As filed with the Securities and Exchange Commission on March 3, 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. 34
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 35
CITIFUNDS TRUST I*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on May 3, 1999 pursuant
to paragraph (a)(1) of Rule 485.
_______________________________________________________________________________
* This filing relates solely to shares of the Trust's series designated
CitiSelect Folio 100, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500.
<PAGE>
May 3, 1999
CitiSelect(R)Portfolios
A Family of Asset Allocation Mutual Funds
Managed by Citibank, N.A.
CitiSelect(R) Folio 100
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.
<PAGE>
Table of Contents
FUNDS AT A GLANCE........................................................ 3
YOUR CITISELECT ACCOUNT.................................................. 23
CHOOSING A SHARE CLASS............................................... 23
HOW TO BUY SHARES.................................................... 31
HOW TO SELL SHARES................................................... 32
REINSTATING RECENTLY SOLD SHARES..................................... 34
EXCHANGES............................................................ 34
DIVIDENDS............................................................ 36
TAX MATTERS.......................................................... 38
MANAGEMENT OF THE FUNDS.................................................. 38
MANAGER.............................................................. 38
MANAGEMENT FEES...................................................... 43
MORE ABOUT THE FUNDS..................................................... 44
PRINCIPAL INVESTMENT STRATEGIES...................................... 44
RISKS................................................................ 55
FINANCIAL HIGHLIGHTS..................................................... A-1
APPENDIX................................................................. B-1
<PAGE>
FUNDS AT A GLANCE
The five diversified mutual funds described in this prospectus are asset
allocation funds. Each Fund invests in a carefully selected mix of equity and
fixed income securities that is designed by Citibank to offer a different level
of potential return with a corresponding amount of risk. For example,
CitiSelect Folio 100 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 [__].
FUND GOALS
CITISELECT FOLIO 100
This Fund's goal is as high a level of current income as is consistent with a
dominant emphasis on fixed income securities and a small allocation to equity
securities.
CITISELECT FOLIO 200
This Fund's goal is as high a total return over time as is consistent with a
primary emphasis on fixed income 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 and fixed income 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 securities may include bonds, short-term notes,
mortgage-backed and asset-backed securities, certificates of deposit and
repurchase agreements.
<PAGE>
o CITISELECT FOLIO 100 invests primarily in fixed income securities with a
small allocation to equity securities. This Fund is expected to be the
least volatile of the Funds.
o CITISELECT FOLIO 200 invests primarily in fixed income securities and, to a
lesser extent, in equity securities to give the potential for some capital
growth.
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.
------------------------------------------------
ASSET CLASS RANGE *
- ----------------------------- -------------------------- ---------------------
FIXED
EQUITY INCOME
- ----------------------------- -------------------------- ---------------------
CITISELECT FOLIO 100 0-20% 80-100%
- ----------------------------- -------------------------- ---------------------
CITISELECT FOLIO 200 20-40% 60-80%
- ----------------------------- -------------------------- ---------------------
CITISELECT FOLIO 300 40-60% 40-60%
- ----------------------------- -------------------------- ---------------------
CITISELECT FOLIO 400 60-80% 20-40%
- ----------------------------- -------------------------- ---------------------
CITISELECT FOLIO 500 75-100% 0-25%
- ----------------------------- -------------------------- ---------------------
*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.
Each Fund's assets are allocated between the equity and fixed income asset
classes 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.
o 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
o Fixed income securities may be allocated among:
o U.S. government and corporate bonds
o foreign government bonds
o high yield bonds (so-called "junk bonds")
<PAGE>
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 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, currency fluctuations or the prices of securities held or to
be bought. The Funds may also use a wide variety of 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. Derivatives that the Funds may use include futures (including bond,
interest rate and stock index futures), options on securities and on futures
(including options on interest rate and stock index futures), interest rate
swaps, equity swaps, and other types of available swap agreements, including
caps, collars and floors. The Funds may also enter into forward foreign
currency contracts, purchase or sell foreign currency futures, purchase or
write options on foreign currencies, or enter into currency swaps and other
similar transactions. Derivatives may be used alone or in combination with
other derivatives.
The Funds' use of derivatives may involve leveraging. Under leveraging, a
relatively small investment may produce substantial losses or gains for a Fund,
well beyond the Fund's initial investment.
The Funds may use other investment techniques, such as short sales, which also
may entail leveraging, in that a Fund's losses from short sales may be
unlimited.
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 [__]
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 100 is expected to be the least volatile
of the Funds. However, under certain market conditions this Fund
could be more volatile than one or more of the other Funds.
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 and lower rated obligations are usually more sensitive to
interest rate changes. A change in interest rates could cause the
Funds' share prices to go down.
<PAGE>
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, and there may be more
difficulty in selling lower rated securities in the market. These
risks are more pronounced with so-called "junk bonds" which are debt
obligations that are rated below investment-grade.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject. These risks may include expropriation of assets,
confiscatory taxation, withholding taxes on dividends and interest
paid on Fund investments, fluctuations in currency exchange rates,
currency exchange controls and other limitations on the use or
transfer of assets by 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 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, particularly for
non-hedging purposes, may be risky. This practice could result in
losses that are not offset by gains on other portfolio assets,
causing the 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.
Some of the Funds' use of derivatives may involve leveraging.
Leveraging adds increased risks to a Fund, because the Fund's losses
may be out of proportion to the amount invested in the instrument --
a relatively small investment may lead to much greater losses.
o SHORT SALES. The Funds may engage in short sales. Losses from short
sales may be unlimited.
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.
<PAGE>
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 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 100 is designed for investors seeking current
income with relatively low risk but with some growth potential, and
who have an investment horizon of at least three years.
o CITISELECT FOLIO 200 is designed for investors seeking relatively
low risk provided by substantial investments in fixed income
securities, but who also seek some capital growth, and who have an
investment horizon of at least five years.
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 and who have an investment horizon of at least five
years.
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 and who have an investment horizon of
at least five years. 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 you are not prepared to accept daily
share price fluctuations and possible losses.
<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 100
The Fund is newly offered and does not have any investment returns at the date
of this prospectus. For up-to-date yield information, please call
1-800-625-4554.
CITISELECT FOLIO 200
TOTAL RETURN
(per calendar year -- Class A)
[Graph Omitted]
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
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
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-$World Gov't Bond Index 17.80% 7.28%
*Information regarding performance for this period is not available.
</TABLE>
<PAGE>
CITISELECT FOLIO 300
TOTAL RETURN
(per calendar year -- Class A)
[Graphic Omitted]
1997 - 9.86%
1998 - 6.59%
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
QUARTER ENDING
HIGHEST 8.71% DECEMBER 31, 1998
LOWEST (7.51%) SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Life of Fund
Since
1 Year June 17, 1996
Class A 1.79% 4.60%
Class B N/A N/A
Lehman Aggregate Bond Index 8.69% *
S&P 500 Index 28.58% 29.58%
Russell 2000 Index (2.55%) 8.59%
MSCI-EAFE Index 20.33% 9.31%
Salomon Bros. Non-$World Gov't Bond Index 17.80% 7.28%
*Information regarding performance for this period is not available.
</TABLE>
<PAGE>
CITISELECT FOLIO 400
TOTAL RETURN
(per calendar year -- Class A)
[Graphic Omitted]
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
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
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-$World Gov't Bond Index 17.80% 7.28%
*Information regarding performance for this period is not available.
</TABLE>
<PAGE>
CITISELECT FOLIO 500
TOTAL RETURN
(per calendar year -- Class A)
[Graphic Omitted]
1997 - 11.99%
1998 - 1.59%
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
QUARTER ENDING
HIGHEST 13.92% DECEMBER 31, 1998
LOWEST (17.57%) SEPTEMBER 30, 1998
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
LIFE OF FUND
SINCE
1 YEAR SEPTEMBER 3, 1996
Class A (3.49%) 3.46%
Class B N/A N/A
Lehman Aggregate Bond Index 8.69% *
S&P 500 Index 28.58% 33.76%
Russell 2000 Index (2.55%) 12.17%
MSCI-EAFE Index 20.33% 11.49%
Salomon Bros. Non-$World Gov't Bond Index 17.80% 6.39%
*Information regarding performance for this period is not available.
</TABLE>
<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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT CITISELECT CITISELECT
YOUR INVESTMENT FOLIO 100 FOLIO 200 FOLIO 300
SHARE CLASS
<S> <C> <C> <C> <C> <C> <C>
(Class descriptions begin on page [__]) Class A Class B Class A Class B Class A Class B
Maximum Sales Charge (Load)
Imposed on Purchases 4.50% None 4.50% None 4.50% None
Maximum Deferred Sales Charge
(Load) None(1) 4.50%(2) None(1) 4.50%(2) None(1) 4.50%(2)
- ------------------------------------------------------------------------------------------------------
ANNUAL FUND
OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
Management Fees 0.50% 0.50% 0.75% 0.75% 0.75% 0.75%
Distribution (12b-1) Fees 0.50% 0.75% 0.50% 0.75% 0.50% 0.75%
Other Expenses (administrative,
shareholder servicing and other
expenses) 0.25%(4) 0.25%(4) 0.25% 0.25% 0.25% 0.25%
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.25% 1.50% 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.
4 "Other Expenses" for CitiSelect Folio 100 is based on estimated amounts for
the current fiscal year. If "Other Expenses" for CitiSelect Folio 100 were
to exceed this amount, Citibank has agreed to waive its Management Fee to
the extent necessary to keep Total Annual Fund Operating Expenses for Class
A shares from exceeding 1.25% and for Class B shares from exceeding 1.50%.
However, these fees waivers are voluntary and may be terminated at any time.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM CITISELECT CITISELECT
YOUR INVESTMENT FOLIO 400 FOLIO 500
<S> <C> <C> <C> <C>
SHARE CLASS
(Class descriptions begin on page [__]) 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.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<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.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<PAGE>
1 Year 3 Years 5 Years 10 Years
CITISELECT FOLIO 100
Class A $572 $829 ---- ----
Class B
Assuming redemption at end of period $603 $774 ---- ----
Assuming no redemption $153 $474 ---- ----
CITISELECT FOLIO 200
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
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
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.
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.
<PAGE>
CITISELECT FOLIO 100, CITISELECT FOLIO 200 AND CITISELECT FOLIO 300
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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%
</TABLE>
*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 that represent capital appreciation or
reinvestment of dividends or capital gains distributions on those shares.
<PAGE>
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge (CDSC)
when you sell shares within five years of purchase. The rate of CDSC
goes down the longer you hold your shares. The tables below show the
rates that you pay, as a percentage of your original purchase price
(or the sale price, whichever is less), depending upon when you sell
your shares.
CITISELECT FOLIO 100, 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 100, 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,
<PAGE>
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.
<PAGE>
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
procedures 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
Funds 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
<PAGE>
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:
<PAGE>
For CITISELECT FOLIO 100, monthly.
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.
<PAGE>
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.
LARGE CAP VALUE SECURITIES: Mutual Management Corp. (MMC), 388 Greenwich
Street, New York, New York 10013. MMC, an affiliate of Citibank, is a
registered investment adviser that took over responsibility for the daily
management of the Funds' large cap value securities on January 22, 1999. Prior
to this date, Miller Anderson & Sherrerd, LLP, was responsible for the daily
management of large cap value securities. MMC is a wholly owned subsidiary of
Salomon Smith Barney Holdings Inc., which in turn is a wholly owned subsidiary
of Citigroup Inc. Frances A. Root, an Investment Officer of MMC and a Senior
Portfolio Manager, has been responsible for the daily management of large cap
value securities since MMC assumed responsibility on January 22, 1999. She
joined Smith Barney Capital Management in 1992. Formerly, she was with Shearson
Lehman Advisors as a Vice President and Portfolio Manager for seven years and
prior to that, with E.F. Hutton & Company, Inc.
INTERNATIONAL EQUITY SECURITIES: Hotchkis and Wiley, 725 South Figueroa Street,
Suite 4000, Los Angeles, California 90017-5400. Hotchkis and Wiley is a
division of Merrill Lynch Asset Management, L.P., a registered investment
adviser. Harry W. Hartford and Sarah H. Ketterer 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.
<PAGE>
HIGH YIELD BOND: Salomon Brothers Asset Management Inc (SBAM Inc), 7 World
Trade Center, New York, New York 10048. SBAM Inc, an affiliate of Citibank, is
a registered investment adviser that began to manage the Funds' high yield bond
securities on May 1, 1999, the date on which this asset class was added to the
Funds. SBAM Inc is an indirect wholly owned subsidiary of Citigroup Inc. Beth
A. Semmel, a Managing Director of SBAM Inc and a member of its Investment
Policy Committee, is responsible for the daily management of the Fund's high
yield bond securities. Ms. Semmel is a Portfolio Manager and Senior Analyst
responsible for SBAM Inc's high yield portfolios, for evaluating high yield
securities and for covering consumer-related industries. Ms. Semmel joined SBAM
Inc in May 1993. Formerly, Ms. Semmel was with Morgan Stanley Asset Management
as a high yield bond analyst, and prior to that, with Kidder Peabody as an
equity analyst.
FOREIGN GOVERNMENT SECURITIES: Salomon Brothers Asset Management Limited
(SBAML), Victoria Plaza, 111 Buckingham Palace Road, London SWIS OSB, U.K.
SBAML, an affiliate of Citibank, is a U.S. registered investment adviser that
took over responsibility for the daily management of the Funds' foreign
government securities on March 1, 1999. Prior to that date, Pacific Investment
Management Company was responsible for the daily management of the Funds'
foreign government securities. SBAML is a wholly owned indirect subsidiary of
Citigroup Inc. David Scott is the portfolio manager. Mr. Scott joined SBAML in
April 1994 as Director and Head of Global Fixed Income of SBAML, and has been
responsible for the management of foreign government securities. Prior to that,
Mr. Scott worked for four years at JP Morgan Investment Management where he had
responsibility for global and non-dollar portfolios; and prior to that, for
Mercury Asset Management.
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 managing Citicorp's relationships with its investors
and rating agencies. He currently manages, or co-manages, approximately $6
billion of total assets at Citibank.
SMALL CAP GROWTH SECURITIES: Marguerite Wagner, Vice President and Senior
Portfolio Manager, 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.
<PAGE>
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.
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 subadvisory 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 each of the Funds, other than CitiSelect Folio 100, 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
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 and fixed income 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 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 between these two asset classes 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 and bonds 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.
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------
ASSET CLASS RANGE *
-------------------------- ------------------------- ------------------------
FIXED
EQUITY INCOME
-------------------------- ------------------------- ------------------------
CITISELECT FOLIO 100 0-20% 80-100%
-------------------------- ------------------------- ------------------------
CITISELECT FOLIO 200 20-40% 60-80%
-------------------------- ------------------------- ------------------------
CITISELECT FOLIO 300 40-60% 40-60%
-------------------------- ------------------------- ------------------------
CITISELECT FOLIO 400 60-80% 20-40%
-------------------------- ------------------------- ------------------------
CITISELECT FOLIO 500 75-100% 0-25%
-------------------------- ------------------------- ------------------------
</TABLE>
*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.
Citibank allocates each Fund's assets between equity and fixed income
securities (each of these types of securities is referred to as an asset class)
<PAGE>
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
and between high yield debt securities and investment grade debt securities. 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.
large cap value securities Mutual Management Corp.
international equity securities Hotchkis and Wiley
foreign government securities Salomon Brothers Asset Management Limited
high yield bonds Salomon Brothers Asset Management Inc
- ------------------------------------------------------------------------------
Citibank manages all other kinds of securities, including large cap growth,
small cap growth and domestic investment grade fixed income 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 [__].
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 100, 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 have market
capitalizations, at the time the securities are purchased, within the top 1,000
stocks of the equity market. At December 31, 1998, issuers within the top 1,000
stocks had market capitalizations of at least $1.9 billion. 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 have market
capitalizations, at the time the securities are purchased, below the top 1,000
stocks of the equity market. At December 31, 1998, the maximum capitalization
of issuers in this category was below $1.9 billion. 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.
<PAGE>
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 foreign issuers deposited in a U.S. bank or a
local branch of a foreign bank). While equity securities historically have been
more volatile than fixed income securities, they historically have produced
higher levels of total return. 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, securities issued by the U.S. government and
its agencies and instrumentalities, securities issued by foreign governments,
and high yield debt securities. 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.
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.
INVESTMENT GRADE CORPORATE BONDS. Corporate bonds are used by U.S. and foreign
corporate issuers to borrow money from investors, and may have varying
maturities. Bonds also have varying degrees of quality and varying degrees of
sensitivity to changes in interest rates. 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 values of lower quality bonds generally fluctuate more
than higher quality bonds. Investment in bonds of U.S. and foreign corporate
issuers may provide higher levels of current income than government securities.
HIGH YIELD DEBT OBLIGATIONS. High yield debt obligations, also called "junk
bonds," are fixed income securities that are generally rated in the lower
rating categories, if rated, and many are rated below investment grade. The
Funds' high yield securities may include debt securities of U.S. and non-U.S.
issuers rated in medium or lower rating categories or determined to be of
comparable quality. Some of the Funds' securities may be rated, at the time of
purchase, as low as Caa by Moody's or CCC by S&P or may be deemed to be of
comparable quality. Medium and low rated and comparable unrated securities
offer yields that fluctuate over time but that generally are superior to the
yields offered by higher rated securites. However, these securities also
involve significantly greater risks, including greater risk of default in the
payment of interest and principal and greater price volatility, than higher
rated securities. No Fund anticipates investing more than 25% of its assets in
securities rated below investment grade.
See "Risks" for more information about the risks associated with investing in
fixed income securities.
<PAGE>
_______________________________________________________________________________
WHAT ARE FIXED INCOME SECURITIES?
FIXED INCOME SECURITIES generally represent a debt obligation of an issuer, and
include BONDS, SHORT-TERM OBLIGATIONS and MORTGAGE-BACKED and ASSET-BACKED
SECURITIES. Fixed income securities, in general, offer a fixed stream of cash
flow. Most bond investments focus on generating income. The potential for
capital appreciation is a secondary objective. The value of fixed income
securities generally goes up when interest rates go down, and down when rates
go up. The value of these securities also fluctuates based on other market and
credit factors.
_______________________________________________________________________________
DERIVATIVES. The Funds may use derivatives in order to protect (or "hedge")
against changes in interest rates, currency fluctuations or the prices of
securities held or to be bought. The Funds may also use a wide variety of
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. Derivatives that the Funds may use include
futures (including bond, interest rate and stock index futures), options on
securities and on futures (including options on interest rate and stock index
futures), interest rate swaps, equity swaps, and other types of available swap
agreements, including caps, collars and floors. The Funds may also enter into
forward foreign currency contracts, purchase foreign currency futures, or
purchase or write options on foreign currencies, or enter into currency swaps
and other similar transactions. Derivatives may be used alone or in combination
with other derivatives. 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.
The Funds' use of derivatives may involve leveraging. Under leveraging, a
relatively small investment may produce substantial losses or gains for a Fund,
well beyond the Fund's initial investment.
_______________________________________________________________________________
WHAT ARE SHORT SALES?
When a Fund's portfolio manager anticipates that the price of a security will
decline, the manager may enter into an agreement to sell the security even
though the Fund does not own it. This technique is called SELLING SHORT. The
Fund will then borrow the same security from a broker or other institution in
order to complete the sale. The Fund must later purchase the security in order
to return the security borrowed. If the portfolio manager has predicted
accurately, the price at which the Fund buys the security will be less than the
price at which the Fund earlier sold the security, creating a profit for the
Fund. However, if the price of the security goes up during this period, the
Fund will be forced to buy the security for more than its sale price, causing a
loss to the Fund. Non-U.S. currencies may also be sold short.
_______________________________________________________________________________
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,
High Yield 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
<PAGE>
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 Fund and 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 100 is expected to be the least volatile of the Funds.
However, under certain market conditions this Fund could be more volatile than
one or more of the other Funds.
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
<PAGE>
are usually more sensitive to interest rate changes. A change in interest rates
could cause the Funds' share prices to go down.
CREDIT RISK. Some issuers may 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, and the prices of these securities may be more
volatile.
JUNK BONDS. Credit risk is more pronounced with so-called "junk bonds" which
are debt obligations that are rated below investment-grade. The risk of default
may be greater and the market for these securities may be less active, making
it more difficult to sell the securities at reasonable prices, and also making
valuation of the securities more difficult. A Fund may incur additional
expenses if an issuer defaults and the Fund tries to recover some of its losses
in a bankruptcy or other similar proceeding.
FOREIGN SECURITIES. Investments in foreign securities involve risks relating to
adverse political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on fund
investments, currency exchange controls and other limitations on the
use or transfer of Fund assets and political or social instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special
problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect 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.
SMALLER COMPANIES. The securities of smaller capitalization companies may have
more risks than those of larger, more seasoned companies. They may be
<PAGE>
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.
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, 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.
In some instances, a Fund's use of derivatives may have the effect of
leveraging the Fund. Leveraging adds increased risks to a Fund, because the
Fund's losses may be out of proportion to the amount invested in the instrument
- -- a relatively small investment may lead to much greater losses.
SHORT SALES. The Funds may engage in short sales. Losses from short sales may
be unlimited.
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 Funds
are presently unclear. European financial markets, and therefore, the Funds
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 Funds could
also be adversely affected if the computing, accounting and trading systems
used by their 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 Funds invest 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
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
<S> <C> <C> <C> <C> <C> <C>
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
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%**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CitiSelect Folio 200 CitiSelect Folio 300
<S> <C> <C> <C> <C> <C> <C>
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
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 Portfolio s 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
<S> <C> <C> <C> <C> <C> <C>
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
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%**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CitiSelect Folio 400 CitiSelect Folio 500
<S> <C> <C> <C> <C> <C> <C>
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
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
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
<PAGE>
[ ] 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
exchange d 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
<PAGE>
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
May 3, 1999
CITISELECT(R) FOLIO 100
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 100, 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. Investment Objectives and Policies.......................................
3. Description of Permitted Investments and Investment Practices............
4. Investment Restrictions..................................................
5. Performance Information and Advertising..................................
6. Determination of Net Asset Value; Valuation of Securities................
7. Additional Information on the Purchase and Sale of Fund Shares
and Shareholder Programs...............................................
8. Management...............................................................
9. Portfolio Transactions...................................................
10. Description of Shares, Voting Rights and Liabilities.....................
11. Tax Matters..............................................................
12. Certain Bank Regulatory Matters..........................................
13. Financial Statements.....................................................
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Funds'
Prospectus, dated May 3, 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 __ 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 five funds offered by the Trust -- CitiSelect Folio 100,
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, International
Portfolio, Foreign Bond Portfolio, High Yield Portfolio, Large Cap Growth
Portfolio and Small Cap Growth Portfolio (collectively, the "Portfolios"). The
Portfolios (other than Large Cap Growth Portfolio, High Yield Portfolio and
Small Cap Growth Portfolio, which are series of The Premium Portfolios) are
series of Asset Allocation Portfolios (collectively, with The Premium
Portfolios, the "Portfolio Trusts"). The Portfolio Trusts are open-end,
diversified management investment companies organized as New York trusts. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), a diversified
management investment company must invest at least 75% of its assets in cash
and cash items, U.S. Government securities, investment company securities and
other securities limited as to any one issuer to not more than 5% of the total
assets of the investment company and not more than 10% of the voting securities
of the issuer.
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 invests in a mix of equity and fixed income securities that is
designed by Citibank to offer a different level of potential return with a
different amount of risk. The investment objective (or goal) of each Fund is as
follows:
The investment objective of CitiSelect Folio 100 is as high a level of
current income as is consistent with a dominant emphasis on fixed income
securities and a small allocation to equity securities.
The investment objective of CitiSelect Folio 200 is as high a total return
over time as is consistent with a primary emphasis on fixed income 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.
<PAGE>
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 100 is expected to be the least volatile of the five
Funds and is designed for the investor who is seeking current income with
relatively low risk but with some growth potential. CitiSelect Folio 200 is
designed for the investor who is seeking relatively low risk provided by
substantial investments in fixed income 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. Except as
otherwise expressly noted, 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 invests in shares of underlying investment companies or
Portfolios in accordance with Section 12(d)(1)(G) of the 1940 Act. Each
Portfolio may invest its assets in closed-end investment companies as permitted
by applicable law.
<PAGE>
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.
LOWER RATED DEBT SECURITIES
The Funds may invest in lower rated fixed income securities (commonly
known as "junk bonds"), to the extent described in the Prospectus. The lower
ratings of certain securities held by the Funds reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates, may
impair the ability of the issuer to make payments of interest and principal.
The inability (or perceived inability) of issuers to make timely payment of
interest and principal would likely make the values of such securities held by
the Funds more volatile and could limit the Fund's ability to sell its
securities at prices approximating the values the Funds had placed on such
securities. In the absence of a liquid trading market for securities held by
it, a Fund at times may be unable to establish the fair value of such
securities.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better
or worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or by any other nationally recognized securities rating organization) does not
reflect an assessment of the volatility of the security's market value or the
liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of fixed
income securities. Conversely, during periods of rising interest rates, the
value of a Fund's fixed-income securities will generally decline. The values of
lower rated securities may often be affected to a greater extent by changes in
general economic conditions and business conditions affecting the issuers of
such securities and their industries. Negative publicity or investor
perceptions may also adversely affect the values of lower rated securities.
Changes by recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments of interest
and principal may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income derived from
these securities, but will affect a Fund's net asset value. The Funds will not
necessarily dispose of a security when its rating is reduced below its rating
at the time of purchase. However, the Manager will monitor the investment to
determine whether its retention will assist in meeting the Fund's investment
objective.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
CALL FEATURES
Certain securities held by a Fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by a Fund during a time of declining interest rates, the Fund may not be able
to reinvest the proceeds in securities providing the same investment return as
the securities redeemed.
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
<PAGE>
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 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.
<PAGE>
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 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. 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 15% of its net assets (taken at
market value) in illiquid investments, which include securities for which there
is no readily available market, securities subject to contractual restrictions
on resale and restricted securities, unless, in the case of restricted
securities, the Board of Trustees of the Trust determines, based on the trading
markets for the specific restricted security, that it is liquid. The Trustees
have adopted guidelines and, subject to oversight by the Trustees, have
delegated to the Manager and to each Subadviser the daily function of
determining and monitoring liquidity of restricted securities.
<PAGE>
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
Each Fund may invest up to 15% of its net assets in securities for which
there is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for 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.
<PAGE>
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. 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
<PAGE>
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 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.
SHORT SALES
The Funds may seek to hedge investments or realize additional gains
through short sales. Short sales are transactions in which a Fund sells a
security it does not own in anticipation of a decline in the market value of
that security. To complete such a transaction, a Fund must borrow the security
to make delivery to the buyer. A Fund then is obligated to replace the security
borrowed by purchasing it at the market price at or prior to the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by a Fund. Until the security is replaced, a Fund is
required to repay the lender any dividends or interest that accrue during the
period of the loan. To borrow the security, a Fund also may be required to pay
a premium, which would increase the cost of the security sold. A portion of the
net proceeds of the short sale may be retained by the broker (or by the Fund's
custodian in a special custody account), to the extent necessary to meet margin
requirements, until the short position is closed out. A Fund will also incur
transaction costs in effecting short sales.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which a
Fund replaces the borrowed security. A Fund will realize a gain if the security
declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premiums,
dividends, interest or expenses a Fund may be required to pay in connection
with a short sale. An increase in the value of a security sold short by a Fund
over the price at which it was sold short will result in a loss to the Fund,
and there can be no assurance that a Fund will be able to close out the
position at any particular time or at an acceptable price. Thus a Fund's losses
on short sales are potentially unlimited. The Funds may also engage in short
sales of non-U.S. currencies. See "Foreign Currency Exchange Transactions"
below.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Funds may engage in foreign currency exchange transactions as an
attempt to protect against uncertainty in the level of future foreign currency
exchange rates or as an attempt to enhance performance.
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.
<PAGE>
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. A forward contract entered into by a Fund
may involve the purchase or sale, for a fixed amount of U.S. currency, of
another currency. Each of the Funds may also enter into forward contracts for
the purchase or sale, for a fixed amount of a non-U.S. currency, of another
non-U.S. currency.
When 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 the non-U.S. currency, for a
fixed amount of U.S. dollars. If a Fund owns securities in that currency, the
Manager or Subadviser may enter into a contract to sell the non-U.S. currency
in an amount approximating the value of some or all of the Fund's securities
denominated in such non-U.S. currency. The precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible since the future value of such securities in non-U.S. currencies
changes as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
At the maturity of a forward contract, a Fund will either deliver the
non-U.S. currency or terminate its contractual obligation to deliver the
non-U.S. currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the non-U.S. currency. If a Fund engages in an offsetting transaction, the Fund
will incur a gain or a loss (as described below) to the extent that there has
been movement in forward contract prices. If 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.
Where a Fund enters into a forward contract with respect to securities it
holds denominated in the non-U.S. currency, it is impossible to forecast with
precision the market value of 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.
<PAGE>
Conversely, it may be necessary to sell on the spot market some of the non-U.S.
currency received upon the sale of the security if its market value exceeds the
amount of such currency the Fund is obligated to deliver.
When a Fund enters into a forward contract for non-hedging purposes, there
is a greater potential for profit but also a greater potential for loss. For
example, a Fund may purchase a given foreign currency through a forward
contract if the value of such currency is expected to rise relative to the U.S.
dollar or another foreign currency. Conversely, a Fund may sell the currency
through a forward contract if the value of the currency is expected to decline
against the dollar or another foreign currency. The Fund will profit if the
anticipated movements in foreign currency exchange rates occur, which will
increase gross income. Where exchange rates do not move in the direction or the
extent anticipated, however, the Fund may sustain losses which will reduce its
gross income. Such transactions should be considered speculative and could
involve significant risk of loss.
Each of the Funds may also engage in short sales of non-U.S. currencies in
which a Fund would sell a currency that it did not own in anticipation of a
fall in the value of that currency relative to U.S. dollars or another foreign
currency. A Fund may do this even if it does not hold any securities or other
assets denominated in the non-U.S. currency being sold short. In order for the
Fund to deliver the currency sold short, it would be required to purchase the
currency. If the expected decline occurs, the Fund would gain the difference
between the price at which it sold the currency, and the price it paid for the
currency. However, if the price of the currency increases, the Fund would
suffer a loss to the extent that the purchase price of the currency exceeds the
price of the currency it sold short. A Fund's losses on such short sales are
potentially unlimited.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission concerning forward contracts and short
sales. 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 or that the Fund otherwise covers its position in accordance
with applicable regulations and policies.
Each of the Funds may purchase put options on a currency in an attempt to
protect against currency rate fluctuations or to seek to enhance gains. When a
Fund purchases a put option on a currency, the Fund will have the right to sell
the currency for a fixed amount in U.S. dollars, or other currency. Conversely,
where a rise in the value of one currency is projected against another, the
Fund may purchase call options on the currency, giving it the right to purchase
the currency for a fixed amount of U.S. dollars or another currency. Each Fund
may purchase put or call options on currencies, even if the Fund does not
currently hold or intend to purchase securities denominated in such currencies.
The benefit to the Fund from purchases of currency options will be reduced
by the amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options.
The Funds may write options on currencies for hedging purposes or
otherwise in an attempt to achieve their investment objectives. For example,
where a Fund anticipates a decline in the U.S. dollar value of a foreign
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund may be offset by the
amount of the premium received. If the expected decline does not occur, the
Fund may be required to sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. A Fund could also write call options on a
currency, even if it does not own any securities denominated in that currency,
in an attempt to enhance gains. In that case, if the expected decline does not
occur, the Fund would be required to purchase the currency and sell it at a
loss, which may not be offset by the premium received. As with a short sale of
a security or a currency, the losses in this case could be unlimited.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
<PAGE>
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. A Fund could also write put options on a currency, even if
it does not own, or intend to purchase, any securities denominated in that
currency. In that case, if the expected increase does not occur, the Fund would
be required to purchase the currency at a price that is greater than the
current exchange rate for the currency, and the losses in this case could
exceed the amount of premium received for writing the options, and could be
unlimited.
Options on foreign currencies are traded on U.S. or foreign exchanges or
in the over-the-counter market. Each of the Funds may enter into transactions
in options on foreign currencies that are traded in the over-the-counter
market. These transactions are not afforded the protections provided to traders
on organized exchanges or those regulated by the CFTC. In particular,
over-the-counter options are not cleared and guaranteed by a clearing
corporation, thereby increasing the risk of counterparty default. In addition,
there may not be a liquid market on these options, which may prevent a Fund
from liquidating open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market conditions.
The purchase and sale of foreign currency options are subject to the risks
of the availability of a liquid secondary market and counterparty risk, as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible interventions by governmental authorities and the effects of other
political and economic events. In addition, the value of a Fund's positions in
foreign currency options could be adversely affected by (1) other complex
foreign political and economic factors, (2) lesser availability of data on
which to make trading decisions than in the United States, (3) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States or at the applicable Subadviser's place
of business, and (4) imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States.
In addition, because foreign currency transactions occurring in the
interbank market generally involve substantially larger amounts than those that
may be involved in the use of foreign currency options, the Funds may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets, or other markets used by
the Manager or a Subadviser are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that may not be reflected in the U.S. or other markets
used by the Funds.
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.
The Funds may engage in proxy hedges and cross hedges. For example, in a
proxy 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
<PAGE>
might be expected to be closer to those in the U.S. and lower than those of
securities denominated in the currency of the original holding. This type of
hedging entails greater risk than a direct hedge because it is dependent on a
stable relationship between the two currencies paired as proxies and the
relationships can be very unstable at times. A Fund may enter into a cross
hedge if a particular currency is expected to decrease against another
currency. Fox example, the Fund would sell the currency expected to decrease
and purchase a currency which is expected to increase against the currency sold
in an attempt to protect against declines in value of the Fund's holdings
denominated in the currency sold.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
underlying ADRs are traded primarily in non-U.S. currencies, changes in
currency exchange rates will affect the value of these receipts. For example, a
decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other non-U.S. currency remains constant, and thus will
reduce the value of the receipts covering such securities. A Fund may employ
any of the above described foreign currency hedging techniques to protect the
value of its assets invested in depositary receipts.
Each of the Funds may also purchase and sell foreign currency futures
contracts as more fully discussed under "Futures Contracts" below, and engage
in currency swaps and other similar transactions as more fully discussed under
"Swaps and Related Transactions" below.
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 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 transactions entered
into to protect the value of a Fund's securities against a decline in the value
of a currency (even when successful) do not eliminate fluctuations in the
underlying prices of the securities. Additionally, although hedging
transactions may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, they also tend to limit any potential gain which
might result should the value of such currency increase.
Investors should also be aware of the increased risk to a Fund and its
shareholders when it enters into foreign currency exchange transactions for
non-hedging purposes. Non-hedging transactions in such instruments involve
greater risks and may result in losses which are not offset by increases in the
value of a Fund's other assets. Although a Fund is required to segregate assets
or otherwise cover certain types of transactions, this does not protect the
Fund against risk of loss. Furthermore, the Funds' use of foreign currency
exchange transactions may involve leveraging. Leveraging adds increased risks
to a Fund, because the Fund's losses may be out of proportion to the amount
invested in the instrument--a relatively small investment may lead to much
greater losses.
OPTIONS
Each of the Funds may write call and put options and purchase call and put
options on securities for hedging and nonhedging purposes. Call and put options
written by a Fund will be covered in the manner set forth below, or the Fund
will segregate cash or liquid securities equal to the value of the securities
underlying the option.
A call option written by 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
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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. Even if the Fund's
obligation is covered, it is subject to the risk of the full change in value of
the underlying security from the time the option is written until exercise.
Covering an option does not protect the Fund from risk of loss.
When a Fund writes a call option, the Fund, in return for a fee, or
"premium", agrees to sell a security at the exercise price, if the holder
exercises the right to purchase prior to the expiration date of the call
option. If the Fund holds the security in question, the Fund gives up some or
all of the opportunity to profit from the increase in the market price of the
security during the life of the option. The Fund retains the risk of loss
should the price of the security decline. If the option expires unexercised,
the Fund realizes a gain equal to the premium, which may be offset by a decline
in price of the underlying security. If the option is exercised, the Fund
realizes a gain or loss equal to the difference between the fund's cost for the
underlying security and the proceeds of sale (exercise price minus commissions)
plus the amount of the premium.
A Fund may terminate a call option it has written before it expires by
entering into a closing purchase transaction. A Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security
or to write another call on the security, realize a profit on a previously
written call option, or protect a security from being called in an unexpected
market rise. Any profits from closing a purchase transaction may be offset by a
decline in the value of the underlying security. Conversely, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, if the Fund holds the underlying
security any loss resulting from a closing purchase transaction is likely to be
offset in whole or in part by unrealized appreciation of the underlying
security. If the Fund does not hold the underlying security, the Fund's loss
could be unlimited.
A Fund may write put options in an attempt to enhance its current return.
Such option transactions may also be used as a limited form of hedging against
an increase in the price of securities that a Fund plans to purchase. A put
option written by the Fund gives the holder the right to sell, and, in return
for a premium, obligates the Fund to buy, a security at the exercise price at
any time before the expiration date.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Fund may also
receive a return on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a loss
to the Fund, unless the security later appreciates in value. A Fund may
terminate a put option it has written before it expires by a closing purchase
transaction. Any loss from this transactions may be partially or entirely
offset by the premium received on the terminated option.
Each of the Funds may purchase options for hedging purposes or to increase
the Fund's return. When put options are purchased as a hedge against a decline
in the value of portfolio securities, the put options may be purchased at or
about the same time that the Fund purchases the underlying security or at a
later time. If such decline occurs, the put options will permit 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. Similarly, when put options
are used for non-hedging purposes, the Fund may make a profit when the price of
the underlying security or instrument falls below the strike price. If the
price of the underlying security or instrument does not fall sufficiently, the
options may expire unexercised and the Fund would lose the premiums it paid for
the option. If the price of the underlying security or instrument falls
sufficiently and the option is exercised, the amount of any resulting profit
will be offset by the amount of premium paid.
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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 and the premium would be lost.
Call options may also be purchased in order to increase a Fund's return at
a time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to its expiration, a call option
may be sold by a Fund in closing sale transactions, which are sales by the
Fund, prior to the exercise of options that it has purchased, of options of the
same series. Profit or loss from the sale will depend upon whether the amount
received is more or less than the premium paid for the option plus the related
transaction costs. The purchase of call options on securities that a Fund owns,
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.
Each of the Funds may write (sell) call and put options and purchase call
and put options on securities indices. The delivery requirements of options on
securities indices differ from options on securities. Unlike a securities
option, which contemplates the right to take or make delivery of securities at
a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (1) the amount, if any,
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of exercise, multiplied by (2) a fixed "index multiplier."
Receipt of this cash amount will depend upon the closing level of the
securities index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in securities index options prior to expiration by entering into a closing
transaction on an exchange or it may allow the option to expire unexercised.
Each of the Funds may cover call options on securities 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 securities index through ownership of
securities, such securities may not match the composition of the index and, in
that event, the Fund will not be fully covered and could be subject to risk of
loss in the event of adverse changes in the value of the index. A Fund may also
cover call options on securities indices by holding a call on the same index
and in the same principal amount as the call written where the exercise price
of the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or liquid securities in a
segregated account. A Fund may cover put options on securities indices by
maintaining cash or liquid securities with a value equal to the exercise price
in a segregated account or by holding a put on the same securities index and in
the same principal amount as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written or
where the exercise price of the put held is less than the exercise price of the
put written if the difference is maintained by the Fund in cash or liquid
securities in a segregated account. Put and call options on securities indices
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which, or the counterparty with which, the option is traded,
and applicable laws and regulations. Investors should be aware that although a
Fund will only write call or put options on securities indices that are
covered, covering an option does not protect the Fund from risk of loss.
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
<PAGE>
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 purchase put options on securities indices when the
Manager or Subadviser believes that there may be a decline in the prices of the
securities covered by the index. The Fund will realize a gain if the put option
appreciates in excess of the premium paid for the option. If the option does
not increase in value, the Fund's loss will be limited to the premium paid for
the option plus related transaction costs.
A Fund may purchase call options on securities indices to take advantage
of an anticipated broad market advance, or an advance in an industry or market
segment. A Fund will bear the risk of losing all or a portion of the premium
paid if the value of the index does not rise. The purchase of call options on
securities indices when 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.
Securities index options are subject to position and exercise limits and
other regulations imposed by the exchange on which they are traded. The ability
of a Fund to engage in closing purchase transactions with respect to securities
index options depends on the existence of a liquid secondary market. However,
no such secondary market may exist, or the market may cease to exist at some
future date, for some options. No assurance can be given that a closing
purchase transaction can be effected when the Manager or a Subadviser desires
that a Fund engage in such a transaction.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular security, whether a Fund
realizes a gain or loss from purchasing or writing of options on an index
depends upon movements in the level of prices in the market generally or, in
the case of certain indices, in an industry or market segment, rather than
movements in the price of a particular security. As a result, successful use by
a Fund of options on securities indices is subject to the Manager's or a
Subadviser's ability to predict correctly movements in the direction of the
market generally or of a particular industry. This ability contemplates
different skills and techniques from those used in predicting changes in the
price of individual securities. When a Fund purchases or writes securities
index options as a hedging technique, the Fund's success will depend upon the
extent to which price movements in the portion of a securities portfolio being
hedged correlate with price movements of the securities index selected.
A Fund's purchase or sale of securities index options in an attempt to
enhance performance involves speculation and may be very risky and cause
losses, which, in the case of call options written, are potentially unlimited.
The Funds may purchase over-the-counter ("OTC") or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation assures that all transactions are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to the
clearing organization if the option is exercised, and the clearing organization
is then obligated to pay the writer the exercise price of the option. If a Fund
were to purchase a dealer option, however, it would rely on the dealer from
whom it purchased the option to perform if the option were exercised. If the
dealer fails to honor the exercise of the option by the Fund, the Fund would
lose the premium it paid for the option and the expected benefit of the
transaction.
Listed options may have a liquid market while dealer options have none.
Consequently, a Fund will generally be able to realize the value of a dealer
option it has purchased only by exercising it or reselling it to the dealer who
issued it. Similarly, when a Fund writes a dealer option, it generally will be
able to close out the option prior to the expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally sold
the option. Although the Funds will seek to enter into dealer options only with
dealers who will agree to and that are expected to be capable of entering into
closing transactions with the Funds, there can be no assurance that a Fund will
<PAGE>
be able to liquidate a dealer option at a favorable price at any time prior to
expiration. The inability to enter into a closing transaction may result in
material losses to a Fund. Until a Fund, as an OTC call option writer, is able
to effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used to cover the written option until the option
expires or is exercised. This requirement may impair a Fund's ability to sell
portfolio securities or, with respect to currency options, currencies at a time
when such sale might be advantageous. In the event of insolvency of the other
party, the Fund may be unable to liquidate a dealer option.
To the extent permitted under rules and interpretations of the CFTC, each
of the Funds may also purchase or write put and call options on securities
index futures contracts that are traded on a U.S. exchange or board of trade or
a foreign exchange, as a hedge against changes in market conditions and
interest rates, for duration management, or in an attempt to enhance
performance, and may enter into closing transactions with respect to those
options to terminate existing positions.
Each of the Funds may purchase and write options on foreign currencies as
more fully described in "Foreign Currency Exchange Transactions" above.
The Funds' use of options may involve leveraging. Leveraging adds
increased risks to a Fund, because the Fund's losses may be out of proportion
to the amount invested in the instrument--a relatively small investment may
lead to much greater losses.
FUTURES CONTRACTS
Each of the Funds may enter into futures contracts, including bond futures
contracts, 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.
Futures contracts based on debt securities provide for the delivery and
acceptance of securities, although 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. Interest rate futures, which are
typically based on shorter-term interest rates, such as overnight to six-month
time periods, settle in cash only rather than by delivery of the underlying
instrument.
<PAGE>
A Fund may purchase or sell interest rate futures contracts or bond
futures contracts to attempt to protect the Fund from fluctuations in interest
rates, to manage the effective maturity or duration of the Fund's portfolio in
an effort to reduce potential losses, or in an effort to enhance potential
gain, without actually buying or selling debt securities. For example, if the
Fund owned long-term bonds and interest rates were expected to increase, the
Fund might enter into interest rate futures contracts for the sale of debt
securities. Such a sale would have much the same effect as if the Fund sold
bonds that it owned, or as if the Fund sold longer-term bonds and purchased
shorter-term bonds. If interest rates did increase, the value of the Fund's
debt securities would decline, but the value of the futures contracts would
increase, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. Similar results could be accomplished by
selling bonds, or by selling bonds with longer maturities and investing in
bonds with shorter maturities. However, by using futures contracts, the Fund
avoids having to sell its securities.
Bond futures may be used for nonhedging purposes. For example, even if the
Fund were not trying to protect the value of any bonds held by it, if the
Manager or a Subadviser anticipates that interest rates are about to rise,
depressing future prices of bonds, the Manager or Subadviser may sell bond
futures short, closing out the position later at a lower price, if the future
prices had fallen, as expected. If the prices had not fallen, the Fund would
experience a loss and such loss may be unlimited.
Similarly, when it is expected that interest rates may decline, 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.
Although futures on individual equity securities are not available in
United States markets, futures contracts on individual equity securities may be
available in foreign markets, and may be purchased or sold by the Funds.
Each of the Funds may buy and sell stock index futures contracts to
attempt to increase investment return, to gain stock market exposure while
holding cash available for investments and redemptions, or to protect against a
decline in the stock market.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at the price agree upon when the
contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making
up the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if a Fund enters into a futures contract to buy 100
units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Fund will gain
$400 (100 units x gain of $4) reduced by transaction costs. If the Fund enters
into a futures contract to sell 100 units of the stock index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $182 on
that future date, the Fund will lose $200 (100 units x loss of $2) increased by
transaction costs.
Positions in index futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures.
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 or, for non-hedging purposes, in an attempt to benefit
from such fluctuations. Such fluctuations could reduce the dollar value of
<PAGE>
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. A Fund may also sell futures contracts in a foreign currency even if
it does not hold securities denominated in such currency, if it anticipates a
decline in the value of such currency.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. Where the Fund purchases futures contracts under
such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired. The Fund could also purchase futures contracts on a
currency if it expected the currency to rise in value, even if the Fund did not
anticipate purchasing securities denominated in that currency.
Although the use of futures for hedging 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 underlying securities, currencies or indices.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. There can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. In that event, it may not be possible to close out a position held by the
Fund, which could require the Fund to purchase or sell the instrument
underlying the futures contract or to meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the ability effectively to use futures transactions for
hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. Each contract market on which futures contracts are traded has
<PAGE>
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The trading of futures contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Investments in futures contracts also entail the risk that if the
Manager's or 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 entered into a futures contract in the
belief that interest rates would increase, and interest rates decrease instead,
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.
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. Generally speaking, 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 and the
premiums required to establish positions in options on futures, would exceed 5%
of that Fund's net assets. These limitations apply only to instruments
regulated by the CFTC, and may not apply to all of the Funds' transactions in
futures contracts.
Each Fund will comply with this CFTC requirement if applicable. In
addition, 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, or a
Fund will otherwise "cover" its positions in accordance with applicable
policies and regulations.
The use of futures contracts may expose 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.
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
<PAGE>
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 may be used as 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 may be used as 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.
Each of the Funds may also purchase options on futures contracts for
non-hedging purposes, in order to take advantage of projected market advances
or declines or changes in interest rates or exchange rates. For example, a Fund
can buy a call option on a bond futures contract when the Manager or Subadviser
believes that the underlying futures contract will rise. If prices do rise, the
<PAGE>
Fund could exercise the option and acquire the underlying futures contract at
the strike price or the Fund could offset the long call position with a sale
and realize a profit. Or, a Fund can sell a call option if the Manager or
Subadviser believes that futures prices will decline. If prices decline, the
call will likely not be exercised and the Fund would profit. However, if the
underlying futures contract should rise, the buyer of the option would likely
exercise the call against the Fund and acquire the underlying futures position
at the strike price; the Fund's loss in this case could be unlimited.
The Funds' use of options on futures contracts may involve leveraging.
Leveraging adds increased risks to a Fund, because the Fund's losses may be out
of proportion to the amount invested in the instrument--a relatively small
investment may lead to much greater losses.
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 or otherwise cover
its current obligations under swap transactions in accordance with current
regulations and policies applicable to the Fund.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity, currency or other
factor that determines the amount of payments to be made under the arrangement.
If the Manager or a Subadviser is incorrect in its forecasts of such factors,
the investment performance of the Fund would be less than what it would have
<PAGE>
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 15% of its net assets may be invested in illiquid securities.
Engaging in swap and related transactions may involve leveraging.
Leveraging adds increased risks to a Fund, because the Fund's losses may be out
of proportion to the amount invested in the instrument--a relatively small
investment may lead to much greater losses.
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.
The use of certain derivatives, such as futures, forward contracts, and
written options may involve leverage for the Funds because they create an
obligation, or indebtedness, to someone other than the Funds' shareholders and
enable a Fund to participate in gains and losses on an amount that exceeds its
initial investment. If a Fund writes a stock put option, for example, it makes
no initial investment, but instead receives a premium in an amount equal to a
fraction of the price of the underlying stock. In return, the Fund is obligated
to purchase the underlying stock at a fixed price, thereby being subject to
losses on the full stock price.
Likewise, if a Fund purchases a futures contract, it makes an initial
margin payment that is typically a small percentage of the contract's price.
However, because of the purchase, the Fund will participate in gains or losses
on the full contract price.
Other types of derivatives provide the economic equivalent of leverage
because they display heightened price sensitivity to market fluctuations, such
as changes in stock prices or interest rates. These derivatives magnify a
Fund's gain or loss from an investment in much the same way that incurring
indebtedness does. For example, if a Fund purchases a stock call option, the
Fund pays a premium in an amount equal to a fraction of the stock price, and in
return, the Fund participates in gains on the full stock price. If there were
no gains, the Fund generally would lose the entire initial premium.
Options, futures contracts, options on futures contracts, forward
contracts and swaps may be used alone or in combinations in order to create
synthetic exposure to securities in which a Fund otherwise invests, such as
non-U.S. government securities.
<PAGE>
The use of derivatives 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."
ADDITIONAL INFORMATION
At times, a substantial portion of a Fund's assets may be invested in
securities as to which a Fund, by itself or together with other funds and
accounts managed by Citibank and its affiliates, holds all or a major portion.
Although Citibank generally considers such securities to be liquid because of
the availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, a Fund could find it more
difficult to sell these securities when Citibank believes it advisable to do so
or may be able to sell the securities only at prices lower than if they were
more widely held. Under these circumstances, it may also be more difficult to
determine the fair value of such securities for purposes of computing a Fund's
net asset value. In order to enforce its rights in the event of a default under
such securities, a Fund may be required to participate in various legal
proceedings or take possession of and manage assets securing the issuer's
obligations on such securities. This could increase the Fund's operating
expenses and adversely affect a Fund's net asset value. In addition, a Fund's
intention to qualify as a "regulated investment company" under the Internal
Revenue Code may limit the extent to which the Fund may exercise its rights by
taking possession of such assets.
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.
<PAGE>
(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, up to 25% of its assets, at market value at the
time of each investment, may be invested in any one industry, except that
positions in futures contracts shall not be subject to this restriction.
(6) Underwrite securities issued by other persons, except that all or
any portion of the assets of the Fund or Portfolio may be invested in one
or more investment companies, to the extent not prohibited by the 1940
Act, the rules and regulations thereunder, and exemptive orders granted
under such Act, and except in so far as the Fund or Portfolio may
technically be deemed an underwriter under the Securities Act in selling
a security.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business (the foregoing
shall not be deemed to preclude the Fund or Portfolio from purchasing or
selling futures contracts or options thereon, and each of the Fund and the
Portfolio reserves the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities by the Fund or the
Portfolio).
(8) Issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder.
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.
<PAGE>
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 100 is newly organized
and had no operations at October 31, 1998.
CITISELECT FOLIO 200
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE OF AT THE END OF
PERIOD 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 OF AT THE END OF
PERIOD 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
<PAGE>
CITISELECT FOLIO 400
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE OF AT THE END OF
PERIOD 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 OF AT THE END OF
PERIOD 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 Folio 400 and CitiSelect Folio 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
<PAGE>
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.
<PAGE>
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, except CitiSelect Folio 100 which is newly offered. 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 FOLIO 200 CITISELECT FOLIO 300
- --------------------------------- ---------------------- ----------------------
Net Asset Value per share $11.28 $11.48
- --------------------------------- ---------------------- ----------------------
Per Share Sales Charge - 4.50% of $0.53 $0.54
public offering price (4.71% of
net asset value per share)
- --------------------------------- ---------------------- ----------------------
Per Share Offering Price to the $11.81 $12.02
Public
- --------------------------------- --------------------- ----------------------
CITISELECT FOLIO 400 CITISELECT FOLIO 500
- --------------------------------- ---------------------- ----------------------
Net Asset Value per share $11.36 $11.11
- --------------------------------- ---------------------- ----------------------
Per Share Sales Charge - 5.00% of $0.60 $0.58
public offering price (5.26% of
net asset value per share)
- --------------------------------- ---------------------- ----------------------
Per Share Offering Price to the $11.96 $11.69
Public
- --------------------------------- ---------------------- ----------------------
<PAGE>
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.
- -------------------------------------------------------------------------------
CITISELECT FOLIO 100, CITISELECT FOLIO 200 AND CITISELECT FOLIO 300
- -------------------------------------------------------------------------------
SALES CHARGE SALES CHARGE BROKER/DEALER
AS A % OF AS A % OF COMMISSION AS A
AMOUNT OF OFFERING PRICE YOUR % OF OFFERING
YOUR INVESTMENT INVESTMENT PRICE
- ----------------------------- --------------- --------------- -----------------
Less than $25,000 4.50% 4.71% 4.05%
- ----------------------------- --------------- --------------- -----------------
$25,000 to less than $50,000 4.00% 4.17% 3.60%
- ----------------------------- --------------- --------------- -----------------
$50,000 to less than $100,000 3.50% 3.63% 3.15%
- ----------------------------- --------------- --------------- -----------------
$100,000 to less than $250,000 2.50% 2.56% 2.25%
- ----------------------------- --------------- --------------- -----------------
$250,000 to less than $500,000 1.50% 1.52% 1.35%
- ----------------------------- --------------- --------------- -----------------
$500,000 or more none* none* up to 1.00%
CITISELECT FOLIO 400 AND CITISELECT FOLIO 500
- ----------------------------- --------------- --------------- -----------------
SALES CHARGE SALES CHARGE BROKER/DEALER
AS A % OF AS A % OF COMMISSION AS A
AMOUNT OF OFFERING PRICE YOUR % OF OFFERING
YOUR INVESTMENT INVESTMENT PRICE
- ----------------------------- --------------- --------------- -----------------
Less than $25,000 5.00% 5.26% 4.50%
- ----------------------------- --------------- --------------- -----------------
$25,000 to less than $50,000 4.00% 4.17% 3.60%
- ----------------------------- --------------- --------------- -----------------
$50,000 to less than $100,000 3.50% 3.63% 3.15%
- ----------------------------- --------------- --------------- -----------------
$100,000 to less than $250,000 3.00% 3.09% 2.70%
- ----------------------------- --------------- --------------- -----------------
$250,000 to less than $500,000 2.00% 2.04% 1.80%
- ----------------------------- --------------- --------------- -----------------
$500,000 or more none* none* up to 1.00%
- ----------------------------- --------------- --------------- -----------------
*A contingent deferred sales charge may apply in certain instances. See
"Sales Charge Waivers".
CLASS 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.
<PAGE>
CITISELECT FOLIO 100, 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
<PAGE>
- ---------------------------------------------------------------------------
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 100, 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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 100, 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.
<PAGE>
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
<PAGE>
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 59) -- Professor, Babson College (since September
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, the Highland Family of Funds (March 1997 to March 1998). Her address
is 120 Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY (aged 47) -- President, Global Research Associates, Inc.
(Investment Research) (since August 1990); Manager, Rockefeller & Co. (March
1988 to July 1990); Trustee, Mainstay Institutional Funds (since December
1990). Her address is P.O. Box 9572, New Haven, Connecticut.
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 64) - Chairman of the Board of the Trust and the
Portfolio Trusts; Managing Director, Morong Capital Management (since February
1993); Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired January 1993); Director, Indonesia
Fund; Director, MAS Funds. His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
E. KIRBY WARREN (aged 64) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 78) -- Vice President-Investments, Sun Company,
Inc. (retired, April 1984). His address is 35 Colwick Road, Cherry Hill,
New Jersey.
<PAGE>
TRUSTEES OF THE PORTFOLIO TRUSTS
ELLIOTT J. BERV (aged 56) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trusts; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
MARK T. FINN (aged 55) -- President and Director, Delta Financial, Inc. (since
June 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Vantage Consulting Group, Inc. (since
October 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia
Beach, Virginia.
C. OSCAR MORONG, JR. (aged 64) - Chairman of the Board of the Trust and the
Portfolio Trusts; Managing Director, Morong Capital Management (since February
1993); Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired January 1993); Director, Indonesia
Fund; Director, MAS Funds. His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III (aged 72) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN (aged 64) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trusts; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
CHRISTINE A. DRAPEAU* (aged 28) -- Assistant Secretary and Assistant Treasurer
of the Trust and the Portfolio Trusts; Vice President, Signature Financial
Group, Inc. (since January 1996); Paralegal and Compliance Officer, various
financial companies (July 1992 to January 1996).
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.
<PAGE>
SUSAN JAKUBOSKI* (aged 35) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994).
MOLLY S. MUGLER* (aged 47) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN* (aged 30) -- Assistant Secretary of the Trust and the Portfolio
Trusts; Office Manager, Signature Financial Group (Europe) Limited. Her
address is 117 Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 50) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trusts; Assistant Vice President, Signature
Financial Group, Inc.
JULIE J. WYETZNER* (aged 39) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust and the Portfolio Trusts; Vice President,
Signature Financial Group, Inc.
The Trustees and officers of the Trust and the Portfolio Trusts also hold
comparable positions with certain other funds for which CFBDS, Signature
Financial Group, Inc. or their affiliates serve as the distributor or
administrator.
The Trustees of the Trust received the following remuneration from the
Trust during its fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
PENSION OR ESTIMATED
AGGREGATE RETIREMENT ANNUAL TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED BENEFITS FROM TRUST AND FUND
FROM AS PART UPON COMPLEX
TRUSTEE REGISTRANT OF FUND EXPENSES 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 __________, 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
<PAGE>
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.
CitiSelect Folio 100 pays an aggregate management fee, which is accrued
daily and paid monthly, of 0.50% of the Fund's average daily net assets on an
<PAGE>
annualized basis for the Fund's then-current fiscal year. Each of CitiSelect
Folio 200, CitiSelect Folio 300, CitiSelect Folio 400, and CitiSelect Folio 500
pays an aggregate management fee, which is accrued daily and paid monthly, of
0.75% of such 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 $440,035, 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 Funds have entered into separate Submanagement Agreements with the
Subadvisers listed below for the kinds of assets of each Fund noted opposite
the Subadvisers' names.
Small cap value securities Franklin Advisory Services, Inc.
Large cap value securities Mutual Management Corp.
International equity securities Hotchkis and Wiley
Foreign government securities Salomon Brothers Asset Management
Limited
High yield securities Salomon Brothers Asset Management Inc
It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Funds, and to place the
<PAGE>
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.
The Submanagement Agreements with Franklin Advisory Services, Inc. and
Hotchkis and Wiley 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
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.
The Submanagement Agreement with Mutual Management Corp. will continue in
effect until January 22, 2001, and thereafter indefinitely as long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Portfolio Trust as to Large Cap Value 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 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.
The Submanagement Agreement with Salomon Brothers Asset Management Limited
will continue in effect until March 1, 2001, and thereafter indefinitely as
long as such continuance is specifically approved at least annually by the
Board of Trustees of the Portfolio Trust as to Foreign Bond 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 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.
The Submanagement Agreement with Salomon Brothers Asset Management Inc
will continue in effect until _______ __, 2001, and thereafter indefinitely as
long as such continuance is specifically approved at least annually by the
Board of Trustees of the Portfolio Trust as to High Yield 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 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 0.50% of CitiSelect Folio 100's average daily
net assets or 0.75% of each other Fund's average daily net assets.
Franklin Advisory Services, Inc.
0.55% on first $250 million
0.50% on remaining assets
<PAGE>
Mutual Management Corp.
0.65% on the first $10 million
0.50% on the next $10 million
0.40% on the next $10 million
0.30% on assets in excess of $30 million
Hotchkis and Wiley
0.60% on first $10 million
0.55% on next $40 million
0.45% on next $100 million
0.35% on next $150 million
0.30% on remaining assets
Salomon Brothers Asset Management Limited
0.30% on the first $200 million
0.25% on assets in excess of $200 million
Salomon Brothers Asset Management Inc 0.45% on the first $100 million
0.40% on assets in excess of $100 million
The aggregate fees paid to each of the Subadvisers under prior
submanagement agreements were as follows:
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:
Franklin Advisory
Services, Inc. $123,189 $716,245
Hotchkis and Wiley $160,913 $290,312
Pacific Investment
Management Company(1) $123,950 $474,072
Miller Anderson &
Sherrerd, LLP(2) $90,990 $580,234
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(1) $900,099
Miller Anderson &
Sherrerd, LLP(2) $511,730
(1) Pacific Investment Management Company served as Subadviser to Foreign Bond
Portfolio prior to March 1, 1999. Since March 1, 1999, Salomon Brothers Asset
Management Limited, an affiliate of Citibank, has managed the Foreign Bond
Portfolio.
(2) Miller Anderson & Sherrerd, LLP, served as Subadviser to Large Cap Value
Portfolio prior to January 22, 1999. Since January 22, 1999, Mutual Management
Corp., an affiliate of Citibank, has managed the Large Cap Value Portfolio.
Salomon Brothers Asset Management Inc has served as the Subadviser for the
High Yield Portfolio since _____ __, 1999.
<PAGE>
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 100,
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
<PAGE>
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.
<PAGE>
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 commission 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
13. FINANCIAL STATEMENTS
The audited financial statements of CitiSelect Folio 200, CitiSelect Folio
300, CitiSelect Folio 400, and CitiSelect Folio 500 (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 those Funds.
CitiSelect Folio 100 is newly offered and had no operations as at October 31,
1998.
A copy of the Annual Report for the Funds accompanies this Statement of
Additional Information.
<PAGE>
<TABLE>
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PART C
<S> <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(1) Amended and Restated Management Agreements between the Registrant
and Citibank, N.A., as manager to the CitiSelect Portfolios
******* d(2) Form of Management Agreement between the Registrant
and Citibank, N.A., as manager to CitiSelect Folio 100
******* e(1) Amended and Restated Distribution Agreement between the Registrant
and CFBDS, 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
******* e(3) Form of Letter Agreement adding CitiSelect Folio 100 to the Distribution
Agreement between the Registrant and CFBDS, as distributor with respect
to Class A shares and Class B shares of the CitiSelect Portfolios
*** g(1) Custodian Contract between the Registrant and State Street Bank and Trust
Company ("State Street"), as custodian
*** g(2) Letter Agreement regarding the Custodian Contract between the Registrant
and State Street
******* g(3) Form of Letter Agreement adding CitiSelect Folio 100 to the Custodian
Contract between the Registrant and State Street
*** h(1) Transfer Agency and Servicing Agreement between the Registrant and
State Street, as transfer agent
******* h(2) Letter Agreement adding CitiSelect Folio 100 to the Transfer Agency and
Servicing Agreement between the Registrant and State Street
***** i Opinion and consent of counsel
j Independent auditors' 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 Schedules
******* o Multiple Class Plan of the Registrant
****, ******** p(1) Powers of Attorney for the Registrant
***** p(2) Powers of Attorney for The Premium Portfolios
***** p(3) Powers of Attorney for Asset Allocation Portfolios
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 20 to the
Registrant's Registration Statement on Form N-1A (File No. 2-90518) as filed with
the Securities and Exchange Commission on December 31, 1996.
** Incorporated herein by reference to Post-Effective Amendment No. 25 to the
Registrant's Registration Statement on Form N-1A (File No. 2-90518) as filed with
the Securities and Exchange Commission on April 18, 1997.
*** Incorporated herein by reference to Post-Effective Amendment No. 26 to the
Registrant's Registration Statement on Form N-1A (File No. 2-90518) as filed with
the Securities and Exchange Commission on December 30, 1997.
**** Incorporated herein by reference to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A (File No. 2-90518) as filed with
the Securities and Exchange Commission on February 24, 1998.
<PAGE>
***** Incorporated herein by reference to Post-Effective Amendment No. 29 to the
Registrant's Registration Statement on Form N-1A (File No. 2-90518) as filed with
the Securities and Exchange Commission on December 16, 1998.
****** Incorporated herein by reference to Post-Effective Amendment No. 30 to the
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.
******** Incorporated herein by reference to Post-Effective Amendment No. 33 to the
Registrant's Registration Statement on Form N-1A (File No. 2-90518) as filed with
the Securities and Exchange Commission on March 1, 1999.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 20 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, Inc., filed as Exhibits 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, CitiFundsSM Tax Free Income Trust
(CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio and CitiFundsSM California Tax Free Income Portfolio),
CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM California Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves and CitiFundsSM Connecticut
Tax Free Reserves), CitiFundsSM Institutional Trust (CitiFundsSM Institutional
Cash Reserves) and Variable Annuity Portfolios (CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500
and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates
manage assets in excess of $290 billion worldwide. The principal place of
business of Citibank is located at 399 Park Avenue, New York, New York 10043.
<PAGE>
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 (the "Advisers Act") 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.
<PAGE>
Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:
<TABLE>
<CAPTION>
<S> <C>
Name: Affiliations:
William J. Lippman Senior Vice President, Franklin Resources, Inc.
President and Director Senior Vice President, Franklin Advisers, Inc.
Senior Vice President, Franklin Templeton Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Mr. Lippman also serves as officer and/or director or trustee of
eight of the investment companies in the Franklin Group of
Funds.
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.
<PAGE>
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>
Hotchkis and Wiley, a division of the Capital Management Group of
Merrill Lynch Asset Management, L.P. ("Hotchkis"), a sub-adviser to
International Portfolio, a series of Asset Allocation Portfolios, maintains its
principal office at 725 South Figueroa Street, Suite 4000, Los Angeles,
California 90017-5400. Harry Hartford and Sarah Ketterer manage international
equity accounts and are also responsible for international investment research.
Each serves on the Investment Policy Committee at Hotchkis. Prior to joining
Hotchkis, Mr. Hartford was with the Investment Bank of Ireland, where he gained
10 years of experience in both international and global equity management.
Prior to joining Hotchkis, Ms. Ketterer was an associate with Bankers Trust and
an analyst at Dean Witter.
Hotchkis became a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. upon the completion of the sale by Hotchkis and
Wiley, a Delaware Limited Liability Company and the general partner of Hotchkis
& Wiley, a California limited partnership, of all of the partnership interests
in Hotchkis & Wiley to Merrill Lynch & Co., Inc., a Delaware corporation, in
November of 1996.
Following are the managing personnel of Hotchkis:
<TABLE>
<CAPTION>
<S> <C>
Name and Position: Other Affiliations:
John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Board of Governors, The Music Center
Chairman Director, The Music Center Foundation
Director, Los Angeles Philharmonic Orchestra
Director, Big Brothers of Greater Los Angeles
Director, Executive Service Corps of Southern California
Director, KCET
Director, Teach for America
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson School
Director, Fountainhead Water Company, Inc.
Michael L. Quinn Head of Merrill Lynch Capital Management Group
Chief Executive Officer
</TABLE>
<PAGE>
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of Mutual
Management Corp. ("MMC"), a subadviser of Large Cap Value Portfolio, a series
of Asset Allocation Portfolios, reference is made to MMC's current Form ADV
(File No. 801-8314) filed under the Advisers Act, incorporated herein by
reference.
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of Salomon
Brothers Asset Management Inc ("SBAM"), a proposed subadviser of High Yield
Portfolio, a series of The Premium Portfolios, reference is made to SBAM's
current Form ADV (File No. 801-32046) filed under the Advisers Act,
incorporated herein by reference.
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of Salomon
Brothers Asset Management Limited ("SBAML"), a subadviser of Foreign Bond
Portfolio, a series of Asset Allocation Portfolios, reference is made to
SBAML's current Form ADV (File No. 801-43335) filed under the Advisers Act,
incorporated herein by reference.
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM Intermediate
Income Portfolio, CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio, CitiFundsSM California Tax Free Income Portfolio, CitiFundsSM
Small Cap Value Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM
Large Cap Growth Portfolio, CitiFundsSM Small Cap Growth Portfolio, CitiFundsSM
Balanced Portfolio, CitiSelect VIP Folio 200, CitiSelect VIP Folio 300,
CitiSelect VIP Folio 400, CitiSelect VIP Folio 500 and CitiFundsSM Small Cap
Growth VIP Portfolio. CFBDS is also the placement agent for Large Cap Value
Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign Bond
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small Cap
Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio. CFBDS also serves as the
distributor for the following funds: The Travelers Fund U for Variable
Annuities, The Travelers Fund VA for Variable Annuities, The Travelers Fund BD
for Variable Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for
Variable Annuities, The Travelers Fund ABD for Variable Annuities, The
Travelers Fund ABD II for Variable Annuities, The Travelers Separate Account PF
for Variable Annuities, The Travelers Separate Account PF II for Variable
Annuities, The Travelers Separate Account QP for Variable Annuities, The
Travelers Separate Account TM for Variable Annuities, The Travelers Separate
Account TM II for Variable Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six for Variable Annuities,
The Travelers Separate Account Seven for Variable Annuities, The Travelers
Separate Account Eight for Variable Annuities, The Travelers Fund UL for
Variable Life Insurance, The Travelers Fund UL II for Variable Life Insurance,
The Travelers Fund UL III for Variable Life Insurance, The Travelers Variable
Life Insurance
<PAGE>
Separate Account One, The Travelers Variable Life Insurance Separate Account
Two, The Travelers Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account Four, The Travelers Separate
Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities,
The Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization
Value Equity Investments, Long-Term Bond Investments, Mortgage Backed
Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio,
Growth Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio,
Select Balanced Portfolio, Select Conservative Portfolio, Select Growth
Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value
Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade
Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
<PAGE>
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond
Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of
Form BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).
<PAGE>
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street
(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 has duly caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of Massachusetts on the 28th
day of 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 28, 1999.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
Philip W. Coolidge President, Principal Executive Officer and Trustee
- --------------------------------
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
- -------------------------------- Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
- --------------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- --------------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- --------------------------------
Susan B. Kerley
Heath B. McLendon* Trustee
- --------------------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
- --------------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- --------------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- --------------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
--------------------------
Philip W. Coolidge
Executed by Philip W. Coolidge on behalf of
those indicated pursuant to Powers of
Attorney.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
j Independent auditors' consent
n Financial Data Schedules
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. 34 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
March 2, 1999
<TABLE> <S> <C>
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<NAME> CITIFUNDS TRUST I
<SERIES>
<NUMBER> 002
<NAME> CITISELECT FOLIO 200
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 206,769,623
<RECEIVABLES> 1,002,209
<ASSETS-OTHER> 50,063
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 207,821,895
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 194,050,933
<SHARES-COMMON-STOCK> 18,287,699
<SHARES-COMMON-PRIOR> 14,671,255
<ACCUMULATED-NII-CURRENT> 4,891,636
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,932,440
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,438,433
<NET-ASSETS> 206,313,442
<DIVIDEND-INCOME> 878,722
<INTEREST-INCOME> 7,719,629
<OTHER-INCOME> 23,067
<EXPENSES-NET> 3,078,286
<NET-INVESTMENT-INCOME> 5,543,132
<REALIZED-GAINS-CURRENT> 3,990,987
<APPREC-INCREASE-CURRENT> (4,954,426)
<NET-CHANGE-FROM-OPS> 4,579,693
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,765,372)
<DISTRIBUTIONS-OF-GAINS> (2,990,460)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156,198,374
<NUMBER-OF-SHARES-REDEEMED> (120,664,972)
<SHARES-REINVESTED> 5,752,937
<NET-CHANGE-IN-ASSETS> 40,110,200
<ACCUMULATED-NII-PRIOR> 2,113,876
<ACCUMULATED-GAINS-PRIOR> 2,931,913
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 479,555
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,117,806
<AVERAGE-NET-ASSETS> 205,240,338
<PER-SHARE-NAV-BEGIN> 11.33
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.17)
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<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> 1.50
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<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000744388
<NAME> CITIFUNDS TRUST I
<SERIES>
<NUMBER> 003
<NAME> CITISELECT FOLIO 300
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 341,517,267
<RECEIVABLES> 334,642
<ASSETS-OTHER> 181,912
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342,033,821
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 313,566,220
<SHARES-COMMON-STOCK> 29,654,732
<SHARES-COMMON-PRIOR> 27,775,788
<ACCUMULATED-NII-CURRENT> 4,752,923
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,808,289
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,327,621
<NET-ASSETS> 340,455,053
<DIVIDEND-INCOME> 2,355,847
<INTEREST-INCOME> 10,468,320
<OTHER-INCOME> 88,234
<EXPENSES-NET> 5,388,534
<NET-INVESTMENT-INCOME> 7,523,867
<REALIZED-GAINS-CURRENT> 9,220,072
<APPREC-INCREASE-CURRENT> (12,789,550)
<NET-CHANGE-FROM-OPS> 3,954,389
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,055,263)
<DISTRIBUTIONS-OF-GAINS> (7,140,789)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 155,429,506
<NUMBER-OF-SHARES-REDEEMED> (144,121,491)
<SHARES-REINVESTED> 11,196,050
<NET-CHANGE-IN-ASSETS> 15,262,402
<ACCUMULATED-NII-PRIOR> 1,284,319
<ACCUMULATED-GAINS-PRIOR> 8,729,006
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 579,750
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,388,534
<AVERAGE-NET-ASSETS> 359,248,416
<PER-SHARE-NAV-BEGIN> 11.71
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.48
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 004
<NAME> CITISELECT FOLIO 400
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 411,462,371
<RECEIVABLES> 281,358
<ASSETS-OTHER> 460,958
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 412,204,687
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 384,737,414
<SHARES-COMMON-STOCK> 36,119,310
<SHARES-COMMON-PRIOR> 37,955,043
<ACCUMULATED-NII-CURRENT> 2,111,319
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,450,386
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,050,508
<NET-ASSETS> 410,349,627
<DIVIDEND-INCOME> 4,466,373
<INTEREST-INCOME> 8,004,574
<OTHER-INCOME> 222,981
<EXPENSES-NET> 6,828,986
<NET-INVESTMENT-INCOME> 5,864,942
<REALIZED-GAINS-CURRENT> 11,257,648
<APPREC-INCREASE-CURRENT> (30,768,997)
<NET-CHANGE-FROM-OPS> (13,646,407)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,075,835)
<DISTRIBUTIONS-OF-GAINS> (9,500,048)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156,349,445
<NUMBER-OF-SHARES-REDEEMED> (188,099,086)
<SHARES-REINVESTED> 12,574,806
<NET-CHANGE-IN-ASSETS> (45,397,125)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11,692,786
<OVERDISTRIB-NII-PRIOR> (677,788)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 439,941
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,828,986
<AVERAGE-NET-ASSETS> 463,712,628
<PER-SHARE-NAV-BEGIN> 12.01
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.36
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 005
<NAME> CITISELECT FOLIO 500
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 163,502,068
<RECEIVABLES> 528,502
<ASSETS-OTHER> 279,525
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 164,310,095
<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>
