As filed with the Securities and Exchange Commission on June 29, 1998
File Nos. 2-90519
811-4007
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE
AMENDMENT NO. 24*
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25
CITIFUNDS TRUST II**
(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 September 14,
1998, pursuant to paragraph (a) of Rule 485.
______________________________________________________________________________
* This filing relates only to shares of CitiFunds Diversified U.S. Equity
Portfolio.
** Formerly, Landmark Funds II.
<PAGE>
CITIFUNDS TRUST II
(CITIFUNDS DIVERSIFIED U.S. EQUITY PORTFOLIO)
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<S> <C> <C>
N-1A
ITEM NO. N-1A ITEM LOCATION
PART A PROSPECTUS
Item 1. Cover Page................................... Cover Page
Item 2. Synopsis..................................... Expense Summary
Item 3. Condensed Financial Information.............. Not Applicable
Item 4. General Description of Registrant............ Investment Information; General
Information; Appendix
Item 5. Management of the Fund....................... Management; Expenses
Item 5A. Management's Discussion of Fund Performance.. Not Applicable
Item 6. Capital Stock and Other Securities........... General Information; Voting and
Other Rights; Purchases;
Exchanges; Redemptions; Dividends
and Distributions; Tax Matters
Item 7. Purchase of Securities Being Offered......... Purchases; Exchanges; Redemptions
Item 8. Redemption or Repurchase..................... Purchases; Exchanges; Redemptions
Item 9. Pending Legal Proceedings.................... Not Applicable
STATEMENT OF
ADDITIONAL
PART B INFORMATION
Item 10. Cover Page................................... Cover Page
Item 11. Table of Contents............................ Table of Contents
Item 12. General Information and History.............. The Trust
Item 13. Investment Objectives and Policies........... Investment Objective and Policies
Item 14. Management of the Fund....................... Management
Item 15. Control Persons and Principal Holders of Management
Securities...................................
Item 16. Investment Advisory and Other Services....... Management
Item 17. Brokerage Allocation and Other Practices..... Portfolio Transactions
Item 18. Capital Stock and Other Securities........... Description of Shares, Voting
Rights and Liabilities
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................ Description of Shares, Voting
Rights and Liabilities;
Determination of Net Asset Value;
Valuation of Securities;
Additional Redemption Information
Item 20. Tax Status................................... Certain Additional Tax Matters
Item 21. Underwriters................................. Management
Item 22. Calculation of Performance Data.............. Performance Information
Item 23. Financial Statements......................... Financial Statements
PART C Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment to the Registrant's Registration Statement
on Form N-1A is being filed with respect to CitiFunds Diversified U.S. Equity
Portfolio, a series of the Registrant.
<PAGE>
Prospectus September __, 1998
CitiFundsSM Diversified U.S. Equity Portfolio
(A member of the CitiFundsSM Family of Funds)
This Prospectus describes CitiFundsSM Diversified U.S. Equity Portfolio, a
diversified mutual fund in the CitiFunds Family of Funds. Citibank, N.A. is the
investment manager.
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated the date of this Prospectus (and incorporated by reference in
this Prospectus) has been filed with the Securities and Exchange Commission.
Copies of the Statement of Additional Information may be obtained without
charge, and further inquiries about the Fund may be made, by contacting the
investor's Service Agent or by calling 1-800-625-4554. The Statement of
Additional Information and other related materials are available on the SEC's
Internet Web site (http://www.sec.gov).
REMEMBER THAT SHARES OF THE FUND:
O ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
CITIBANK OR ANY OF ITS AFFILIATES;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary 3
Expense Summary 5
Investment Information 6
Risk Considerations 10
Valuation of Shares 12
Purchases 13
Exchanges 13
Redemptions 14
Dividends and Distributions 15
Management 15
Tax Matters 19
Performance Information 19
General Information 20
Appendix -- Permitted Investments and Investment Practices 23
<PAGE>
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed in
this summary.
THE FUND: This Prospectus describes CitiFundsSM Diversified U.S. Equity
Portfolio. The Fund is a diversified mutual fund.
INVESTMENT OBJECTIVE AND POLICIES: The Fund's investment objective is long-term
capital growth. Dividend income, if any, is incidental to this objective.
The Fund invests primarily in common stocks of U.S. companies. The Fund's
investments include both large cap stocks and small cap stocks. Large cap
stocks are those with market capitalizations within the top 1,000 stocks that
comprise the large and mid range capitalization sector of the equity market.
Small cap stocks are those with market capitalizations below the top 1,000.
A portion of the Fund's investments in both the large cap and the small cap
sectors are managed using a "value" oriented approach, where the Fund invests
in companies the portfolio manager believes are temporarily out of favor but
have good longer term business prospects. Likewise, a portion of the Fund's
investments in both the large cap stock and small cap stock sectors are managed
using a "growth" oriented approach, where the Fund invests in companies the
portfolio manager believes have superior prospects for long-term earnings
growth.
Because the Fund invests through multiple underlying Portfolios, all references
in this Prospectus to the Fund include those Portfolios, except as otherwise
noted.
INVESTMENT MANAGER AND DISTRIBUTOR: Citibank, N.A., a wholly-owned subsidiary
of Citicorp, is the investment manager. Citibank and its affiliates manage more
than $88 billion in assets worldwide. CFBDS, Inc. is the distributor of shares
of the Fund. See "Management."
PURCHASES AND REDEMPTIONS: Investors may purchase and redeem shares of the Fund
through a Service Agent on any day the New York Stock Exchange is open for
trading. See "Purchases" and "Redemptions."
PRICING: Shares of the Fund are purchased and redeemed at net asset value,
without a sales load or redemption fees. Shares are subject to a fee of up to
0.25% per annum of the Fund's average daily net assets for distribution, sales
and marketing and shareholder services. See "Purchases" and "Management --
Distribution Arrangements."
EXCHANGES: Shares may be exchanged for shares of the CitiSelect( Portfolios and
certain other CitiFunds. See "Exchanges."
<PAGE>
DIVIDENDS: Dividends, if any, are declared and paid semi-annually. Net capital
gains, if any, are distributed annually. See "Dividends and Distributions."
REINVESTMENT: All dividends and capital gains distributions may be received
either in cash or in Fund shares at net asset value. See "Dividends and
Distributions."
WHO SHOULD INVEST: The Fund is designed for investors seeking long-term capital
growth and who do not require current income. Investors should be willing to
accept the risk of potential loss associated with common stocks and be able to
tolerate substantial changes in the value of their investment.
RISK FACTORS: There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based on
changes in the values of the underlying portfolio securities. Equity securities
fluctuate in value based on many factors, including actual and anticipated
earnings, changes in management, political and economic developments and the
potential for takeovers and acquisitions. The value of debt securities
generally fluctuates based on changes in the actual and perceived
credit-worthiness of issuers. Also, the value of debt securities generally goes
down when interest rates go up, and vice versa. As a result, shares may be
worth more or less at redemption than at the time of purchase.
Securities of companies with small market capitalizations may have more risks
than the securities of other companies. Small cap companies may be more
susceptible to market downturns or setbacks because they may have limited
product lines, markets, distribution channels, and financial and management
resources. There is often less publicly available information about small cap
companies than about more established companies. As a result of these and other
factors, the prices of securities issued by small cap companies may be
volatile. Shares of the Fund, therefore, may be subject to greater fluctuation
in value than shares of a fund with more of its investments in securities of
larger, more established companies.
The Fund may invest a portion of its assets in non-U.S. securities. The special
risks of investing in non-U.S. securities include possible adverse political,
social and economic developments abroad, differing regulations to which
non-U.S. issuers are subject and different characteristics of non-U.S.
economies and markets. The Fund's non-U.S. securities often will trade in
non-U.S. currencies, which can be volatile and may be subject to governmental
controls or intervention. In addition, securities of non-U.S. issuers may be
less liquid and their prices more volatile than those of comparable U.S.
issuers. The Fund may invest in securities of issuers in developing countries,
and all of these risks are increased for investments in issuers in developing
countries.
Certain investment practices, such as the use of forward non-U.S. currency
exchange contracts, also may entail special risks. See "Risk Considerations"
and the Appendix for more information.
<PAGE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses for the Fund (including its share of the expenses of the
underlying Portfolios).* For more information on costs and expenses, see
"Management" on page 15 and "General Information -- Expenses" on page 21.
<TABLE>
<CAPTION>
CITIFUNDS
DIVERSIFIED
U.S. EQUITY
PORTFOLIO
SHAREHOLDER TRANSACTION EXPENSES NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
<S> <C>
Management Fees 0.95%
12b-1 Fees (including service fees) (1) 0.25%
Other Expenses (after fee waivers and reimbursements)(2) 0.30%
Total Fund Operating Expenses (after fee waivers and reimbursements)(2) 1.50%
</TABLE>
(1) Includes fees for distribution and shareholder servicing. Long-term
shareholders in the Fund could pay more in sales charges than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc
(2) Absent fee waivers and reimbursements, Other Expenses and Total Fund
Operating Expenses would be 1.02% and 2.22%, respectively.
* This table is intended to assist investors in understanding the various
costs and expenses that a shareholder will bear, either directly or
indirectly. The table shows the fees paid to various service providers after
giving effect to expected voluntary partial fee waivers. There can be no
assurance that the fee waivers and reimbursements reflected in the table
will continue at these levels. Because the Fund is newly organized, all
amounts in the table and in the example below are estimated for the current
fiscal year.
Example: A shareholder would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the end of each period indicated
below:
- -------------------------------------------------------------------------------
ONE THREE
CITIFUNDS DIVERSIFIED U.S. EQUITY PORTFOLIO YEAR YEARS
$15 $47
- -------------------------------------------------------------------------------
The Example assumes that all dividends are reinvested. Without waivers and
reimbursements, the amounts in the Example would be $23 and $69, respectively.
The assumption of a 5% annual return is required by the Securities and Exchange
<PAGE>
Commission for all mutual funds, and is not a prediction of the Fund's future
performance. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OF THE FUND. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE: The Fund's investment objective is long-term capital
growth. Dividend income if any, is incidental to this investment objective.
The investment objective of the Fund may be changed by its Trustees without
approval by the Fund's shareholders, but shareholders will be given written
notice at least 30 days before any change is implemented. Of course, there can
be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES: The Fund invests primarily in common stocks. The Fund
currently intends to invest primarily in securities of U.S. issuers, but may
also invest up to 25% of its total assets in securities of foreign issuers.
DIVERSIFICATION BY COMPANY SIZE. As the Fund's investment manager, Citibank
will diversify the Fund's holdings by allocating the Fund's assets among
companies ranging in size from large to small.
Large Cap Issuers - Large cap issuers are generally established companies
(those with market capitalizations within the top 1,000 stocks that comprise
the large and midrange capitalization sector of the equity market).
Small Cap Issuers - Small cap issuers are those with market capitalizations
below the top 1,000 stocks of the equity market. These stocks are comparable
to, but not limited to, the stocks comprising the Russell 2000 Index, an index
of small capitalization stocks. Small cap companies are generally represented
in new or rapidly changing industries. They may offer more profit opportunity
in growing industries and during certain economic conditions than do large and
medium sized companies. However, small cap companies also involve special
risks. Often, liquidity and overall business stability of a small cap company
may be less than that associated with larger capitalized companies. Small cap
stocks frequently involve smaller, rapidly growing companies with high growth
rates, negligible dividend yields and extremely high levels of volatility.
DIVERSIFICATION BY INVESTMENT APPROACH. The Fund is further diversified by
using different investment approaches, or styles. A portion of the Fund's
assets, consisting of both large cap stocks and small cap stocks, will be
managed using a "value" oriented approach. Likewise, a portion of the Fund's
assets, also consisting of both large cap and small cap stocks, will be managed
using a "growth" oriented approach.
"Value" Approach - Under a value oriented approach, the portfolio manager
evaluates securities using fundamental analysis and seeks to purchase
securities that are believed to be undervalued. Under this approach, the Fund
<PAGE>
may purchase securities of companies which the portfolio manager believes are
temporarily out of favor due to earnings declines, cyclical business downturns
or other adverse factors but may provide a higher total return over time than
securities of companies whose positive attributes are more accurately reflected
in the security's current price. An issuer may be undervalued relative to the
stock market in general, relative to the underlying value of its assets or
relative to what a sophisticated private investor would pay for the entire
company. A variety of factors may be analyzed in order to determine that an
issuer is undervalued. These factors may include low price to earnings ratio
relative to the market, industry group or historical or prospective earnings
growth; low price relative to book value or cash flow; dividend paying ability;
valuable franchises, patents, trademarks, trade names, distribution channels or
market share for particular products or services, tax loss carryforwards, or
other intangibles that may not be reflected in stock prices; ownership of
understated or underutilized tangible assets such as land, timber or minerals;
underutilized cash or investment assets; and unusually high current income.
These criteria and others, alone and in combination, may identify companies
that are attractive to financial or strategic acquirers (i.e. takeover
candidates). Issuers selected may include companies in cyclical businesses,
turnarounds and companies emerging from bankruptcy. Investment decisions may
also be influenced by a company's and its insiders' stock buy-backs.
"Growth" Approach - Under a growth oriented approach, the Fund invests in
stocks which the portfolio manager believes have above-average prospects for
earnings growth, or that are believed to be emerging companies relative to
their potential markets. Securities of emerging companies and companies that
offer above-average growth prospects may also pose above-average risks.
The Fund will invest in companies with a record of earnings and dividend
payments but will also invest in securities that pay no dividends or interest.
At times, the portfolio manager may judge that conditions in the securities
markets make pursuing the Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times, the portfolio manager
may temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of Fund assets.
In implementing these defensive strategies, the Fund may invest without limit
in debt securities, preferred stocks, U.S. government and agency obligations,
cash or money market instruments, or in any other securities the portfolio
manager considers consistent with such defensive strategies. It is impossible
to predict when, or for how long, these alternative strategies would be used.
Citibank allocates the Fund's assets based upon its assessment of the risks and
returns available from the large cap and small cap sectors of the equity market
and the value and growth approaches to investing. Citibank will make
adjustments to the allocations from time to time as it deems appropriate. In
determining the allocations, Citibank considers long-term performance and
valuation measures within and between sectors of the equity market and the
effects of market and economic variables on those relationships.
<PAGE>
Citibank expects that, normally, the Fund's assets will be allocated at least
15%, and not more than 35%, to each of the following categories of investments:
large cap stocks selected according to a value oriented approach ("large cap
value stocks"), large cap stocks selected according to a growth oriented
approach ("large cap growth stocks"), small cap stocks selected according to a
value oriented approach ("small cap value stocks"), and small cap stocks
selected according to a growth approach ("small cap growth stocks"). However,
the Fund's cash flows or changes in market valuations could produce different
results, and there is no requirement that the Fund's assets be allocated to all
of the asset classes at all times. Citibank will review these allocations
quarterly and will expect, in general, to rebalance the Fund's investments, if
necessary, at that time. Rebalancing may be accomplished over a period of time
and may be limited by tax and regulatory requirements.
The Fund invests in multiple Portfolios. The Fund may also invest directly in
securities to the extent permitted under the Investment Company Act of 1940, as
amended. There may be one or more Portfolios for each of the investment
categories referred to above, e.g., large cap value stocks. For purposes of
determining the allocation percentages, each investment category includes other
investments described in the Appendix or elsewhere in this Prospectus that are
deemed related to the management of that category or that are held by the
applicable underlying Portfolio. Percentages for a category include investment
positions that seek equivalent exposure or to enhance income for that category
of investments or the applicable underlying Portfolio. When money market
instruments are used in connection with these positions or are held by the
applicable Portfolio, they will be counted towards the assets of the particular
investment category.
Citibank may allocate the Fund's assets without limit to cash and money market
instruments if it believes that market conditions make that allocation
advisable or pending investment in equity or fixed income securities. To the
extent the Fund is invested in cash and money market instruments the Fund will
not be pursuing its investment objective.
From time to time the Fund may employ subadvisers to perform the daily
management of a particular category of its investments, e.g., small cap value
stocks. Citibank will monitor and supervise the activities of the subadvisers
and may terminate the services of any subadviser at any time. See "Management."
Franklin Advisory Services, Inc., as Subadviser, is currently responsible for
the daily management of small cap value stocks. Citibank is currently
responsible for the daily management of all other securities of the Fund,
including large cap value stocks, large cap growth stocks, small cap growth
stocks and money market instruments.
INITIAL ASSET ALLOCATIONS. Until, in Citibank's judgment the Fund has
sufficient assets to fully employ an investment strategy, Citibank may allocate
assets across fewer of the asset classes and fewer of the types of securities
identified above than it otherwise would. As the Fund's asset size increases,
Citibank will add asset classes and types of securities until the desired asset
allocation is reached.
<PAGE>
CERTAIN ADDITIONAL INVESTMENT POLICIES:
FUTURES. The Fund may purchase or sell stock index and foreign currency futures
in order to protect (or "hedge") against declines in the value of portfolio
securities or increases in the cost of securities or other assets to be
acquired and, subject to applicable law, to enhance potential gain. The Fund
also may use financial futures in order to hedge against fluctuations in
interest rates without actually buying or selling securities, or to manage the
effective maturity or duration of fixed income securities in the Fund's
investment portfolio in an effort to reduce potential losses or enhance
potential gain. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a security at a specified
future time and price, or for making payment of a cash settlement based on
changes in the value of a security, an index of securities or other assets. In
many cases, the futures contracts that may be purchased or sold by the Fund are
standardized contracts traded on commodities exchanges or boards of trade. See
the Appendix for more information.
TEMPORARY INVESTMENTS. During periods of unusual economic or market conditions
or for temporary defensive purposes or liquidity, the Fund may invest without
limit in cash and in U.S. dollar-denominated high quality money market and
short-term instruments. These investments may result in a lower yield than
would be available from investments with a lower quality or longer term.
OTHER PERMITTED INVESTMENTS. For more information regarding the Fund's
permitted investments and investment practices, see the Appendix. The Fund will
not necessarily invest or engage in each of the investments and investment
practices described in the Appendix but reserves the right to do so.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains a
list of specific investment restrictions which govern the investment policies
of the Fund, including a limitation that the Fund may borrow money from banks
in an amount not to exceed 1/3 of the Fund's net assets for extraordinary or
emergency purposes (e.g., to meet redemption requests). Except as otherwise
indicated, the Fund's investment objective and policies may be changed without
shareholder approval. If a percentage or rating restriction (other than a
restriction as to borrowing) is adhered to at the time an investment is made, a
later change in percentage or rating resulting from changes in the Fund's
securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of the Fund will be sold whenever it is
appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
turnover rate for the Fund is not expected to exceed ___% for the current
fiscal year. The amount of brokerage commissions and realization of taxable
capital gains will tend to increase as the level of portfolio activity
increases.
BROKERAGE TRANSACTIONS. In connection with the selection of brokers or dealers
for securities transactions for the Fund and the placing of such orders,
brokers or dealers may be selected who also provide brokerage and research
services to the Fund or the other accounts over which Citibank, the Subadviser
<PAGE>
or their affiliates exercise investment discretion. The Fund is authorized to
pay a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Fund which is in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction if Citibank or the Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer.
RISK CONSIDERATIONS
The risks of investing in the Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
CHANGES IN NET ASSET VALUE. The Fund's net asset value will fluctuate based on
changes in the values of the underlying portfolio securities. This means that
an investor's interest may be worth more or less at redemption than at the time
of purchase. Equity securities fluctuate in response to general market and
economic conditions and other factors, including actual and anticipated
earnings, changes in management, political developments and the potential for
takeovers and acquisitions. During periods of rising interest rates the value
of debt securities generally declines, and during periods of falling rates the
value of these securities generally increases. Changes by recognized rating
agencies in the rating of any debt security, and actual or perceived changes in
an issuer's ability to make principal or interest payments, also affect the
value of these investments.
SMALL CAP COMPANIES. The securities of companies with small market
capitalizations may have more risks than the securities of other companies.
Small cap companies may be more susceptible to market downturns or setbacks
because they may have limited product lines, markets, distribution channels,
and financial and management resources. There is often less publicly available
information about small cap companies than about more established companies. As
a result of these and other factors, the prices of securities issued by small
cap companies may be volatile. Shares of the Fund, therefore, may be subject to
greater fluctuation in value than shares of a fund with more of its investments
in larger, more established companies.
CREDIT RISK OF DEBT SECURITIES. Securities offering above average yields may at
times involve above average risks. Securities rated Baa by Moody's Investors
Service, Inc. or BBB by Standard & Poor's Ratings Group and equivalent
securities may have speculative characteristics. The values of lower rated
fixed income securities generally fluctuate more than those of higher-rated
securities. Adverse economic or changing circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than is the case
for higher grade obligations. In addition, under such circumstances the values
of lower rated securities may be more volatile, and the markets for these
securities may be less liquid, than those for higher-rated securities. The Fund
may as a result find it more difficult to determine the fair value of lower
rated securities. The Fund may invest in securities rated below Baa or BBB
<PAGE>
(commonly known as "junk bonds"). These securities are speculative. All of the
risks of investing in lower rated investment grade securities are heightened by
investing in these securities. See "Lower Rated Debt Securities" in the
Appendix on page 23 for more information.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS. The Fund also may invest in
"zero-coupon" and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount and pay interest only at
maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Both zero-coupon
bonds and payment-in-kind bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, these bonds may involve
greater credit risks than bonds paying interest in cash currently. The values
of zero-coupon bonds and payment-in-kind bonds are also subject to greater
fluctuation in response to changes in market interest rates than bonds that pay
interest in cash currently. Even though such bonds do not pay current interest
in cash, the Fund nonetheless is required to accrue interest income on these
investments and to distribute the interest income on a current basis. Thus, the
Fund could be required at times to liquidate other investments in order to
satisfy its distribution requirements.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks relating
to political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and
non-U.S. issuers and markets are subject. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of portfolio assets and political
or social instability. Enforcing legal rights may be difficult, costly and slow
in non-U.S. countries, and there may be special problems enforcing claims
against non-U.S. governments. In addition, non-U.S. 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.
Non-U.S. markets may be less liquid and more volatile than U.S. markets, and
may offer less protection to investors such as the Fund. Prices at which the
Fund may acquire securities may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
anticipation of transactions by the Fund.
Because non-U.S. securities often are denominated in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned and gains and losses
realized on the sale of securities. In addition, some non-U.S. currency values
may be volatile and there is the possibility of governmental controls on
currency exchanges or governmental intervention in currency markets.
The Fund may invest in issuers located in developing countries, which are
generally defined as countries in the initial stages of their industrialization
cycles with low per capita income. All of the risks of investing in non-U.S.
securities are heightened by investing in developing countries. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to economic structures that are
<PAGE>
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries with more mature economies;
such markets often have provided higher rates of return, and greater risks, to
investors. These heightened risks include (i) greater risks of expropriation,
confiscatory taxation and nationalization, and less social, political and
economic stability; (ii) the small current size of markets for securities of
issuers based in developing countries and the currently low or non-existent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the Fund's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures. Such characteristics can be expected to continue in
the future.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of maintaining
custody of securities in non-U.S. countries, frequently are higher than those
involved in U.S. investing. As a result, the operating expense ratio of the
Fund may be higher than that of a fund investing exclusively in U.S.
securities.
INVESTMENT PRACTICES. Certain of the investment practices employed for the Fund
may entail additional risks that are described in the Appendix. See the
Appendix.
VALUATION OF SHARES
Net asset value per share of the Fund is determined each day the New York Stock
Exchange is open for trading (a "Business Day"). This determination is made
once each day as of the close of regular trading on the Exchange (normally 4:00
p.m. Eastern time) by adding the market value of all securities and other
assets of the Fund (including the Fund's interest in the Portfolios), then
subtracting the Fund's liabilities, and then dividing the result by the number
of the Fund's outstanding shares. The net asset value per share is effective
for orders received and accepted by the Transfer Agent prior to its
calculation.
Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. Non-U.S. securities are generally valued based
on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. In light of the non-U.S. nature of some of the Fund's investments,
trading may take place in securities held by the Fund on days that are not
Business Days and on which it will not be possible to purchase or redeem shares
of the Fund.
<PAGE>
PURCHASES
Shares of the Fund are offered continuously and may be purchased on any
Business Day without a sales load at the shares' net asset value next
determined after an order is transmitted to and accepted by the Transfer Agent.
The Fund and the Transfer Agent reserve the right to reject any purchase order
and to suspend the offering of Fund shares for a period of time.
While there is no sales load imposed on shares of the Fund, the Distributor
receives fees from the Fund pursuant to a Service Plan. See "Management --
Distribution Arrangements."
Shares may be purchased through certain financial institutions (which may
include banks), securities dealers and other industry professionals (called
Service Agents) that have entered into service agreements with the Distributor.
Service Agents may receive certain fees from the Distributor and/ or the Fund.
See "Management -- Distribution Arrangements." Investors should contact their
Service Agents for information on purchases. Each Service Agent may establish
its own terms, conditions and charges with respect to services it offers to its
customers. Charges for these services may include fixed annual fees and account
maintenance fees. The effect of any such fees will be to reduce the net return
on the investment of customers of that Service Agent. Each Service Agent has
agreed to transmit to its customers who are shareholders of the Fund
appropriate written disclosure of any fees that it may charge them directly.
Each Service Agent is responsible for transmitting promptly orders of its
customers.
From time to time the Distributor may make payments for distribution and/or
shareholder servicing activities out of its past profits and other sources
available to it. The Distributor also may make payments for marketing,
promotional or related expenses to dealers who engage in marketing efforts on
behalf of the Fund. The amounts of these payments will be determined by the
Distributor in its sole discretion and may vary among different dealers.
EXCHANGES
Shares may be exchanged for shares of the CitiSelect Portfolios and certain
other CitiFunds, or may be acquired through an exchange of shares of those
funds.
Shareholders may place exchange orders through the Transfer Agent or, if they
are customers of a Service Agent, through their Service Agent, and may do so by
telephone if their account applications so permit. For more information on
telephone transactions see "Redemptions." All exchanges will be effected based
on the relative net asset values per share next determined after the exchange
order is received by the Transfer Agent. See "Valuation of Shares." Shares of
the Fund may be exchanged only after payment in federal funds for the shares
has been received by the Transfer Agent.
This exchange privilege may be modified or terminated at any time, upon at
least 60 days' notice when such notice is required by Securities and Exchange
<PAGE>
Commission rules, and is available only in those jurisdictions where such
exchanges legally may be made. See the Statement of Additional Information for
further details. 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.
REDEMPTIONS
Fund shares may be redeemed at their net asset value next determined after a
redemption request in proper form is received by the Transfer Agent. Each
Service Agent is responsible for the prompt transmission of redemption orders
to the Fund on behalf of its customers. A Service Agent may establish
requirements or procedures regarding submission of redemption requests by its
customers that are different from those described below. Shareholders should
consult their Service Agents for details. A redemption is treated as a sale of
the shares redeemed and could result in taxable gain or loss to the shareholder
making the redemption.
REDEMPTIONS BY MAIL. Shareholders may redeem Fund shares by sending written
instructions in proper form (as determined by the Transfer Agent or a
shareholder's Service Agent) to the Transfer Agent or, if shareholders are
customers of a Service Agent, their Service Agent. Shareholders are responsible
for ensuring that a request for redemption is in proper form.
REDEMPTIONS BY TELEPHONE. Shareholders may redeem or exchange Fund shares by
telephone, if their account applications so permit, by calling the Transfer
Agent or, if they are customers of a Service Agent, their Service Agent. During
periods of drastic economic or market changes or severe weather or other
emergencies, shareholders may experience difficulties implementing a telephone
exchange or redemption. In such an event, another method of instruction, such
as a written request sent via an overnight delivery service, should be
considered. The Fund, the Transfer Agent and each Service Agent will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. These procedures may include recording of the telephone
instructions and verification of a caller's identity by asking for the
shareholder's name, address, telephone number, Social Security or taxpayer
identification number, and account number. If these or other reasonable
procedures are not followed, the Fund, the Transfer Agent or the Service Agent
may be liable for any losses to a shareholder due to unauthorized or fraudulent
instructions. Otherwise, the shareholder will bear all risk of loss relating to
a redemption or exchange by telephone.
PAYMENT OF REDEMPTIONS. The proceeds of a redemption are paid in federal funds
normally on the next Business Day, but in any event within seven days. If a
shareholder requests redemption of shares which were purchased recently, the
Fund may delay payment until it is assured that good payment has been received.
In the case of purchases by check, this can take up to ten days. See
"Determination of Net Asset Value; Valuation of Securities; Additional
Redemption Information" in the Statement of Additional Information regarding
the Fund's right to pay the redemption price in kind with securities (instead
of cash).
<PAGE>
Questions about redemption requirements should be referred to the Transfer
Agent or, for customers of a Service Agent, their Service Agent. The right of
any shareholder to receive payment with respect to any redemption may be
suspended or the payment of the redemption price postponed during any period in
which the New York Stock Exchange is closed (other than weekends or holidays)
or trading on the Exchange is restricted or if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the Fund's net income from dividends and interest, if any,
is paid to its shareholders of record as a dividend semi-annually on or about
the last day of June and December.
The Fund's net realized short-term and long-term capital gains, if any, will be
distributed to the Fund's shareholders at least annually in December. The Fund
may also make additional distributions to its 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.
A shareholder may elect to receive dividends and capital gains distributions in
either cash or additional shares of the Fund issued at net asset value.
MANAGEMENT
TRUSTEES AND OFFICERS: The Fund is supervised by the Board of Trustees of
CitiFunds Trust II. Each Portfolio is supervised by the Board of Trustees of
The Premium Portfolios or Asset Allocation Portfolios, as the case may be. In
each case, a majority of the Trustees are not affiliated with Citibank. More
information on the Trustees and officers of the Fund and the Portfolios appears
under "Management" in the Statement of Additional Information.
INVESTMENT MANAGER: The Fund draws on the strength and experience of Citibank.
Citibank offers a wide range of banking and investment services to customers
across the United States and throughout the world, and has been managing money
since 1822. Its portfolio managers are responsible for investing in money
market, equity and fixed income securities. Citibank and its affiliates manage
more than $88 billion in assets worldwide. Citibank is a wholly-owned
subsidiary of Citicorp. Citibank also serves as investment adviser to other
registered investment companies. Citibank's address is 153 East 53rd Street,
New York, New York 10043. Citicorp recently announced its intention to merge
with The Travelers Group. Completion of the merger is subject to the
satisfaction of certain conditions.
Subject to policies set by the Trustees, Citibank is responsible for overall
management of the Fund and has a Management Agreement with the Fund. Citibank
also provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the
overall administration of the Fund. Pursuant to a sub-administrative services
agreement with Citibank, the Distributor performs such sub-administrative
duties for the Fund as from time to time are agreed upon by Citibank and the
<PAGE>
Distributor. The Distributor's compensation as sub-administrator is paid by
Citibank.
Lawrence P. Keblusek, U.S. Chief Investment Officer of Citibank since 1995, has
been the overall portfolio manager of the Fund since its inception and is
responsible for determining the allocations among large cap value stocks, large
cap growth stocks, small cap value stocks and small cap growth stocks. He is
also responsible for supervising and monitoring the performance of the Citibank
personnel described below who are responsible for the Fund's securities and
supervising and monitoring the performance of the Subadviser. Prior to joining
Citibank in 1995, Mr. Keblusek, who has more than 25 years experience in the
investment management industry, was Senior Vice President and Director of
Portfolio Management for The Northern Trust Company with responsibility for
investment performance in the organization's High Net Worth, Corporate and
Institutional and Mutual Fund Group. Earlier in his career, Mr. Keblusek held
senior investment positions with Maryland National Bank and the National Bank
of Washington.
The following individuals at Citibank are responsible for daily management of
the following kinds of securities of the Funds (and related investments).
LARGE CAPITALIZATION VALUE SECURITIES
Barbara G. Marcin has been responsible for the daily management of large cap
value stocks since the Fund's inception. Ms. Marcin is a Senior Portfolio
Manager responsible for managing over $600 million in U.S. equity and balanced
accounts for individuals. She is a member of Citibank's Global Investment
Committee. Ms. Marcin has over 10 years of investment management experience.
Prior to joining Citibank as a Vice President and portfolio manager in 1993,
she was a Vice President and portfolio manager at Fiduciary Trust Company
International. She was with E.F. Hutton for three years in the Personal
Financial Management Group.
<PAGE>
LARGE CAPITALIZATION GROWTH SECURITIES
Grant D. Hobson and Richard Goldman, Vice Presidents, have been responsible for
the daily management of large cap growth securities since the Fund's inception.
Since joining Citibank in 1993, Mr. Hobson has been responsible for managing
U.S. equity portfolios for mutual funds, trust and pension accounts of Citibank
Global Asset Management and currently manages, or co-manages, more than $4
billion of total assets at Citibank. Prior to joining Citibank, Mr. Hobson was
a securities analyst and sector manager for pension accounts and mutual funds
for Axe Houghton, formerly a division of USF&G. Since 1994, Mr. Goldman has
been responsible for managing U.S. equity portfolios for mutual funds and
institutional accounts, and for quantitative equity research for the U.S.
institutional business of Citibank Global Asset Management. He currently
manages, or co-manages, approximately $4 billion of total assets at Citibank.
He joined Citicorp's Investment Management Division in 1985 and from 1988 to
1994 was responsible for running Citicorp's Institutional Relations Department.
<PAGE>
SMALL CAPITALIZATION GROWTH SECURITIES
Linda J. Intini, Vice President, has been responsible for the daily management
of small cap growth securities since the Fund's inception. Ms. Intini has over
nine years of experience specializing in the management of small cap equities,
including over $300 million of Citibank's small cap portfolios for trusts and
individuals. Prior to joining Citibank as a portfolio manager in 1992, she was
a Portfolio Manager and Research Analyst with Manufacturers Hanover in the
Special Equity area. She also specialized in equity research at Eberstadt
Fleming.
SMALL CAPITALIZATION VALUE SECURITIES
Franklin Advisory Services, Inc., One Parker Plaza, 16th Floor, Fort Lee, New
Jersey 07024. Franklin Advisory Services, a wholly-owned subsidiary of Franklin
Resources, Inc., 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 capitalization value
securities since the Fund's inception. Mr. Lippman also serves as Senior Vice
President of Franklin Resources, Inc. and Franklin Advisers, Inc. He has been
in the securities industry for over 30 years and with the Franklin Templeton
Group since 1988.
From time to time in the future upon receipt of appropriate exemptive relief
from the SEC, Citibank may employ other or additional subadvisers without
shareholder approval, whose fees also will be paid by Citibank. Promptly after
hiring a subadviser without shareholder approval, Citibank will provide
shareholders of the Fund with an information statement that will include all of
the information about the new subadviser that would otherwise appear in a proxy
statement concerning approval of the subadviser.
MANAGEMENT FEES. For the services of Citibank under the Management Agreements
with respect to the Fund and the Portfolios and the services of Franklin
Advisory Services as Subadviser, the Fund and the Portfolios pay an aggregate
fee, which is computed daily and paid monthly, at the annual rate of 0.95% of
the Fund's average net assets. This fee is higher than the management fee paid
by most mutual funds. Citibank may voluntarily agree to waive a portion of its
management fee.
A portion of the aggregate management fee is paid to Franklin Advisory Services
as Subadviser at the annual rate of 0.55% on the first $250,000,000 of the
aggregate assets of the applicable Portfolio managed by the Subadviser and
0.50% on the remaining assets managed by the Subadviser. Citibank retains any
management fee in excess of amounts payable to the Subadviser. Citibank pays
the Subadviser's fees to the extent they exceed the aggregate management fee
paid from the applicable Portfolio.
BANKING RELATIONSHIPS. Citibank and its affiliates may have deposit, loan and
other relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Citibank has informed
the Fund that, in making its investment decisions, it does not obtain or use
<PAGE>
material inside information in the possession of any division or department of
Citibank or in the possession of any affiliate of Citibank.
BANK REGULATORY MATTERS. The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting securities of open-end
investment companies, such as the Fund. Citibank believes that its services
under the Management 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 Fund would seek alternative means for obtaining these services. The Fund
does not expect that shareholders would suffer any adverse financial
consequences as a result of any such occurrence.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT: State Street Bank and Trust
Company acts as transfer agent, dividend disbursing agent and custodian of the
Fund's assets. Securities may be held by a sub-custodian bank approved by the
Trustees. State Street also provides fund accounting services and calculates
the daily net asset value for the Fund. The principal business address of State
Street is 225 Franklin Street, Boston, MA 02110.
DISTRIBUTION ARRANGEMENTS: CFBDS, 21 Milk Street, 5th Floor, Boston, MA 02109
(telephone: (617) 423-1679) is the Distributor of the Fund's shares. Under a
Service Plan which has been adopted in accordance with Rule 12b-1 under the
1940 Act, the Fund may pay monthly fees at an annual rate not to exceed 0.25%
of the average daily net assets of the Fund. These fees may be used to make
payments to the Distributor for distribution services and to Service Agents and
others as compensation for the sale of shares of the Fund, for advertising,
marketing or other promotional activity, and for preparation, printing and
distribution of prospectuses, statements of additional information and reports
for recipients other than regulators and existing shareholders. The Fund also
may make payments to the Distributor, Service Agents and others for providing
personal service or the maintenance of shareholder accounts. In those states
where CFBDS is not a registered broker-dealer, shares of the Fund are sold
through Signature Broker-Dealer Services, Inc., as dealer.
The amounts paid by the Distributor to each Service Agent and other recipient
may vary based upon certain factors, including, among other things, the levels
of sales of Fund shares and/or shareholder services provided by the Service
Agent.
The Fund and the Distributor provide to the Trustees quarterly a written report
of amounts expended pursuant to the Service Plan and the purposes for which the
expenditures were made.
<PAGE>
During the period they are in effect, the Service Plan and Distribution
Agreement obligate the Fund to pay fees to the Distributor, Service Agents and
others as compensation for their services, not as reimbursement for specific
expenses incurred. Thus, even if these entities' expenses exceed the fees
provided for under the Service Plan, the Fund will not be obligated to pay more
than those fees and, if their expenses are less than the fees paid to them,
they will realize a profit. The Fund will pay the fees to the Distributor,
Service Agents and others until the Service Plan or Distribution Agreement is
terminated or not renewed. In that event, the Distributor's or Service Agent's
expenses in excess of fees received or accrued through the termination date
will be the Distributor's or Service Agent's sole responsibility and not
obligations of the Fund.
TAX MATTERS
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
The Fund intends to meet requirements of the Internal Revenue Code applicable
to regulated investment companies so that it will not be liable for any federal
income or excise taxes. The Fund may pay withholding or other taxes to foreign
governments during the year, however, and these taxes will reduce the Fund's
dividends.
Fund dividends and capital gains distributions are subject to federal income
tax and may also be subject to state and local taxes. Dividends and
distributions are treated in the same manner for federal tax purposes whether
they are paid in cash or as additional shares. Generally, distributions from
the Fund's net investment income and short-term capital gains will be taxed as
ordinary income. A portion of distributions from net investment income may be
eligible for the dividends-received deduction available to corporations.
Distributions of long-term net capital gains will be taxed as such regardless
of how long the shares of the Fund have been held. Such capital gains may be
taxable to shareholders that are individuals, estates or trusts at maximum
rates of 20%, 25% or 28%, depending on the source of the gains.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares just before the Fund makes a 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.
Early each year, the Fund will notify its shareholders of the amount and tax
status of distributions paid to shareholders for the preceding year. Investors
should consult their own tax advisers regarding the status of their accounts
under state and local laws.
PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and other
communications in terms of yield, effective yield or total rate of return. All
performance information is historical and is not intended to indicate future
<PAGE>
performance. Yields and total rates of return fluctuate in response to market
conditions and other factors, and the value of the Fund's shares when redeemed
may be more or less than their original cost.
The Fund may provide its period and average annualized "total rates of return."
The "total rate of return" refers to the change in the value of an investment
in the Fund over a stated period, reflects any change in net asset value per
share and is compounded to include the value of any shares purchased with any
dividends or capital gains declared during such period. Period total rates of
return may be "annualized." An "annualized" total rate of return assumes that
the period total rate of return is generated over a one-year period.
The Fund may provide annualized "yield" and "effective yield" quotations. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a 30-day or one month period (which period is stated in any such
advertisement or communication). This income is then annualized; that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of the
offering price on the last day of that period. The "effective yield" is
calculated similarly, but when annualized the income earned by the investment
during that 30-day or one month period is assumed to be reinvested. The
effective yield is slightly higher than the yield because of the compounding
effect of this assumed reinvestment. The Fund may also provide yield and
effective yield quotations for longer periods.
Of course, any fees charged by a shareholder's Service Agent will reduce that
shareholder's net return on investment. See the Statement of Additional
Information for more information concerning the calculation of yield and total
rate of return quotations for the Fund.
GENERAL INFORMATION
ORGANIZATION: The Fund is a diversified series of CitiFunds Trust II. CitiFunds
Trust II is a Massachusetts business trust organized on April 13, 1984; it also
is an open-end management investment company registered under the 1940 Act.
Prior to January 7, 1998 CitiFunds Trust II was called Landmark Funds II.
CitiFunds Trust II currently has five active series.
The Fund is a diversified mutual fund. Under the 1940 Act, a diversified mutual
fund 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
mutual fund and not more than 10% of the voting securities of the issuer.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
<PAGE>
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 Fund invests in multiple Portfolios. Each Portfolio is a series of Asset
Allocation Portfolios or The Premium Portfolios, New York trusts which are also
investment companies registered under the 1940 Act. Each Portfolio invests
directly in a particular category of investments, such as large growth stocks
and related investments, or small value stocks and related investments.
VOTING AND OTHER RIGHTS: CitiFunds Trust II may issue an unlimited number of
shares, may create new series of shares and may divide shares in each series
into classes. Each share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares of
each series of CitiFunds Trust II have equal voting rights except that, in
matters affecting only a particular series or class, only shares of that
particular series or class are entitled to vote.
At any meeting of shareholders of the Fund, a Service Agent may vote any shares
of which it is the holder of record and for which it does not receive voting
instructions proportionately in accordance with instructions it receives for
all other shares of which that Service Agent is the holder of record.
As a Massachusetts business trust, CitiFunds Trust II is not required to hold
annual shareholder meetings. Shareholder approval will usually be sought only
for changes in the Fund's fundamental investment restrictions and for the
election of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of the Fund is entitled to
participate equally in dividends and other distributions and the proceeds of
any liquidation of the Fund.
CERTIFICATES: The Fund's Transfer Agent maintains a share register for
shareholders of record. Share certificates are not issued.
RETIREMENT PLANS: Investors may be able to establish new accounts in the Fund
under one of several tax-sheltered plans. Such plans include IRAs, Keogh or
Corporate Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts,
and certain other qualified pension and profit-sharing plans. Investors should
consult with their Service Agent and tax and retirement advisers.
EXPENSES: In addition to amounts payable under its Management Agreement and
Service Plan, the Fund is responsible for its own expenses, including, among
other things, the costs of securities transactions, the compensation of
Trustees that are not affiliated with Citibank or the Distributor, government
fees, taxes, accounting and legal fees, expenses of communicating with
shareholders, interest expense, and insurance premiums.
All fee waivers are voluntary and may be reduced or terminated at any time.
<PAGE>
YEAR 2000: The Fund could be adversely affected if the computer systems used by
the Fund or its service providers are not programmed to accurately process
information on or after January 1, 2000. The Fund, and its service providers,
are making efforts to resolve any potential Year 2000 issues. While it is
likely that these efforts will be successful, the failure to implement any
necessary modifications to computer systems used by the Fund or its service
providers could result in an adverse impact on the Fund.
COUNSEL AND INDEPENDENT AUDITOR: Bingham Dana LLP, 150 Federal Street, Boston,
MA 02110, is counsel for the Fund. Price Waterhouse LLP, 160 Federal Street,
Boston, MA 02110, serves as independent auditor for the Fund.
------------------------------
The Statement of Additional Information dated the date hereof contains more
detailed information about the Fund, including information related to (i)
investment policies and restrictions, (ii) the Trustees, officers and
investment manager, (iii) securities transactions, (iv) the Fund's shares,
including rights and liabilities of shareholders, (v) the method used to
calculate performance information and (vi) the determination of net asset
value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Fund
or its distributor. This Prospectus does not constitute an offering by the Fund
or its distributor in any jurisdiction in which such offering may not lawfully
be made.
<PAGE>
APPENDIX
PERMITTED INVESTMENTS AND
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements in order
to earn a return on temporarily available cash. Repurchase agreements are
transactions in which an institution sells the Fund a security at one price,
subject to the Fund's obligation to resell and the selling institution's
obligation to repurchase that security at a higher price normally within a
seven day period. There may be delays and risks of loss if the seller is unable
to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held
by the Fund and the agreement by the Fund to repurchase the securities at an
agreed-upon price, date and interest payment. When the Fund enters into reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained in a segregated account
with the Fund's custodian. 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.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, the Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral (cash
or U.S. Government securities) in an amount not less than the market value,
determined daily, of the securities loaned. It is intended that the value of
securities loaned by the Fund would not exceed 30% of the Fund's net assets.
In the event of the bankruptcy of the other party to a securities loan or a
repurchase agreement, the Fund could experience delays in recovering either the
securities lent or cash. To the extent that, in the meantime, the value of the
securities lent have increased or the value of the securities purchased have
decreased, the Fund could experience a loss.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of common stock or other equity securities of the same or a
different issuer. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. While providing a fixed-income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar non-convertible security), a convertible security also
<PAGE>
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance
in the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., its value upon conversion into its underlying stock).
As a fixed-income security, a convertible security tends to increase in market
value when interest rates decline and tends to decrease in value when interest
rates rise. However, the price of a convertible security is also influenced by
the market value of the security's underlying common stock. The price of a
convertible security tends to increase as the market value of the underlying
stock rises, whereas it tends to decrease as the market value of the underlying
stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES. The Fund may purchase restricted securities that are not
registered for sale to the general public. If it is determined that there is a
dealer or institutional market in the securities, the securities will not be
treated as illiquid for purposes of the Fund's investment limitations. The
Trustees will review these determinations. These securities are known as "Rule
144A securities," because they are traded under SEC Rule 144A among qualified
institutional buyers. Institutional trading in Rule 144A securities is
relatively new, and the liquidity of these investments could be impaired if
trading in Rule 144A securities does not develop or if qualified institutional
buyers become, for a time, uninterested in purchasing Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. The Fund may invest up to 10% of
its net assets in securities for which there is no readily available market.
These illiquid securities may include privately placed restricted securities
for which no institutional market exists. The absence of a trading market can
make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for the Fund to sell them
promptly at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, the Fund 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. Under normal
circumstances, the Fund takes delivery of the securities. In general, the Fund
does not pay for the securities until received and does not start earning
interest until the contractual settlement date. While awaiting delivery of the
securities, the Fund establishes a segregated account consisting of cash, cash
equivalents or high quality debt securities equal to the amount of the Fund's
commitments to purchase "when-issued" securities. 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.
COMMERCIAL PAPER. The Fund may invest in commercial paper, which is unsecured
debt of corporations usually maturing in 270 days or less from its date of
issuance.
<PAGE>
DEPOSITARY RECEIPTS FOR SECURITIES. American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
other forms of depositary receipts for securities of non-U.S. issuers provide
an alternative method for the Fund to make non-U.S. investments. These
securities are not usually traded 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.
OTHER INVESTMENT COMPANIES. Subject to applicable statutory and regulatory
limitations, assets of the Fund may be invested in shares of other investment
companies. The Fund may invest up to 5% of its assets in closed-end investment
companies which primarily hold securities of non-U.S. issuers.
LOWER RATED DEBT SECURITIES. The 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.
The Fund also may purchase securities rated lower than Baa by Moody's or BBB by
S&P or comparable securities (commonly known as "junk bonds"). These lower
rated high yielding fixed income securities generally tend to reflect economic
changes (and the outlook for economic growth), short-term corporate and
industry developments and the market's perception of their credit quality
(especially during times of adverse publicity) to a greater extent than higher
rated securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated fixed income securities are also
affected by changes in interest rates). In the past, economic downturns or an
increase in interest rates have under certain circumstances caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. During certain
periods, the higher yields on the Fund's lower rated fixed income securities
are paid primarily because of the increased risk of loss of principal and
income, arising from such factors as the heightened possibility of default or
bankruptcy of the issuers of such securities. Due to the fixed income payments
of these securities, the Fund may continue to earn the same level of interest
income while its net asset value declines due to portfolio losses. The prices
for these securities may be affected by legislative and regulatory
developments. Changes in the value of securities subsequent to their
acquisition will not affect cash income to the Fund but will be reflected in
the net asset value of shares of the Fund. The market for these lower rated
<PAGE>
fixed income securities may be less liquid than the market for investment grade
fixed income securities. Furthermore, the liquidity of these lower rated
securities may be affected by the market's perception of their credit quality.
Therefore, the Manager's or the Subadviser's judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during times of
certain adverse market conditions to sell these lower rated securities at their
fair value to meet redemption requests or to respond to changes in the market.
ASSET-BACKED SECURITIES. The Fund 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 or 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.
The Fund also may purchase mortgage-backed securities issued or guaranteed as
to payment of principal and interest by the U.S. Government or one of its
agencies and backed by the full faith and credit of the U.S. Government,
including direct pass-through certificates of GNMA, as well as mortgage-backed
securities for which principal and interest payments are backed by the credit
of particular agencies of the U.S. Government. Mortgage-backed securities are
generally backed or collateralized by a pool of mortgages. These securities are
sometimes called collateralized mortgage obligations or CMOs.
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. Thus 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. As a result, prices of mortgage-backed securities may decrease more
than prices of other debt obligations when interest rates go up.
Additionally mortgage-backed securities are also subject to maturity extension
risk, that is, the possibility that rising interest rates may cause prepayments
to occur at a slower than expected rate. This particular 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, a rising interest rate would not only
likely decrease the value of the Fund's securities, but would also increase the
inherent volatility of the Fund by effectively converting short term debt
instruments into long term debt instruments.
DOLLAR ROLLS. The Fund may enter into "dollar rolls." A dollar roll is a
transaction pursuant to which the Fund sells mortgage-backed securities for
<PAGE>
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Fund foregoes principal and
interest paid on the mortgage-backed securities. The Fund is compensated by the
difference between the current sales price and the lower forward 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. A "covered roll" is a specific
type of dollar roll for which the Fund establishes a segregated account with
liquid high grade debt securities equal in value to the securities subject to
repurchase by the Fund. The Fund will invest only in covered rolls.
FUTURES. Because the value of a futures contract changes based on the price of
the underlying security or other asset, futures contracts are considered to be
"derivatives." When the Fund purchases or sells a futures contract, it is
required to make an initial margin deposit. Although the amount may vary,
initial margin can be as low as 1% or less of the face amount of the contract.
Additional margin may be required as the contract fluctuates in value. Since
the amount of margin is relatively small compared to the value of the
securities covered by a futures contract, the potential for gain or loss on a
futures contract is much greater than the amount of the Fund's initial margin
deposit. The Fund does not currently intend to enter into a futures contract
if, as a result, the initial margin deposits on all of the Fund's futures
contracts would exceed approximately 5% of the Fund's net assets. Also, the
Fund intends to limit its futures contracts so that the value of the securities
covered by its futures contracts would not generally exceed 50% of the Fund's
other assets and to segregate sufficient assets to meet its obligations under
outstanding futures contracts.
The ability of the Fund to utilize futures contracts successfully will depend
on Citibank's ability to predict interest rate, stock price or currency
movements, which cannot be assured. In addition to general risks associated
with any investment, the use of futures contracts entails the risk that, to the
extent Citibank's view as to interest rate, stock price or currency movements
is incorrect, the use of futures contracts, even for hedging purposes, could
result in losses greater than if they had not been used. This could happen, for
example, if there is a poor correlation between price movements of futures
contracts and price movements in the Fund's related portfolio position. Also,
the futures markets may not be liquid in all circumstances. As a result, in
certain markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. When futures contracts are used for
hedging, even if they are successful in minimizing the risk of loss due to a
decline in the value of the hedged position, at the same time they limit any
potential gain which might result from an increase in value of such position.
As noted, the Fund may also enter into transactions in futures contracts for
other than hedging purposes (subject to applicable law), including speculative
transactions, which involve greater risk. In particular, in entering into such
transactions, the Fund may experience losses which are not offset by gains on
other portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be extremely volatile from time to time, which
could increase the risks incurred by the Fund in entering into such
transactions.
The use of futures contracts potentially exposes the Fund to the effects of
"leveraging," which occurs when futures are used so that the Fund's exposure to
<PAGE>
the market is greater than it would have been if the Fund had invested directly
in the underlying securities. "Leveraging" increases the Fund's potential for
both gain and loss. As noted above, the Fund intends to adhere to certain
policies relating to the use of futures contracts, which should have the effect
of limiting the amount of leverage by the Fund.
OPTIONS. The Fund may write (sell) covered call and put options and purchase
call and put options on securities. The Fund will write options on securities
for the purpose of increasing its return on such securities and/or to protect
the value of its portfolio. In particular, where the Fund writes an option
which expires unexercised or is closed out by the Fund at a profit, it will
retain the premium paid for the option which will increase its gross income and
will offset in part the reduced value of the portfolio security underlying the
option, or the increased cost of portfolio securities to be acquired. If the
price of the underlying security moves adversely to the Fund's position, the
option may be exercised and the Fund will be required to purchase or sell the
underlying security at a disadvantageous price, which may only be partially
offset by the amount of the premium.
By writing a call option on a security, the Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has written
call options.
The Fund also may purchase options on a non-U.S. currency in order to protect
against currency rate fluctuations. If the Fund purchases a put option on a
non-U.S. currency and the value of the non-U.S. currency declines, the Fund
will have the right to sell the non-U.S. currency for a fixed amount in U.S.
dollars and will thereby offset, in whole or in part, the adverse effect on the
Fund which otherwise would have resulted. Conversely, where a rise in the U.S.
dollar value of another currency is projected, and where the Fund anticipates
investing in securities traded in such currency, the Fund may purchase call
options on the non-U.S. currency. The Fund also may buy and write options on
stock indices.
The Fund may purchase and write options to buy or sell interest rate futures
contracts and options on stock index futures contracts. Such investment
strategies will be used for hedging and non-hedging purposes, subject to
applicable law. Put and call options on futures contracts may be traded by the
Fund in order to protect against declines in values of portfolio securities or
against increases in the cost of securities to be acquired. Purchase of options
on futures contracts may present less risk in hedging the investment portfolio
of the Fund than the purchase or sale of the underlying futures contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs. The writing of such options, however, does not present less
risk than the trading of futures contracts and will constitute only a partial
hedge, up to the amount of the premium received. In addition, if an option is
exercised, the Fund may suffer a loss on the transaction.
<PAGE>
Forward currency exchange contracts may be entered into for the Fund for the
purchase or sale of non-U.S. currency to hedge against adverse rate changes or
otherwise to achieve the Fund's investment objective. A currency exchange
contract allows a definite price in dollars to be fixed for securities of
non-U.S. issuers that have been purchased or sold (but not settled) for the
Fund. Entering into such exchange contracts may result in the loss of all or a
portion of the benefits which otherwise could have been obtained from favorable
movements in exchange rates. In addition, entering into such contracts means
incurring certain transaction costs and bearing the risk of incurring losses if
rates do not move in the direction anticipated.
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.
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 Commodity Futures Trading Commission and on foreign
exchanges. The securities underlying options and futures contracts traded by
the Fund may include domestic as well as foreign securities. Investors should
recognize that transactions involving foreign securities or foreign currencies,
and transactions entered into in foreign countries, may involve considerations
and risks not typically associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts and
forward contracts entered into for non-hedging purposes involve greater risk
and could result in losses which are not offset by gains on other portfolio
assets. For example, the Fund may sell futures contracts on an index of
securities in order to profit from any anticipated decline in the value of the
securities comprising the underlying index. In such instances, any losses on
the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
<PAGE>
Statement of
Additional Information
September __, 1998
CITIFUNDSSM DIVERSIFIED U.S. EQUITY PORTFOLIO
(A MEMBER OF THE CITIFUNDS SM FAMILY OF FUNDS)
CitiFunds Diversified U.S. Equity Portfolio (the "Fund") is a series of
CitiFunds Trust II (the "Trust"). The Trust is an investment company which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 13, 1984. The address and telephone number of the Trust
are 21 Milk Street, 5th Floor, Boston, Massachusetts 02109, (617) 423-1679. The
Fund is permitted to invest all or a portion of its assets in one or more other
investment companies. Currently, the Fund invests its assets in Growth & Income
Portfolio, Large Cap Growth Portfolio and Small Cap Growth Portfolio, each a
series of The Premium Portfolios, and Small Cap Value Portfolio, a series of
Asset Allocation Portfolios. The address of each of The Premium Portfolios and
Asset Allocation Portfolios (the "Portfolio Trusts") is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Table of Contents Page
1. The Trust............................................................. 2
2. Investment Objective and Policies..................................... 2
3. Description of Permitted Investments and Investment Practices......... 3
4. Investment Restrictions...............................................23
5. Performance Information...............................................24
6. Determination of Net Asset Value; Valuation of Securities;
Additional Redemption Information...................................25
7. Management............................................................26
8. Portfolio Transactions................................................34
9. Description of Shares, Voting Rights and Liabilities..................35
10. Certain Additional Tax Matters........................................37
11. Financial Statements..................................................40
12. Appendix I -- Securities Ratings......................................41
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated September __, 1998. This Statement of Additional Information
should be read in conjunction with the Fund's Prospectus, a copy of which may
be obtained by an investor 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 II is a registered management investment company organized as a
business trust under the laws of the Commonwealth of Massachusetts on April 13,
1984. Prior to January 7, 1998, the Trust was called Landmark Funds II. This
Statement of Additional Information describes shares of CitiFunds Diversified
U.S. Equity Portfolio (the "Fund"), which is one of five active series of the
Trust. References in this Statement of Additional Information to the
"Prospectus" of the Fund are to the Prospectus, dated September __, 1998, of
the Fund.
The Fund is permitted to seek its investment objective by investing all or a
portion of its assets in one or more investment companies to the extent not
prohibited by the Investment Company Act of 1940, the rules and regulations
thereunder, and exemptive orders granted under such Act. Currently, the Fund
invests its assets in Growth & Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio and Small Cap Value Portfolio (the "Portfolios").
Growth & Income Portfolio, Large Cap Growth Portfolio and Small Cap Growth
Portfolio are series of The Premium Portfolios, and Small Cap Value Portfolio
is a series of Asset Allocation Portfolios. The Portfolios are open-end,
diversified management investment companies. All references in this Statement
of Additional Information to the Fund include the Fund's underlying Portfolios,
except as otherwise noted. In addition, references to the Trust include the
Portfolio Trusts, except as otherwise noted.
Citibank, N.A. ("Citibank" or the "Manager") is the manager of each Portfolio.
Citibank manages the investments of the Portfolios from day to day in
accordance with each Portfolio's investment objective and policies. The
selection of investments for the Portfolios, and the way they are managed,
depend on the conditions and trends in the economy and the financial
marketplaces. Citibank has delegated the daily management of the Small Cap
Value Portfolio's assets not managed by Citibank to Franklin Advisory Services,
Inc. (the "Subadviser"), a wholly owned subsidiary of Franklin Resources, Inc.,
a publicly owned holding company whose shares are listed on the New York Stock
Exchange.
The Boards of Trustees of the Trust and the Portfolio Trusts provide broad
supervision over the affairs of the Fund and the Portfolios, respectively.
Shares of the Fund are continuously sold by CFBDS, Inc., the Fund's distributor
("CFBDS" or the "Distributor"). Shares of the Fund are sold at net asset value.
CFBDS may receive distribution fees from the Fund pursuant to a Service Plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "1940 Act").
2. INVESTMENT OBJECTIVE AND POLICIES
The Fund's primary investment objective is long-term capital growth. Dividend
income, if any, is incidental to this objective.
The investment objective of the Fund may be changed by its Trustees without
approval by the Fund's shareholders, but shareholders will be given written
<PAGE>
notice at least 30 days before any change is implemented. Of course, there can
be no assurance that the Fund will achieve its investment objective.
The Fund invests primarily in common stocks. The Fund currently intends to
invest primarily in securities of U.S. issuers, but may also invest up to 25%
of its total assets in securities of foreign issuers. As the Fund's investment
manager, Citibank will diversify the Fund's holdings by allocating the Fund's
assets among companies ranging in size from large to small.
The Fund's Prospectus contains a discussion of the various types of securities
in which the Fund may invest and the risks involved in such investments. The
following supplements the information contained in the Prospectus concerning
the investment objective, policies and techniques of the Fund.
The Trust may withdraw the investment of the Fund from one or more of its
underlying Portfolios at any time if the Board of Trustees of the Trust
determines that it is in the best interests of the Fund to do so. Upon any such
withdrawal, the Fund's assets would continue to be invested in accordance with
the investment policies described herein with respect to the Fund. The policies
described above and those described below are not fundamental and may be
changed without shareholder approval.
3. DESCRIPTION OF PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
OPTIONS
The Fund may write covered call and put options and purchase call and put
options on securities. Call and put options written by the Fund may be covered
in the manner set forth below.
A call option written by the Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. A put option written by
the Fund is "covered" if the Fund maintains cash, short term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund
<PAGE>
in cash, short-term money market instruments or high quality debt securities in
a segregated account with its custodian. Put and call options written by the
Fund may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counter party with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
The Fund may purchase options for hedging purposes or to increase its return.
Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit the
Fund to sell the securities at the exercise price, or to close out the options
at a profit. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of
the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. If such increase
occurs, the call option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The premium paid for
the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
The Fund may write (sell) covered call and put options and purchase call and
put options on stock indices. In contrast to an option on a security, an option
on a stock index provides the holder with the right, but not the obligation, to
make or receive a cash settlement upon exercise of the option, rather than the
right to purchase or sell a security. The amount of this settlement is equal to
(i) the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a call) or is below (in the case of a put) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier."
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Fund, are expected to be similar to those
of the underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities in its portfolio. Where the
Fund covers a call option on a stock index through ownership of securities,
such securities may not match the composition of the index and, in that event,
the Fund will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. The Fund may also cover
call options on stock indices by holding a call on the same index and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or (b)
is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. The Fund
may cover put options on stock indices by maintaining cash, short-term money
market instruments or high quality debt securities with a value equal to the
exercise price in a segregated account with its custodian, or by holding a put
<PAGE>
on the same stock index and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written or where the exercise price of the put held
is less than the exercise price of the put written if the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. Put and
call options on stock indices may also be covered in such other manner as may
be in accordance with the rules of the exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation
in the Fund's stock investments. By writing a put option, the Fund assumes the
risk of a decline in the index. To the extent that the price changes of
securities owned by the Fund correlate with changes in the value of the index,
writing covered put options on indices will increase the Fund's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the option.
The Fund may also purchase put options on stock indices to hedge the Fund's
investments against a decline in value. By purchasing a put option on a stock
index, the Fund will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option does
not increase, the Fund's loss will be limited to the premium paid for the
option plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, the Fund will also bear the risk of losing all or a portion
of the premium paid if the value of the index does not rise. The purchase of
call options on stock indices when the Fund is substantially fully invested is
a form of leverage, up to the amount of the premium and related transaction
costs, and involves risks of loss and of increased volatility similar to those
involved in purchasing calls on securities the Fund owns.
The Fund may purchase and write options on foreign currencies in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized.
FUTURES CONTRACTS
The Fund may enter into bond index, interest rate and foreign currency futures
contracts. Such investment strategies will be used for hedging purposes and for
nonhedging purposes, subject to applicable law.
<PAGE>
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 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.
While futures contracts based on debt securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when the Fund purchases
or sells a futures contract. At the same time such a purchase or sale is made,
the Fund must provide cash or securities as a deposit ("initial deposit") known
as "margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant
to such a contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate than the
specific security that provides the standard for the contract. In some (but not
many) cases, securities called for by a futures contract may not have been
issued when the contract was entered into.
The Fund may purchase or sell futures contracts to attempt to protect the Fund
from fluctuations in interest rates, or to manage the effective maturity or
duration of the Fund's investment portfolio in an effort to reduce potential
losses or enhance potential gain, without actually buying or selling debt
securities. For example, if interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as if the Fund sold bonds that it owned, or as
if the Fund sold longer-term bonds and purchased shorter-term bonds. If
interest rates did increase, the value of the Fund's debt securities would
decline, but the value of the futures contracts would increase, thereby keeping
the net asset value of the Fund from declining as much as it otherwise would
have. Similar results could be accomplished by selling bonds, or by selling
bonds with longer maturities and investing in bonds with shorter maturities.
However, by using futures contracts, the Fund avoids having to sell its
securities.
Similarly, when it is expected that interest rates may decline, the Fund might
enter into futures contracts for the purchase of debt securities. Such a
purchase would be intended to have much the same effect as if the Fund
<PAGE>
purchased bonds, or as if the Fund sold shorter-term bonds and purchased
longer-term bonds. If interest rates did decline, the value of the futures
contracts would increase.
The Fund may enter into bond index futures contracts to gain bond market
exposure while holding cash available for investments and redemptions.
The Fund may purchase and sell foreign currency futures contracts to attempt to
protect its current or intended investments from fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
The Fund may sell futures contracts on a foreign currency, for example, where
it holds securities denominated in such currency and it anticipates a decline
in the value of such currency relative to the dollar. In the event such decline
occurs, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. Where the Fund purchases futures contracts under
such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
Although the use of futures for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position (e.g., if the Fund
sells a futures contract to protect against losses in the debt securities held
by the Fund), at the same time the futures contract limits any potential gain
which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the Fund's
investments through transactions in futures contracts depends on the degree to
which movements in the value of the debt securities underlying such contracts
correlate with movements in the value of the Fund's securities. If the security
underlying a futures contract is different than the security being hedged, they
may not move to the same extent or in the same direction. In that event, the
Fund's hedging strategy might not be successful and the Fund could sustain
losses on these hedging transactions which would not be offset by gains on the
Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where the Fund enters into futures transactions other than for hedging
purposes, the effectiveness of its strategy may be affected by lack of
correlation between changes in the value of the futures contracts and changes
<PAGE>
in value of the securities which the Fund would otherwise buy and sell. The
ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a futures contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the futures
contract was originally entered into. While the Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing
variation margin requirements. The inability to close out futures positions
also could have an adverse impact on the ability effectively to use futures
transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. The trading of futures contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the Fund's
investment judgment about the general direction of interest rates or bond
prices is incorrect, the Fund's overall performance may be poorer than if any
such contract had not been entered into. For example, if the Fund hedged
against the possibility of an increase in interest rates which would adversely
affect the price of the Fund's bonds and interest rates decrease instead, part
or all of the benefit of the increased value of the Fund's bonds which were
hedged will be lost because the Fund will have offsetting losses in its futures
positions. Similarly, if the Fund purchases futures contracts expecting a
decrease in interest rates and interest rates instead increased, the Fund will
have losses in its futures positions which will increase the amount of the
losses on the securities in its portfolio which will also decline in value
because of the increase in interest rates. In addition, in such situations, if
the Fund has insufficient cash, the Fund may have to sell bonds from its
investments to meet daily variation margin requirements, possibly at a time
when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Manager
does not believe that these trading and position limits would have an adverse
impact on the Fund's hedging strategies.
<PAGE>
CFTC regulations require compliance with certain limitations in order to assure
that the Fund is not deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations prohibit the Fund from purchasing or selling
futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish the Fund's non-hedging futures positions would exceed 5% of the
Fund's net assets.
The Fund will comply with this CFTC requirement, and the Fund currently intends
to adhere to the additional policies described below. First, an amount of cash
or cash equivalents will be maintained by the Fund in a segregated account with
the Fund's custodian so that the amount so segregated, plus the initial margin
held on deposit, will be approximately equal to the amount necessary to satisfy
the Fund's obligations under the futures contract. The second is that the Fund
will not enter into a futures contract if immediately thereafter the amount of
initial margin deposits on all the futures contracts held by the Fund would
exceed approximately 5% of the net assets of the Fund. The third is that the
aggregate market value of the futures contracts held by the Fund not exceed
approximately 50% of the market value of the Fund's total assets other than its
futures contracts. For purposes of this third policy, "market value" of a
futures contract is deemed to be the amount obtained by multiplying the number
of units covered by the futures contract times the per unit price of the
securities covered by that contract.
The use of futures contracts may increase the amount of taxable income of the
Fund and may affect the amount, timing and character of the Fund's income for
tax purposes, as more fully discussed herein in the section entitled "Certain
Additional Tax Matters."
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write options to buy or sell futures contracts in
which the Fund may invest. Such investment strategies will 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
<PAGE>
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by the Fund on U.S.
exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC
and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.
The Fund may cover the writing of call options on futures contracts (a) through
purchases of the underlying futures contract, (b) through ownership of the
instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract and
in the same principal amount as the call written where the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or securities in a segregated
account with its custodian. The Fund may cover the writing of put options on
futures contracts (a) through sales of the underlying futures contract, (b)
through segregation of cash, short-term money market instruments or high
quality debt securities in an amount equal to the value of the security or
index underlying the futures contract, (c) through the holding of a put on the
same futures contract and in the same principal amount as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written or where the exercise price of the put held is less
than the exercise price of the put written if the difference is maintained by
the Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. Put and call options on
futures contracts may also be covered in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Upon the exercise of a call option on a
futures contract written by the Fund, the Fund will be required to sell the
underlying futures contract which, if the Fund has covered its obligation
through the purchase of such contract, will serve to liquidate its futures
position. Similarly, where a put option on a futures contract written by the
Fund is exercised, the Fund will be required to purchase the underlying futures
contract which, if the Fund has covered its obligation through the sale of such
contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the securities deliverable on exercise of the
futures contract. The Fund will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may
have occurred in the Fund's security holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If
the Fund writes an option on a futures contract and that option is exercised,
the Fund may incur a loss, which loss will be reduced by the amount of the
option premium received, less related transaction costs. The Fund's ability to
hedge effectively through transactions in options on futures contracts depends
on, among other factors, the degree of correlation between changes in the value
<PAGE>
of securities held by the Fund and changes in the value of its futures
positions. This correlation cannot be expected to be exact, and the Fund bears
a risk that the value of the futures contract being hedged will not move in the
same amount, or even in the same direction, as the hedging instrument. Thus it
may be possible for the Fund to incur a loss on both the hedging instrument and
the futures contract being hedged.
The Fund may purchase options on futures contracts for hedging purposes instead
of purchasing or selling the underlying futures contracts. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, the
Fund could, in lieu of selling futures contracts, purchase put options thereon.
In the event that such decrease occurs, it may be offset, in whole or part, by
a profit on the option. Conversely, where it is projected that the value of
securities to be acquired by the Fund will increase prior to acquisition, due
to a market advance or changes in interest or exchange rates, the Fund could
purchase call options on futures contracts, rather than purchasing the
underlying futures contracts.
SECURITIES OF NON-U.S. ISSUERS
The Fund 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 of 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
<PAGE>
investments may be substantially less than their net asset value and that there
would be duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and other forms of depositary receipts for
securities of non-U.S. issuers provide an alternative method for the Fund to
make non-U.S. investments. These securities are not usually denominated in the
same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are designed for use in U.S. securities markets and
EDRs and GDRs, in bearer form, are designed for use in European and global
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs and GDRs are
European and global receipts, respectively, evidencing a similar arrangement.
ADRs, EDRs and GDRs are subject to many of the same risks that apply to other
investments in non-U.S. securities.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts.
The Fund may invest in securities of non-U.S. issuers that impose restrictions
on transfer within the U.S. or to U.S. persons. Although securities subject to
such transfer restrictions may be marketable abroad, they may be less liquid
than securities of non-U.S. issuers of the same class that are not subject to
such restrictions.
The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that the Fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries
may lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies.
In addition, unanticipated political or social developments may affect the
value of Fund's investments in these countries and the availability to the Fund
of additional investments in these countries. The small size, limited trading
volume and relative inexperience of the securities markets in these countries
may make the Fund's investment in such countries illiquid and more volatile
than investments in more developed countries, and the Fund may be required to
establish special custodial or other arrangements before making investments in
these countries. There may be little financial or accounting information
<PAGE>
available with respect to issuers located in these countries, and it may be
difficult as a result to assess the value or prospects of an investment in such
issuers.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund may enter into foreign currency
exchange transactions to convert U.S. currency to foreign currency and foreign
currency to U.S. currency, as well as convert foreign currency to other foreign
currencies. The Fund either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
Fund may also enter into foreign currency hedging transactions in an attempt to
protect the value of the assets of the Fund as measured in U.S. dollars from
unfavorable changes in currency exchange rates and control regulations.
(Although the Fund's assets are valued daily in terms of U.S. dollars, the
Trust does not intend to convert the Fund's holdings of other currencies into
U.S. dollars on a daily basis.)
The Fund may convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. Although currency exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a currency at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a non-U.S. currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of non-U.S. currency
involved in the underlying security transaction, the Fund will 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 Fund believes that the currency of a particular country may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
contract to sell, for a fixed amount of U.S. dollars, the amount of non-U.S.
currency approximating the value of some or all of the Fund's securities
denominated in such non-U.S. currency. The precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible since the future value of such securities in non-U.S. currencies
<PAGE>
changes as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The projection of a short-term hedging strategy is highly uncertain. The Fund
does not enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts obligates the Fund to deliver
an amount of non-U.S. currency in excess of the value of the Fund's securities
or other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated in the
investment decisions made with regard to overall diversification strategies.
However, the Fund believes that it is important to have the flexibility to
enter into such forward contracts when it determines that its best interests
will be served.
The Fund generally would not enter into a forward contract with a term greater
than one year. At the maturity of a forward contract, the Fund will either sell
the security and make delivery of the non-U.S. currency, or retain the security
and terminate its contractual obligation to deliver the non-U.S. currency by
purchasing an "offsetting" contract with the same currency trader obligating it
to purchase, on the same maturity date, the same amount of the non-U.S.
currency. If the Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the non-U.S. currency. Should forward prices decline
during the period between the date the Fund enters into a forward contract for
the sale of the non-U.S. currency and the date it enters into an offsetting
contract for the purchase of such currency, the Fund will realize a gain to the
extent the selling price of the currency exceeds the purchase price of the
currency. Should forward prices increase, the Fund will suffer a loss to the
extent that the purchase price of the currency exceeds the selling price of the
currency.
It is impossible to forecast with precision the market value of Fund securities
at the expiration of the contract. Accordingly, it may be necessary for the
Fund to purchase additional non-U.S. currency on the spot market if the market
value of the security is less than the amount of non-U.S. currency the Fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of such currency. Conversely, it may be necessary to sell on the spot
market some of the non-U.S. currency received upon the sale of the security if
its market value exceeds the amount of such currency the Fund is obligated to
deliver.
The Fund may also purchase put options on a non-U.S. currency in order to
protect against currency rate fluctuations. If the Fund purchases a put option
on a non-U.S. currency and the value of the non-U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. However, the benefit to the Fund from
purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
<PAGE>
rates do not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options which would require
it to forego a portion or all of the benefits of advantageous changes in such
rates.
The Fund may write options on non-U.S. currencies for hedging purposes or
otherwise to achieve its investment objective. For example, where the Fund
anticipates a decline in the value of the U.S. dollar value of a foreign
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the cost of a foreign security to be acquired because of an
increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the
premium. However, the writing of a currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Put and call options on non-U.S. currencies written by the Fund will be covered
by segregation of cash, short-term money market instruments or high quality
debt securities in an account with the custodian in an amount sufficient to
discharge the Fund's obligations with respect to the option, by acquisition of
the non-U.S. currency or of a right to acquire such currency (in the case of a
call option) or the acquisition of a right to dispose of the currency (in the
case of a put option), or in such other manner as may be in accordance with the
requirements of any exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same risks
regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other non-U.S. currency remains
constant, and thus will reduce the value of the receipts covering such
securities. The Fund may employ any of the above described foreign currency
hedging techniques to protect the value of its assets invested in depositary
receipts.
Of course, the Fund is not required to enter into the transactions described
above and does not do so unless deemed appropriate by the Fund. It should also
be realized that these methods of protecting the value of the Fund's securities
against a decline in the value of a currency do not eliminate fluctuations in
<PAGE>
the underlying prices of the securities. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase.
The Fund has established procedures consistent with policies of the Securities
and Exchange Commission ("SEC") concerning forward contracts. Since those
policies currently recommend that an amount of the Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, the Fund expects to always have cash, cash equivalents or high
quality debt securities available sufficient to cover any commitments under
these contracts or to limit any potential risk.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by securities in
which the Fund may otherwise invest. Repurchase agreements are agreements by
which the Fund purchases a security and simultaneously commits to resell that
security to the seller (which is usually a member bank of the U.S. Federal
Reserve System or a member firm of the New York Stock Exchange (or a subsidiary
thereof)) at an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security, usually U.S. Government
or Government agency issues. Under the 1940 Act repurchase agreements may be
considered to be loans by the buyer. The Fund's risk is limited to the ability
of the seller to pay the agreed-upon amount on the delivery date. If the seller
defaults, the underlying security constitutes collateral for the seller's
obligation to pay although the Fund may incur certain costs in liquidating this
collateral and in certain cases may not be permitted to liquidate this
collateral. All repurchase agreements entered into by the Fund are fully
collateralized, with such collateral being marked to market daily.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) which may be converted at a
stated price within a specified period of time into a certain quantity of
common stock or other equity securities of the same or a different issuer.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock.
In general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., its value upon conversion into its underlying stock).
<PAGE>
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.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, the Fund may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, the Fund will not invest more than 10% of its net assets 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 the Board of Trustees of the Trust determine, based on the
trading markets for the specific restricted security, that it is liquid. The
Trustees have adopted guidelines and delegated to the Manager or to the
Subadviser the daily function of determining and monitoring liquidity of
restricted securities. The Trustees, however, retain sufficient oversight and
are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the
Trust's Trustees will carefully monitor the Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to generate
income, the Fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks
of the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate a
loan at any time on customary industry settlement notice (which will not
usually exceed three business days). During the existence of a loan, the Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and with respect to cash collateral would
also receive compensation based on investment of 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 the Fund with
collateral consisting of U.S. Treasury obligations, the borrower is also
obligated to pay the Fund a fee for use of the borrowed securities. The Fund,
would not, however, have the right to vote any securities having voting rights
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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 its 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 Fund to be of good
standing, and when, in the judgment of the Fund, the consideration which can be
earned currently from loans of this type justifies the attendant risk. In
addition, the Fund could suffer loss if the borrower terminates the loan and
the Fund is forced to liquidate investments in order to return the cash
collateral to the buyer. If the Fund determines to make loans, it is not
intended that the value of the securities loaned would exceed 30% of the value
of the Fund's total assets.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward delivery"
basis. It is expected that, under normal circumstances, the Fund would take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with SEC policies. Since those policies currently require that an
amount of the Fund's assets equal to the amount of the purchase be held aside
or segregated to be used to pay for the commitment, the Fund expects always to
have cash, cash equivalents, or high quality debt securities sufficient to
cover any commitments or to limit any potential risk. However, even though the
Fund does not intend to make such purchases for speculative purposes and
intends to adhere to the provisions of SEC policies, purchases of securities on
such bases may involve more risk than other types of purchases. For example,
the Fund may have to sell assets which have been set aside in order to meet
redemptions. Also, if the Fund 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).
BANK OBLIGATIONS
The Fund may invest in bank obligations, i.e., certificates of deposit, time
deposits (including Eurodollar time deposits) and bankers' acceptances and
other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
<PAGE>
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. Interests in pools of
mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed securities
are the Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA"), and Federal Home Loan Mortgage Corporation
("FHLMC"). Obligations of GNMA are backed by the full faith and credit of the
U.S. 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.
The Fund may also invest a portion of its assets in collateralized mortgage
obligations or "CMOs," a type of mortgage-backed security. CMOs are securities
collateralized by mortgages, mortgage pass-through certificates, mortgage
pay-through bonds (bonds representing an interest in a pool of mortgages where
the cash flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued with
a number of classes or series which have different maturities and are retired
in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
<PAGE>
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 price 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.
As a result, prices of mortgage-backed securities may decrease more than prices
of other debt obligations when interest rates go up.
Additionally mortgage-backed securities are also subject to maturity extension
risk, that is, the possibility that rising interest rates may cause prepayments
to occur at a slower than expected rate. This particular 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, a rising interest rate would not only
likely decrease the value of the Fund's securities, but would also increase the
inherent volatility of the Fund by effectively converting short term debt
instruments into long term debt instruments.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Fund may enter into mortgage "dollar roll" transactions pursuant to which
it sells mortgage-backed securities for delivery in the future and
simultaneously contracts to repurchase substantially similar securities on a
specified future date. During the roll period, the Fund foregoes principal and
interest paid on the mortgage-backed securities. The Fund is compensated for
the lost principal and interest by the difference between the current sales
price and the lower price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. The Fund may also be compensated by receipt of a commitment fee.
CORPORATE ASSET-BACKED SECURITIES
The Fund 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
<PAGE>
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
Fund will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in
such a security.
LOWER RATED DEBT SECURITIES
The Fund may invest in lower rated fixed income securities (commonly known as
"junk bonds"), to the extent described in its Prospectus. The lower ratings of
certain securities held by the Fund 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 Fund more
volatile and could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities. In the absence
of a liquid trading market for securities held by it, the 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. See Appendix I to this SAI for a
description of security ratings.
<PAGE>
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 the 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 the Fund's net asset value. The Fund will not
necessarily dispose of a security when its rating is reduced below its rating
at the time of purchase. However, the Manager will monitor the investment to
determine whether its retention will assist in meeting the Fund's investment
objective.
Issuers of lower rated securities are often highly leveraged, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. Such issuers may
not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the Fund's assets may be invested in
securities as to which the Fund, by itself or together with other funds and
accounts managed by Citibank and its affiliates, holds all or a major portion.
Although Citibank generally considers such securities to be liquid because of
the availability of an institutional market for such securities, it is possible
that, under adverse market or economic conditions or in the event of adverse
changes in the financial condition of the issuer, the Fund could find it more
difficult to sell these securities when Citibank believes it advisable to do so
or may be able to sell the securities only at prices lower than if they were
more widely held. Under these circumstances, it may also be more difficult to
determine the fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the event of a
default under such securities, the Fund may be required to participate in
various legal proceedings or take possession of and manage assets securing the
issuer's obligations on such securities. This could increase the Fund's
operating expenses and adversely affect the Fund's net asset value. In
addition, the Fund's intention to qualify as a "regulated investment company"
under the Internal Revenue Code may limit the extent to which the Fund may
exercise its rights by taking possession of such assets.
Certain securities held by the Fund may permit the issuer at its option to
"call," or redeem, its securities. If an issuer were to redeem securities held
by the 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.
<PAGE>
The Fund may invest up to 15% of its assets in "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from their principal amount in lieu of paying interest periodically.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Because
zero-coupon and payment-in kind bonds do not pay current interest in cash,
their value is subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently in cash. The Fund is required
to accrue interest income on such investments and to distribute such amounts at
least annually to shareholders even though such bonds do not pay current
interest in cash. Thus, it may be necessary at times for the Fund to liquidate
investments in order to satisfy its dividend requirements.
To the extent the Fund invests in securities in the lower rating categories,
the achievement of the Fund's objective is more dependent on the Fund's
investment analysis than would be the case if the Fund were investing in
securities in the higher rating categories. This may be particularly true with
respect to tax-exempt securities, as the amount of information about the
financial condition of an issuer of tax-exempt securities may not be as
extensive as that which is made available by corporations whose securities are
publicly traded.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trusts, on behalf of the
Portfolios, have each adopted the following policies which may not be changed
with respect to the Fund or any Portfolio without approval by holders of a
majority of the outstanding voting securities of the Fund or applicable
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 applicable Portfolio present at a meeting at which the holders of
more than 50% of the outstanding voting securities of the Fund or applicable
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund or applicable Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act.
Neither the Fund nor any of the Portfolios may:
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the current
value of its net assets, including the amount borrowed, or purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Fund or Portfolio, taken at market value. It is intended that the Fund or
Portfolio would borrow money only from banks and only to accommodate requests
for the repurchase of shares of the Fund or beneficial interests in the
Portfolio while effecting an orderly liquidation of portfolio securities.
(2) 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
<PAGE>
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 insofar as the Fund or Portfolio may technically be deemed an
underwriter under the Securities Act in selling a security.
(3) Make loans to other persons except (a) through the lending of its portfolio
securities and provided that any such loans not exceed 30% of the Fund's or
Portfolio's total assets (taken at market value), (b) through the use of
repurchase agreements or 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.
(4) 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
the Fund and 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
Portfolio).
(5) Concentrate its investments in any particular industry, but if it is deemed
appropriate for the achievement of the Fund's or Portfolio's investment
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) Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
If a percentage restriction or rating restriction on investment or utilization
of assets set forth above or referred to in the Prospectus is adhered to at the
time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund or Portfolio is not
considered a violation of policy.
5. PERFORMANCE INFORMATION
A total rate of return quotation for the Fund is calculated for any period by
(a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate
of return quotation is calculated by (x) adding 1 to the period total rate of
<PAGE>
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.
Any current yield quotation of the Fund consists of an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a 30
calendar day or one month period and is calculated by (a) raising to the sixth
power the sum of 1 plus the quotient obtained by dividing the Fund's net
investment income earned during the period by the product of the average daily
number of shares outstanding during the period that were entitled to receive
dividends and the public offering price per share on the last day of the
period, (b) subtracting 1 from the result, and (c) multiplying the result by 2.
Comparative performance information may be used from time to time in
advertising shares of the Fund, including data from Lipper Analytical Services,
U.S. and other industry sources and publications. From time to time the Fund
may compare its performance against inflation with the performance of other
instruments against inflation, such as FDIC-insured bank money market accounts.
In addition, advertising for the Fund may indicate that investors should
consider diversifying their investment portfolios in order to seek protection
of the value of their assets against inflation. From time to time, advertising
materials for the Fund may refer to or discuss current or past economic or
financial conditions, developments and events.
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL REDEMPTION INFORMATION
The net asset value per share of the Fund is determined each day which the New
York Stock Exchange is open for trading ("Business Day"). As of the date of
this Statement of Additional Information, the Exchange is open for trading
every weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. This determination of net asset value of shares of the Fund is
made once each day as of the close of regular trading on such Exchange
(normally 4:00 p.m. Eastern time) by adding the market value of all securities
and other assets of the Fund (including the Fund's interest in the applicable
Portfolios), then subtracting the liabilities of the Fund, and then dividing
the result by the number of outstanding shares of the Fund. 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 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 where 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
<PAGE>
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. Short-term obligations (maturing
in 60 days or less) are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees of the Trust. Futures contracts are
normally valued at the settlement price on the exchange on which they are
traded. Securities for which there are no such valuations are valued at fair
value as determined in good faith by or at the direction of the Board of
Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter markets is
normally completed before the close of regular trading on the New York Stock
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when the
Fund's net asset value is calculated, such securities may be valued at fair
value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for the Fund is determined on the
basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued plus amortization of premiums.
Subject to compliance with applicable regulations, the Trust has reserved the
right to pay the redemption price of shares of the Fund, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares being
sold. If a holder of shares received a distribution in kind, such holder could
incur brokerage or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of payment
for shares of the Fund more than seven days during any period when (a) trading
in the markets the Fund normally utilizes is restricted, or an emergency, as
defined by the rules and regulations of the SEC, exists making disposal of the
Fund's investments or determination of its net asset value not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC has by order permitted such
suspension.
7. MANAGEMENT
The Trustees and officers of the Trust and the Portfolio Trusts, their ages and
their principal occupations during the past five years are set forth below.
<PAGE>
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, 5th Floor, Boston,
Massachusetts 02109. The address of each Portfolio Trust is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trusts; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
RILEY C. GILLEY (aged 72) -- Vice President and General Counsel, Corporate
Property Investors (November 1988 to December 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (retired, December 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON (aged 58) -- Professor, Babson College (since September
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, The Highland Family of Funds (since March 1997). 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.
C. OSCAR MORONG, JR. (aged 63) -- Managing Director, Morong Capital Management
(since February 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired, January 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive, West, Mountainside, New Jersey.
E. KIRBY WARREN (aged 64) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 78) -- Vice President - Investments, Sun Company,
Inc. (retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUSTS
ELLIOTT J. BERV (aged 55) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 15 Stowaway Drive, Cumberland
Foreside, Maine.
<PAGE>
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); Director, Vantage
Consulting Group, Inc. (since October 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
C. OSCAR MORONG, JR. (aged 63) -- Managing Director, Morong Capital Management
(since February 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired, January 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive, West, Mountainside, New Jersey.
WALTER E. ROBB, III (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.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUSTS
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; Assistant Vice President, Signature
Financial Group, Inc. (since January 1996); Paralegal and Compliance Officer,
various financial companies (July 1992 to January 1996); Graduate Student,
Bentley College (prior to December 1994).
TAMIE EBANKS-CUNNINGHAM* (aged 25) -- Assistant Secretary of the Trust and the
Portfolio Trusts; Office Manager, Signature Financial Group (Cayman) Ltd.
(Since April 1995); Administrator, Cayman Islands Primary School (prior to
April 1995). Her address is P.O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, B.W.I.
JOHN R. ELDER* (aged 50) -- Treasurer of the Trust and the Portfolio Trusts;
Vice President, Signature Financial Group, Inc. (since April 1995); Treasurer,
CFBDS (since April 1995); Treasurer, 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;
Vice President, Signature Financial Group, Inc. (since May 1992); Assistant
Secretary, CFBDS (since October 1992).
JOAN R. GULINELLO* (aged 42) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc. (since October 1993); Secretary, CFBDS (since October 1995); Vice
<PAGE>
President and Assistant General Counsel, Massachusetts Financial Services
Company (prior to October 1993).
JAMES E. HOOLAHAN* (aged 51) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust and the Portfolio Trusts; Senior Vice
President, Signature Financial Group, Inc.
SUSAN JAKUBOSKI* (aged 34) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994). Her
address is Suite 193, 12 Church St., Hamilton HM 11, Bermuda.
MOLLY S. MUGLER* (aged 46) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN* (aged 29) -- Assistant Secretary of the Trust and the Portfolio
Trusts; Office Manager, Signature Financial Group (Europe) Limited (since
1993). 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,
administrator or subadministrator.
The following table shows estimated Trustee compensation for the period
indicated.
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Aggregate Benefits Annual from the Trust
Compensation Accrued as Benefits and Fund
from the Fund Part of Fund Upon Complex Paid to
Trustee (1) Expenses Retirement Trustees (1)(2)
<S> <C> <C> <C> <C>
Philip Coolidge $0 None None $0
Riley C. Gilley $891 None None $50,000
Diana R. Harrington $896 None None $57,000
Susan B. Kerley $892 None None $59,000
C. Oscar Morong, Jr. $900 None None $70,000
E. Kirby Warren $892 None None $50,000
William S. Woods, Jr. $896 None None $58,000
</TABLE>
(1) Information is estimated for the fiscal year ending October 31, 1998.
(2) Messrs. Coolidge, Gilley, Morong, Warren and Woods and Mses. Harrington and
Kerley are trustees of 59, 34, 32, 31, 33, 32 and 32 funds and portfolios,
<PAGE>
respectively, in the family of open-end registered investment companies advised
or managed by Citibank.
As of the date of this Statement of Additional Information, there are no
outstanding shares of the Fund.
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 a Portfolio Trust, as the case may be, unless, as to liability to the
Trust or such Portfolio Trust or their respective investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust or such 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 such 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 serves as the manager of the Fund and of each Portfolio and provides
certain administrative services to the Trust and the Portfolio Trusts pursuant
to separate management agreements (the "Management Agreements"). Subject to
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. The Management Agreements with the Portfolio
Trusts provide that Citibank may delegate the daily management of the
securities of the Portfolios to one or more subadvisers. Citibank furnishes at
its own expense all services, facilities and personnel necessary in connection
with managing each Portfolio's investments and effecting securities
transactions for each Portfolio. The Management Agreement with respect to each
Portfolio will continue in effect until August 7, 2000 and thereafter 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. The
Management Agreement with the Trust with respect to the Fund will continue in
effect until August 7, 2000, and thereafter as long as such continuance is
specifically approved at least annually by the Board of Trustees of the Trust
or by a vote of a majority of the outstanding voting securities of the Fund,
and, in either case, by a majority of the Trustees of the Trust who are not
parties to the Management Agreement or interested persons of any such party, at
a meeting called for the purpose of voting on the Management Agreement.
<PAGE>
Citibank provides the Trust and each of the Portfolio Trusts with general
office facilities and supervises the overall administration of the Trust and
each of the Portfolio Trusts, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the Trust's or a Portfolio Trust's independent contractors and
agents; the preparation and filing of all documents required for compliance by
the Trust or a Portfolio Trust with applicable laws and regulations; and
arranging for the maintenance of books and records of the Trust or a Portfolio
Trust. Trustees, officers, and investors in the Trust or a Portfolio Trust 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 or a Portfolio Trust.
Each Management Agreement provides that Citibank may render services to others.
Each Management Agreement is terminable without penalty on not more than 60
days' nor less than 30 days' written notice by a Portfolio Trust or the Trust,
as the case may be, when authorized either by a vote of a majority of the
outstanding voting securities of the applicable Portfolio or the Fund or by a
vote of a majority of the Board of Trustees of a Portfolio Trust or the Trust,
or by Citibank on not more than 60 days' nor less than 30 days' written notice,
and will automatically terminate in the event of its assignment. The Management
Agreement with each Portfolio Trust provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of security transactions for the applicable Portfolio, except for
willful misfeasance, bad faith or gross negligence or reckless disregard of its
or their obligations and duties under the Management Agreement with such
Portfolio Trust. The Management Agreement with the Trust provides that neither
Citibank nor its personnel shall be liable for any error of judgment or mistake
of law or for any omission in the administration or management of the Trust or
the performance of its duties under the Management Agreement, except for
willful misfeasance, bad faith or gross negligence or reckless disregard of its
or their obligations and duties under the Management Agreement with the Trust.
The Prospectus contains a description of the fees payable to Citibank for
services under each of the Management Agreements. Citibank may reimburse a
Portfolio or the Fund or waive all or a portion of its management fees.
Pursuant to separate sub-administrative services agreements with Citibank,
CFBDS and Signature Financial Group (Cayman) Ltd. ("SFG") perform such
sub-administrative duties for the Trust and the Portfolio Trusts, respectively,
as from time to time are agreed upon by Citibank, CFBDS and SFG, as
appropriate. For performing such sub-administrative services, CFBDS and SFG
receive compensation as from time to time is agreed upon by Citibank, not in
excess of the amount paid to Citibank for its services under the Management
Agreements with the Trust and the Portfolio Trusts, respectively. All such
compensation is paid by Citibank.
Asset Allocation Portfolios has entered into a separate Submanagement Agreement
with the Subadviser with respect to certain assets of the Small Cap Value
Portfolio. The Subadviser's compensation is described in the Prospectus and is
payable by Asset Allocation Portfolios from the assets of the Small Cap Value
Portfolio.
<PAGE>
It is the responsibility of the Subadviser to make the day-to-day investment
decisions for its portion of the Small Cap Value Portfolio, and to place the
purchase and sales orders for securities transactions concerning those assets,
subject in all cases to the general supervision of Citibank. The Subadviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the assets of the Small Cap Value Portfolio
allocated to it and effecting securities transactions concerning those assets.
The Submanagement Agreement with respect to the Small Cap Value Portfolio will
continue in effect until August 7, 2000, and thereafter as long as such
continuance is specifically approved at least annually by the Board of Trustees
of Asset Allocation Portfolios or by a vote of a majority of the outstanding
voting securities of the Small Cap Value Portfolio, and, in either case, by a
majority of the Trustees of Asset Allocation Portfolios who are not parties to
the Submanagement Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Submanagement Agreement.
The Submanagement Agreement provides that the Subadviser may render services to
others. The Submanagement Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by Asset Allocation
Portfolios, when authorized either by a vote of a majority of the outstanding
voting securities of the Small Cap Value Portfolio or by a vote of a majority
of the Board of Trustees of Asset Allocation Portfolios, or by Citibank on not
more than 60 days' nor less than 30 days' written notice, and will
automatically terminate in the event of its assignment. The Submanagement
Agreement may be terminated by the Subadviser on not less than 90 days' written
notice. Upon termination of the Submanagement Agreement, Citibank will maintain
responsibility for managing those assets formerly managed by the Subadviser.
The 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 the Small Cap Value Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under the Submanagement Agreement.
DISTRIBUTOR
CFBDS, 21 Milk Street, 5th Floor, Boston, Massachusetts 02109, serves as the
Distributor of the Fund's shares pursuant to a Distribution Agreement with the
Trust (the "Distribution Agreement"). Unless otherwise terminated the
Distribution Agreement will continue from year to year upon annual approval by
the Trust's Board of Trustees and by 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. The
Distribution Agreement will terminate in the event of its assignment, as
defined in the 1940 Act.
Under a Service Plan for shares of the Fund (the "Service Plan") which has been
adopted in accordance with Rule 12b-1 under the 1940 Act, the Fund may pay
monthly fees at an annual rate not to exceed 0.25% of the average daily net
assets of the Fund. Such fees may be used to make payments to the Distributor
<PAGE>
for distribution services, to securities dealers and other industry
professionals (called "Service Agents") that have entered into service
agreements with the Distributor and others in respect of the sale of shares of
the Fund, and to other parties in respect of the sale of shares of the Fund,
and to make payments for advertising, marketing or other promotional activity,
and payments for preparation, printing, and distribution of prospectuses,
statements of additional information and reports for recipients other than
regulators and existing shareholders. The Fund also may make payments to the
Distributor, Service Agents and others for providing personal service or the
maintenance of shareholder accounts. The Fund and the Distributor provide to
the Trustees quarterly a written report of amounts expended pursuant to the
Service Plan and the purposes for which the expenditures were made.
The Service Plan obligates the Fund to pay fees to the Distributor, Service
Agents and others as compensation for their services, not as reimbursement for
specific expenses incurred. Thus, even if their expenses exceed the fees
provided for by the Service Plan for the Fund, the Fund will not be obligated
to pay more than those fees and, if their expenses are less than the fees paid
to them, they will realize a profit. The Fund will pay the fees to the
Distributor, Service Agents and others until the Service Plan or Distribution
Agreement is terminated or not renewed. In that event, the Distributor's or
Service Agent's expenses in excess of fees received or accrued through the
termination date will be the Distributor's or Service Agent's sole
responsibility and not obligations of the Fund.
From time to time the Distributor may make payments for distribution out of its
past profits or any other sources available to it.
The 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 Trust's 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 such Plan (for purposes of this
paragraph "Qualified Trustees"). The 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. The Service Plan further provides
that the selection and nomination of the Qualified Trustees is committed to the
discretion of the disinterested Trustees (as defined in the 1940 Act) then in
office. The Service Plan may be terminated with respect to the Fund at any time
by a vote of a majority of the Trust's Qualified Trustees or by a vote of a
majority of the outstanding voting securities of the Fund. The Service Plan may
not be amended to increase materially the amount of the Fund's permitted
expenses thereunder without the approval of a majority of the outstanding
voting securities of the Fund and may not be materially amended in any case
without a vote of the majority of both the Trustees and Qualified Trustees. The
Distributor will preserve copies of any plan, agreement or report made pursuant
to the Service Plan 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.
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 out of the
<PAGE>
distribution fees received by the Distributor and out of the Distributor's past
profits or any other source available to it.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with State
Street Bank and Trust Company ("State Street"), pursuant to which State Street
acts as transfer agent for the Fund. The Trust also has entered into a
Custodian Agreement and the Fund Accounting Agreement with State Street,
pursuant to which custodial and fund accounting services, respectively, are
provided for the Fund. See "Transfer Agent, Custodian and Fund Accountant" in
the Prospectus for additional information.
Each Portfolio Trust, on behalf of the applicable Portfolio, has entered into a
Custodian Agreement with State Street pursuant to which State Street acts as
custodian for the Portfolio. Each Portfolio Trust, on behalf of the applicable
Portfolio, also has entered into the Fund Accounting Agreement with State
Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant to which
State Street Cayman provides fund accounting services for the Portfolio. State
Street Cayman also provides transfer agency services to 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
Price Waterhouse 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 Price Waterhouse LLP is 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse are the chartered
accountants for each Portfolio Trust. The address of Price Waterhouse is Suite
3000, Box 82, Royal Trust Towers, Toronto Dominion Center, Toronto, Ontario,
Canada M5K 1G8.
8. PORTFOLIO TRANSACTIONS
The Trust trades securities for the Fund if it believes that a transaction net
of costs (including custodian charges) will help achieve the Fund's investment
objective. Changes in the Fund's investments are made without regard to the
length of time a security has been held or whether a sale would result in the
recognition of a profit or loss. Therefore, the rate of turnover is not a
limiting factor when changes are appropriate. Specific decisions to purchase or
sell securities for the Fund are made by a portfolio manager who is an employee
of Citibank and who is appointed and supervised by its senior officers or the
Subadviser. Each portfolio manager or the Subadviser may serve other clients of
Citibank 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
<PAGE>
28(e) of the Securities Exchange Act of 1934) to the Fund and/or the other
accounts over which Citibank, the Subadviser or their affiliates exercise
investment discretion. Citibank and the Subadviser are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if Citibank or the Subadviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which Citibank, the Subadviser and their
affiliates have with respect to accounts over which they exercise investment
discretion. The Trustees of the Trust periodically review the commissions paid
by the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Fund.
The investment advisory fees that the Fund pays to Citibank will not be reduced
as a consequence of Citibank's receipt of brokerage and research services.
While such services are not expected to reduce the expenses of Citibank,
Citibank would, through the use of the services, avoid the additional expenses
which would be incurred if it should attempt to develop comparable information
through its own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an investment
for the Fund as well as for one or more of Citibank's or the Subadviser's other
clients. Investment decisions for the Fund and for Citibank's and the
Subadviser's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the same security. Some
simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some cases this
system could adversely affect the price or the size of the position obtainable
in a security for the Fund. When purchases or sales of the same security for
the Fund and for other portfolios managed by Citibank or the 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.
9. 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 and to divide or combine the shares of any series into a greater or
lesser number of shares of that series without thereby changing the
proportionate beneficial interests in that series 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 the Fund represents an equal
proportionate interest in the Fund with each other share. Shares of each series
<PAGE>
of the Trust participate equally in the earnings, dividends and distribution of
net assets of the particular series upon liquidation or dissolution. Shares of
each series are entitled to vote separately to approve management agreements or
changes in investment policy, but shares of all series may vote together in the
election or selection of Trustees and accountants for the Trust. In matters
affecting only a particular series or class, only shares of that series or
class are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on which
they are entitled to vote. Shareholders in the Trust do not have cumulative
voting rights, and shareholders owning more than 50% of the outstanding shares
of the Trust may elect all of the Trustees of the Trust if they choose to do so
and in such event the other shareholders in the Trust would not be able to
elect any Trustee. The Trust is not required and has no present intention of
holding annual meetings of shareholders but the Trust will hold special
meetings of the Fund's shareholders when in the judgment of the Trust's
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have under certain circumstances (e.g., upon 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.")
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 the 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.
Share certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust 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 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.
<PAGE>
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 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.
Growth & Income Portfolio, Large Cap Growth Portfolio and Small Cap Growth
Portfolio are series of The Premium Portfolios, and Small Cap Value Portfolio
is a series of Asset Allocation Portfolios. Each of the Portfolio Trusts is
organized as a trust under the laws of the state of New York. Each investor in
a Portfolio, including the Fund, may add to or withdraw from its investment in
the Portfolio on each Business Day. As of the close of regular trading on each
Business Day, the value of each investor's beneficial interest in a 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 interest 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.
10. CERTAIN ADDITIONAL TAX MATTERS
The Fund has elected to be treated, and intends to qualify each year, as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition of the Fund's
portfolio assets. Provided all such requirements are met, no U.S. federal
income or excise taxes generally will be required to be paid by the Fund,
although non-U.S. source income earned by the Fund may be subject to non-U.S.
withholding or other taxes. If the Fund should fail to qualify as a "regulated
investment company" for any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary income to shareholders. Each Portfolio Trust
believes its Portfolio also will not be required to pay any U.S. federal income
or excise taxes on its income.
<PAGE>
The portion of the Fund's ordinary income dividends attributable to dividends
received in respect to equity securities of U.S. issuers is normally eligible
for the dividends received deduction for corporations subject to U.S. federal
income taxes. Availability of the deduction for particular shareholders is
subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Any Fund
dividend that is declared in October, November or December of any calendar
year, that is payable to shareholders of record in such a month, and that is
paid the following January will be treated as if received by the shareholders
on December 31 of the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of any distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual shareholder will be eligible
for reduced tax rates if the shares were held for more than eighteen months.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gain made with respect to those shares. Any
loss realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
Any investment by the Fund in zero-coupon bonds, deferred interest bonds,
payment-in-kind bonds, certain stripped securities, and certain securities
purchased at a market discount will cause the Fund to recognize income prior to
the receipt of cash payments with respect to those securities. In order to
distribute this income and avoid a tax on the Fund, the Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold
potentially resulting in additional taxable gain or loss to the Fund.
The Fund's transactions in options, futures and forward contracts will be
subject to special tax rules that may affect the amount, timing and character
of Fund income and distributions to shareholders. For example, certain
positions held by the Fund on the last business day of each taxable year will
be marked to market (i.e., treated as if closed out) on that day, and any gain
or loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Fund intends to limit its activities in options, futures and forward
contracts to the extent necessary to meet the requirements of Subchapter M of
the Code.
<PAGE>
An investment by the Fund in residual interests of a CMO that has elected to be
treated as a real estate mortgage investment conduit, or "REMIC," can create
complex tax problems, especially if the Fund has state or local governments or
other tax-exempt organizations as shareholders.
The Fund may make non-U.S. investments. Special tax considerations apply with
respect to such investments. Foreign exchange gains and losses realized by the
Fund will generally be treated as ordinary income and loss. Use of non-U.S.
currencies for non-hedging purposes may be limited in order to avoid a tax on
the Fund. The Fund may elect to mark to market any investments in "passive
foreign investment companies" on the last day of each taxable year. This
election may cause the Fund to recognize ordinary income prior to the receipt
of cash payments with respect to those investments; in order to distribute this
income and avoid a tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold. Investment
by the Fund in certain "passive foreign investment companies" may also be
limited in order to avoid a tax on the Fund. Investment income received by the
Fund from non-U.S. securities may be subject to non-U.S. taxes. The U.S. has
entered into tax treaties with many other countries that may entitle the Fund
to a reduced rate of tax or an exemption from tax on such income. The Fund
intends to qualify for treaty reduced rates where available. It is not
possible, however, to determine the Fund's effective rate of non-U.S. tax in
advance since the amount of the Fund's assets to be invested within various
countries is not known.
If the Fund holds more than 50% of its assets in foreign stock and securities
at the close of its taxable year, the Fund may elect to "pass through" to the
Fund's shareholders foreign income taxes paid. If the Fund so elects,
shareholders will be required to treat their pro rata portion of the foreign
income taxes paid by the Fund as part of the amounts distributed to them by the
Fund and thus includable in their gross income for federal income tax purposes.
Shareholders who itemize deductions would then be allowed to claim a deduction
or credit (but not both) on their federal income tax returns for such amounts,
subject to certain limitations. Shareholders who do not itemize deductions
would (subject to such limitations) be able to claim a credit but not a
deduction. No deduction for such amounts will be permitted to individuals in
computing their alternative minimum tax liability. If the Fund does not qualify
or elect to "pass through" to its shareholders foreign income taxes paid by it,
shareholders will not be able to claim any deduction or credit for any part of
the foreign taxes paid by the Fund.
The Fund will withhold tax payments at a rate of 30% (or any lower applicable
tax treaty rate) on taxable dividends and other payments subject to withholding
taxes that are made to persons who are not citizens or residents of the U.S.
Distributions received from the Fund by non-U.S. persons also may be subject to
tax under the laws of their own jurisdiction.
The account application asks each new shareholder to certify that the
shareholder's Social Security or taxpayer identification number is correct and
that the shareholder is not subject to 31% backup withholding for failing to
report income to the IRS. The Fund may be required to withhold (and pay over to
the IRS for the shareholder's credit) tax at the rate of 31% on certain
<PAGE>
distributions and redemption proceeds paid to shareholders who fail to provide
this information or who otherwise violate IRS regulations.
11. FINANCIAL STATEMENTS
The Fund is newly-organized and has not yet issued financial statements.
<PAGE>
APPENDIX I
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa rate judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
<PAGE>
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S RATINGS GROUP
BONDS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only to a small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. An obligation rated BBB exhibits adequate
protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
pay interest and repay principal on obligations in this category than in higher
rated categories.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair the capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC ratings category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- Debt rated CC is currently highly vulnerable to nonpayment. The rating CC
typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC rating.
<PAGE>
C -- The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed or similar
action has been taken, but debt service payments are continued.
D -- Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
debt service payments are jeopardized.
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
<PAGE>
FITCH IBCA, INC.
AAA -- Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA -- Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A -- High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB -- Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
BB -- Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B -- Highly speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained favorable business and economic environment.
CCC, CC and C -- High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D -- Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for recovery
of amounts outstanding on any securities involved. For U.S. corporates, for
example, "DD" indicates expected recovery of 50%-90% of such outstandings, and
"D" the lowest recovery potential, i.e., below 50%.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Not applicable.
<TABLE>
<CAPTION>
(b) Exhibits
<S> <C> <C>
* 1(a) Amended and Restated Declaration of Trust of Registrant
** 1(b) Forms of Amendments to Amended and Restated Declaration of Trust
of the Registrant
1(c) Form of Establishment and Designation of Series of the Registrant
2(a) Amended and Restated By-Laws of Registrant
2(b) Amendments to Amended and Restated By-Laws of Registrant
5 Form of Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Diversified U.S. Equity
Portfolio (the "Fund")
6 Form of Amended and Restated Distribution Agreement between the
Registrant and CFBDS, Inc. ("CFBDS"), as distributor
** 8(a) Custodian Contract between the Registrant and State Street Bank
and Trust Company ("State Street"), as custodian
8(b) Form of letter agreement adding the Fund to the Custodian
Contract with State Street
9(a) Form of Amended and Restated Sub-Administrative Services
Agreement between Citibank, N.A. and CFBDS
9(b) Transfer Agency and Service Agreement between the Registrant and
State Street, as transfer agent
9(c) Form of letter agreement adding the Fund to the Transfer Agency
and Service Agreement with State Street
** 9(d) Accounting Services Agreement between the Registrant and State
Street, as Fund accounting agent
*** 15 Service Plan of the Registrant
25 Powers of Attorney for the Registrant
</TABLE>
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 17
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
February 28, 1997.
** Incorporated herein by reference to Post-Effective Amendment No. 19
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
October 24, 1997.
*** Incorporated herein by reference to Post-Effective Amendment No. 20
to the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
November 3, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
<PAGE>
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
Shares of Beneficial Interest As of June 28, 1998
(without par value)
CitiFunds Diversified U.S. Equity Portfolio 0
Item 27. 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. 17 to its
Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreement between the Registrant and CFBDS, filed as an Exhibit hereto; and (c)
the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 28. 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, a
registered bank holding company. 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 (Growth & Income Portfolio,
Balanced Portfolio, Large Cap Growth Portfolio, International Equity Portfolio,
Government Income Portfolio, Emerging Asian Markets Equity Portfolio and Small
Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury Reserves
Portfolio, Cash Reserves Portfolio, CitiFundsSM Multi-State Tax Free Trust
(CitiFundsSM New York Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves and CitiFundsSM California Tax Free Reserves), CitiFundsSM Tax Free
Income Trust (CitiFundsSM National Tax Free Income Portfolio and CitiFundsSM
New York Tax Free Income Portfolio), CitiFundsSM Fixed Income Trust
(CitiFundsSM Intermediate Income Portfolio and CitiFundsSM Short-Term U.S.
Government Income Portfolio), 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 $88 billion worldwide. The principal
place of business of Citibank is located at 399 Park Avenue, New York, New York
10043.
John S. Reed is the Chairman of the Board and a Director of Citibank. The
following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins and William R. Rhodes. Other Directors of Citibank are D. Wayne
Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.; John M.
Deutch, Institute Professor, Massachusetts Institute of Technology; Reuben
Mark, Chairman and Chief Executive Officer, ColgatePalmolive Company; Richard
D. Parsons, President, Time Warner, Inc.; Rozanne L. Ridgway, Former Assistant
Secretary of State for Europe and Canada; Robert B. Shapiro, Chairman,
President and Chief Executive Officer, Monsanto Company; Frank A. Shrontz,
Chairman Emeritus, The Boeing Company; and Franklin A. Thomas, former
President, The Ford Foundation.
<PAGE>
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Retired Chairman and Chief Executive Officer and
Director, PepsiCo, Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
John M. Deutch Director, Ariad Pharmaceuticals, Inc.
Director, CMS Energy
Director, Palomar Medical Technologies, Inc.
Director, Cummins Engine Company, Inc.
Director, Schlumberger, Ltd.
Reuben Mark Director, Chairman and Chief Executive Officer
Colgate-Palmolive Company
x Director, New York Stock Exchange
Director, Time Warner, Inc.
NonExecutive Director, Pearson, PLC
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
Robert B. Shapiro Director, Chairman and Chief Executive
Officer, Monsanto Company
Director, Silicon Graphics
<PAGE>
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director and Chairman Emeritus, Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, PepsiCo, Inc.
Franklin Advisory Services, Inc. ("Franklin"), a sub-adviser of the
Registrant, maintains its principal office at One Parker Plaza, 16th Floor,
Fort Lee, New Jersey 07024. Franklin, a Delaware corporation incorporated in
1996, is a registered investment adviser under the Investment Advisers Act of
1940 and is a wholly-owned subsidiary of Franklin Resources, Inc., a publicly
owned holding company. Franklin is an investment adviser to various open-end
and closed-end investment companies.
William J. Lippman is the President and Director of Franklin Advisory
Services, Inc. Mr. Lippman holds a master of business administration degree
from New York University and a bachelor of business administration degree from
City College of New York. Mr. Lippman also serves as Senior Vice President of
Franklin Resources, Inc. and Franklin Management, Inc. and has been with the
Franklin Templeton Group since 1988. Prior to joining Franklin Advisers Inc.,
Mr. Lippman was president of L.F. Rothschild Fund Management, Inc. and has been
in the securities industry for over 30 years.
Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:
<TABLE>
<CAPTION>
Name: Affiliations:
<S> <C>
William J. Lippman Senior Vice President, Franklin Resources, Inc.
President and Director Senior Vice President, Franklin Advisers, Inc.
Senior Vice President, Franklin Templeton
Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Mr. Lippman also serves as officer and/or director
or trustee of eight of the investment companies in
the Franklin Group of Funds.
<PAGE>
Charles B. Johnson President, Chief Executive Officer and Director,
Franklin Resources, Inc.
Chairman of the Board Chairman of the Board and Director, Franklin Advisers, Inc.
and Director 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,
Inc.
Vice President and Assistant Senior Vice President, Franklin Templeton Distributors, Inc.
Secretary
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,
Franklin Resources, Inc.
Treasurer
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>
Item 29. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Equity Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM
Intermediate Income Portfolio, CitiFundsSM Short-Term U.S. Government Income
Portfolio, CitiFundsSM Emerging Asian Markets Equity 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 Balanced Portfolio, CitiFundsSM Small Cap
Value Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM Small Cap
Growth Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
New York Tax Free Income Portfolio, CitiSelect( VIP Folio 200, CitiSelect( VIP
Folio 300, CitiSelect( VIP Folio 400, CitiSelect( VIP Folio 500, CitiFundsSM
Small Cap Growth VIP Portfolio, CitiSelect( Folio 200, CitiSelect( Folio 300,
CitiSelect( Folio 400, and CitiSelect( Folio 500. CFBDS is also the placement
agent for Large Cap Value Portfolio, International Portfolio, Foreign Bond
Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Government Income
Portfolio, Emerging Asian Markets Equity Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
<PAGE>
(b) The information required by this Item 29 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of
Form BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934
(File No. 8-32417).
(c) Not applicable.
Item 30. 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, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and fund accounting agent) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes, if requested to do so by the
record holders of not less than 10% of the Registrant's outstanding
shares, to call a meeting of shareholders for the purpose of voting
upon the question of removal of a trustee or trustees, and to assist
in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940. The Registrant further
undertakes to furnish to each person to whom a prospectus of the
CitiFunds Diversified U.S. Equity Portfolio is delivered with a copy
of the Fund's latest Annual Report to Shareholders, upon request
without charge.
<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 29th day of June, 1998.
CITIFUNDS TRUST II
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 June 29, 1998.
Signature Title
Philip W. Coolidge President, Principal Executive Officer
- --------------------------- and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and
- ---------------------------
John R. Elder Principal Accounting Officer
Riley C. Gilley* Trustee
- ---------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- ---------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- ---------------------------
Susan B. Kerley
C. Oscar Morong, Jr.* Trustee
- ---------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- ---------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- ---------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
---------------------
Philip W. Coolidge
Executed by Philip W. Coolidge on behalf of those
indicated pursuant to Powers of Attorney.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No.: Description:
<S> <C>
1(c) Form of Establishment and Designation of Series of the Registrant
2(a) Amended and Restated By-Laws of Registrant
2(b) Amendments to Amended and Restated By-Laws of Registrant
5 Form of Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Diversified U.S. Equity
Portfolio (the "Fund")
6 Form of Amended and Restated Distribution Agreement between the
Registrant and CFBDS, Inc. ("CFBDS"), as distributor
8(b) Form of letter agreement adding the Fund to the Custodian
Contract with State Street
9(a) Form of Amended and Restated Sub-Administrative Services
Agreement between Citibank, N.A. and CFBDS
9(b) Transfer Agency and Service Agreement between the Registrant and
State Street, as transfer agent
9(c) Form of letter agreement adding the Fund to the Transfer Agency
and Service Agreement with State Street
25 Powers of Attorney for the Registrant
</TABLE>
Exhibit 1(c)
CITIFUNDS TRUST II
FORM OF AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
SHARES OF BENEFICIAL INTEREST (WITHOUT PAR VALUE)
Pursuant to Section 6.9 of the Declaration of Trust, dated April 13,
1984, as amended and restated (the "Declaration of Trust"), of CitiFunds Trust
II (formerly, Landmark Funds II) (the "Trust"), the undersigned, being a
majority of the Trustees of the Trust, do hereby amend and restate the Trust's
existing Establishment and Designation of Series of Shares of Beneficial
Interest (without par value) in order to add two additional series of the
Trust. No other changes to the special and relative rights of the existing
series are intended by this amendment and restatement.
1. The series shall be as follows:
The new series of the Trust shall be designated as
"CitiFunds Diversified U.S. Equity Portfolio" and
"CitiFunds Equity Index Portfolio."
The other existing series of the Trust are as follows:
"CitiFunds Small Cap Value Portfolio,"
"CitiFunds Growth & Income Portfolio,"
"CitiFunds Large Cap Growth Portfolio" and
"CitiFunds Small Cap Growth Portfolio."
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Securities Act of
1933 to the extent pertaining to the offering of Shares of each series. Each
Share of each series shall be redeemable, shall be entitled to one vote or
fraction thereof in respect of a fractional share on matters on which shares of
that series shall be entitled to vote, shall represent a pro rata beneficial
interest in the assets allocated or belonging to such series, and shall be
entitled to receive its pro rata share of the net assets of such series upon
liquidation of the series, all as provided in Section 6.9 of the Declaration of
Trust.
<PAGE>
3. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to each series as provided in, Rule 18f-2,
as from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter created or
otherwise to change the special and relative rights of any such series.
IN WITNESS WHEREOF, the undersigned have executed this Establishment and
Designation of Series on separate counterparts this _____ day of __________,
1998.
_____________________________ _____________________________
PHILIP W. COOLIDGE RILEY C. GILLEY
As Trustee and Not Individually As Trustee and Not Individually
_____________________________ _____________________________
DIANA R. HARRINGTON SUSAN B. KERLEY
As Trustee and Not Individually As Trustee and Not Individually
_____________________________ _____________________________
C. OSCAR MORONG, JR. E. KIRBY WARREN
As Trustee and Not Individually As Trustee and Not Individually
_____________________________
WILLIAM S. WOODS, JR.
As Trustee and Not Individually
Exhibit 2(a)
AMENDED AND RESTATED
BY-LAWS
Of
LANDMARK FUNDS II
(amended and restated as of July 18, 1991)
ARTICLE I
Definitions
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property" and Trustees" have the respective
meanings given them in the Declaration of Trust of Landmark Funds II, as
amended and restated on August 19, 1986 and dated April 13, 1984, as amended
from time to time.
ARTICLE II
Offices
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts shall be in the City
of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within the Commonwealth of Massachusetts as the Trustees may
from time to time determine.
ARTICLE III
Shareholders
Section 1. Meetings. Meetings of Shareholders may be called at any time
by a majority of the Trustees and shall be called by any Trustee upon written
request, which shall specify the purpose or purposes for which such meeting is
to be called, of Shareholders holding in the aggregate not less than 10% of the
outstanding Shares entitled to vote on the matters specified in such written
request. Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. The
holders of a Majority of outstanding Shares entitled to vote present in person
or by proxy shall constitute a quorum at any meeting of Shareholders, except
that where any provision of law, the Declaration or these By-Laws permits or
requires that holders of any series shall vote as a series, then a majority of
the aggregate number of Shares of that series entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that
<PAGE>
series. In the absence of a quorum, a majority of outstanding Shares entitled
to vote present in person or by proxy may adjourn the meeting from time to time
until a quorum shall be present.
Whenever a matter is required to be voted by Shareholders of the Trust in
the aggregate under Section 6.8 and Section 6.9(g) of the Declaration, the
Trust may either hold a meeting of Shareholders of all series, as defined in
Section 6.9 of the Declaration, to vote on such matter, or hold separate
meetings for Shareholders of each of the individual series to vote on such
matter, provided that (i) such separate meetings shall be held within one year
of each other, (ii) a quorum consisting of the holders of the majority of
outstanding Shares of the individual series entitled to vote present in person
or by proxy shall be present at each such separate meeting and (iii) a quorum
consisting of the holders of the majority of all Shares of the Trust entitled
to vote present in person or by proxy shall be present in the aggregate at such
separate meetings, and the votes of Shareholders at all such separate meetings
shall be aggregated in order to determine if sufficient votes have been cast
for such matter to be voted.
Section 2. Notice of Meetings. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need by
given to any Shareholder who shall have failed to inform the Trust of his
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his attorney thereunto authorized, is filed with
the records of the meeting. Where separate meetings are held for Shareholders
of each of the individual series to vote on a matter required to be voted on by
Shareholders of the Trust in the aggregate, as provided in Article III, Section
1 above, notice of each such separate meeting shall be provided in the manner
described above in this Section 2.
Section 3. Record Date. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days,
as the Trustees may determine; or without closing the transfer books the
Trustees may fix a date not more than 60 days prior to the date of any meeting
of Shareholders or distribution or other action as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose. Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders
of the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
<PAGE>
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken. Pursuant to a vote of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Shareholders of record shall be entitled to vote. Each full
Share shall be entitled to one vote and fractional Shares shall be entitled to
a vote of such fraction. When any Share is held jointly by several persons, any
one of them may vote at any meeting in person or by proxy in respect of such
Share, but if more than one of them shall be present at such meeting in person
or by proxy, and such joint owners or their proxies so present disagree as to
any vote to be cast, such vote shall not be received in respect of such Share.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. If the holder of any such
Share is a minor or a person of unsound mind, and subject to guardianship or to
the legal control of any other person as regards the charge or management of
such Share, such Share may be voted by such guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
Section 5. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders
of a Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
Trustees
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the Chairman or by any
Trustee. Notice of the time and place of each meeting other than regular or
stated meetings shall be given by the Secretary or an Assistant Secretary or by
the officer or Trustee calling the meeting and shall be mailed to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or
<PAGE>
wirelessed to each Trustee at his business address, or personally delivered to
him at least one day before the meeting. Such notice may, however, be waived by
any Trustee. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him before or after the meeting, is filed with
the records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice need not specify the purpose of any meeting. The
Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, which telephone conference meeting shall be deemed
to have been held at a place designated by the Trustees at the meeting.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are
filed with the records of the 'Trustees' meetings. Such consents shall be
treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees
present in person at any regular or special meeting of the Trustees shall
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time
until a quorum shall be present. Notice of an adjourned meeting need not be
given.
ARTICLE V
Committees and Advisory Board
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust, and such
other powers of the Trustees as the Trustees may, from time to time, delegate
to the Executive Committee except those powers which by law, the Declaration or
these By-Laws the Trustees are prohibited from so delegating. The Trustees may
also elect from their own number other Committees from time to time, the number
composing such Committees, the powers conferred upon the same (subject to the
same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees
may designate a chairman of any such Committee. In the absence of such
designation a Committee may elect its own chairman.
<PAGE>
Section 2. Meeting, Quorum and Manner of Acting. The Trustees may (i)
provide for stated meetings of any Committee, (ii) specify the manner of
calling and notice required for special meetings of any Committee, (iii)
specify the number of members of a Committee required to constitute a quorum
and the number of members of a Committee required to exercise specified powers
delegated to such Committee, (iv) authorize the making of decisions to exercise
specified powers by written assent of the requisite number of members of a
Committee without a meeting, and (v) authorize the members of a Committee to
meet by means of a telephone conference circuit.
Each Committee shall keep regular minutes of its meetings and records of
decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
Section 3. Advisory Board. The Trustees may appoint an Advisory Board to
consist in the first instance of not less than three members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders.
A member of such Advisory Board shall hold office for such period as the
Trustees may by vote provide and may resign therefrom by a written instrument
signed by him which shall take effect upon its delivery to the Trustees. The
Advisory Board shall have no legal powers and shall not perform the functions
of Trustees in any manner, such Advisory Board being intended merely to act in
an advisory capacity. Such Advisory Board shall meet at such times and upon
such notice as the Trustees may be resolution provide.
ARTICLE VI
Officers
Section 1. General Provisions. The officers of the Trust shall be a
Chairman, a President, a Treasurer and a Secretary, who shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as
the business of the Trust may require, including one or more Vice Presidents,
one or more Assistant Treasurers and one or more Assistant Secretaries. The
Trustees may delegate to any officer or committee the power to appoint any
subordinate officers or agents.
Section 2. Term of Office and Qualification. Except as otherwise provided
by law, the Declaration or these By-Laws, the Chairman, the President, the
Treasurer and the Secretary shall hold office until his respective successor
shall have been duly elected and qualified, and all other officers shall hold
office at the pleasure of the Trustees. The Secretary and Treasurer may be the
same person. A Vice President and the Treasurer or a Vice President and the
Secretary may be the same person, but the offices of Vice President, Secretary
<PAGE>
and Treasurer shall not be held by the same person. Neither the Chairman nor
the President shall hold any other office. Except as above provided, any two
offices may be held by the same person. Any officer may be, but none need be, a
Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the Chairman. The Chairman may call
meetings of the Trustees and of any committee thereof when he deems it
necessary and shall preside at all meetings of the Shareholders. Subject to the
control of the Trustees and any Committee of the Trustees, the Chairman shall
at all times exercise a general supervision and direction over the affairs of
the Trust. The Chairman shall have the power to employ attorneys and counsel
for the Trust and to employ such subordinate officers, agents, clerks and
employees as he may find necessary to transact the business of the Trust. The
Chairman shall also have the power to grant, issue, execute or sign such powers
of attorney, proxies or other documents as may be deemed advisable or necessary
in furtherance of the interests of the Trust. The Chairman shall have such
other powers and duties as, from time to time, may be conferred upon or
assigned to him by the Trustees.
Section 5. Powers and Duties of the President. In the absence or
disability of the Chairman, the President shall perform all the duties and may
exercise any of the powers of the Chairman, subject to the control of the
Trustees. The President shall perform such other duties as may be assigned to
him from time to time by the Trustees or the Chairman.
Section 6. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time
to time may be assigned to him by the Trustees. The Treasurer shall give a bond
for the faithful discharge of his duties, if required to do so by the Trustees,
in such sum and with such surety or sureties as the Trustees shall require.
<PAGE>
Section 8. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Shareholders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall
have custody of the seal of the Trust; and shall have charge of the Share
transfer books, lists and records unless the same are in the charge of the
Transfer Agent. The Secretary shall attend to the giving and serving of all
notices by the Trust in accordance with the provisions of these By-Laws and as
required by law; and subject to these By-Laws, shall in general perform all
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his duties, if required to do
so by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all of the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
Section 11. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
Fiscal Year
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the last day of December in the succeeding year,
provided, however, that the Trustees may from time to time change the fiscal
year.
<PAGE>
ARTICLE VIII
Seal
The Trustees shall adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
Waivers of Notice
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been
telegraphed, cabled or wirelessed for the purposes of these By-Laws when it has
been delivered to a representative of any telegraph, cable or wireless company
with instruction that it be telegraphed, cabled or wirelessed. Any notice shall
be deemed to be given at the time when the same shall be mailed, telegraphed,
cabled or wirelessed.
ARTICLE X
Custodian
Section 1. Appointment and Duties. The Trustees shall at all times employ
a bank or trust company having a capital, surplus and undivided profits of at
least $5,000,000 as custodian with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained
in the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same
upon written order;
(ii) to receive and receipt for any monies due to the Trust and deposit
the same in its own banking department or elsewhere as the
Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and accounts of
the Trust and furnish clerical and accounting services; and
(v) if authorized to do so by the Trustees, to compute the net income
of the Trust and the net asset value of Shares;
<PAGE>
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees, provided
that in every case such sub-custodian shall be a bank or trust company
organized under the laws of the United States or one of the states thereof and
having capital, surplus and undivided profits of at least $5,000,000.
Section 2. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian
to deposit all or any part of the securities owned by the Trust in a system for
the central handling of securities established by a national securities
exchange or a national securities association registered with the Commission
under the Securities Exchange Act of 1934, or such other person may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodian.
Section 3. Acceptance of Receipts In Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees
may direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
Section 4. Provisions of Custodian Contract. The following provisions
shall apply to the employment of a custodian pursuant to this Article X and to
any contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the custodian all
securities owned by the Trust or to which it may become entitled, and shall
order the same to be delivered by the custodian only upon completion of a sale,
exchange, transfer, pledge, or other disposition thereof, and upon receipt by
the custodian of the consideration therefor or a certificate of deposit or a
receipt of an issuer or of its Transfer Agent, all as the Trustees may
generally or from time to time require or approve, or to a successor custodian;
and the Trustees shall cause all funds owned by the Trust or to which it may
become entitled to be paid to the custodian, and shall order the same disbursed
only for investment against delivery of the securities acquired, or in payment
<PAGE>
of expenses, including management compensation, and liabilities of the Trust,
including distributions to Shareholders, or to a successor custodian; provided
however, that nothing herein shall prevent delivery of securities for
examination to the broker purchasing the same in accord with the "street
delivery" custom whereby such securities are delivered to such broker in
exchange for a delivery receipt exchanged on the same day for an uncertified
check of such broker to be presented on the same day for certification.
(b) In case of the resignation, removal or inability to serve of any such
custodian, the Trust shall promptly appoint another bank or trust company
meeting the requirements of this Article X as successor custodian. The
agreement with the custodian shall provide that the retiring custodian shall,
upon receipt of notice of such appointment, deliver all Trust Property in its
possession to and only to such successor, and that pending appointment of a
successor custodian, or a vote of the Shareholders to function without a
custodian, the custodian shall not deliver any Trust Property to the Trust, but
may deliver all or any part of the Trust Property to a bank or trust company
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least $5,000,000, provided that arrangements are made
for the Trust Property to be held under terms similar to those on which they
were held by the retiring custodian.
ARTICLE XI
Sale of Shares of the Trust
The Trustees may from time to time issue and sell or cause to be issued
and sold Shares for cash or other property, which shall in every case be paid
or delivered to the Custodian as agent of the Trust before the delivery of any
certificate for such shares. The Shares, including such shares which may have
been repurchased by the Trust (herein sometimes referred to as "Treasury
Shares"), may be sold at a price based on the net asset value thereof (as
defined in Article XII hereof) determined by or on behalf of the Trustee next
after the sale is made or at some later time after such sale.
When a distribution contract is in effect pursuant to Section 4.2 of
Article IV of the Declaration, the time of sale shall be the time when an
unconditional order is placed with the distributor or with a dealer with whom
the underwriter shall have a sales agreement, whichever first occurs. Such
contract may provide for the sale of Shares either as a price based on the net
asset value determined next after the order is placed with said distributor or
dealer or at a price based on a net asset value to be determined at some later
time. No Shares need be offered to existing Shareholders before being offered
to others. No Shares shall be sold by the Trust (although Shares previously
contracted to be sold may be issued upon payment therefor) during any period
when the determination of net asset value is suspended by declaration of the
<PAGE>
Trustees pursuant to the provisions of Article XII hereof. In connection with
the acquisition by merger or otherwise of all or substantially all the assets
of an investment company (whether a regulated or private investment company or
a personal holding company), the Trustees may issue or cause to be issued
Shares and accept in payment therefor such assets at not more than market value
in lieu of cash, notwithstanding that the federal income tax basis to the Trust
of any assets so acquired may be less than the market value, provided that such
assets are of the character in which the Trustees are permitted to invest the
funds of the Trust.
ARTICLE XII
Net Asset Value of Shares
Section 1. Time of Determination. The net asset value of each Share
outstanding shall be determined by the Trustees on each business day (which
term shall, whenever it appears in these By-Laws, be deemed to mean each day
when the New York Stock Exchange is open for trading) as of the close of
trading on the New York Stock Exchange. The power and duty to determine net
asset value may be delegated by the Trustees from time to time to one or more
of the Trustees or officers of the Trust, to the other party to any contract
entered into pursuant to Section 4.1 of Article IV of the Declaration, or to
the custodian or the Transfer Agent. The Trustees may also determine or cause
to be determined the net asset value as of any particular time in addition to
the closing time of each business day. Such additional or interim determination
may be made either by appraisal or by calculation or estimate. Any such
calculation or estimate shall be based on changes in the market value of
representative or selected securities or on changes in recognized market
averages since the last closing appraisal, and made in a manner which in the
opinion of the Trustees will fairly reflect the changes in the net asset value.
At any time when the New York Stock Exchange is closed (other than customary
weekend and holiday closings), the Trustees may cause the net asset value to be
determined by appraising all securities at last sale prices, or at not more
than the current asked nor less than the current bid prices, in the
over-the-counter or other market, and all other assets at fair value in the
best judgment of the Trustees, and otherwise proceeding as above stated. For
the purposes of Article VII of the Declaration and Articles XI and XII hereof,
any reference to the time at which a determination of net asset value is made
shall mean the time as of which the determination is made.
Section 2. Suspension of Determination. The Trustees may declare a
suspension of the determination of net asset value to the extent permitted by
the 1940 Act and rules, regulations and orders promulgated by the Commission
thereunder.
Section 3. Computation. The net asset value of each Share as of any
particular time shall be the quotient (adjusted to the nearer cent) obtained by
dividing the value, as of such time, of the net assets of the Trust (i.e., the
value of the assets of the Trust less its liabilities exclusive of capital and
<PAGE>
surplus) by the total number of Shares outstanding (exclusive of Treasury
Shares) at such time, all determined and computed as follows:
A. The assets of the Trust shall be deemed to include (i) all cash on
hand, on deposit or on call, including any interest accrued thereon,
(ii) all bonds, debentures, bills and notes and accounts receivable
and other evidences of indebtedness, (iii) all shares of stock,
subscription rights, warrants and other securities, other than its
own Shares, (iv) all stock and cash dividends or distributions
receivable by the Trust which have been declared and are ex-dividend
to Shareholders of record at or before the time as of which the net
asset value is being determined, (v) all interest accrued on any
interest-bearing securities owned by the Trust, and (vi) all other
property of every kind and nature including prepaid expenses, the
value of such assets to be determined as follows:
(a) The value of any cash on hand, on deposit or on call, bills and
notes and accounts receivable, prepaid expenses, cash dividends
and interest declared or accrued as aforesaid and not yet
received, shall be deemed to be the face amount thereof unless
the Trustees shall have determined that any such item is not
worth the face amount thereof, in which event the value thereof
shall be determined in good faith by or at the direction of the
Trustees;
(b) The value of any security which is listed or dealt in upon the
New York Stock Exchange or upon the American Stock Exchange
shall be determined by taking the latest sale price (or, lacking
any sales, not less than the closing bid price nor more than the
closing asked price therefor) at the time as of which the net
asset value is being determined, all as reported by any report
in common use or authorized by the New York Stock Exchange or
the American Stock Exchange, as the case may be, provide
however, that prices on such Exchanges need not be used to
determine the value of debt securities owned by the Trust if, in
the opinion of the Trustees, some other method would more
accurately reflect the fair market value of such debt
securities;
(c) The value of any security which is not listed or dealt in on
either of such Exchanges shall be determined in the manner
described in the next preceding paragraph if listed or dealt in
on any other Exchange;
(d) The value of any security not listed or dealt in on any Exchange
and for which market quotations are readily available shall be
determined by taking not less than the closing bid price nor
<PAGE>
more than the closing asked price therefor on the date as of
which the net asset value is being determined; and
(e) In the case of any security or other property for which no price
quotations are available as above provided, the value thereof
shall be determined from time to time in such manner as is
specified from time to time by vote of the Trustees.
B. The liabilities of the Trust shall be deemed to include (i) all
bills, notes and accounts payable, (ii) all administrative expenses
payable and/or accrued, (iii) all contractual obligations for the
payment of money or property, including the amount of any unpaid
dividends upon the Shares, declared to Shareholders of record at or
before the time as of which the net asset value is being determined,
(iv) all reserves authorized or approved by the Trustees for taxes or
contingencies, and (v) all other liabilities of the Trust of
whatsoever kind and nature except liabilities represented by
outstanding Shares and capital surplus of the Trust.
C. For the purposes of the Article XII
(i) Shares sold shall be deemed to become outstanding immediately
after the close of business on the day on which the contract of
sale is made, and the sale price thereof (less commission, if
any, and less any stamp or other tax payable by the Trust in
connection with the issuance thereof) shall thereupon be deemed
an asset of the Trust.
(ii) Shares tendered for purchase by the Trust under Section 7.1 of
Article VII of the Declaration shall be deemed to be outstanding
at the close of business on the day as of which the purchase
price is determined, and thereafter they shall be deemed
treasury stock and until paid, the price thereof shall be deemed
a liability of the Trust.
(iii) Credits and contractual obligations payable to the Trust in
foreign currency and liabilities and contractual obligations
payable by the Trust in foreign currency shall be taken at the
current cable rate of exchange as nearly as practicable at the
time as of which the net asset value is computed.
(iv) Portfolio securities owned by the Trust which the Trustees or
their delegate shall, pursuant to Section 7.4 of Article VII of
the Declaration, have selected for distribution in redemption or
repurchase of Shares tendered to it pursuant to Section 7.1 of
<PAGE>
Article VII of the Declaration at any time shall be included in
determining the price of such shares, and thereafter neither
such securities nor such Shares shall be included in
determinations of net asset value pursuant to this Article XII.
ARTICLE XIII
Dividends and Distributions
Section 1. Limitations on Distributions. The total of distributions to
Shareholders paid in respect of any one fiscal year, subject to the exceptions
noted below, shall, when and as declared by the Trustees be approximately equal
to the sum of
(A) The net income, exclusive of the profits or losses realized upon the
sale of securities or other property, for such fiscal year,
determined in accordance with generally accepted accounting
principles (which, if the Trustees so determine, may be adjusted for
net amounts included as such accrued net income in the price of
Shares issued or repurchased). but if the net income exceeds the
amount distributed by less than one cent per share outstanding at the
record date for the final dividend, the excess shall be treated as
distributable income for the following fiscal year; and
(B) in the discretion of the Trustees, an additional amount which shall
not substantially exceed the excess of profits over losses on sales
of securities or other property for such fiscal year.
The decision of the Trustees as to what, in accordance with generally
accepted accounting principles, is income and what is principal shall be final,
and except as specifically provided herein the decision of the Trustees as to
what expenses and charges of the Trust shall be charged against principal and
what against income shall be final, all subject to any applicable provisions of
the 1940 Act and rules, regulations and orders of the Commission promulgated
thereunder. For the purposes of the limitation imposed by this Section 1.
Shares issued pursuant to Section 2 of this Article XIII shall be valued at the
amount of cash which the Shareholders would have received if they had elected
to receive cash in lieu of such Shares.
Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give to the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes. Any payment made to
<PAGE>
Shareholders pursuant to clause (B) of this Section 1 shall be accompanied by a
written statement showing the source or sources of such payment, and the basis
of computation thereof.
Section 2. Distributions Payable in Cash or Shares. The Trustees shall
have power, to the fullest extent permitted by the laws of the Commonwealth of
Massachusetts but subject to the limitation as to cash distributions imposed by
Section 1 of this Article XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election of any Shareholder
(whether exercised before or after the declaration of the distribution) either
in cash or in Shares, provided that the sum of (i) the cash distribution
actually paid to any Shareholder and (ii) the net asset value of the Shares
which that Shareholder elects to receive, in effect at such time at or after
the election as the Trustees may specify, shall not exceed the full amount of
cash to which that Shareholder would be entitled if he elected to receive only
cash. In the case of a distribution payable in cash or Shares at the election
of a Shareholder, the Trustees may prescribe whether a Shareholder, failing to
express his election before a given time shall be deemed to have elected to
take Shares rather than cash, or to take cash rather than Shares, or to take
Shares with cash adjustment for fractions.
Section 3. Stock Dividends. Anything in these By-Laws to the contrary
notwithstanding, the Trustees may at any time declare and distribute pro rata
among the Shareholders a "stock dividend" out of either authorized but unissued
Shares or treasury Shares of the Trust or both.
ARTICLE XIV
Amendments
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted (a) by Majority Shareholder Vote, or (b) by the
Trustees, provided, however, that no By-Law may be amended, adopted or repealed
by the Trustees if such amendment, adoption or repeal requires, pursuant to
law, the Declaration or these By-Laws, a vote of the Shareholders.
Exhibit 2(b)
Article III, Section 3 of the By-laws has been amended to read in its entirety
as follows;
"Section 3. Record Date. The Trustees may fix a date not more than 60
days prior to the date of any meeting of Shareholders or distribution or
other action as a record date for the purpose of determining the
Shareholders who are entitled to notice of and to vote at such meeting or
any adjournment thereof or to participate in such distribution or for the
purpose of such other action; or without fixing such record date the
Trustees may for any of such purposes from time to time close the
transfer books for such period, not exceeding 30 days as the Trustees may
determine. Where separate meetings are held for Shareholders of each of
the individual series to vote on a matter required to be voted on by
Shareholders of the Trust in the aggregate, as provided in Article III,
Section 1 above, the record date of each such separate meeting, for
purposes of determining the Shareholders who are entitled to notice of
and to vote at such meeting or any adjournment thereof, shall be
determined in the manner described above in this Section 3."
<PAGE>
Amendment to the By-Laws of Landmark Fixed Income Funds, Landmark Funds I,
Landmark Funds II, Landmark Funds III, Landmark Institutional Trust, Landmark
International Funds, Landmark Multi-State Tax Free Reserves, Landmark Premium
Funds, Landmark Tax Free Income Funds and Landmark Tax Free Reserves:
VOTED: That Article X, Section 1 of the By-Laws of the Trust be amended, to
read as follows:
Section 1. Appointment and Duties. The Trustees shall at all times employ
a bank or trust company having capital, surplus and undivided profits of at
least $5,000,000 as custodian with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained
in the Declaration and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same
upon written order;
(ii) to receive and receipt for any monies due to the Trust and
deposit the same in it own banking department or elsewhere as
the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and accounts
of the Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of
the Trust and the net asset value of Shares;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees, subject to
such requirements as may be contained in the Declaration and the 1940 Act.
<PAGE>
FURTHER
VOTED: That Article X, Section 4 of the By-Laws be deleted in its entirety
FURTHER
VOTED: That the officers of the Trust are authorized to file such amendments
with the permanent records of the Trust and in such other places as
such officers shall deem necessary or appropriate.
<PAGE>
AMENDMENT TO THE BY-LAWS OF LANDMARK FUNDS I, LANDMARK FUNDS II, LANDMARK
INTERNATIONAL FUNDS, LANDMARK FIXED INCOME FUNDS, LANDMARK TAX FREE INCOME
FUNDS, LANDMARK FUNDS III, LANDMARK PREMIUM FUNDS, LANDMARK MULTI-STATE TAX
FREE FUNDS, LANDMARK INSTITUTIONAL TRUST, LANDMARK TAX FREE RESERVES AND
VARIABLE ANNUITY PORTFOLIOS - AS ADOPTED BY THE BOARDS OF TRUSTEES ON AUGUST 8,
1997:
VOTED: That Article III, Section 4 of the By-Laws of the Trust be and hereby
is amended in its entirety to read as follows*:
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which
such vote shall be taken. [Any Shareholder may give authorization through
telephonic or telegraphic methods of communication for another person to
execute his or her proxy.] Pursuant to a vote of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or
one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each full Share shall be entitled to one vote
and fractional Shares shall be entitled to a vote of such fraction. When
any Share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Share. A
proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the
charge or management of such Share, such Share may be voted by such
guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy. [Unless otherwise specifically
limited by their terms, proxies shall entitle the holder thereof to vote
at any adjournment of a meeting.]
*New language is bracketed.
Exhibit 5
FORM OF MANAGEMENT AGREEMENT
CITIFUNDS TRUST II
CitiFunds Diversified U.S. Equity Portfolio
MANAGEMENT AGREEMENT, dated as of _____ __, 1998, by and between
CitiFunds Trust II, a Massachusetts trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder and any exemptive orders thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain
investment advisory and administrative services for the series of the Trust
designated as CitiFunds Diversified U.S. Equity Portfolio (the "Fund"), and
Citibank is willing to provide such investment advisory and administrative
services for the Fund on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the Manager for the Fund
and as such shall furnish continuously an investment program and shall
determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held uninvested,
subject always to the restrictions of the Trust's Declaration of Trust, dated
as of April 13, 1984, and By-Laws, as each may be amended from time to time
(respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940
Act, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
<PAGE>
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager shall be bound by such determination
for the period, if any, specified in such notice or until similarly notified
that such determination has been revoked. The Manager shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders
for the purchase or sale of securities for the Fund's account with the brokers
or dealers selected by it, and to that end the Manager is authorized as the
agent of the Trust to give instructions to the custodian or any subcustodian of
the Fund as to deliveries of securities and payments of cash for the account of
the Fund. In connection with the selection of such brokers or dealers and the
placing of such orders, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for the
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the Manager determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Manager and its affiliates have with
respect to accounts over which they exercise investment discretion. In making
purchases or sales of securities or other property for the account of the Fund,
the Manager may deal with itself or with the Trustees of the Trust or the
Trust's underwriter or distributor, to the extent such actions are permitted by
the 1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ, at its own expense, or may request that the
Trust employ at the Fund's expense, one or more subadvisers; provided that in
each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any
agreement between the Trust on behalf of the Fund and a subadviser may be
terminated by the Manager at any time on not more than 60 days' nor less than
30 days' written notice to the Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
<PAGE>
may from time to time be reasonably requested by the Trust, which shall
include without limitation: (i) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
performing the administrative and management functions herein set forth; (ii)
supervising the overall administration of the Trust, including negotiation of
contracts and fees with and the monitoring of performance and billings of the
Trust's transfer agent, shareholder servicing agents, custodian and other
independent contractors or agents; (iii) preparing and, if applicable, filing
all documents required for compliance by the Trust with applicable laws and
regulations, including registration statements, prospectuses and statements of
additional information, semi-annual and annual reports to shareholders, proxy
statements and tax returns; (iv) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
shareholders; and (v) arranging for maintenance of books and records of the
Trust. Notwithstanding the foregoing, Citibank shall not be deemed to have
assumed any duties with respect to, and shall not be responsible for, the
distribution of shares of beneficial interest in the Fund, nor shall Citibank
be deemed to have assumed or have any responsibility with respect to functions
specifically assumed by any transfer agent, fund accounting agent, custodian or
shareholder servicing agent of the Trust or the Fund. In providing
administrative and management services as set forth herein, Citibank may, at
its own expense, employ one or more subadministrators; provided that Citibank
shall remain fully responsible for the performance of all administrative and
management duties set forth herein and shall supervise the activities of each
subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not
"affiliated persons" of Citibank; governmental fees; interest charges; loan
commitment fees; taxes; membership dues in industry associations allocable to
the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the Fund;
expenses connected with the execution, recording and settlement of security
<PAGE>
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Fund (including but not limited to the fees of independent pricing
services); expenses of meetings of the Fund's shareholders; expenses relating
to the registration and qualification of shares of the Fund; and such
nonrecurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Fund may
be a party and the legal obligation which the Trust may have to indemnify its
Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Fund a management fee computed daily and paid
monthly at an annual rate equal to the lesser of (i) __% of the Fund's average
daily net assets for the Fund's then-current fiscal year or (ii) the
difference between 0.95% of the Fund's average daily net assets for the Fund's
then-current fiscal year and the aggregate investment management fees
allocated to the Fund for the Fund's then-current fiscal year from the
portfolios in which its invests of which Citibank is the manager. If Citibank
provides services hereunder for less than the whole of any period specified
in this Section 3, the compensation to Citibank shall be accordingly adjusted
and prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the 1940
Act, will not take a long or short position in shares of beneficial interest in
the Fund except as permitted by the Declaration, and will comply with all other
provisions of the Declaration and By-Laws and the then-current Registration
Statement applicable to the Fund relative to Citibank and its directors and
officers.
5. Limitation of Liability of Citibank. Citibank shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of securities
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not
to be deemed to be exclusive, Citibank being free to render investment
advisory, administrative and/or other services to others. It is understood that
<PAGE>
Trustees, officers, and shareholders of the Trust are or may be or may become
interested in Citibank, as directors, officers, employees, or otherwise and
that directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as a shareholder or otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until August 7, 2000, on which date it will terminate unless its
continuance after August 7, 2000 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are
not "interested persons" of the Trust or of Citibank at a meeting specifically
called for the purpose of voting on such approval, and (b) by the Board of
Trustees of the Trust or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust
under this Agreement are binding only with respect to the Fund; that any
liability of the Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
<PAGE>
the Fund; and that no other series of the Trust shall be liable with respect to
this Agreement or in connection with the transactions contemplated herein.
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
9. Use of Name. The Trust hereby acknowledges that any and all rights in
or to the name "Citi" which exist on the date of this Agreement or which may
arise hereafter are, and under any and all circumstances shall continue to be,
the sole property of Citibank; that Citibank may assign any or all of such
rights to another party or parties without the consent of the Trust; and that
Citibank may permit other parties, including other investment companies, to use
the word "Citi" in their names. If Citibank, or its assignee as the case may
be, ceases to serve as the adviser to and administrator of the Trust, the Trust
hereby agrees to take promptly any and all actions which are necessary or
desirable to change its name so as to delete the word "Citi."
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIFUNDS TRUST II CITIBANK, N.A.
By:__________________________ By:___________________________
Title:_______________________ Title:________________________
Exhibit 6
FORM OF AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
AGREEMENT , dated as of November 14, 1997, and amended and restated as
of __________ __, 1998, by and between CitiFunds Trust II, a Massachusetts
trust (the "Trust"), and CFBDS, Inc., a Massachusetts corporation
("Distributor").
WHEREAS, the Trust engages in business as an openend management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are
divided into separate series representing interests in separate funds of
securities and other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Shares of each class of each of the Trust's series listed on Exhibit A hereto
(the "Funds") and has registered the Shares of the Funds under the Securities
Act of 1933, as amended (the "1933 Act");
WHEREAS, the Trust has adopted a Service Plan pursuant to Rule 12b1
under the 1940 Act (the "Service Plan") and may enter into related agreements
providing for the distribution and servicing of Shares of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Shares of
each class of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Shares of each class of the Funds in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the Trust in
its absolute discretion may issue Shares of the Funds in connection with (i)
the payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
<PAGE>
such entity or another Fund of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Shares of each class of the Funds and agrees that it will
sell the Shares as agent for the Trust at prices determined as hereinafter
provided and on the terms hereinafter set forth, all according to the
then-current prospectus and statement of additional information of each Fund
(collectively, the "Prospectus" and the "Statement of Additional Information"),
applicable laws, rules and regulations and the Declaration of Trust of the
Trust. Distributor agrees to use its best efforts to solicit orders for the
sale of Shares of the Funds, and agrees to transmit promptly to the Trust (or
to the transfer agent of the Funds, if so instructed in writing by the Trust)
any orders received by it for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing
of purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the
Statement of Additional Information or advertisements and sales literature
prepared by or on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be reasonably
<PAGE>
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares
of that Fund or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current prospectus
for Shares of that Fund as required by Section 10 of the 1933 Act is not on
file with the Securities and Exchange Commission; provided, however, that
nothing contained in this paragraph (g) shall in any way restrict the Trust's
obligation to repurchase any Shares from any shareholder in accordance with the
provisions of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The excess, if any, of the public
offering price over the net asset value of the Shares sold by Distributor as
agent, and any contingent deferred sales charge applicable to Shares of any
class of any Fund as set forth in the applicable Fund's Prospectus, shall be
retained by Distributor as a commission for its services hereunder. Out of such
commission Distributor may allow commissions, concessions or agency fees to
dealers or other financial institutions, including banks, and may allow them to
others in its discretion in such amounts as Distributor shall determine from
time to time. Except as may be otherwise determined by Distributor from time to
time, such commissions, concessions or agency fees shall be uniform to all
dealers and other financial institutions. At no time shall the Trust receive
less than the full net asset value of the Shares of each Fund, determined in
the manner set forth in the Prospectus and the Statement of Additional
Information. Distributor also may receive such compensation under the Trust's
Service Plan as may be authorized by the Trustees of the Trust from time to
time.
<PAGE>
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably
request for use in connection with the sale of Shares of the Funds under this
Agreement. The Trust shall also make available a sufficient number of copies of
the Funds' Prospectus and Statement of Additional Information for use by the
Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission for
amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any such
registration statement or Prospectus or the initiation of any
proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such
registration statement or Prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to any such registration statement or
Prospectus which may from time to time be filed with the Securities and
Exchange Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
<PAGE>
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the
Funds; expenses connected with the execution, recording and settlement of
security transactions; insurance premiums; fees and expenses of the custodian
for all services to the Funds, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Funds (including but not limited to the fees of independent
pricing services); expenses of meetings of shareholders; expenses relating to
the issuance, registration and qualification of shares; and such non-recurring
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of
the Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of
the Trust may repurchase Shares of the Funds offered for resale to it and
redeem such Shares at their net asset value.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify
Distributor, its officers and directors, and any person which controls
Distributor within the meaning of the 1933 Act against any and all claims,
demands, liabilities and expenses that any such indemnified party may incur
under the 1933 Act, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the registration
statement for any Fund, any Prospectus or Statement of Additional Information,
or any advertisements or sales literature prepared by or on behalf of the Trust
for Distributor's use, or any omission to state a material fact therein, the
<PAGE>
omission of which makes any statement contained therein misleading, unless such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor. Nothing herein contained shall require the Trust to take any
action contrary to any provision of its Declaration of Trust or any applicable
statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities
and expenses that any such indemnified party may incur under the 1933 Act, or
common law or otherwise, arising out of or based upon (i) any alleged untrue
statement of a material fact contained in the registration statement for any
Fund, any Prospectus or Statement of Additional Information, or any
advertisements or sales literature prepared by or on behalf of the Trust for
Distributor's use, or any omission to state a material fact therein, the
omission of which makes any statement contained therein misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust in connection therewith by or on behalf of
Distributor; and (ii) any act or deed of Distributor or its sales
representatives that has not been authorized by the Trust in any Prospectus or
Statement of Additional Information or by this Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 14, 1998 and shall continue in effect
for successive periods of one year thereafter, but only so long as each such
continuance is specifically approved by votes of a majority of both the
Trustees of the Trust and the Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party
and who have no direct or indirect financial interest in this Agreement or in
the operation of the Service Plan or in any agreement related thereto
("Independent Trustees"), cast in person at a meeting called for the purpose of
voting on such approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
<PAGE>
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder
shall not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the particular
Fund or Funds in question, and not any other Fund or series of the Trust. The
term "CitiFunds Trust II" means and refers to the Trustees from time to time
serving under the Declaration of Trust of the Trust, a copy of which is on file
with the Secretary of the Commonwealth of Massachusetts. The execution and
delivery of this Agreement has been authorized by the Trustees, and this
Agreement has been signed on behalf of the Trust by an authorized officer of
the Trust, acting as such and not individually, and neither such authorization
by such Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the assets and property of the
Trust as provided in the Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts and the
provisions of the 1940 Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust II
By:________________________
CFBDS, Inc.
By:________________________
<PAGE>
Exhibit A
Funds
CitiFunds Small Cap Value Portfolio
CitiFunds Growth & Income Portfolio
CitiFunds Diversified U.S. Equity Portfolio
Exhibit 8(b)
CitiFunds Trust II
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
__________ __, 1998
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: CitiFunds Trust II - Custodian Contract
Ladies and Gentlemen:
Pursuant to Section 17 of the Custodian Contract dated as of (the
"Contract"), between CitiFunds Trust II (the "Trust") and State Street Bank and
Trust Company (the "Custodian"), we hereby request that CitiFunds Diversified
U.S. Equity Portfolio and CitiFunds Equity Index Portfolio (collectively, the
"Funds") be added to the list of series of the Trust to which the Custodian
renders services as custodian under the terms of the Contract.
Please sign below to evidence your agreement to render such services as
custodian on behalf of the Funds and to add the Funds as beneficiaries under
the Contract.
CITIFUNDS TRUST II
By:____________________________
Title:_________________________
Agreed:
STATE STREET BANK AND TRUST COMPANY
By:____________________________
Title:_________________________
Exhibit 9(a)
FORM OF AMENDED AND RESTATED
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT, dated as of December 5, 1997,
and amended and restated as of __________ __, 1998 by and between CFBDS, INC.,
a Massachusetts corporation (the "Sub-Administrator"), and CITIBANK, N.A., a
national banking association ("Citibank").
W I T N E S S E T H :
WHEREAS, Citibank has been retained by certain registered open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), as listed on Schedule A hereto (each individually a
"Trust" and collectively the "Trusts"), to provide administrative services to
its investment portfolios, as listed on Schedule A hereto (each individually a
"Fund" and collectively the "Funds"), pursuant to separate Management
Agreements (each a "Management Agreement"), and
WHEREAS, as permitted by Section 1 of each Management Agreement,
Citibank desires to subcontract some or all of the performance of its
obligations thereunder to Sub-Administrator, and Sub-Administrator desires to
accept such obligations; and
WHEREAS, Citibank wishes to engage Sub-Administrator to provide certain
administrative services on the terms and conditions hereinafter set forth, so
long as Citibank shall have found Sub-Administrator to be qualified to perform
the obligations sought to be subcontracted.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties as Sub-Administrator. Subject to the supervision and
direction of Citibank, Sub-Administrator will assist in supervising various
aspects of each Trust's administrative operations and undertakes to perform the
following specific services, from and after the effective date of this
Agreement:
<PAGE>
(a) To the extent requested by Citibank, furnish Trust secretarial
services;
(b) To the extent requested by Citibank, furnish Trust treasury
services, including the review of financial data, tax and other
regulatory filings and audit requests;
(c) To the extent requested by Citibank, provide the services of
certain persons who may be appointed as officers or Trustees of
the Trust by the Trust's Board;
(d) To the extent requested by Citibank, participate in the
preparation of documents required for compliance by the Trust
with applicable laws and regulations, including registration
statements, prospectuses, semi-annual and annual reports to
shareholders and proxy statements;
(e) To the extent requested by Citibank, prepare agendas and
supporting documents for and minutes of meetings of the
Trustees, Committees of Trustees and shareholders;
(f) Maintain books and records of the Trust;
(g) To the extent requested by Citibank, provide advice and counsel
to the Trust with respect to regulatory matters, including
monitoring regulatory and legislative developments which may
affect the Trust and assisting the Trust in routine regulatory
examinations or investigations of the Trust, and working closely
with outside counsel to the Trust in connection with litigation
in which the Trust is involved;
(h) To the extent requested by Citibank, generally assist in all
aspects of Trust's operations and provide general consulting
services on a day to day, as needed basis;
(i) In connection with the foregoing activities, maintain office
facilities (which may be in the offices of Sub-Administrator or
its corporate affiliate); and
(j) In connection with the foregoing activities, furnishing clerical
services, and internal executive and administrative services,
stationery and office supplies.
<PAGE>
Notwithstanding the foregoing, Sub-Administrator under this Agreement
shall not be deemed to have assumed any duties with respect to, and shall not
be responsible for, the management of a Trust, or the distribution of
beneficial interests in a Trust, nor shall Sub-Administrator be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent or custodian of a Trust.
In performing all services under this Agreement, Sub-Administrator
shall (a) act in conformity with the Trust's charter documents and bylaws, the
1940 Act and other applicable laws, as the same may be amended from time to
time, (b) consult and coordinate with legal counsel for the Trust, as necessary
or appropriate, and (c) advise and report to the Trust and its legal counsel,
as necessary or appropriate, with respect to any material compliance or other
matters that come to its attention.
In performing its services under this Agreement, Sub-Administrator
shall cooperate and coordinate with Citibank as necessary and appropriate and
shall provide such information as its reasonably necessary or appropriate for
Citibank to perform its obligations to the Trust. Sub-Administrator shall
perform its obligations under this Agreement in a conscientious and diligent
manner consistent with prevailing industry standards.
2. Compensation of Sub-Administrator. For the services to be rendered
and the facilities to be provided by Sub-Administrator hereunder,
Sub-Administrator shall be paid an administrative fee as may from time to time
be agreed to between Citibank and Sub-Administrator.
3. Additional Terms and Conditions. The parties may amend this
agreement and include such other terms and conditions as may from time to time
be agreed to by both Citibank and Sub-Administrator.
4. Termination. This Agreement may be terminated by Citibank at any
time, in its entirety or as to one or more Funds, with or without cause. This
Agreement may be terminated by the Sub-Administrator, in its entirety or as to
one or more Funds, with or without cause, provided that Sub-Administrator has
notified Citibank of such termination in writing at least 90 days prior to the
effective date thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first above
written.
CFBDS, INC. CITIBANK, N.A.
By:__________________________ By:______________________________
Title:_______________________ Title:___________________________
<PAGE>
Schedule A
to Sub-Administrative Services Agreement
Between
CFBDS, Inc.
and
Citibank, N.A.
Trust Series
CitiFunds International Trust CitiFunds International Growth
& Income Portfolio
CitiFunds Trust II CitiFunds Small Cap Value
Portfolio
CitiFunds Growth & Income
Portfolio
CitiFunds Diversified U.S.
Equity Portfolio
Exhibit 9(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
Between
LANDMARK CAPITAL GROWTH FUND
And
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 Terms of Appointment; Duties of the Bank.........................1
ARTICLE 2 Fees and Expenses.................................................7
ARTICLE 3 Representations and Warranties of the Bank........................8
ARTICLE 4 Representations and Warranties of the Fund........................8
ARTICLE 5 Indemnification...................................................9
ARTICLE 6 Covenants of the Fund and the Bank...............................12
ARTICLE 7 Termination of Agreement..........................................13
ARTICLE 8 Assignment........................................................14
ARTICLE 9 Amendment.........................................................15
ARTICLE 10 Massachusetts Law to Apply.......................................15
ARTICLE 11 Merger of Agreement..............................................15
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 21st day of August, 1986, by and between
LANDMARK CAPITAL GROWTH FUND, a Massachusetts business trust, having its
principal office and place of business at 200 Berkeley Street, Boston,
Massachusetts 02117 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts corporation having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WITNESSETH:
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other
activities, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby, employs and appoints the Bank to act as, and the
Bank agrees to act as transfer agent for the Fund's authorized and issued
shares of its beneficial interest ("Shares"), dividend disbursing agent and
agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the Fund ("Shareholders") and set out in the
currently effective prospectus of the Fund, including without limitation any
periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Fund and the Bank, the Bank shall:
<PAGE>
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation therefor to the Custodian of the Fund
authorized pursuant to the Declaration of Trust of the
Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) Receive for acceptance, redemption requests and
redemption directions and deliver the appropriate
documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund; and
(vii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
(viii) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total
number of shares of the Fund which are authorized, based
upon data provided to it by the Fund, and issued and
outstanding. Bank shall also provide the Fund on a
<PAGE>
regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to
monitor the issuance of such shares or to take cognizance
of any laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of the
Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), the Bank shall: (i) perform all of the customary services
of a transfer agent, dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal program);
including but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, receiving and tabulating proxies,
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmations forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable the Fund to monitor the
total number of Shares sold in each State. The Fund shall (i) identify to the
Bank in writing those transactions and assets to be treated as exempt from the
blue sky reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and thereafter
monitor the daily activity for each State. The responsibility of the Bank for
<PAGE>
the Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and
the reporting of such transactions to the Fund as provided above.
(c) Additionally, the Bank shall:
(i) Utilize a system to identify all share transactions which
involve purchase and redemption orders that are processed at a time other than
the time of the computation of net asset value per share next computed after
receipt of such orders, and shall compute the net effect upon the Fund of such
transactions so identified on a daily and cumulative basis.
(ii) If upon any day the cumulative net effect of such transactions
upon the Fund is negative and exceed a dollar amount equivalent to 1/2 of 1
cent per share, the Bank shall promptly make a payment to the Fund in cash or
through the use of a credit, in the manner described in paragraph (iv) below,
in such amount as may be necessary to reduce the negative cumulative net effect
to less than 1/2 of 1 cent per share.
(iii) If on the last business day of any month the cumulative net
effect upon the Fund (adjusted by the amount of all prior payments and credits
by the Bank and the Fund) is negative, the Fund shall be entitled to a
reduction in the fee next payable under the Agreement by an equivalent amount,
except as provided in paragraph (iv) below. If on the last business day in any
month the cumulative net effect upon the Fund (adjusted by the amount of all
prior payments and credits by the Bank and the Fund) is positive, the Bank
shall be entitled to recover certain past payments and reductions in fees, and
to credit against all future payments and fee reductions that may be required
under the Agreement as herein described in paragraph (iv) below.
(iv) At the end of each month, any positive cumulative net effect
upon the Fund shall be deemed to be a credit to the Bank which shall first be
applied to permit the Bank to recover any prior cash payments and fee
reductions made by it to the Fund under paragraphs (ii) and (iii) above during
the calendar year, by increasing the amount of the monthly fee under the
<PAGE>
Agreement next payable in an amount equal to prior payments and fee reductions
made by the Bank during such calendar year, but not exceeding the sum of that
month's credit and credits arising in prior months during such calendar year to
the extent such prior credits have not previously been utilized as contemplated
by this paragraph. Any portion of a credit to the Bank not so used by it shall
remain as a credit to be used as payment against the amount of any future
negative cumulative net effects that would otherwise require a cash payment or
fee reduction to be made to the Fund pursuant to paragraphs (ii) or (iii) above
(regardless of whether or not the credit or any portion thereof arose in the
same calendar year as that in which the negative cumulative net effects or any
portion thereof arose).
(v) The Bank shall supply to the Fund from time to time, as mutually
agreed upon, reports summarizing the transactions identified pursuant to
paragraph (i) above, and the daily and cumulative net effects of such
transactions, and shall advise the Fund at the end of each month of the net
cumulative effect at such time. The Bank shall promptly advise the Fund if at
any time the cumulative net effect exceeds a dollar amount equivalent to 1/2 of
1 cent per share.
(vi) In the event that this Agreement is terminated for whatever
cause, or this provision 1.02 (c) is terminated pursuant to paragraph (vii)
below, the Fund shall promptly pay to the Bank an amount in cash equal to the
amount by which the cumulative net effect upon the Fund is positive or, if the
cumulative net effect upon the Fund is negative, the Bank shall promptly pay to
the Fund an amount in cash equal to the amount of such cumulative net effect.
(vii) This provision 1.02 (c) of the Agreement may be terminated by
the Bank at any time without cause, effective as of the close of business on
the date written notice (which may be by telex) is received by the Fund.
<PAGE>
Procedures applicable to certain of these services may be
established from time to time by agreement between the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement, the
Fund agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the Fund
and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or with the
consent of the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within five days following the mailing of the respective billing notice.
Postage for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund at least
seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
<PAGE>
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end and diversified investment company registered
under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933 is
currently effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect to all
Shares of the Fund being offered for sale.
<PAGE>
Article 5 Indemnification
5.01 The Bank shall not be responsible for, and the Fund shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required
to be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Funds' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are received by
the Bank or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
<PAGE>
5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributed to any action or failure or
omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.
5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable
and shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably
believed to be genuine and to have been signed by the proper person or persons,
or upon any instruction, information, data, records or documents provided the
Bank or its agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt of written
notice thereof from the Fund. The Bank, its agents and subcontractors shall
also be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of the
<PAGE>
officer of the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
5.05 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for
any act or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in
any case in which the other party may be required to indemnify it except with
the other party's prior written consent.
Article 6 Covenants of the Fund and the Bank
6.01 The Fund shall promptly furnish to the Bank the following:
<PAGE>
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and
all amendments thereto.
6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed by
the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered to the Fund on and in accordance with its request.
6.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
<PAGE>
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
instruction. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Termination of Agreement
7.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material
will be borne by the Fund. Additionally, the Bank reserves the right to charge
for any other reasonable expenses associated with such termination and/or a
charge equivalent to the average of three (3) months' fees.
Article 8 Assignment
8.01 Except as provided in Section 8.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.03 The Bank, may without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
<PAGE>
transfer agent pursuant to Section 17A (c)(1) of the Securities Exchange Act of
1934 ("Section 17A (c)(1), or (ii) a BFDS subsidiary duly registered as a
transfer agent pursuant to Section 17A (c)(1); provided, however, that the Bank
shall be as fully responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
Article 9 Amendment
9.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution
of the Trustees of the Fund.
Article 10 Massachusetts Law to Apply
10.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
Article 11 Merger of Agreement
11.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
LANDMARK CAPITAL GROWTH FUND
BY: illegible signature
<PAGE>
ATTEST:
Philip Coolidge
STATE STREET BANK AND
TRUST COMPANY
BY: illegible signature
-----------------------------
Vice President
ATTEST:
illegible signature
- ------------------------
Assistant Secretary
Exhibit 9(c)
CitiFunds Trust II
21 Milk Street, 5th Floor
Boston, Massachusetts 02109
__________ __, 1998
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: CitiFunds Trust II - Transfer Agency and Service Agreement
Ladies and Gentlemen:
This letter serves as notice that CitiFunds Diversified U.S. Equity
Portfolio and CitiFunds Equity Index Portfolio (collectively, the "Funds") are
added to the list of series of CitiFunds Trust II (formerly known as "Landmark
Capital Growth Fund") (the "Trust") to which State Street Bank and Trust
Company ("State Street") renders services as transfer agent pursuant to the
terms of the Transfer Agency and Service Agreement dated as of August 21, 1986
(the "Agreement") between the Trust and State Street.
Please sign below to acknowledge your receipt of this notice adding the
Funds as beneficiaries under the Agreement.
CITIFUNDS TRUST II
By:____________________________
Title:_________________________
Acknowledgment:
STATE STREET BANK AND TRUST COMPANY
By:___________________________
Title:________________________
Exhibit 25
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as her true and lawful attorneys and agents to
execute in her name and on her behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Trust II (on behalf of each of its series now or hereinafter
created) (the "Registrant") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms
as her own act and deed any and all that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 6th day of
February, 1998.
Susan B. Kerley
- -----------------------------
Susan B. Kerley
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as her true and lawful attorneys and agents to
execute in her name and on her behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Trust II (on behalf of each of its series now or hereinafter
created) (the "Registrant") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms
as her own act and deed any and all that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 6th day of
February, 1998.
Diana R. Harrington
- -----------------------------
Diana R. Harrington
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints John R. Elder, Susan Jakuboski,
Molly S. Mugler and Linda T. Gibson, and each of them, with full powers of
substitution as his true and lawful attorneys and agents to execute in his name
and on his behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by CitiFunds Trust II (on
behalf of each of its series now or hereinafter created) (the "Registrant")
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, and under the Investment Company Act of 1940, as amended, and any
and all other instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Registrant to comply with the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended,
the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Philip W. Coolidge
- -----------------------------
Philip W. Coolidge
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, Susan
Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute
in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by CitiFunds
Trust II (on behalf of each of its series now or hereinafter created) (the
"Registrant") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and under the Investment Company Act of 1940, as
amended, and any and all other instruments which such attorneys and agents, or
any of them, deem necessary or advisable to enable the Registrant to comply
with the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do
or cause to be done by virtue hereof. Any one of such attorneys and agents
shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
John R. Elder
- -----------------------------
John R. Elder
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Trust II (on behalf of each of its series now or hereinafter
created) (the "Registrant") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms
as his own act and deed any and all that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
Riley C. Gilley
- -----------------------------
Riley C. Gilley
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Trust II (on behalf of each of its series now or hereinafter
created) (the "Registrant") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms
as his own act and deed any and all that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
C. Oscar Morong, Jr.
- -----------------------------
C. Oscar Morong, Jr.
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Trust II (on behalf of each of its series now or hereinafter
created) (the "Registrant") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms
as his own act and deed any and all that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
E. Kirby Warren
- -----------------------------
E. Kirby Warren
<PAGE>
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Trust II (on behalf of each of its series now or hereinafter
created) (the "Registrant") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, and any and all other instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Registrant to
comply with the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, the rules, regulations and requirements of the
Securities and Exchange Commission, and the securities or Blue Sky laws of any
state or other jurisdiction; and the undersigned hereby ratifies and confirms
as his own act and deed any and all that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents shall have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of
February, 1998.
William S. Woods, Jr.
- -----------------------------
William S. Woods, Jr.
