As filed with the Securities and Exchange Commission on February 16, 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. 32
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 33
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 the 60th day
after the date of filing hereof pursuant to paragraph (a)(1) 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
CITIFUNDSSM 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.
_________ __, 1999
<PAGE>
CITIFUNDS BALANCED PORTFOLIO
TABLE OF CONTENTS
Fund at a Glance
Your CitiFunds Account
Choosing a Share Class
How to Buy Shares
How the Price of Your Shares is Calculated
How to Sell Shares
Reinstating Recently Sold Shares
Exchanges
Dividends
Tax Matters
Management of the Fund
Investment Adviser
Advisory Fees
More About the Fund
Principal Investment Strategies
Risks
Financial Highlights
Appendix
<PAGE>
FUND AT A GLANCE
THIS SUMMARY BRIEFLY DESCRIBES 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, SEE "MORE ABOUT THE FUND" ON PAGE
____.
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
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 may also invest in foreign equity and debt securities, including
securities of companies in developing countries.
MAIN RISKS
Like 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 ___ 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
<PAGE>
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. There is also the risk that the
counterparty may fail to honor its contract terms. This risk becomes
more acute when the Fund invests in derivatives that are not traded on
commodities exchanges or boards of trade. 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. If Citibank's predictions are wrong, the Fund could suffer
greater losses than if the Fund had not used derivatives. Losses would
cause the Fund's share price to go down.
<PAGE>
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 Balanced Portfolio is not a
complete investment program.
You should consider investing in 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 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 growth stock index and a bond index, both
of which provide a broad measure of market performance. Please remember
that, unlike the Fund, the market index does not include the costs of
buying and selling securities and other Fund expenses.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL RETURN ________________________________________________________
(per calendar year - Class A) HIGHEST AND LOWEST RETURNS
1991 1992 1993 1994 1995 1996 1997 1998 For Calendar Quarters Covered by the Bar Chart
________________________________________________________
[bar chart for calendar years 1991 through Quarter Ending
1998] ________________________________________________________
Highest [12.34%] [June 30, 1997]
1991 [29.61%] ________________________________________________________
1992 [6.82%] Lowest [-8.61%] [September 30, 1998]
1993 [8.48%] ________________________________________________________
1994 [-2.06%]
1995 [22.66%]
1996 [7.59%] ________________________________________________________
1997 [20.85%] AVERAGE ANNUAL TOTAL RETURNS
1998 [7.83%] As of December 31, 1998
________________________________________________________
1 Year 5 years Life of Fund
Since
October 19,
1990
________________________________________________________
Class A 7.83% 10.99% 12.79%
________________________________________________________
Class B N/A N/A N/A
________________________________________________________
S&P Barra Value
Index 42.15% 27.91% *
________________________________________________________
Lehman
Aggregate Bond
Index 9.47% 7.30% *
________________________________________________________
* Information regarding performance for this period is not available.
</TABLE>
<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.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A CLASS B
Class descriptions begin on page __
______________________________________
SHAREHOLDER FEES (fees paid directly from your investment):
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 0.32% 0.32%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.97% 1.72%
____________________________________________________________________________________________________
</TABLE>
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.
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 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 these examples and is
not a prediction of the Fund's future performance; and
<PAGE>
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 $700 $918 $1,162 $2,060
end of period
Assuming no redemption $200 $618 $1,062 $2,060
____________________________________________________________________________
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.
<TABLE>
<CAPTION>
<S> <C>
CLASS A AT A GLANCE: CLASS B AT A GLANCE:
o Front-end load-- there is an initial o No initial sales charge
sales charge of 5.00% or less
o Lower sales charge rates for larger o The deferred sales charge declines from
investments 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 o Annual distribution/service fee of up to
0.25% 1.00%
o Lower annual expenses than Class B shares o Automatic conversion to Class A shares
after 8 years
</TABLE>
<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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
___________________________________________________________________________________
SALES CHARGE SALES CHARGE BROKER/DEALER
AS A % OF AS A % OF COMMISSION AS
AMOUNT OF OFFERING YOUR A % OF OFFERING
YOUR INVESTMENT PRICE INVESTMENT 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.
</TABLE>
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.
<PAGE>
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 you
received through capital appreciation or through the reinvestment of
dividends or capital gains distributions on those shares.
SALES CHARGES--CLASS B SHARES
o 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, capital gain distributions and 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
<PAGE>
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 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
<PAGE>
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.
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,
<PAGE>
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. 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 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
<PAGE>
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
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 at least annually, in December. 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.
<PAGE>
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. Anytime 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. If you purchased Class A shares and held your shares in the
Fund only a short time, your gain or loss could also be affected by whether you
reinvest the proceeds you receive in shares of the Fund or another regulated
investment company, without having to pay a sales charge that would otherwise
be due because you paid a sales charge on the shares of the Fund you sold. You
are responsible for any tax liabilities generated by your transaction.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
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, with
headquarters at 153 East 53rd Street, New York, New York, has been managing
money since 1822. With its affiliates, it currently manages more than $290
billion in assets worldwide. Citibank is a wholly-owned subsidiary of Citicorp,
which is, in turn, 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 Balanced Portfolio.
Ms. Marcin, a Senior Portfolio Manager responsible for managing over $730
million in U.S. equity and balanced accounts for individuals, has managed the
equity portion of the portfolio since January 1998. She is a member of
Citibank's Global Investment Committee. Ms. Marcin has over ten years of
<PAGE>
investment experience. 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. She previously worked for three years in
the Personal Financial Management Group at E.F. Hutton. 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.
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
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 are 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 non-U.S. issuers deposited in a U.S. or
correspondent 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.
<PAGE>
_______________________________________________________________________________
WHAT ARE FIXED INCOME SECURITIES?
FIXED INCOME SECURITIES generally represent a debt obligation of an
issuer, and include BONDS, SHORT-TERM OBLIGATIONS AND 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
also 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.
<PAGE>
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. In some cases,
the derivatives may be illiquid, and the Fund may bear more counterparty risk.
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 or sell 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 or sell 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 when to sell
securities and which securities to sell. For more information about the
portfolio managers, see "Investment Adviser" on page ___.
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
<PAGE>
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
<PAGE>
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.
SPECIAL CHARACTERISTICS OF 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. There is also the risk that the counterparty may fail to honor its
contract terms. This risk becomes more acute when the Fund invests in
derivatives that are not traded on commodities exchanges or boards of trade.
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. If Citibank's predictions are wrong, the Fund could
suffer greater losses than if the Fund had not used derivatives. Losses would
cause the Fund's share price to go down.
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.
<PAGE>
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. These
markets often have provided higher rates of return, and greater
risks, to investors, but they also may provide lower rates of return
or negative returns, for extended periods.
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.
<PAGE>
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, independent accountants for the Fund, whose report, along with the Fund's
financial statements, is included in the annual report which is incorporated by
reference into the Statement of Additional Information and which is available
upon request.
<PAGE>
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
<PAGE>
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:
+ 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
<PAGE>
[ ] 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
<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
<PAGE>
Statement of
Additional Information
_________ __, 1999
CITIFUNDSSM BALANCED PORTFOLIO
CitiFundsSM 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 AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
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<S> <C>
TABLE OF CONTENTS PAGE
1. The Trust................................................................................
2. Investment Objectives; Special Information Concerning Investment Structure...............
3. Description of Permitted Investments and Investment Practices............................
4. Investment Restrictions..................................................................
5. Performance Information..................................................................
6. Determination of Net Asset Value; Valuation of Securities................................
7. Additional Information on the Purchase and Sale of Fund Shares and Shareholder Programs..
8. Management...............................................................................
9. Portfolio Transactions...................................................................
10. Description of Shares, Voting Rights and Liabilities.....................................
11. Certain Additional Tax Matters...........................................................
12. Certain Bank Regulatory Matters..........................................................
13. Financial Statements.....................................................................
</TABLE>
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 _________ __, 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 ___ 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
________ __, 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, except
as otherwise noted. In addition, references to the Trust include the Portfolio
Trust, except as otherwise noted.
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,
<PAGE>
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 the investment objective and
policies described herein, 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 in the Prospectus and herein.
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.
The Trust has also adopted the following policies with respect to the Fund's
investments in (i) warrants and (ii) securities of issuers with less than three
years' continuous operation. The Trust's purchases of warrants for the Fund
will not exceed 5% of the Fund's net assets. Included within that amount, but
not exceeding 2% of its net assets, may be warrants which are not listed on the
New York Stock Exchange or the American Stock Exchange. Any such warrants will
be valued at their market value except that warrants which are attached to
securities at the time such securities are acquired for the Fund will be deemed
to be without value for the purpose of this restriction. The Trust will not
invest more than 5% of the Fund's assets in companies which, including their
respective predecessors, have a record of less than three years' continuous
operation.
<PAGE>
FUTURES CONTRACTS
The Fund may enter into interest rate futures contracts and stock index futures
contracts. These investment strategies will 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 and may
sell such contracts to protect against a decline in the stock market.
<PAGE>
Although the use of futures for hedging 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), 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
<PAGE>
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 "Certain
Additional 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.
<PAGE>
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. 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 increased, 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
sponsored American 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 higher rates or return,
and 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
<PAGE>
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.
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 may also 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
<PAGE>
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 precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of a short-term hedging strategy is highly
uncertain. The Fund generally does not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts obligates the Fund to deliver an amount of non-U.S. currency in
excess of the value of the Fund's securities or other assets denominated in
that currency. 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.
<PAGE>
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. However, the writing of a currency option 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's dealings in non-U.S. currency contracts are limited to the
transactions described above. Of course, the Fund is not required to enter into
such transactions 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
<PAGE>
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 tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
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.
Therefore, the Fund is expected always to have cash or liquid securities
available sufficient to cover any commitments under these contracts.
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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, and when, in the judgment of the Adviser, the consideration which can
be earned currently from loans of this type justifies the attendant risk. 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. 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. 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.
<PAGE>
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. For example, the Fund may have to sell assets which have been set
aside in order to meet redemptions. Also, if the Adviser determines it is
advisable as a matter of investment strategy to sell the "when-issued" or
"forward delivery" securities, the Fund would be required to meet its
obligations from the then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of the
"when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than the Fund's payment obligation). 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 ("restricted
securities") 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. 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 restricted securities, unless, in the
case of restricted securities, the Board of Trustees of the Trust determines,
based on the trading markets for the specific restricted security, that it is
liquid. The Trustees have adopted guidelines and, subject to oversight by the
Trustees, have delegated to the Adviser the daily function of determining and
monitoring liquidity of restricted securities.
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.
<PAGE>
(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.
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.
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 and average annualized "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.
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
<PAGE>
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.
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 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>
<S> <C> <C>
REDEEMABLE VALUE OF A
ANNUALIZED HYPOTHETICAL $1,000
TOTAL RATE OF INVESTMENT AT THE END OF
RETURN THE PERIOD
October 19, 1990 (commencement of operations) to December 31, 1998 _____% $_____
Five Years Ended December 31, 1998 _____% $_____
One Year Ended December 31, 1998 _____% $_____
</TABLE>
The annualized yield of the shares of the Fund for the 30-day period ended on
December 31, 1998 was ____%.
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.
<PAGE>
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
<PAGE>
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 _________ __, 1999 of Class A
shares from the Fund aggregating less than $25,000 subject to the schedule of
sales charges set forth below.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
_______________________________________________________________________________
CITIFUNDS BALANCED PORTFOLIO
_______________________________________________________________________________
Net Asset Value per share $
_______________________________________________________________________________
Per Share Sales Charge - 5.00% of public $
offering price (5.26% of net asset value per
share)
_______________________________________________________________________________
Per Share Offering Price to the Public $
_______________________________________________________________________________
</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>
<S> <C> <C> <C> <C>
__________________________________________________________________________________
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF REALLOWANCE AS A
AMOUNT OF OFFERING PRICE INVESTMENT % OF OFFERING
INVESTMENT 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 "Sales Charge Waivers--Class A" below.
</TABLE>
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%
________________________________________________________________
2nd year since purchase 4%
________________________________________________________________
3rd year since purchase 3%
________________________________________________________________
4th year since purchase 2%
________________________________________________________________
5th year since purchase 1%
________________________________________________________________
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,
<PAGE>
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 and
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, 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 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
<PAGE>
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
<PAGE>
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 or to
exchange Fund shares for shares of other CitiFunds, without, in many cases, the
payment of a sales charge. 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
<PAGE>
[] 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.
<PAGE>
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 Transfer 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 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 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
money market funds 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 money market funds
other than Cash Reserves.
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
<PAGE>
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,
<PAGE>
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
Mutual Management Corp. (since _____); Managing Director of Salomon Smith
Barney (since ____). 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.
<PAGE>
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).
<PAGE>
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.
<PAGE>
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C>
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM THE FROM TRUST AND
TRUSTEE FUND (1) COMPLEX(2)
Philip W. Coolidge.................................$0 $0
Riley C. Gilley....................................$_____ $_____
Diana R. Harrington................................$_____ $_____
Susan B. Kerley....................................$_____ $_____
Heath B. McLendon..................................$0 $0
C. Oscar Morong, Jr................................$_____ $_____
E. Kirby Warren....................................$_____ $_____
William S. Woods, Jr...............................$_____ $_____
</TABLE>
(1) For the fiscal year ended December 31, 1998.
(2) Information relates to the fiscal year ended December 31, 1998.
Messrs. Coolidge, Gilley, McLendon, Morong, Warren and Woods, and Mses.
Harrington and Kerley are Trustees of 49, 33, 20, 40, 40, 26, 28 and 28
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.
As of ________ __, 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.
<PAGE>
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 $_______, 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 $_______, 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 $_______, 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
<PAGE>
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,
<PAGE>
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 $_______, 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 $_______, respectively.
<PAGE>
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.
<PAGE>
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 $_______, 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
<PAGE>
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
<PAGE>
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. CERTAIN ADDITIONAL TAX MATTERS
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,
although non-U.S. source income earned by the Fund may be subject to non-U.S.
withholding taxes. 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.
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
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.
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.
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
<PAGE>
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual shareholder will be eligible
for reduced tax rates if the shares were held for more than eighteen months.
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.
The Fund's transactions in options, futures contracts 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.
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 may be limited in order to avoid a tax on the Fund. Investment in
certain "passive foreign investment companies" may also 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.
Investment income 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.
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.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
* 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
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
******* o Multiple Class Plan of the Registrant
**** p(1) Powers of Attorney for the Registrant
***** p(2) Powers of Attorney for The Premium Portfolios
</TABLE>
- ------------------------
<TABLE>
<CAPTION>
<S> <C>
* 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 be reference to Post-Effective Amendment No. 31 to the Registrant's Registration
Statement on Form N-1A (File No. 2-90518) as filed with the Securities and Exchange Commission on
February 12, 1999.
</TABLE>
<PAGE>
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 hereto;
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, 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 VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500
and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates
manage assets in excess of $290 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.
<PAGE>
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
Folio 200, CitiSelect Folio 300, CitiSelect Folio 400, CitiSelect Folio 500,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP Folio 400,
CitiSelect 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, 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 Annuities, The Travelers
Fund UL II for Variable Annuities, The Travelers Variable Life Insurance
<PAGE>
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).
<PAGE>
(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 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 16th day of February, 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 February 16, 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
C. Oscar Morong, Jr.* Trustee
- --------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- --------------------------
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 16th day of February, 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 February 16, 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
<TABLE>
<CAPTION>
<S> <C> <C>
e(1) Amended and Restated Distribution Agreement between the Registrant and
CFBDS, as distributor with respect to Class A shares of the CitiFunds
Balanced Portfolio
e(2) Distribution Agreement between the Registrant and CFBDS, as distributor
with respect to Class B shares of the CitiFunds Balanced Portfolio
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
</TABLE>
Exhibit e(1)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of August 21, 1986 and amended and restated as of
January 4, 1999, by and between CitiFunds Trust I (formerly, Landmark Funds I),
a Massachusetts business trust (the "Trust"), and CFBDS, Inc., a Massachusetts
corporation ("Distributor"). This Agreement relates solely to Shares of
Beneficial Interest designated "Class A."
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are
divided into separate series representing interests in separate funds of
securities and other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Class A Shares of each of the Trust's series listed on Exhibit A hereto (the
"Funds") and has registered the Shares of the Funds under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust has adopted an Amended and Restated Distribution Plan
pursuant to Rule 12b1 under the 1940 Act (the "Distribution Plan") and may
enter into related agreements providing for the distribution and servicing of
Shares of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Class A
Shares of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Class A Shares of the Funds in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the Trust in
its absolute discretion may issue Shares of the Funds in connection with (i)
the payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another series of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
<PAGE>
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Class A Shares of the Funds and agrees that it will sell
the Shares as agent for the Trust at prices determined as hereinafter provided
and on the terms hereinafter set forth, all according to the then-current
prospectus and statement of additional information of each Fund (collectively,
the "Prospectus" and the "Statement of Additional Information"), applicable
laws, rules and regulations and the Declaration of Trust of the Trust.
Distributor agrees to use its best efforts to solicit orders for the sale of
Shares of the Funds, and agrees to transmit promptly to the Trust (or to the
transfer agent of the Funds, if so instructed in writing by the Trust) any
orders received by it for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing
of purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information or
make any representations regarding Shares of the Funds, except such information
or representations as are contained in the Prospectus, the Statement of
Additional Information or advertisements and sales literature prepared by or on
behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any and
all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
<PAGE>
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares
of that Fund or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current prospectus
for Shares of that Fund as required by Section 10 of the 1933 Act is not on
file with the Securities and Exchange Commission; provided, however, that
nothing contained in this paragraph (g) shall in any way restrict the Trust's
obligation to repurchase any Shares from any shareholder in accordance with the
provisions of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the
Class A Shares of each Fund shall be the net asset value of such Shares plus
the amount of any applicable sales charge, as provided in the Prospectus. The
excess, if any, of the public offering price of the Shares over the net asset
value of the Shares, and any contingent deferred sales charge applicable to
Class A Shares of any Fund as set forth in the applicable Fund's Prospectus,
may be paid to, or retained by, the Distributor, securities dealers, financial
institutions (including banks) and others, as partial compensation for their
services in connection with the sale of Class A Shares. At no time shall the
Trust receive less than the full net asset value of the Shares of each Fund,
determined in the manner set forth in the Prospectus and the Statement of
Additional Information. Distributor also may receive such compensation under
the Trust's Distribution Plan for Class A Shares as may be authorized by the
Trustees of the Trust from time to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably
request for use in connection with the sale of Shares of the Funds under this
Agreement. The Trust shall also make available a sufficient number of copies of
the Funds' Prospectus and Statement of Additional Information for use by the
Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
<PAGE>
(i) of any request by the Securities and Exchange Commission for
amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any such
registration statement or Prospectus or the initiation of any proceeding
for that purpose;
(iii)of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such registration
statement or Prospectus in order to make the statements therein not
misleading; and
(iv) of all actions of the Securities and Exchange Commission with
respect to any amendments to any such registration statement or Prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the
Funds; expenses connected with the execution, recording and settlement of
security transactions; insurance premiums; fees and expenses of the custodian
for all services to the Funds, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Funds (including but not limited to the fees of independent
pricing services); expenses of meetings of shareholders; expenses relating to
the issuance, registration and qualification of shares; and such non-recurring
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
<PAGE>
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Distribution Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of the
Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Distribution Plan and the purposes
therefor, as well as any supplemental reports that the Trustees of the Trust,
from time to time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of the
Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor, its officers and directors, and any person which controls
Distributor within the meaning of the 1933 Act against any and all claims,
demands, liabilities and expenses that any such indemnified party may incur
under the 1933 Act, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the registration
statement for any Fund, any Prospectus or Statement of Additional Information,
or any advertisements or sales literature prepared by or on behalf of the Trust
for Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take any
action contrary to any provision of its Declaration of Trust or any applicable
statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities
and expenses that any such indemnified party may incur under the 1933 Act, or
common law or otherwise, arising out of or based upon (i) any alleged untrue
statement of a material fact contained in the registration statement for any
Fund, any Prospectus or Statement of Additional Information, or any
<PAGE>
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor; and (ii) any act or deed of Distributor or its sales
representatives that has not been authorized by the Trust in any Prospectus or
Statement of Additional Information or by this Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 13, 1999 and shall continue in effect
for successive periods of one year, but only so long as each such continuance
is specifically approved by votes of a majority of both the Trustees of the
Trust and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Distribution Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the particular Fund
in question, and not any other Fund or series of the Trust. The term "CitiFunds
Trust I" means and refers to the Trustees from time to time serving under the
Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and delivery of
this Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
<PAGE>
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust I
By: /s/ Philip Coolidge
CFBDS, Inc.
By: /s/ Philip Coolidge
<PAGE>
Exhibit A
Funds
CitiFunds Balanced Portfolio
Exhibit e(2)
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of January 4, 1999, by and between CitiFunds Trust I
(formerly, Landmark Funds I), a Massachusetts business trust (the "Trust"), and
CFBDS, Inc., a Massachusetts corporation ("Distributor"). This Agreement
relates solely to Shares of Beneficial Interest designated "Class B."
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are
divided into separate series representing interests in separate funds of
securities and other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Class B Shares of each of the Trust's series listed on Exhibit A hereto (the
"Funds") and has registered the Shares of the Funds under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust has adopted a Distribution Plan pursuant to Rule 12b1
under the 1940 Act (the "Distribution Plan") and may enter into related
agreements providing for the distribution and servicing of Shares of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Class B
Shares of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Class B Shares of the Funds in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the Trust in
its absolute discretion may issue Shares of the Funds in connection with (i)
the payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another series of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
<PAGE>
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Class B Shares of the Funds and agrees that it will sell
the Shares as agent for the Trust at prices determined as hereinafter provided
and on the terms hereinafter set forth, all according to the then-current
prospectus and statement of additional information of each Fund (collectively,
the "Prospectus" and the "Statement of Additional Information"), applicable
laws, rules and regulations and the Declaration of Trust of the Trust.
Distributor agrees to use its best efforts to solicit orders for the sale of
Shares of the Funds, and agrees to transmit promptly to the Trust (or to the
transfer agent of the Funds, if so instructed in writing by the Trust) any
orders received by it for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing
of purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information or
make any representations regarding Shares of the Funds, except such information
or representations as are contained in the Prospectus, the Statement of
Additional Information or advertisements and sales literature prepared by or on
behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any and
all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
<PAGE>
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares
of that Fund or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current prospectus
for Shares of that Fund as required by Section 10 of the 1933 Act is not on
file with the Securities and Exchange Commission; provided, however, that
nothing contained in this paragraph (g) shall in any way restrict the Trust's
obligation to repurchase any Shares from any shareholder in accordance with the
provisions of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the
Class B Shares of each Fund shall be the net asset value of such Shares, as
provided in the Prospectus. Any contingent deferred sales charge applicable to
Class B Shares of any Fund as set forth in the applicable Fund's Prospectus,
may be paid to, or retained by, the Distributor, securities dealers, financial
institutions (including banks) and others, as partial compensation for their
services in connection with the sale of Class B Shares. At no time shall the
Trust receive less than the full net asset value of the Shares of each Fund,
determined in the manner set forth in the Prospectus and the Statement of
Additional Information. Distributor also may receive such compensation under
the Trust's Distribution Plan for Class B Shares as may be authorized by the
Trustees of the Trust from time to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably
request for use in connection with the sale of Shares of the Funds under this
Agreement. The Trust shall also make available a sufficient number of copies of
the Funds' Prospectus and Statement of Additional Information for use by the
Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission for
amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
<PAGE>
(ii) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any such
registration statement or Prospectus or the initiation of any proceeding
for that purpose;
(iii)of the happening of any event which makes untrue any statement
of a material fact made in any such registration statement or Prospectus
or which requires the making of a change in such registration statement or
Prospectus in order to make the statements therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission with
respect to any amendments to any such registration statement or Prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the
Funds; expenses connected with the execution, recording and settlement of
security transactions; insurance premiums; fees and expenses of the custodian
for all services to the Funds, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Funds (including but not limited to the fees of independent
pricing services); expenses of meetings of shareholders; expenses relating to
the issuance, registration and qualification of shares; and such non-recurring
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Distribution Plan,
Distributor will pay or cause to be paid all expenses connected with its own
<PAGE>
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of the
Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Distribution Plan and the purposes
therefor, as well as any supplemental reports that the Trustees of the Trust,
from time to time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of the
Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor, its officers and directors, and any person which controls
Distributor within the meaning of the 1933 Act against any and all claims,
demands, liabilities and expenses that any such indemnified party may incur
under the 1933 Act, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the registration
statement for any Fund, any Prospectus or Statement of Additional Information,
or any advertisements or sales literature prepared by or on behalf of the Trust
for Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take any
action contrary to any provision of its Declaration of Trust or any applicable
statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities
and expenses that any such indemnified party may incur under the 1933 Act, or
common law or otherwise, arising out of or based upon (i) any alleged untrue
statement of a material fact contained in the registration statement for any
Fund, any Prospectus or Statement of Additional Information, or any
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, if such
statement or omission was made in reliance upon and in conformity with
<PAGE>
information furnished to the Trust in connection therewith by or on behalf of
Distributor; and (ii) any act or deed of Distributor or its sales
representatives that has not been authorized by the Trust in any Prospectus or
Statement of Additional Information or by this Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 13, 1999 and shall continue in effect
for successive periods of one year, but only so long as each such continuance
is specifically approved by votes of a majority of both the Trustees of the
Trust and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Distribution Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the particular Fund
in question, and not any other Fund or series of the Trust. The term "CitiFunds
Trust I" means and refers to the Trustees from time to time serving under the
Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and delivery of
this Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust I
By: /s/ Philip Coolidge
CFBDS, Inc.
By: /s/ Philip Coolidge
<PAGE>
Exhibit A
Funds
CitiFunds Balanced Portfolio
Exhibit m(1)
AMENDED AND RESTATED
DISTRIBUTION PLAN
DISTRIBUTION PLAN, dated as of August 21, 1986 and amended and restated
effective as of January 4, 1999, of CitiFunds Trust I, a Massachusetts business
trust (the "Trust"), with respect to shares of beneficial interest of its
series CitiFunds Balanced Portfolio and any other series of the Trust adopting
this plan (the "Series"). This Plan relates solely to shares of beneficial
interest of each Series which are designated "Class A" ("Shares").
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or in
any agreement relating hereto (the "NonInterested Trustees"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Section 36(a) and (b) of the
1940 Act, that there is a reasonable likelihood that this Plan will benefit the
Trust and the shareholders of the Series, have approved this Plan by votes cast
at a meeting called for the purpose of voting hereon and on any agreements
related hereto;
WHEREAS, an initial sales charge may be paid by investors who purchase
Shares, and CFBDS, Inc. (the "Distributor"), broker-dealers, banks and other
financial intermediaries may receive such sales charge as partial compensation
for their services in connection with the sale of Shares;
WHEREAS, each Series or the Distributor may impose certain deferred sales
charges in connection with the repurchase of Shares by such Series, and the
Series may pay to the Distributor, dealers and others, or the Series may permit
such persons to retain, as the case may be, all or any portion of such deferred
sales charges;
<PAGE>
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms
of the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
(a) engage, directly or indirectly, in any activities primarily
intended to result in the sale of Shares of the Series, which activities
may include, but are not limited to (i) payments to the Trust's
Distributor for distribution services, (ii) payments to securities
dealers, financial institutions (which may include banks) and others in
respect of the sale of Shares of the Series, (iii) payments for
advertising, marketing or other promotional activity, and (iv) payments
for preparation, printing, and distribution of prospectuses and statements
of additional information and reports of the Trust for recipients other
than regulators and existing shareholders of the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may include
banks) and others for providing personal service and/or the maintenance of
shareholder accounts.
The Trust is authorized to engage in the activities listed above either
directly or through other persons with which the Trust has entered into
agreements related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances, an
initial sales charge may be paid by investors who purchase Shares of each
Series, and the Series may pay to the Distributor, securities dealers,
financial institutions (including banks) and others, or the Series may permit
such persons to retain, as the case may be, such sales charge as partial
compensation for their services in connection with the sale of Shares. It is
also understood that, under certain circumstances, each Series or the
Distributor may impose certain deferred sales charges in connection with the
repurchase of Shares of such Series, and the Series may pay to the Distributor,
securities dealers, financial institutions (including banks) and others, or the
Series may permit such persons to retain, as the case may be, all or any
portion of such deferred sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures
will be made shall be determined by the Trustees of the Trust, but in no event
<PAGE>
may such expenditures exceed an amount calculated at the rate of 0.25% per
annum of the average daily net assets of the Shares of each Series. Payments
pursuant to this Plan may be made directly by the Trust to the Distributor or
to other persons with which the Trust has entered into agreements related to
this Plan. For purposes of determining the fees payable under this Plan, the
value of each Series' average daily net assets shall be computed in the manner
specified in the applicable Series' then-current prospectus and statement of
additional information.
4. Trust's Expenses. The Trust shall pay all expenses of its operations,
including the following, and such expenses shall not constitute expenditures
under this Plan: organization costs of each Series; compensation of Trustees;
governmental fees; interest charges; loan commitment fees; taxes; membership
dues in industry associations allocable to the Trust; fees and expenses of
independent auditors, legal counsel and any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of the Series
(including but not limited to the fees of independent pricing services);
expenses of meetings of shareholders; expenses relating to the issuance,
registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the
Trustees of the Trust and the Non-Interested Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series by
a vote of a majority of the NonInterested Trustees or by a vote of a majority
of the outstanding voting securities, as defined in the 1940 Act, of Shares of
the applicable Series.
<PAGE>
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Non-Interested Trustees of the Trust shall
be committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
Exhibit m(2)
DISTRIBUTION PLAN
DISTRIBUTION PLAN of CitiFunds Trust I, a Massachusetts business trust
(the "Trust"), with respect to shares of beneficial interest of its series
CitiFunds Balanced Portfolio and any other series of the Trust adopting this
plan (the "Series"). This Plan relates solely to shares of beneficial interest
of each Series which are designated "Class B" ("Shares").
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or in
any agreement relating hereto (the "NonInterested Trustees"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Section 36(a) and (b) of the
1940 Act, that there is a reasonable likelihood that this Plan will benefit the
Trust and the shareholders of the Series, have approved this Plan by votes cast
at a meeting called for the purpose of voting hereon and on any agreements
related hereto;
WHEREAS, each Series or CFBDS, Inc. (the "Distributor") may impose certain
deferred sales charges in connection with the repurchase of Shares by such
Series, and the Series may pay to the Distributor, dealers and others, or the
Series may permit such persons to retain, as the case may be, all or any
portion of such deferred sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms
of the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
<PAGE>
(a) engage, directly or indirectly, in any activities primarily
intended to result in the sale of Shares of the Series, which activities
may include, but are not limited to (i) payments to the Trust's
Distributor for distribution services, (ii) payments to securities
dealers, financial institutions (which may include banks) and others in
respect of the sale of Shares of the Series, (iii) payments for
advertising, marketing or other promotional activity, and (iv) payments
for preparation, printing, and distribution of prospectuses and statements
of additional information and reports of the Trust for recipients other
than regulators and existing shareholders of the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may include
banks) and others for providing personal service and/or the maintenance of
shareholder accounts.
The Trust is authorized to engage in the activities listed above either
directly or through other persons with which the Trust has entered into
agreements related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances,
each Series or the Distributor may impose certain deferred sales charges in
connection with the repurchase of Shares of such Series, and the Series may
pay to the Distributor, securities dealers, financial institutions (including
banks) and others, or the Series may permit such persons to retain, as the
case may be, all or any portion of such deferred sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures
will be made shall be determined by the Trustees of the Trust, but in no event
may such expenditures exceed an amount calculated at the rate of 1.00% per
annum of the average daily net assets of the Shares of each Series. Payments
pursuant to this Plan may be made directly by the Trust to the Distributor or
to other persons with which the Trust has entered into agreements related to
this Plan. For purposes of determining the fees payable under this Plan, the
value of each Series' average daily net assets shall be computed in the manner
specified in the applicable Series' then-current prospectus and statement of
additional information.
<PAGE>
4. Trust's Expenses. The Trust shall pay all expenses of its operations,
including the following, and such expenses shall not constitute expenditures
under this Plan: organization costs of each Series; compensation of Trustees;
governmental fees; interest charges; loan commitment fees; taxes; membership
dues in industry associations allocable to the Trust; fees and expenses of
independent auditors, legal counsel and any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of the Series
(including but not limited to the fees of independent pricing services);
expenses of meetings of shareholders; expenses relating to the issuance,
registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) This Plan shall become effective as to a
Series upon (i) approval by a vote of at least a majority of the outstanding
voting securities (as defined in the 1940 Act) of Shares of the particular
Series, and (ii) approval by a majority of the Trustees of the Trust and a
majority of the Non-Interested Trustees cast in person at a meeting called for
the purpose of voting on this Plan. Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the
Trustees of the Trust and the Non-Interested Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series by
a vote of a majority of the NonInterested Trustees or by a vote of a majority
of the outstanding voting securities, as defined in the 1940 Act, of Shares of
the applicable Series.
<PAGE>
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Non-Interested Trustees of the Trust shall
be committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
