<PAGE>
As filed with the Securities and Exchange Commission on March 1, 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. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 34
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 March 1, 1999 pursuant
to paragraph (b) of Rule 485.
- -------------------------------------------------------------------------------
* This filing relates solely to shares of the Trust's series designated
CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect Folio 400 and
CitiSelect Folio 500.
<PAGE>
MARCH 1, 1999
PROSPECTUS
CitiSelect(R) Portfolios
A FAMILY OF ASSET ALLOCATION MUTUAL FUNDS
MANAGED BY CITIBANK, N.A.
CITISELECT(R) FOLIO 200
CITISELECT(R) FOLIO 300
CITISELECT(R) FOLIO 400
CITISELECT(R) FOLIO 500
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.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Table of Contents
FUNDS AT A GLANCE ...................................................... 3
YOUR CITISELECT ACCOUNT ................................................ 21
CHOOSING A SHARE CLASS .............................................. 21
HOW TO BUY SHARES ................................................... 29
HOW THE PRICE OF YOUR SHARES IS CALCULATED 30
HOW TO SELL SHARES .................................................. 30
REINSTATING RECENTLY SOLD SHARES .................................... 32
EXCHANGES ........................................................... 32
DIVIDENDS ........................................................... 34
TAX MATTERS ......................................................... 34
MANAGEMENT OF THE FUNDS ................................................ 37
MANAGER ............................................................. 37
MANAGEMENT FEES ..................................................... 40
MORE ABOUT THE FUNDS ................................................... 42
PRINCIPAL INVESTMENT STRATEGIES ..................................... 42
RISKS ............................................................... 52
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
FUNDS AT A GLANCE
Funds at a Glance
The four diversified mutual funds described in this prospectus
are asset allocation funds. Each Fund invests in a carefully
selected mix of equity, fixed income and money market
securities that is designed by Citibank to offer a different
level of potential return with a corresponding amount of risk.
For example, CitiSelect Folio 200 is designed to provide the
lowest relative risk, but with a lower level of potential
return. CitiSelect Folio 500 is designed to provide the
highest potential for return, but with the highest risk. Your
investment objective, your investment time frame and your
comfort level with risk will help you decide which Fund to
consider.
Each Fund has its own investment goal and its own mix of
investments. Of course, there is no assurance that any Fund
will achieve its goal.
This summary briefly describes each of the Funds and the
principal risks of investing. Please note that each Fund
invests in securities through several underlying mutual funds.
For more information, see "More About the Funds" on page 42.
FUND GOALS
CITISELECT FOLIO 200
This Fund's goal is as high a total return over time as is
consistent with a primary emphasis on a combination of fixed
income and money market securities, and a secondary emphasis
on equity securities.
CITISELECT FOLIO 300
This Fund's goal is as high a total return over time as is
consistent with a balanced emphasis on equity and fixed income
securities.
CITISELECT FOLIO 400
This Fund's goal is as high a total return over time as is
consistent with a primary emphasis on equity securities, and a
secondary emphasis on fixed income securities.
CITISELECT FOLIO 500
This Fund's goal is as high a total return over time as is
consistent with a dominant emphasis on equity securities and a
small allocation to fixed income securities.
MAIN INVESTMENT STRATEGIES
Each Fund invests in a mix of equity, fixed income and money
market securities that is designed by Citibank to offer a
different level of potential return with a different amount of
risk. The Funds' 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 Funds'
fixed income and money market securities may include bonds,
short-term notes, mortgage-backed and asset-backed securities,
certificates of deposit and repurchase agreements.
Please note that these Funds seek high total returns over
time. Current income is not a primary consideration.
o CITISELECT FOLIO 200 invests primarily in fixed income and money
market securities. A smaller allocation to equity securities gives
the potential for some capital growth. This Fund is expected to be
the least volatile of the Funds.
o CITISELECT FOLIO 300 emphasizes both equity and fixed income
securities. This balanced mix offers the growth potential of
stocks with the lower volatility of fixed income securities.
o CITISELECT FOLIO 400 and CITISELECT FOLIO 500 invest primarily in
equity securities. They may invest more of their assets in
international securities and small cap securities. CitiSelect
Folio 500 is expected to be the most volatile of the Funds.
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ASSET CLASS RANGE*
FIXED MONEY
EQUITY INCOME MARKET
..............................................................................
CitiSelect Folio 200 25-45% 35-55% 10-30%
..............................................................................
CitiSelect Folio 300 40-60% 35-55% 1-10%
..............................................................................
CitiSelect Folio 400 55-85% 15-35% 1-10%
..............................................................................
CitiSelect Folio 500 70-95% 5-20% 1-10%
- --------------------------------------------------------------------------------
* If derivatives or other investment techniques are used in managing the assets
of an asset class, those derivatives or other investment techniques will be
counted as part of the assets in that asset class. Similarly, if cash is
received by the underlying funds in the equity or fixed income asset class,
and the cash is temporarily invested in short-term money market instruments,
those instruments will be included in the percentage limitations for that
asset class, rather than the money market asset class.
Each Fund's assets are allocated among the broad asset classes
(equity, fixed income and money market) as shown in the chart
above. Citibank may further allocate assets among various sub-
categories of the equity and fixed income asset classes,
seeking to minimize risk and volatility and to maximize
returns. There are no restrictions on the amount of a Fund's
assets that may be allocated to any particular sub-category
and Citibank is not required to allocate each Fund's assets
among all of these types of equity and fixed income securities
at all times.
Equity securities may be allocated among:
o large cap growth securities
o large cap value securities
o small cap growth securities
o small cap value securities
o international securities
Fixed income securities may be allocated among:
o U.S. government and corporate bonds
o foreign government bonds
o short-term debt
While Citibank generally allocates each Fund's assets within
the percentage ranges shown in the chart above, cash flows
into or out of a Fund, or market fluctuations, could produce
different results. Citibank monitors each 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.
Citibank invests at least 25%, and possibly up to 100%, of the
assets in the money market class in bank obligations.
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 Funds
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 Funds' subadvisers and may terminate the services
of any subadviser at any time.
The Funds 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 Funds may also use derivatives for
non-hedging purposes, to enhance potential gains or generate
income. In addition, the Funds may use derivatives to manage
the maturity or duration of fixed income securities. These
derivatives include futures, options and forward foreign
currency exchange contracts.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
these Funds. The principal risks of investing in CitiSelect
Portfolios are described below. Please remember that the risks of
investing in each Fund depend on the securities it holds and
the investment strategies it uses. For example, Funds
investing more of their assets in fixed income securities may
be more susceptible to interest rate risk and credit risk than
Funds investing more of their assets in equity securities.
Conversely, Funds investing more of their assets in equity
securities may be susceptible to greater price volatility than
Funds investing more of their assets in fixed income
securities. See page 52 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 Funds' shares will change daily as the value of their
underlying securities change. This means that your shares may be
worth more or less when you sell them than when you bought them.
It is also possible that the Funds will not perform as intended.
For example, CitiSelect Folio 200 is expected to be the least
volatile of the Funds. However, under certain market conditions
this Fund could be the most volatile.
o EQUITY SECURITIES. Equity securities are subject to market risk
that historically has resulted in greater price volatility than
exhibited by fixed income securities.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise.
Longer term obligations are usually more sensitive to interest
rate changes. A change in interest rates could cause the Funds'
share prices to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Funds, 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 a Fund. The prices of lower rated
securities often are more volatile than those of higher rated
securities.
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 a Fund or issuers
of securities, and political or social instability. There may be
rapid changes in the value of foreign currencies or securities,
causing the Funds' share prices to be volatile. Also, in certain
circumstances, the Funds could realize reduced or no value in U.S.
dollars from their investments in foreign securities, causing the
Funds' share prices to go down.
Each 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 BANK OBLIGATIONS. Banks, and thus bank obligations, are sensitive
to changes in money market and general economic conditions, as
well as decisions by regulators that can affect banks'
profitability.
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 Funds' share prices to be
volatile.
o PREPAYMENT RISK. The issuers of debt securities held by a Fund may
be able to prepay principal due on the securities, particularly
during periods of declining interest rates. A 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.
o DERIVATIVES. The Funds' use of derivatives (such as 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 Funds' share prices to go down. Each 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.
Please note that an investment in the Funds 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
Portfolios is not a complete investment program.
You should consider investing in CitiSelect Portfolios if your
investment horizon is long term -- typically at least five
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 diversified
portfolios of several types of assets. The Funds offer a
convenient way to own a portfolio tailored to specific
investment goals.
o CITISELECT FOLIO 200 is designed for investors seeking relatively
lower risk provided by substantial investments in fixed income and
money market securities, but who also seek some capital growth.
o CITISELECT FOLIO 300 is designed for investors seeking a balanced
approach by emphasizing stocks for their higher capital
appreciation potential but retaining a significant fixed income
component to temper volatility.
o CITISELECT FOLIO 400 and CITISELECT FOLIO 500 are designed for
investors willing and able to take higher risks in the pursuit of
long-term capital appreciation. CitiSelect Folio 500 is designed
for investors who can withstand greater market swings to seek
potential long-term rewards. CitiSelect Folio 400 is designed for
investors seeking long-term rewards, but with less volatility.
Don't invest in CitiSelect Portfolios if:
o You are not prepared to accept daily share price fluctuations and
possible losses.
o You are seeking current income.
<PAGE>
Fund Performance
The following bar charts and tables can help you evaluate the
risks of investing in each Fund, and how its returns have
varied over time.
o The bar charts show changes in the Funds' performance from year to
year. The charts and related information do not take into account
any sales charges that you may be required to pay. Any sales
charges will reduce your return.
o The tables show how the Funds' average annual returns for the
periods indicated compare, in each case, to several broad measures
of stock performance and bond performance. Please remember that,
unlike the Funds, the market indexes do not include the costs of
buying and selling securities and other Fund expenses.
o In both the charts and tables, the returns shown for the Funds are
for periods before the creation of share classes on January 4,
1999. All existing Fund shares were designated Class A shares on
that date. Prior to that date, there were no sales charges on the
purchase or sale of Fund shares. The returns for Class A in the
tables, but not the bar charts, have been adjusted to reflect the
maximum front-end sales charge currently applicable to the Class A
shares.
o The Class B shares are newly offered commencing January 4, 1999.
Class B performance would have been lower than that shown for
Class A shares, because of higher fund expenses and the effects of
the contingent deferred sales charge.
When you consider this information, please remember that the
Funds' past performance is not necessarily an indication of
how they will perform in the future.
<PAGE>
CITISELECT FOLIO 200
TOTAL RETURN
(per calendar year -- Class A)
- --------------------------------------------------------------------------------
CITISELECT FOLIO 200
1997 ...................... 8.03%
1998 ...................... 6.94%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 6.71% June 30, 1997
..............................................................................
Lowest (4.27%) September 30, 1998
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year June 17, 1996
..............................................................................
Class A 2.13% 3.57%
..............................................................................
Class B N/A N/A
..............................................................................
Lehman Aggregate Bond Index 8.69% *
..............................................................................
S&P 500 Index 28.58% 29.58%
..............................................................................
Russell 2000 Index (2.55%) 8.59%
..............................................................................
MSCI-EAFE Index 20.33% 9.31%
..............................................................................
Salomon Bros. Non-$ World Gov't Bond Index 17.80% 7.28%
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
<PAGE>
CITISELECT FOLIO 300
TOTAL RETURN
(per calendar year -- Class A)
- --------------------------------------------------------------------------------
CITISELECT FOLIO 300
1997 ...................... 9.86%
1998 ...................... 6.59%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 8.71% December 31, 1998
..............................................................................
Lowest (7.51%) September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year June 17, 1996
..............................................................................
Class A 1.79% 4.60%
..............................................................................
Class B N/A N/A
..............................................................................
Lehman Aggregate Bond Index 8.69% *
..............................................................................
S&P 500 Index 28.58% 29.58%
..............................................................................
Russell 2000 Index (2.55%) 8.59%
..............................................................................
MSCI-EAFE Index 20.33% 9.31%
..............................................................................
Salomon Bros. Non-$ World Gov't Bond Index 17.80% 7.28%
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
<PAGE>
CITISELECT FOLIO 400
TOTAL RETURN
(per calendar year -- Class A)
- --------------------------------------------------------------------------------
CITISELECT FOLIO 400
1997 ...................... 10.25%
1998 ...................... 4.54%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 11.99% December 31, 1998
..............................................................................
Lowest (12.76%) September 30, 1998
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year June 17, 1996
..............................................................................
Class A (0.69%) 3.86%
..............................................................................
Class B N/A N/A
..............................................................................
Lehman Aggregate Bond Index 8.69% *
..............................................................................
S&P 500 Index 28.58% 29.58%
..............................................................................
Russell 2000 Index (2.55%) 8.59%
..............................................................................
MSCI-EAFE Index 20.33% 9.31%
..............................................................................
Salomon Bros. Non-$ World Gov't Bond Index 17.80% 7.28%
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*Information regarding performance for this period is not available.
<PAGE>
CITISELECT FOLIO 500
TOTAL RETURN
(per calendar year -- Class A)
- --------------------------------------------------------------------------------
CITISELECT FOLIO 500
1997 ...................... 11.99%
1998 ...................... 1.59%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 13.92% December 31, 1998
..............................................................................
Lowest (17.57%) September 30, 1998
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year September 3, 1996
..............................................................................
Class A (3.49%) 3.46%
..............................................................................
Class B N/A N/A
..............................................................................
Lehman Aggregate Bond Index 8.69% *
..............................................................................
S&P 500 Index 28.58% 33.76%
..............................................................................
Russell 2000 Index (2.55%) 12.17%
..............................................................................
MSCI-EAFE Index 20.33% 11.49%
..............................................................................
Salomon Bros. Non-$ World Gov't Bond Index 17.80% 6.39%
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
<PAGE>
Fund Fees and Expenses
These tables describe the fees and expenses that you may pay if you
buy and hold shares of the Funds.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT CITISELECT
YOUR INVESTMENT FOLIO 200 FOLIO 300
..............................................................................
SHARE CLASS
(Class descriptions begin on page 22) Class A Class B Class A Class B
..............................................................................
Maximum Sales Charge (Load)
Imposed on Purchases 4.50% None 4.50% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 4.50%(2) None(1) 4.50%(2)
- --------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
..............................................................................
Management Fees 0.75% 0.75% 0.75% 0.75%
..............................................................................
Distribution (12b-1) Fees 0.50% 0.75% 0.50% 0.75%
..............................................................................
Other Expenses (administrative, shareholder
servicing and other expenses) 0.25% 0.25% 0.25% 0.25%
..............................................................................
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.50% 1.75% 1.50% 1.75%
- ------------------------------------------------------------------------------
(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) Each Fund invests in multiple underlying mutual funds. This table
reflects the expenses of each Fund and the underlying funds in which it
invests.
<PAGE>
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SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT CITISELECT
YOUR INVESTMENT FOLIO 400 FOLIO 500
..............................................................................
SHARE CLASS
(Class descriptions begin on page 22) Class A Class B Class A Class B
..............................................................................
Maximum Sales Charge (Load)
Imposed on Purchases 5.00% None 5.00% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2) None(1) 5.00%(2)
- --------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
..............................................................................
Management Fees 0.75% 0.75% 0.75% 0.75%
..............................................................................
Distribution (12b-1) Fees 0.50% 1.00% 0.50% 1.00%
..............................................................................
Other Expenses (administrative, shareholder
servicing and other expenses) 0.25% 0.25% 0.25% 0.25%
..............................................................................
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.50% 2.00% 1.50% 2.00%
- --------------------------------------------------------------------------------
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) Each Fund invests in multiple underlying mutual funds. This table
reflects the expenses of each Fund and the underlying funds in which it
invests.
<PAGE>
EXAMPLE
These examples are intended to help you compare the cost of
investing in a Fund to the cost of investing in other mutual
funds. The examples assume that:
o you invest $10,000 in a Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you
own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The examples also show the effects of the conversion of Class
B shares to Class A shares after 8 years.
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 Funds' operating expenses shown in the Fund Fees and Expenses
Table remain the same before taking into consideration any fee
waivers or reimbursements.
<PAGE>
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
CITISELECT FOLIO 200
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
Class A $596 $903 $1,232 $2,160
..............................................................................
Class B
..............................................................................
Assuming redemption at end of
period $628 $851 $1,049 $1,997
..............................................................................
Assuming no redemption $178 $551 $ 949 $1,997
- --------------------------------------------------------------------------------
CITISELECT FOLIO 300
..............................................................................
Class A $596 $903 $1,232 $2,160
..............................................................................
Class B
..............................................................................
Assuming redemption at end of
period $628 $851 $1,049 $1,997
..............................................................................
Assuming no redemption $178 $551 $ 949 $1,997
- --------------------------------------------------------------------------------
CITISELECT FOLIO 400
..............................................................................
Class A $645 $950 $1,278 $2,201
..............................................................................
Class B
..............................................................................
Assuming redemption at end of
period $703 $927 $1,178 $2,199
..............................................................................
Assuming no redemption $203 $627 $1,078 $2,199
- --------------------------------------------------------------------------------
CITISELECT FOLIO 500
..............................................................................
Class A $645 $950 $1,278 $2,201
..............................................................................
Class B
..............................................................................
Assuming redemption at end of
period $703 $927 $1,178 $2,199
..............................................................................
Assuming no redemption $203 $627 $1,078 $2,199
- --------------------------------------------------------------------------------
<PAGE>
YOUR CITISELECT ACCOUNT
Your CitiSelect Account
CHOOSING A SHARE CLASS
Each Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE
o Front-end load -- there is an initial sales charge of 4.50% or
less (5.00% or less in the case of CitiSelect Folio 400 and
CitiSelect Folio 500)
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.50%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 4.50% (5.00% in the case
of CitiSelect Folio 400 and CitiSelect Folio 500) to 1% over five
years, and is eliminated if you hold your shares for six years or
more
o Annual distribution/service fee of up to 0.75% (1.00% in the case
of CitiSelect Folio 400 and CitiSelect Folio 500)
o Automatic conversion to Class A 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 Funds 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.
- --------------------------------------------------------------------------------
CITISELECT FOLIO 200 AND CITISELECT FOLIO 300
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 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%
- --------------------------------------------------------------------------------
CITISELECT FOLIO 400 AND CITISELECT FOLIO 500
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 5.00% 5.26% 4.50%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
..............................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
..............................................................................
$500,000 or more none* none* up to 1.00%
- --------------------------------------------------------------------------------
*A contingent deferred sales charge may apply in certain instances. See below.
o After the initial sales charge is deducted from your investment,
the balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares rather
than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in a Fund, you do not pay any
initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) of 1% of the purchase price, or the
sale price, whichever is less, if you sell within the first year.
Under certain circumstances, waivers may apply. Other policies
regarding the application of the CDSC are the same as for Class B
shares. Please read the discussion below on Class B shares for
more information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares representing capital appreciation
or the reinvestment of dividends or capital gains distributions
on those shares.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The 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 200 AND CITISELECT FOLIO 300
- ---------------------------------------------------------------------
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 purchase None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CITISELECT FOLIO 400 AND CITISELECT FOLIO 500
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 5.00%
..............................................................................
2nd year since purchase 4.00%
..............................................................................
3rd year since purchase 3.00%
..............................................................................
4th year since purchase 2.00%
..............................................................................
5th year since purchase 1.00%
..............................................................................
6th year (or later) since purchase None
- --------------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a
commission 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 of Folio 200 and Folio
300 Class B shares, and 4.50% of the purchase price of Folio 400
and Folio 500 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.
o When you sell your shares, the CDSC will be based on either your
original purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends and capital gain distributions or on shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Funds 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 Funds. 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 Funds' distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers,
including certain tax-exempt organizations, certain employee
benefit plans, certain entities or persons with a qualifying
affiliation or relationship with Citibank, and, under certain
circumstances, investors using the proceeds of a redemption from
another mutual fund for their purchase of Class A shares. Further
information about eligible purchasers may be found in the Appendix
to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under a 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 Funds' 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 the CitiSelect Portfolios are offered continuously
and purchases may be made Monday through Friday, except on
certain holidays. Shares may be purchased from the Funds'
distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Funds. 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 Funds 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
Funds' 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
Each Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange, normally
4:00 p.m. Eastern time. NAV is calculated separately for each
class of shares. NAV may be higher for Class A shares because
Class A shares bear lower expenses. On days when the financial
markets in which the Funds invest close early, NAV will be
calculated as of the close of those markets.
Each Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Funds may price securities at fair value. Fair
value is determined in accordance with precedures approved by
the Funds' Board of Trustees. When the Funds use 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
Funds use a rate believed to reflect the currency's fair value
in U.S. dollars. Trading may take place in foreign securities
held by a Fund on days when the Fund is not open for business.
As a result, a 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 Funds' 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 Funds'
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
Funds' 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 Funds'
transfer agent. You are responsible for making sure that your
redemption request is in proper form.
Each Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to a CDSC on the shares withdrawn under the
Plan. For more information, please contact your Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. Each 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 Funds
permit you to repurchase Class A shares in the same Fund, up
to the dollar amount of the 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
each other Fund and 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 Funds' transfer agent, subject to any applicable sales
charge. You cannot exchange shares until a 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. However, if your Fund shares were
purchased prior to January 4, 1999, you will not have to pay a
sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain 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
Each Fund pays substantially all of its net income (if any)
from dividends and interest to its shareholders of record as a
dividend on the following schedule:
For CITISELECT FOLIO 200 and CITISELECT FOLIO 300, quarterly
during the months of March, June, September and December.
For CITISELECT FOLIO 400 and CITISELECT FOLIO 500, annually
during the month of December.
Each 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. Each Fund may also make
additional distributions to shareholders to the extent
necessary to avoid the application of the 4% non-deductible
excise tax on certain undistributed income and net capital
gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional 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.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from a
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by a Fund
as capital gain dividends are taxable as long-term capital
gains. Other distributions are generally taxable as ordinary
income. Some distributions paid in January may be taxable to
you as if they had been paid the previous December. Each year
each Fund will mail you a report of your distributions for the
prior year and how they are treated for federal tax purposes.
Fund distributions will reduce the distributing Fund's net
asset value per share. As a result, if you buy shares just
before a Fund makes a distribution, you may pay the full price
for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. A Fund may be required to
withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., each 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. Distributions received from a Fund by non-
U.S. persons also may be subject to tax under the laws of
their own jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transactions.
MANAGEMENT OF THE FUNDS
Management of the Funds
MANAGER
The CitiSelect Portfolios draw on the strength and experience
of Citibank. Citibank is the investment manager of each Fund,
and subject to policies set by the Funds' Trustees, Citibank
makes investment decisions. Citibank has been managing money
since 1822. With its affiliates, it currently manages more
than $290 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. 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.
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 Funds.
Richard Goldman, a Vice President of Citibank, has been the
overall portfolio manager of the Funds since January 1999 and
is responsible for determining asset allocations, supervising
and monitoring the performance of the Citibank personnel
described below who are responsible for the Funds' 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 Funds:
SMALL CAP VALUE SECURITIES: Franklin Advisory Services, Inc.,
One Parker Plaza, 9th 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, has been responsible for the daily
management of U.S. small cap value securities since the Funds'
inception.
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 have been responsible for
the daily management of international equity securities since
the Funds' inception. Mr. Hartford joined Hotchkis and Wiley
in 1994, where he is responsible for international investment
research in the U.K. and Europe, and where he serves on the
Investment Policy Committee. Prior to joining Hotchkis and
Wiley, 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. Ms. Ketterer, a Managing
Director and Portfolio Manager, joined Hotchkis and Wiley in
1990, where she is responsible for international investment
research in the Asia-Pacific, Japan and Canadian regions, and
where she serves on the Investment Policy Committee. Prior to
joining Hotchkis and Wiley in 1990, Ms. Ketterer was an
associate with Bankers Trust and an analyst at Dean Witter.
FOREIGN GOVERNMENT SECURITIES: Pacific Investment Management
Company, 840 Newport Center Drive, Suite 360, P.O. Box 6430,
Newport Beach, California 92658-9030. PIMCO is a registered
investment adviser. Lee R. Thomas, III, Senior International
Portfolio Manager, has been responsible for the daily
management of foreign government securities since the Funds'
inception in 1996. He has been managing a number of global
bond funds since joining PIMCO in 1995. Prior to joining
PIMCO, he was a member of Investcorp's Management Committee,
where he was responsible for global securities and foreign
exchange trading. Prior to Investcorp, he was associated with
Goldman Sachs, where he was an Executive Director in the fixed
income division of the London office.
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, have been responsible for the daily
management of large cap growth securities since the Funds'
inception. Mr. Hobson is a Senior Portfolio Manager who, since
September 1994 has been managing U.S. equity portfolios for
trust and pension accounts of Citibank Global Asset
Management. He 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 and has been a member of the
Large Cap Growth Team since June 1994. 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. From September 1988 through June 1994,
Mr. Goldman served as Director of Institutional Investor
Relations, 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.
LARGE CAP VALUE SECURITIES: Richard Goldman, Vice President,
has been responsible for the daily management of large cap
growth securities since the Funds' inception. Mr. Goldman took
over responsibility for the daily management of large cap
value securities in January, 1999. Mr. Goldman is a Senior
Investment Officer and lead portfolio manager for the Focused
Growth Large Cap Funds. His investment experience is described
above.
SMALL CAP GROWTH SECURITIES: Marguerite Wagner, Vice President
and Senior Portfolio Manager, has been responsible for the
daily management of the Funds' small cap growth securities
since January 1999. 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, has been responsible for the daily management of
domestic fixed income securities since the Funds' inception,
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.
MONEY MARKET SECURITIES: Kevin Kennedy, Vice President, has
been responsible for the daily management of money market
securities since the Funds' inception. Mr. Kennedy has managed
the Liquidity Management Unit of the U.S. Fixed Income
Department of Citibank Global Asset Management since joining
Citibank in 1993. Prior to joining Citibank, Mr. Kennedy was
with the Metropolitan Life Insurance Company as the Managing
Trader of the Treasurer's Division. He was responsible for the
management of more than $9 billion in short duration fixed
income assets. Mr. Kennedy has more than 15 years of fixed
income management experience.
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 Funds' 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.
MANAGEMENT FEES
For the services Citibank and the subadvisers provided under
management agreements for the Funds and their underlying
mutual funds for their fiscal years ended October 31, 1998,
Citibank and the subadvisers received a total of 0.75% of each
Fund's average daily net assets.
<PAGE>
MORE ABOUT THE FUNDS
More About the Funds
The Funds' goals, principal investments and risks are
summarized in FUNDS AT A GLANCE. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
The Funds' principal investment strategies are the strategies
that, in the opinion of Citibank, are most likely to achieve
each Fund's investment goal. Of course, there can be no
assurance that any Fund will achieve its goal. Please note
that each 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, a
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. Each Fund's goal and
strategies may be changed without shareholder approval.
Each Fund is a diversified asset allocation mutual fund that
invests in a mix of equity, fixed income and money market
securities. Each Fund's asset mix is designed by Citibank to
offer a different level of potential return with a
corresponding amount of risk. For example, equity securities
typically have greater potential for growth of capital than
fixed income securities, and have the potential to outperform
fixed income securities over the long term. However, equity
securities generally are more volatile. Fixed income and money
market securities sometimes go up in value when equity
securities go down. As a result, a Fund investing a higher
percentage of its assets in equity securities may, over time,
have the potential to generate higher returns than a Fund
investing more in fixed income securities, but it may be more
volatile and a riskier investment. In making asset
allocations, Citibank studies the long term performance and
valuation relationships among these three types of securities
and the effects of market and economic variables on those
relationships. Each Fund's asset mix is determined by Citibank
to be an optimal combination of stocks, bonds and money market
instruments that maximizes potential returns for the level of
risk associated with the Fund's investment goal. In seeking to
achieve these individual goals, securities are sold when a
Fund needs cash to meet redemptions, or when the managers'
price objective for a security has been met, or when the
managers believe that better opportunities exist, or that a
security no longer fits within the managers' overall
strategies for achieving the Fund's goals. Of course, there
can be no assurance that the Funds will perform as intended.
- --------------------------------------------------------------------------------
ASSET CLASS RANGE*
FIXED MONEY
EQUITY INCOME MARKET
..............................................................................
CITISELECT FOLIO 200 25-45% 35-55% 10-30%
..............................................................................
CITISELECT FOLIO 300 40-60% 35-55% 1-10%
..............................................................................
CITISELECT FOLIO 400 55-85% 15-35% 1-10%
..............................................................................
CITISELECT FOLIO 500 70-95% 5-20% 1-10%
- --------------------------------------------------------------------------------
*If derivatives or other investment techniques are used in managing the assets
of an asset class, those derivatives or other investment techniques will be
counted as part of the assets in that asset class. Similarly, if cash is
received by the underlying funds in the equity or fixed income class, and the
cash is temporarily invested in short-term money market instruments, those
instruments will be included in the percentage limitations for that asset
class, rather than the money market asset class.
Citibank allocates each Fund's assets among equity, fixed
income and money market securities (each of these types of
securities is referred to as an asset class) generally within
the percentage ranges provided in the chart above. However,
cash flows into or out of a Fund, or changes in market
valuations, could produce different results. Citibank monitors
each 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.
Citibank may further allocate each Fund's equity securities
among large cap securities, small cap securities and
international securities, and each Fund's fixed income
securities among U.S. and foreign government and corporate
bonds. Of course, Citibank is not required to allocate each
Fund's assets among all of these types of equity and fixed
income securities at all times. These further allocations are
intended to maximize returns while managing overall
volatility. Each asset class and the types of securities in
that class are described below.
MANAGEMENT STYLE. In allocating assets while seeking to
maximize returns for a given risk level, 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
Funds 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.
..............................................................................
international equity securities Hotchkis and Wiley
..............................................................................
foreign government securities Pacific Investment Management Company
- --------------------------------------------------------------------------------
Citibank manages all other kinds of securities, including
large cap growth, small cap growth, fixed income and money
market securities. Citibank monitors and supervises the
activities of the subadvisers and may terminate the services
of any subadviser at any time.
Each Fund invests in multiple underlying mutual funds, or
Portfolios. Each Portfolio invests directly in securities in a
particular type, such as large cap growth securities and
related investments, or foreign government securities and
related investments. See "Investment Structure" on page 50.
THE EQUITY CLASS
Each Fund generally diversifies its equity securities among
large cap issuers, small cap issuers and international
issuers. The mix of equity securities varies from Fund to
Fund. For example, CitiSelect Folio 400 currently emphasizes
securities of small cap issuers and international issuers to a
greater extent than CitiSelect Folios 200 and 300. CitiSelect
Folio 500 currently emphasizes securities of small cap issuers
and international issuers to a greater extent than CitiSelect
Folio 400. The types of equity securities emphasized may
change over time and in different market conditions, and there
is no requirement that each Fund invest in each type of equity
security.
LARGE CAP ISSUERS. Large cap issuers are those which, at the
time of purchase, have market capitalizations within the top
1,000 stocks of the equity market (including stocks with
market capitalizations of at least $1.9 billion on December
31, 1998). In selecting large cap securities, the Funds
emphasize securities issued by established companies with
stable operating histories.
SMALL CAP ISSUERS. Small cap issuers are those which, at the
time of purchase, have market capitalizations below the top
1,000 stocks of the equity market (included stocks with market
capitalizations below $1.9 billion on December 31, 1998).
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 Funds emphasize securities
included in the EAFE Index, which contains securities of
companies located in Europe, Australia and the Far East. The
Funds 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.
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
Each Fund generally diversifies its fixed income securities
among investment grade corporate debt obligations and
securities issued by the U.S. government and its agencies and
instrumentalities and by foreign governments. The mix of fixed
income securities varies from Fund to Fund. There is no
requirement that each Fund invest in each type of fixed income
security. 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.
The Funds 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.
CORPORATE BONDS. Corporate bonds are used by U.S. and foreign
corporate issuers to borrow money from investors, and may have
varying maturities. Bonds also 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.
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.
- --------------------------------------------------------------------------------
THE MONEY MARKET CLASS
Each Fund invests its assets allocated to the money market
class in cash and in U.S. dollar-denominated high quality
money market and short-term instruments. These investments
provide opportunities for income with low credit risk, but may
result in a lower yield (the income on your investment) than
investing in lower quality or longer-term instruments. At
least 25% of the assets in the money market class, and
possibly up to 100% of the assets in this class, are invested
in bank obligations.
- --------------------------------------------------------------------------------
WHAT ARE MONEY MARKET INSTRUMENTS?
A MONEY MARKET INSTRUMENT is a short-term IOU issued by a bank
or other corporation, or the U.S. or a foreign government, or
a state or local government. Money market instruments may
include CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES,
VARIABLE or FLOATING RATE DEMAND NOTES (where the interest
rate is reset periodically and the holder may demand payment
from the issuer at any time), FIXED-TERM OBLIGATIONS,
COMMERCIAL PAPER (short term unsecured debt of corporations),
ASSET BACKED SECURITIES (which are backed by pools of accounts
receivable such as car installment loans or credit card
receivables) and REPURCHASE AGREEMENTS. In a repurchase
agreement, the seller sells a security and agrees to buy it
back at a later date (usually within seven days) and at a
higher price, which reflects an agreed upon interest rate.
- --------------------------------------------------------------------------------
DERIVATIVES. The Funds may use derivatives in order to protect
(or "hedge") against declines in the value of securities held
by the Funds or increases in cost of securities to be
purchased in the future, or to hedge against changes in
interest rates. The Funds may also use derivatives for non-
hedging purposes, to generate income or enhance potential
gains. In addition, the Funds 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 Funds are standardized contracts
traded on commodities exchanges or boards of trade. This means
that the exchange or board of trade guarantees counterparty
performance. In other cases, the derivatives may be illiquid,
and the Funds 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.
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.
INVESTMENT STRUCTURE. The Funds do not invest directly in
securities. Instead, each Fund invests in multiple Portfolios.
Currently the CitiSelect Portfolios invest in Large Cap Growth
Portfolio, Large Cap Value Portfolio, Small Cap Growth
Portfolio, Small Cap Value Portfolio, Intermediate Income
Portfolio, Short-Term Portfolio, International Portfolio and
Foreign Bond Portfolio. 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 Funds
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.
Each 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 a 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.
Each Fund bears its share of each Portfolio's fees and
expenses. The total fees of each Fund and the underlying
Portfolios are reflected in the fee tables in "Funds at a
Glance".
Certain investment restrictions of each Portfolio cannot be
changed without approval by the investors in that Portfolio.
Of course, a Fund could be outvoted, or otherwise adversely
affected, by other investors in a Portfolio.
Each of the Funds is actively managed. Although the portfolio
managers attempt to minimize portfolio turnover, from time to
time a 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 Funds pay
to brokers or dealers when they buy and sell securities. The
"Financial Highlights" section of this prospectus shows the
portfolio turnover rate for the past fiscal year of each
underlying portfolio in which the Funds invest.
Citibank and the subadvisers may use brokers or dealers for
Fund transactions who also provide brokerage and research
services to the Funds or other accounts over which Citibank,
the subadvisers or their affiliates exercise investment
discretion. Each 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 Funds 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 Funds' Statement of Additional Information.
Remember that you may receive little or no return on your
investment in the Funds. You may lose money if you invest in
these Funds.
The risks of investing in each Fund vary depending on the
securities it holds and the investment strategies it uses. For
example, Funds investing more of their assets in fixed income
securities may be more susceptible to interest rate risk and
credit risk than Funds investing more of their assets in
equity securities. Conversely, Funds investing more of their
assets in equity securities may be more susceptible to greater
price volatility than Funds investing more of their assets in
fixed income securities. Please remember that an investment in
the Funds 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 Funds' shares will change daily as the value
of their underlying securities change. This means that your
shares of a Fund may be worth more or less when you sell them
than when you bought them.
It is also possible that the Funds will not perform as
intended. For example, CitiSelect Folio 200 is expected to be
the least volatile of the Funds. However, under certain market
conditions this Fund could be the most volatile.
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 Funds' share prices to go down.
CREDIT RISK. The Funds invest in investment grade debt
securities. However, it is possible that some issuers will not
make payments on debt securities held by the Funds. 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 a Fund. A change in the quality rating of a bond or other
security can also affect the security's liquidity and make it
more difficult for the Fund to sell. The lower quality debt
securities in which the Funds may invest are more susceptible
to these problems than higher quality obligations.
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 a
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.
o Each Fund may invest in issuers located in emerging, or
developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization cycles
with low per capita income.
o All of the risks of investing in foreign securities are heightened
by investing in developing countries.
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
These markets often have provided higher rates of return, and
greater risks, to investors, but they also may provide lower rates
of return or negative returns, for extended periods.
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 Funds' share prices to be
volatile.
PREPAYMENT RISK. The issuers of debt securities held by a Fund
may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. A
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 prices more volatile. Mortgage-
backed securities are particularly susceptible to prepayment
risk, and their prices may be very volatile.
BANK OBLIGATIONS. At least 25%, and possibly up to 100%, of
the Funds' investments in the money market class are in bank
obligations. Bank obligations are susceptible to adverse
events affecting the banking industry. Banks are sensitive to
changes in money market and general economic conditions, as
well as decisions by regulators that can affect their
profitability.
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 Funds' use of derivatives (such as 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 Funds'
share prices 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. Each
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.
EURO CONVERSION. Each Fund may invest in securities of issuers
in European countries. Certain European countries have joined
the European Economic and Monetary Union (EMU). Each EMU
participant's currency began a conversion into a single
European currency, called the euro, on January 1, 1999, to be
completed by July 1, 2002. The consequences of the euro
conversion for foreign exchange rates, interest rates and the
value of European securities held by the Fund are presently
unclear. European financial markets, and therefore, the Fund,
could be adversely affected if the euro conversion does not
continue as planned or if a participating country chooses to
withdraw from the EMU. The Fund could also be adversely
affected if the computing, accounting and trading systems used
by its service providers are not capable of processing
transactions related to the euro. These issues may negatively
affect the operations of the companies in which the Fund
invests as well.
YEAR 2000. The Funds could be adversely affected if the
computer systems used by the Funds or their service providers
are not programmed to accurately process information on or
after January 1, 2000. The Funds, and their 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 Funds. The Funds also could be
adversely affected if the issuers of securities held by the
Funds do not solve their Year 2000 problems, or if it costs
them large amounts of money to solve these problems.
<PAGE>
FINANCIAL HIGHLIGHTS
Financial Highlights
The financial highlights table is intended to help you understand the Funds'
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Class A Fund share. The total returns in
the table represent the rate that an investor would have earned or lost on an
investment in a Fund (assuming investment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Funds' financial statements, is included in the annual report
which is incorporated by reference into the Statement of Additional Information
and which is available upon request.
<TABLE>
<CAPTION>
CITISELECT FOLIO 200 CITISELECT FOLIO 300
...........................................................................................................................
Year Ten Months June 17, Year Ten Months June 17,
Ended Ended 1996+ to Ended Ended 1996+ to
October 31, October 31, December 31, October 31, October 31, December 31,
1998 1997 1996 1998 1997 1996
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $11.33 $10.50 $10.00 $11.71 $10.66 $10.00
...........................................................................................................................
Income From Operations:
Net investment income 0.240 0.138 0.128 0.187 0.101 0.088
Net realized and
unrealized gain
(loss) on investments 0.068++ 0.722 0.506 (0.036) 0.974 0.671
...........................................................................................................................
Total from operations 0.308 0.860 0.634 0.151 1.075 0.759
...........................................................................................................................
Less Distributions From:
Net investment income (0.172) (0.007) (0.112) (0.138) (0.002) (0.075)
Net realized gain on
investments (0.186) (0.023) (0.022) (0.243) (0.023) (0.024)
In excess of net income -- -- -- -- -- --
In excess of realized
gains on investments -- -- -- -- -- --
...........................................................................................................................
Total from distributions (0.358) (0.030) (0.134) (0.381) (0.025) (0.099)
...........................................................................................................................
Net Asset Value, end of
period $11.28 $11.33 $10.50 $11.48 $11.71 $10.66
...........................................................................................................................
Total return 2.84% 8.21%** 6.38%** 1.38% 10.09%** 7.61%**
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITISELECT FOLIO 200 CITISELECT FOLIO 300
...........................................................................................................................
Year Ten Months June 17, Year Ten Months June 17,
Ended Ended 1996+ to Ended Ended 1996+ to
October 31, October 31, December 31, October 31, October 31, December 31,
1998 1997 1996 1998 1997 1996
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands) $206,313 $166,203 $102,775 $340,455 $325,193 $195,428
Ratio of expenses to
average net assets (A) 1.50% 1.50%* 1.50%* 1.50% 1.50%* 1.50%*
Ratio of net investment
income to average net
assets 2.70% 2.88%* 2.84%* 2.09% 2.30%* 2.38%*
Portfolio turnover (B) +++ 177% 147% +++ 154% 132%
Note: If Agents of the Funds and the Agents of respective Portfolios had not voluntarily agreed to waive a portion of their
fees, and the Sub-administrator not assumed expenses for the periods indicated, the net investment income per share and the
ratios would have been as follows:
Net investment income
per share $0.238 $0.126 $0.076 $0.187 $0.100 $0.060
RATIOS:
Expenses to average net
assets (A) 1.52% 1.75%* 2.66%* 1.50% 1.52%* 2.26%*
Net investment income
to average net assets 2.68% 2.63%* 1.68%* 2.09% 2.28%* 1.62%*
(A) Includes allocated expenses for the periods indicated from the respective portfolios.
(B) Portfolio turnover represents, for CitiSelect Folios 200 and 300, the rates of portfolio activity of Asset Allocation
Portfolios 200 and 300, respectively, the underlying portfolios through which the Funds invested until October 31, 1997.
* Annualized.
** Not annualized.
+ Commencement of Operations.
++ The amount shown for a share outstanding does not correspond with the aggregate net realized and unrealized gain (loss)
on investments for the period ended due to the timing of sales of Fund shares in relation to fluctuating market value of
the investments.
+++ The Funds invest all of their investable assets in Large Cap Growth Portfolio, Large Cap Value Portfolio, Small Cap
Growth Portfolio, Small Cap Value Portfolio, International Portfolio, Intermediate Income Portfolio, Foreign Bond
Portfolio and Short-Term Portfolio, whose portfolio turnover rates were 50%, 61%, 51%, 47%, 43%, 98%, 693% and 0%,
respectively at October 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITISELECT FOLIO 400 CITISELECT FOLIO 500
...........................................................................................................................
Year Ten Months June 17, Year Ten Months September 3,
Ended Ended 1996+ to Ended Ended 1996+ to
October 31, October 31, December 31, October 31, October 31, December 31,
1998 1997 1996 1998 1997 1996
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $12.01 $10.82 $10.00 $12.08 $10.69 $10.00
...........................................................................................................................
Income From Operations:
Net investment income 0.090 0.037 0.042 0.053 0.044 0.019
Net realized and
unrealized gain
(loss) on investments (0.417) 1.183 0.841 (0.786) 1.346 0.701
...........................................................................................................................
Total from operations (0.327) 1.220 0.883 (0.733) 1.390 0.720
...........................................................................................................................
Less Distributions From:
Net investment income (0.079) (0.003) (0.029) (0.083) -- (0.019)
Net realized gain on
investments (0.244) (0.027) 0.034) (0.154) -- --
In excess of net income -- -- -- -- -- (0.001)
In excess of realized
gains on investments -- -- -- -- -- (0.010)
...........................................................................................................................
Total from
distributions (0.323) (0.030) (0.063) (0.237) -- (0.030)
...........................................................................................................................
Net Asset Value, end of
period $11.36 $12.01 $10.82 $11.11 $12.08 $10.69
...........................................................................................................................
Total return (2.73)% 11.28%** 8.84%** (6.14)% 13.00%** 7.20%**
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CITISELECT FOLIO 400 CITISELECT FOLIO 500
...........................................................................................................................
Year Ten Months June 17, Year Ten Months September 3,
Ended Ended 1996+ to Ended Ended 1996+ to
October 31, October 31, December 31, October 31, October 31, December 31,
1998 1997 1996 1998 1997 1996
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands) $410,350 $455,747 $253,556 $163,540 $202,823 $85,072
Ratio of expenses to
average net assets (A) 1.47% 1.65%* 1.75%* 1.48% 1.72%* 1.75%*
Ratio of net investment
income to average net
assets 1.26% 1.39%* 1.39%* 0.72% 0.88%* 1.09%*
Portfolio turnover (B) +++ 151% 130% +++ 92% 27%
Note: If Agents of the Funds and the Agents of respective Portfolios had not voluntarily agreed to waive a portion of their
fees, and the Sub-administrator not assumed expenses for the periods indicated, the net investment income per share and the
ratios would have been as follows:
Net investment income
per share $0.090 $0.037 $0.028 $0.053 $0.040 $0.001
RATIOS:
Expenses to average net
assets (A) 1.47% 1.65%* 2.20%* 1.48% 1.80%* 2.80%*
Net investment income
to average net assets 1.26% 1.39%* 0.93%* 0.72% 0.80%* 0.04%*
(A) Includes allocated expenses for the periods indicated from the respective portfolios.
(B) Portfolio turnover represents, for CitiSelect Folios 400 and 500, the rates of portfolio activity of Asset Allocation
Portfolios 400 and 500, respectively, the underlying portfolios through which the Funds invested until October 31, 1997.
* Annualized.
** Not annualized.
+ Commencement of Operations.
+++ The Funds invest all of their investable assets in Large Cap Growth Portfolio, Large Cap Value Portfolio, Small Cap
Growth Portfolio, Small Cap Value Portfolio, International Portfolio, Intermediate Income Portfolio, Foreign Bond
Portfolio and Short-Term Portfolio, whose portfolio turnover rates were 50%, 61%, 51%, 47%, 43%, 98%, 693% and 0%,
respectively at October 31, 1998.
</TABLE>
<PAGE>
APPENDIX
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors or trustees (and their immediate families),
of any investment company for which Citibank or any subsidiary
or affiliate of Citibank serves as the investment adviser or as
a service 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 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:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent
month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another 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)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which
the original Class A shares were held
[] subject to appropriate documentation, investors where the
amount invested represents redemption proceeds from a mutual
fund (other than a Fund or a CitiFund), if:
o the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually
imposed), and
o the redemption has occurred no more than 60 days prior to
the purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from
another investment firm within six months prior to the date of
purchase by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative,
and either paid an initial sales charge or was at
some time subject to, but did not actually pay, a deferred
sales charge or redemption fee with respect to the
redemption proceeds
o the redemption is made within 60 days prior to the
investment in a Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the
proceeds of the redemption
The Statement of Additional Information (SAI) provides more
details about the Funds and their policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about each Fund's investments is
available in the Funds' Annual and Semi-Annual Reports to
Shareholders. In the Funds' Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected each Fund's performance.
The Annual and Semi-Annual Reports for the Funds list their
portfolio holdings and describe their 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 Funds (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
March 1, 1999
CITISELECT(R) FOLIO 200
CITISELECT(R) FOLIO 300
CITISELECT(R) FOLIO 400
CITISELECT(R) FOLIO 500
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 200, CitiSelect(R) Folio 300,
CitiSelect(R) Folio 400 and CitiSelect(R) Folio 500 (collectively, the
"Funds"), to which this Statement of Additional Information relates, as well
as shares of one other series. The address and telephone number of the Trust
are 21 Milk Street, Boston, Massachusetts 02109, (617) 423-1679.
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
2. Investment Objectives and Policies ................................... 2
3. Description of Permitted Investments and Investment Practices ........ 3
4. Investment Restrictions .............................................. 17
5. Performance Information and Advertising .............................. 19
6. Determination of Net Asset Value; Valuation of Securities ............ 20
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs ................................................. 21
8. Management ........................................................... 28
9. Portfolio Transactions ............................................... 35
10. Description of Shares, Voting Rights and Liabilities ................. 36
11. Tax Matters .......................................................... 38
12. Certain Bank Regulatory Matters ...................................... 40
13. Financial Statements ................................................. 40
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Funds' Prospectus, dated March 1, 1999, by which shares of the Funds are
offered. This Statement of Additional Information should be read in
conjunction with the Prospectus. This Statement of Additional Information
incorporates by reference the financial statements described on page 40
hereof. These financial statements can be found in the Funds' Annual Report to
Shareholders. An investor may obtain copies of the Funds' Prospectus and
Annual Report without charge by calling 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 to four funds offered by the Trust -- CitiSelect Folio
200, CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500
(collectively, the "Funds").
The Trust seeks the investment objective of each 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, Large Cap Growth
Portfolio and Small Cap Growth Portfolio (collectively, the "Portfolios"). The
Portfolios (other than Large Cap Growth 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.
Citibank, N.A. ("Citibank" or the "Manager") is investment adviser and
also provides certain administrative services to each of the Funds. Citibank
manages the investments of the Funds from day to day in accordance with each
Fund's investment objective and policies. The selection of investments for the
Funds and the way they are managed depend on the conditions and trends in the
economy and the financial marketplaces.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Funds. Shares of the Funds are continuously sold by CFBDS,
Inc., the Funds' distributor ("CFBDS" or the "Distributor").
2. INVESTMENT OBJECTIVES AND POLICIES
Each Fund is an asset allocation fund that allocates its investments among
three primary classes of assets -- equity, fixed income and money market
securities. Each 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 each Fund is as follows:
The investment objective of CitiSelect Folio 200 is as high a total return
over time as is consistent with a primary emphasis on a combination of fixed
income and money market securities, and a secondary emphasis on equity
securities.
The investment objective of CitiSelect Folio 300 is as high a total return
over time as is consistent with a balanced emphasis on equity and fixed income
securities.
The investment objective of CitiSelect Folio 400 is as high a total return
over time as is consistent with a primary emphasis on equity securities, and a
secondary emphasis on fixed income securities.
The investment objective of CitiSelect Folio 500 is as high a total return
over time as is consistent with a dominant emphasis on equity securities and a
small allocation to fixed income securities.
The investment objective of each Fund may be changed by its Trustees
without approval by that Fund's shareholders, but shareholders will be given
written notice at least 30 days before any change is implemented. Of course,
there can be no assurance that any Fund will achieve its investment objective.
The Prospectus contains a discussion of the principal investment
strategies of each Fund and the principal risks of investing in each Fund. The
following supplements the information contained in the Prospectus concerning
the investment policies and techniques of each Fund.
CitiSelect Folio 200 is expected to be the least volatile of the four
Funds and is designed for the investor who is seeking relatively lower risk
provided by substantial investments in fixed income and money market
securities, but who also seeks some capital growth. CitiSelect Folio 300 is
designed for the investor seeking a balanced approach by emphasizing stocks
for their higher capital appreciation potential but retaining a significant
fixed income investment component to temper volatility. CitiSelect Folio 400
and CitiSelect Folio 500 are designed for the investor willing and able to
take higher risks in the pursuit of long-term capital appreciation. CitiSelect
Folio 500 is expected to be the most volatile of the four Funds, and is
designed for investors who can withstand greater market swings to seek
potential long-term rewards. CitiSelect Folio 400 is designed for investors
seeking long-term rewards, but with less volatility.
The Trust may withdraw the investment of any 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 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
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
Each Fund may invest in shares of underlying investment companies or
Portfolios in accordance with Section 12(d)(1)(G) of the 1940 Act. Each
Portfolio 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 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
sale. The Fund may also be compensated by receipt of a commitment fee.
However, a Fund takes the risk that the market price of the mortgage-backed
security will drop below the future purchase price. When a Fund uses a
mortgage dollar roll, it is also subject to the risk that the other party to
the agreement will not be able to perform. A "covered roll" is a specific type
of dollar roll for which a Fund establishes a segregated account with liquid
high grade debt 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.
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.
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
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.
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
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.
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 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) 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 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.
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.
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.
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 "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.
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.
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 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.
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.
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 Funds, and the Portfolio Trusts, on behalf of
the Portfolios, have each adopted the following policies which may not be
changed with respect to any of the foregoing Funds or Portfolios without
approval by holders of a majority of the outstanding voting securities of that
Fund or Portfolio, which as used in this Statement of Additional Information
means the vote of the lesser of (i) 67% or more of the outstanding voting
securities of the Fund or Portfolio present at a meeting at which the holders
of more than 50% of the outstanding voting securities of the Fund or Portfolio
are present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities of the Fund or Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.
None of the Funds or 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
is deemed appropriate for the achievement of the Fund's or Portfolio's
investment objective, (a) 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
and (b) with respect to the Short Term Portfolio only, up to 100% of its
assets, at market value at the time of each investment, may be invested in
bank obligations.
(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.
For purposes of restriction (1) above, covered mortgage dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.
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.
Each 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.
Set forth below is total rate of return information for the Class A shares
of each Fund for the periods indicated, assuming that dividends and capital
gains distributions, if any, were reinvested. All outstanding shares were
designated Class A shares on January 4, 1999. The return information relates
to periods prior to January 4, 1999, when there were no sales charges on the
purchase or sale of the Funds' shares. The Class A performance for past
periods has therefore been adjusted to reflect the maximum sales charge
currently in effect. The Class B shares are newly offered and have no
investment history. Performance results include any applicable fee waivers or
expense subsidies in place during the time period, which may cause the results
to be more favorable than they would otherwise have been.
CITISELECT FOLIO 200
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
PERIOD OF RETURN THE PERIOD
------ --------- ----------
June 17, 1996
(commencement of operations)
to October 31, 1998 ................. 5.31%* $1,130.72
One year ended October 31, 1998 ........ (1.79)% $ 981.74
CITISELECT FOLIO 300
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
PERIOD OF RETURN THE PERIOD
------ --------- ----------
June 17, 1996
(commencement of operations)
to October 31, 1998 .................. 5.95%* $1,146.96
One year ended October 31, 1998 ........ (3.18)% $ 963.11
CITISELECT FOLIO 400
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
PERIOD OF RETURN THE PERIOD
------ --------- ----------
June 17, 1996
(commencement of operations)
to October 31, 1998 .................. 4.86%* $1,119.10
One year ended October 31, 1998 ........ (7.59)% $ 924.35
CITISELECT FOLIO 500
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
PERIOD OF RETURN THE PERIOD
------ --------- ----------
September 3, 1996
(commencement of operations)
to October 31, 1998 .................. 3.64%* $1,080.15
One year ended October 31, 1998 ........ (10.83)% $ 892.05
- ----------
*Not Annualized.
From time to time, advertising and marketing material of any of the Funds
may include charts showing the historical performance of hypothetical
portfolios comprised of classes of assets similar to those in which the Funds
invest. 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 any of the Funds or
as the historical performance of any of the Funds. In addition, the past
performance illustrated by such charts should not be viewed as a guarantee of
future results.
For advertising and sales purposes, the Funds will generally use the
performance of Class A shares. All outstanding Fund shares were designated
Class A shares on January 4, 1999. Performance prior to that date will be
adjusted to include the sales charges currently in effect. Class A shares are
sold at net asset value plus a current maximum sales charge of 4.50% (5.00%
for CitiSelect Folios 400 and 500). Performance will typically include this
maximum sales charge for the purposes of calculating performance figures. If
the performance of Class B shares is used for advertising and sales purposes,
performance after class inception on January 4, 1999 will be actual
performance, while performance prior to that date will be Class A performance,
adjusted to reflect the differences in sales charges (but not the differences
in fees and expenses) between the classes. For these purposes, it will be
assumed that the maximum contingent deferred sales charge applicable to the
Class B shares is deducted at the times, in the amount, and under the terms
stated in the Prospectus. Class B share performance generally would have been
lower than Class A performance, had the Class B shares been offered for the
entire period, because the expenses attributable to Class B shares are higher
than the expenses attributable to the Class A shares. Fund performance may
also be presented in advertising and sales literature without the inclusion of
sales charges.
6. DETERMINATION OF NET ASSET VALUE;
VALUATION OF SECURITIES
The net asset value per share of each 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 Funds. 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 a 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.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE
OF FUND SHARES AND SHAREHOLDER PROGRAMS
As described in the Prospectus, the Funds provide you with alternative
ways of purchasing shares based upon your individual investment needs.
Each class of shares of a 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 Funds. The example assumes a purchase on October 31, 1998 of Class A
shares from a Fund aggregating less than $25,000 subject to the schedule of
sales charges set forth below.
CITISELECT CITISELECT
FOLIO 200 FOLIO 300
Net Asset Value per share ................... $11.28 $11.48
Per Share Sales Charge -- 4.50% of public
offering price (4.71% of net asset value
per share) ................................ $ 0.53 $ 0.54
Per Share Offering Price to the Public ...... $11.81 $12.02
CITISELECT CITISELECT
FOLIO 400 FOLIO 500
Net Asset Value per share ................... $11.36 $11.11
Per Share Sales Charge -- 5.00% of public
offering price (5.26% of net asset value
per share) ................................ $ 0.60 $ 0.58
Per Share Offering Price to the Public ...... $11.96 $11.69
A 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 Funds
have established certain shareholder programs that may permit you to take
advantage of the lower rates available for larger purchases, as described
under "Shareholder Programs" below.
<TABLE>
<CAPTION>
CITISELECT FOLIO 200 AND CITISELECT FOLIO 300
BROKER/DEALER
SALES CHARGE SALES CHARGE COMMISSION
AMOUNT OF AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
<S> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CITISELECT FOLIO 400 AND CITISELECT FOLIO 500
BROKER/DEALER
SALES CHARGE SALES CHARGE COMMISSION
AMOUNT OF AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
<S> <C> <C> <C>
Less than $25,000 ................................ 5.00% 5.26% 4.50%
$25,000 to less than $50,000 ..................... 4.00% 4.17% 3.60%
$50,000 to less than $100,000 .................... 3.50% 3.63% 3.15%
$100,000 to less than $250,000 ................... 3.00% 3.09% 2.70%
$250,000 to less than $500,000 ................... 2.00% 2.04% 1.80%
$500,000 or more ................................. none* none* up to 1.00%
</TABLE>
- ----------
*A contingent deferred sales charge may apply in certain instances. See "Sales
Charge Waivers".
CLASS 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 200 AND CITISELECT FOLIO 300
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 purchase None
CITISELECT FOLIO 400 AND CITISELECT FOLIO 500
SALE DURING CDSC ON SHARES BEING SOLD
1st year since purchase 5.00%
2nd year since purchase 4.00%
3rd year since purchase 3.00%
4th year since purchase 2.00%
5th year since purchase 1.00%
6th year (or later) since purchase None
Class B shares pay distribution/service fees of up to 0.75% (up to 1.00%
for CitiSelect Folio 400 and CitiSelect Folio 500) 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 Folio 200 and Folio 300 Class B shares, and
4.50% of the purchase price of Folio 400 and Folio 500 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. Each 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 a 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, each Fund will use the
CDSC schedule of any fund from which you have exchanged shares that would
result in you paying the highest CDSC.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will
with persons or entities with which Citibank or the Distributor or their
affiliates have business relationships, or because the sales effort, if any,
involved in making such sales is negligible, or, in the case of certain CDSC
waivers, because the circumstances surrounding the sale of Fund shares were
not foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
CLASS A--FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares
acquired through the reinvestment of dividends and capital gains
distributions.
o Eligible Purchasers. Class A shares may be purchased without a sales
charge by:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors 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 a 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 a Fund or in any combination of CitiFunds must
total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be imposed on
the investments in the event of certain share redemptions within
12 months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the
total cost of the shares; the contingent deferred sales charge
on Class A shares will be waived under the same circumstances as
the contingent deferred sales charge on Class B shares will be
waived; in determining whether a contingent deferred sales
charge on Class A shares is payable, and if so, the amount of
the charge:
+ it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
+ all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
+ any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently redeemed
(assuming the contingent deferred sales charge is then
payable)
+ the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund
(other than a CitiFund), if:
+ the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed),
and
+ the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] 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) of
the Internal Revenue Code, in each case following attainment of
age 59 1/2
[] a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement
plan
[] a redemption resulting from a tax- free return of an excess
contribution to an IRA
[] redemptions made under a Fund's Systematic Withdrawal Plan
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the 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 Funds' 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 Funds make 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 Funds and the members
[] agree to include sales and other materials related to the Funds
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 Funds
LETTER OF INTENT
If an investor anticipates purchasing $25,000 or more of Class A shares of
a 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 Funds' distributor, and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the
letter of intent.
[] The shareholder or, if the shareholder is a customer of a
Service Agent, his or her Service Agent must inform CFBDS that
the letter of intent is in effect each time shares are
purchased.
[] The shareholder makes no commitment to purchase additional
shares, but if his or her purchases within 13 months plus the
value of shares credited toward completion of the letter of
intent do not total the sum specified, an increased sales charge
will apply as described below.
[] A purchase not originally made pursuant to a letter of intent
may be included under a subsequent letter of intent executed
within 90 days of the purchase if CFBDS is informed in writing
of this intent within the 90-day period.
[] The value of shares of 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% for CitiSelect Folio 200 and CitiSelect Folio 300 and 3.00% for
CitiSelect Folio 400 and CitiSelect Folio 500 (in each case, 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
Each Fund's Systematic Withdrawal Plan permits you to have a specified
dollar amount (minimum of $100 per withdrawal) automatically withdrawn from
your account on a regular basis if you have at least $10,000 in your Fund
account at the time of enrollment. You are limited to one withdrawal per month
under the Plan.
If you redeem Class A or Class B shares under the Plan that are subject to
a CDSC, you are not subject to any CDSC applicable to the shares redeemed, but
the maximum amount that you can redeem under the Plan in any year is limited
to 10% of the average daily balance in your account.
You may receive your withdrawals by check, or have the monies transferred
directly into your bank account. Or you may direct that payments be made
directly to a third party.
To participate in the Plan, you must complete the appropriate forms
provided by your Service Agent.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed (with a credit
for any contingent deferred sales charge paid) by purchasing Class A shares of
the 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 each Fund may be exchanged for shares of the same class of
certain other CitiFunds that are made available by your Service Agent, or may
be acquired through an exchange of shares of the same class of those funds.
Class A shares also may be exchanged for shares of certain CitiFunds money
market funds that offer only a single class of shares, unless the Class A
shares are subject to a contingent deferred sales charge. Class B shares may
not be exchanged for shares of CitiFunds money market funds other than Cash
Reserves.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares are being acquired and the sales charge for
Class A of the fund being exchanged into is greater than the current sales
charge of the Fund (in which case an initial sales charge will be imposed at a
rate equal to the difference). Investors whose shares are outstanding on
January 4, 1999 will be able to exchange those Class A shares, and any shares
acquired through capital appreciation and the reinvestment of dividends and
capital gains distributions on those shares, into Class A shares of the other
funds without paying any sales charge.
No CDSC is imposed on Class B shares at the time they are exchanged for
Class B shares of certain other CitiFunds that are made available by your
Service Agent. However, you may be required to pay a CDSC when you sell those
shares. When determining the amount of the CDSC, each Fund will use the CDSC
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
You must notify your Service Agent at the time of exchange if you believe
that you qualify for share prices which do not include the sales charge or
which reflect a reduced sales charge, because the Fund shares you are
exchanging were: (a) purchased with a sales charge, (b) acquired through a
previous exchange from shares purchased with a sales charge, (c) outstanding
as of January 4, 1999, or (d) acquired through capital appreciation or the
reinvestment of dividends and capital gains distributions on those shares. Any
such qualification may be subject to confirmation, through a check of
appropriate records and documentation, of your existing share balances and any
sales charges paid on prior share purchases.
This exchange privilege may be modified or terminated at any time, and is
available only in those jurisdictions where such exchanges legally may be
made. Before making any exchange, shareholders should contact their Service
Agents to obtain more information and prospectuses of the funds to be acquired
through the exchange. An exchange is treated as a sale of the shares exchanged
and could result in taxable gain or loss to the shareholder making the
exchange.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of a 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 a Fund that you own.
Investors may be able to establish new accounts in the Funds under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and
certain other qualified pension and profit-sharing plans. Investors should
consult with their Service Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the transfer agent or, if they are
customers of a Service Agent, their Service Agent. During periods of drastic
economic or market changes or severe weather or other emergencies,
shareholders may experience difficulties implementing a telephone exchange or
redemption. In such an event, another method of instruction, such as a written
request sent via an overnight delivery service, should be considered. The
Funds, 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 Funds, 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 Funds,
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 a Fund more than seven days during any period when (a)
trading in the markets a 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 a 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
Each 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 58) -- 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.
HEATH B. MCLENDON* (aged 65) -- Chairman, President, and Chief Executive
Officer of Mutual Management Corp. (since March 1996); Managing Director of
Salomon Smith Barney (since August 1993); and Chairman, President and Chief
Executive Officer of fifty-eight investment companies sponsored by Salomon
Smith Barney. His address is 388 Greenwich Street, New York, New York.
C. OSCAR MORONG, JR. (aged 63) -- 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 55) -- 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 63) -- 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).
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). Her address is P.O. Box 2494, Elizabethan Square,
George Town, Grand Cayman, Cayman Islands, B.W.I.
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 34) -- 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 TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED FROM TRUST AND
COMPENSATION ACCRUED AS PART ANNUAL BENEFITS FUND COMPLEX
TRUSTEE FROM REGISTRANT OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES(1)
<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 49, 33, 20, 40, 40, 26, 28 and 28 funds,
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 February 22, 1999, all Trustees and officers as a group owned less
than 1% of each Fund's outstanding shares. As of the same date, more than 95%
of the outstanding shares of each 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 Funds 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 Funds and the Portfolios with general office
facilities and supervises the overall administration of the Funds and the
Portfolios, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of,
the Funds' or the Portfolios' independent contractors and agents; the
preparation and filing of all documents required for compliance by the Funds
or the Portfolios with applicable laws and regulations; and arranging for the
maintenance of books and records of the Funds or the Portfolios. Trustees,
officers, and investors in the Trust and the Portfolio Trusts are or may be or
may become interested in Citibank, as directors, officers, employees, or
otherwise and directors, officers and employees of Citibank are or may become
similarly interested in the Trust and the Portfolio Trusts.
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the applicable
Portfolio Trust or the Trust, as the case may be, when authorized either by a
vote of a majority of the outstanding voting securities of the applicable
Portfolio or Fund or by a vote of a majority of the Board of Trustees of 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. Each 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. Each
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 Funds pay an aggregate management fee, which is accrued daily and paid
monthly, of 0.75% of each 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 any Fund or
Portfolio or waive all or a portion of its management fees.
For the period from June 17, 1996 (September 3, 1996 for CitiSelect Folio
500), commencement of operations, to December 31, 1996, all fees payable to
Citibank under prior management agreements with the Trust with respect to
CitiSelect Folio 200, CitiSelect Folio 300 and CitiSelect Folio 500 were
voluntarily waived. For the period from June 17, 1996, commencement of
operations, to December 31, 1996, the fees paid to Citibank, after waivers and
reimbursements, under a prior management agreement with the Trust with respect
to CitiSelect Folio 400 were $78,821. For the period from January 1, 1997 to
October 31, 1997, the fees paid to Citibank, after waivers and reimbursements,
under prior management agreements with the Trust were as follows: CitiSelect
Folio 200 $35,899, CitiSelect Folio 300 $170,079, CitiSelect Folio 400
$299,950 and CitiSelect Folio 500 $120,606. For the period from November 1,
1997 to October 31, 1998, the fees paid to Citibank, after waivers and
reimbursements, under the Management Agreements with the Trust were as
follows: CitiSelect Folio 200 $440,055, CitiSelect Folio 300 $579,750,
CitiSelect Folio 400 $439,941 and CitiSelect Folio 500 $140,476. Prior to
November 1, 1997, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect Folio
400 and CitiSelect Folio 500 invested their assets in, respectively, Asset
Allocation Portfolio 200, Asset Allocation Portfolio 300, Asset Allocation
Portfolio 400, and Asset Allocation Portfolio 500. For the period from June
17, 1996 (September 3, 1996 for Asset Allocation Portfolio 500), commencement
of operations, to December 31, 1996, all fees payable to Citibank under prior
management agreements with Asset Allocation Portfolios with respect to Asset
Allocation Portfolio 200, Asset Allocation Portfolio 300 and Asset Allocation
Portfolio 500 were voluntarily waived. For the period from June 17, 1996,
commencement of operations, to December 31, 1996, the fees paid to Citibank,
after waivers and reimbursements, under a prior management agreement with
Asset Allocation Portfolios with respect to Asset Allocation Portfolio 400
were $133,692. For the period from January 1, 1997 to October 31, 1997, the
fees paid to Citibank, after waivers and reimbursements, under prior
management agreements with Asset Allocation Portfolios were as follows: Asset
Allocation Portfolio 200 $528,753, Asset Allocation Portfolio 300 $1,478,303,
Asset Allocation Portfolio 400 $1,993,100 and Asset Allocation Portfolio 500
$698,291.
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 of the Small Cap Value Portfolio -- Franklin
Advisory Services, Inc.
International Portfolio -- Hotchkis and Wiley
Foreign Bond Portfolio -- Pacific Investment Management Company
It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Funds, 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 Funds 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
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 0.75% of each Fund's average daily net
assets.
Franklin Advisory Services, Inc.
0.55% on first $250 million
0.50% 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
Pacific Investment Management Company
0.35% on first $200 million
0.30% on remaining assets
The aggregate fees paid to each of the Subadvisers under prior
submanagement agreements were as follows:
<TABLE>
<CAPTION>
JUNE 17, 1996 (SEPTEMBER 3, 1996
FOR ASSET ALLOCATION PORTFOLIO 500)
(COMMENCEMENT OF OPERATIONS) TO JANUARY 1, 1997 TO
SUBADVISER: DECEMBER 31, 1996: OCTOBER 31, 1997:
<S> <C> <C>
Franklin Advisory Services, Inc. $123,189 $716,245
Hotchkis and Wiley $160,913 $290,312
Pacific Investment Management Company $123,950 $474,072
</TABLE>
The aggregate fees paid to each of the Subadvisers under the Submanagement
Agreements during the period from November 1, 1997 to October 31, 1998 were as
follows:
SUBADVISER:
Franklin Advisory Services, Inc. $1,091,403
Hotchkis and Wiley $1,082,007
Pacific Investment Management Company $ 900,099
Miller Anderson & Sherrerd, LLP, former Subadviser to Large Cap Value
Portfolio ("MAS"), received aggregate fees under prior submanagement
agreements as follows: $90,990 for the period from June 17, 1996 (September 3,
1996 for Asset Allocation Portfolio 500) (commencement of operations) to
December 31, 1996, $580,234 for the period from January 1, 1997 to October 31,
1997. For the period from November 1, 1997 to October 31, 1998 MAS received
aggregate fees in the amount of $511,730 under the Submanagement Agreement
with respect to Large Cap Value Portfolio.
DISTRIBUTOR
CFBDS, 21 Milk Street, Boston, MA 02109, serves as the Distributor of each
Fund's shares pursuant to Distribution Agreements with the Trust with respect
to each class of shares of the Funds (each, a "Distribution Agreement"). In
those states where CFBDS is not a registered broker-dealer, shares of the
Funds 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 Funds.
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.
Each class of each Fund has a Service Plan (each, a "Service Plan") adopted
in accordance with Rule 12b-1 under the 1940 Act. Under the Plan related to
Class A shares, a 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.
Under the Plan related to Class B shares, CitiSelect Folio 200 and CitiSelect
Folio 300 may pay monthly fees at an annual rate not to exceed 0.75% of the
average daily net assets of the Fund attributable to that class, and CitiSelect
Folio 400 and CitiSelect Folio 500 may pay monthly fees at an annual rate not to
exceed 1.00% of the average daily net assets of the Fund attributable to that
class. 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 Funds, and to
other parties in respect of the sale of shares of the Funds, 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 Funds 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 Funds 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. Each 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 each 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 a 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 Funds pursuant to the
Distribution Agreements. For the periods from June 17, 1996 (September 3, 1996
for CitiSelect Folio 500), commencement of operations of the Funds, to
December 31, 1996, January 1, 1997 to October 31, 1997, and November 1, 1997
to October 31, 1998, the fees paid to CFBDS, after waivers, under the
Distribution Agreement for Class A shares were as follows: CitiSelect Folio
200, $158,021, $548,279 and $1,026,202, respectively; CitiSelect Folio 300,
$307,039, $1,102,327 and $1,796,242, respectively; CitiSelect Folio 400,
$394,103, $1,499,752 and $2,318,563, respectively; and CitiSelect Folio 500,
$83,802, $603,033 and $1,003,503, respectively.
The Distributor may enter into agreements with Service Agents and may pay
compensation to such Service Agents for accounts for which the Service Agents
are holders of record. Payments may be made to the Service Agents or for other
distribution expenses out of the distribution fees received by the Distributor
and out of the Distributor's past profits or any other source available to it.
EXPENSES
In addition to amounts payable under the Management Agreements and the
Service Plans, each 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 each Fund contains more information about the expenses of each 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 each 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 each Fund. Among other things, State Street calculates the daily
net asset value for the Funds. 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.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110, is
counsel for each Fund.
9. PORTFOLIO TRANSACTIONS
The Trust trades securities for a 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 each 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 a 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 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 each 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 a Fund as well as for one or more of Citibank's or a
Subadviser's other clients. Investment decisions for each 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 a 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.
For the period from November 1, 1997 to October 31, 1998, Large Cap Value
Portfolio paid brokerage commissions of $259,902.64; Small Cap Value Portfolio
paid brokerage commissions of $464,356.80; International Portfolio paid
brokerage commissions of $575,319.99; Large Cap Growth Portfolio paid brokerage
commissions of $855,647.86; and Small Cap Growth Portfolio paid brokerage
commissions of $214,400.62 For the period from November 1, 1997 to October 31,
1998, Intermediate Income Portfolio, Short-Term Portfolio and Foreign Bond
Portfolio paid no brokerage commissions. Prior to November 1, 1997, CitiSelect
Folio 200, CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500
invested their assets in, respectively, Asset Allocation Portfolio 200, Asset
Allocation Portfolio 300, Asset Allocation Portfolio 400, and Asset Allocation
Portfolio 500. For the periods from June 17, 1996 (September 3, 1996 for Asset
Allocation Portfolio 500), commencement of operations, to December 31, 1996 and
January 1, 1997 to October 31, 1997, Asset Allocation Portfolios paid brokerage
commissions in the following amounts: Asset Allocation Portfolio 200, $89,479
and $111,725, respectively; Asset Allocation Portfolio 300, $241,111 and
$301,201, respectively; Asset Allocation Portfolio 400, $453,048 and $561,555,
respectively; and Asset Allocation Portfolio 500, $185,397 and $308,557,
respectively.
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
affirmative vote of the holders of a majority of the outstanding shares of
each series affected by the amendment. (See "Investment Restrictions.")
At any meeting of shareholders of any 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 Funds' 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.
Each 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.
11. TAX MATTERS
TAXATION OF THE FUNDS AND THE PORTFOLIO TRUSTS
FEDERAL TAXES. Each Fund is treated as a separate entity for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"). Each 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 Funds. 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.
FOREIGN TAXES. Investment income and gains received by a 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 a Fund to a reduced
rate of tax or an exemption from tax on such income. Each Fund intends to
qualify for treaty reduced rates where applicable. It is not possible,
however, to determine a 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 a 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.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of a Fund will generally have to
pay federal income taxes and any state or local taxes on the dividends and
capital gain distributions they receive from the Fund. Dividends from ordinary
income and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the
length of time the shareholders have held their shares. Any Fund dividend that
is declared in October, November, or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January, will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
DIVIDENDS-RECEIVED DEDUCTION. The portion of each 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.
SPECIAL CONSIDERATIONS FOR NON-U.S. PERSONS. The Funds 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 Funds by non-U.S. persons also may be subject to tax under
the laws of their own jurisdiction.
BACKUP WITHHOLDING. The account application asks each new shareholder to
certify that the shareholder's Social Security or taxpayer identification
number is correct and that the shareholder is not subject to 31% backup
withholding for failing to report income to the IRS. The Funds 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.
DISPOSITION OF SHARES. 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. 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. Gain may be increased
(or loss reduced) upon a redemption of Class A Fund shares held for 90 days or
less followed by any purchase of shares of a Fund or another of the CitiFunds,
including purchases by exchange or by reinvestment, without payment of a sales
charge which would otherwise apply because of any sales charge paid on the
original purchase of the Class A Fund shares.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INVESTMENTS. Any investment by a Fund in zero coupon bonds,
deferred interest bonds, payment-in-kind bonds, certain stripped securities,
and certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund,
the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund. An investment by a 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.
OPTIONS, ETC. Each 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 each 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. Each 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.
FOREIGN INVESTMENTS. The Funds 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 and investment by a
Fund in certain "passive foreign investment companies" may have to be limited
in order to avoid a tax on a Fund. A Fund may elect to mark to market any
investments in "passive foreign investment companies" on the last day of each
taxable year. This election may cause the Fund to recognize ordinary income
prior to the receipt of cash payments with respect to those investments; in
order to distribute this income and avoid a tax on the Fund, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold potentially resulting in additional taxable gain or loss to
the Fund.
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 Funds. Citibank believes that its services under the Management
Agreements 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 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 Funds would seek
alternative means for obtaining these services. The Funds do not expect that
shareholders would suffer any adverse financial consequences as a result of
any such occurrence.
13. FINANCIAL STATEMENTS
The audited financial statements of the Funds (Statement of Assets and
Liabilities at October 31, 1998, Statement of Operations for the year ended
October 31, 1998, Statement of Changes in Net Assets for the year ended
October 31, 1998, the ten months ended October 31, 1997 and the period from
June 17, 1996 (commencement of operations, or as applicable, September 3,
1996, commencement of operations of CitiSelect Folio 500) to December 31,
1996, and Financial Highlights for the year ended October 31, 1998, the ten
months ended October 31, 1997 and the period from June 17, 1996 (commencement
of operations, or as applicable, September 3, 1996, commencement of operations
of CitiSelect Folio 500) to December 31, 1996, Notes to Financial Statements
and Independent Auditors' Report), which are included in the Annual Report to
Shareholders, are incorporated by reference into this Statement of Additional
Information and have been so incorporated in reliance upon the reports of
PricewaterhouseCoopers LLP, independent accountants, on behalf of the Funds.
A copy of the Annual Report for the Funds accompanies this Statement of
Additional Information.
<PAGE>
PART C
Item 23. Exhibits.
* a(1) Amended and Restated Declaration of Trust of
the Registrant
**, ***, ****** a(2) Amendments to the Declaration of Trust of the
Registrant
*** b(1) Amended and Restated By-Laws of the
Registrant
*** b(2) Amendments to Amended and Restated By-Laws
of the Registrant
*** d Amended and Restated Management Agreements
between the Registrant and Citibank, N.A., as
manager to the CitiSelect Portfolios
******* e(1) Amended and Restated Distribution Agreement
between the Registrant and CFBDS, Inc.
("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
*** g(1) Custodian Contract between the Registrant
and State Street Bank and Trust Company
("State Street"), as custodian
*** g(2) Letter Agreement regarding the Custodian
Contract between the Registrant and State
Street
*** h Transfer Agency and Servicing Agreement
between the Registrant and State Street, as
transfer agent
***** i Opinion and consent of counsel
j Independent auditor's consent
******* 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
n Financial Data Schedule
******* o Multiple Class Plan of the Registrant
**** and filed herewith 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.
***** Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 16, 1998.
****** Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
December 23, 1998.
******* Incorporated herein by reference to Post-Effective Amendment No. 31 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90518) as filed with the Securities and Exchange Commission on
February 12, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 20 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, Inc., filed as Exhibits to
Post-Effective Amendment No. 31 to its Registration Statement on Form N-1A; and
(c) the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, 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, CitiFunds(SM) Tax Free Income Trust
(CitiFunds(SM) New York Tax Free Income Portfolio, CitiFunds(SM) National Tax
Free Income Portfolio and CitiFunds(SM) California Tax Free Income Portfolio),
CitiFunds(SM) Multi-State Tax Free Trust (CitiFunds(SM) California Tax Free
Reserves, CitiFunds(SM) New York Tax Free Reserves and CitiFunds(SM) Connecticut
Tax Free Reserves), CitiFunds(SM) Institutional Trust (CitiFunds(SM)
Institutional Cash Reserves) and Variable Annuity Portfolios (CitiSelect(R) VIP
Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400,
CitiSelect(R) VIP Folio 500 and CitiFunds(SM) Small Cap Growth VIP Portfolio).
Citibank and its affiliates manage assets in excess of $290 billion worldwide.
The principal place of business of Citibank is located at 399 Park Avenue, New
York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J.
Menezes is the President and a Director of Citibank. William R. Rhodes and H.
Onno Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group Inc.
and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup
Inc. In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President, Travelers
Property Casualty Co.
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>
Name: Affiliations:
<S> <C>
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.
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.
Leslie M. Kratter Vice President, Franklin Resources, Inc.
Secretary Vice President, Franklin Institutional Services Corporation
President and Director, Franklin/Templeton Travel, Inc.
</TABLE>
Pacific Investment Management Company ("PIMCO"), a sub-adviser to
Foreign Bond Portfolio, a series of Asset Allocation Portfolios, maintains its
principal office at 840 Newport Center Drive, Suite 360, P.O. Box 6480, Newport
Beach, California 92658-9030. PIMCO is a registered investment adviser under the
Investment Advisers Act of 1940.
Lee R. Thomas, III joined PIMCO in 1995 and is the Senior International
Portfolio Manager at PIMCO, as well as a Managing Director of PIMCO. Previously
he was a member of Investcorp's Management Committee, where he was responsible
for global securities and foreign exchange trading. Prior to Investcorp, he was
associated with Goldman Sachs, where he was an Executive Director in the fixed
income division of their London office.
Each of the individuals named below is a Managing Director of PIMCO and
has the affiliations indicated:
Name and Position: Other Affiliations:
William H. Gross, CFA None
Senior Fixed Income
Portfolio Manager
David H. Edington None
Senior Fixed Income
Portfolio Manager
John L. Hague None
Senior Fixed Income
Portfolio Manager
Brent R. Harris, CFA None
Director of Marketing
Dean S. Meiling, CFA None
Account Manager
James F. Muzzy, CFA None
Account Manager
William F. Podlich, III None
William C. Powers None
Senior Fixed Income
Portfolio Manager
Frank B. Rabinovitch None
Senior Fixed Income
Portfolio Manager
Lee R. Thomas, III None
Senior International
Portfolio Manager
William S. Thompson Director, Spieker Properties Inc.
Chief Executive Officer
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:
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
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM)
International Growth Portfolio, CitiFunds(SM) U.S. Treasury Reserves,
CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S. Treasury Reserves,
CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM) Institutional U.S. Treasury
Reserves, CitiFunds(SM) Institutional Liquid Reserves, CitiFunds(SM)
Institutional Cash Reserves, CitiFunds(SM) Tax Free Reserves, CitiFunds(SM)
Institutional Tax Free Reserves, CitiFunds(SM) California Tax Free Reserves,
CitiFunds(SM) Connecticut Tax Free Reserves, CitiFunds(SM) New York Tax Free
Reserves, CitiFunds(SM) Intermediate Income Portfolio, CitiFunds(SM) Short-Term
U.S. Government Income Portfolio, CitiFunds(SM) New York Tax Free Income
Portfolio, CitiFunds(SM) National Tax Free Income Portfolio, CitiFunds(SM)
California Tax Free Income Portfolio, CitiFunds(SM) Small Cap Value Portfolio,
CitiFunds(SM) Growth & Income Portfolio, CitiFunds(SM) Large Cap Growth
Portfolio, CitiFunds(SM) Small Cap Growth Portfolio, CitiFunds(SM) Balanced
Portfolio, CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300,
CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP Folio 500 and CitiFunds(SM) 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 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
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 certifies that it meets all requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 26th 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 26, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive Officer
- ------------------------ and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
- ------------------------ Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
- ------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- ------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- ------------------------
Susan B. Kerley
Heath B. McLendon* Trustee
- ------------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
- ------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- ------------------------
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
Exhibit No. Description
j Independent auditor's consent
n Financial Data Schedule
p(1) Power of Attorney for the Registrant
<PAGE>
Exhibit j
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 33 to the registration statement on Form N-1A (the "Registration
Statement") of CitiFunds Trust I of our report dated December 14, 1998, relating
to the financial statements and financial highlights appearing in the October
31, 1998 Annual Report of CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500, which are also incorporated by reference
into the Registration Statement. We also consent to the reference to us under
the heading "Financial Highlights" in the Prospectus and under the headings
"Auditors" and "Financial Statements" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 1999
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<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 160,113,430
<SHARES-COMMON-STOCK> 14,716,110
<SHARES-COMMON-PRIOR> 16,784,399
<ACCUMULATED-NII-CURRENT> 193,366
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,612,865
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,379,293)
<NET-ASSETS> 163,540,368
<DIVIDEND-INCOME> 2,526,168
<INTEREST-INCOME> 1,747,415
<OTHER-INCOME> 145,031
<EXPENSES-NET> 2,974,778
<NET-INVESTMENT-INCOME> 1,443,836
<REALIZED-GAINS-CURRENT> 5,206,249
<APPREC-INCREASE-CURRENT> (19,385,626)
<NET-CHANGE-FROM-OPS> (12,735,541)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,425,110)
<DISTRIBUTIONS-OF-GAINS> (2,644,180)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69,424,820
<NUMBER-OF-SHARES-REDEEMED> (95,971,232)
<SHARES-REINVESTED> 4,068,438
<NET-CHANGE-IN-ASSETS> (39,282,805)
<ACCUMULATED-NII-PRIOR> 174,640
<ACCUMULATED-GAINS-PRIOR> 3,050,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 140,476
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,974,778
<AVERAGE-NET-ASSETS> 200,700,592
<PER-SHARE-NAV-BEGIN> 12.08
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.15)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.11
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit p(1)
CITIFUNDS TRUST I
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by CitiFunds
Trust I (on behalf of each of its series now or hereinafter created) (the
"Registrant") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and under the Investment Company Act of 1940, as
amended, and any and all other instruments which such attorneys and agents, or
any of them, deem necessary or advisable to enable the Registrant to comply with
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the 11th day
of February, 1999.
/s/ Heath B. McLendon
- --------------------------------
Heath B. McLendon
