the rate of 31% on certain distributions and
redemption proceeds paid to that shareholder.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Fund. Citibank believes that its services under the Advisory Agreements
and the activities performed by it or its affiliates as Service Agents and
sub-administrator are not underwriting and are consistent with the Glass-
Steagall Act and other relevant federal and state laws. However, there is no
controlling precedent regarding the performance of the combination of
investment advisory, shareholder servicing and sub-administrative activities
by banks. State laws on this issue may differ from applicable federal law, and
banks and financial institutions may be required to register as dealers
pursuant to state securities laws. Changes in either federal or state statutes
or regulations, or in their interpretations, could prevent Citibank or its
affiliates from continuing to perform these services. If Citibank or its
affiliates were to be prevented from acting as the Adviser, Service Agent or
sub-administrator, the Fund would seek alternative means for obtaining these
services. The Fund does not expect that shareholders would suffer any adverse
financial consequences as a result of any such occurrence.
13. FINANCIAL STATEMENTS
The audited financial statements of the Fund (Statement of Assets and
Liabilities at December 31, 1998, Statement of Operations for the year ended
December 31, 1998, Statement of Changes in Net Assets for each of the years in
the two-year period ended December 31, 1998, and Financial Highlights for each
of the years in the five-year period ended December 31, 1998, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of the Fund, are incorporated by
reference into this Statement of Additional Information and have been so
incorporated in reliance upon the reports of PricewaterhouseCoopers LLP,
independent accountants, on behalf of the Fund.
The audited financial statements of the Portfolio (Portfolio of
Investments at December 31, 1998, Statement of Assets and Liabilities at
December 31, 1998, Statement of Operations for the fiscal year ended December
31, 1998, Statement of Changes in Net Assets for each of the years in the two-
year period ended December 31, 1998, and Financial Highlights for each of the
years in the four-year period ended December 31, 1998 and for the period May
1, 1994 (commencement of operations) to December 31, 1994, Notes to Financial
Statements and Independent Auditors' Report), each of which is included in the
Annual Report to Shareholders of the Fund are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP, chartered
accountants, on behalf of the Portfolio.
A copy of the Annual Report to Shareholders of the Fund accompanies this
Statement of Additional Information.
<PAGE>
PART C
Item 23. Exhibits.
* a(1) Amended and Restated Declaration of Trust of the
Registrant
**, *** and a(2) Amendments to the Declaration of Trust of the
****** Registrant
*** b(1) Amended and Restated By-Laws of the Registrant
*** b(2) Amendments to Amended and Restated By-Laws of the
Registrant
******** e(1) Amended and Restated Distribution Agreement
between the Registrant and CFBDS, Inc. ("CFBDS"),
as distributor with respect to Class A shares of
CitiFunds Balanced Portfolio
******** e(2) Distribution Agreement between the Registrant and
CFBDS, as distributor with respect to Class B shares of
CitiFunds Balanced Portfolio
*** g(1) Custodian Contract between the Registrant and
State Street Bank and Trust Company ("State
Street"), as custodian
*** g(2) Letter Agreement regarding the Custodian Contract
between the Registrant and State Street
**** h(1) Administrative Services Agreement between the
Registrant and CFBDS, as administrator for
CitiFunds Balanced Portfolio
**** h(2) Sub-Administrative Services Agreement between
Citibank, N.A. and CFBDS with respect to CitiFunds
Balanced Portfolio
*** h(3) Transfer Agency and Servicing Agreement between
the Registrant and State Street, as transfer agent
***** i Opinion and consent of counsel
j Independent auditors' consent
******** m(1) Amended and Restated Distribution Plan of the
Registrant for Class A Shares of CitiFunds
Balanced Portfolio
******** m(2) Distribution Plan of the Registrant for Class B
Shares of CitiFunds Balanced Portfolio
n Financial data schedule
******* o Multiple Class Plan of the Registrant
**** and p(1) Powers of Attorney for the Registrant
*********
***** p(2) Powers of Attorney for The Premium Portfolios
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 20 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 31, 1996.
** Incorporated herein by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on April
18, 1997.
*** Incorporated herein by reference to Post-Effective Amendment No. 26 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 30, 1997.
**** Incorporated herein by reference to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
February 24, 1998.
***** Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 16, 1998.
****** Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 23, 1998.
******* Incorporated herein by reference to Post-Effective Amendment No. 31 to
the Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on February 12, 1999.
******** Incorporated herein by reference to Post-Effective Amendment No. 32 to
the Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on February 16, 1999.
********* Incorporated herein by reference to Post-Effective Amendment No. 35 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on April
16, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to Post-Effective Amendment No. 20 to its
Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, Inc., filed as Exhibits to
Post-Effective Amendment No. 32 to its Registration Statement on Form N-1A; and
(c) the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and around
the world. Citibank is a wholly-owned subsidiary of Citicorp, which is, in turn,
a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as investment
adviser to the following registered investment companies (or series thereof):
Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate Income
Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed Income
Portfolio, High Yield Portfolio, Growth & Income Portfolio, Balanced Portfolio,
Large Cap Growth Portfolio, International Equity Portfolio, Government Income
Portfolio and Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S.
Treasury Reserves Portfolio, Cash Reserves Portfolio, CitiFundsSM Tax Free
Income Trust (CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM
National Tax Free Income Portfolio and CitiFundsSM California Tax Free Income
Portfolio), CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM California Tax
Free Reserves, CitiFundsSM New York Tax Free Reserves and CitiFundsSM
Connecticut Tax Free Reserves), CitiFundsSM Institutional Trust (CitiFundsSM
Institutional Cash Reserves) and Variable Annuity Portfolios (CitiSelect(R) VIP
Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400,
CitiSelect(R) VIP Folio 500 and CitiFundsSM Small Cap Growth VIP Portfolio).
Citibank and its affiliates manage assets in excess of $327 billion worldwide.
The principal place of business of Citibank is located at 399 Park Avenue, New
York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J.
Menezes is the President and a Director of Citibank. William R. Rhodes and
H. Onno Ruding are Vice Chairmen and Directors of Citibank. The other
Directors of Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc.
and Robert I. Lipp, Chairman and Chief Executive Officer of The Travelers
Insurance Group Inc. and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup Inc.
In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and
President, Travelers Property Casualty Co.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees
Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM Institutional
Liquid Reserves, CitiFundsSM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves, CitiFundsSM Institutional Tax Free Reserves, CitiFundsSM California
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves, CitiFundsSM New
York Tax Free Reserves, CitiFundsSM Intermediate Income Portfolio, CitiFundsSM
Short-Term U.S. Government Income Portfolio, CitiFundsSM New York Tax Free
Income Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
California Tax Free Income Portfolio, CitiFundsSM Small Cap Value Portfolio,
CitiFundsSM Growth & Income Portfolio, CitiFundsSM Large Cap Growth Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiSelect(R) Folio 100, CitiSelect(R)
Folio 200, CitiSelect(R) Folio 300, CitiSelect(R) Folio 400, CitiSelect(R) Folio
500, CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP
Folio 400, CitiSelect(R) VIP Folio 500 and CitiFundsSM Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large Cap Value Portfolio,
Small Cap Value Portfolio, International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income Portfolio,
U.S. Fixed Income Portfolio, High Yield Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio. CFBDS also serves as the
distributor for the following funds: The Travelers Fund U for Variable
Annuities, The Travelers Fund VA for Variable Annuities, The Travelers Fund BD
for Variable Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for
Variable Annuities, The Travelers Fund ABD for Variable Annuities, The Travelers
Fund ABD II for Variable Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account PF II for Variable Annuities,
The Travelers Separate Account QP for Variable Annuities, The Travelers Separate
Account TM for Variable Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account Five for Variable Annuities,
The Travelers Separate Account Six for Variable Annuities, The Travelers
Separate Account Seven for Variable Annuities, The Travelers Separate Account
Eight for Variable Annuities, The Travelers Fund UL for Variable Life Insurance,
The Travelers Fund UL II for Variable Life Insurance, The Travelers Fund UL III
for Variable Life Insurance, The Travelers Variable Life Insurance Separate
Account One, The Travelers Variable Life Insurance Separate Account Two, The
Travelers Variable Life Insurance Separate Account Three, The Travelers Variable
Life Insurance Separate Account Four, The Travelers Separate Account MGA, The
Travelers Separate Account MGA II, The Travelers Growth and Income Stock Account
for Variable Annuities, The Travelers Quality Bond Account for Variable
Annuities, The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable Annuities, The
Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers
Timed Aggressive Stock Account for Variable Annuities, The Travelers Timed Bond
Account for Variable Annuities, Emerging Growth Fund, Government Fund, Growth
and Income Fund, International Equity Fund, Municipal Fund, Balanced
Investments, Emerging Markets Equity Investments, Government Money Investments,
High Yield Investments, Intermediate Fixed Income Investments, International
Equity Investments, International Fixed Income Investments, Large Capitalization
Growth Investments, Large Capitalization Value Equity Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Municipal Bond Investments, Small
Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth & Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Balanced Portfolio, Conservative
Portfolio, Growth Portfolio, High Growth Portfolio, Income Portfolio, Global
Portfolio, Select Balanced Portfolio, Select Conservative Portfolio, Select
Growth Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value Fund,
Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade Bond
Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate Maturity
California Municipals Fund, Smith Barney Intermediate Maturity New York
Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith Barney S&P
500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio, Retirement
Portfolio, California Money Market Portfolio, Florida Portfolio, Georgia
Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New York
Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed
Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion
Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund,
Centurion U.S. Protection Fund, Centurion International Protection Fund, Global
High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund,
Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp
Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government
Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio,
Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity
VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World
Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return
Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers
Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD filed
by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent and custodian) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 29th day of April, 1999.
CITIFUNDS TRUST I
By Philip W. Coolidge
---------------------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on April 29, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
---------------------------- Officer and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and
---------------------------- Principal Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
----------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
----------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
----------------------------
Susan B. Kerley
Heath B. McLendon* Trustee
----------------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
----------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
----------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
----------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
-------------------------
Philip W. Coolidge
Executed by Philip W. Coolidge
on behalf of those indicated
pursuant to Powers of Attorney.
<PAGE>
SIGNATURES
The Premium Portfolios has duly caused this Post-Effective Amendment to
the Registration Statement on Form N-1A of CitiFunds Trust I to be signed on its
behalf by the undersigned, thereunto duly authorized, in Grand Cayman, Cayman
Islands on the 29th day of April, 1999.
THE PREMIUM PORTFOLIOS
on behalf of Balanced Portfolio
By: Tamie Ebanks-Cunningham
--------------------------------------
Tamie Ebanks-Cunningham,
Assistant Secretary of
The Premium Portfolios
This Post-Effective Amendment to the Registration Statement on Form N-1A
of CitiFunds Trust I has been signed by the following persons in the capacities
indicated on April 29, 1999.
Signature Title
--------- -----
Philip W. Coolidge* President, Principal Executive
---------------------------- Officer and Trustee
Philip W. Coolidge
John R. Elder* Principal Financial Officer and
---------------------------- Principal Accounting Officer
John R. Elder
Elliott J. Berv* Trustee
----------------------------
Elliott J. Berv
Mark T. Finn* Trustee
----------------------------
Mark T. Finn
C. Oscar Morong, Jr.* Trustee
----------------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
----------------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
----------------------------
E. Kirby Warren
*By: Tamie Ebanks-Cunningham
----------------------------
Tamie Ebanks-Cunningham
Executed by Tamie
Ebanks-Cunningham on behalf
of those indicated as
attorney in fact.
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
j Independent auditors' consent
n Financial data schedule
<PAGE>
EXHIBIT J
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 36 to the registration statement on Form N-1A (the "Registration
Statement") of CitiFunds Trust I of our report dated February 12, 1999, relating
to the financial statements and financial highlights of CitiFunds Balanced
Portfolio appearing in the December 31, 1998 Annual Report of CitiFunds Balanced
Portfolio, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the heading "Financial
Highlights" in the Prospectus and under the headings "Auditors" and "Financial
Statements" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 29, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 36
to the registration statement on Form N-1A (the "Registration Statement") of
CitiFunds Trust I of our report dated February 12, 1999, relating to the
financial statements and financial highlights of Balanced Portfolio appearing in
the December 31, 1998 Annual Report of CitiFunds Balanced Portfolio, which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Auditors" and "Financial Statements"
in such Statement of Additional Information.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
April 29, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000744388
<NAME> CITIFUNDS TRUST I
<SERIES>
<NUMBER> 001
<NAME> CITIFUNDS BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 235,660,734
<RECEIVABLES> 1,096,334
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236,757,068
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 223,292,653
<SHARES-COMMON-STOCK> 16,595,499
<SHARES-COMMON-PRIOR> 14,376,665
<ACCUMULATED-NII-CURRENT> 608,131
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (891,621)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,349,703
<NET-ASSETS> 236,358,866
<DIVIDEND-INCOME> 2,476,289
<INTEREST-INCOME> 5,923,820
<OTHER-INCOME> 0
<EXPENSES-NET> 2,358,739
<NET-INVESTMENT-INCOME> 6,041,370
<REALIZED-GAINS-CURRENT> 26,888,409
<APPREC-INCREASE-CURRENT> (15,478,163)
<NET-CHANGE-FROM-OPS> 17,451,616
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,439,336)
<DISTRIBUTIONS-OF-GAINS> (34,018,101)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,637,486
<NUMBER-OF-SHARES-REDEEMED> 39,433,879
<SHARES-REINVESTED> (31,497,141)
<NET-CHANGE-IN-ASSETS> 9,568,403
<ACCUMULATED-NII-PRIOR> 6,097
<ACCUMULATED-GAINS-PRIOR> 6,238,071
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,821,644
<AVERAGE-NET-ASSETS> 231,187,041
<PER-SHARE-NAV-BEGIN> 15.77
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> (2.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.24
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
