As filed with the Securities and Exchange Commission on February 12, 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. 31
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 32
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 75th day
after the date of filing hereof pursuant to paragraph (a)(2) of Rule 485.
_______________________________________________________________________________
* This filing relates solely to shares of the Trust's series designated
CitiSelect Folio 100.
<PAGE>
Prospectus
CITISELECT(R) PORTFOLIOS
A Family of Asset Allocation Mutual Funds Managed By
Citibank, N.A.
CITISELECT(R) FOLIO 100
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has
not approved or disapproved these securities or
passed upon the accuracy of this prospectus,
and any representation to the contrary is a
criminal offense.
[ ] 1999
<PAGE>
CITISELECT PORTFOLIOS
TABLE OF CONTENTS
Fund at a Glance
Your CitiSelect Account
Choosing a Share Class
How to Buy Shares
How the Price of Your Shares is Calculated
How to Sell Shares
Reinstating Recently Sold Shares
Exchanges Dividends Tax Matters
Management of the Fund
Manager
Management Fees
More About the Fund
Principal Investment Strategies
Risks
Appendix
<PAGE>
FUND AT A GLANCE
The diversified mutual fund described in this prospectus is an asset allocation
fund. The Fund invests in a carefully selected mix of equity and fixed income
securities
THIS SUMMARY BRIEFLY DESCRIBES THE FUND AND THE PRINCIPAL RISKS OF INVESTING.
PLEASE NOTE THAT THE FUND INVESTS IN SECURITIES THROUGH SEVERAL UNDERLYING
MUTUAL FUNDS. FOR MORE INFORMATION, SEE "MORE ABOUT THE FUNDS" ON PAGE ___.
FUND GOALS
CITISELECT FOLIO 100
This Fund's goal is to provide as high a level of current income as is
consistent with a dominant emphasis on fixed income securities and a small
allocation to equity securities. Of course, there is no assurance that the Fund
will achieve its goal.
MAIN INVESTMENT STRATEGIES
The Fund's equity securities may include common stocks, preferred stocks,
securities convertible into common stocks, warrants and 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). The Fund's fixed
income securities include bonds, short-term notes, mortgage-backed and
asset-backed securities, certificates of deposit and repurchase agreements.
Citibank generally allocates the Fund's assets as provided in this chart, but
cash flows into or out of the Fund, or market fluctuations, could produce
different results. Citibank monitors the Fund's asset mix daily and conducts
quarterly reviews to determine whether to rebalance the Fund's investments.
Rebalancing may be accomplished over a period of time, subject to any
regulatory restrictions.
-------------------------------
ASSET CLASS RANGE *
- ----------------------- ------------- -----------------
FIXED
EQUITY INCOME
- ----------------------- ------------- -----------------
CITISELECT
FOLIO 100 0-20% 80-100%
- ----------------------- ------------- -----------------
*Each asset class includes other types of investments which are described
in this prospectus and which are deemed related to the management of that
asset class. Equity and fixed income ranges include investment positions
that seek equivalent asset class exposure. When money market instruments
are used in connection with these positions they will be counted towards
the assets of the applicable asset class.
Citibank may further allocate assets within the equity and fixed income asset
classes seeking to minimize risk and volatility and to maximize returns.
o Equity securities may be allocated among:
o large cap growth securities
o large cap value securities
o small cap growth securities
<PAGE>
o small cap value securities, and
o international securities.
o Fixed income securities may be allocated among
o U.S. fixed income--government and corporate bonds and short-term
debt
o foreign government bonds and
o high yield (so-called "junk bonds") bonds.
Citibank is not required to allocate the Fund's assets among all of these types
of equity and fixed income securities at all times.
Citibank also allocates assets among different subadvisers who specialize in
managing particular kinds of securities or managing in a particular style.
This may help the Fund benefit from different investment cycles, such as
periods when equities with different characteristics (i.e., growth or value)
perform differently. Citibank monitors and supervises all of the Fund's
subadvisers and may terminate the services of any subadviser at any time.
The Fund may use derivatives in order to protect (or "hedge") against changes
in interest rates or the prices of securities held or to be bought. The Fund
may also use derivatives for non-hedging purposes, to enhance potential gains
or generate income. In addition, the Fund may use derivatives to manage the
maturity or duration of fixed income securities. These derivatives include
futures, options and forward foreign currency exchange contracts. The Fund's
use of derivatives may involve leveraging. Under leveraging, a relatively small
investment may produce substantial losses or gains for the Fund, well beyond
the Fund's initial investment.
The Fund may use other investment techniques, such as short sales, which also
may entail leveraging, in that the Fund's losses from short sales may be
unlimited.
MAIN RISKS
Like all mutual funds, you may lose money if you invest in this Fund. The
principal risks of investing in CitiSelect Folio 100 are described below.
Please remember that the risks of investing in the Fund depend on the
securities it holds and the investment strategies it uses. For example, if the
Fund invests more of its assets in fixed income securities, it may be more
susceptible to interest rate risk and credit risk than if the Fund invested
more of its assets in equity securities. Conversely, if the Fund invested more
of its assets in equity securities, it may be susceptible to greater price
volatility than if the Fund invested more of its assets in fixed income
securities. See page ___ for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation. The value of the Fund's
shares will change daily as the value of its underlying securities
change. This means that your shares 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.
<PAGE>
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. The prices of lower rated securities often are
more volatile than those of higher rated securities, and there may be
more difficulty in selling lower rated securities in the market.
These risks are more pronounced with so-called "junk bonds" which are
debt obligations that are rated below investment-grade.
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 securities, causing the Fund's share prices to be
volatile. Also, in certain circumstances, the Fund could realize
reduced or no value in U.S. dollars from their 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.
o SMALLER COMPANIES. The securities of smaller capitalized companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns and their
prices may be more volatile, causing the Fund's share price to be
volatile.
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 a Fund's share price more volatile. Mortgage-backed
securities are particularly susceptible to prepayment risk and their
prices may be very volatile.
o SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted into
stock, are subject to the market risk of stocks, and, like other debt
securities, are also subject to interest rate risk and the credit
risk of their issuers.
<PAGE>
o DERIVATIVES. The Fund's use of derivatives (such as options, futures
contracts and forward foreign currency contracts), particularly for
non-hedging purposes, may be risky. This practice could result in
losses that are not offset by gains on other portfolio assets. Losses
would cause the Fund's share price to go down. The Fund's ability to
use derivatives successfully depends on the ability of the Fund's
portfolio managers to accurately predict movements in stock prices,
interest rates, currency exchange rates or other economic factors. If
these predictions are wrong, the Fund could suffer greater losses
than if the Fund had not used derivatives. Some of the Fund's use of
derivatives may involve leveraging. Leveraging adds increased risks
to a 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.
Please note that an investment in the Fund is not a deposit of Citibank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in CitiSelect Folio 100 is not a
complete investment program.
You should consider investing in CitiSelect Folio 100 if your investment
horizon is intermediate to long term - typically at least three years -and you
are seeking to reduce the risks of investing in a single asset or type of
asset, and to cushion the volatility of financial markets by investing in a
diversified portfolio of several types of assets. The Fund offers a convenient
way to own a portfolio tailored to a specific investment goal.
CITISELECT FOLIO 100 is designed for investors seeking current income and the
relatively lower risk provided by substantial investments in fixed income
securities.
Don't invest in CITISELECT FOLIO 100 if you are not prepared to accept daily
share price fluctuations.
<PAGE>
FUND PERFORMANCE
The Fund is newly offered and does not have any investment returns at the date
of this prospectus.
FUND FEES AND EXPENSES
THIS TABLE DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.
CITISELECT FOLIO 100 CLASS A CLASS B
Class descriptions begin on page [---]
SHAREHOLDER FEES (fees paid directly
from your investment)
Maximum Sales Charge (Load) Imposed on Purchases 4.50% None
Maximum Deferred Sales Charge (Load) None(1) 4.50%(2)
ANNUAL FUND OPERATING EXPENSES (expenses
that are deducted from Fund assets)(3):
Management Fees 0.50% 0.50%
Distribution (12b-1) Fees 0.50% 0.75%
Other Expenses (administrative, shareholder
servicing and other expenses)(4): 0.25% 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.25% 1.50%
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 4.50% 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 multiple underlying mutual funds. This table reflects the
expenses of the Fund and the underlying funds in which it invests.
4 "Other Expenses" is based on estimated amounts for the current fiscal year.
If "Other Expenses" were to exceed this amount, Citibank has agreed to waive
its Management Fee to the extent necessary to keep Total Annual Fund Operating
Expenses for Class A shares from exceeding 1.25% and for Class B shares from
exceeding 1.50%. However, these fee waivers are voluntary and may be terminated
at any time.
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 examples assume that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you own
Class A shares.
<PAGE>
If you own Class B shares, two numbers are given, one showing your expenses if
you sold all your shares at the end of each time period and one if you held
onto your shares.
The examples also assume that:
o each investment has a 5% return each year -- the assumption of a 5% return
is required by the SEC for the purpose of these examples and is not a
prediction of any Fund's future performance; and
o the Fund's operating expenses shown in the Fund Fees and Expenses Table
remain the same before taking into consideration any fee waivers or
reimbursements.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- ---------------------------------- ------------ --------------
1 YEAR 3 YEARS
- ---------------------------------- ------------ --------------
CITISELECT FOLIO 100
Class A $572 $829
Class B
Assuming sale at end of
period
$628 $851
Assuming no sale
$178 $551
- ---------------------------------- ------------ --------------
<PAGE>
YOUR CITISELECT 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: CLASS B AT A GLANCE:
o Front-end load--there is an initial o No initial sales charge
sales charge of 4.50% or less
o Lower sales charge rates for larger o The deferred sales charge
investments declines from 4.50% to 1% over
five years, and is eliminated
if you hold your shares for
six years or more
o Annual distribution/service fee of o Annual distribution/service
up to 0.50% fee of up to 0.75%
o Lower annual expenses than Class B o Automatic conversion to Class A
shares shares after 8 years
_______________________________________________________________________________
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/SERVICE FEES that are
paid under a 12B-1 plan. These are fees, also called 12B-1 FEES, that are
deducted from Fund assets and are used to compensate those financial
professionals who sell fund shares and provide ongoing services to shareholders
and to pay other marketing and advertising expenses. Because you pay these fees
during the whole period that you own the shares, over time, you may pay more
than if you had paid other types of sales charges. For this reason, you should
consider the effects of 12b-1 fees as well as sales loads when choosing a share
class.
_______________________________________________________________________________
SALES CHARGES--CLASS A SHARES
o Class A shares are sold at net asset value plus a front-end, or
initial, sales charge. The rate you pay goes down as the amount of
your investment in Class A shares goes up. The tables below show the
rate of sales charge that you pay, depending on the amount that you
purchase.
o The tables below also show 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 0.50% of the
average daily net assets represented by the Class A shares sold by
them.
<PAGE>
_______________________________________________________________________________
CITISELECT FOLIO 100
_______________________________________________________________________________
SALES CHARGE SALES CHARGE BROKER/DEALER
AS A % OF AS A % OF COMMISSION AS A
AMOUNT OF OFFERING PRICE YOUR % OF OFFERING
YOUR INVESTMENT INVESTMENT PRICE
_______________________________________________________________________________
Less than $25,000 4.50% 4.71% 4.05%
_______________________________________________________________________________
$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 2.50% 2.56% 2.25%
_______________________________________________________________________________
$250,000 to less than $500,000 1.50% 1.52% 1.35%
_______________________________________________________________________________
$500,000 or more none* none* up to 1.00%
_______________________________________________________________________________
*A contingent deferred sales charge may apply in certain instances. See
below.
o After the initial sales charge is deducted from your investment, the
balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain circumstances,
as described in "Sales Charge Waivers or Reductions" below. If you qualify
to purchase Class A shares without a sales load, you should purchase Class
A shares rather than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any initial
sales charge. However, you may be charged a contingent deferred sales
charge (CDSC) of 1% of the purchase price, or the sale price, whichever is
less, if you sell within the first year. Under certain circumstances,
waivers may apply. Other policies regarding the application of the CDSC
are the same as for Class B shares. Please read the discussion below on
Class B shares for more information.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales charge, but
you are charged a contingent deferred sales charge (CDSC) when you sell
shares within five years of purchase. The rate of CDSC goes down the
longer you hold your shares. The tables below show 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.
_______________________________________________________________________________
CITISELECT FOLIO 100
_______________________________________________________________________________
SALE DURING CDSC ON SHARES BEING SOLD
_______________________________________________________________________________
1st year since purchase 4.50%
_______________________________________________________________________________
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 None
purchase
_______________________________________________________________________________
o Financial professionals selling Class B shares receive a commission based
upon the purchase price of the Class B shares that they sell, except for
sales exempt from the CDSC. The commission is 4.00% of the purchase price.
<PAGE>
Financial professionals also receive a service fee at an annual rate equal
to 0.25% of the average daily net assets represented by the Class B shares
that they have sold.
o When you sell your shares, the CDSC will be based on either your original
purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends, capital gain distributions and shares representing capital
appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will always use
the Class B shares with the lowest CDSC to fill your sell requests.
o You do not pay a CDSC at the time you exchange your Class B shares for
Class B shares of certain CitiFunds (any payment will be deferred until
your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from another Fund
or from another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC calculations. If
the rate of CDSC on the shares exchanged was higher than the rate of CDSC
on your Fund shares, you will be charged the higher rate when you sell
your Fund shares.
From time to time, the Fund's distributor or Citibank may provide additional
promotional bonuses, incentives or payments to dealers that sell shares of the
Fund. These may include payments for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and their guests to locations within and outside the United States for meetings
or seminars of a business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all classes of
shares.
The Fund's distributor may make payments for distribution and/or shareholder
servicing activities out of its past profits and other available sources. The
distributor may also make payments for marketing, promotional or related
expenses to dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments under similar
arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you qualify for
certain waivers or elect to participate in certain programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers, including
certain tax-exempt organizations, certain employee benefit plans,
certain entities or persons with a qualifying affiliation or
relationship with Citibank, and, under certain circumstances,
investors using the proceeds of a redemption from another mutual fund
for their purchase of Class A shares. Further information about
eligible purchasers may be found in the Appendix to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
<PAGE>
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 CitiSelect Folio 100 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 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 a Fund. If you are purchasing Class A shares,
the applicable sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for Fund shares until
it receives the purchase price in federal or other immediately available funds.
If you pay by check, the Service Agent transmits the order when the check
clears, usually within two business days.
If you are a customer of a Service Agent, your Service Agent will establish and
maintain your account and be the shareholder of record. If you wish to transfer
your account, you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly with the Fund's
transfer agent.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock Exchange is open for
trading. This calculation is made at the close of regular trading on the New
<PAGE>
York Stock Exchange, normally 4:00 p.m. Eastern time. NAV is calculated
separately for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the financial markets
in which the Fund invests close early, NAV will be calculated as of the close
of those markets.
The Fund's securities are valued primarily on the basis of market quotations.
When market quotations are not readily available, the Fund may price securities
at fair value. Fair value is determined in accordance with procedures approved
by the Fund's Board of Trustees. When the Fund uses the fair value pricing
method, a security may be priced higher or lower than if the Fund had used a
market quotation to price the same security. For foreign securities the values
are translated from the local currency into U.S. dollars using current exchange
rates. If trading in the currency is restricted, the Fund uses a rate believed
to reflect the currency's fair value in U.S. dollars. Trading may take place in
foreign securities held by the Fund on days when the Fund is not open for
business. As a result, the Fund's NAV may change on days on which it is not
possible to purchase or sell shares of the Fund.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The price will be the
NAV the next time it is calculated after your redemption request in proper form
has been received by the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale proceeds.
You may make redemption requests in writing through the Fund's transfer agent
or, if you are a customer of a Service Agent, through your Service Agent. If
your account application permits, you may also make redemption requests by
calling the Fund's transfer agent or, if you are a customer of a Service Agent,
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 that your redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to automatically
withdraw a specific dollar amount from your account on a regular basis. You
must have at least $10,000 in your account to participate in this program. If
your shares are subject to a CDSC, you may only withdraw up to 10% of the value
of your account in any year, but you will not be subject to the CDSC on the
shares withdrawn under the Plan. For more information, please contact your
Service Agent.
If you own both Class A and Class B shares, and want to sell shares, you should
specify which class of shares you wish to sell. If you fail to specify, Class
A shares will be redeemed first.
When you sell your Class B shares, they will be redeemed so as to minimize your
CDSC. Shares on which the CDSC is not payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
<PAGE>
You will receive your redemption proceeds in federal funds normally on the
business day after you sell your shares but generally within seven days. Your
redemption proceeds may be delayed for up to ten days if your purchase was made
by check. Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock Exchange is closed
(other than on weekends or holidays) or trading is restricted, or if an
emergency exists. The Fund has the right to pay your redemption proceeds by
giving you securities instead of cash. In that case, you may incur costs (such
as brokerage commissions) converting the securities into cash. You should be
aware that you may have to pay taxes on your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund permits you to
repurchase Class A shares in the Fund, up to the dollar amount of shares
redeemed, without paying any sales charges. To take advantage of this
reinstatement privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of certain 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 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 generally will 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.
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 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
The Fund pays substantially all of its net income (if any) from dividends and
interest to its shareholders of record monthly.
The Fund's net realized short-term and long-term capital gains, if any, will be
distributed to the Fund's shareholders at least annually, in December. The Fund
may also make additional distributions to shareholders to the extent necessary
to avoid the application of the 4% non-deductible excise tax on certain
undistributed income and net capital gains of mutual funds.
<PAGE>
Unless you choose to receive your dividends in cash, you will receive them as
full and fractional additional shares of the applicable class. There is no
sales charge on these 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.
Shareholders are required to pay federal income tax on any dividends or other
distributions received, whether it is in cash or Fund shares. Generally,
distributions from a Fund's net investment income and short-term capital gains
will be taxed as ordinary income. A portion of distributions from net
investment income may be eligible for the dividends-received deduction
available to corporations. Distributions from long-term net capital gains will,
for tax purposes, be treated as long-term capital gains no matter how long you
have held the shares of the Fund. The tax you pay on a given distribution
generally depends on how long the Fund has held the portfolio securities it
sold, and not on how long you have held your Fund shares.
Fund distributions will reduce the Fund's net asset value per share. As a
result, shareholders who buy shares just before the Fund makes a distribution
may pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
If you sell your shares of the Fund, or exchange them for shares of another
mutual fund, you generally will be subject to tax on any taxable gain. Your
taxable gain is computed by subtracting your tax basis in the shares from the
redemption proceeds (in the case of a sale) or the value of the shares received
(in the case of an exchange).
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided complete, correct taxpayer information.
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 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 jurisdictions.
MANAGEMENT OF THE FUNDS
MANAGER
The CitiSelect Portfolios draw on the strength and experience of Citibank.
Citibank is the investment manager of the Fund, and subject to policies set by
the Fund's Trustees, Citibank makes investment decisions. Citibank, with
headquarters at 153 East 53rd Street, New York, New York, has been managing
money since 1822. With its affiliates, it currently manages more than $290
billion in assets worldwide. Citibank is a wholly-owned subsidiary of Citicorp,
which is, in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc.
was formed as a result of the merger of Citicorp and Travelers Group, Inc.,
which was completed on October 8, 1998. "CitiSelect" is a registered trademark
of Citicorp.
<PAGE>
Citibank and its affiliates may have banking and investment banking
relationships with the issuers of securities that are held in the Funds.
However, in making investment decisions for the Funds, 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.
Richard Goldman, a Vice President of Citibank, is the overall portfolio manager
of the Fund and is responsible for determining asset allocations, supervising
and monitoring the performance of the Citibank personnel described below who
are responsible for the Fund's securities, and supervising and monitoring the
performance of the subadvisers. Mr. Goldman's investment experience is
discussed below.
The following subadvisers currently manage the following kinds of securities
for the Fund:
SMALL CAP VALUE SECURITIES: Franklin Advisory Services, Inc., One Parker Plaza,
19th Floor, Fort Lee, New Jersey 07024. Franklin Advisory Services is a
registered investment adviser. William J. Lippman, President of Franklin
Advisory Services or its predecessor since 1988, is responsible for the daily
management of the Fund's U.S. small cap value securities.
LARGE CAP VALUE SECURITIES: Mutual Management Corp. (MMC), 388 Greenwich
Street, New York, New York 10013. MMC, an affiliate of Citibank, is a
registered investment adviser. MMC is an indirect wholly-owned subsidiary of
Citigroup Inc. Frances A. Root, a Director of MMC and a Senior Portfolio
Manager, is responsible for the daily management of the Fund's large cap value
securities. She joined Smith Barney Capital Management in 1992. 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.
INTERNATIONAL EQUITY SECURITIES: Hotchkis and Wiley, 725 South Figueroa Street,
Suite 4000, Los Angeles, California 90017-5400. Hotchkis and Wiley is a
division of Merrill Lynch Asset Management, L.P., a registered investment
adviser. Harry W. Hartford and Sarah H. Ketterer are responsible for the daily
management of the Fund's international equity securities. Prior to joining
Hotchkis and Wiley in 1994, Mr. Hartford was with The Investment Bank of
Ireland (now Bank of Ireland Asset Management), as a Senior Manager, where he
gained 10 years of experience in both international and global equity
management. Prior to joining Hotchkis and Wiley in 1990, Ms. Ketterer was an
associate with Bankers Trust and an analyst at Dean Witter.
HIGH YIELD BOND: Salomon Brothers Asset Management Inc (SBAM Inc), 7 World
Trade Center, New York, New York 10048. SBAM Inc, an affiliate of Citibank, is
a registered investment adviser. SBAM Inc is an indirect wholly-owned
subsidiary of Citigroup Inc. Beth A. Semmel, a Managing Director of SBAM Inc
and a member of its Investment Policy Committee, is responsible for the daily
management of the Fund's high yield portfolio. Ms. Semmel, who joined SBAM Inc
as a Vice President and Analyst in May 1993, is a Portfolio Manager and Senior
Analyst, and is responsible for SBAM Inc's high yield portfolios, for
evaluating high yield securities and for covering consumer-related industries.
Ms. Semmel was with Morgan Stanley Asset Management as a high yield bond
analyst from 1989 to 1993, and with Kidder Peabody as an equity analyst from
1982 to 1989.
<PAGE>
FOREIGN GOVERNMENT SECURITIES: Salomon Brothers Asset Management Limited
(SBAM), Victoria Plaza, 111 Buckingham Palace Road, London SWIS OSB, U.K. SBAM,
an affiliate of Citibank, is a U.S. registered investment adviser. SBAM is a
limited liability private company that is a wholly-owned indirect subsidiary of
Citigroup Inc. David Scott, a Director and Head of Global Fixed Income of
SBAM, is responsible for the management of the Fund's foreign government
securities. Mr. Scott joined SBAM in April 1994. Prior to that, Mr. Scott
worked for four years at JP Morgan Investment Management where he had
responsibility for global and non-dollar portfolios; and prior to that, for
Mercury Asset Management.
Citibank is responsible for recommending the hiring, termination or replacement
of any subadviser and for supervising and monitoring the performance of any
subadviser. Certain of the Fund's underlying mutual funds have applied for
exemptive relief from the Securities and Exchange Commission which would permit
those funds to employ other or additional subadvisers without shareholder
approval. The requested exemptive relief also would permit the terms of
existing sub-advisory agreements to be changed and the employment of existing
subadvisers to be continued after events that would otherwise cause an
automatic termination of a subadvisory agreement, in each case without
shareholder approval if those changes or continuation are approved by the
underlying funds' Board of Trustees. There is no assurance that the SEC will
grant the requested relief. This Prospectus will be revised and shareholders
notified if a subadviser is changed or added.
The following individuals at Citibank are responsible for the management of all
other Fund investments:
LARGE CAP GROWTH SECURITIES: Grant D. Hobson and Richard Goldman, Vice
Presidents, are responsible for the daily management of large cap growth
securities. Mr. Hobson is a Senior Portfolio Manager responsible for managing
U.S. equity portfolios for trust and pension accounts of Citibank Global Asset
Management and currently manages, or co-manages, more than $4 billion of total
assets at Citibank. Prior to joining Citibank in 1993, Mr. Hobson was a
securities analyst and sector manager for pension accounts and mutual funds for
Axe Houghton, formerly a division of USF&G. Mr. Goldman is a Senior Investment
Officer and lead portfolio manager for the Focused Growth Large Cap Funds. He
joined Citibank in 1985 as an assistant portfolio manager, working on
quantitative portfolio strategies. Within the investment unit, he has had
responsibilities in both product development and portfolio management, and he
spent several years working for the firm's senior management where his
responsibilities included Citicorp's relationships with its investors and
rating agencies. He currently manages, or co-manages, approximately $6 billion
of total assets at Citibank.
SMALL CAP GROWTH SECURITIES: Marguerite Wagner, Vice President and Senior
Portfolio Manager, is responsible for the daily management of the Fund's small
cap growth securities. Ms. Wagner joined Citibank in 1985. Since 1995, she has
had portfolio management and research analyst responsibility for an internal
mid-cap common trust fund and private equity managed accounts. From 1992
through the end of 1994, Ms. Wagner was a member of the small capitalization
equity management group of Citibank Global Asset Management. Prior to 1992, she
managed portfolios for the Private Banking Group of Citibank.
DOMESTIC FIXED INCOME SECURITIES: Mark Lindbloom, Vice President, is
responsible for the daily management of domestic fixed income securities, and
has been a portfolio manager for fixed income securities since joining Citibank
in 1986. 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.
MANAGEMENT FEES
For the services Citibank and the subadvisers provide under management
agreements for the Fund and its underlying mutual funds Citibank and the
subadvisers receive a total of 0.50% of the Fund's average daily net assets.
<PAGE>
MORE ABOUT THE FUNDS
The Fund's goals, principal investments and risks are summarized in FUND AT A
GLANCE. More information on investments, investment strategies and risks
appears below.
PRINCIPAL INVESTMENT STRATEGIES
The Fund's principal investment strategies are the strategies that, in the
opinion of Citibank, are most likely to achieve the Fund's investment goal. Of
course, there can be no assurance that any Fund will achieve its goal. Please
note that the Fund may also use strategies and invest in securities that are
not described below but that are described in the Statement of Additional
Information. Of course, the Fund's portfolio managers may decide, as a matter
of investment strategy, not to use the investments and investment techniques
described below and in the Statement of Additional Information at any
particular time. The Fund's goal and strategies may be changed without
shareholder approval.
The Fund is a diversified asset allocation mutual fund that invests in a mix of
equity and fixed income securities. In making asset allocations, Citibank
studies the long term performance and valuation relationships among these two
types of securities and the effects of market and economic variables on those
relationships. The Fund's asset mix is determined by Citibank to be an optimal
combination of stocks and bonds that maximizes potential returns for the level
of risk associated with the Fund's investment goal. Of course, there can be no
assurance that the Fund will perform as intended.
Citibank generally allocates the Fund's assets among equity and fixed income
securities (each referred to as an asset class) as provided in the following
chart. However, cash flows into or out of the Fund, or changes in market
valuations, could produce different results. Citibank monitors the Fund's asset
mix daily and conducts quarterly reviews to determine whether to rebalance the
Fund's investments. Rebalancing may be accomplished over a period of time,
subject to any regulatory restrictions.
_____________________________________
ASSET CLASS RANGE *
_____________________________________
FIXED
EQUITY INCOME
_____________________________________________________________
CITISELECT
FOLIO 100 0-20% 80-100%
_____________________________________________________________
*Each asset class includes other types of investments which are described
in this prospectus and which are deemed related to the management of that
asset class. Equity and fixed income ranges include investment positions
that seek equivalent asset class exposure. When money market instruments
are used in connection with these positions they will be counted towards
the assets of the applicable asset class.
Citibank may further allocate the Fund's equity securities among large cap
securities, small cap securities and international securities, and the Fund's
fixed income securities among U.S. and foreign government and corporate bonds
and between high yield securities and investment grade securities. These
further allocations are intended to maximize returns while managing overall
<PAGE>
volatility. Each asset class and the types of securities in that class are
described below. There is no requirement that Citibank allocate the Fund's
assets among all of the foregoing types of equity and fixed income securities
at all times.
MANAGEMENT STYLE. In allocating assets while seeking to maximize returns,
Citibank employs a multi-style, multi-manager strategy. Citibank believes that
there are periods when securities with particular characteristics, or selected
based on a particular investment style, outperform other kinds of securities in
the same asset class. Citibank attempts to blend asset classes and
complementary investment styles through investment cycles.
To implement this strategy, Citibank has recommended that the Fund employ
subadvisers with expertise managing specific types of securities or managing in
a particular style. The following subadvisers currently manage the following
kinds of securities:
_______________________________________________________________________________
small cap value securities Franklin Advisory Services, Inc.
_______________________________________________________________________________
large cap value securities Mutual Management Corporation
_______________________________________________________________________________
international equity securities Hotchkis and Wiley
_______________________________________________________________________________
foreign government securities Salomon Brothers Asset Management Limited
_______________________________________________________________________________
high yield bonds Salomon Brothers Asset Management Inc
_______________________________________________________________________________
Citibank manages all other kinds of securities, including large cap growth,
small cap growth, and domestic fixed income securities. Citibank monitors and
supervises the activities of the subadvisers and may terminate the services of
any subadviser at any time.
THE EQUITY CLASS
The Fund generally diversifies its equity securities among large cap issuers,
small cap issuers and international issuers. CitiSelect Folio 100 currently
emphasizes securities of large cap issuers. The types of equity securities
emphasized may change over time and in different market conditions, and there
is no requirement that the Fund invest in each type of equity security.
LARGE CAP ISSUERS. Large cap issuers are those with market capitalizations
within the top 1,000 stocks of the equity market. In selecting large cap
securities, the Fund emphasizes securities issued by established companies with
stable operating histories.
SMALL CAP ISSUERS. Small cap issuers are those with market capitalizations
below the top 1,000 stocks of the equity market. These stocks may include
stocks in the Russell 2000 Index, which is an index of small cap stocks. Small
cap companies generally have negligible dividend yields and extremely high
levels of volatility. They may offer more profit opportunity during certain
economic conditions than large and medium sized companies, but they also
involve special risks.
INTERNATIONAL ISSUERS. International issuers are those based outside the United
States. The Fund emphasizes securities included in the EAFE Index, which
contains securities of companies located in Europe, Australia and the Far East.
The Fund also may invest in emerging market equity securities. There may be
investment opportunities in overseas markets not present in the U.S., and
market performance in the U.S. and abroad may not be the same or highly
correlated. However, overseas investments, particularly in emerging markets,
involve special risks.
<PAGE>
See "Risks" for more information about the risks associated with investing in
equity securities.
_______________________________________________________________________________
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest (or a right to
acquire an ownership interest) in an issuer, and include COMMON STOCKS,
SECURITIES CONVERTIBLE INTO COMMON STOCKS, PREFERRED STOCKS, WARRANTS for the
purchase of stock and DEPOSITARY RECEIPTS (receipts which represent the right
to receive the securities of non-U.S. issuers deposited in a U.S. or
correspondent bank). While equity securities historically have been more
volatile than fixed income securities, they historically have produced higher
levels of total return. Citibank believes that longer term, investors with
diversified equity portfolios have a higher probability of achieving their
investment goals with lower levels of volatility than those who have not
diversified.
_______________________________________________________________________________
THE FIXED INCOME CLASS
The Fund generally diversifies its fixed income securities among investment
grade corporate debt obligations, securities issued by the U.S. government and
its agencies and instrumentalities, securities issued by foreign governments,
and high yield corporate debt obligations that are below investment grade. The
mix of fixed income securities varies. There is no requirement that the Fund
invest in each type of fixed income security.
The Fund may invest in securities with all maturities, including long bonds
(10+ years), intermediate notes (3 to 10 years) and short-term notes (1 to 3
years).
GOVERNMENT SECURITIES. U.S. government securities are high quality instruments
issued or guaranteed as to principal and interest by the U.S. government or by
an agency or instrumentality of the U.S. government. U.S. government securities
have minimal credit risk. Securities issued or guaranteed as to principal and
interest by foreign governments or agencies or instrumentalities of foreign
governments (which include securities of supranational agencies) also may
provide opportunities for income with minimal credit risk. Even though
government securities have minimal credit risk, they still fluctuate in value
when interest rates change.
INVESTMENT GRADE CORPORATE BONDS. Corporate bonds are used by U.S. and foreign
corporate issuers to borrow money from investors, and may have varying
maturities. Investment grade securities are those rated Baa or better by
Moody's, BBB or better by Standard & Poor's or which Citibank or a subadviser
believes to be of comparable quality. Securities rated Baa or BBB and
securities of comparable quality may have speculative characteristics. Bonds
have varying degrees of quality and varying degrees of sensitivity to changes
in interest rates. For example, the values of lower quality bonds generally
fluctuate more than higher quality bonds. Investment in bonds of U.S. and
foreign corporate issuers may provide higher levels of current income than
government securities.
HIGH YIELD DEBT OBLIGATIONS. High yield debt obligations, also called "junk
bonds," are fixed income securities that are generally rated in the lower
rating categories, if rated, and are considered to be below investment grade.
Some may be rated as low as Caa by Moody's or CCC, by S&P or may be deemed to
be of comparable quality at the time of purchase. These securities often offer
higher yields than higher rated securities. However, these securities also
involve significantly greater risks, including the risk of default and price
<PAGE>
volatility, than higher rated securities. The Fund may purchase both U.S. and
foreign high yield debt obligations, including both dollar-denominated
securities and those denominated in foreign currencies, as well as those from
developing countries. The Fund does not anticipate investing more than 25% of
its assets in high yield debt obligations.
See "Risks" for more information about the risks associated with investing in
fixed income securities.
_______________________________________________________________________________
WHAT ARE FIXED INCOME SECURITIES?
FIXED INCOME SECURITIES generally represent a debt obligation of an
issuer, and include BONDS, SHORT-TERM OBLIGATIONS and MORTGAGE-BACKED and
ASSET-BACKED SECURITIES. 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.
_______________________________________________________________________________
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
cost of securities to be purchased in the future, or to hedge against changes
in interest rates. The Fund may also use derivatives for non-hedging purposes,
to generate income or enhance potential gains. In addition, the Fund may use
derivatives to manage the effective maturity or duration of fixed income
securities. These derivatives include bond or stock index futures, foreign
currency futures, forwards and exchange contracts, options on securities and
foreign currencies, options on interest rate and stock index futures and swaps.
In some cases, the derivatives purchased by the Fund are standardized contracts
traded on commodities exchanges or boards of trade. This means that the
exchange or board of trade guaranties counterparty performance. In other cases,
the derivatives may be illiquid, and the Fund may bear more counterparty risk.
Derivatives may not be available on terms that make economic sense (for
example, they may be too costly). The Fund's ability to use derivatives may
also be limited by tax considerations.
The Fund's use of derivatives may involve leveraging. Under leveraging, a
relatively small investment may produce substantial losses or gains for the
Fund, well beyond the Fund's initial investment.
<PAGE>
_______________________________________________________________________________
WHAT ARE SHORT SALES?
When the Fund's portfolio manager anticipates that the price of a security will
decline, the manager may enter into an agreement to sell the security, even
though the Fund does not own the security. This technique is called SELLING
SHORT. The Fund will then borrow the same security from a broker or other
institution in order to complete the sale. The Fund must later purchase the
security in order to return the security borrowed. If the portfolio manager has
predicted accurately, the price at which the Fund buys the security will be
less than the price at which the Fund earlier sold the security, creating a
profit for the Fund. However, if the price of the security goes up during this
period, the Fund will be forced to buy the security for more than its sale
price, causing a loss to the Fund.
_______________________________________________________________________________
The Fund may use other investment techniques, such as short sales, which also
may entail leveraging. The Fund's short sales are not required to be "against
the box," and therefore, the Fund's losses from short sales may be unlimited.
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 goals.
INVESTMENT STRUCTURE. The Fund does not invest directly in securities. Instead
the Fund invests in multiple Portfolios. Each Portfolio is a mutual fund with
its own investment goals and policies. The Portfolios buy, hold and sell
securities in accordance with these goals and policies. Of course, there can be
no assurance that the Fund or the Portfolios will achieve their goals. Each
Portfolio invests in securities in a particular asset class, in particular
types of securities or in securities of particular maturities or duration.
The Fund may withdraw its investment in any Portfolio at any time, and will do
so if the Fund's Trustees believe it to be in the best interest of the Fund's
shareholders. Each Portfolio may change its investment goals and certain of its
investment policies and restrictions without approval by its investors, but the
Portfolio will notify the Fund and its other investors at least 30 days before
implementing any change in its investment goals. A change in investment goals,
policies or restrictions may cause the Fund to withdraw its investment in a
Portfolio. If the Fund were to withdraw, the Fund could either invest in
another mutual fund or pooled investment vehicle or invest directly in
securities. Upon withdrawal, the Fund could receive securities from a Portfolio
instead of cash, causing the Fund to incur brokerage, tax and other charges or
leaving it with securities which may or may not be readily marketable or widely
diversified.
The Fund bears its share of each Portfolio's fees and expenses. The total fees
of the Fund and the underlying Portfolios are reflected in the fee table in
"Fund at a Glance".
Certain investment restrictions of each Portfolio cannot be changed without
approval by the investors in that Portfolio. Of course, the Fund could be
outvoted, or otherwise adversely affected, by other investors in a Portfolio.
<PAGE>
The Fund is actively managed. Although the portfolio managers attempt to
minimize portfolio turnover, from time to time the Fund's annual portfolio
turnover rate may exceed 100%. The sale of securities may produce capital
gains, which, when distributed, are taxable to investors. Active trading may
also increase the amount of commissions or mark-ups the Fund pays to brokers or
dealers when it buys and sells securities.
Citibank and the subadvisers may use brokers or dealers for Fund transactions
who also provide brokerage and research services to the Fund or other accounts
over which Citibank, the subadvisers 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 Citibank or the subadviser determines in good faith
that the higher commission is reasonable in relation to the brokerage and
research services provided, viewed in terms of either the particular
transaction or all of the accounts over which that adviser exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Certain of these risks are described below. More
information about risks appears in the Fund's Statement of Additional
Information. Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in the Fund.
The risks of investing in the Fund vary depending on the securities it holds
and the investment strategies it uses. For example, if the Fund invests more of
its assets in fixed income securities it may be more susceptible to interest
rate risk and credit risk than if the Fund invests more of its assets in
equity securities. Conversely, if the Fund invests more of its assets in
equity securities it may be more susceptible to greater price volatility than
if the Fund invested more of its assets in fixed income securities. 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. Some issuers may not make payments on debt securities held by the
Fund. 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. A change in the quality
<PAGE>
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, and the prices of these securities may be more volatile.
JUNK BONDS. Credit risk is more pronounced with so-called "junk bonds" which
are debt obligations that are rated below investment-grade. The risk of default
may be greater and the market for these securities may be less active, making
it more difficult to sell the securities at reasonable prices, and also making
valuation of the securities more difficult. The Fund may incur additional
expenses if an issuer defaults and the Fund tries to recover some of its losses
in a bankruptcy or other similar proceeding.
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.
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 a
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.
<PAGE>
o Emerging or developing countries are generally defined as countries
in the initial stages of their industrialization cycles with low per
capita income.
o All of the risks of investing in foreign securities are heightened by
investing in developing countries.
o The markets of developing countries have been more volatile than the
markets of developed countries with more mature economies. These
markets often have provided higher rates of return, and greater
risks, to investors, but they also may provide lower rates of return
or negative returns, for extended periods.
SMALLER COMPANIES. The securities of smaller capitalization companies may have
more risks than those of larger, more seasoned companies. They may be
particularly susceptible to market downturns because of limited financial or
management resources. Also, there may be less publicly available information
about small cap companies. As a result, their prices may be volatile, causing
the Fund's share price to be volatile.
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. In addition, 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 are
particularly susceptible to prepayment risk, and their prices may be very
volatile.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible securities,
which are debt securities that may be converted into stock, are subject to the
market risk of stocks, and, like other debt securities, are also subject to
interest rate risk and the credit risk of their issuers. Call provisions may
allow the issuer to repay the debt before it matures.
DERIVATIVES. The Fund's use of derivatives (such as options, futures contracts
and forward foreign currency contracts), 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. Losses would cause the Fund's share
price to go down. There is also the risk that the counterparty may fail to
honor its contract terms. This risk becomes acute when the Fund invests in
derivatives that are not traded on commodities exchanges or boards of trade.
The Fund's ability to use derivatives successfully depends on its portfolio
managers' ability to accurately predict movements in stock prices, interest
rates, currency exchange rates, or other economic factors. If the portfolio
managers' predictions are wrong, the Fund could suffer greater losses than if
the Fund had not used derivatives. In some instances, the Fund's use of
derivatives may have the effect of leveraging the Fund. 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.
YEAR 2000. The Fund could be adversely affected if the computer systems used by
the Fund or its service providers are not programmed to accurately process
information on or after January 1, 2000. The Fund, and its service providers,
are making efforts to resolve any potential Year 2000 problems. While it is
likely these efforts will be successful, the failure to implement any necessary
modifications could have an adverse impact on the Fund. The Fund also could be
adversely affected if the issuers of securities held by the Fund do not solve
<PAGE>
their Year 2000 problems, or if it costs them large amounts of money to solve
these problems.
<PAGE>
Appendix
CLASS A SHARES - ELIGIBLE PURCHASERS:
Class A shares may be purchased without a sales charge by the following
eligible purchasers:
[ ] tax exempt organizations under Section 501(c)(3-13) of the Internal
Revenue Code
[ ] trust accounts for which Citibank, N.A or any subsidiary or affiliate
of Citibank acts as trustee and exercises discretionary investment
management authority
[ ] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees for
acting as custodian
[ ] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or affiliate
of Citibank serves as the investment adviser or as a service 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 a Fund's Board of Trustees
or by the Board of Trustees of any CitiFund the terms of which
entitle those shareholders to purchase shares of a Fund or any
<PAGE>
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 a Fund or in
any combination of the Funds and CitiFunds must total a minimum of
$1 million
[ ] accounts associated with Copeland Retirement Programs
[ ] investors purchasing $500,000 or more of Class A shares; however, a
contingent deferred sales charge will be imposed on the investments
in the event of certain share redemptions within 12 months following
the share purchase, at the rate of 1% of the lesser of the value of
the shares redeemed (not including reinvested dividends and capital
gains distributions) or the total cost of the shares; the contingent
deferred sales charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class B
shares will be waived; in determining whether a contingent deferred
sales charge on Class A shares is payable, and if so, the amount of
the charge:
+ it is assumed that shares not subject to the contingent deferred
sales charge are the first redeemed followed by other shares
held for the longest period of time
+ all investments made during a calendar month will age one month
on the last day of the month and each subsequent month
+ any applicable contingent deferred sales charge will be deferred
upon an exchange of Class A shares for Class A shares of another
Fund or any 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 Fund or 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
a Fund, and
+ the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds of
the redemption
<PAGE>
The Statement of Additional Information (SAI) provides more details about the
Fund and its policies. The SAI is incorporated by reference into this
prospectus and is legally part of it.
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its portfolio holdings and
describe its performance.
To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call toll-free 1-800-625-4554.
The SAI is also available from the Securities and Exchange Commission. You can
find it on the SEC Internet site at http://www.sec.gov. Information about the
Fund (including the SAI) can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can
receive copies of this information by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
SEC file number: 811-4006
<PAGE>
Statement of Additional Information
[________], 1999
CITISELECT(R) FOLIO 100
CitiFunds Trust I (formerly known as "Landmark Funds I") (the "Trust") is
an open-end management investment company which was organized as a business
trust under the laws of the Commonwealth of Massachusetts on April 13, 1984.
The Trust offers shares of CitiSelect(R) Folio 100 (the "Fund"), to which this
Statement of Additional Information relates, as well as shares of five other
series. 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, Small Cap Value
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, International
Portfolio and Foreign Bond Portfolio, which are separate series of Asset
Allocation Portfolios, and Large Cap Growth Portfolio and Small Cap Growth
Portfolio, which are separate series of The Premium Portfolios. The address of
Asset Allocation Portfolios and The Premium Portfolios is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
TABLE OF CONTENTS PAGE
1. The Trust............................................................
2. Investment Objective and Policies....................................
3. Description of Permitted Investments and Investment Practices........
4. Investment Restrictions..............................................
5. Performance Information and Advertising..............................
6. Determination of Net Asset Value; Valuation of Securities............
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs...............................................
8. Management...........................................................
9. Portfolio Transactions...............................................
10. Description of Shares, Voting Rights and Liabilities.................
11. Certain Additional Tax Matters.......................................
12. Certain Bank Regulatory Matters.......................................
13. Financial Statements.................................................
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated May 1, 1999, by which shares of the Fund are offered. This
Statement of Additional Information should be read in conjunction with the
Prospectus. 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 organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 13, 1984. The Trust was called Landmark Funds I until
its name was changed effective March 2, 1998. This Statement of Additional
Information relates only to CitiSelect Folio 100 (the "Fund").
The Trust seeks the investment objective of the Fund by investing all of
its investable assets in multiple underlying investment companies or series
thereof. Currently, these investment companies are Large Cap Value Portfolio,
Small Cap Value Portfolio, Intermediate Income Portfolio, Short-Term Portfolio,
International Portfolio, Foreign Bond Portfolio, High Yield Portfolio, Large
Cap Growth Portfolio and Small Cap Growth Portfolio (collectively, the
"Portfolios"). The Portfolios (other than Large Cap Growth Portfolio, High
Yield Portfolio and Small Cap Growth Portfolio, which are series of The Premium
Portfolios) are series of Asset Allocation Portfolios (collectively, with The
Premium Portfolios, the "Portfolio Trusts"). The Portfolio Trusts are open-end,
diversified management investment companies organized as New York trusts. Under
the Investment Company Act of 1940, as amended (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.
All references in this Statement of Additional Information to the Fund
include the Fund's underlying Portfolios, except as otherwise noted. In
addition, references to the Trust include the Portfolio Trusts, except as
otherwise noted.
Citibank, N.A. ("Citibank" or the "Manager") is investment adviser and
also provides certain administrative services to the Fund and the Portfolios.
Citibank manages the investments of the Portfolios from day to day in
accordance with each Portfolio's investment objective 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.
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 OBJECTIVE AND POLICIES
The Fund is an asset allocation fund that allocates its investments among
three primary classes of assets equity, fixed income and money market
securities. The Fund's asset mix is designed by Citibank to offer a different
level of potential return within a corresponding amount of risk. The investment
objective (or goal) of the Fund is as follows:
The investment objective of CitiSelect Folio 100 is to provide as high a
level of current income as is consistent with a dominant emphasis on fixed
income securities and a small allocation to equity securities. Of course, there
is no assurance that the Fund will achieve its goal.
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.
CitiSelect Folio 100 is designed for investors seeking current income and
the relatively lower risk provided by substantial investments in fixed income
securities.
The Trust may withdraw the investment of the Fund from one or more of its
underlying 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
<PAGE>
withdrawal, the Fund's assets would continue to be invested in accordance with
the investment policies described herein with respect to that Fund. The
policies described above and those described below are not fundamental and may
be changed without shareholder approval.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
References herein to the "Funds" are to CitiSelect Folio 100 (which is
covered by this Statement of Additional Information), as well as CitiSelect
Folio 200, CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500
(none of which are covered by this Statement of Additional Information). The
Funds may, but need not, invest in any or all of the investments and utilize
any or all of the investment techniques described in the Prospectus and herein.
The selection of investments and the utilization of investment techniques
depend on, among other things, the Manager's and, as applicable, the
subadvisers' investment strategies for the Funds, conditions and trends in the
economy and financial markets and investments being available on terms that, in
the Manager's or a subadviser's opinion, make economic sense.
BANK OBLIGATIONS
Each of the Funds 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
Each 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 each
Fund may be invested in shares of other investment companies. Each Fund may
invest up to 5% of its assets in closed-end investment companies which
primarily hold securities of non-U.S. issuers.
SECURITIES RATED BAA OR BBB
Each Fund may purchase securities rated Baa by Moody's or BBB by S&P and
securities of comparable quality, which may have poor protection of payment of
principal and interest. These securities are often considered to be speculative
and involve greater risk of default or price changes than securities assigned a
higher quality rating due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates.
MORTGAGE-BACKED SECURITIES
Each of the Funds 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
<PAGE>
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.
Each Fund may also invest a portion of its assets in collateralized
mortgage obligations or "CMOs," a type of mortgage-backed security. CMOs are
securities collateralized by mortgages, mortgage pass-through certificates,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations of
the issuers payable out of the issuers' general funds and additionally secured
by a first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities and
are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
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 a 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.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Funds may enter into mortgage "dollar roll" transactions pursuant to
which they sell mortgage-backed securities for delivery in the future and
simultaneously contract to repurchase substantially similar securities on a
specified future date. During the roll period, a Fund forgoes 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
<PAGE>
sale. The Fund may also be compensated by receipt of a commitment fee. A
"covered roll" is a specific type of dollar roll for which a Fund establishes a
segregated account with liquid securities equal in value to the securities
subject to repurchase by the Fund. The Funds will invest only in covered rolls.
CORPORATE ASSET-BACKED SECURITIES
Each of the Funds may invest in corporate asset-backed securities. These
securities, issued by trusts and special purpose corporations, are backed by a
pool of assets, such as 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 obligations 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. A Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the Funds may
purchase securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, none of the Funds invests more than 10% of its net assets (taken at
market value) in illiquid investments, which include securities for which there
is no readily available market, securities subject to contractual restrictions
on resale and restricted securities, unless, in the case of restricted
securities, the Board of Trustees of the Trust determines, based on the trading
markets for the specific restricted security, that it is liquid. The Trustees
have adopted guidelines and, subject to oversight by the Trustees, have
delegated to the Manager and to each Subadviser the daily function of
determining and monitoring liquidity of restricted securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
Each Fund may invest up to 10% of its net assets in securities for which
there is no readily available market. 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 a Fund to sell them promptly at an acceptable price.
<PAGE>
SECURITIES OF NON-U.S. ISSUERS
Each of the Funds may invest in securities of non-U.S. issuers. Investing
in securities of foreign issuers may involve significant risks not present in
domestic investments. For example, the value of such securities fluctuates
based on the relative strength on the U.S. dollar. In addition, there is
generally less publicly available information about foreign 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 domestic 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. stock 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. Non-U.S. security 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,
foreign 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.
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 Funds 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 Funds 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.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund purchases a security and simultaneously commits to
resell that security to the seller (which is usually a member bank of the U.S.
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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. A 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 that 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 Funds 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, a Fund could experience delays in recovering either the securities
or cash. To the extent that, in the meantime, the value of the securities
purchased has decreased, the Fund could experience a loss.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed-upon price, date and
interest payment. When a 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, a Fund could experience delays
in recovering the securities sold. To the extent that, in the meantime, the
value of the securities sold has increased, the Fund could experience a loss.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Funds 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, a 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 cash 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 a 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 a Subadviser
to be of good standing, and when, in the judgment of the Manager or a
Subadviser, the consideration which can be earned currently from loans of this
type justifies the attendant risk. In addition, a Fund could suffer loss if the
borrower terminates the loan and the Fund is forced to liquidate investments in
order to return the cash collateral to the buyer. If the Manager or a
Subadviser determines to make loans, it is not intended that the value of the
securities loaned would exceed 30% of the market value of the respective Fund's
total assets.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Fund at a future date beyond customary settlement time. It is expected
that, under normal circumstances, the applicable Fund would take delivery of
such securities. In general, the Fund does not pay for the securities until
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received and does not start earning interest until the contractual settlement
date. When a Fund commits to purchase a security on a "when-issued" or on a
"forward delivery" basis, it sets up procedures consistent with Securities and
Exchange Commission policies. Since those policies currently require that an
amount of a Fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, the Funds expect always to
have cash or liquid securities sufficient to cover any commitments or to limit
any potential risk. However, even though the Funds do not intend to make such
purchases for speculative purposes and intend to adhere to the provisions of
Securities and Exchange Commission policies, purchases of securities on such
bases may involve more risk than other types of purchases. For example, a Fund
may have to sell assets which have been set aside in order to meet redemptions.
Also, if the Manager or a Subadviser determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
the Fund would be required to meet its obligations from the then available cash
flow or the sale of securities, or, although it would not normally expect to do
so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Fund's payment
obligation). An increase in the percentage of the Fund's assets committed to
the purchase of securities on a "when-issued" basis may increase the volatility
of its net asset value.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Funds 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 Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. The Funds may also enter into foreign currency hedging
transactions (including proxy hedges and cross hedges) in an attempt to protect
the value of their assets as measured in U.S. dollars from unfavorable changes
in currency exchange rates and control regulations. (Although each Fund's
assets are valued daily in terms of U.S. dollars, the Trust does not intend to
convert a Fund's holdings of other currencies into U.S. dollars on a daily
basis.)
The Funds 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. A 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.
When a 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.
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When the Manager or a Subadviser believes that the currency of a
particular country may suffer a substantial decline against the U.S. dollar, a
Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of non-U.S. currency approximating the value of some or all
of the Fund's securities denominated in such non-U.S. currency. The precise
matching of the forward contract amounts and the value of the securities
involved is not generally possible since the future value of such securities in
non-U.S. currencies changes as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. The projection of a short-term hedging strategy is highly
uncertain. The Funds generally do not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts obligates a Fund to deliver an amount of non-U.S. currency in excess
of the value of the Fund's securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated in the investment decisions made with
regard to overall diversification strategies. However, the Manager believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be
served.
The Funds generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, a Fund will
either sell the security and make delivery of the non-U.S. currency, or retain
the security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a 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 a Fund enters into a forward contract for
the sale of the non-U.S. currency and the date it enters into an offsetting
contract for the purchase of such currency, the Fund will realize a gain to the
extent the selling price of the currency exceeds the purchase price of the
currency. Should forward prices increase, the Fund will suffer a loss to the
extent that the purchase price of the currency exceeds the selling price of the
currency.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for a 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.
Each of the Funds may also purchase put options on a non-U.S. currency in
order to protect against currency rate fluctuations. If a Fund purchases a put
option on a non-U.S. currency and the value of the non- U.S. currency declines,
the Fund will have the right to sell the non-U.S. currency for a fixed amount
in U.S. dollars and will thereby offset, in whole or in part, the adverse
effect on the Fund which otherwise would have resulted. Conversely, where a
rise in the U.S. dollar value of another currency is projected, and where the
Fund anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects
of the adverse movements in exchange rates. However, the benefit to the Fund
from purchases of foreign 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 which would require
it to forgo a portion or all of the benefits of advantageous changes in such
rates.
The Funds may write options on non-U.S. currencies for hedging purposes or
otherwise to achieve their investment objectives. For example, where a 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
<PAGE>
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund may be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a 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, a 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, a Fund also may be required to forgo all or a portion of
the benefits which might otherwise have been obtained from favorable movements
in exchange rates.
Put and call options on non-U.S. currencies written by a 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.
In a proxy hedge, which is generally less costly than a direct hedge, a
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
would 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. A Fund may enter into a cross
hedge if a particular currency is expected to decrease against another
currency. The Fund would sell the currency expected to decrease and purchase a
currency which is expected to increase against the currency sold in an amount
equal to some or all 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. A 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, a Fund is not required to enter into the transactions described
above and does not do so unless deemed appropriate by the Manager or a
Subadviser. It should be realized that the under certain circumstances, the
Funds may not be able to hedge against a decline in the value of a currency,
even if the Manager or a Subadviser deems it appropriate to try to do so,
because doing so would be too costly. It should also be realized that this
method of protecting the value of a Fund's securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. Additionally, although such contracts tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they also tend to
limit any potential gain which might result should the value of such currency
increase.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission concerning forward contracts. Those policies
currently require that an amount of a Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment.
Therefore, each Fund expects to always have cash or liquid securities available
sufficient to cover any commitments under these contracts.
<PAGE>
OPTIONS
Each of the Funds may write covered call and put options and purchase call
and put options on securities. Call and put options written by a Fund may be
covered in the manner set forth below.
A call option written by a 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 a 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 a Fund in cash or
liquid securities in a segregated account. A put option written by a Fund 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 debt securities in a segregated account. Put and call options written by
a 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. If the writer's
obligation is not so 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.
Each of the Funds may purchase options for hedging purposes or to increase
the Fund's return. Put options may be purchased to hedge against a decline in
the value of portfolio securities. If such decline occurs, the put options will
permit a 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.
Each of the Funds 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.
Each of the Funds may write (sell) covered call and put options and
purchase call and put options on stock indices. In contrast to an option on a
security, an option on a stock index provides the holder with the right, but
not the obligation, to make or receive a cash settlement upon exercise of the
option, rather than the right to purchase or sell a security. The amount of
this settlement is equal to (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of
a put) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier."
Each of the Funds may cover call options on stock indices by owning
securities whose price changes, in the opinion of the Manager or a 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 a Fund covers a call option on a stock 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. A Fund may also cover call options on stock 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. A Fund may cover put options on stock
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 stock
<PAGE>
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 stock
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.
A 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 a 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 a 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.
Each of the Funds may also purchase put options on stock indices to hedge
the Fund's investments against a decline in value. By purchasing a put option
on a stock index, a Fund will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Fund's investments does not decline as anticipated, or if the value of the
option does not increase, the Fund's loss will be limited to the premium paid
for the option plus related transaction costs. The success of this strategy
will largely depend on the accuracy of the correlation between the changes in
value of the index and the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by a Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, a Fund will also 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 stock indices when a 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 similar to those involved in
purchasing calls on securities the Fund owns.
Each of the Funds may purchase and write options on foreign currencies in
a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized.
FUTURES CONTRACTS
Each of the Funds may enter into interest rate futures contracts, stock
index futures contracts and/or foreign currency futures contracts. Such
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.
<PAGE>
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 a 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.
A Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective maturity
or duration of the Fund's portfolio in an effort to reduce potential losses or
enhance potential gain, without actually buying or selling debt securities. For
example, if interest rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as if the Fund sold bonds that it owned, or as if the Fund sold
longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Fund's debt securities would decline, but the value
of the futures contracts would increase, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with longer
maturities and investing in bonds with shorter maturities. However, by using
futures contracts, the Fund avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, a 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.
Each of the Funds may enter into stock index futures contracts to gain
stock market exposure while holding cash available for investments and
redemptions and may sell such contracts to protect against a decline in the
stock market.
Each of the Funds may purchase and sell foreign currency futures contracts
to attempt to protect its current or intended investments from fluctuations in
currency exchange rates. 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. A
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.
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.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a Fund
sells a futures contract to protect against losses in the debt securities held
by the Fund), at the same time the futures contract limits any potential gain
which might result from an increase in value of a hedged position.
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In addition, the ability effectively to hedge all or a portion of a Fund's
investments through transactions in futures contracts depends on the degree to
which movements in the value of the securities underlying such contracts
correlate with movements in the value of the Fund's securities. If the security
underlying a futures contract is different than the security being hedged, they
may not move to the same extent or in the same direction. In that event, the
Fund's hedging strategy might not be successful and the Fund could sustain
losses on these hedging transactions which would not be offset by gains on the
Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where a Fund enters into futures transactions other than for hedging purposes,
the effectiveness of its strategy may be affected by lack of correlation
between changes in the value of the futures contracts and changes in value of
the securities which the Fund would otherwise buy or sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. While a Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing
variation margin requirements. The inability to close out futures positions
also could have an adverse impact on the ability effectively to use futures
transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. The trading of futures contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
Manager's or a 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 a Fund hedged against the possibility of an
increase in interest rates which would adversely affect the price of the Fund's
bonds and interest rates decrease instead, part or all of the benefit of the
increased value of the Fund's bonds which were hedged will be lost because the
Fund will have offsetting losses in its futures positions. Similarly, if a Fund
purchases futures contracts expecting a decrease in interest rates and interest
rates instead increased, the Fund will have losses in its futures positions
which will increase the amount of the losses on the securities in its portfolio
which will also decline in value because of the increase in interest rates. In
addition, in such situations, if the Fund has insufficient cash, the Fund may
have to sell bonds from its investments to meet daily variation margin
requirements, possibly at a time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has established
a number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Manager
does not believe that these trading and position limits would have an adverse
impact on a Fund's hedging strategies.
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CFTC regulations require compliance with certain limitations in order to
assure that a Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a 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 that Fund's non-hedging futures positions would exceed 5% of that
Fund's net assets.
Each Fund will comply with this CFTC requirement, and each Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or liquid securities will be maintained by each Fund in a segregated
account so that the amount so segregated, plus the applicable margin held on
deposit, will be approximately equal to the amount necessary to satisfy the
Fund's obligations under the futures contract. The second is that a Fund will
not enter into a futures contract if immediately thereafter the amount of
initial margin deposits on all the futures contracts held by the Fund would
exceed approximately 5% of the net assets of the Fund. The third is that the
aggregate market value of the futures contracts held by a Fund not exceed
approximately 50% of the market value of the Fund's total assets other than its
futures contracts. For purposes of this third policy, "market value" of a
futures contract is deemed to be the amount obtained by multiplying the number
of units covered by the futures contract times the per unit price of the
securities covered by that contract.
The use of futures contracts potentially exposes a 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 a Fund's potential for
both gain and loss. As noted above, each of the Funds intends to adhere to
certain policies relating to the use of futures contracts, which should have
the effect of limiting the amount of leverage by the Fund.
The use of futures contracts may increase the amount of taxable income of
a Fund and may affect the amount, timing and character of a Fund's income for
tax purposes, as more fully discussed herein in the section entitled "Certain
Additional Tax Matters."
OPTIONS ON FUTURES CONTRACTS
Each of the Funds 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 purposes and for non-hedging purposes, subject to applicable law.
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 a 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.
<PAGE>
Each of the Funds 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. A 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 a 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 a 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 a 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 constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A 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 constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If
a 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. A 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 a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
Each of the Funds 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, a 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 a 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.
CONVERTIBLE SECURITIES
Each 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. Convertible securities purchased are not
subject to the ratings requirements applicable to the Funds' purchase of fixed
income investments.
<PAGE>
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.
SWAPS AND RELATED TRANSACTIONS
Each 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.
A Fund will maintain liquid assets with its custodian to cover its current
obligations under swap transactions. If the Fund enters into a swap agreement
on a net basis (i.e., the two payments streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments), the Fund will maintain liquid assets with its custodian with a daily
value at least equal to the excess, if any, of the Fund's accrued obligations
under the swap agreement over the accrued amount the Fund is entitled to
receive under the agreement. If the Fund enters into a swap agreement on other
than a net basis, it will maintain liquid assets with a value equal to the full
amount of the Fund's accrued obligations under the agreement.
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 a 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. No Fund will enter into any swap unless the Manager or Subadviser
deems the counterparty to be creditworthy. If the counterparty's
creditworthiness declined, 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. Each 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 each Fund's overall limit that not more
than 10% of its net assets may be invested in illiquid securities, and no Fund
will enter into a swap agreement with any single party if the net amount owed
or to be received under existing contracts with that party would exceed 5% of
the Fund's assets.
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
<PAGE>
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 a 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, a 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.
Some of the Fund's use of derivatives may involve leveraging. Leveraging
adds increased risks to a 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, 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 a Fund otherwise invests, such as
non-U.S. government securities.
SHORT SALES
The Funds may seek to hedge investments or realize additional gains
through short sales. Short sales are transactions in which a Fund sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, a Fund must borrow the security
to make delivery to the buyer. A Fund then is obligated to replace the security
borrowed by purchasing it at the market price at or prior to the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by a Fund. Until the security is replaced, a Fund is
required to repay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, a Fund also may be required to pay
a premium, which would increase the cost of the security sold. The net proceeds
of the short sale will be retained by the broker (or by the Fund's custodian in
a special custody account), to the extent necessary to meet margin
requirements, until the short position is closed out. A Fund will also incur
transaction costs in effecting short sales.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which a
Fund replaces the borrowed security. A Fund will realize a gain if the security
declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premiums,
dividends, interest or expenses a Fund may be required to pay in connection
with a short sale. An increase in the value of a security sold short by a Fund
over the price at which it was sold short will result in a loss to the Fund,
and there can be no assurance that a Fund will be able to close out the
position at any particular time or at an acceptable price.
LOWER RATED DEBT SECURITIES
The Funds may invest in lower rated fixed income securities (commonly
known as "junk bonds"), to the extent described in its Prospectus. The lower
ratings of certain securities held by the Funds reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates, may
impair the ability of the issuer to make payments of interest and principal.
The inability (or perceived inability) of issuers to make timely payment of
interest and principal would likely make the values of such securities held by
the Funds more volatile and could limit the Fund's ability to sell its
securities at prices approximating the values the Funds had placed on such
securities. In the absence of a liquid trading market for securities held by
it, a Fund at times may be unable to establish the fair value of such
securities.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
<PAGE>
a reflection of the issuer's current financial condition, which may be better
or worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or by any other nationally recognized securities rating organization) does not
reflect an assessment of the volatility of the security's market value or the
liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of fixed
income securities. Conversely, during periods of rising interest rates, the
value of a Fund's fixed-income securities will generally decline. The values of
lower rated securities may often be affected to a greater extent by changes in
general economic conditions and business conditions affecting the issuers of
such securities and their industries. Negative publicity or investor
perceptions may also adversely affect the values of lower rated securities.
Changes by recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments of interest
and principal may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income derived from
these securities, but will affect a Fund's net asset value. The Funds will not
necessarily dispose of a security when its rating is reduced below its rating
at the time of purchase. However, the Manager will monitor the investment to
determine whether its retention will assist in meeting the Fund's investment
objective.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of a Fund's assets may be invested in
securities as to which a 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, a 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 a Fund's
net asset value. In order to enforce its rights in the event of a default under
such securities, a 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 a Fund's net asset value. In addition, a Fund's
intention to qualify as a "regulated investment company" under the Internal
Revenue Code may limit the extent to which the Fund may exercise its rights by
taking possession of such assets.
Certain securities held by a Fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by a Fund during a time of declining interest rates, the Fund may not be able
to reinvest the proceeds in securities providing the same investment return as
the securities redeemed.
ZERO-COUPON BONDS AND "PAYMENT-IN-KIND" BONDS
The Funds may invest in "zero-coupon" bonds and "payment-in-kind" 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 Funds are required to accrue interest income on such investments and
to distribute such amounts at least annually to shareholders even though such
bonds do not pay current interest in cash. Thus, it may be necessary at times
for the Funds to liquidate investments in order to satisfy its dividend
requirements.
<PAGE>
DEFENSIVE STRATEGIES
The Funds may, from time to time, take temporary defensive positions that
are inconsistent with the Funds' principal investment strategies in attempting
to respond to adverse market, political or other conditions. When doing so, the
Funds may invest without limit in high quality money market and other
short-term instruments, and may not be pursuing their investment goals.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trusts, on behalf of
the Portfolios, have each adopted the following policies which may not be
changed with respect to the Fund or Portfolios without approval by holders of a
majority of the outstanding voting securities of the Fund or Portfolios, which
as used in this Statement of Additional Information means the vote of the
lesser of (i) 67% or more of the outstanding voting securities of the Fund or
Portfolio present at a meeting at which the holders of more than 50% of the
outstanding voting securities of the Fund or Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Fund or Portfolio. The term "voting securities" as used in
this paragraph has the same meaning as in the 1940 Act.
Neither the Fund nor the Portfolios may:
(1) Borrow money, except that as a temporary measure for
extraordinary or emergency purposes it may borrow in an amount not to
exceed 1/3 of the current value of its net assets, including the amount
borrowed, or purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund or Portfolio, taken at market
value. It is intended that the Fund or Portfolio would borrow money only
from banks and only to accommodate requests for the repurchase of shares
of the Fund or beneficial interests in the Portfolio while effecting an
orderly liquidation of portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Fund's or Portfolio's total assets (taken at market value), (b) through
the use of repurchase agreements, fixed time deposits or the purchase of
short-term obligations or (c) by purchasing all or a portion of an issue
of debt securities of types commonly distributed privately to financial
institutions. The purchase of short-term commercial paper or a portion of
an issue of debt securities which is part of an issue to the public shall
not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund or
Portfolio more than 10% of the voting securities of such issuer to be held
by the Fund or Portfolio; 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 or Portfolio 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 or Portfolio's total assets
more than 5% of the Fund's or Portfolio's assets (taken at market value)
to be invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or
political subdivision thereof, or any political subdivision of any such
state, or any agency or instrumentality of the United States or of any
state or of any political subdivision of any state); 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 or Portfolio
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
<PAGE>
is deemed appropriate for the achievement of the Fund's or Portfolio'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 or Portfolio 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 or Portfolio 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), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business (the foregoing
shall not be deemed to preclude the Fund or Portfolio from purchasing or
selling futures contracts or options thereon, and each of the Fund and the
Portfolio reserves the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities by the Fund or the
Portfolio).
(8) 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.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in this Registration Statement 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 will not be considered
a violation of policy.
5. PERFORMANCE INFORMATION AND ADVERTISING
Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of total rate of return. All performance
information is historical and is not intended to indicate future performance.
Total rates of return fluctuate in response to market conditions and other
factors, and the value of a Fund's shares when redeemed may be worth more or
less than their original cost.
The Fund may provide its period and average annualized "total rates of
return". The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period, reflects any change in net asset
value per share and is compounded to include the value of any shares purchased
with any dividends or capital gains declared during such period. Period total
rates of return may be "annualized". An "annualized" total rate of return
assumes that the period rate of return is generated over a one-year period.
A total rate of return quotation for a 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.
From time to time, advertising and marketing material of the Fund may
include charts showing the historical performance of hypothetical portfolios
comprised of classes of assets similar to those in which the Fund invests. The
classes of assets will be represented by the historical performance of specific
unmanaged indices. The information contained in such charts should not be
viewed as a projection of results of the Fund or as the historical performance
of the Fund. In addition, the past performance illustrated by such charts
should not be viewed as a guarantee of future results.
<PAGE>
For advertising and sales purposes, the Fund will generally use the
performance of Class A shares. Class A shares are sold at net asset value plus
a current maximum sales charge of 4.50%. Performance will typically include
this maximum sales charge for the purposes of calculating performance figures.
Fund performance may also be presented in advertising and sales literature
without the inclusion of sales charges.
The Fund is newly organized and had no operations at October 31, 1998.
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
("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 of net
asset value is made once each day as of the close of regular trading on the
Exchange by adding the market value of all securities and other assets
attributable to the class (including its interest in its underlying
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
Transfer Agent prior to its calculation.
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 which 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. In
certain instances, securities are valued on the basis of valuations received
from a single dealer, which is usually an established market maker in the
security. In these instances, additional dealer valuations are obtained
monthly. 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
Exchange. Trading may also take place on days on which the Exchange is closed
and on which it is not possible to purchase or redeem 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 a
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 plus amortization of premiums.
<PAGE>
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)
Securities and Exchange Commission ("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 .50%. 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 ______________ of Class A shares
from the Fund aggregating less than $25,000 subject to the schedule of sales
charges set forth below.
- ------------------------------------ ----------------------
CITISELECT FOLIO 100
- ------------------------------------ ----------------------
Net Asset Value per share $_____
- ------------------------------------ ----------------------
Per Share Sales Charge - 4.50% of
public offering price (4.71% of $_____
net asset value per share)
- ------------------------------------ ----------------------
Per Share Offering Price to the $_____
Public
- ------------------------------------ ----------------------
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 tables below. The Fund has
<PAGE>
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.
- -------------------------------------------------------------------------------
CITISELECT FOLIO 100
- -------------------------------------------------------------------------------
SALES CHARGE SALES CHARGE BROKER/DEALER
AS A % OF AS A % OF COMMISSION AS A
AMOUNT OF OFFERING PRICE YOUR % OF OFFERING
YOUR INVESTMENT INVESTMENT PRICE
- -------------------------------- --------------- --------------- ---------------
Less than $25,000 4.50% 4.71% 4.05%
- -------------------------------- --------------- --------------- ---------------
$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 2.50% 2.56% 2.25%
- -------------------------------- --------------- --------------- ---------------
$250,000 to less than $500,000 1.50% 1.52% 1.35%
- -------------------------------- --------------- --------------- ---------------
$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 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 tables below show 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.
- ---------------------------------------------------------------------------
CITISELECT FOLIO 100
- ---------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
- ---------------------------------- ----------------------------------------
1st year since purchase 4.50%
- ---------------------------------- ----------------------------------------
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 None
purchase
- ---------------------------------- ----------------------------------------
Class B shares pay distribution/service fees of up to 0.75% of the average
daily net assets represented by the Class B shares. Financial professionals
selling Class B shares receive a commission based upon the purchase price of
the Class B shares that they sell, except sales exempt from the CDSC. The
commission is 4.00% of the purchase price of the Class B shares. 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.
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 and capital gain distributions and
shares representing capital appreciation. The Fund will assume that a
redemption of Class B shares is made:
[ ] first, of Class B shares representing capital appreciation
[ ] next, of shares representing the reinvestment of dividends and
capital gains distributions
[ ] finally, of other shares held by the investor for the longest period
of time.
Under certain circumstances, as set forth below in "Sales Charge Waivers,"
the CDSC will be waived.
The holding period of Class B shares of the Fund acquired through an
exchange with another CitiFund will be calculated from the date that the Class
B shares were initially acquired in the other CitiFund, and Class B shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in the
other fund. When determining the amount of the CDSC, the Fund will use the CDSC
<PAGE>
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will with
persons or entities with which Citibank or the Distributor or their affiliates
have business relationships, or because the sales effort, if any, involved in
making such sales is negligible, or, in the case of certain CDSC waivers,
because the circumstances surrounding the sale of Fund shares were not
foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
CLASS A--FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares
acquired through the reinvestment of dividends and capital gains
distributions.
o Eligible Purchasers. Class A shares may be purchased without a
sales charge by:
[ ] tax exempt organizations under Section 501(c)(3-13)of the
Internal Revenue Code
[ ] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[ ] accounts for which Citibank or any subsidiary or affiliate
of Citibank performs investment advisory services or
charges fees for acting as custodian
[ ] directors or trustees (and their immediate families), and
retired directors and 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 a
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
<PAGE>
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 a 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) or
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
<PAGE>
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the same Fund approximately eight years after the date of issuance.
At the same time, a portion of all Class B shares representing dividends and
other distributions paid in additional Class B shares will be converted in
accordance with procedures from time to time approved by the Fund's Trustees.
The conversion will be effected at the relative net asset values per share of
the two classes on the first business day of the month in which the eighth
anniversary of the issuance of the Class B shares occurs. If a shareholder
effects one or more exchanges among Class B shares of the CitiFunds during the
eight-year period, the holding periods for the shares so exchanged will be
counted toward the eight-year period. Because the per share net asset value of
the Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
SHAREHOLDER PROGRAMS
The Fund makes the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Class A shares or to
exchange Fund shares for shares of other CitiFunds without, in many cases, the
payment of a sales charge. These programs may be changed or discontinued at any
time. For more information, please contact your Service Agent.
REDUCED SALES CHARGE PLAN
A qualified group may purchase shares as a single purchaser under the
reduced sales charge plan. The purchases by the group are lumped together and
the sales charge is based on the lump sum. A qualified group must:
[ ] have been in existence for more than six months
[ ] have a purpose other than acquiring Fund shares at a discount
[ ] 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.
<PAGE>
[ ] The value of shares of a 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 additional $50,000 purchase would be at the rate of
2.50% (the rate applicable to single transactions from $100,000 to less than
$250,000). A shareholder must provide the Transfer Agent with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
SYSTEMATIC WITHDRAWAL PLAN
The Fund's Systematic Withdrawal Plan permits you to have a specified
dollar amount (minimum of $100 per withdrawal) automatically withdrawn from
your account on a regular basis if you have at least $10,000 in your Fund
account at the time of enrollment. You may only make one withdrawal a month.
If you redeem class A or Class B shares under this 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 value of your account.
You may receive your withdrawals by check, or have the monies transferred
directly into your bank account. Or you may direct that payments be made
directly to a third party.
To participate in the Plan, you must complete the appropriate forms
provided by your Service Agent.
<PAGE>
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 same Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Service Agents in
writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of
certain other CitiFunds that are made available by your Service Agent, or may
be acquired through an exchange of shares of the same class of those funds.
Class A shares also may be exchanged for shares of certain CitiFunds money
market funds that offer only a single class of shares, unless the Class A
shares are subject to a contingent deferred sales charge. Class B shares may
not be exchanged for shares of CitiFunds money market funds other than Cash
Reserves.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares are being acquired and the sales charge for
Class A of the fund being exchanged into is greater than the current sales
charge of the Fund (in which case an initial sales charge will be imposed at a
rate equal to the difference).
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, or (c) 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 prior 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
<PAGE>
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 has reserved
the right to pay the redemption or repurchase price of shares of the Fund,
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 being sold. If a holder of shares received a distribution in kind,
such holder could incur brokerage or other charges in converting the securities
to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of the Fund more than seven days during any period when (a)
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the Securities and
Exchange Commission (the "SEC"), exists making disposal of the Fund'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 Fund is supervised by the Board of Trustees of the Trust. Each
Portfolio is supervised by the Board of Trustees of Asset Allocation Portfolios
or The Premium Portfolios, as the case may be. In each case, a majority of the
Trustees are not affiliated with Citibank.
The Trustees and officers of the Trust and the Portfolio Trusts 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* (aged 47) -- President of the Trust and the Portfolio
Trusts; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
RILEY C. GILLEY (aged 72) -- Vice President and General Counsel, Corporate
Property Investors (November 1988 to December 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (retired, December 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON (aged 59) -- Professor, Babson College (since September
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, the Highland Family of Funds (March 1997 to March 1998). Her address
is 120 Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY (aged 47) -- President, Global Research Associates, Inc.
(Investment Research) (since August 1990); Manager, Rockefeller & Co. (March
1988 to July 1990); Trustee, Mainstay Institutional Funds (since December
1990). Her address is P.O. Box 9572, New Haven, Connecticut.
<PAGE>
HEATH B. MCLENDON* (aged 65) - Chairman, President, and Chief Executive Officer
of Mutual Management Corp. (since _____); Managing Director of Salomon Smith
Barney (since ____). His address is 388 Greenwich Street, New York, New York.
C. OSCAR MORONG, JR. (aged 64) - Chairman of the Board of the Trust and the
Portfolio Trusts; Managing Director, Morong Capital Management (since February
1993); Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired January 1993); Director, Indonesia
Fund; Director, MAS Funds. His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
E. KIRBY WARREN (aged 64) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 78) -- Vice President-Investments, Sun Company,
Inc. (retired, April 1984). His address is 35 Colwick Road, Cherry Hill,
New Jersey.
TRUSTEES OF THE PORTFOLIO TRUSTS
ELLIOTT J. BERV (aged 56) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trusts; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
MARK T. FINN (aged 55) -- President and Director, Delta Financial, Inc. (since
June 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Vantage Consulting Group, Inc. (since
October 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia
Beach, Virginia.
C. OSCAR MORONG, JR. (aged 64) - Chairman of the Board of the Trust and the
Portfolio Trusts; Managing Director, Morong Capital Management (since February
1993); Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired January 1993); Director, Indonesia
Fund; Director, MAS Funds. His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III (aged 72) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN (aged 64) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trusts; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
CHRISTINE A. DRAPEAU* (aged 28) -- 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).
<PAGE>
TAMIE EBANKS-CUNNINGHAM* (aged 26) -- Assistant Secretary of the Trust and the
Portfolio Trusts; Office Manager, Signature Financial Group, (Grand Cayman)
Limited (Since April 1995); Administrator, Cayman Islands Primary School (prior
to April 1995).
JOHN R. ELDER* (aged 50) -- Treasurer of the Trust and the Portfolio Trusts;
Vice President, Signature Financial Group, Inc. (since April 1995); Assistant
Treasurer, CFBDS (since April 1995); Treasurer, the Phoenix Family of Mutual
Funds (Phoenix Home Life Mutual Insurance Company) (1983 to March 1995).
LINDA T. GIBSON* (aged 33) -- Secretary of the Trust and the Portfolio Trusts;
Senior Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
JAMES E. HOOLAHAN* (aged 52) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust and the Portfolio Trusts; Senior Vice
President, Signature Financial Group, Inc.
SUSAN JAKUBOSKI* (aged 35) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994).
MOLLY S. MUGLER* (aged 47) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN* (aged 30) -- Assistant Secretary of the Trust and the Portfolio
Trusts; Office Manager, Signature Financial Group (Europe) Limited. Her
address is 117 Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 50) -- Assistant Secretary and Assistant Treasurer
of the Trust and the Portfolio Trusts; Assistant Vice President, Signature
Financial Group, Inc.
JULIE J. WYETZNER* (aged 39) -- 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 Trustees of the Trust received the following remuneration from the
Trust during its fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
PENSION OR ESTIMATED
AGGREGATE RETIREMENT ANNUAL TOTAL COMPENSATION FROM
COMPENSATION BENEFITS ACCRUED BENEFITS TRUST AND FUND COMPLEX
FROM REGISTRANT AS PART UPON PAID TO TRUSTEES (1)
TRUSTEE OF FUND EXPENSES RETIREMENT
<S> <C> <C> <C> <C>
Philip W. Coolidge.............. $0 None None $0
Riley C. Gilley................. $5,206 None None $41,500
Diana R. Harrington............. $8,196 None None $59,000
Susan B. Kerley................. $8,096 None None $55,000
Heath B. McLendon (2)........... $0 None None $0
C. Oscar Morong, Jr............. $11,640 None None $71,000
E. Kirby Warren................. $7,404 None None $49,000
William S. Woods, Jr............ $7,434 None None $54,000
</TABLE>
(1) Information relates to the fiscal year ended October 31, 1998. Messrs.
Coolidge, Gilley, McLendon, Morong, Warren and Woods and Mses. Harrington
and Kerley are trustees of __, __, __, __, __, __, __ and __ funds,
<PAGE>
respectively, of the family of open-end registered investment companies
advised or managed by Citibank.
(2) Mr. McLendon was appointed as Trustee in February, 1999.
As of __________, all Trustees and officers as a group owned less than 1%
of the Fund's outstanding shares. 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 the Trust or the Portfolio Trust, as the case may be, will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Trust or the Portfolio Trust, as the case may be, unless, as
to liability to the Trust, the Portfolio Trust or their respective investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust or the Portfolio Trust, as the case may be. In
the case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees of the Trust
or the Portfolio Trust, or in a written opinion of independent counsel, that
such officers or Trustees have not engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.
MANAGER
Citibank manages the assets of 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 the Portfolio Trusts 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. Each
Management Agreement with the Portfolio Trusts provides that Citibank may
delegate the daily management of the securities of each Portfolio to one or
more Subadvisers. Each Management Agreement with the Portfolio Trusts will
continue in effect indefinitely as long as such continuance is specifically
approved at least annually by the Board of Trustees of the applicable Portfolio
Trust or by a vote of a majority of the outstanding voting securities of the
applicable Portfolio, and, in either case, by a majority of the Trustees of the
applicable Portfolio 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, each
Management Agreement with the Trust 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 applicable 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.
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 or 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.
The Management Agreement provides that Citibank may render services to
others. The Management Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the applicable Portfolio
Trust or the Trust, as the case may be, when authorized either by a vote of a
<PAGE>
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 the applicable
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 the Portfolio Trusts 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 the 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.
The Fund pays an aggregate management fee, which is accrued daily and paid
monthly, of 0.50% of the Fund's average daily net assets on an annualized basis
for the Fund's then-current fiscal year. This fee is higher than the management
fee paid by most mutual funds. Citibank may reimburse the Fund or Portfolio or
waive all or a portion of its management fees.
Pursuant to a sub-administrative services agreement with Citibank, CFBDS
performs such sub-administrative duties for the Trust and the Portfolio Trusts
as from time to time are agreed upon by Citibank and CFBDS. For performing such
sub-administrative services, CFBDS receives 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. All such compensation is paid by Citibank.
The Trust has entered into separate Submanagement Agreements with the
Subadvisers listed below for the Portfolios noted opposite the Subadvisers'
names. Each Subadviser's compensation is payable by the applicable Portfolio
(with a corresponding reduction in Citibank's management fee).
Small cap value securities Franklin Advisory Services, Inc.
Large cap value securities Mutual Management Corp.
International equity securities Hotchkis and Wiley
Foreign government securities Salomon Brothers Asset Management Limited
High yield securities Salomon Brothers Asset Management Inc
It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Fund, and to place the
purchase and sales orders for securities transactions concerning those assets,
subject in all cases to the general supervision of Citibank. Each Subadviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the assets of the Fund allocated to it and
effecting securities transactions concerning those assets.
Each Submanagement Agreement will continue in effect as to each applicable
Portfolio indefinitely as long as such continuance is specifically approved at
least annually by the Board of Trustees of the applicable Portfolio Trust as to
that Portfolio or by a vote of a majority of the outstanding voting securities
of that Portfolio, and, in either case, by a majority of the Trustees of the
applicable Portfolio Trust 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.
Each Submanagement Agreement provides that the applicable Subadviser may
render services to others. Each Submanagement Agreement is terminable as to any
Portfolio without penalty on not more than 60 days' nor less than 30 days'
written notice by the applicable Portfolio Trust, when authorized either by a
vote of a majority of the outstanding voting securities of the applicable
<PAGE>
Portfolio or by a vote of a majority of the Board of Trustees of the applicable
Portfolio 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. Each Submanagement Agreement may be terminated by the applicable
Subadviser on not less than 90 days' written notice. Each Submanagement
Agreement provides that neither the Subadviser 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 any Portfolio, except for willful misfeasance, bad faith or
gross negligence or reckless disregard of its or their obligations and duties
under the Submanagement Agreement.
The management fee is allocated among the Subadvisers at the annual rates
equal to the percentages specified below of the aggregate assets managed by the
particular Subadviser. Citibank retains any management fee in excess of amounts
payable to the Subadvisers. Citibank pays the Subadvisers' fees to the extent
they exceed the aggregate fee of 0.50% of the Fund's average daily net assets.
Franklin Advisory Services, Inc.
0.55% on first $250 million
0.50% on remaining assets
Mutual Management Corp.
0.65% on the first $10 million
0.50% on the next $10 million
0.40% on the next $10 million
0.30% on remaining assets
Hotchkis and Wiley
0.60% on first $10 million
0.55% on next $40 million
0.45% on next $100 million
0.35% on next $150 million
0.30% on remaining assets
Salomon Brothers Asset Management Limited
0.30% on the first $200 million
0.25% on assets in excess of $200 million
Salomon Brothers Asset Management Inc
0.45% on the first $100 million
0.40% on assets in excess of $100 million
The Fund is newly organized and paid no fees under the submanagement
agreements for the year ended October 31, 1998.
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' 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
Distribution 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.
<PAGE>
Each class of the Fund has a Service Plan (each, a "Service 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 0.50% of the average daily net
assets of the Fund attributable to that class in the case of the Plans 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 Plans 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 Service 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 Service 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 Service 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. In their annual consideration of the continuation of the Service
Plans for the Fund, the Trustees will review the Service Plans and the expenses
for each Fund separately.
Each Service 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
Service Plan or in any agreement related to the Plan (for purposes of this
paragraph "Qualified Trustees"). Each Service 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 Service Plan. Each Service 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 Service 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 Service Plan may not be amended
to increase materially the amount of a class's permitted expenses 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 Service 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 Service Plans, CFBDS acts as the agent of the Trust
in connection with the offering of shares of the Fund pursuant to the
Distribution Agreements. The Fund is newly organized and paid no fees to CFBDS
as of October 31, 1998.
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
<PAGE>
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.
EXPENSES
In addition to amounts payable under the Management Agreement and the
Service 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. The Prospectus for
the Fund contains more information about the expenses of the Fund.
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, 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.
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 Trust,
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 are
the chartered accountants for the Portfolio Trusts. The address of
PricewaterhouseCoopers is Suite 3000, Box 82, Royal Trust Towers, Toronto
Dominion Center, Toronto, Ontario, Canada M5K 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110, is
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 objective. 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 Citibank or a Subadviser and who is appointed and supervised by
senior officers of Citibank or by a Subadviser. The portfolio manager or
Subadviser may serve other clients 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 the Manager, the Subadvisers or their affiliates exercise
investment discretion. The Manager and the Subadvisers 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 the Manager or the applicable Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
<PAGE>
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, the Subadvisers and their
affiliates have with respect to accounts over which they exercise investment
discretion.
The management fee that the Fund pays to Citibank or a Subadviser will not
be reduced as a consequence of Citibank's or the Subadviser's receipt of
brokerage and research services. While such services are not expected to reduce
the expenses of Citibank or the Subadviser, Citibank 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
Citibank's and the Subadvisers' 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 a Fund and for other portfolios managed by Citibank or a
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.
The Fund is newly organized and paid no brokerage commission as of October
31, 1998.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust to issue an unlimited
number of full and fractional shares of beneficial interest (without par value)
of each series, 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 and to divide such shares
into classes. The Trust has reserved the right to create and issue additional
series and classes of shares. Each share of each class represents an equal
proportionate interest in that Fund 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 between classes of shares of a series). Shares of each
series are entitled to vote separately to approve management 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 Fund or class, only shares of that particular Fund 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
<PAGE>
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 the Fund, 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
receives for all other shares of which that Service Agent is the holder of
record.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's or the
affected series outstanding shares would be sufficient. The Trust or any series
of the Trust, as the case may be, may be terminated (i) by a vote of a majority
of the outstanding voting securities of the Trust or the affected series or
(ii) by the Trustees by written notice to the shareholders of the Trust or the
affected series. If not so terminated, the Trust will continue indefinitely.
The Fund's Transfer Agent maintains a share register for shareholders of
record. Share certificates are not issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Trust property for any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust of the Trust also provides
that the Trust may maintain appropriate insurance (e.g., fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust of the Trust protects a Trustee
against any liability to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
The Fund invests in multiple Portfolios. Each Portfolio is a series of one
of the Portfolio Trusts, which are organized as New York trusts.
Each investor in a Portfolio, including the corresponding Fund, may add to
or withdraw from its investment in the applicable 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.
<PAGE>
11. CERTAIN ADDITIONAL TAX MATTERS
The Fund is treated as a separate entity for federal income tax purposes
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has
elected to be treated, and intends to qualify each year, as a "regulated
investment company" under Subchapter M of the Code by meeting all applicable
requirements of Subchapter M, including requirements as to the nature of the
Fund's gross income, the amount of Fund distributions, and the composition of
the Fund's portfolio assets. Provided all such requirements are met, no U.S.
federal income or excise taxes generally will be required to be paid by the
Fund, although non-U.S. source income earned by the Fund may be subject to
non-U.S. withholding or other taxes. If a 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.
The portion of the Fund's ordinary income dividends attributable to
dividends received in respect of equity securities of U.S. issuers is normally
eligible for the dividends received deduction for corporations subject to U.S.
federal income taxes. Availability of the deduction for particular shareholders
is subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Any Fund
dividend that is declared in October, November or December of any calendar
year, that is payable to shareholders of record in such a month, and that is
paid the following January will be treated as if received by the shareholders
on December 31 of the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares
of a Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual shareholder will be eligible
for reduced tax rates if the shares were held for more than eighteen months.
However, any loss realized upon a disposition of shares in a Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
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.
The Fund's transactions in options, futures and forward contracts will be
subject to special tax rules that may affect the amount, timing and character
of Fund income and distributions to shareholders. For example, certain
positions held by the Fund on the last business day of each taxable year will
be marked to market (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 a Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Fund intends to limit its activities in options, futures and forward
contracts to the extent necessary to meet the requirements of Subchapter M of
the Code.
<PAGE>
An investment by the Fund in residual interests 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.
The Fund may make non-U.S. investments. Special tax considerations apply
with respect to such investments. Foreign exchange gains and losses realized by
a Fund will generally be treated as ordinary income and loss. Use of non-U.S.
currencies for non-hedging purposes may be limited in order to avoid a tax on
the Fund. The Fund may elect to mark to market any investments in "passive
foreign investment companies" on the last day of each taxable year. This
election may cause the Fund to recognize ordinary income prior to the receipt
of cash payments with respect to those investments; in order to distribute this
income and avoid a tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold. Investment
by the Fund in certain "passive foreign investment companies" may also be
limited in order to avoid a tax on the Fund. Investment income received by the
Fund from non-U.S. securities may be subject to non-U.S. taxes. The U.S. 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 applicable. 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 assets to be invested within various
countries is not known.
If a Fund holds more than 50% of its assets in foreign stock and
securities at the close of its taxable year, the Fund may elect to "pass
through" to the Fund's shareholders foreign income taxes paid. If the Fund so
elects, shareholders will be required to treat their pro rata portion of the
foreign income taxes paid by the Fund as part of the amounts distributed to
them by the Fund and thus includable in their gross income for federal income
tax purposes. Shareholders who itemize deductions would then be allowed to
claim a deduction or credit (but not both) on their federal income tax returns
for such amounts, subject to certain limitations. Shareholders who do not
itemize deductions would (subject to such limitations) be able to claim a
credit but not a deduction. No deduction for such amounts will be permitted to
individuals in computing their alternative minimum tax liability. If the Fund
does not qualify or elect to "pass through" to the Fund's shareholders foreign
income taxes paid by it, shareholders will not be able to claim any deduction
or credit for any part of the foreign taxes paid by the Fund.
The Fund will withhold tax payments at a rate of 30% (or any lower
applicable tax treaty rate) 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.
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. The Fund may be required to withhold (and pay over to
the IRS for the shareholder's credit) 31% of certain distributions and
redemption proceeds paid to shareholders who fail to provide this information
or who otherwise violate IRS regulations.
Early each year, the Fund will notify its shareholders of the amount and
tax status of distributions paid to shareholders for the preceding year.
Investors should consult their own tax advisers regarding the status of their
accounts under state and local laws.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Fund. Citibank believes that its services under the Management Agreement
and the activities performed by it or its affiliates as Service Agents are not
underwriting and are consistent with the Glass-Steagall Act and other relevant
federal and state laws. However, there is no controlling precedent regarding
the performance of the combination of investment advisory, shareholder
servicing and administrative activities by banks. State laws on this issue may
differ from applicable federal law, and banks and financial institutions may be
required to register as dealers pursuant to state securities laws. Changes in
<PAGE>
either federal or state statutes or regulations, or in their interpretations,
could prevent Citibank or its affiliates from continuing to perform these
services. If Citibank or its affiliates were to be prevented from acting as the
Manager or a Service Agent, the Fund would seek alternative means for obtaining
these services. The Fund does not expect that shareholders would suffer any
adverse financial consequences as a result of any such occurrence.
13. FINANCIAL STATEMENTS
The Fund is newly organized and had no operations at October 31, 1998.
<PAGE>
PART C
Item 23. Exhibits.
<TABLE>
<CAPTION>
<S> <C>
* a(1) Amended and Restated Declaration of Trust of the Registrant
**,*** and ****** a(2) Amendments to the Declaration of Trust of the Registrant
*** b(1) Amended and Restated By-Laws of the Registrant
*** b(2) Amendments to Amended and Restated By-Laws of the Registrant
d Form of Management Agreement between the Registrant and Citibank,
N.A., as manager to CitiSelect Folio 100
e(1) Amended and Restated Distribution Agreement between the Registrant and
CFBDS, as distributor with respect to Class A shares of the CitiSelect
Portfolios
e(2) Distribution Agreement between the Registrant and CFBDS, as distributor
with respect to Class B shares of the CitiSelect Portfolios
e(3) Form of Letter Agreement adding CitiSelect Folio 100 to the Distribution Agreements
between the Registrant and CFBDS, as distributor with respect
to Class A shares and Class B shares of the CitiSelect Portfolios
*** 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
g(3) Form of Letter Agreement adding CitiSelect Folio 100 to the Custodian
Contract between the Registrant and State Street
*** h(1) Transfer Agency and Servicing Agreement between the Registrant and
State Street, as transfer agent
h(2) Letter Agreement adding CitiSelect Folio 100 to the Transfer Agency and
Servicing Agreement between the Registrant and State Street
***** i Opinion and consent of counsel
m(1) Amended and Restated Service Plan of the Registrant for Class A shares of
the CitiSelect Portfolios
m(2) Service Plan of the Registrant for Class B shares of the CitiSelect Portfolios
o Multiple Class Plan of the Registrant
**** p(1) Powers of Attorney for the Registrant
***** p(2) Powers of Attorney for The Premium Portfolios
***** 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.
<PAGE>
***** 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 Trust's Registration
Statement on Form N-1A (File No. 2-90518) as filed with the Securities and Exchange Commission on
December 23, 1998.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 20 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, Inc., filed as Exhibits hereto;
and (c) the undertaking of the Registrant regarding indemnification set forth
in its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, High Yield Portfolio, Growth & Income Portfolio, Balanced
Portfolio, Large Cap Growth Portfolio, International Equity Portfolio,
Government Income Portfolio and Small Cap Growth Portfolio), Tax Free Reserves
Portfolio, U.S. Treasury Reserves Portfolio, Cash Reserves Portfolio,
CitiFundsSM Tax Free Income Trust (CitiFundsSM New York Tax Free Income
Portfolio, CitiFundsSM National Tax Free Income Portfolio and CitiFundsSM
California Tax Free Income Portfolio), CitiFundsSM Multi-State Tax Free Trust
(CitiFundsSM California Tax Free Reserves, CitiFundsSM New York Tax Free
Reserves and CitiFundsSM Connecticut Tax Free Reserves), CitiFundsSM
Institutional Trust (CitiFundsSM Institutional Cash Reserves) and Variable
Annuity Portfolios (CitiSelect VIP Folio 200, CitiSelect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and CitiFundsSM Small Cap
Growth VIP Portfolio). Citibank and its affiliates manage assets in excess of
$290 billion worldwide. The principal place of business of Citibank is located
at 399 Park Avenue, New York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J.
Menezes is the President and a Director of Citibank. William R. Rhodes and H.
Onno Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group
Inc. and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup
Inc. In addition, the following persons have the affiliations indicated:
<PAGE>
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President, Travelers
Property Casualty Co.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Franklin Advisory Services, Inc. ("Franklin"), a sub-adviser with
respect to the small cap value securities of Small Cap Value Portfolio, a
series of Asset Allocation Portfolios, maintains its principal office at One
Parker Plaza, 16th Floor, Fort Lee, New Jersey 07024. Franklin, a Delaware
corporation incorporated in 1996, is a registered investment adviser under the
Investment Advisers Act of 1940 and is a wholly-owned subsidiary of Franklin
Resources, Inc., a publicly owned holding company. Franklin is an investment
adviser to various open-end and closed-end investment companies.
William J. Lippman is the President and Director of Franklin Advisory
Services, Inc. Mr. Lippman holds a master of business administration degree
from New York University and a bachelor of business administration degree from
City College of New York. Mr. Lippman also serves as Senior Vice President of
Franklin Resources, Inc. and Franklin Management, Inc. and has been with the
Franklin Templeton Group since 1988. Prior to joining Franklin Advisers Inc.,
Mr. Lippman was president of L.F. Rothschild Fund Management, Inc. and has been
in the securities industry for over 30 years.
Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:
<TABLE>
<CAPTION>
<S> <C>
Name: Affiliations:
William J. Lippman Senior Vice President, Franklin Resources, Inc.
President and Director Senior Vice President, Franklin Advisers, Inc.
Senior Vice President, Franklin Templeton Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Mr. Lippman also serves as officer and/or director or trustee of
eight of the investment companies in the Franklin Group of
Funds.
<PAGE>
Charles B. Johnson President, Chief Executive Officer and Director, Franklin
Chairman of the Board and Resources, Inc.
Director Chairman of the Board and Director, Franklin Advisers, Inc.
Chairman of the Board and Director, Franklin Investment
Advisory Services, Inc.
Chairman of the Board and Director, Franklin Templeton
Distributors, Inc.
Director, Franklin/Templeton Investor Services, Inc.
Director, Franklin Templeton Services, Inc.
Director, General Host Corporation
Mr. Johnson also serves as officer and/or director or trustee, as
the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 54 of the investment companies in the
Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. Executive Vice President and Director, Franklin Resources, Inc.
Senior Vice President and Executive Vice President and Director, Franklin Templeton
Director Distributors, Inc.
President and Director, Franklin Advisers, Inc.
Senior Vice President and Director, Franklin Investment
Advisory Services, Inc.
Director, Franklin/Templeton Investor Services, Inc.
Mr. Johnson also serves as officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the
investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek Senior Vice President and General Counsel, Franklin Resources,
Vice President and Assistant Inc.
Secretary Senior Vice President, Franklin Templeton Distributors, Inc.
Vice President, Franklin Advisers, Inc.
Vice President, Franklin Investment Advisory Services, Inc.
Ms. Gatzek also serves as officer of 60 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan Senior Vice President, Chief Financial Officer and Treasurer,
Treasurer Franklin Resources, Inc.
Executive Vice President, Templeton Worldwide, Inc.
Senior Vice President and Treasurer, Franklin Advisers, Inc.
Senior Vice President and Treasurer, Franklin Templeton
Distributors, Inc.
Senior Vice President, Franklin/Templeton Investor Services,
Inc.
Treasurer, Franklin Investment Advisory Services, Inc.
Mr. Flanagan also serves as officer of most other subsidiaries of
Franklin Resources, Inc. and officer, director and/or trustee of
60 of the investment companies in the Franklin Templeton
Group of Funds.
<PAGE>
Leslie M. Kratter Vice President, Franklin Resources, Inc.
Secretary Vice President, Franklin Institutional Services Corporation
President and Director, Franklin/Templeton Travel, Inc.
</TABLE>
Hotchkis and Wiley, a division of the Capital Management Group of
Merrill Lynch Asset Management, L.P. ("Hotchkis"), a sub-adviser to
International Portfolio, a series of Asset Allocation Portfolios, maintains its
principal office at 725 South Figueroa Street, Suite 4000, Los Angeles,
California 90017-5400. Harry Hartford and Sarah Ketterer manage international
equity accounts and are also responsible for international investment research.
Each serves on the Investment Policy Committee at Hotchkis. Prior to joining
Hotchkis, Mr. Hartford was with the Investment Bank of Ireland, where he gained
10 years of experience in both international and global equity management.
Prior to joining Hotchkis, Ms. Ketterer was an associate with Bankers Trust and
an analyst at Dean Witter.
Hotchkis became a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. upon the completion of the sale by Hotchkis and
Wiley, a Delaware Limited Liability Company and the general partner of Hotchkis
& Wiley, a California limited partnership, of all of the partnership interests
in Hotchkis & Wiley to Merrill Lynch & Co., Inc., a Delaware corporation, in
November of 1996.
Following are the managing personnel of Hotchkis:
<TABLE>
<CAPTION>
<S> <C>
Name and Position: Other Affiliations:
John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Board of Governors, The Music Center
Chairman Director, The Music Center Foundation
Director, Los Angeles Philharmonic Orchestra
Director, Big Brothers of Greater Los Angeles
Director, Executive Service Corps of Southern California
Director, KCET
Director, Teach for America
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson School
Director, Fountainhead Water Company, Inc.
Michael L. Quinn Head of Merrill Lynch Capital Management Group
Chief Executive Officer
</TABLE>
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of Mutual
Management Corp. ("MMC"), a subadviser of Large Cap Value Portfolio, a series
of Asset Allocation Portfolios, reference is made to MMC's current Form ADV
(File No. 801-8314) filed under the Advisers Act, incorporated herein by
reference.
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of Salomon
Brothers Asset Management Inc ("SBAM"), a subadviser of High Yield Portfolio, a
series of The Premium Portfolios, reference is made to SBAM's current Form ADV
(File No. 801-32046) filed under the Advisers Act, incorporated herein by
reference.
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of Salomon
Brothers Asset Management Limited ("SBAML"), a subadviser of Foreign Bond
Portfolio, a series of Asset Allocation Portfolios, reference is made to
SBAML's current Form ADV (File No. 801-43335) filed under the Advisers Act,
incorporated herein by reference.
<PAGE>
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, CitiFundsSM
Balanced Portfolio, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400, CitiSelect Folio 500, CitiSelect VIP Folio 200, CitiSelect VIP Folio
300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and CitiFundsSM Small
Cap Growth VIP Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign Bond
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small Cap
Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio. CFBDS also serves as the
distributor for the following funds: The Travelers Fund U for Variable
Annuities, The Travelers Fund VA for Variable Annuities, The Travelers Fund BD
for Variable Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for
Variable Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate Account PF
for Variable Annuities, The Travelers Separate Account PF II for Variable
Annuities, The Travelers Separate Account QP for Variable Annuities, The
Travelers Separate Account TM for Variable Annuities, The Travelers Separate
Account TM II for Variable Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The Travelers
Separate Account Eight for Variable Annuities, The Travelers Fund UL for
Variable Annuities, The Travelers Fund UL II for Variable Annuities, The
Travelers Variable Life Insurance Separate Account One, The Travelers Variable
Life Insurance Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The Travelers Separate Account MGA
II, The Travelers Growth and Income Stock Account for Variable Annuities, The
Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account
for Variable Annuities, The Travelers Timed Bond Account for Variable
Annuities, Emerging Growth Fund, Government Fund, Growth and Income Fund,
International Equity Fund, Municipal Fund, Balanced Investments, Emerging
Markets Equity Investments, Government Money Investments, High Yield
Investments, Intermediate Fixed Income Investments, International Equity
<PAGE>
Investments, International Fixed Income Investments, Large Capitalization
Growth Investments, Large Capitalization Value Equity Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Municipal Bond Investments,
Small Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth & Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Balanced Portfolio,
Conservative Portfolio, Growth Portfolio, High Growth Portfolio, Income
Portfolio, Global Portfolio, Select Balanced Portfolio, Select Conservative
Portfolio, Select Growth Portfolio, Select High Growth Portfolio, Select Income
Portfolio, Concert Social Awareness Fund, Smith Barney Large Cap Blend Fund,
Smith Barney Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High
Grade Bond Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund,
Smith Barney Convertible Fund, Smith Barney Diversified Strategic Income Fund,
Smith Barney Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney
Municipal High Income Fund, Smith Barney Premium Total Return Fund, Smith
Barney Total Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal
Portfolio, Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith
Barney Government Securities Fund, Smith Barney Hansberger Global Small Cap
Value Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment
Grade Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond
Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of
Form BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street
(distributor) Boston, MA 02109
<PAGE>
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent and custodian) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment 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 12th day of February, 1999.
CITIFUNDS TRUST I
By Philip W. Coolidge
---------------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on February 12, 1999.
Signature Title
Philip W. Coolidge President, Principal Executive Officer and Trustee
________________________
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
________________________ Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
________________________
Riley C. Gilley
Diana R. Harrington* Trustee
________________________
Diana R. Harrington
Susan B. Kerley* Trustee
________________________
Susan B. Kerley
C. Oscar Morong, Jr.* Trustee
________________________
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
________________________
Kirby Warren
William S. Woods, Jr.* Trustee
________________________
William S. Woods, Jr.
*By: Philip W. Coolidge
_____________________
Philip W. Coolidge
Executed by Philip W. Coolidge on behalf of
those indicated pursuant to Powers of
Attorney.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
d Form of Management Agreement between the Registrant and Citibank,
N.A., as manager to CitiSelect Folio 100
e(1) Amended and Restated Distribution Agreement between the Registrant and
CFBDS, as distributor with respect to Class A shares of the CitiSelect
Portfolios
e(2) Distribution Agreement between the Registrant and CFBDS, as distributor
with respect to Class B shares of the CitiSelect Portfolios
e(3) Form of Letter Agreement adding CitiSelect Folio 100 to the Distribution
Agreements between the Registrant and CFBDS, as distributor with respect
to Class A shares and Class B shares of the CitiSelect Portfolios
g(3) Letter Agreement adding CitiSelect Folio 100 to the Custodian Contract
between the Registrant and State Street
h(2) Letter Agreement adding CitiSelect Folio 100 to the Transfer Agency and
Servicing Agreement between the Registrant and State Street
m(1) Amended and Restated Service Plan of the Registrant for Class A shares of
the CitiSelect Portfolios
m(2) Service Plan of the Registrant for Class B shares of the CitiSelect Portfolios
o Multiple Class Plan of the Registrant
</TABLE>
Exhibit d
FORM OF
MANAGEMENT AGREEMENT
CITIFUNDS TRUST I
CitiSelectSM Folio 100
MANAGEMENT AGREEMENT, dated as of February 5, 1999, by and between
CitiFunds Trust I, a Massachusetts trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Adviser").
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 CitiSelectSM Folio 100 (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 Adviser 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 13, 1984, as amended and restated on August 9, 1996 and as amended
and restated on November 14, 1997, and By-laws, as each may be amended 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 Adviser 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 Adviser thereof in writing, the Adviser shall be bound by such
determination for the period, if any, specified in such notice or until
<PAGE>
similarly notified that such determination has been revoked. The Adviser 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 Adviser 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 Adviser or its affiliates exercise
investment discretion. The Adviser 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 Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be viewed in
terms of either that particular transaction or the overall responsibilities
which the Adviser 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 Adviser 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 Adviser may employ,
at its own expense, one or more subadvisers; provided that in each case the
Adviser shall supervise the activities of each subadviser. Any agreement
between the Adviser and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement.
(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
<PAGE>
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
"interested persons" of the Trust; 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
nonrecurring 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) ---% of the Fund's
average daily net assets for the Fund's then-current fiscal year or (ii) the
difference between ---% 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.
<PAGE>
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 of
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 , on which date it will terminate unless its continuance after , 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
<PAGE>
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 "CitiSelectSM" 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 "CitiSelectSM" in their names. If Citibank, or its
assignee, as the case may be, ceases to serve as the adviser 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
"CitiSelectSM."
<PAGE>
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:__________________________ By:__________________________
Title:_______________________ Title:_______________________
Exhibit e(1)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of February 9, 1996 and amended and restated as of
January 4, 1999, by and between CitiFunds Trust I (formerly, Landmark Funds I),
a Massachusetts business trust (the "Trust"), and CFBDS, Inc., a Massachusetts
corporation ("Distributor"). This Agreement relates solely to (i) Shares of
Beneficial Interest of each series of the Trust with Shares that are not
divided into classes and (ii) Shares of Beneficial Interest of each series of
the Trust that are divided into classes which are designated "Class A"
("Shares").
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Shares of each of the Trust's series listed on Exhibit A hereto (the "Funds")
and has registered the Shares of the Funds under the Securities Act of 1933, as
amended (the "1933 Act");
WHEREAS, the Trust has adopted an Amended and Restated Service Plan
pursuant to Rule 12b1 under the 1940 Act (the "Service Plan") and may enter
into related agreements providing for the distribution and servicing of Shares
of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Shares of the
Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Shares of the Funds in jurisdictions wherein such Shares
may be legally offered for sale; provided, however, that the Trust in its
absolute discretion may issue Shares of the Funds in connection with (i)
the payment or reinvestment of dividends or distributions; (ii) any merger
or consolidation of the Trust or of the Funds with any other investment
<PAGE>
company or trust or any personal holding company, or the acquisition of the
assets of any such entity or another series of the Trust; or (iii) any
offer of exchange permitted by Section 11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Shares of the Funds and agrees that it will sell the
Shares as agent for the Trust at prices determined as hereinafter provided
and on the terms hereinafter set forth, all according to the then-current
prospectus and statement of additional information of each Fund
(collectively, the "Prospectus" and the "Statement of Additional
Information"), applicable laws, rules and regulations and the Declaration
of Trust of the Trust. Distributor agrees to use its best efforts to
solicit orders for the sale of Shares of the Funds, and agrees to transmit
promptly to the Trust (or to the transfer agent of the Funds, if so
instructed in writing by the Trust) any orders received by it for purchase
or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will
require each dealer or other such party to conform to the provisions of
this Agreement, the Prospectus, the Statement of Additional Information and
applicable law; and neither Distributor nor any such dealers or others
shall withhold the placing of purchase orders for Shares so as to make a
profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders
therefor. Distributor will not make, or authorize any dealers or others to
make: (i) any short sales of Shares; or (ii) any sales of Shares to any
Trustee or officer of the Trust, any officer or director of Distributor or
any corporation or association furnishing investment advisory, managerial
or supervisory services to the Trust, or to any such corporation or
association, unless such sales are made in accordance with the Prospectus
and the Statement of Additional Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the
Statement of Additional Information or advertisements and sales literature
prepared by or on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be
reasonably necessary in the discretion of the Trust's officers in
<PAGE>
connection with the qualification of Shares of each Fund for sale in such
states as Distributor and the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or
the Trust under this Agreement, and no orders for the purchase or sale of
such Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to
Shares of that Fund or any necessary amendments thereto shall be suspended
under any of the provisions of the 1933 Act, or if and so long as a current
prospectus for Shares of that Fund as required by Section 10 of the 1933
Act is not on file with the Securities and Exchange Commission; provided,
however, that nothing contained in this paragraph (g) shall in any way
restrict the Trust's obligation to repurchase any Shares from any
shareholder in accordance with the provisions of the applicable Fund's
Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its
sole discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the
Shares of each Fund shall be the net asset value of such Shares plus the amount
of any applicable sales charge, as provided in the Prospectus. The excess, if
any, of the public offering price of the Shares over the net asset value of the
Shares, and any contingent deferred sales charge applicable to Shares of any
Fund as set forth in the applicable Fund's Prospectus, may be paid to, or
retained by, the Distributor, securities dealers, financial institutions
(including banks) and others, as partial compensation for their services in
connection with the sale of Shares. At no time shall the Trust receive less
than the full net asset value of the Shares of each Fund, determined in the
manner set forth in the Prospectus and the Statement of Additional Information.
Distributor also may receive such compensation under the Trust's Service Plan
for Shares as may be authorized by the Trustees of the Trust from time to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably
request for use in connection with the sale of Shares of the Funds under this
Agreement. The Trust shall also make available a sufficient number of copies of
the Funds' Prospectus and Statement of Additional Information for use by the
Distributor.
<PAGE>
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission for
amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any such
registration statement or Prospectus or the initiation of any proceeding
for that purpose;
(iii) of the happening of any event which makes untrue any statement of
a material fact made in any such registration statement or Prospectus or
which requires the making of a change in such registration statement or
Prospectus in order to make the statements therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission with
respect to any amendments to any such registration statement or Prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the
Funds; expenses connected with the execution, recording and settlement of
security transactions; insurance premiums; fees and expenses of the custodian
for all services to the Funds, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Funds (including but not limited to the fees of independent
pricing services); expenses of meetings of shareholders; expenses relating to
the issuance, registration and qualification of shares; and such non-recurring
<PAGE>
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of the
Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of the
Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor, its officers and directors, and any person which controls
Distributor within the meaning of the 1933 Act against any and all claims,
demands, liabilities and expenses that any such indemnified party may incur
under the 1933 Act, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the registration
statement for any Fund, any Prospectus or Statement of Additional Information,
or any advertisements or sales literature prepared by or on behalf of the Trust
for Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take any
action contrary to any provision of its Declaration of Trust or any applicable
statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities
and expenses that any such indemnified party may incur under the 1933 Act, or
<PAGE>
common law or otherwise, arising out of or based upon (i) any alleged untrue
statement of a material fact contained in the registration statement for any
Fund, any Prospectus or Statement of Additional Information, or any
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor; and (ii) any act or deed of Distributor or its sales
representatives that has not been authorized by the Trust in any Prospectus or
Statement of Additional Information or by this Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue in
effect as to each Fund until November 13, 1999 and shall continue in effect for
successive periods of one year, but only so long as each such continuance is
specifically approved by votes of a majority of both the Trustees of the Trust
and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Service Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the particular Fund
in question, and not any other Fund or series of the Trust. The term "CitiFunds
Trust I" means and refers to the Trustees from time to time serving under the
Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and delivery of
this Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on any of them
<PAGE>
personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust I
By: /s/ Philip Coolidge
CFBDS, Inc.
By: /s/ Philip Coolidge
<PAGE>
Exhibit A
Funds
CitiSelect Folio 200
CitiSelect Folio 300
CitiSelect Folio 400
CitiSelect Folio 500
Exhibit e(2)
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of January 4, 1999, by and between CitiFunds Trust I
(formerly, Landmark Funds I), a Massachusetts business trust (the "Trust"), and
CFBDS, Inc., a Massachusetts corporation ("Distributor"). This Agreement
relates solely to Shares of Beneficial Interest designated "Class B."
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are divided
into separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Class B Shares of each of the Trust's series listed on Exhibit A hereto (the
"Funds") and has registered the Shares of the Funds under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust has adopted a Service Plan pursuant to Rule 12b1 under
the 1940 Act (the "Service Plan") and may enter into related agreements
providing for the distribution and servicing of Shares of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Class B
Shares of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Class B Shares of the Funds in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the Trust in
its absolute discretion may issue Shares of the Funds in connection with (i)
the payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another series of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
<PAGE>
(b) Distributor hereby accepts such appointment as exclusive agent for the
distribution of Class B Shares of the Funds and agrees that it will sell the
Shares as agent for the Trust at prices determined as hereinafter provided and
on the terms hereinafter set forth, all according to the then-current
prospectus and statement of additional information of each Fund (collectively,
the "Prospectus" and the "Statement of Additional Information"), applicable
laws, rules and regulations and the Declaration of Trust of the Trust.
Distributor agrees to use its best efforts to solicit orders for the sale of
Shares of the Funds, and agrees to transmit promptly to the Trust (or to the
transfer agent of the Funds, if so instructed in writing by the Trust) any
orders received by it for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing
of purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to the
extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information or
make any representations regarding Shares of the Funds, except such information
or representations as are contained in the Prospectus, the Statement of
Additional Information or advertisements and sales literature prepared by or on
behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any and
all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
<PAGE>
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares
of that Fund or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current prospectus
for Shares of that Fund as required by Section 10 of the 1933 Act is not on
file with the Securities and Exchange Commission; provided, however, that
nothing contained in this paragraph (g) shall in any way restrict the Trust's
obligation to repurchase any Shares from any shareholder in accordance with the
provisions of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate, suspend
or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the
Class B Shares of each Fund shall be the net asset value of such Shares, as
provided in the Prospectus. Any contingent deferred sales charge applicable to
Class B Shares of any Fund as set forth in the applicable Fund's Prospectus,
may be paid to, or retained by, the Distributor, securities dealers, financial
institutions (including banks) and others, as partial compensation for their
services in connection with the sale of Class B Shares. At no time shall the
Trust receive less than the full net asset value of the Shares of each Fund,
determined in the manner set forth in the Prospectus and the Statement of
Additional Information. Distributor also may receive such compensation under
the Trust's Service Plan for Class B Shares as may be authorized by the
Trustees of the Trust from time to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably
request for use in connection with the sale of Shares of the Funds under this
Agreement. The Trust shall also make available a sufficient number of copies of
the Funds' Prospectus and Statement of Additional Information for use by the
Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission for
amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
<PAGE>
(ii) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any such
registration statement or Prospectus or the initiation of any proceeding
for that purpose;
(iii) of the happening of any event which makes untrue any statement
of a material fact made in any such registration statement or Prospectus
or which requires the making of a change in such registration statement or
Prospectus in order to make the statements therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission with
respect to any amendments to any such registration statement or Prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the
Funds; expenses connected with the execution, recording and settlement of
security transactions; insurance premiums; fees and expenses of the custodian
for all services to the Funds, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Funds (including but not limited to the fees of independent
pricing services); expenses of meetings of shareholders; expenses relating to
the issuance, registration and qualification of shares; and such non-recurring
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
<PAGE>
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of the
Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of the
Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor, its officers and directors, and any person which controls
Distributor within the meaning of the 1933 Act against any and all claims,
demands, liabilities and expenses that any such indemnified party may incur
under the 1933 Act, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the registration
statement for any Fund, any Prospectus or Statement of Additional Information,
or any advertisements or sales literature prepared by or on behalf of the Trust
for Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take any
action contrary to any provision of its Declaration of Trust or any applicable
statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities
and expenses that any such indemnified party may incur under the 1933 Act, or
common law or otherwise, arising out of or based upon (i) any alleged untrue
statement of a material fact contained in the registration statement for any
Fund, any Prospectus or Statement of Additional Information, or any
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, if such
statement or omission was made in reliance upon and in conformity with
<PAGE>
information furnished to the Trust in connection therewith by or on behalf of
Distributor; and (ii) any act or deed of Distributor or its sales
representatives that has not been authorized by the Trust in any Prospectus or
Statement of Additional Information or by this Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue in
effect as to each Fund until November 13, 1999 and shall continue in effect for
successive periods of one year, but only so long as each such continuance is
specifically approved by votes of a majority of both the Trustees of the Trust
and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Service Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the particular Fund
in question, and not any other Fund or series of the Trust. The term "CitiFunds
Trust I " means and refers to the Trustees from time to time serving under the
Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and delivery of
this Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust I
By: /s/ Philip Coolidge
CFBDS, Inc.
By: /s/ Philip Coolidge
<PAGE>
Exhibit A
Funds
CitiSelect Folio 200
CitiSelect Folio 300
CitiSelect Folio 400
CitiSelect Folio 500
Exhibit e(3)
CitiFunds Trust I
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
__________ __, 1999
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
Re: CitiFunds Trust I - Distribution Agreements
Ladies and Gentlemen:
This letter serves as notice that CitiSelect Folio 100 (the "Fund") is
hereby added to the list of series of the above-named Trust to which CFBDS,
Inc. ("CFBDS") renders services as distributor pursuant to the terms of (i) the
Amended and Restated Distribution Agreement dated as of February 9, 1996 and
amended and restated as of January 4, 1999 between the Trust and CFBDS relating
to Shares of Beneficial Interest designated "Class A"; and (ii) the
Distribution Agreement dated as of January 4, 1999 between the Trust and CFBDS
relating to Shares of Beneficial Interest designated "Class B" (collectively,
the "Agreements"). In addition to CitiSelect Folio 100, CFBDS currently renders
services as distributor to CitiSelect Folio 200, CitiSelect Folio 300,
CitiSelect Folio 400 and CitiSelect Folio 500 pursuant to the Agreements.
Please sign below to acknowledge your receipt of this notice adding the
Fund as a beneficiary under the Agreements.
CITIFUNDS TRUST I
By: _________________________
Title: ______________________
Acknowledgment:
CFBDS, INC.
By: ________________________
Title: _____________________
Exhibit g(3)
CitiFunds Trust I
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
_________ __, 1999
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: CitiFunds Trust I (formerly known as Landmark Funds I) - Custodian
Contract and Accounting Services Agreement
Ladies and Gentlemen:
Pursuant to Section 17 of the Custodian Contract dated as of June 17, 1996
(the "Custodian Contract"), between CitiFunds Trust I (the "Trust") and State
Street Bank and Trust Company (the "Custodian") and Section 7.1 of the
Accounting Services Agreement dated as of June 17, 1996 (the "Accounting
Services Agreement") between the Trust and the Custodian, we hereby request
that, effective ______ __, 1999, CitiSelect Folio 100 (the "Fund") be added to
the list of series of the Trust to which the Custodian renders services as
custodian under the terms of the Custodian Contract and as accounting agent
under the terms of the Accounting Services Agreement.
Please sign below to evidence your agreement to render such services as
custodian and as accounting agent to the Fund and to add the Fund as a series
under each of the Custodian Contract and the Accounting Services Agreement, in
each case effective as of the date so indicated in the first paragraph of this
letter.
CITIFUNDS TRUST I
By: ____________________________
____________________________
Agreed: STATE STREET BANK AND TRUST COMPANY
By: ____________________________
____________________________
Exhibit h(2)
CitiFunds Trust I
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
_________ __, 1999
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: CitiFunds Trust I - Transfer Agency and
Service Agreement
Ladies and Gentlemen:
This letter serves as notice that CitiSelect Folio 100 (the "Fund") is
added to the list of series of CitiFunds Trust I (formerly, "Landmark Growth &
Income Fund") (the "Trust") to which State Street Bank and Trust Company
("State Street") renders services as transfer agent pursuant to the terms of
the Transfer Agency Agreement dated as of August 21, 1986 (the "Agreement")
between the Trust and State Street.
Please sign below to acknowledge your receipt of this notice adding the
Fund as a beneficiary under the Agreement.
CITIFUNDS TRUST I
By: _________________________
Title: ______________________
Acknowledgment:
STATE STREET BANK AND TRUST COMPANY
By: ____________________________
Title: _________________________
Exhibit m(1)
AMENDED AND RESTATED
SERVICE PLAN
SERVICE PLAN, dated as of February 9, 1996 and amended and restated
effective as of January 4, 1999, of CitiFunds Trust I, a Massachusetts business
trust (the "Trust"), with respect to shares of beneficial interest of its
series CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect Folio 400 and
CitiSelect Folio 500 and any other series of the Trust adopting this plan (the
"Series"). This Plan relates solely to (i) shares of beneficial interest of the
Series that are not divided into Classes and (ii) shares of beneficial interest
of each of the Series that are divided into Classes which are designated "Class
A" ("Shares").
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or in
any agreement relating hereto (the "NonInterested Trustees"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Section 36(a) and (b) of the
1940 Act, that there is a reasonable likelihood that this Plan will benefit the
Trust and the shareholders of the Series, have approved this Plan by votes cast
at a meeting called for the purpose of voting hereon and on any agreements
related hereto;
WHEREAS, an initial sales charge may be paid by investors who purchase
Shares, and CFBDS, Inc. (the "Distributor"), broker-dealers, banks and other
financial intermediaries may receive such sales charge as partial compensation
for their services in connection with the sale of Shares;
WHEREAS, each Series or the Distributor may impose certain deferred sales
charges in connection with the repurchase of Shares by such Series, and the
Series may pay to the Distributor, dealers and others, or the Series may permit
<PAGE>
such persons to retain, as the case may be, all or any portion of such deferred
sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms
of the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
(a) engage, directly or indirectly, in any activities primarily
intended to result in the sale of Shares of the Series, which activities
may include, but are not limited to (i) payments to the Trust's
Distributor for distribution services, (ii) payments to securities
dealers, financial institutions (which may include banks) and others in
respect of the sale of Shares of the Series,
(iii) payments for advertising, marketing or other promotional activity,
and (iv) payments for preparation, printing, and distribution of
prospectuses and statements of additional information and reports of the
Trust for recipients other than regulators and existing shareholders of
the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may
include banks) and others for providing personal service and/or the
maintenance of shareholder accounts.
The Trust is authorized to engage in the activities listed above either
directly or through other persons with which the Trust has entered into
agreements related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances, an
initial sales charge may be paid by investors who purchase Shares of each
Series, and the Series may pay to the Distributor, securities dealers,
financial institutions (including banks) and others, or the Series may permit
such persons to retain, as the case may be, such sales charge as partial
compensation for their services in connection with the sale of Shares. It is
also understood that, under certain circumstances, each Series or the
Distributor may impose certain deferred sales charges in connection with the
repurchase of Shares of such Series, and the Series may pay to the Distributor,
securities dealers, financial institutions (including banks) and others, or the
Series may permit such persons to retain, as the case may be, all or any
portion of such deferred sales charges.
<PAGE>
3. Maximum Expenditures. The expenditures to be made by the Trust pursuant
to this Plan and the basis upon which payment of such expenditures will be made
shall be determined by the Trustees of the Trust, but in no event may such
expenditures exceed an amount calculated at the rate of 0.50% per annum of the
average daily net assets of the Shares of each Series. Payments pursuant to
this Plan may be made directly by the Trust to the Distributor or to other
persons with which the Trust has entered into agreements related to this Plan.
For purposes of determining the fees payable under this Plan, the value of each
Series' average daily net assets shall be computed in the manner specified in
the applicable Series' then-current prospectus and statement of additional
information.
4. Trust's Expenses. The Trust shall pay all expenses of its operations,
including the following, and such expenses shall not constitute expenditures
under this Plan: organization costs of each Series; compensation of Trustees;
governmental fees; interest charges; loan commitment fees; taxes; membership
dues in industry associations allocable to the Trust; fees and expenses of
independent auditors, legal counsel and any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of the Series
(including but not limited to the fees of independent pricing services);
expenses of meetings of shareholders; expenses relating to the issuance,
registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the
Trustees of the Trust and the Non-Interested Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
<PAGE>
(b) This Plan may be terminated at any time with respect to any Series by
a vote of a majority of the NonInterested Trustees or by a vote of a majority
of the outstanding voting securities, as defined in the 1940 Act, of Shares of
the applicable Series.
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect, the
selection and nomination of the Non-Interested Trustees of the Trust shall be
committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
Exhibit m(2)
SERVICE PLAN
SERVICE PLAN, dated as of January 4, 1999, of CitiFunds Trust I, a
Massachusetts business trust (the "Trust"), with respect to shares of
beneficial interest of its series CitiSelect Folio 200, CitiSelect Folio 300,
CitiSelect Folio 400 and CitiSelect Folio 500 and any other series of the Trust
adopting this plan (the "Series"). This Plan relates solely to shares of
beneficial interest of each Series which are designated "Class B" ("Shares").
WHEREAS, the Trust engages in business as an openend management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or in
any agreement relating hereto (the "NonInterested Trustees"), having
determined, in the exercise of reasonable business judgment and in light of
their fiduciary duties under state law and under Section 36(a) and (b) of the
1940 Act, that there is a reasonable likelihood that this Plan will benefit the
Trust and the shareholders of the Series, have approved this Plan by votes cast
at a meeting called for the purpose of voting hereon and on any agreements
related hereto;
WHEREAS, each Series or CFBDS, Inc. (the "Distributor") may impose certain
deferred sales charges in connection with the repurchase of Shares by such
Series, and the Series may pay to the Distributor, dealers and others, or the
Series may permit such persons to retain, as the case may be, all or any
portion of such deferred sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms
of the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
<PAGE>
(a) engage, directly or indirectly, in any activities primarily
intended to result in the sale of Shares of the Series, which activities
may include, but are not limited to (i) payments to the Trust's
Distributor for distribution services, (ii) payments to securities
dealers, financial institutions (which may include banks) and others in
respect of the sale of Shares of the Series, (iii) payments for
advertising, marketing or other promotional activity, and (iv) payments
for preparation, printing, and distribution of prospectuses and
statements of additional information and reports of the Trust for
recipients other than regulators and existing shareholders of the Trust;
and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may
include banks) and others for providing personal service and/or the
maintenance of shareholder accounts.
The Trust is authorized to engage in the activities listed above either
directly or through other persons with which the Trust has entered into
agreements related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances, each
Series or the Distributor may impose certain deferred sales charges in
connection with the repurchase of Shares of such Series, and the Series may pay
to the Distributor, securities dealers, financial institutions (including
banks) and others, or the Series may permit such persons to retain, as the case
may be, all or any portion of such deferred sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust pursuant
to this Plan and the basis upon which payment of such expenditures will be made
shall be determined by the Trustees of the Trust, but in no event may such
expenditures exceed an amount calculated at the rate of 1.00% (0.75% for
CitiSelect Folio 200 and CitiSelect Folio 300) per annum of the average daily
net assets of the Shares of each Series. Payments pursuant to this Plan may be
made directly by the Trust to the Distributor or to other persons with which
the Trust has entered into agreements related to this Plan. For purposes of
determining the fees payable under this Plan, the value of each Series' average
daily net assets shall be computed in the manner specified in the applicable
Series' then-current prospectus and statement of additional information.
4. Trust's Expenses. The Trust shall pay all expenses of its operations,
including the following, and such expenses shall not constitute expenditures
<PAGE>
under this Plan: organization costs of each Series; compensation of Trustees;
governmental fees; interest charges; loan commitment fees; taxes; membership
dues in industry associations allocable to the Trust; fees and expenses of
independent auditors, legal counsel and any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of the Series
(including but not limited to the fees of independent pricing services);
expenses of meetings of shareholders; expenses relating to the issuance,
registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) This Plan shall become effective as to a
Series upon (i) approval by a vote of at least a majority of the outstanding
voting securities (as defined in the 1940 Act) of Shares of the particular
Series, and (ii) approval by a majority of the Trustees of the Trust and a
majority of the Non-Interested Trustees cast in person at a meeting called for
the purpose of voting on this Plan. Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the
Trustees of the Trust and the Non-Interested Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series by
a vote of a majority of the NonInterested Trustees or by a vote of a majority
of the outstanding voting securities, as defined in the 1940 Act, of Shares of
the applicable Series.
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
<PAGE>
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect, the
selection and nomination of the Non-Interested Trustees of the Trust shall be
committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the
provisions of the 1940 Act.
Exhibit o
CITIFUNDS TRUST I
MULTIPLE CLASS PLAN
MULTIPLE CLASS PLAN, dated as of November 13, 1998, of CitiFunds Trust I,
a Massachusetts business trust (the "Trust"), with respect to each of its
series whether now existing or hereafter established (collectively, the
"Funds").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the shares of beneficial interest (without par value) of the
Trust (the "Shares") are divided into separate series and may be divided into
one or more separate classes;
WHEREAS, the Trust desires to adopt this Multiple Class Plan (the "Plan")
on behalf of the Funds as a plan pursuant to Rule 18f-3 in order that the Funds
may issue multiple classes of Shares;
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Trust should adopt and implement this Plan, has evaluated such information and
considered such pertinent factors as it deemed necessary to an informed
evaluation of this Plan and determination as to whether this Plan should be
adopted and implemented, and has determined that the adoption and
implementation of this Plan, including the expense allocation contemplated
herein, are in the best interests of each class of Shares individually, as well
as the best interests of the Funds;
NOW THEREFORE, the Trust hereby adopts this Plan pursuant to Rule 18f-3
under the 1940 Act, on the following terms and conditions:
1. The Funds may issue Shares in one or more classes (each, a "Class"
and collectively, the "Classes"). Shares so issued will have the rights and
preferences set forth in the Establishment and Designation of Classes and the
Trust's then current registration statement relating to the Funds.
<PAGE>
2. Shares issued in Classes will be issued subject to and in accordance
with the terms of Rule 18f-3 under the 1940 Act, including, without limitation:
(a) Each Class shall have a different arrangement for shareholder
services or the distribution of securities or both, and shall pay all of
the expenses of that arrangement;
(b) Each Class may pay a different share of other expenses, not
including advisory or custodial fees or other expenses related to the
management of the Trust's assets, if these expenses are actually incurred
in a different amount by that Class, or if the Class receives services of
a different kind or to a different degree than other Classes;
(c) Each Class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement;
(d) Each Class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one Class differ from
the interests of any other Class; and
(e) Except as otherwise permitted under Rule 18f-3 under the 1940
Act, each Class shall have the same rights and obligations as each other
Class.
3. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust or By-Laws or any applicable
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Trustees of the responsibility for
and control of the conduct of the affairs of the Trust.
4. This Plan shall become effective as to the Funds upon the later to
occur of (a) approval by a vote of the Board of Trustees and vote of a majority
of the Trustees who are not "interested persons" of the Trust (the "Qualified
Trustees"), and (b) January 4, 1999.
5. This Plan shall continue in effect indefinitely unless terminated by
a vote of the Board of Trustees of the Trust. This Plan may be terminated at
any time with respect to the Funds by a vote of the Board of Trustees of the
Trust. This Plan supercedes any and all other multiple class plans heretofore
approved by the Board of Trustees of the Trust with respect to the Funds.
<PAGE>
6. This Plan may be amended at any time by the Board of Trustees of the
Trust, provided that any material amendment of this Plan shall be effective
only upon approval by a vote of the Board of Trustees of the Trust and a
majority of the Qualified Trustees.
7. This Plan shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
8. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
