<PAGE>
As filed with the Securities and Exchange Commission on December 29, 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. 37
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 38
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 U.S. Fixed Income Portfolio, and
Asset Allocation Portfolios, on behalf of Large Cap Value Portfolio, have also
executed this Registration Statement.
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* This filing relates solely to shares of the Trust's series designated
CitiFunds Balanced Portfolio.
<PAGE>
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PROSPECTUS
----------
MARCH 1, 2000
CitiFunds(SM)
Balanced Portfolio
CITIBANK, N.A., INVESTMENT MANAGER
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS ACCOUNT ................................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 19
HOW THE PRICE OF YOUR SHARES IS CALCULATED 20
HOW TO SELL SHARES .................................................. 21
REINSTATING RECENTLY SOLD SHARES .................................... 23
EXCHANGES ........................................................... 23
DIVIDENDS ........................................................... 24
TAX MATTERS ......................................................... 25
MANAGEMENT OF THE FUND ................................................. 27
MANAGERS ............................................................ 27
MANAGEMENT FEES ..................................................... 28
MORE ABOUT THE FUND .................................................... 29
PRINCIPAL INVESTMENT STRATEGIES ..................................... 29
RISKS ............................................................... 35
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
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Fund at a Glance
----------------
Fund at a Glance
This summary briefly describes CitiFunds Balanced Portfolio
and the principal risks of investing in it. For more
information, see MORE ABOUT THE FUND on page 29.
CitiFunds
Balanced Portfolio
FUND GOAL
The Fund's goals are to provide high current income by
investing in a broad range of securities, to preserve capital,
and to provide growth potential with reduced risk. Of course,
there is no assurance that the Fund will achieve its goals.
MAIN INVESTMENT STRATEGIES
CitiFunds Balanced Portfolio invests in a broadly diversified
portfolio of stocks and fixed income securities. In selecting
stocks, the Fund's Managers use a value-oriented approach, and
emphasize the securities of established, large cap U.S.
issuers, that they believe 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 the Managers' outlook for risk
and return.
The Fund's fixed income portfolio may include collateralized
mortgage obligations or CMOs, and the interest portion or
principal portion of debt obligations, commonly called IOs and
POs. The Fund may use other derivatives, such as futures,
options and swap agreements in order to protect (or "hedge")
against changes in the prices of securities held or to be
bought, or changes in interest rates, or to manage the
maturity or duration of fixed income securities. The Fund may
also invest in stock index futures for non-hedging purposes,
to enhance yields. The Fund's ability to use derivatives
successfully depends on a number of factors, including
derivatives being available at prices that are not too costly,
tax considerations, the availability of liquid markets, and
the Managers accurately predicting movements in interest
rates, stock prices and other economic factors.
The Fund may also invest in foreign equity and debt
securities, including securities of companies in developing
countries.
Please note that the Fund invests in securities through two
underlying mutual funds.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See page 35 for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation. The value
of the Fund's shares will change daily as the value of its
underlying securities changes. This means that your shares of the
Fund may be worth more or less when you sell them than when you
bought them.
o EQUITY SECURITIES. Equity securities are subject to market risk
that historically has resulted in greater price volatility than
exhibited by fixed income securities.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise. Longer
term obligations are usually more sensitive to interest rate
changes. A change in interest rates could cause the Fund's share
price to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Fund, causing a loss. Or, an issuer's financial
condition may deteriorate, lowering the credit quality of a
security and leading to greater volatility in the price of the
security and in shares of the Fund. If the credit quality of a
security deteriorates below investment grade, the Fund may continue
to hold this security, commonly known as a junk bond. The prices of
lower rated securities, especially junk bonds, often are more
volatile than those of higher rated securities.
o VALUE INVESTING. The success of the Fund's investment strategy
depends largely on the skill of the Managers 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
contracts, stock index futures contracts, options, swap agreements,
forward currency exchange contracts, IOs and POs, particularly when
used for non-hedging purposes, may be risky. This practice could
result in losses that are not offset by gains on other portfolio
assets, causing the Fund's share price to go down. In addition, the
Fund's ability to use derivatives successfully depends on a number
of factors including the ability of the Managers to accurately
predict movements in stock prices, interest rates and other
economic factors and the availability of liquid markets. If these
predictions are wrong, or if the derivatives do not work as
anticipated, the Fund could suffer greater losses than if the Fund
had not used derivatives. If the Fund invests in over-the-counter
derivatives, there is also the risk that a counterparty may fail to
honor its contract.
o LIQUIDITY RISK. Securities that are thinly traded can be difficult
to sell at reasonable prices or within a short time-frame. The Fund
could have difficulty in selling thinly traded securities if it
needed to sell securities to meet redemptions. Also, if there is
not an established market price for thinly traded securities, an
accurate valuation of these securities may be difficult.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, fluctuations in currency exchange rates,
currency exchange controls and other limitations on the use or
transfer of assets by the Fund or issuers of securities, and
political or social instability. There may be rapid changes in the
value of foreign currencies or securities, causing the Fund's share
price to be volatile. Also, in certain circumstances, the Fund
could realize reduced or no value in U.S. dollars from its
investments in foreign securities, causing the Fund's share price
to go down.
The Fund may invest in issuers located in emerging, or developing,
markets. All of the risks of investing in foreign securities are
heightened by investing in these markets.
Please 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.
<PAGE>
WHO MAY WANT TO INVEST
You should keep in mind that an investment in a balanced
mutual fund is not a complete investment program.
You should consider investing in CitiFunds Balanced Portfolio
if:
o You are seeking current income, but also are looking for long-term
growth potential.
o You want to direct a portion of your overall investment portfolio
to stocks of large cap issuers.
o You are prepared to accept daily share price fluctuations and
possible losses.
o Your investment horizon is longer term -- typically at least five
years.
Don't invest in the Fund 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 and performance of the Fund.
o The bar chart shows changes in the Fund's performance from year to
year for the calendar years indicated. 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 compares the Fund's average annual returns for the
periods indicated to those of a value stock index and a bond index,
both of which provide a broad measure of market performance. Please
remember that unlike the Fund, the market indexes do not include
the costs of buying and selling securities and other Fund expenses
or sales charges.
o The Fund offers two classes of shares, Class A and Class B. The
chart shows the performance of the Class A shares, and the table
shows the performance of the Class A and Class B shares. All
existing Fund shares were designated Class A shares on January 4,
1999. Prior to that date, there were no sales charges on the
purchase or sale of Fund shares. The returns for Class A shares 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. The returns for Class B shares in the table reflect the
contingent deferred sales charge applicable to Class B shares. You
should note that Class B performance is lower than that shown in
the chart for Class A shares, because of higher expenses for Class
B shares.
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. For current yield
information, please call 800-625-4554 toll free, or contact
your account representative.
The Fund's performance reflects certain fee waivers or
reimbursements. If these are reduced or terminated, the Fund's
performance may go down.
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CITIFUNDS BALANCED PORTFOLIO
ANNUAL TOTAL RETURN -- CLASS A
(WITHOUT SALES CHARGE)
1991 29.61%
1992 6.82%
1993 8.48%
1994 (2.06)%
1995 22.66%
1996 7.59%
1997 20.85%
1998 7.83%
1999 %
As of , the Class A shares had a year-to-date return of %
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HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
................................................................................
Quarter Ending
................................................................................
Highest %
................................................................................
Lowest %
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AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
................................................................................
Life of Fund
Since
1 Year 5 Years October 19, 1990
................................................................................
Class A % % %
................................................................................
Class B % N/A N/A
................................................................................
Standard & Poor's Barra Value Index % % *
................................................................................
Lehman Aggregate Bond Index % % *
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*Information regarding performance for this period is not available.
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
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SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
................................................................................
SHARE CLASS (Class descriptions begin on page 13) Class A Class B
................................................................................
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
................................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
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ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS(3)
..............................................................................
Management Fees 0.70%(4) 0.70%(4)
................................................................................
Distribution (12b-1) Fees (including service fees) 0.25% 1.00%
................................................................................
Other Expenses % %
................................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* % %
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* Because some of the Fund's expenses were waived or reimbursed,
actual total operating expenses for the prior fiscal year were:
% %.
These fee waivers and reimbursements may be reduced or terminated
at any time.
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) The Fund invests in two underlying mutual funds, Large Cap Value
Portfolio and U.S. Fixed Income Portfolio. This table reflects the
expenses of the Fund, Large Cap Value Portfolio and U.S. Fixed Income
Portfolio.
(4) A combined fee for investment advisory and administrative services.
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<PAGE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods (for
Class B shares, two numbers are given, one showing your expenses if
you sold (redeemed) all your shares at the end of each time period
and one if you held onto your shares; the example also shows the
effects of the conversion of Class B shares to Class A shares after
8 years);
o your investment has a 5% return each year -- the assumption of a 5%
return is required by the SEC for the purpose of this example and
is not a prediction of the Fund's future performance; and
o the Fund's operating expenses as shown in the table without waivers
remain the same.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
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CITIFUNDS BALANCED PORTFOLIO 1 Year 3 Years 5 Years 10 Years
................................................................................
Class A $ $ $ $
................................................................................
Class B
................................................................................
Assuming redemption at end of
period $ $ $ $
................................................................................
Assuming no redemption $ $ $ $
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<PAGE>
----------------------
YOUR CITIFUNDS ACCOUNT
----------------------
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE:
o Front-end load -- there is an initial sales charge of 5.00% or less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 5% to 1% over five years,
and is eliminated if you hold your shares for six years or more
o Annual distribution/service fee of up to 1.00%
o Automatic conversion to Class A shares after 8 years
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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.
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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.
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BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
................................................................................
Less than $25,000 5.00% 5.26% 4.50%
................................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
................................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
................................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
................................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
................................................................................
$500,000 or more none* none* up to 1.00%
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*A contingent deferred sales charge may apply in certain instances. See below.
o After the initial sales charge is deducted from your investment,
the balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or Reductions"
below. If you qualify to purchase Class A shares without a sales
load, you should purchase Class A shares rather than Class B shares
because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any
initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) of 1% of the purchase price, or the
sale price, whichever is less, if you sell within the first year.
Under certain circumstances, waivers may apply. Other policies
regarding the application of the CDSC are the same as for Class B
shares. Please read the discussion below on Class B shares for more
information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares that represent capital
appreciation or the reinvestment of dividends or capital gains
distributions on those shares.
SALES CHARGES -- CLASS B SHARES
Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The
table below shows the rates that you pay, as a percentage of
your original purchase price (or the sale price, whichever is
less), depending upon when you sell your shares.
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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
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o Financial professionals selling Class B shares receive a commission
of 4.50% of the purchase price of the Class B shares that they
sell, except for sales exempt from the CDSC. Financial
professionals also receive a service fee at an annual rate equal to
0.25% of the average daily net assets represented by the Class B
shares that they have sold.
o When you sell your shares, the CDSC will be based on either your
original purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends and capital gain distributions or on shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Class B shares with the lowest CDSC to fill your
sell requests.
o You do not pay a CDSC at the time you exchange your Class B shares
for Class B shares of certain CitiFunds--any payment will be
deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
The Fund's distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers, including
certain tax-exempt organizations, certain employee benefit plans,
certain entities or persons with a qualifying affiliation or
relationship with Citibank, and, under certain circumstances,
investors using the proceeds of a redemption from another mutual
fund for their purchase of Class A shares. Further information
about eligible purchasers may be found in the Appendix to this
prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds Balanced Portfolio are offered
continuously and purchases may be made Monday through Friday,
except on certain holidays. Shares may be purchased from the
Fund's distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please
specify whether you are purchasing Class A or Class B shares.
If you fail to so specify, Class A shares will be purchased
for your account. The Fund and the distributor have the right
to reject any purchase order or cease offering Fund shares at
any time.
Shares are purchased at net asset value (NAV) the next time it
is calculated after your order is received and accepted by the
Fund's transfer agent. NAV is the value of a single share of
the Fund. If you are purchasing Class A shares, the applicable
sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for
Fund shares until it receives the purchase price in federal or
other immediately available funds. If you pay by check, the
Service Agent transmits the order when the check clears,
usually within two business days.
If you hold your shares through 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
may be calculated as of the earlier close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security.
For foreign securities the values are translated from the
local currency into U.S. dollars using current exchange rates.
If trading in the currency is restricted, the Fund uses a rate
believed to reflect the currency's fair value in U.S. dollars.
Trading may take place in foreign securities held by the Fund
on days when the Fund is not open for business. As a result,
the Fund's NAV may change on days on which it is not possible
to purchase or sell shares of the Fund. If events materially
affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the
time when the Fund's net asset value is calculated, the
securities may be valued at fair value in accordance with
procedures established by and under the general supervision of
the Board of Trustees.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to the CDSC on the shares withdrawn under the
Plan. For more information, please contact the Fund's transfer
agent or, if you are a customer of a Service Agent, your
Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but in
any event 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.
Your account balance may be subject to a $500 minimum. If so,
the Fund reserves the right to close your account. You will
have 60 days' notice to make an additional investment. If you
do not increase your balance, the Fund may close your account
and send the proceeds to you. Your shares will be sold at NAV
(normally $1.00 per share) on the day your account was closed.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of shares redeemed, without paying any sales
charges. To take advantage of this reinstatement privilege,
you must notify the Fund in writing at the time you wish to
repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain other CitiFunds. You may also be able to exchange your
Class A shares for shares of certain CitiFunds that offer only
a single class of shares, unless your Class A shares are
subject to a CDSC. You may not exchange Class B shares for
shares of CitiFunds that offer only a single class of shares.
You may also acquire Fund shares through an exchange from
another fund managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Class A shares
were purchased prior to January 4, 1999, you will not have to
pay a sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
CitiFunds Balanced Portfolio pays substantially all of its net
income (if any) from dividends and interest to its
shareholders of record as a dividend quarterly at the end of
March, June, September and December.
The Fund's net realized short-term and long-term capital
gains, if any, will be distributed to Fund shareholders semi-
annually. The Fund may also make additional distributions to
shareholders to the extent necessary to avoid the application
of the 4% non-deductible excise tax on certain undistributed
income and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional Fund shares.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
Each year the Fund will mail to you a report of your
distributions for the prior year and how they are treated for
federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transaction.
<PAGE>
----------------------
MANAGEMENT OF THE FUND
----------------------
Management of the Fund
MANAGERS
CitiFunds Balanced Portfolio draws on the strength and
experience of Citibank. Citibank is the investment manager of
the Fund. Subject to policies set by the Fund's Trustees,
Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently
manages more than $351 billion in assets worldwide.
Citibank, with its headquarters at 153 East 53rd Street, New
York, New York, is a wholly-owned subsidiary of Citicorp,
which is, in turn, a wholly-owned subsidiary of Citigroup Inc.
"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.
Mark Lindbloom, a Vice President of Citibank, serves as the
Fund's overall portfolio manager and is responsible for
determining asset allocations, supervising and monitoring the
performance of Citibank personnel responsible for managing the
Fund's assets, and supervising and monitoring the performance
of the sub-adviser. Also, Mr. Lindbloom manages the fixed
income portion of the Fund, as the portfolio manager of U.S.
Fixed Income Portfolio, an underlying mutual fund in which the
Fund invests.
Mr. Lindbloom has managed the fixed income portion of the Fund
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.
SSB Citi Fund Management LLC (formerly, SSBC Fund Management,
Inc.) (SSB Citi) manages the equity portion of the Fund as the
subadviser to Large Cap Value Portfolio, an underlying mutual
fund in which the Fund invests. SSB Citi is an affiliate of
Citibank and an indirect wholly-owned subsidiary of Citigroup,
Inc. SSB Citi's address is 388 Greenwich Street, New York, New
York 10013. Both Citibank and SSB Citi are referred to as the
Fund's Managers.
Frances A. Root is the portfolio manager of Large Cap Value
Portfolio. Ms. Root is a Managing Director and a Senior Equity
Portfolio Manager of SSB Citi. She joined Smith Barney Capital
Management in 1992 as a Vice President and Equity Portfolio
Manager and in 1998 became a Managing Director of SSB Citi and
a Senior Equity Portfolio Manager. Formerly, she was with
Shearson Lehman Advisors as a Vice President and Portfolio
Manager for seven years and prior to that, with E.F. Hutton &
Company, Inc.
Citibank is responsible for recommending the hiring,
termination or replacement of any subadviser and for
supervising and monitoring the performance of any subadviser.
MANAGEMENT FEES
For the fiscal year ended October 31, 1999, Citibank and the
subadviser received a total of % of the Fund's average daily
net assets.
<PAGE>
-------------------
MORE ABOUT THE FUND
-------------------
More About the Fund
The Fund's goal, principal investments and risks are
summarized in FUND AT A GLANCE. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Balanced Portfolio's principal investment strategies
are the strategies that, in the opinion of the Managers, 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. The Fund
may not use all of the strategies and techniques described in
this Prospectus or in the Statement of Additional Information.
The Fund's goal and strategies may be changed without
shareholder approval.
The Fund invests in a broadly diversified portfolio of stocks
and fixed-income securities. Under normal circumstances, about
60% of the Fund's total assets is invested in equity
securities of large cap issuers (having market capitalizations
within the top 1,000 stocks in the equity market), and at
least 25% of the Fund's total assets is invested in fixed
income investments, although the Fund's blend of stocks and
bonds may shift from time to time to take advantage of a
strong market or based on Citibank's outlook for risk and
return.
- --------------------------------------------------------------------------------
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest
(or a right to acquire an ownership interest) in an issuer,
and include COMMON STOCKS, SECURITIES CONVERTIBLE INTO COMMON
STOCKS, PREFERRED STOCKS, WARRANTS for the purchase of stock
and DEPOSITARY RECEIPTS (receipts which represent the right to
receive the securities of foreign issuers deposited in a U.S.
bank or a local branch of a foreign bank). While equity
securities historically have been more volatile than fixed
income securities, they historically have produced higher
levels of total return.
- --------------------------------------------------------------------------------
The Fund's equity securities consist primarily of common
stocks, but may also include securities convertible into
common stocks, preferred stocks, warrants for the purchase of
stock and depositary receipts. Convertible securities in the
Fund's equity portfolio are not required to be investment
grade securities.
- --------------------------------------------------------------------------------
WHAT ARE FIXED INCOME SECURITIES?
FIXED INCOME SECURITIES generally represent a debt obligation
of an issuer, and include BONDS, SHORT-TERM OBLIGATIONS,
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, AND PREFERRED
STOCK. Fixed income securities, in general, offer a fixed
stream of cash flow. Most bond investments focus on generating
income. The potential for capital appreciation is a secondary
objective. The value of fixed income securities generally goes
up when interest rates go down, and down when rates go up. The
value of these securities also fluctuates based on other
market and credit factors.
- --------------------------------------------------------------------------------
The Fund may invest in several types of fixed-income
securities, including asset-backed and mortgage-backed
securities, corporate bonds, U.S. government and government
agency obligations, and notes. The Fund's long-term non-
convertible debt securities must be investment grade when the
Fund purchases them. Investment grade securities are those
rated Baa or better by Moody's, BBB or better by Standard &
Poor's, or which the Managers believe 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 15% of its assets in zero coupon
obligations, such as zero coupon bonds issued by companies and
securities representing future principal and interest
installments on debt obligations of the U.S. and foreign
governments.
The Fund may invest up to 25% of its assets in foreign equity
and debt securities including depositary receipts (receipts
representing the right to receive securities of foreign
issuers deposited in a U.S. bank or a local branch of a
foreign bank). Foreign securities may be issued by issuers in
developing countries. The Fund may also invest in a limited
amount in closed-end investment companies that invest in
foreign securities.
The Fund invests primarily in securities with a record of
earnings and dividend payments but may, from time to time,
invest in securities that pay no dividends or interest.
The Fund generally invests in large capitalization common
stocks and fixed income securities for which there is a ready
market. However, the Fund may also purchase securities which
are not registered for sale to the general public, or, to a
limited extent, securities that are not readily marketable.
The Fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse
repurchase agreements for cash management purposes. The Fund
may also lend its portfolio securities or sell its securities
short, as long as, in the case of a short sale, the fund owns,
or has the right to obtain, the securities being sold short.
DERIVATIVES. The Fund may use derivatives in order to protect
(or "hedge") against declines in the value of securities held
by the Fund or increases in the cost of securities to be
purchased in the future. These derivatives include financial
futures, options, swap agreements, forward currency exchange
contracts and stock index futures. The Fund may also use IOs
and POs, which may be deemed to be derivatives, for non-
hedging purposes, to enhance yields and price sensitivity and
may use stock index futures for non-hedging purposes in order
to enhance potential gain.
In some cases, the derivatives purchased by the Fund are
standardized contracts traded on commodities exchanges or
boards of trade. This means that the exchange or board of
trade guaranties counterparty performance. Over-the-counter
derivatives, however, are not guaranteed. Derivatives may not
be available on terms that make economic sense (for example,
they may be too costly).
DEFENSIVE STRATEGIES. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the
Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE. The Fund does not invest directly in
securities but instead invests through two underlying mutual
funds, Large Cap Value Portfolio (which invests in equity
securities) and U.S. Fixed Income Portfolio (which invests in
fixed income and money market securities). Each Portfolio is a
mutual fund with its own investment goals and policies. Each
Portfolio buys, holds and sells securities in accordance with
these goals and policies. Of course, there can be no assurance
that the Fund or Portfolios will achieve their goals. Prior to
August 1, 1999, the Fund invested in a different underlying
mutual fund, Balanced Portfolio.
The Fund may stop investing in either Portfolio 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 one or more mutual funds or pooled investment
vehicles or invest directly in securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when selecting securities to purchase. In selecting
equity securities to buy for the Fund, the portfolio managers
use a value-oriented approach and evaluate 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. The
portfolio managers believe that securities of companies which
are temporarily out of favor due to earnings declines,
cyclical business downturns or other adverse factors may
provide a higher return over time than securities or companies
whose positive attributes are more accurately reflected in the
security's current price.
In selecting securities to buy for the fixed income portion of
the Fund's portfolio, the portfolio managers combine a "top-
down" economic view with a "bottom-up" sector and company
view. The portfolio managers first review the Fund's duration
and yield curve relative to the Fund's fixed income benchmark.
The managers next determine the sector weighting of the
portfolio. The managers then look at individual companies
within those sectors or industries and select individual
securities based on their relative value.
The portfolio managers use these same approaches when deciding
which securities to sell. Securities are sold when the Fund
needs cash to meet redemptions, or when the managers believe
that better opportunities exist or that the security no longer
fits within the managers' overall strategies for achieving the
Fund's goals. For more information about the portfolio
managers, see "Managers" on page 27.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
The Managers may use brokers or dealers for Fund transactions
who also provide brokerage and research services to the Fund
or other accounts over which the Managers or their affiliates
exercise 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
the Managers determine in good faith that the higher
commission is reasonable in relation to the brokerage and
research services provided, viewed in terms of either the
particular transaction or all of the accounts over which the
Managers exercise 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 the portfolio managers' skill in
identifying securities of companies that are in fact
undervalued, but have good longer term business prospects. A
security may not achieve its expected value because the
circumstances causing it to be underpriced worsen (causing the
security's price to decline further) or do not change or
because the portfolio managers are incorrect in their
determinations. In addition, the Fund may underperform certain
other stock funds (those emphasizing growth stocks, for
example) during periods when value stocks are out of favor.
PREPAYMENT RISK. The issuers of debt securities held by the
Fund may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The
Fund may not be able to reinvest that principal at attractive
rates, reducing income to the Fund, and resulting in a loss of
any premium paid. On the other hand, rising interest rates may
cause prepayments to occur at slower than expected rates. This
effectively lengthens the maturities of the affected
securities, making them more sensitive to interest rate
changes and the Fund's share price more volatile.
Mortgage-backed securities, including CMOs, are particularly
susceptible to prepayment risk and their prices may be very
volatile. The price of IOs, which are the interest only
component of stripped mortgage-backed securities, goes down
when interest rates decline and principal payments accelerate,
causing a reduction in the interest payment stream. The price
of POs goes down when interest rates are rising and
prepayments are slower, causing the maturity of POs to
lengthen.
CONVERTIBLE SECURITIES. Convertible securities, which are debt
securities that may be converted into stock, are subject to
the market risk of stocks, and, like other debt securities,
are also subject to interest rate risk and the credit risk of
their issuers. Call provisions may allow the issuer to repay
the debt before it matures.
DERIVATIVES. The Fund's use of derivatives such as futures,
stock index futures, options, swap agreements, forward
currency exchange contracts, IOs and POs, particularly when
used for non-hedging purposes, may be risky. This practice
could result in losses that are not offset by gains on other
portfolio assets, causing the Fund's share price to go down.
In addition, the Fund's ability to use derivatives
successfully depends on the Managers' ability to accurately
predict movements in stock prices, interest rates and other
economic factors and the availability of liquid markets. If
the Managers' predictions are wrong, or if the derivatives do
not work as anticipated, the Fund could suffer greater losses
than if the Fund had not used derivatives. If the Fund invests
in over-the-counter derivatives, there is also the risk that a
counterparty may fail to honor its contract.
LIQUIDITY RISK. Securities that are thinly traded can be
difficult to sell at reasonable prices or within a short time-
frame. The Fund could have difficulty in selling thinly traded
securities if it needed to sell securities to meet
redemptions. Also, if there is not an established market price
for thinly traded securities, an accurate valuation of these
securities may be difficult.
FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to political, social and economic developments
abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and
markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on fund
investments, currency exchange controls and other limitations on
the use or transfer of Fund assets and political or social
instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there
may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be
special problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest earned,
and gains and losses realized on the sale of securities. An
increase in the U.S. dollar relative to these other currencies will
adversely affect the value of the Fund. In addition, some foreign
currency values may be volatile and there is the possibility of
governmental controls on currency exchanges or governmental
intervention in currency markets. Controls or intervention could
limit or prevent the Fund from realizing value in U.S. dollars from
its investment in foreign securities. The Fund may also be
adversely affected by the introduction of the Euro.
o The Fund may invest in issuers located in emerging, or
developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
ZERO COUPON OBLIGATIONS. The Fund may invest in zero coupon
obligations. Zero coupon obligations pay no current interest.
As a result, the prices of zero coupon obligations tend to be
more volatile than those of securities that offer regular
payments of interest. This makes the Fund's net asset value
more volatile. In order to pay cash distributions representing
income on zero coupon obligations, the Fund may have to sell
other securities on unfavorable terms. These sales may
generate taxable gains for Fund shareholders.
YEAR 2000. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers
have not been programmed to process information accurately on
or after January 1, 2000. The Fund, and its service providers,
have made 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 or the
markets on which those securities are traded do not solve
their Year 2000 problems, or if it costs them large amounts of
money to do so. Because the Fund may invest in foreign
securities, it may be particularly susceptible to these
potential Year 2000 problems.
<PAGE>
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<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Fund (assuming investment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Fund's financial statements, is included in
the annual report which is incorporated by reference in the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
CITIFUNDS BALANCED PORTFOLIO
Class A
..............................................................................................................................
Year Ended October 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
..............................................................................................................................
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period $ $ $ $ $
..............................................................................................................................
Income From Operations:
Net investment income
Net realized and unrealized gain
(loss)
..............................................................................................................................
Total from operations
..............................................................................................................................
Less Distributions From:
Net investment income
Net realized gain
..............................................................................................................................
Total distributions
..............................................................................................................................
Net Asset Value, end of period $ $ $ $ $
..............................................................................................................................
Total return (A) % % % % %
..............................................................................................................................
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $ $ $ $ $
Ratio of expenses to average net
assets (B) % % % % %
Ratio of net investment income to
average net assets % % % % %
Portfolio turnover (C) % % % % %
Note: If agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees the net investment
income per share and the ratios would have been as follows:
Net investment income $ $ $ $ $
RATIOS:
Expenses to average net assets % %(B) %(B) %(B) %(B)
Net investment income to average
net assets % % % % %
..............................................................................................................................
(A) Total return does not include the maximum sales charge of 5.00% effective January 4, 1999.
(B) Includes the Fund's share of Balanced Portfolio allocated expenses for the periods indicated.
(C) The portfolio turnover rates for the periods beginning May 1, 1994 represent the rate of portfolio activity of the Balanced
Portfolio, the underlying portfolio through which the Fund invests. The Fund's portfolio turnover for the period January 1,
1994 to April 30, 1994 was 29%, which represents the rate of portfolio activity for the period the Fund was making investments
directly in securities.
+ On May 1, 1994 the Fund began investing all of its investable assets in Balanced Portfolio.
</TABLE>
CITIFUNDS BALANCED PORTFOLIO
Class B
...............................................................................
For the period
January 4, 1999
(Commencement of Operations)
to October 31, 1999
...............................................................................
Net Asset Value, beginning of period
...............................................................................
Income from Operations:
Net investment income
Net realized and unrealized gain (loss)
...............................................................................
Total from operations
...............................................................................
Less Distributions From:
Net investment income
Net realized gain
...............................................................................
Total distributions
...............................................................................
Net Asset Value, end of period
...............................................................................
Total Return
...............................................................................
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)
Ratio of expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover
Note: If agents of the Fund for the period indicated had not voluntarily waived
a portion of their fees the net investment income per share and the ratios would
have been as follows:
Net investment income
RATIOS:
Expenses to average net assets
Net investment income to average net assets
...............................................................................
<PAGE>
--------
APPENDIX
--------
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A. or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors or trustees (and their immediate families),
of any investment company for which Citibank or any subsidiary
or affiliate of Citibank serves as the investment adviser or as
a service or shareholder servicing agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS and its
affiliates (including immediate families of any of the
foregoing)
[] investors participating in a fee-based or promotional
arrangement sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances
in selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan
offered to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's
Board of Trustees or by the Board of Trustees of any other
CitiFund or mutual fund managed or advised by Citibank (all of
such funds being referred to herein as CitiFunds) the terms of
which entitle those shareholders to purchase shares of the Fund
or any other CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum
requirements as may be established by CFBDS with respect to the
amount of purchase; currently, the amount invested by the
qualified plan in the Fund or in any combination of CitiFunds
must total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be imposed on
the investments in the event of certain share redemptions
within 12 months following the share purchase, at the rate of
1% of the lesser of the value of the shares redeemed (not
including reinvested dividends and capital gains distributions)
or the total cost of the shares; the contingent deferred sales
charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class
B shares will be waived; in determining whether a contingent
deferred sales charge on Class A shares is payable, and if so,
the amount of the charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently
redeemed (assuming the contingent deferred sales charge is
then payable)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the
amount invested represents redemption proceeds from a mutual
fund (other than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed),
and
o the redemption has occurred no more than 60 days prior to
the purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from
another investment firm within six months prior to the date of
purchase by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative,
and either paid an initial sales charge or was at sometime
subject to, but did not actually pay, a deferred sales charge
or redemption fee with respect to the redemption proceeds
o the redemption is made within 60 days prior to the investment
in the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds
of the redemption
<PAGE>
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at http:/
/www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. You can get information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. Copies may also be obtained upon payment of a
duplicating fee by electronic request to [email protected],
or by writing to the SEC's Public Reference Section,
Washington, DC 20549-6009.
SEC File Number: 811-4006 CFP-BAL 5/99
<PAGE>
Statement of
Additional Information
March 1, 2000
CITIFUNDS(SM) BALANCED PORTFOLIO
CitiFunds(SM) Balanced Portfolio (the "Fund") is a series of CitiFunds
Trust I (the "Trust"). The address and telephone number of the Trust are 21
Milk Street, Boston, Massachusetts 02109, (617) 423-1679. The Trust invests
all of the investable assets of the Fund in Large Cap Value Portfolio and U.S.
Fixed Income Portfolio (the "Portfolios"). Large Cap Value Portfolio is a
separate series of Asset Allocation Portfolios, and U.S. Fixed Income
Portfolio is a separate series of The Premium Portfolios (Asset Allocation
Portfolios and The Premium Portfolios are collectively referred to herein as
the "Portfolio Trusts"). The address of the Portfolio Trusts is Elizabethan
Square, George Town, Grand Cayman, British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY, AND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
TABLE OF CONTENTS PAGE
- ----------------- ----
1. The Trust ........................................................... 2
2. Investment Objective and Policies; Special Information Concerning
Investment Structure .............................................. 2
3. Description of Permitted Investments and Investment Practices ....... 3
4. Investment Restrictions ............................................. 23
5. Performance Information ............................................. 24
6. Determination of Net Asset Value; Valuation of Securities ........... 26
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs .............................................. 27
8. Management .......................................................... 33
9. Portfolio Transactions .............................................. 40
10. Description of Shares, Voting Rights and Liabilities ................ 41
11. Tax Matters ......................................................... 42
12. Financial Statements ................................................ 44
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 March 1, 2000, 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 44
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 March 1, 2000, 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
equity portion of the Fund will be invested in Large Cap Value Portfolio and
the fixed income portion of the Fund will be invested in U.S. Fixed Income
Portfolio (collectively, the "Portfolios"). Large Cap Value Portfolio is a
series of Asset Allocation Portfolios, and U.S. Fixed Income Portfolio is a
series of The Premium Portfolios. (Asset Allocation Portfolios and The Premium
Portfolios are collectively referred to herein as the "Portfolio Trusts").
Each Portfolio is an open-end, diversified management investment company.
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 Portfolios, all references in this
Statement of Additional Information to the Fund include the Portfolios, unless
the context otherwise requires. In addition, references to the Trust include
the Portfolio Trusts, unless the context otherwise requires.
Citibank, N.A. ("Citibank" or the "Manager") is investment manager to the
Portfolios. The Manager manages the investments of the Portfolios from day to
day in accordance with the Portfolios' investment objectives and policies. The
selection of investments for the Portfolios and the way they are managed
depend on the conditions and trends in the economy and the financial
marketplaces. Citibank has delegated the daily management of Large Cap Value
Portfolio to SSB Citi Fund Management LLC (formerly, SSBC Fund Management,
Inc.), an affiliate of Citibank and an indirect wholly-owned subsidiary of
Citigroup Inc. ("SSB Citi" or the "Subadviser").
The Boards of Trustees of the Trust and the Portfolio Trusts provide broad
supervision over the affairs of the Fund and the Portfolios, respectively.
Shares of the Fund are continuously sold by CFBDS, Inc., the Fund's
distributor ("CFBDS" or 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 the equity portion of the Fund in Large Cap Value Portfolio
and the fixed income portion of the Fund in U.S. Fixed Income Portfolio. The
Trustees of the Fund believe that the aggregate per share expenses of the Fund
and the Portfolios 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 Portfolios.
The Trust may withdraw the investment of the Fund from the Portfolios at
any time if the Board of Trustees of the Trust determines that it is in the
best interests of the Fund to do so. Upon any such withdrawal, the Fund's
assets would continue to be invested in accordance with its investment
objective and policies, either directly in securities or in another mutual
fund or pooled investment vehicle. If the Fund were to withdraw, the Fund
could receive securities from the Portfolios 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 Portfolios 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 Portfolios 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 Portfolios is
available from the Fund's distributor, CFBDS.
3. DESCRIPTION OF PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
The Fund may, but need not, invest in any or all of the investments and
utilize any or all of the investment techniques described below and in the
Prospectus. The selection of investments and the utilization of investment
techniques depend on, among other things, the Manager's and the Subadviser's
investment strategies for the Fund, conditions and trends in the economy and
financial markets and investments being available on terms that, in the
Manager's or the Subadviser's opinion, make economic sense.
The Fund's policy is to invest its assets, under normal circumstances, in
a broadly diversified portfolio of income-producing securities, including
common and preferred stocks, bonds and short-term obligations. Under normal
circumstances, at least 25% of the Fund's total assets is invested in fixed
income securities.
FUTURES CONTRACTS
The Fund may enter into interest rate futures contracts, stock index
futures contracts and foreign currency futures contracts. These investment
strategies may be used for hedging purposes and for nonhedging purposes,
subject to applicable law.
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. Interest
rate futures, which are typically based on shorter-term interest rates, such
as overnight to six-month time periods, settle in cash only rather than by
delivery of the underlying instrument.
The Fund may purchase or sell interest rate futues contracts or bond
futures contracts to attempt to protect itself from fluctuations in interest
rates, to manage the effective maturity or duration of the Fund's portfolio in
an effort to reduce potential losses, or in an effort to enhance potential
gain, without actually buying or selling securities. For example, if the Fund
owned long-term bonds and 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.
Bond futures may be used for non-hedging purposes. For example, even if
the Fund were not trying to protect the value of any bonds held by it, if the
Manager or the Subadviser anticipates that interest rates are about to rise,
depressing future prices of bonds, the Manager or Subadviser may sell bond
futures short, closing out the position later at a lower price, if the future
prices had fallen, as expected. If the prices had not fallen, the Fund would
experience a loss and such loss may be unlimited.
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.
Although futures on individual equity securities are not available in
United States markets, futures contracts on individual equity securities may
be available in foreign markets, and may be purchased or sold by the Fund.
The Fund may buy and sell stock index futures contracts to attempt to
increase investment return, to gain stock market exposure while holding cash
available for investments and redemptions, or to protect against a decline in
the stock market.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at the price agreed upon when the
contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100
Index were $180, one contract would be worth $18,000 (100 units x $180). The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur
upon the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if the Fund enters into a futures
contract to buy 100 units of the S&P 100 Index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $184 on that future date,
the Fund will gain $400 (100 units x gain of $4) reduced by transaction costs.
If the Fund enters into a futures contract to sell 100 units of the stock
index at a specified future date at a contract price of $180 and the S&P 100
Index is at $182 on that future date, the Fund will lose $200 (100 units x
loss of $2) increased by transaction costs.
Positions in index futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures.
The Fund may purchase and sell foreign currency futures contracts to
attempt to protect its current or intended investments from fluctuations in
currency exchange rates, or for non-hedging purposes, in an attempt to benefit
from such fluctuations. Such fluctuations could reduce the dollar value of
portfolio securities denominated in foreign currencies, or increase the cost
of foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
The Fund may sell futures contracts on a foreign currency, for example, where
it holds securities denominated in such currency and it anticipates a decline
in the value of such currency relative to the dollar. In the event such
decline occurs, the resulting adverse effect on the value of foreign-
denominated securities may be offset, in whole or in part, by gains on the
futures contracts. The Fund may also sell futures contracts in a foreign
currency even if it does not hold securities denominated in such currency, if
it anticipates a decline in the value of such currency.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. Where the Fund purchases futures contracts under
such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired. The Fund could also purchase futures contracts on a
currency if it expected the currency to rise in value, even if the Fund did
not anticipate purchasing securities denominated in that currency.
Although the use of futures for hedging, if correctly used, may minimize
the risk of loss due to a decline in the value of the hedged position (e.g.,
if the Fund sells a futures contract to protect against losses in the debt
securities held by the Fund), they do not eliminate the risk of loss and at
the same time the futures contract limits any potential gain which might
result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the debt 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 underlying securities, currencies or
indices.
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. There can be no assurance
that a liquid secondary 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. 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 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
Manager's or Subadviser'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 entered into a futures contract in
the belief that interest rates would increase and interest rates decreased
instead, the Fund would have offsetting losses in its futures positions.
Similarly, if the Fund purchased futures contracts expecting a decrease in
interest rates and interest rates instead increased, the Fund would have
losses in its futures positions which would increase the amount of the losses
on the securities in its portfolio which would 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.
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. These limitations apply only to instruments regulated by
the CFTC, and may not apply to all of the Fund's transactions in futures
contracts.
The Fund will comply with this CFTC requirement, if applicable. In
addition, 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, or the
Fund will otherwise "cover" its positions in accordance with applicable
policies and regulations.
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.
OPTIONS
The Fund may write call and put options and purchase call and put options
on securities for hedging and non-hedging purposes. Call and put options
written by the Fund will be covered in the manner set forth below, or the Fund
will segregate cash or liquid securities equal to the value of the securities
underlying the option.
A call option written by the Fund is "covered" if the Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if the
Fund holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash or liquid securities in a segregated account. A put option is
"covered" if the Fund maintains cash or liquid securities with a value equal
to the exercise price in a segregated account, or else holds a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written or where the exercise price of the put held is less than
the exercise price of the put written if the difference is maintained by the
Fund in cash or liquid securities in a segregated account. Put and call
options written by the Fund may also be covered in such other manner as may be
in accordance with the requirements of the exchange on which, or the
counterparty with which, the option is traded, and applicable laws and
regulations. Even if the Fund's obligation is covered, it is subject to the
risk of the full change in value of the underlying security from the time the
option is written until exercise. Covering an option does not protect the Fund
from risk of loss.
When the Fund writes a call option, the Fund, in return for a fee, or
"premium", agrees to sell a security at the exercise price, if the holder
exercises the right to purchase prior to the expiration date of the call
option. If the Fund holds the security in question, the Fund gives up some or
all of the opportunity to profit from the increase in the market price of the
security during the life of the option. The Fund retains the risk of loss
should the price of the security decline. If the option expires unexercised,
the Fund realizes a gain equal to the premium, which may be offset by a
decline in price of the underlying security. If the option is exercised, the
Fund realizes a gain or loss equal to the difference between the Fund's cost
for the underlying security and the proceeds of sale (exercise price minus
commissions) plus the amount of the premium.
The Fund may terminate a call option it has written before it expires by
entering into a closing purchase transaction. The Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security
or to write another call on the security, realize a profit on a previously
written call option, or protect a security from being called in an unexpected
market rise. Any profits from closing a purchase transaction may be offset by
a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, if the Fund holds
the underlying security any loss resulting from a closing purchase transaction
is likely to be offset in whole or in part by unrealized appreciation of the
underlying security. If the Fund does not hold the underlying security, the
Fund's loss could be unlimited.
The Fund may write put options in an attempt to enhance its current
return. Such option transactions may also be used as a limited form of hedging
against an increase in the price of securities that the Fund plans to
purchase. A put option written by the Fund gives the holder the right to sell,
and, in return for a premium, obligates the Fund to buy, a security at the
exercise price at any time before the expiration date.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Fund may also
receive a return on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a loss
to the Fund, unless the security later appreciates in value. The Fund may
terminate a put option it has written before it expires by a closing purchase
transaction. Any loss from this transaction may be partially or entirely
offset by the premium received on the terminated option.
The Fund may purchase options for hedging purposes or to increase the
Fund's return. When put options are purchased as a hedge against a decline in
the value of portfolio securities, the put options may be purchased at or
about the same time that the Fund purchases the underlying security or at a
later time. If such decline occurs, the put options will permit the Fund to
sell the securities at the exercise price, or to close out the options at a
profit. By using put options in this way, the Fund will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs. Similarly, when put
options are used for non-hedging purposes, the Fund may make a profit when the
price of the underlying security or instrument falls below the strike price.
If the price of the underlying security or instrument does not fall
sufficiently, the options may expire unexercised and the Fund would lose the
premiums it paid for the option. If the price of the underlying security or
instrument falls sufficiently and the option is exercised, the amount of any
resulting profit will be offset by the amount of premium paid.
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If
such increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund and the premium would be lost.
Call options may also be purchased in order to increase the Fund's return
at a time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to its expiration, a call
option may be sold by the Fund in closing sale transactions, which are sales
by the Fund, prior to the exercise of options that it has purchased, of
options of the same series. Profit or loss from the sale will depend upon
whether the amount received is more or less than the premium paid for the
option plus the related transaction costs. The purchase of call options on
securities that the Fund owns, when the Fund is substantially fully invested,
is a form of leverage, up to the amount of the premium and related transaction
costs, and involves risks of loss and of increased volatility.
The Fund may write (sell) call and put options and purchase call and put
options on securities indices. The delivery requirements of options on
securities indices differ from options on securities. Unlike a securities
option, which contemplates the right to take or make delivery of securities at
a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (1) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (2) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in securities index options prior to expiration by entering into a closing
transaction on an exchange or it may allow the option to expire unexercised.
The Fund may cover call options on securities indices by owning securities
whose price changes, in the opinion of the Manager or the Subadviser, are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where the Fund covers a call option on a securities index
through ownership of securities, such securities may not match the composition
of the index and, in that event, the Fund will not be fully covered and could
be subject to risk of loss in the event of adverse changes in the value of the
index. The Fund may also cover call options on securities indices by holding a
call on the same index and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or
liquid securities in a segregated account. The Fund may cover put options on
securities indices by maintaining cash or liquid securities with a value equal
to the exercise price in a segregated account or by holding a put on the same
securities index and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written or where the exercise price of the put held is less than
the exercise price of the put written if the difference is maintained by the
Fund in cash or liquid securities in a segregated account. Put and call
options on securities indices may also be covered in such other manner as may
be in accordance with the rules of the exchange on which, or the counterparty
with which, the option is traded, and applicable laws and regulations.
Investors should be aware that although the Fund will only write call or put
options on securities indices that are covered, covering an option does not
protect the Fund from risk of loss.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, a Fund
assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by the Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
The Fund may purchase put options on securities indices when the Manager
or Subadviser believes that there may be a decline in the prices of the
securities covered by the index. The Fund will realize a gain if the put
option appreciates in excess of the premium paid for the option. If the option
does not increase in value, the Fund's loss will be limited to the premium
paid for the option plus related transaction costs.
The Fund may purchase call options on securities indices to take advantage
of an anticipated broad market advance, or an advance in an industry or market
segment. The Fund will bear the risk of losing all or a portion of the premium
paid if the value of the index does not rise. The purchase of call options on
securities indices when the Fund is substantially fully invested is a form of
leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility.
Securities index options are subject to position and exercise limits and
other regulations imposed by the exchange on which they are traded. The
ability of the Fund to engage in closing purchase transactions with respect to
securities index options depends on the existence of a liquid secondary
market. However, no such secondary market may exist, or the market may cease
to exist at some future date, for some options. No assurance can be given that
a closing purchase transaction can be effected when the Manager or the
Subadviser desires that the Fund engage in such a transaction.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular security, whether the Fund
realizes a gain or loss from purchasing or writing of options on an index
depends upon movements in the level of prices in the market generally or, in
the case of certain indices, in an industry or market segment, rather than
movements in the price of a particular security. As a result, successful use
by the Fund of options on securities indices is subject to the Manager's or
the Subadviser's ability to predict correctly movements in the direction of
the market generally or of a particular industry. This ability contemplates
different skills and techniques from those used in predicting changes in the
price of individual securities. When the Fund purchases or writes securities
index options as a hedging technique, the Fund's success will depend upon the
extent to which price movements in the portion of a securities portfolio being
hedged correlate with price movements of the securities index selected.
The Fund's purchase or sale of securities index options in an attempt to
enhance performance involves speculation and may be very risky and cause
losses, which, in the case of call options written, are potentially unlimited.
The Fund may purchase over-the-counter ("OTC") or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation assures that all transactions are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to
the clearing organization if the option is exercised, and the clearing
organization is then obligated to pay the writer the exercise price of the
option. If the Fund were to purchase a dealer option, however, it would rely
on the dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails to honor the exercise of the option by the
Fund, the Fund would lose the premium it paid for the option and the expected
benefit of the transaction.
Listed options may have a liquid market while dealer options have none.
Consequently, the Fund will generally be able to realize the value of a dealer
option it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes a dealer option, it generally
will be able to close out the option prior to the expiration only by entering
into a closing purchase transaction with the dealer to which the Fund
originally sold the option. Although the Fund will seek to enter into dealer
options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate a dealer option at a
favorable price at any time prior to expiration. The inability to enter into a
closing transaction may result in material losses to the Fund. Until the Fund,
as an OTC call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets)
used to cover the written option until the option expires or is exercised.
This requirement may impair the Fund's ability to sell portfolio securities
or, with respect to currency options, currencies at a time when such sale
might be advantageous. In the event of insolvency of the other party, the Fund
may be unable to liquidate a dealer option.
The Fund may purchase and write options on foreign currencies as more
fully described in "Foreign Currency Exchange Transactions". The Fund may also
purchase or write call options on futures contracts as more fully described in
"Options on Futures Contracts" below.
The Fund's use of options may involve leveraging. Leveraging adds
increased risks to the Fund, because the Fund's losses may be out of
proportion to the amount invested in the instrument -- a relatively small
investment may lead to much greater losses.
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write options to buy or sell futures contracts
in which the Fund may invest. Such investment strategies may be used for
hedging and non-hedging purposes.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract, in
the case of a put option, at a fixed exercise price up to a stated expiration
date or, in the case of certain options, on such date. Upon exercise of the
option by the holder, the contract market clearinghouse establishes a
corresponding short position for the writer of the option, in the case of a
call option, or a corresponding long position in the case of a put option. In
the event that an option is exercised, the parties will be subject to all the
risks associated with the trading of futures contracts, such as payment of
initial and variation margin deposits. In addition, the writer of an option on
a futures contract, unlike the holder, is subject to initial and variation
margin requirements on the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date), as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profits or loss on the transaction.
Options on futures contracts that are written or purchased by the Fund on
U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by
the CFTC and the performance guarantee of the exchange clearinghouse. In
addition, options on futures contracts may be traded on foreign exchanges.
The Fund may cover the writing of call options on futures contracts (a)
through purchases of the underlying futures contract, (b) through ownership of
the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract
and in the same principal amount as the call written where the exercise price
of the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or securities in a segregated
account. The Fund may cover the writing of put options on futures contracts
(a) through sales of the underlying futures contract, (b) through segregation
of cash or liquid securities in an amount equal to the value of the security
or index underlying the futures contract, (c) through the holding of a put on
the same futures contract and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written or where the exercise price of the put held
is less than the exercise price of the put written if the difference is
maintained by the Fund in cash or liquid securities in a segregated account.
Put and call options on futures contracts may also be covered in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Upon the exercise of a
call option on a futures contract written by the Fund, the Fund will be
required to sell the underlying futures contract which, if the Fund has
covered its obligation through the purchase of such contract, will serve to
liquidate its futures position. Similarly, where a put option on a futures
contract written by the Fund is exercised, the Fund will be required to
purchase the underlying futures contract which, if the Fund has covered its
obligation through the sale of such contract, will close out its futures
position.
The writing of a call option on a futures contract may be used as a
partial hedge against declining prices of the securities deliverable on
exercise of the futures contract. The Fund will receive an option premium when
it writes the call, and, if the price of the futures contract at expiration of
the option is below the option exercise price, the Fund will retain the full
amount of this option premium, which provides a partial hedge against any
decline that may have occurred in the Fund's security holdings. Similarly, the
writing of a put option on a futures contract may be used as a partial hedge
against increasing prices of the securities deliverable upon exercise of the
futures contract. If the Fund writes an option on a futures contract and that
option is exercised, the Fund may incur a loss, which loss will be reduced by
the amount of the option premium received, less related transaction costs. The
Fund's ability to hedge effectively through transactions in options on futures
contracts depends on, among other factors, the degree of correlation between
changes in the value of securities held by the Fund and changes in the value
of its futures positions. This correlation cannot be expected to be exact, and
the Fund bears a risk that the value of the futures contract being hedged will
not move in the same amount, or even in the same direction, as the hedging
instrument. Thus it may be possible for the Fund to incur a loss on both the
hedging instrument and the futures contract being hedged.
The Fund may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, the Fund could, in lieu of selling futures contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call options on futures contracts, rather than
purchasing the underlying futures contracts.
The Fund may also purchase options on futures contracts for non-hedging
purposes, in order to take advantage of projected market advances or declines
or changes in interest rates or exchange rates. For example, the Fund can buy
a call option on a bond futures contract when the Manager or Subadviser
believes that the underlying futures contract will rise. If prices do rise,
the Fund could exercise the option and acquire the underlying futures contract
at the strike price or the Fund could offset the long call position with a
sale and realize a profit. Or, the Fund can sell a call option if the Manager
or Subadviser believes that futures prices will decline. If prices decline,
the call will likely not be exercised and the Fund would profit. However, if
the underlying futures contract should rise, the buyer of the option would
likely exercise the call against the Fund and acquire the underlying futures
position at the strike price; the Fund's loss in this case could be unlimited.
The Fund's use of options on futures contracts may involve leveraging.
Leveraging adds increased risks to the Fund, because the Fund's losses may be
out of proportion to the amount invested in the instrument -- a relatively
small investment may lead to much greater losses.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by securities
in which the Fund may otherwise invest. Repurchase agreements are agreements
by which the Fund purchases a security and simultaneously commits to resell
that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed-upon date within a number of days (usually
not more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed-upon market rate of interest which is unrelated
to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security,
usually U.S. Government or Government agency issues. Under the 1940 Act,
repurchase agreements may be considered to be loans by the buyer. The Fund's
risk is limited to the ability of the seller to pay the agreed-upon amount on
the delivery date. If the seller defaults, the underlying security constitutes
collateral for the seller's obligation to pay although the Fund may incur
certain costs in liquidating this collateral and in certain cases may not be
permitted to liquidate this collateral. All repurchase agreements entered into
by the Fund are fully collateralized, with such collateral being marked to
market daily. In the event of the bankruptcy of the other party to a
repurchase agreement, the Fund could experience delays in recovering the
resale price. To the extent that, in the meantime, the value of the securities
purchased has decreased, the Fund could experience a loss.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements subject to the
Fund's investment restriction on borrowing. Reverse repurchase agreements
involve the sale of securities held by the Fund and the agreement by the Fund
to repurchase the securities at an agreed-upon price, date and interest
payment. When the Fund enters into reverse repurchase transactions, securities
of a dollar amount equal in value to the securities subject to the agreement
will be segregated. The segregation of assets could impair the Fund's ability
to meet its current obligations or impede investment management if a large
portion of the Fund's assets are involved. Reverse repurchase agreements are
considered to be a form of borrowing. In the event of the bankruptcy of the
other party to a reverse repurchase agreement, the Fund could experience
delays in recovering the securities sold. To the extent that, in the meantime,
the value of the securities sold has changed, the Fund could experience a
loss.
SECURITIES OF NON-U.S. ISSUERS
The Fund may invest in securities of non-U.S. issuers. The Fund does not
intend to invest more than 25% of its assets in non-U.S. securities, including
depositary receipts.
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in U.S. investments. For example, the value of such securities
fluctuates based on the relative strength of the U.S. dollar. In addition,
there is generally less publicly available information about non-U.S. issuers,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Non-U.S. issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to U.S. issuers. Investments in securities of non-U.S. issuers also
involve the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Fund, political or financial instability or
diplomatic and other developments which would affect such investments.
Further, economies of other countries or areas of the world may differ
favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the
U.S., and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Prices at which the Fund may acquire securities may
be affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the
Fund. Non-U.S. securities trading practices, including those involving
securities settlement where the Fund's assets may be released prior to receipt
of payments, may expose the Fund to increased risk in the event of a failed
trade or the insolvency of a non-U.S. broker-dealer. In addition, non-U.S.
brokerage commissions are generally higher than commissions on securities
traded in the U.S. and may be non-negotiable. In general, there is less
overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.
The Fund may invest in issuers located in developing countries. All of the
risks of investing in non-U.S. securities are heightened by investing in
developing countries. Shareholders should be aware that investing in the
equity and fixed income markets of developing countries involves exposure to
economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries with more mature economies; such markets often have provided greater
risks to investors. These heightened risks include (i) greater risks of
expropriation, confiscatory taxation and nationalization, and less social,
political and economic stability; (ii) the small current size of markets for
securities of issuers based in developing countries and the currently low or
non-existent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) the
absence of developed legal structures. Such characteristics can be expected to
continue in the future.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those attributable to U.S. investing. As a result, the operating expense
ratios of the Fund may be higher than those of investment companies investing
exclusively in U.S. securities.
The Fund may invest up to 5% of its assets in closed-end investment
companies which primarily hold non-U.S. securities. Investments in closed-end
investment companies which primarily hold securities of non-U.S. issuers may
entail the risk that the market value of such investments may be substantially
less than their net asset value and that there would be duplication of
investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Fund to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by
a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs and GDRs are European and global receipts, respectively,
evidencing a similar arrangement.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of
a sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts.
The Fund may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the
same class that are not subject to such restrictions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds
in currencies other than the U.S. dollar, the Fund may engage in foreign
currency exchange transactions as an attempt to protect against uncertainly in
the level of future foreign currency exchange rates or as an attempt to
enhance performance. The Fund may enter into foreign 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 convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize
a profit based on the difference (the "spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a currency at one rate, while offering a lesser rate of exchange should
the Fund desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
fees or commissions are charged at any stage for trades. The Fund may enter
into forward contracts for hedging and non-hedging purposes, including
transactions entered into for the purposes of profiting from anticipated
changes in foreign currency exchange rates.
Forward contracts are traded over-the-counter and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein. A forward contract entered into by the
Fund may involve the purchase or sale, for a fixed amount of U.S. currency, of
another currency. The Fund may also enter into forward contracts for the
purchase or sale, for a fixed amount of a non-U.S. currency, of another non-
U.S. currency.
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 Manager or Subadviser 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 the non-U.S. currency for a fixed amount
of U.S. dollars. If the Fund owns securities in that currency, the Manager or
Subadviser may enter into a contract to sell the non-U.S. currency in an
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.
At the maturity of a forward contract, the Fund will either deliver the
non-U.S. currency, or 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 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.
Where the Fund enters into a forward contract with respect to securities
it holds denominated in the non-U.S. 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.
When the Fund enters into a forward contract for non-hedging purposes,
there is a greater potential for profit but also a greater potential for loss.
For example, the Fund may purchase a given foreign currency through a forward
contract if the value of such currency is expected to rise relative to the
U.S. dollar or another foreign currency. Conversely, the Fund may sell the
currency through a forward contract if the value of the currency is expected
to decline against the dollar or another foreign currency. The Fund will
profit if the anticipated movements in foreign currency exchange rates occur,
which will increase gross income. Where exchange rates do not move in the
direction or the extent anticipated, however, the Fund may sustain losses
which will reduce its gross income. Such transactions should be considered
speculative and could involve significant risk of loss.
The Fund has established procedures consistent with policies of the
Securities and Exchange Commission ("SEC") concerning forward contracts. Those
policies currently require that an amount of the Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment or that the Fund covers its position in accordance with applicable
regulations and policies.
The Fund may purchase put options on a currency in an attempt to protect
against currency rate fluctuations or to seek to enhance gains. When the Fund
purchases a put option on a currency, the Fund will have the right to sell the
currency for a fixed amount in U.S. dollars, or other currency. Conversely,
where a rise in the value of one currency is projected against another, the
Fund may purchase call options on the currency, giving it the right to
purchase the currency for a fixed amount of U.S. dollars or another currency.
The Fund may purchase put or call options on currencies, even if the Fund does
not currently hold or intend to purchase securities denominated in such
currencies.
The benefit to the Fund from purchases of 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 foreign currency
options.
The Fund may write options on currencies for hedging purposes or otherwise
in an attempt to achieve its investment objective. For example, where the Fund
anticipates a decline in the value of the U.S. dollar value of a foreign
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. If the expected decline does not occur, the
Fund may be required to sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The Fund could also write call options on a
currency, even if it does not own any securities denominated in that currency,
in an attempt to enhance gains. In that case, if the expected decline does not
occur, the Fund would be required to purchase the currency and sell it at a
loss, which may not be offset by the premium received. The losses in this case
could be unlimited.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign 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. The Fund could also write
put options on a currency, even if it does not own, or intend to purchase, any
securities denominated in that currency. In that case, if the expected
increase does not occur, the Fund would be required to purchase the currency
at a price that is greater than the current exchange rate for the currency,
and the losses in this case could exceed the amount of premium received for
writing the options, and could be unlimited.
Options on foreign currencies are traded on U.S. or foreign exchanges or
in the over-the-counter market. The Fund may enter into transactions in
options on foreign currencies that are traded in the over-the-counter market.
These transactions are not afforded the protections provided to traders on
organized exchanges or those regulated by the CFTC. In particular, over-the-
counter options are not cleared and guaranteed by a clearing corporation,
thereby increasing the risk of counterparty default. In addition, there may
not be a liquid market on these options, which may prevent the Fund from
liquidating open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market conditions.
The purchase and sale of foreign currency options are subject to the risks
of the availability of a liquid secondary market and counterparty risk, as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible interventions by governmental authorities and the effects of other
political and economic events. In addition, the value of the Fund's positions
in foreign currency options could be adversely affected by (1) other complex
foreign political and economic factors, (2) lesser availability of data on
which to make trading decisions than in the United States, (3) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States or at a Subadviser's place of
business, and (4) imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States.
In addition, because foreign currency transactions occurring in the
interbank market generally involve substantially larger amounts than those
that may be involved in the use of foreign currency options, the Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets, or other markets used by
the Manager or the Subadviser are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that may not be reflected in the U.S. or other markets
used by the Fund.
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.
The Fund may engage in proxy hedges and cross hedges. For example, in a
proxy hedge, the Fund, having purchased a security, would sell a currency
whose value is believed to be closely linked to the currency in which the
security is denominated. Interest rates prevailing in the country whose
currency was sold might be expected to be closer to those in the U.S. and
lower than those of securities denominated in the currency of the original
holding. This type of hedging entails greater risk than a direct hedge because
it is dependent on a stable relationship between the two currencies paired as
proxies and the relationships can be very unstable at times. The Fund may
enter into a cross hedge if a particular currency is expected to decrease
against another currency. For example, the Fund would sell the currency
expected to decrease and purchase a currency which is expected to increase
against the currency sold in an attempt to protect against declines in value
of the Fund's holdings denominated in the currency sold.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
underlying ADRs 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 non-U.S. currency remains constant, and thus will
reduce the value of the receipts covering such securities. The Fund may employ
any of the above described foreign currency hedging techniques to protect the
value of its assets invested in depositary receipts.
Of course, the Fund is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Manager or
the Subadviser. It should be realized that under certain circumstances, the
Fund may not be able to hedge against a decline in the value of a currency,
even if the Manager or the Subadviser deems it appropriate to try to do so,
because doing so would be too costly. Transactions entered into to protect the
value of the Fund's securities against a decline in the value of a currency
(even when successful) do not eliminate fluctuations in the underlying prices
of the securities. Additionally, although hedging transactions may 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.
Investors should also be aware of the increased risk to the Fund and its
investors when it enters into foreign currency exchange transactions for non-
hedging purposes. Non-hedging transactions in such instruments involve greater
risks and may result in losses which are not offset by increases in the value
of the Fund's other assets. Although the Fund is required to segregate assets
or otherwise cover certain types of transactions, this does not protect the
Fund against risk of loss. Furthermore, the Fund's use of foreign currency
exchange transactions may involve leveraging. Leveraging adds increased risks
to the Fund, because the Fund's losses may be out of proportion to the amount
invested in the instrument--a relatively small investment may lead to much
greater losses.
The Fund may also engage in currency swaps and other similar transactions
as more fully described under "Swaps and Related Transactions" below.
SWAPS AND RELATED TRANSACTIONS
The Fund may enter into interest rate swaps, currency swaps, equity swaps
and other types of available swap agreements, such as caps, collars and
floors, for the purpose of attempting to obtain a particular desired return at
a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest. An equity swap is an agreement to exchange cash flows on
a principal amount based on changes in the values of the reference index. A
currency swap is an agreement to exchange cash flows on a principal amount
based on changes in the values of the currency exchange rates. In a typical
cap or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from
the counterparty selling such interest rate cap. The sale of an interest rate
floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
The Fund will maintain liquid assets with its custodian or otherwise cover
its current obligations under swap transactions in accordance with current
regulations and policies applicable to the Fund.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity, currency or other
factor that determines the amount of payments to be made under the
arrangement. If the Manager or Subadviser is incorrect in its forecasts of
such factors, the investment performance of the Fund would be less than what
it would have been if these investment techniques had not been used. If a swap
agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. The Fund will not enter into any swap unless the
Manager or Subadviser deems the counterparty to be creditworthy. If the
counterparty's creditworthiness declines, the value of the swap agreement
would be likely to decline, potentially resulting in losses. If the
counterparty defaults, the Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. The Fund
anticipates that it will be able to eliminate or reduce its exposure under
these arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.
Swap agreements are subject to the Fund's overall limit that not more than
15% of its net assets may be invested in illiquid securities.
Engaging in swap and related transactions may involve leveraging.
Leveraging adds increased risks to the Fund, because the Fund's losses may be
out of proportion to the amount invested in the instrument--a relatively small
investment may lead to much greater losses.
ADDITIONAL DISCLOSURE REGARDING DERIVATIVES
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the CFTC and on foreign exchanges. The securities
underlying options and futures contracts traded by the Fund may include
domestic as well as foreign securities. Investors should recognize that
transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, the Fund may sell futures contracts on an index
of securities in order to profit from any anticipated decline in the value of
the securities comprising the underlying index. In such instances, any losses
on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
The use of certain derivatives, such as futures, forward contracts, and
written options may involve leverage for the Fund because they create an
obligation, or indebtedness, to someone other than the Fund's investors and
enable the Fund to participate in gains and losses on an amount that exceeds
its initial investment. If the Fund writes a stock put option, for example, it
makes no initial investment, but instead receives a premium in an amount equal
to a fraction of the price of the underlying stock. In return, the Fund is
obligated to purchase the underlying stock at a fixed price, thereby being
subject to losses on the full stock price.
Likewise, if the Fund purchases a futures contract, it makes an initial
margin payment that is typically a small percentage of the contract's price.
However, because of the purchase, the Fund will participate in gains or losses
on the full contract price.
Other types of derivatives provide the economic equivalent of leverage
because they display heightened price sensitivity to market fluctuations, such
as changes in stock prices or interest rates. These derivatives magnify the
Fund's gain or loss from an investment in much the same way that incurring
indebtedness does. For example, if the Fund purchases a stock call option, the
Fund pays a premium in an amount equal to a fraction of the stock price, and
in return, the Fund participates in gains on the full stock price. If there
were no gains, the Fund generally would lose the entire initial premium.
Options, futures contracts, options on futures contracts, forward
contracts and swaps may be used alone or in combinations in order to create
synthetic exposure to securities in which the Fund otherwise invests.
The use of derivatives may increase the amount of taxable income of the
Fund and may affect the amount, timing and character of the Fund's income for
tax purposes, as more fully discussed herein in the section entitled "Tax
Matters."
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. The market prices of these securities may fluctuate more than higher-
rated securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. Less than 5% of
the Fund's investments consist of securities rated Baa by Moody's or BBB by
Standard & Poor's.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) which may be converted at a
stated price within a specified period of time into a certain quantity of
common stock or other equity securities of the same or a different issuer.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase
in market value when interest rates decline and tends to decrease in value
when interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of
the underlying stock declines. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. Interests in pools of
mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of
the prepayment feature. For instance, when interest rates decline, the value
of a GNMA certificate likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a GNMA certificate originally purchased at a premium to
decline in price to its par value which may result in a loss.
A portion of the Fund's assets may be invested in collateralized mortgage
obligations ("CMOs"), which are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by certificates issued by GNMA, FNMA, or FHLMC but also may be collateralized
by whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). The Fund may also
invest a portion of its assets in multi-class pass-through securities which
are interests in a trust composed of Mortgage Assets. CMOs (which include
multi-class pass-through securities) may be issued by agencies, authorities or
instrumentalities of the U.S. Government or by private originators of or
investors in mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multi-class pass-through
securities. In a CMO, a series of bonds or certificates is usually issued in
multiple classes with different maturities. Each class of a CMO, often
referred to as a "tranche," is issued at a specific fixed or floating coupon
rate and has a stated maturity or final distribution date. Principal
prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in various ways.
In a common structure, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of the series
of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class
of CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The prices of mortgage-backed securities
may not increase as much as prices of other debt obligations when interest
rates decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates
go up, mortgage-backed securities experience lower rates of prepayment. This
has the effect of lengthening the expected maturity of a mortgage-backed
security. This particular risk, referred to as "maturity extension risk," may
effectively convert a security that was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, rising interest rates would not
only likely decrease the value of the Fund's fixed income securities, but
would also increase the inherent volatility of the Fund by effectively
converting short-term debt instruments into long-term debt instruments. As a
result, prices of mortgage-backed securities may decrease more than prices of
other debt obligations when interest rates go up.
The Fund may invest a portion of its assets in stripped mortgage-backed
securities, which are derivative multiclass mortgage securities. Stripped
mortgage-backed securities are usually structured with two classes that
receive different proportions of the interest and principal distributions from
a pool of Mortgage Assets. A common type of stripped mortgage-backed security
will have one class receiving some of the interest and the remainder of the
principal from the Mortgage Assets, while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (an interest only security, or "IO")
while the other class will receive all of the principal (a principal only
security, or "PO"). The risk of early prepayments is the primary risk
associated with IOs. In some instances early prepayments may result in a
complete loss of investment in certain of these securities. The primary risks
associated with POs are the potential extension of average life and/or
depreciation due to rising interest rates.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Fund may enter into mortgage "dollar roll" transactions pursuant to
which it sells mortgage-backed securities for delivery in the future and
simultaneously contracts to repurchase substantially similar securities on a
specified future date. During the roll period, the Fund foregoes principal and
interest paid on the mortgage-backed securities. The Fund is compensated for
the lost principal and interest by the difference between the current sales
price and the lower price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. The Fund may also be compensated by receipt of a commitment fee.
However, the Fund takes the risk that the market price of the mortgage-backed
security will drop below the future purchase price. When the Fund uses a
mortgage dollar roll, it is also subject to the risk that the other party to
the agreement will not be able to perform. A "covered roll" is a specific type
of dollar roll for which the Fund establishes a segregated account with liquid
securities equal in value to the securities subject to repurchase by the Fund.
The Fund will invest only in covered rolls.
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. 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.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS
The Fund may invest in zero-coupon obligations, such as zero-coupon bonds.
Zero-coupon bonds are issued at a significant discount from their principal
amount in lieu of paying interest periodically. Payment-in-kind bonds allow
the issuer, at its option, to make current interest payments on the bonds
either in cash or in additional bonds. Because zero-coupon and payment-in-kind
bonds do not pay current interest in cash, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds that
pay interest currently. Both zero-coupon and payment-in-kind bonds allow an
issuer to avoid the need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds paying
interest currently in cash. The Fund is required to accrue interest income on
such investments and to distribute such amounts at least annually to investors
even though such bonds do not pay current interest in cash. Thus, it may be
necessary at times for the Fund to liquidate investments in order to satisfy
its dividend requirements.
U.S. GOVERNMENT SECURITIES
The Fund may invest in debt obligations that are backed, as to the timely
payment of interest and principal, by the full faith and credit of the U.S.
government. The Fund may also invest in other obligations issued by agencies
or instrumentalities of the U.S. government, some of which are supported by
the right of the issuer to borrow from the U.S. Treasury and some of which are
backed only by the credit of the issuer itself.
The debt obligations in which assets of the Fund may be invested include
(1) U.S. Treasury obligations, which differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less), U.S. Treasury notes (maturities of one to 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years); and (2)
obligations issued or guaranteed by U.S. government agencies, authorities or
instrumentalities.
When and if available, U.S. government obligations may be purchased at a
discount from face value. However, it is not intended that such securities
will be held to maturity for the purpose of achieving potential capital gains,
unless current yields on these securities remain attractive.
Although U.S. government obligations which are purchased for the Fund may
be backed, as to the timely payment of interest and principal, by the full
faith and credit of the U.S. government, interests in the Fund are neither
insured nor guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
BANK OBLIGATIONS
The Fund may invest in bank obligations, i.e., certificates of deposit,
time deposits (including Eurodollar time deposits) and bankers' acceptances
and other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations
to finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns
a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities.
COMMERCIAL PAPER
The Fund may invest in commercial paper, which is unsecured debt of
corporations usually maturing in 270 days or less from its date of issuance.
OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of the
Fund may be invested in shares of other investment companies. The Fund may
invest its assets in closed-end investment companies as permitted by
applicable law.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Fund, in accordance with applicable investment restrictions, may engage in
short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position is maintained for the Fund by the custodian or qualified sub-
custodian. While the short sale is open, an amount of securities equal in kind
and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities are maintained in a segregated
account for the Fund. These securities constitute the Fund's long position.
The Fund does not engage in short sales against the box for investment
purposes. The Fund may, however, make a short sale against the box as a hedge,
when it believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund (or a security convertible or
exchangeable for such security). In such case, any future losses in the Fund's
long position should be reduced by a gain in the short position. Conversely,
any gain in the long position should be reduced by a loss in the short
position. The extent to which such gains or losses are reduced depends upon
the amount of the security sold short relative to the amount the Fund owns.
There are certain additional transaction costs associated with short sales
against the box, but the Fund endeavors to offset these costs with the income
from the investment of the cash proceeds of short sales.
The Manager does not expect that more than 40% of the Fund's total assets
would be involved in short sales against the box. The Manager 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) or a fee from the
borrower in the event the collateral consists of securities. 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 Manager or Subadviser to be of good
standing. In addition, the Fund could suffer loss if the borrower terminates
the loan and the Fund is forced to liquidate investments in order to return
the cash collateral to the buyer. The Manager or Subadviser will make loans
only when, in its judgment, the consideration which can be earned currently
from loans of this type justifies the attendant risk. If the Manager or
Subadviser 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
customary settlement time. In general, the Fund does not pay for the
securities until received and does not start earning interest until the
contractual settlement date. It is expected that, under normal circumstances,
the Fund would take delivery of such securities but the Fund may sell them
before the settlement date. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with SEC policies. Since those policies currently require that an
amount of the Fund's assets equal to the amount of the purchase be held aside
or segregated to be used to pay for the commitment, the Fund expects always to
have cash or liquid securities sufficient to cover any commitments or to limit
any potential risk. However, even though the Fund intends to adhere to the
provisions of SEC policies, purchases of securities on such bases may involve
more risk than other types of purchases. The when-issued securities are
subject to market fluctuations, and no interest accrues on the security to the
purchaser during this period. The payment obligation and the interest rate
that will be received on the securities are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis is a form of leveraging and can involve a risk that the yields available
in the market when the delivery takes place may actually be higher than those
obtained in the transaction itself. In that case, there could be an unrealized
loss at the time of delivery. An increase in the percentage of the Fund's
assets committed to the purchase of securities on a when-issued basis may
increase the volatility of its net asset value.
RULE 144A SECURITIES
The Fund may purchase securities that are not registered under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act
("Rule 144A securities"). However, the Fund does not invest more than 15% of
its net assets (taken at market value) in illiquid investments, which include
securities for which there is no readily available market, securities subject
to contractual restrictions on resale and Rule 144A securities, unless, in the
case of Rule 144A securities, the Board of Trustees of the Trust determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The Trustees have adopted guidelines and, subject to oversight by the
Trustees, have delegated to the Manager or to the Subadviser the daily
function of determining and monitoring liquidity of Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in securities for which
there is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price.
ADDITIONAL INFORMATION
At times, a substantial portion of the Fund's assets may be invested in
securities as to which the Fund, by itself or together with other funds and
accounts managed by Citibank and its affiliates, holds all or a major portion.
Although Citibank generally considers such securities to be liquid because of
the availability of an institutional market for such securities, it is
possible that, under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the Fund could find
it more difficult to sell these securities when Citibank believes it advisable
to do so or may be able to sell the securities only at prices lower than if
they were more widely held. Under these circumstances, it may also be more
difficult to determine the fair value of such securities for purposes of
computing the Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the Fund may be required to
participate in various legal proceedings or take possession of and manage
assets securing the issuer's obligations on such securities. This could
increase the Fund's operating expenses and adversely affect the Fund's net
asset value.
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, has adopted the following policies which
may not be changed without approval by holders of a majority of the
outstanding voting securities of the Fund, 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 present at a meeting at which the
holders of more than 50% of the outstanding voting securities of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities of the Fund. The term "voting securities" as used in this
paragraph has the same meaning as in the 1940 Act.
The Fund may not:
(1) Borrow money if such borrowing is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder.
(2) Make loans to other persons if such loans are specifically
prohibited by the 1940 Act or the rules and regulations promulgated
thereunder.
(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
more than 10% of the voting securities of such issuer to be held by the
Fund; provided that, for purposes of this restriction, the issuer of an
option or futures contract shall not be deemed to be the issuer of the
security or securities underlying such contract; and provided further that
the Fund may invest all or any portion of its assets in one or more
investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such
Act.
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's total assets more than 5% of
the Fund'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); provided that, for purposes of this restriction, the issuer of
an option or futures contract shall not be deemed to be the issuer of the
security or securities underlying such contract; and provided further that
the Fund may invest all or any portion of its assets in one or more
investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such
Act.
(5) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's investment
objective, up to 25% of its assets, at market value at the time of each
investment, may be invested in any one industry, except that positions in
futures contracts shall not be subject to this restriction.
(6) Underwrite securities issued by other persons, except that all or
any portion of the assets of the Fund may be invested in one or more
investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such
Act, and except in so far as the Fund may technically be deemed an
underwriter under the Securities Act in selling a security.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein) or interests in oil, gas or mineral leases in the ordinary course
of business (the foregoing shall not be deemed to preclude the Fund from
purchasing or selling futures contracts or options thereon, and the Fund
reserves the freedom of action to hold and to sell real estate acquired as
a result of the ownership of securities by the Fund).
(8) Purchase or sell commodities or commodity contracts in the
ordinary course of business (the foregoing shall not be deemed to preclude
the Fund from purchasing or selling futures contracts or options thereon).
(9) Issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder.
For purposes of restriction (1) above, covered dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.
As an operating policy, the Fund will not invest more than 15% of its net
assets (taken at market value) in securities for which there is no readily
available market. This policy is not fundamental and may be changed without
shareholder approval.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in the Prospectus is adhered to at the
time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund is not considered a
violation of policy. If the value of the Fund's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the
time of acquisition due to subsequent fluctuations in value or other reasons,
the Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
5. PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of yield, effective yield or total rate of
return. All performance information is historical and is not intended to
indicate future performance. Yield and total rates of return fluctuate in
response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund may provide its period, annualized, cumulative, and average
annual "total rates of return." The "total rate of return" refers to the
change in the value of an investment in the Fund over a stated period,
reflects any change in net asset value per share and is compounded to include
the value of any shares purchased with any dividends or capital gains declared
during such period. Period total rates of return may be "annualized." An
"annualized" total rate of return assumes that the period total rate of return
is generated over a one-year period. Average annual total return figures
represent the average annual percentage change over the specified period.
Cumulative total return figures are not annualized and represent the aggregate
percentage or dollar value change over a stated period of time.
A total rate of return quotation for the Fund is calculated for any period
by (a) dividing (i) the sum of the net asset value per share on the last day
of the period and the net asset value per share on the last day of the period
of shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such
period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the public offering price per share on the first
day of such period, and (b) subtracting 1 from the result. Any annualized
total rate of return quotation is calculated by (x) adding 1 to the period
total rate of return quotation calculated above, (y) raising such sum to a
power which is equal to 365 divided by the number of days in such period, and
(z) subtracting 1 from the result.
Average annual total return is a measure of the Fund's performance over
time. It is determined by taking the Fund's performance over a given period
and expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by
SEC rules. The average annual total return for a specific period is found by
taking a hypothetical $1,000 initial investment in Fund shares on the first
day of the period, reducing the amount to reflect the maximum sales charge,
and computing the redeemable value of that investment at the end of the
period. The redeemable value is then divided by the initial investment, and
this quotient is taken to the Nth root (N representing the number of years in
the period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains
distributions have been reinvested in Fund shares at net asset value on the
reinvestment dates during the period.
The Fund may provide annualized "yield" and "effective yield" quotations.
The "yield" of the Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period (which period is stated in any such
advertisement or communication). This income is then annualized, that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of
the public offering price on the last day of that period. The "effective
yield" is calculated similarly, but when annualized the income earned by the
investment during that 30-day or one-month period is assumed to be reinvested.
The effective yield is slightly higher than the yield because of the
compounding effect of this assumed reinvestment. A "yield" quotation, unlike a
total rate of return quotation, does not reflect changes in net asset value.
Any current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of
the average daily number of shares outstanding during the period that were
entitled to receive dividends and the public offering price per share on the
last day of the period, (b) subtracting 1 from the result, and (c) multiplying
the result by 2.
Set forth below is average annual total rate of return information for
Class A and Class B 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. Prior to
January 4, 1999 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 Fund
offered Class B shares beginning January 4, 1999. For periods prior to that
date, Class B share performance includes the performance of the Fund's Class A
shares, adjusted to take into account the deduction of the Class B contingent
deferred sales charge, which declines over six years from 5% to 0%, rather
than the initial sales charge applicable to Class A shares. This blended
performance has not been adjusted to take into account differences in class
specific operating expenses. Because operating expenses of Class B shares are
higher than those of Class A shares, this blended Class B share performance is
higher than the performance of Class B shares would have been had Class B
shares been offered for the entire period.
Performance results include any applicable fee waivers or expense
subsidies in place during the time period, which may cause the results to be
more favorable than they would otherwise have been.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
OF A HYPOTHETICAL
AVERAGE ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
CLASS A OF RETURN THE PERIOD
- ------- -------------- -----------------
<S> <C> <C>
October 19, 1990 (commencement of operations) to October 31, 1999 % $
Five Years Ended October 31, 1999 ................................... % $
One Year Ended October 31, 1999 ..................................... % $
CLASS B
October 19, 1990 (commencement of operations) to October 31, 1999 % $
Five Years Ended October 31, 1999 ................................... % $
One Year Ended October 31, 1999 ..................................... % $
</TABLE>
The annualized yield of the Class A shares of the Fund for the 30-day
period ended on October 31, 1999 was %. The annualized yield of the Class
B shares of the Fund for the 30-day period ended on October 31, 1999 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.
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 Portfolios),
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 each 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 a Portfolio is equal to the Fund's pro rata share of the
net assets of the Portfolio.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates or if there are no market rates,
at fair value, at the time of valuation. Equity securities are valued at the
last sale price on the exchange on which they are primarily traded or on the
NASDAQ system for unlisted national market issues, or at the last quoted bid
price for securities in which there were no sales during the day or for
unlisted securities not reported on the NASDAQ system. Securities listed on a
foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Bonds and other fixed income securities
(other than short-term obligations) are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Trustees of the Trust. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques that
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees of the Trust. Futures contracts are normally valued at the settlement
price on the exchange on which they are traded. Securities for which there are
no such valuations are valued at fair value as determined in good faith by or
at the direction of the Board of Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the Exchange is
closed. If events materially affecting the value of foreign securities occur
between the time when the exchange on which they are traded closes and the
time when the Fund's net asset value is calculated, such securities may be
valued at fair value in accordance with procedures established by and under
the general supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for the Fund is determined
on the basis of interest accrued plus amortization of "original issue
discount" (generally, the difference between issue price and stated redemption
price at maturity) and premiums (generally, the excess of purchase price over
stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization
of any premium.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE
OF FUND SHARES AND SHAREHOLDER PROGRAMS
As described in the Prospectus, the Fund provides you with alternative
ways of purchasing shares based upon your individual investment needs.
Each class of shares of the Fund represents an interest in the same
portfolio of investments. Each class is identical in all respects except that
each class bears its own class expenses, including distribution and service
fees, and each class has exclusive voting rights with respect to any
distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per
share, dividends per share and net asset value per share will vary for each
class of shares. There are no conversion, preemptive or other subscription
rights, except that Class B shares automatically convert to Class A shares in
eight years as more fully described below.
Shareholders of each class will share expenses proportionately for
services that are received equally by all shareholders. A particular class of
shares will bear only those expenses that are directly attributable to that
class, where the type or amount of services received by a class varies from
one class to another. The expenses that may be borne by specific classes of
shares may include (i) transfer agency fees attributable to a specific class
of shares, (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class of shares, (iii) SEC
and state securities registration fees incurred by a specific class, (iv) the
expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal
expenses relating to a specific class of shares, (vi) accounting expenses
relating to a specific class of shares and (vii) any additional incremental
expenses subsequently identified and determined to be properly allocated to
one or more classes of shares.
CLASS A SHARES
You may purchase Class A shares at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. You may qualify for a
reduced sales charge depending upon the amount of your purchase, or the sales
charge may be waived in its entirety, as described below under "Sales Charge
Waivers." If you qualify to purchase Class A shares without a sales load, you
should purchase Class A shares rather than Class B shares because Class A
shares pay lower fees. Class A shares are also subject to an annual
distribution/service fee of up to 0.25%. See "Distributor." Set forth below is
an example of the method of computing the offering price of the Class A shares
of the Fund. The example assumes a purchase on October 31, 1999 of Class A
shares from the Fund aggregating less than $25,000 subject to the schedule of
sales charges set forth below.
<TABLE>
<CAPTION>
CITIFUNDS BALANCED PORTFOLIO
----------------------------
<S> <C>
Net Asset Value per share ............................................. $
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>
SALES CHARGE SALES CHARGE DEALER REALLOWANCE
AMOUNT OF AS A % OF AS A % OF AS A % OF
INVESTMENT OFFERING PRICE INVESTMENT OFFERING PRICE
- ---------- -------------- ------------ ------------------
<S> <C> <C> <C>
Less than $25,000 ................................ 5.00% 5.26% 4.50%
$25,000 to less than $50,000 ..................... 4.00% 4.17% 3.60%
$50,000 to less than $100,000 .................... 3.50% 3.63% 3.15%
$100,000 to less than $250,000 ................... 3.00% 3.09% 2.70%
$250,000 to less than $500,000 ................... 2.00% 2.04% 1.80%
$500,000 or more ................................. none* none* up to 1.00%
- ----------
*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 5.00%
2nd year since purchase 4.00%
3rd year since purchase 3.00%
4th year since purchase 2.00%
5th year since purchase 1.00%
6th year (or later) since purchase None
Class B shares pay distribution/service fees of up to 1.00% of the average
daily net assets of the Fund represented by the Class B shares. The
Distributor pays commissions to brokers, dealers and other institutions of
4.50% of the offering price of Class B shares sold by these entities. These
commissions are not paid on exchanges from other CitiFunds or on sales of
Class B shares to investors exempt from the CDSC. The Distributor is
compensated for these payments through the receipt of the ongoing distribution
fees from the Fund, and through the CDSC, if any. The Distributor will also
advance the first year service fee to dealers at an annual rate equal to 0.25%
of the average daily net assets represented by Class B shares sold by them. As
a result, the total amount paid to a dealer upon the purchase of Class B
shares may be a maximum of 4.75% of the purchase price of the Class B shares.
When you sell your shares, the CDSC will be based on either your purchase
price, or the sale price, whichever is less. You do not pay a CDSC on shares
acquired through reinvestment of dividends, capital gain distributions or on
shares representing capital appreciation. The Fund will assume that a
redemption of Class B shares is made:
[] first, of Class B shares representing capital appreciation
[] next, of shares representing the reinvestment of dividends and capital
gains distributions
[] finally, of other shares held by the investor for the longest period of
time.
Under certain circumstances, as set forth below in "Sales Charge Waivers," the
CDSC will be waived.
The holding period of Class B shares of the Fund acquired through an
exchange with another CitiFund will be calculated from the date that the Class
B shares were initially acquired in the other CitiFund, and Class B shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in the
other fund. When determining the amount of the CDSC, the Fund will use the
CDSC schedule of any fund from which you have exchanged shares that would
result in you paying the highest CDSC.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will
with persons or entities with which Citibank or the Distributor or their
affiliates have business relationships, or because the sales effort, if any,
involved in making such sales is negligible, or, in the case of certain CDSC
waivers, because the circumstances surrounding the sale of Fund shares were
not foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
CLASS A--FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares acquired
through the reinvestment of dividends and capital gains distributions.
o Eligible Purchasers. Class A shares may be purchased without a sales charge
by:
[] tax exempt organizations under Section 501(c)(3-13) of the Internal
Revenue Code
[] trust accounts for which Citibank or any subsidiary or affiliate of
Citibank acts as trustee and exercises discretionary investment
management authority
[] accounts for which Citibank or any subsidiary or affiliate of Citibank
performs investment advisory services or charges fees for acting as
custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any investment
company for which Citibank or any subsidiary or affiliate of Citibank
serves as the investment adviser or as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its affiliates
or any Service Agent and its affiliates (including immediate families of
any of the foregoing), and retired employees of Citibank and its
affiliates or CFBDS, Inc. and its affiliates (including immediate
families of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund shares as
an investment option based on an investor's balances in selected
Citigroup Inc. products and services
[] employees of members of the National Association of Securities Dealers,
Inc., provided that such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that the
securities will not be resold except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable annuity
contracts
[] direct rollovers by plan participants from a 401(k) plan offered to
Citigroup employees
[] shareholder accounts established through a reorganization or similar form
of business combination approved by the Fund's Board of Trustees or by
the Board of Trustees of any other CitiFund or mutual fund managed or
advised by Citibank (all of such funds being referred to herein as
CitiFunds) the terms of which entitle those shareholders to purchase
shares of the Fund or any other CitiFund at net asset value without a
sales charge
[] employee benefit plans qualified under Section 401(k) of the Internal
Revenue Code with accounts outstanding on January 4, 1999
[] employee benefit plans qualified under Section 401 of the Internal
Revenue Code, including salary reduction plans qualified under Section
401(k) of the Code, subject to minimum requirements as may be established
by CFBDS with respect to the amount of purchase; currently, the amount
invested by the qualified plan in the Fund or in any combination of
CitiFunds must total a minimum of $1 million
[] accounts associated with Copeland Retirement Systems
[] investors purchasing $500,000 or more of Class A shares; however, a
contingent deferred sales charge will be imposed on the investments in
the event of certain share redemptions within 12 months following the
share purchase, at the rate of 1% of the lesser of the value of the
shares redeemed (not including reinvested dividends and capital gains
distributions) or the total cost of the shares; the contingent deferred
sales charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class B shares
will be waived; in determining whether a contingent deferred sales charge
on Class A shares is payable, and if so, the amount of the charge:
+ it is assumed that shares not subject to the contingent deferred
sales charge are the first redeemed followed by other shares held for
the longest period of time
+ all investments made during a calendar month will age one month on
the last day of the month and each subsequent month
+ any applicable contingent deferred sales charge will be deferred upon
an exchange of Class A shares for Class A shares of another CitiFund
and deducted from the redemption proceeds when the exchanged shares
are subsequently redeemed (assuming the contingent deferred sales
charge is then payable)
+ the holding period of Class A shares so acquired through an exchange
will be aggregated with the period during which the original Class A
shares were held
[] subject to appropriate documentation, investors where the amount invested
represents redemption proceeds from a mutual fund (other than a
CitiFund), if:
+ the redeemed shares were subject to an initial sales charge or a
deferred sales charge (whether or not actually imposed), and
+ the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment consultant
or other registered representative who joined a broker-dealer which has a
sales agreement with CFBDS from another investment firm within six months
prior to the date of purchase by the investor, if:
+ the investor redeems shares of another mutual fund sold through the
investment firm that previously employed that investment consultant
or other registered representative, and either paid an initial sales
charge or was at some time subject to, but did not actually pay, a
deferred sales charge or redemption fee with respect to the
redemption proceeds
+ the redemption is made within 60 days prior to the investment in the
Fund, and
+ the net asset value of the shares of the Fund sold to that investor
without a sales charge does not exceed the proceeds of the redemption
CONTINGENT DEFERRED SALES CHARGE:
o Reinvestment. There is no CDSC on shares representing capital appreciation or
on shares acquired through reinvestment of dividends or capital gains
distributions.
o Waivers. The CDSC will be waived in connection with:
[] a total or partial redemption made within one year of the death of the
shareholder; this waiver is available where the deceased shareholder is
either the sole shareholder or owns the shares with his or her spouse as
a joint tenant with right of survivorship, and applies only to redemption
of shares held at the time of death
[] a lump sum or other distribution in the case of an Individual Retirement
Account (IRA), a self-employed individual retirement plan (Keogh Plan) or
a custodian account under Section 403(b) of the Internal Revenue Code, in
each case following attainment of age 59 1/2
[] a total or partial redemption resulting from any distribution following
retirement in the case of a tax-qualified retirement plan
[] a redemption resulting from a tax-free return of an excess contribution
to an IRA
[] redemptions made under the Fund's Systematic Withdrawal Plan
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the Fund approximately eight years after the date of issuance. At
the same time, a portion of all Class B shares representing dividends and
other distributions paid in additional Class B shares will be converted in
accordance with procedures from time to time approved by the Fund's Trustees.
The conversion will be effected at the relative net asset values per share of
the two classes on the first business day of the month in which the eighth
anniversary of the issuance of the Class B shares occurs. If a shareholder
effects one or more exchanges among Class B shares of the CitiFunds during the
eight-year period, the holding periods for the shares so exchanged will be
counted toward the eight-year period. Because the per share net asset value of
the Class A shares may be higher than that of the Class B shares at the time
of conversion, a shareholder may receive fewer Class A shares than the number
of Class B shares converted, although the dollar value will be the same.
SHAREHOLDER PROGRAMS
The Fund makes the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Class A shares, to
exchange Fund shares for shares of other CitiFunds, without, in many cases,
the payment of a sales charge or to provide for the automatic withdrawal of
cash. These programs may be changed or discontinued at any time. For more
information, please contact your Service Agent.
REDUCED SALES CHARGE PLAN
A qualified group may purchase shares as a single purchaser under the
reduced sales charge plan. The purchases by the group are lumped together and
the sales charge is based on the lump sum. A qualified group must:
[] have been in existence for more than six months
[] have a purpose other than acquiring Fund shares at a discount
[] satisfy uniform criteria that enable CFBDS to realize economies of scale
in its costs of distributing shares
[] have more than ten members
[] be available to arrange for group meetings between representatives of the
Fund and the members
[] agree to include sales and other materials related to the Fund in its
publications and mailings to members at reduced or no cost to the
distributor
[] seek to arrange for payroll deduction or other bulk transmission of
investments to the Fund
LETTER OF INTENT
If an investor anticipates purchasing $25,000 or more of Class A shares of
the Fund alone or in combination with Class B shares of the Fund or any of the
classes of other CitiFunds or of any other mutual fund managed or advised by
Citibank (all of such funds being referred to herein as CitiFunds) within a
13-month period, the investor may obtain the shares at the same reduced sales
charge as though the total quantity were invested in one lump sum by
completing a letter of intent on the terms described below. Subject to
acceptance by CFBDS, Inc., the Fund's distributor, and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the
letter of intent.
[] The shareholder or, if the shareholder is a customer of a Service Agent,
his or her Service Agent must inform CFBDS that the letter of intent is
in effect each time shares are purchased.
[] The shareholder makes no commitment to purchase additional shares, but if
his or her purchases within 13 months plus the value of shares credited
toward completion of the letter of intent do not total the sum specified,
an increased sales charge will apply as described below.
[] A purchase not originally made pursuant to a letter of intent may be
included under a subsequent letter of intent executed within 90 days of
the purchase if CFBDS is informed in writing of this intent within the
90-day period.
[] The value of shares of the Fund presently held, at cost or maximum
offering price (whichever is higher), on the date of the first purchase
under the letter of intent, may be included as a credit toward the
completion of the letter, but the reduced sales charge applicable to the
amount covered by the letter is applied only to new purchases.
[] Instructions for issuance of shares in the name of a person other than
the person signing the letter of intent must be accompanied by a written
statement from the Transfer Agent or a Service Agent stating that the
shares were paid for by the person signing the letter.
[] Neither income dividends nor capital gains distributions taken in
additional shares will apply toward the completion of the letter of
intent.
[] The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the letter of intent are
deducted from the total purchases made under the letter of intent.
If the investment specified in the letter of intent is not completed
(either prior to or by the end of the
13-month period), the Transfer Agent will redeem, within 20 days of the
expiration of the letter of intent, an appropriate number of the shares in
order to realize the difference between the reduced sales charge that would
apply if the investment under the letter of intent had been completed and the
sales charge that would normally apply to the number of shares actually
purchased. By completing and signing the letter of intent, the shareholder
irrevocably grants a power of attorney to the Transfer Agent to redeem any or
all shares purchased under the letter of intent, with full power of
substitution.
RIGHT OF ACCUMULATION
A shareholder qualifies for cumulative quantity discounts on the purchase
of Class A shares when his or her new investment, together with the current
offering price value of all holdings of that shareholder in the CitiFunds,
reaches a discount level. For example, if a Fund shareholder owns shares
valued at $50,000 and purchases an additional $50,000 of Class A shares of the
Fund, the sales charge for the $50,000 purchase would be at the rate of 3.00%
(the rate applicable to single transactions from $100,000 to less than
$250,000). A shareholder must provide the Service Agent with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
SYSTEMATIC WITHDRAWAL PLAN
The Fund's Systematic Withdrawal Plan permits you to have a specified
dollar amount (minimum of $100 per withdrawal) automatically withdrawn from
your account on a regular basis if you have at least $10,000 in your Fund
account at the time of enrollment. You are limited to one withdrawal per month
under the Plan.
If you redeem Class A or Class B shares under the Plan that are subject to
a CDSC, you are not subject to any CDSC applicable to the shares redeemed, but
the maximum amount that you can redeem under the Plan in any year is limited
to 10% of the average daily balance in your account.
You may receive your withdrawals by check, or have the monies transferred
directly into your bank account. Or you may direct that payments be made
directly to a third party.
To participate in the Plan, you must complete the appropriate forms
provided by the Transfer Agent or your Service Agent.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed (with a credit
for any contingent deferred sales charge paid) by purchasing Class A shares of
the Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Service Agents in
writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of
certain other CitiFunds that are made available by the Transfer Agent or your
Service Agent, or may be acquired through an exchange of shares of the same
class of those funds. Class A shares also may be exchanged for shares of
certain CitiFunds that offer only a single class of shares, unless the Class A
shares are subject to a contingent deferred sales charge. Class B shares may
not be exchanged for shares of CitiFunds that offer only a single class of
shares.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares are being acquired and the sales charge for
Class A of the fund being exchanged into is greater than the current sales
charge of the Fund (in which case an initial sales charge will be imposed at a
rate equal to the difference). Investors whose shares were outstanding on
January 4, 1999 are able to exchange those Class A shares, and any shares
acquired through capital appreciation and the reinvestment of dividends and
capital gains distributions on those shares, into Class A shares of the other
funds without paying any sales charge.
No CDSC is imposed on Class B shares at the time they are exchanged for
Class B shares of certain other CitiFunds that are made available by your
Service Agent. However, you may be required to pay a CDSC when you sell those
shares. When determining the amount of the CDSC, the Fund will use the CDSC
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
You must notify your Service Agent at the time of exchange if you believe
that you qualify for share prices which do not include the sales charge or
which reflect a reduced sales charge, because the Fund shares you are
exchanging were: (a) purchased with a sales charge, (b) acquired through a
previous exchange from shares purchased with a sales charge, (c) outstanding
as of January 4, 1999, or (d) acquired through capital appreciation or the
reinvestment of dividends and capital gains distributions on those shares. Any
such qualification may be subject to confirmation, through a check of
appropriate records and documentation, of your existing share balances and any
sales charges paid on prior share purchases.
This exchange privilege may be modified or terminated at any time, and is
available only in those jurisdictions where such exchanges legally may be
made. Before making any exchange, shareholders should contact their Service
Agents to obtain more information and prospectuses of the funds to be acquired
through the exchange. An exchange is treated as a sale of the shares exchanged
and could result in taxable gain or loss to the shareholder making the
exchange.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate written disclosure of any fees that it
may charge them directly. Each Service Agent is responsible for transmitting
promptly orders of its customers. Your Service Agent is the shareholder of
record for the shares of the Fund that you own.
Investors may be able to establish new accounts in the Fund under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and
certain other qualified pension and profit-sharing plans. Investors should
consult with their Service Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the Transfer Agent or, if they are
customers of a Service Agent, their Service Agent. During periods of drastic
economic or market changes or severe weather or other emergencies,
shareholders may experience difficulties implementing a telephone exchange or
redemption. In such an event, another method of instruction, such as a written
request sent via an overnight delivery service, should be considered. The
Fund, the Transfer Agent and each Service Agent will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
These procedures may include recording of the telephone instructions and
verification of a caller's identity by asking for his or her name, address,
telephone, Social Security number, and account number. If these or other
reasonable procedures are not followed, the Fund, the Transfer Agent or the
Service Agent may be liable for any losses to a shareholder due to
unauthorized or fraudulent instructions. Otherwise, the shareholder will bear
all risk of loss relating to a redemption or exchange by telephone.
Subject to compliance with applicable regulations, the Trust and the
Portfolio Trust have each reserved the right to pay the redemption price of
shares of the Fund or beneficial interests in the Portfolio, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares or
beneficial interests being sold. If a holder of shares or beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.
The Trust or the Portfolio Trust may suspend the right of redemption or
postpone the date of payment for shares of the Fund or beneficial interests in
the Portfolio more than seven days during any period when (a) trading in the
markets the Fund or Portfolio normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of the Fund's or Portfolio's investments or determination of its net
asset value not reasonably practicable; (b) the New York Stock Exchange is
closed (other than customary weekend and holiday closings); or (c) the SEC has
by order permitted such suspension.
8. MANAGEMENT
The Trustees and officers of the Trust and the Portfolio Trusts, 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 Trusts. Unless otherwise indicated
below, the address of each Trustee and officer is 21 Milk Street, Boston,
Massachusetts. The address of the Portfolio Trusts is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE*; 48 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 73 -- 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 1994); Trustee,
The Highland Family of Funds (March 1997 to March 1998). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 48 -- President, Global Research Associates, Inc. (Investment
Research) (since September 1990); Trustee, Mainstay Institutional Funds (since
December 1990). Her address is P.O. Box 9572, New Haven, Connecticut.
HEATH B. MCLENDON*; 66 -- Chairman, President, and Chief Executive Officer of
SSB Citi Fund Management LLC (formerly known as SSBC Fund Management, Inc.)
(since March 1996); Managing Director of Salomon Smith Barney (since August
1993); and Chairman, President and Chief Executive Officer of fifty-eight
investment companies sponsored by Salomon Smith Barney. His address is 388
Greenwich Street, New York, New York.
C. OSCAR MORONG, JR.; 64 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trusts; Managing Director, Morong Capital Management (since
February 1993); Director, Indonesia Fund (since 1990); Trustee, MAS Funds
(since 1993). His address is 1385 Outlook Drive West, Mountainside, New
Jersey.
E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
TRUSTEES OF THE PORTFOLIO TRUSTS
ELLIOTT J. BERV; 56 -- President and Chief Executive Officer, Catalyst, Inc.
(Management Consultants) (since June 1992); President and Director, Elliott J.
Berv & Associates (Management Consultants) (since May 1984). His address is 24
Atlantic Drive, Scarborough, Maine.
PHILIP W. COOLIDGE*; 48 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
MARK T. FINN; 56 -- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and part Owner, FX 500 Ltd. (Commodity Trading
Advisory Firm) (April 1990 to February 1996); General Partner and Shareholder,
Greenwich Ventures LLC (Investment Partnership) (since January 1996);
President, Secretary and Owner, Phoenix Trading Co. (Commodity Trading
Advisory Firm) (since March 1997); Chairman and Owner, 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 Trusts; Managing Director, Morong Capital Management (since
February 1993); Director, Indonesia Fund (since 1990); Trustee, MAS Funds
(since 1993). His address is 1385 Outlook Drive West, Mountainside, New
Jersey.
WALTER E. ROBB, III; 73 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President and Treasurer, Benchmark Advisors, Inc. (Corporate Financial
Advisors) (since 1989); Trustee of certain registered investment companies in
the MFS Family of Funds (since 1985). His address is 35 Farm Road, Sherborn,
Massachusetts.
E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUSTS
PHILIP W. COOLIDGE*; 48 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE D. DORSEY*; 29 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc. (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996).
LINWOOD C. DOWNS*; 38; -- Assistant Treasurer of the Trust and the Portfolio
Trusts; Chief Financial Officer and Senior Vice President, Signature Financial
Group, Inc.; Treasurer, CFBDS.
TAMIE EBANKS-CUNNINGHAM*; 27 -- Assistant Secretary of the Trust and the
Portfolio Trusts; 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.
LINDA T. GIBSON*; 34 -- Secretary of the Trust and the Portfolio Trusts;
Senior Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
SUSAN JAKUBOSKI*; 35 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group (Cayman) Ltd. (since July 1994).
MOLLY S. MUGLER*; 48 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
JULIE J. WYETZNER*; 40 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group, Inc.
The Trustees and officers of the Trust and the Portfolio Trusts also hold
comparable positions with certain other funds for which CFBDS, Signature
Financial Group, Inc. or their affiliates serve as the distributor or
administrator.
The following table shows Trustee compensation for the periods indicated.
<TABLE>
TRUSTEE COMPENSATION TABLE
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION
FROM THE FROM TRUST
TRUSTEE FUND(1) AND COMPLEX(1)(2)
------- ------------ ------------------
<S> <C> <C>
Philip W. Coolidge $ 0 $ 0
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon(3) 0 0
C. Oscar Morong, Jr.
E. Kirby Warren
William S. Woods, Jr.(4)
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(1) For the fiscal year ended October 31, 1999.
(2) Messrs. Coolidge, Gilley, McLendon, Morong and Warren and Mses. Harrington and Kerley are
Trustees of 49, 34, 22, 40, 40, 29 and 29 funds and portfolios, respectively, in the family of
open-end registered investment companies advised or managed by Citibank.
(3) Mr. McLendon was appointed as Trustee in February, 1999.
(4) Effective December 31, 1999, Mr. Woods became a Trustee Emeritus of the Trust. Per the terms of
the Trust's Trustee Emeritus Plan, Mr. Woods serves the Board of Trustees in an advisory
capacity. As a Trustee Emeritus, Mr. Woods is paid 50% of the annual retainer fee and meeting
fees otherwise applicable to Trustees, together with reasonable out-of-pocket expenses for each
meeting attended.
</TABLE>
As of , 2000, 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 Trusts
provides that each of the Trust and the Portfolio Trusts, 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 Trusts, as the case may be,
unless, as to liability to the Trust, the Portfolio Trusts 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 Trusts,
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 Trusts, 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.
MANAGER
Citibank manages the assets of the Fund and each Portfolio and provides
certain administrative services to the Fund and the Portfolios pursuant to
separate management agreements (the "Management Agreements"). Subject to such
policies as the Board of Trustees of Asset Allocation Portfolios, with respect
to Large Cap Value Portfolio, and The Premium Portfolios, with respect to U.S.
Fixed Income Portfolio may determine, Citibank manages the securities of each
Portfolio and makes investment decisions for each Portfolio. Citibank
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing each Portfolio's investments and effecting
securities transactions for each Portfolio. The Management Agreements with the
Portfolio Trusts provide that Citibank may delegate the daily management of
the securities of each Portfolio to one or more subadvisers.
Unless otherwise terminated, the Management Agreement with the Trust
relating to the Fund will continue in effect indefinitely as long as 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 Fund, and, in either case, by a majority of the Trustees of
the Trust who are not parties to the Management Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on
the Management Agreement. Unless otherwise terminated, the Management
Agreement with Asset Allocation Portfolios relating to Large Cap Value
Portfolio will continue in effect indefinitely as long as such continuance is
specifically approved at least annually by the Board of Trustees of Asset
Allocation Portfolios or by a vote of a majority of the outstanding voting
securities of Large Cap Value Portfolio, and, in either case, by a majority of
the Trustees of Asset Allocation Portfolios who are not parties to the
Management Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Management Agreement. Unless otherwise
terminated, the Management Agreement with The Premium Portfolios relating to
U.S. Fixed Income Portfolio will continue in effect indefinitely as long as
such continuance is specifically approved at least annually by the Board of
Trustees of The Premium Portfolios or by a vote of a majority of the
outstanding voting securities of U.S. Fixed Income Portfolio, and, in either
case, by a majority of the Trustees of The Premium Portfolios who are not
parties to the Management Agreement or interested persons of any such party,
at a meeting called for the purpose of voting on the Management Agreement.
Citibank provides the Fund and the Portfolios with general office
facilities and supervises the overall administration of the Fund and the
Portfolios, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of,
the Fund's or the Portfolios' independent contractors and agents; the
preparation and filing of all documents required for compliance by the Fund
and the Portfolios with applicable laws and regulations; and arranging for the
maintenance of books and records of the Fund or the Portfolios. Trustees,
officers, and investors in the Trust and the Portfolio Trusts are or may be or
may become interested in Citibank, as directors, officers, employees, or
otherwise and directors, officers and employees of Citibank are or may become
similarly interested in the Trust and the Portfolio Trusts. Each Management
Agreement provides that Citibank may render services to others. Each
Management Agreement is terminable without penalty on not more than 60 days'
nor less than 30 days' written notice by a Portfolio Trust or the Trust, as
the case may be, when authorized either by a vote of a majority of the
outstanding voting securities of the applicable Portfolio or Fund or by a vote
of a majority of the Board of Trustees of a Portfolio Trust or the Trust, or
by Citibank on not more than 60 days' nor less than 30 days' written notice,
and will automatically terminate in the event of its assignment. The
Management Agreement with each Portfolio Trust provides that neither Citibank
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 applicable Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard
of its or their obligations and duties under the Management Agreement with
such Portfolio Trust. The Management Agreement with the Trust provides that
neither Citibank nor its personnel shall be liable for any error of judgment
or mistake of law or for any omission in the administration or management of
the Trust or the performance of its duties under the Management Agreement,
except for willful misfeasance, bad faith or gross negligence or reckless
disregard of its or their obligations and duties under the Management
Agreement with the Trust.
Under the Management Agreement with the Trust, aggregate of management
fees paid to Citibank, and the Fund's share of management fees paid by Large
Cap Value Portfolio and U.S. Fixed Income Portfolio, will not exceed 0.70% of
the Fund's average daily net assets for the Fund's then-current fiscal year.
Citibank may reimburse the Fund or Portfolios or waive all or a portion of its
management fees.
For the period from August 1, 1999 to October 31, 1999, the fees paid to
Citibank under the Management Agreement with the Trust were $ . For the
fiscal years ended December 31, 1996, 1997 and 1998, and the period from
January 1, 1999 to July 31, 1999, the fees paid to Citibank under a prior
investment advisory agreement with respect to Balanced Portfolio were
$996,840, $998,042, $1,030,889 and $ , respectively. For the period from
August 1, 1999 to October 31, 1999, the fees paid to Citibank under the
Management Agreements with respect to Large Cap Value Portfolio and U.S. Fixed
Income Portfolio were $ and $ , respectively.
Large Cap Value Portfolio has entered into a Submanagement Agreement with
SSB Citi Fund Management LLC, an affiliate of Citibank and an indirect wholly-
owned subsidiary of Citigroup Inc. Under the Submanagement Agreement, it is
SSB Citi's responsibility to make the day-to-day investment decisions for
assets of the Portfolio allocated to it, and to place the purchase and sales
orders for securities transactions concerning those assets, subject in all
cases to the general supervision of Citibank. SSB Citi furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the assets of the Portfolio allocated to it and effecting securities
transactions concerning those assets.
The Submanagement Agreement will continue in effect indefinitely as long
as such continuance is specifically approved at least annually by the Board of
Trustees of Large Cap Value Portfolio 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 Large Cap Value Portfolio who are not parties to
the Submanagement Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Submanagement Agreement.
The Submanagement Agreement provides that SSB Citi may render services to
others. The Submanagement Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by Large Cap Value
Portfolio, 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 Large Cap Value Portfolio, or by Citibank on not more than 60
days' nor less than 30 days' written notice, and will automatically terminate
in the event of its assignment. The Submanagement Agreement may be terminated
by SSB Citi on not less than 90 days' written notice. Upon termination of the
Submanagement Agreement, Citibank will maintain responsibility for managing
those assets formerly managed by SSB Citi. The Submanagement Agreement
provides that neither SSB Citi 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
Submanagement Agreement.
SSB Citi's compensation is payable by Large Cap Value Portfolio from the
assets of the Portfolio. The Portfolio pays SSB Citi the following fees, which
are accrued daily and payable monthly and are at the annual rates equal to the
percentages specified below of the aggregate assets of the Portfolio allocated
to SSB Citi:
0.65% on the first $10 million;
0.50% on the next $10 million;
0.40% on the next $10 million; and
0.30% on remaining assets.
For the period from August 1, 1999 to October 31, 1999, the fees paid to
SSB Citi with respect to the Large Cap Value Portfolio were $ .
Pursuant to separate sub-administrative services agreements with Citibank,
CFBDS and Signature Financial Group (Cayman) Ltd. ("SFG") perform such sub-
administrative duties for the Trust and the Portfolio Trusts, respectively, as
from time to time are agreed upon by Citibank, CFBDS and SFG, as appropriate.
For performing such sub-administrative services, CFBDS and SFG receive
compensation as from time to time is agreed upon by Citibank, not in excess of
the amount paid to Citibank for its services under the Management Agreements
with the Trust and the Portfolio Trusts, respectively. All such compensation
is paid by Citibank.
For the fiscal years ended December 31, 1996, 1997 and 1998, and the
period from January 1, 1999 to July 31, 1999, the fees payable by the Fund to
CFBDS under a prior 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), $577,968 (of which $231,585 was voluntarily
waived) and $ (of which $ was voluntarily waived), respectively.
For the fiscal years ended December 31, 1996, 1997, 1998, and the period
from January 1, 1999 to July 31, 1999, The Premium Portfolios paid SFG
$124,605, $124,755, $128,861 and $ , respectively, with respect to
Balanced Portfolio under a prior administrative services agreement.
DISTRIBUTOR
CFBDS, 21 Milk Street, Boston, MA 02109, serves as the Distributor of the
Fund's shares pursuant to a Distribution Agreement with the Trust with respect
to each class of shares of the Fund (each, a "Distribution Agreement"). In
those states where CFBDS is not a registered broker-dealer, shares of the Fund
are sold through Signature Broker-Dealer Services, Inc., as dealer. Under the
Distribution Agreements, CFBDS is obligated to use its best efforts to sell
shares of each class of the Fund.
Either party may terminate a Distribution Agreement on not less than
thirty days' nor more than sixty days' prior written notice to the other
party. Unless otherwise terminated, each Distribution Agreement will continue
from year to year upon annual approval by the Trust's Board of Trustees and by
the vote of a majority of the Board of Trustees of the Trust who are not
parties to the Agreement or interested persons of any party to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval. Each Distribution Agreement will terminate in the
event of its assignment, as defined in the 1940 Act.
Each class of the Fund has a Distribution Plan (each, a "Distribution
Plan") adopted in accordance with Rule 12b-1 under the 1940 Act. Under the
Plans, the Fund may pay monthly fees at an annual rate not to exceed 0.25% of
the average daily net assets of the Fund attributable to that class in the
case of the Plan relating to Class A shares, and not to exceed 1.00% of the
average daily net assets of the Fund attributable to that class in the case of
the Plan relating to Class B shares. Such fees may be used to make payments to
the Distributor for distribution services, to securities dealers and other
industry professionals (called Service Agents) that have entered into service
agreements with the Distributor and others in respect of the sale of shares of
the Fund, and to other parties in respect of the sale of shares of the Fund,
and to make payments for advertising, marketing or other promotional activity,
and payments for preparation, printing and distribution of prospectuses,
statements of additional information and reports for recipients other than
regulators and existing shareholders. The Fund also may make payments to the
Distributor, Service Agents and others for providing personal service or the
maintenance of shareholder accounts. The amounts paid by the Distributor to
each recipient may vary based upon certain factors, including, among other
things, the levels of sales of Fund shares and/or shareholder services
provided. Recipients may receive different compensation for sales for Class A
and Class B shares.
The Distribution Plan with respect to Class A shares also provides that
the Distributor, broker-dealers, banks and other financial intermediaries may
receive the sales charge paid by Class A investors as partial compensation for
their services in connection with the sale of shares. The Distribution Plan
with respect to Class B shares provides that the Distributor, dealers and
others may receive all or a portion of the deferred sales charges paid by
Class B investors.
The Distribution Plans permit the Fund to pay fees to the Distributor,
Service Agents and others as compensation for their services, not as
reimbursement for specific expenses incurred. Thus, even if their expenses
exceed the fees provided for by the applicable Plan, the Fund will not be
obligated to pay more than those fees and, if their expenses are less than the
fees paid to them, they will realize a profit. The Fund will pay the fees to
the Distributor and others until the applicable Plan or Distribution Agreement
is terminated or not renewed. In that event, the Distributor's or other
recipient's expenses in excess of fees received or accrued through the
termination date will be the Distributor's or other recipient's sole
responsibility and not obligations of the Fund.
Each Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to the Plan
(for purposes of this paragraph "Qualified Trustees"). Each Distribution Plan
requires that the Trust and the Distributor provide to the Board of Trustees,
and the Board of Trustees review, at least quarterly, a written report of the
amounts expended (and the purposes therefor) under the Distribution Plan. Each
Distribution Plan further provides that the selection and nomination of the
Qualified Trustees is committed to the discretion of such Qualified Trustees
then in office. A Distribution Plan may be terminated with respect to any
class of the Fund at any time by a vote of a majority of the Trust's Qualified
Trustees or by a vote of a majority of the outstanding voting securities of
that class. A Distribution Plan may not be amended to increase materially the
amount of the permitted expenses of the class thereunder without the approval
of a majority of the outstanding securities of that class and may not be
materially amended in any case without a vote of a majority of both the
Trustees and Qualified Trustees. The Distributor will preserve copies of any
plan, agreement or report made pursuant to the Distribution Plans for a period
of not less than six years, and for the first two years the Distributor will
preserve such copies in an easily accessible place.
As contemplated by the Distribution Plans, CFBDS acts as the agent of the
Trust in connection with the offering of shares of the Fund pursuant to the
Distribution Agreements. For the fiscal years ended December 31, 1996, 1997
and 1998 the fees payable to CFBDS under the Distribution Agreement with
respect to the Fund were $355,539 (of which $237,026 was voluntarily waived),
$342,078 (of which $228,204 was voluntarily waived) and $346,780 (of which
$231,320 was voluntarily waived), respectively. For the period January 4, 1999
to October 31, 1999, the fees payable under the Distribution Agreements with
respect to the Class A and Class B shares of the Fund were $ (of which
$ was voluntarily waived) and $ (of which $ was
voluntarily waived), respectively.
The Distributor may enter into agreements with Service Agents and may pay
compensation to such Service Agents for accounts for which the Service Agents
are holders of record. Payments may be made to the Service Agents or for other
distribution expenses out of the distribution fees received by the Distributor
and out of the Distributor's past profits or any other source available to it.
Previously, the Trust had entered into a shareholder servicing agreement
with certain shareholder servicing agents pursuant to which those shareholder
servicing agents provided shareholder services, including answering customer
inquiries, assisting in processing purchase, exchange and redemption
transactions and furnishing Fund communications to shareholders. For the
fiscal years ended December 31, 1997 and 1998, the aggregate fees paid to
shareholder servicing agents with respect to the Fund were $570,130 and
$577,968, respectively.
EXPENSES
In addition to amounts payable under the Management 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.
Each Portfolio Trust, on behalf of the Portfolios, has entered into a
Custodian Agreement with State Street pursuant to which State Street acts as
custodian for each Portfolio. Each Portfolio Trust, on behalf of the
Portfolios, 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 each Portfolio.
State Street Cayman also provides transfer agency services to each Portfolio
Trust.
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
(Canada) are the chartered accountants for each Portfolio Trust. The address
of PricewaterhouseCoopers LLP (Canada) is Suite 3000, Box 82, Royal Trust
Towers, Toronto Dominion Center, Toronto, Ontario, Canada M5X 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the Fund.
9. PORTFOLIO TRANSACTIONS
The Trust trades securities for the Fund if it believes that a transaction
net of costs (including custodian charges) will help achieve the Fund's
investment objectives. Changes in the Fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. Specific decisions to
purchase or sell securities for the Fund are made by a portfolio manager who
is an employee of the Manager or Subadviser and who is appointed and
supervised by its senior officers. The portfolio manager may serve other
clients of the Manager or Subadviser 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, the Subadviser or their affiliates exercise
investment discretion. Citibank and the Subadviser are 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 or the Subadviser 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, the Subadviser and
their 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 management fee that the Fund pays to the Manager or Subadviser will
not be reduced as a consequence of the Manager's or Subadviser's receipt of
brokerage and research services. While such services are not expected to
reduce the expenses of the Manager or Subadviser the Manager or Subadviser
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 Citibank's or a
Subadviser's other clients. Investment decisions for the Fund and for the
Manager's or Subadviser'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
Manager or Subadviser 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, and the
period from January 1, 1999 to July 31, 1999, Balanced Portfolio, the
Portfolio in which the Fund previously invested, paid brokerage commissions of
$283,659, $371,439, $666,058 and $ , respectively. For the period from
August 1, 1999 to October 31, 1999, Large Cap Value Portfolio and U.S. Fixed
Income Portfolio, the Portfolios in which the Fund currently invests, paid
brokerage commissions of $ .
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (without
par value) of each series and to divide or combine the shares of any series
into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series. The Trust has
reserved the right to create and issue additional series and classes of
shares. Each share of each class of each series represents an equal
proportionate interest in the series with each other share of that class.
Shares of each series participate equally in the earnings, dividends and
distribution of net assets of the particular series upon liquidation or
dissolution (except for any differences among classes of shares in a series).
Shares of each series are entitled to vote separately to approve advisory
agreements or changes in investment policy, and shares of a class are entitled
to vote separately to approve any distribution or service arrangements
relating to that class, but shares of all series may vote together in the
election or selection of Trustees and accountants for the Trust. In matters
affecting only a particular series or class, only shares of that particular
series or class are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust
would not be able to elect any Trustee. The Trust is not required to hold, and
has no present intention of holding, annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances (e.g., upon the
application and submission of certain specified documents to the Trustees by a
specified number of shareholders), the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of
each series affected by the amendment. (See "Investment Restrictions.") At any
meeting of shareholders of any series, a Service Agent may vote any shares of
which it is the holder of record and for which it does not receive voting
instructions proportionately in accordance with the instructions it received
for all other shares of which that Service Agent is the holder of record.
Shares have no preference, pre-emptive, conversion or similar rights. Shares,
when issued, are fully paid and non-assessable, except as set forth below.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's (or the
affected series) outstanding shares would be sufficient. The Trust or any
series of the Trust, as the case may be, may be terminated (i) by a vote of a
majority of the outstanding voting securities of the Trust or the affected
series or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated, the Trust will continue
indefinitely.
The Fund's Transfer Agent maintains a share register for shareholders of
record. Share certificates are not issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as partners
for its obligations and liabilities. However, the Declaration of Trust of the
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Trust and provides for indemnification and reimbursement of
expenses out of Trust property for any shareholder held personally liable for
the obligations of the Trust. The Declaration of Trust of the Trust also
provides that the Trust may maintain appropriate insurance (e.g., fidelity
bonding and errors and omissions insurance) for the protection of the Trust,
its shareholders, Trustees, officers, employees and agents covering possible
tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the
property of the Trust and that the Trustees will not be liable for any action
or failure to act, but nothing in the Declaration of Trust of the Trust
protects a Trustee against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Large Cap Value Portfolio is a series of Asset Allocation Portfolios, and
U.S. Fixed Income Portfolio is a series of The Premium Portfolios. Each
Portfolio Trust is organized as a trust under the laws of the State of New
York.
Each investor in a 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 each Portfolio is determined by multiplying the net asset value of
the Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals that are to be effected on that day are then
effected. The investor's percentage of the aggregate beneficial interests in
the Portfolio is then re-computed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the close of regular trading on such day plus or minus, as the
case may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the close of
regular trading on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the
Portfolio as of the close of regular trading on the next following Business
Day.
11. TAX MATTERS
TAXATION OF THE FUND AND THE PORTFOLIO TRUSTS
FEDERAL TAXES. The Fund has elected to be treated, and intends to qualify
each year, as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets. Provided all such requirements are
met, no U.S. federal income or excise taxes generally will be required to be
paid by the Fund. If the Fund should fail to qualify as a "regulated
investment company" for any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary income to shareholders. The Portfolio Trusts
believe the Portfolios also will not be required to pay any U.S. federal
income or excise taxes on their income.
FOREIGN TAXES. Investment income and gains received by the Fund from non-
U.S. securities may be subject to non-U.S. taxes. The United States has
entered into tax treaties with many other countries that may entitle the Fund
to a reduced rate of tax or an exemption from tax on such income. The Fund
intends to qualify for treaty reduced rates where available. It is not
possible, however, to determine the Fund's effective rate of non-U.S. tax in
advance since the amount of the Fund's respective assets to be invested within
various countries is not known. Shareholders will not be able to claim any
deduction or credit for any part of the foreign taxes paid by the Fund.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of the Fund will generally have to
pay federal income taxes and any state or local taxes on the dividends and
capital gain distributions they receive from the Fund. Dividends from ordinary
income and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the
length of time the shareholders have held their shares. Any Fund dividend that
is declared in October, November, or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January, will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared.
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.
DIVIDENDS-RECEIVED DEDUCTION. The portion of the Fund's ordinary income
dividends attributable to dividends received in respect of equity securities
of U.S. issuers is normally eligible for the dividends received deduction for
corporations subject to U.S. federal income taxes. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax and result in
certain basis adjustments.
DISPOSITION OF SHARES. In general, any gain or loss realized upon a
taxable disposition of shares of the Fund by a shareholder that holds such
shares as a capital asset will be treated as a long-term capital gain or loss
if the shares have been held for more than twelve months and otherwise as a
short-term capital gain or loss. However, any loss realized upon a disposition
of shares in the Fund held for six months or less will be treated as a long-
term capital loss to the extent of any distributions of net capital gain made
with respect to those shares. Any loss realized upon a disposition of shares
may also be disallowed under rules relating to wash sales. Gain may be
increased (or loss reduced) upon a redemption of Class A Fund shares held for
90 days or less followed by any purchase of shares of the Fund or another of
the CitiFunds, including purchases by exchange or by reinvestment, without
payment of a sales charge which would otherwise apply because of any sales
charge paid on the original purchase of the Class A Fund shares.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INVESTMENTS. Any investment by the Fund in zero coupon bonds,
deferred interest bonds, payment-in-kind bonds, certain stripped securities,
and certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund,
the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund. An investment by the Fund in residual intersts of a
CMO that has elected to be treated as a real estate mortgage investment
conduit, or "REMIC," can create complex tax problems, especially if the Fund
has state or local governments or other tax-exempt organizations as
shareholders.
OPTIONS, ETC. The Fund's transactions in options, futures contracts, short
sales "against the box" and forward contracts will be subject to special tax
rules that may affect the amount, timing and character of Fund income and
distributions to shareholders. For example, certain positions held by the Fund
on the last business day of each taxable year will be marked to market (i.e.,
treated as if closed out) on that day, and any gain or loss associated with
the positions will be treated as 60% long-term and 40% short-term capital gain
or loss. Certain positions held by the Fund that substantially diminish its
risk of loss with respect to other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules that would cause deferral
of Fund losses, adjustments in the holding periods of Fund securities, and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Fund will
limit its activities in options, futures contracts and forward contracts to
the extent necessary to meet the requirements of Subchapter M of the Code.
FOREIGN INVESTMENTS. Special tax considerations apply with respect to non-
U.S. investments of the Fund. Foreign exchange gains and losses realized by
the Fund will generally be treated as ordinary income and loss. Use of non-
U.S. currencies for non-hedging purposes and investment by the Fund in certain
"passive foreign investment companies" may have to be limited in order to
avoid a tax on the Fund. The Fund may elect to mark to market any investments
in "passive foreign investment companies" on the last day of each taxable
year. This election may cause the Fund to recognize ordinary income prior to
the receipt of cash payments with respect to those investments; in order to
distribute this income and avoid a tax on the Fund, the Fund may be required
to liquidate portfolio securities that it might otherwise have continued to
hold potentially resulting in additional taxable gain or loss to the Fund.
SPECIAL CONSIDERATIONS FOR NON-U.S. PERSONS. The Fund will withhold tax
payments at the rate of 30% (or any lower rate permitted under an applicable
treaty) on taxable dividends and other payments subject to withholding taxes
that are made to persons who are not citizens or residents of the United
States. Distributions received from the Fund by non-U.S. persons also may be
subject to tax under the laws of their own jurisdiction.
BACKUP WITHHOLDING. The account application asks each new shareholder to
certify that the shareholder's Social Security or taxpayer identification
number is correct and that the shareholder is not subject to 31% backup
withholding for failing to report income to the IRS. If a shareholder fails to
provide this information, or otherwise violates IRS regulations, the Fund may
be required to withhold tax at the rate of 31% on certain distributions and
redemption proceeds paid to that shareholder.
12. FINANCIAL STATEMENTS
To be added by amendment.
<PAGE>
PART C
Item 23. Exhibits.
* a(1) Amended and Restated Declaration of Trust of the
Registrant
**, ***, a(2) Amendments to the Declaration of Trust of the
****** and Registrant
filed
herewith
*** b(1) Amended and Restated By-Laws of the Registrant
*** b(2) Amendments to Amended and Restated By-Laws of the
Registrant
d Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Balanced
Portfolio
******** 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) Services Agreement between Citibank, N.A. and CFBDS
*** h(2) 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
**** and p(1) Powers of Attorney for the Registrant
*********
***** and p(2) Powers of Attorney for The Premium Portfolios
filed
herewith
p(3) Powers of Attorney for Asset Allocation Portfolios
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 20 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 31, 1996.
** Incorporated herein by reference to Post-Effective Amendment No. 25 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on April
18, 1997.
*** Incorporated herein by reference to Post-Effective Amendment No. 26 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 30, 1997.
**** Incorporated herein by reference to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
February 24, 1998.
***** Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 16, 1998.
****** Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 23, 1998.
******* Incorporated herein by reference to Post-Effective Amendment No. 31 to
the Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on February 12, 1999.
******** Incorporated herein by reference to Post-Effective Amendment No. 32 to
the Registrant's Registration Statement on Form N-1A as filed with the
Securities and Exchange Commission on February 16, 1999.
********* Incorporated herein by reference to Post-Effective Amendment No. 35 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on April
16, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to Post-Effective Amendment No. 20 to its
Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, Inc., filed as Exhibits to
Post-Effective Amendment No. 32 to its Registration Statement on Form N-1A; and
(c) the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (High Yield
Portfolio, U.S. Fixed Income 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 Multi-State Tax Free Trust (CitiFundsSM New York
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves and CitiFundsSM
California Tax Free Reserves), CitiFundsSM Tax Free Income Trust (CitiFundsSM
National Tax Free Income Portfolio, CitiFundsSM New York Tax Free Income
Portfolio and CitiFundsSM California Tax Free Income Portfolio), CitiFundsSM
Institutional Trust (CitiFundsSM Institutional Cash Reserves) and Variable
Annuity Portfolios (CitiSelect(R) VIP Folio 100 Income, CitiSelect(R) VIP Folio
200 Conservative, CitiSelect(R) VIP Folio 300 Balanced, CitiSelect(R) VIP Folio
400 Growth, CitiSelect(R) VIP Folio 500 Growth Plus and CitiFundsSM Small Cap
Growth VIP Portfolio). Citibank and its affiliates manage assets in excess of
$351 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 of the Board 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 S. Collins, Vice Chairman of Citigroup, Inc. and
Robert I. Lipp, Chairman and Chief Executive Officer of Travelers Insurance
Group and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citicorp. 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 Corp.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch
Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash Reserves,
CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium Liquid Reserves,
CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM Institutional
Liquid Reserves, CitiFundsSM Institutional Cash Reserves, CitiFundsSM Tax Free
Reserves, CitiFundsSM Institutional Tax Free Reserves, CitiFundsSM California
Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves, CitiFundsSM New
York Tax Free Reserves, CitiFundsSM Intermediate Income Portfolio, CitiFundsSM
Short-Term U.S. Government Income Portfolio, CitiFundsSM New York Tax Free
Income Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
California Tax Free Income Portfolio, CitiFundsSM Small Cap Value Portfolio,
CitiFundsSM Growth & Income Portfolio, CitiFundsSM Large Cap Growth Portfolio,
CitiFundsSM Small Cap Growth Portfolio, CitiSelect(R) Folio 100 Income,
CitiSelect(R) Folio 200 Conservative, CitiSelect(R) Folio 300 Balanced,
CitiSelect(R) Folio 400 Growth, CitiSelect(R) Folio 500 Growth Plus,
CitiSelect(R) VIP Folio 100 Income, CitiSelect(R) VIP Folio 200 Conservative,
CitiSelect(R) VIP Folio 300 Balanced, CitiSelect(R) VIP Folio 400 Growth,
CitiSelect(R) VIP Folio 500 Growth Plus and CitiFundsSM Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for High Yield Portfolio,
Government Income Portfolio, International Equity Portfolio, Large Cap Growth
Portfolio, Small Cap Growth Portfolio, Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio, Short-Term 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 UL 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 Life Insurance, The
Travelers Fund UL II for Life Insurance, The Travelers Fund UL III for Life
Insurance, The Travelers Variable Life Insurance Separate Account One, The
Travelers Variable Life Insurance Separate Account Two, The Travelers Variable
Life Insurance Separate Account Three, The Travelers Variable Life Insurance
Separate Account Four, The Travelers Separate Account MGA, The Travelers
Separate Account MGA II, The Travelers Growth and Income Stock Account for
Variable Annuities, The Travelers Quality Bond Account for Variable Annuities,
The Travelers Money Market Account for Variable Annuities, The Travelers Timed
Growth and Income Stock Account for Variable Annuities, The Travelers Timed
Short-Term Bond Account for Variable Annuities, The Travelers Timed Aggressive
Stock Account for Variable Annuities, The Travelers Timed Bond Account for
Variable Annuities, Small Cap Fund, Government Fund, Growth Fund, Growth and
Income Fund, International Equity Fund, Mid Cap Fund, Municipal Bond Fund,
Select Small Cap Portfolio, Select Government Portfolio, Select Growth
Portfolio, Select Growth and Income Portfolio, Select Mid Cap Portfolio,
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, S&P 500 Index Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Multi-Sector Fixed
Income Investments, Multi-Strategy Market Neutral 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 Inc., 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 Premier Selections Fund, Smith Barney Small Cap Value Fund, Smith Barney
Small Cap Growth 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 EAFE Index Fund, Smith Barney US 5000 Index
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,
National Portfolio, Massachusetts Money Market Portfolio, New York Money Market
Portfolio, New York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal
Money Market Fund, Inc., Smith Barney Natural Resources Fund, Smith Barney
Financial Services Fund, Smith Barney Health Sciences Fund, Smith Barney
Technology Fund, 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, Smith Aggressive Growth Portfolio, Smith Mid Cap
Portfolio, Alliance Growth Portfolio, INVESCO 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, Travelers Managed Income Portfolio, Van Kampen Enterprise Portfolio,
Centurion U.S. Equity Fund, Centurion International Equity Fund, Centurion U.S.
Contra Fund, Centurion International Contra 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 International Equity Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Large Cap Growth Fund, Salomon Brothers Balanced
Fund, Salomon Brothers Small Cap Growth Fund, Salomon Brothers Asia Growth Fund,
Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Value 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, Salomon Brothers Variable Asia Growth
Fund, and Salomon Brothers Variable Small Cap Growth Fund.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD filed
by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street
(subadministrator 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
(manager) 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 28th day of December, 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 December 28, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
---------------------------- Officer and Trustee
Philip W. Coolidge
Linwood C. Downs Principal Financial Officer and
---------------------------- Principal Accounting Officer
Linwood C. Downs
Riley C. Gilley* Trustee
----------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
----------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
----------------------------
Susan B. Kerley
Heath B. McLendon* Trustee
----------------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
----------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
----------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
----------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
-------------------------
Philip W. Coolidge
Executed by Philip W. Coolidge
on behalf of those indicated
pursuant to Powers of Attorney.
<PAGE>
SIGNATURES
Asset Allocation 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 28th day of December, 1999.
ASSET ALLOCATION PORTFOLIOS
on behalf of Large Cap Value Portfolio
By: Tamie Ebanks-Cunningham
---------------------------------
Tamie Ebanks-Cunningham,
Assistant Secretary of
Asset Allocation 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 December 28, 1999.
Signature Title
--------- -----
Philip W. Coolidge* President, Principal Executive
- -------------------------------- Officer and Trustee
Philip W. Coolidge
Linwood C. Downs* Principal Financial Officer and
- -------------------------------- Principal Accounting Officer
Linwood C. Downs
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>
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 28th day of December, 1999.
THE PREMIUM PORTFOLIOS
on behalf of U.S. Fixed Income 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 December 28, 1999.
Signature Title
--------- -----
Philip W. Coolidge* President, Principal Executive
---------------------------- Officer and Trustee
Philip W. Coolidge
Linwood C. Downs* Principal Financial Officer and
---------------------------- Principal Accounting Officer
Linwood C. Downs
Elliott J. Berv* Trustee
----------------------------
Elliott J. Berv
Mark T. Finn* Trustee
----------------------------
Mark T. Finn
C. Oscar Morong, Jr.* Trustee
----------------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
----------------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
----------------------------
E. Kirby Warren
*By: Tamie Ebanks-Cunningham
----------------------------
Tamie Ebanks-Cunningham
Executed by Tamie Ebanks-Cunningham
on behalf of those indicated as
attorney in fact.
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
a(2) Amendment to the Declaration of Trust of the Registrant
d Management Agreement between the Registrant and Citibank, N.A.
with respect to CitiFunds Balanced Portfolio
h(1) Services Agreement between Citibank, N.A. and CFBDS
p(2) Powers of Attorney for The Premium Portfolios
p(3) Powers of Attorney for Asset Allocation Portfolios
<PAGE>
Exhibit a(2)
CITIFUNDS TRUST I
AMENDMENT TO
DECLARATION OF TRUST
The undersigned, constituting a majority of the Trustees of CitiFunds
Trust I (the "Trust"), a business trust organized under the laws of the
Commonwealth of Massachusetts, pursuant to a Declaration of Trust dated April
13, 1984, as amended and restated (the "Declaration"), do hereby amend Section
3.2 of the Declaration by deleting paragraph (d) thereof and replacing it in its
entirety with the following, such amendment to be subject to approval in
accordance with the Declaration of the shareholders of CitiFundsSM Balanced
Portfolio, a series of the Trust:
(d) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without
any requirement of approval by shareholders to either invest all or a
portion of the Trust Property of CitiSelect(R) Folio 100 Income,
CitiSelect(R) Folio 200 Conservative, CitiSelect(R) Folio 300 Balanced,
CitiSelect(R) Folio 400 Growth, CitiSelect(R) Folio 500 Growth Plus,
CitiFundsSM Balanced Portfolio and of each other Series of the Trust, or
sell all or a portion of such Trust Property and invest the proceeds of
such sales, in one or more investment companies to the extent not
prohibited by the 1940 Act and exemptive orders granted under such Act.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
26th day of May, 1999.
Philip Coolidge Riley C. Gilley
- --------------------------------- ----------------------------------
PHILIP W. COOLIDGE RILEY C. GILLEY
As Trustee and Not Individually As Trustee and Not Individually
Diana R. Harrington Susan B. Kerley
- --------------------------------- ----------------------------------
DIANA R. HARRINGTON SUSAN B. KERLEY
As Trustee and Not Individually As Trustee and Not Individually
Heath B. McLendon C. Oscar Morong, Jr.
- --------------------------------- ----------------------------------
HEATH B. MCLENDON C. OSCAR MORONG, JR.
As Trustee and Not Individually As Trustee and Not Individually
E. Kirby Warren William S. Woods, Jr.
- --------------------------------- ----------------------------------
E. KIRBY WARREN WILLIAM S. WOODS, JR.
As Trustee and Not Individually As Trustee and Not Individually
<PAGE>
Exhibit d
MANAGEMENT AGREEMENT
CITIFUNDS TRUST I
CitiFunds Balanced Portfolio
MANAGEMENT AGREEMENT, dated as of August 1, 1999, by and between CitiFunds
Trust I, a Massachusetts trust (the "Trust"), and Citibank, N.A., a national
banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (collectively with the rules and regulations promulgated
thereunder and any exemptive orders thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain management
services for the series of the Trust designated as CitiFunds Balanced Portfolio
(the "Fund"), and Citibank is willing to provide such management services for
the Fund on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the Manager for the Fund
and as such shall furnish continuously an investment program and shall determine
from time to time what securities shall be purchased, sold or exchanged and what
portion of the assets of the Fund shall be held uninvested, subject always to
the restrictions of the Trust's Declaration of Trust, dated as of April 23,
1984, and By-Laws, as each may be amended and restated from time to time
(respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940
Act, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager shall be bound by such determination for
the period, if any, specified in such notice or until similarly notified that
such determination has been revoked. The Manager shall take, on behalf of the
Fund, all actions which it deems necessary to implement the investment policies
determined as provided above, and in particular to place all orders for the
purchase or sale of securities for the Fund's account with the brokers or
dealers selected by it, and to that end the Manager is authorized as the agent
of the Trust to give instructions to the custodian or any subcustodian of the
Fund as to deliveries of securities and payments of cash for the account of the
Fund. In connection with the selection of such brokers or dealers and the
placing of such orders, 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 the Manager or its affiliates exercise investment discretion. The Manager
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 the Manager determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Manager and its affiliates have with
respect to accounts over which they exercise investment discretion. In making
purchases or sales of securities or other property for the account of the Fund,
the Manager may deal with itself or with the Trustees of the Trust or the
Trust's underwriter or distributor, to the extent such actions are permitted by
the 1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ, at its own expense, or may request that the
Trust employ at the Fund's expense, one or more subadvisers; provided that in
each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any agreement
between the Trust on behalf of the Fund and a subadviser may be terminated by
the Manager at any time on not more than 60 days' nor less than 30 days' written
notice to the Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as may
from time to time be reasonably requested by the Trust, which shall include
without limitation: (i) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Trust and for performing the
administrative and management functions herein set forth; (ii) supervising the
overall administration of the Trust, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Trust's transfer
agent, shareholder servicing agents, custodian and other independent contractors
or agents; (iii) preparing and, if applicable, filing all documents required for
compliance by the Trust with applicable laws and regulations, including
registration statements, prospectuses and statements of additional information,
semi-annual and annual reports to shareholders, proxy statements and tax
returns; (iv) preparation of agendas and supporting documents for and minutes of
meetings of Trustees, committees of Trustees and shareholders; and (v) arranging
for maintenance of books and records of the Trust. Notwithstanding the
foregoing, Citibank shall not be deemed to have assumed any duties with respect
to, and shall not be responsible for, the distribution of shares of beneficial
interest in the Fund, nor shall Citibank be deemed to have assumed or have any
responsibility with respect to functions specifically assumed by any transfer
agent, fund accounting agent, custodian or shareholder servicing agent of the
Trust or the Fund. In providing administrative and management services as set
forth herein, Citibank may, at its own expense, employ one or more
subadministrators; provided that Citibank shall remain fully responsible for the
performance of all administrative and management duties set forth herein and
shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not "affiliated
persons" of Citibank; 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 Fund; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Fund (including but
not limited to the fees of independent pricing services); expenses of meetings
of the Fund's shareholders; expenses relating to the registration and
qualification of shares of the Fund; and such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or proceedings
to which the Trust on behalf of the Fund may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to Citibank
from the assets of the Fund a management fee computed daily and paid monthly at
an annual rate equal to the lesser of (i) 0.70% of the Fund's average daily net
assets for the Fund's then-current fiscal year or (ii) the difference between
0.70% of the Fund's average daily net assets for the Fund's then-current fiscal
year and the aggregate investment management fees allocated to the Fund for the
Fund's then-current fiscal year from the portfolios in which it invests of which
Citibank is the manager. If Citibank provides services hereunder for less than
the whole of any period specified in this Section 3, the compensation to
Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the 1940 Act,
will not take a long or short position in shares of beneficial interest in the
Fund except as permitted by the Declaration, and will comply with all other
provisions of the Declaration and By-Laws and the then-current Registration
Statement applicable to the Fund relative to Citibank and its directors and
officers.
5. Limitation of Liability of Citibank. Citibank shall not 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 securities
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not to
be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that directors,
officers and employees of Citibank are or may become similarly interested in the
Trust and that Citibank may be or may become interested in the Trust as a
shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until May 7, 2001, on which date it will terminate unless its continuance after
May 7, 2001 is "specifically approved at least annually" (a) by the vote of a
majority of the Trustees of the Trust who are not "interested persons" of the
Trust or of Citibank at a meeting specifically called for the purpose of voting
on such approval, and (b) by the Board of Trustees of the Trust or by "vote of a
majority of the outstanding voting securities" of the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust under
this Agreement are binding only with respect to the Fund; that any liability of
the Trust under this Agreement, or in connection with the transactions
contemplated herein, shall be discharged only out of the assets of the Fund; and
that no other series of the Trust shall be liable with respect to this Agreement
or in connection with the transactions contemplated herein.
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Use of Name. The Trust hereby acknowledges that any and all rights in
or to the name "CitiFunds" which exist on the date of this Agreement or which
may arise hereafter are, and under any and all circumstances shall continue to
be, the sole property of Citibank; that Citibank may assign any or all of such
rights to another party or parties without the consent of the Trust; and that
Citibank may permit other parties, including other investment companies, to use
the word "CitiFunds" in their names. If Citibank, or its assignee as the case
may be, ceases to serve as the adviser to and administrator of the Trust, the
Trust hereby agrees to take promptly any and all actions which are necessary or
desirable to change its name so as to delete the word "CitiFunds."
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIFUNDS TRUST I CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
-------------------------- --------------------------
Title: President Title: U.S. C.I.O.
----------------------- -----------------------
<PAGE>
Exhibit h(1)
SERVICES AGREEMENT
SERVICES AGREEMENT, dated as of January 4, 1999, by and between CFBDS,
INC., a Massachusetts corporation ("CFBDS") and CITIBANK, N.A., a national
banking association ("Citibank").
W I T N E S S E T H :
WHEREAS, Citibank has been retained by certain registered open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), as listed on Schedule A hereto (each individually a
"Trust" and collectively the "Trusts"), to provide administrative services to
its investment portfolios, as listed on Schedule A hereto (each individually a
"Fund" and collectively the "Funds"), pursuant to separate Management Agreements
(each a "Management Agreement"), and
WHEREAS, as permitted by Section 1 of each Management Agreement,
Citibank desires to subcontract some or all of the performance of its
obligations thereunder to CFBDS, and CFBDS desires to accept such obligations;
and
WHEREAS, Citibank wishes to engage CFBDS to provide certain
administrative services on the terms and conditions hereinafter set forth, so
long as Citibank shall have found CFBDS to be qualified to perform the
obligations sought to be subcontracted; and
WHEREAS, CFBDS desires to retain Citibank to perform certain services
on the terms and conditions hereinafter set forth, and Citibank is willing to
render such services.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties as CFBDS. Subject to the supervision and direction of
Citibank, CFBDS will assist in supervising various aspects of each Trust's
administrative operations and undertakes to perform the following specific
services, from and after the effective date of this Agreement:
(a) To the extent requested by Citibank, furnish Trust secretarial
services;
(b) To the extent requested by Citibank, furnish Trust treasury
services, including the review of financial data, tax and
other regulatory filings and audit requests;
(c) To the extent requested by Citibank, provide the services of
certain persons who may be appointed as officers or Trustees
of the Trust by the Trust's Board;
(d) To the extent requested by Citibank, participate in the
preparation of documents required for compliance by the Trust
with applicable laws and regulations, including registration
statements, prospectuses, semi-annual and annual reports to
shareholders and proxy statements;
(e) To the extent requested by Citibank, prepare agendas and
supporting documents for and minutes of meetings of the
Trustees, Committees of Trustees and shareholders;
(f) Maintain books and records of the Trust;
(g) To the extent requested by Citibank, provide advice and
counsel to the Trust with respect to regulatory matters,
including monitoring regulatory and legislative developments
which may affect the Trust and assisting the Trust in routine
regulatory examinations or investigations of the Trust, and
working closely with outside counsel to the Trust in
connection with litigation in which the Trust is involved;
(h) To the extent requested by Citibank, generally assist in all
aspects of Trust's operations and provide general consulting
services on a day to day, as needed basis;
(i) In connection with the foregoing activities, maintain office
facilities (which may be in the offices of CFBDS or its
corporate affiliate); and
(j) In connection with the foregoing activities, furnishing
clerical services, and internal executive and administrative
services, stationery and office supplies.
Notwithstanding the foregoing, CFBDS under this Agreement shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the management of a Trust, or the distribution of beneficial interests in a
Trust, nor shall CFBDS be deemed to have assumed or have any responsibility with
respect to functions specifically assumed by any transfer agent or custodian of
a Trust.
In performing all services under this Agreement, CFBDS shall (a) act in
conformity with the Trust's charter documents and bylaws, the 1940 Act and other
applicable laws, as the same may be amended from time to time, (b) consult and
coordinate with legal counsel for the Trust, as necessary or appropriate, and
(c) advise and report to the Trust and its legal counsel, as necessary or
appropriate, with respect to any material compliance or other matters that come
to its attention.
In performing its services under this Agreement, CFBDS shall cooperate
and coordinate with Citibank as necessary and appropriate and shall provide such
information as is reasonably necessary or appropriate for Citibank to perform
its obligations to the Trust. CFBDS shall perform its obligations under this
Agreement in a conscientious and diligent manner consistent with prevailing
industry standards.
2. Compensation of CFBDS. For the services to be rendered and the
facilities to be provided by CFBDS hereunder, CFBDS shall be paid an
administrative fee as may from time to time be agreed to between Citibank and
CFBDS.
3. Duties of Citibank. CFBDS hereby retains Citibank to perform the
following services, and Citibank hereby agrees to render such services for the
compensation and on the terms herein provided, from and after the effective date
of this Agreement:
(a) From time to time, Citibank will prepare marketing materials
and advertising materials for the Funds, will review such
material for compliance with applicable legal standards,
submit such materials to CFBDS for final review (unless such
material is submitted to another NASD member for review),
assist CFBDS in connection with discussions with NASD
Regulation and others who review such materials submitted by
CFBDS, make responsive changes and obtain final approval for
use in a timely fashion, and arrange and pay for the
production and dissemination of such material. Citibank shall
coordinate its activities in this regard with brokers selling
shares of the Funds and may delegate its duties under this
provision to others as appropriate.
(b) Citibank will provide liaison between CFBDS and the Funds,
other brokers selling shares of the Funds, and other parties
related to the operations of the Funds, and Citibank shall
provide information and assistance in this regard, as
requested by CFBDS.
In performing its services under this Agreement, Citibank shall (a) act
in conformity with the Trust's charter documents, bylaws, prospectus, state of
additional information, the 1940 Act and other applicable laws, as the same may
be amended from time to time, and (b) cooperate and coordinate with CFBDS as
necessary and appropriate.
4. Compensation of Citibank. In consideration for the services to be
rendered by Citibank under this Agreement, CFBDS hereby assigns to Citibank for
the term of this Agreement all revenues payable to CFBDS pursuant to its
Distribution Agreements with the Trusts (as relate to the Funds) and/or any
related Distribution Plans or Service Plans of the Trusts (as relate to the
Funds) (the "Distribution Revenues"). Citibank will be solely responsible for
computing and collecting any and all Distribution Revenues to CFBDS and assigned
to Citibank hereby and it shall do so at its own expense. CFBDS shall have no
obligation to provide any accounting or other computation of the Distribution
Revenues to Citibank or to otherwise assist in the collection of the
Distribution Revenues, provided that CFBDS agrees to execute any instruments or
take any other actions reasonably necessary to effect or perfect the assignment
of the Distribution Revenues to Citibank, and the further assignment by
Citibank, at its discretion, of any part of the Distribution Revenues to any
other entity.
5. Limitation of Liability.
(a) CFBDS shall not be liable to Citibank for any error or
judgment or mistake of law or for any loss, liability,
expense, or damage (collectively a "Loss") suffered by
Citibank in connection with the performance of CFBDS'
obligations and duties under this Agreement, except a Loss
resulting from CFBDS' willful misfeasance, bad faith, or
negligence in the performance of such obligations and duties.
(b) Citibank will indemnify CFBDS, its affiliated companies and
its officers, employees, and agents, and hold each of them
harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees
and expenses) resulting from any claim, demand, action, or
suit relating to this Agreement, and not resulting from the
willful misfeasance, bad faith or negligence of CFBDS in the
performance of its obligations under such agreements, but only
to the extent such losses, claims, damages, liabilities, or
expenses are not covered by an applicable insurance policy
maintained by CFBDS and/or its affiliates (other than by
virtue of being part of a deductible under any such policy).
Citibank's indemnification obligations under this Section (b)
are expressly conditioned on satisfaction of all the following
requirements:
(i) CFBDS shall notify Citibank in writing of any claim,
demand, or other occurrence in respect of which CFBDS
may seek indemnification, promptly after CFBDS becomes
aware of it;
(ii) Subject to the terms of any applicable insurance
policies maintained by CFBDS and/or its affiliates,
Citibank shall have the right to assume sole control
of the defense of any resulting action or suit; and
(iii) CFBDS shall not confess any claim or settle or make
any compromise relating thereto, except with
Citibank's prior written consent.
(c) CFBDS will indemnify Citibank, its affiliated companies, and
their officers, employees, and agents, and hold each of them
harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees
and expenses) resulting from any claim, demand, action, or
suit relating to CFBDS' performance of its obligations under
this Agreement, not resulting from the willful misfeasance,
bad faith or negligence of Citibank or any of its affiliated
companies, but only to the extent such losses, claims,
damages, liabilities, or expenses are not covered by an
applicable insurance policy maintained by Citibank or any of
its affiliates (other than by virtue of being part of a
deductible under any such policy). CFBDS' indemnification
obligations under this Section 5(c) are expressly conditioned
on satisfaction of all the following requirements:
(i) Citibank shall notify CFBDS in writing of any claim,
demand, or other occurrence which relates to or in
respect of which Citibank or any of its affiliates may
seek indemnification, promptly after Citibank becomes
aware of it;
(ii) Subject to the terms of any applicable insurance
policies maintained by Citibank and/or its affiliates,
CFBDS shall have the right to assume sole control of
the defense of any resulting action or suit; and
(iii) Citibank and/or its affiliates shall not confess any
claim or settle or make any compromise relating
thereto, except with CFBDS' prior written consent.
6. Confidentiality.
(a) All books, records, information and data pertaining to the
business of Citibank, any of its affiliates, each Fund, each
Fund's prior, present, or potential shareholders, and the
customers of Citibank or any of its affiliates that are
exchanged or received by CFBDS pursuant to the performance of
CFBDS' duties under this Agreement shall remain confidential
and shall not be disclosed to any other person, except as
specifically authorized in writing by the applicable
affiliate, Citibank, or Fund or as may be required by law, and
shall not be used for any purposes other than the performance
of CFBDS' responsibilities and duties hereunder. The
provisions of this Section 6(a) shall survive this Agreement's
termination.
(b) All books, records, information and data that are the property
of CFBDS, which are not included in Section 6(a) above, and
which were received by Citibank or any of its affiliates
pursuant to CFBDS' performance of this Agreement, shall be
treated as confidential and shall not be disclosed to any
other person, except as specifically authorized in writing by
CFBDS, as may be required by law or as may be reasonably
necessary in connection with the conversion to a different
party upon termination of this Agreement. The provisions of
this Section 6(b) shall survive termination of this Agreement.
7. Service to Other Companies or Accounts: Limitation on Other
Activities. During the term of this Agreement, CFBDS shall not conduct any
business activities other than as contemplated by (i) this Agreement; (ii) any
Distribution Agreement between CFBDS and a Trust; (iii) any distribution
contract between CFBDS and any other investment company advised or administered
by a subsidiary of Citigroup Inc.; or (iv) any agreement between CFBDS and a
subsidiary of Citigroup Inc. Citibank acknowledges that the persons employed by
CFBDS to assist in the performance of CFBDS' duties under this Agreement may not
devote their full time to such service and nothing contained in this Agreement
shall be deemed to limit or restrict the right of any employee or affiliate of
CFBDS to engage in and devote time and attention to other business or to render
services of whatever kind or nature, provided such other activities do not
adversely affect CFBDS' performance hereunder, and that in conducting such
business or rending such services CFBDS' employees and affiliates would take
reasonable steps to assure that the other parties involved are put on notice as
to the legal entity with which they are dealing.
8. Books and Records; Audits; Reports. Citibank shall have the right at
any time to have representatives of its auditors and/or legal counsel, and/or
auditors and legal counsel of any of the Funds, and/or employees of any
affiliate to: (a) obtain full and complete access to any of CFBDS' books and
records relating to its services and duties required under this Agreement,
including, but not limited to, correspondence, contracts, agreements, bank
transaction documents and records of any type, receipts, ledgers, and any other
books of account ("Books and Records") and obtain a reasonable number of copies
of any such Books and Records; and (b) perform on-site audits at any of CFBDS'
system of internal controls with respect to its services and duties required
under this Agreement.
9. Change in Control. To the extent possible, CFBDS shall promptly
provide Citibank prior written notice of any change in "control" (as such term
is defined in the 1940 Act) of CFBDS.
10. Use of Name. Except as required by law, CFBDS shall not use the
name Citibank or Citicorp or Citigroup in any manner without Citibank's prior
written consent in any marketing or promotional materials for CFBDS. This
section 10 shall survive termination of this Agreement.
11. Insurance. CFBDS shall, during the term of this Agreement, maintain
directors/officers errors and omissions insurance coverage in the amount of $5
million.
12. Miscellaneous.
(a) Any notice or other written instrument authorized or required
by this Agreement to be given in writing to Citibank or CFBDS
shall be sufficiently given if addressed to the party and
received by it at its office set forth below or at such other
place as it may from time to time designate in writing.
To Citibank:
Citibank, N.A.
425 Park Avenue
22nd Floor
New York, NY 10022
Attn: Andrew Shoup
To CFBDS:
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Attn: Philip Coolidge
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable
without the written consent of the other party.
(c) This Agreement shall be construed in accordance with the laws
of the State of New York, without giving effect to its
conflict of laws principles.
(d) This Agreement may be executed in counterparts, each of which
shall be an original and which collectively shall be deemed to
constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
(f) The parties hereto acknowledge that in performing its services
and duties under this Agreement, each of Citibank and CFBDS
shall do so in the capacity of an independent contractor.
13. Termination. This Agreement may be terminated by Citibank at any
time, in its entirety or as to one or more Funds, with or without cause. This
Agreement may be terminated by CFBDS, in its entirety or as to one or more
Funds, with or without cause, provided that CFBDS has notified Citibank of such
termination in writing at least 90 days prior to the effective date thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CFBDS, INC. CITIBANK, N.A.
By: Philip Coolidge By: Andrew B. Shoup
--------------- ---------------
Title: C.E.O. Title: Vice President
--------------- ---------------
<PAGE>
SCHEDULE A
CitiFundsTrust I
CitiSelect(R) Folio 200
CitiSelect(R) Folio 300
CitiSelect(R) Folio 400
CitiSelect(R) Folio 500
CitiFunds Trust II
CitiFunds Large Cap Growth Portfolio
CitiFunds Small Cap Growth Portfolio
CitiFunds Small Cap Value Portfolio
CitiFunds Growth & Income Portfolio
CitiFunds Fixed Income Trust
CitiFunds Intermediate Income Portfolio
CitiFunds International Trust
CitiFunds International Growth & Income Portfolio
CitiFunds Tax Free Income Trust
CitiFunds New York Tax Free Income Portfolio
CitiFunds National Tax Free Income Portfolio
CitiFunds California Tax Free Income Portfolio
CitiFunds Institutional Trust
CitiFunds Institutional Cash Reserves
The Premium Portfolios
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Growth & Income Portfolio
U.S. Fixed Income Portfolio
High Yield Portfolio
Asset Allocation Portfolios
International Portfolio
Large Cap Value Portfolio
Intermediate Income Portfolio
Foreign Bond Portfolio
Short-Term Portfolio
Small Cap Value Portfolio
Variable Annuity Portfolios
CitiSelect(R) VIP Folio 200
CitiSelect(R) VIP Folio 300
CitiSelect(R) VIP Folio 400
CitiSelect(R) VIP Folio 500
CitiFunds Small Cap Growth VIP Portfolio
<PAGE>
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
August 1, 1999
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Re: CitiFundsSM Balanced Portfolio - Services Agreement
Ladies and Gentlemen:
This letter serves as notice that CitiFunds Balanced Portfolio is
hereby added to the list of series of CitiFunds Trust I to which CFBDS, Inc.
("CFBDS") renders services as sub-administrator pursuant to the terms of the
Services Agreement dated as of January 4, 1999 (the "Agreement") between
Citibank, N.A. and CFBDS.
Please sign below to acknowledge your receipt of this notice adding
CitiFunds Balanced Portfolio as a beneficiary under the Agreement.
CITIBANK, N.A.
By: Camille B. Meade
----------------
Title: Vice President
----------------
Acknowledgment:
CFBDS, INC.
By: Philip Coolidge
---------------
Title: CEO
---------------
<PAGE>
Exhibit p(2)
THE PREMIUM PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, Susan
Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T. Gibson, and
each of them, with full powers of substitution as his true and lawful attorneys
and agents to execute in his name and on his behalf in any and all capacities
the Registration Statements on Form N-1A, and any and all amendments thereto,
filed by The Premium Portfolios (on behalf of each of its series now existing or
hereinafter created) (the "Registrant") with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, the
Registration Statements on Form N-1A, and any and all amendments thereto, to be
executed by the Registrant and filed by another registrant with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended, or
under the Securities Act of 1933, as amended, and any and all other instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Registrant to comply with the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the 28th day
of December, 1999.
Linwood C. Downs
- -----------------------------
Linwood C. Downs
<PAGE>
Exhibit p(3)
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints John R. Elder, Susan Jakuboski,
Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by Asset Allocation Portfolios (on behalf of each of its series now or
hereinafter created) (the "Registrant") with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, the
Registration Statements on Form N-1A, and any and all amendments thereto, to be
executed by the Registrant and filed by another registrant with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
or under the Securities Act of 1933, as amended, and any and all other
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Registrant to comply with the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day of
August, 1998.
Philip W. Coolidge
- ------------------------
Philip W. Coolidge
At Paget, Bermuda
<PAGE>
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T.
Gibson, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Asset Allocation Portfolios (on behalf of each of
its series now or hereinafter created) (the "Registrant") with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
the Registration Statements on Form N-1A, and any and all amendments thereto,
to be executed by the Registrant and filed by another registrant with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, or under the Securities Act of 1933, as amended, and any and all other
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Registrant to comply with the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day of
August, 1998.
C. Oscar Morong, Jr.
- ------------------------
C. Oscar Morong, Jr.
At Paget, Bermuda
<PAGE>
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T.
Gibson, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Asset Allocation Portfolios (on behalf of each of
its series now or hereinafter created) (the "Registrant") with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
the Registration Statements on Form N-1A, and any and all amendments thereto,
to be executed by the Registrant and filed by another registrant with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, or under the Securities Act of 1933, as amended, and any and all other
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Registrant to comply with the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day of
August, 1998.
Elliott J. Berv
- ------------------------
Elliott J. Berv
At Paget, Bermuda
<PAGE>
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T.
Gibson, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Asset Allocation Portfolios (on behalf of each of
its series now or hereinafter created) (the "Registrant") with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
the Registration Statements on Form N-1A, and any and all amendments thereto,
to be executed by the Registrant and filed by another registrant with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, or under the Securities Act of 1933, as amended, and any and all other
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Registrant to comply with the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day of
August, 1998.
Mark T. Finn
- ------------------------
Mark T. Finn
At Paget, Bermuda
<PAGE>
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T.
Gibson, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Asset Allocation Portfolios (on behalf of each of
its series now or hereinafter created) (the "Registrant") with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
the Registration Statements on Form N-1A, and any and all amendments thereto,
to be executed by the Registrant and filed by another registrant with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, or under the Securities Act of 1933, as amended, and any and all other
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Registrant to comply with the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day of
August, 1998.
Walter E. Robb, III
- ------------------------
Walter E. Robb, III
At Paget, Bermuda
<PAGE>
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T.
Gibson, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, filed by Asset Allocation Portfolios (on behalf of each of
its series now or hereinafter created) (the "Registrant") with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
the Registration Statements on Form N-1A, and any and all amendments thereto,
to be executed by the Registrant and filed by another registrant with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended, or under the Securities Act of 1933, as amended, and any and all other
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Registrant to comply with the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the 1st day
of September, 1998.
E. Kirby Warren
- ------------------------
E. Kirby Warren
At Hamilton, Bermuda
<PAGE>
ASSET ALLOCATION PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, Susan
Jakuboski, Tamie Ebanks-Cunningham, Molly S. Mugler and Linda T. Gibson, and
each of them, with full powers of substitution as his true and lawful attorneys
and agents to execute in his name and on his behalf in any and all capacities
the Registration Statements on Form N-1A, and any and all amendments thereto,
filed by Asset Allocation Portfolios (on behalf of each of its series now
existing or hereinafter created) (the "Registrant") with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, the
Registration Statements on Form N-1A, and any and all amendments thereto, to be
executed by the Registrant and filed by another registrant with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended, or
under the Securities Act of 1933, as amended, and any and all other instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Registrant to comply with the Investment Company Act of 1940, as
amended, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the 28th day
of December, 1999.
Linwood C. Downs
- -------------------------------
Linwood C. Downs
