<PAGE>
497(c) File Nos. 2-90519 and 811-4007
Prospectus March 2, 1998
CitiFunds SM Large Cap Growth Portfolio
This Prospectus describes CitiFunds(SM) Large Cap Growth Portfolio, a mutual
fund in the CitiFunds Family of Funds. Citibank, N.A. is the investment manager.
Unlike other mutual funds which directly acquire and manage their own portfolios
of securities, the Fund may seek its investment objective by investing all of
its investable assets in one or more investment companies. See "Special
Information Concerning Investment Structure" on page 11.
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated March 2, 1998 (and incorporated by reference in this
Prospectus) has been filed with the Securities and Exchange Commission ("SEC").
Copies of the Statement of Additional Information may be obtained without
charge, and further inquiries about the Fund may be made, 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
..............................................................................
Condensed Financial Information 6
..............................................................................
Investment Information 8
..............................................................................
Risk Considerations 9
..............................................................................
Valuation of Shares 12
..............................................................................
Purchases 12
..............................................................................
Exchanges 13
..............................................................................
Redemptions 13
..............................................................................
Dividends and Distributions 14
..............................................................................
Management 15
..............................................................................
Tax Matters 17
..............................................................................
Performance Information 18
..............................................................................
General Information 19
..............................................................................
Appendix -- Permitted Investments and Investment Practices 20
..............................................................................
<PAGE>
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed in
this summary.
THE FUND: This Prospectus describes CitiFunds Large Cap Growth Portfolio (the
"Fund"). 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 investment
objective. Through Large Cap Growth Portfolio (the "Portfolio"), the Fund
invests primarily in common stocks of U.S. issuers, with an emphasis on
securities issued by established companies with medium to large capitalizations
(i.e. those issuers with market capitalizations within the top 1,000 stocks of
the equity market) and seasoned management teams ("Established Companies").
Because the Fund invests through the Portfolio, all references in this
Prospectus to the Fund include the Portfolio, except as otherwise noted.
INVESTMENT MANAGER AND DISTRIBUTOR: Citibank, N.A. ("Citibank" or the
"Manager"), a wholly-owned subsidiary of Citicorp, is the investment manager.
Citibank and its affiliates manage more than $88 billion in assets worldwide.
CFBDS, Inc. ("CFBDS" or the "Distributor") 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(R) Portfolios
and other CitiFunds. See "Exchanges."
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: Investing primarily in common stock of U.S. issuers, the Fund
is designed for investors seeking long-term capital growth and for whom current
income is not a primary consideration. The Fund is designed for long-term
investors who are willing to accept the risks of potential loss associated with
opportunities for above-average growth, who can tolerate substantial changes in
the value of their investment and who do not require current income from 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 creditworthiness of
issuers. Also, the value of debt securities generally goes down when interest
rates go up, and vice versa. As a result, an investor's shares may be worth more
or less at redemption than at the time of purchase.
Investors in the Fund should be aware that 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. Further, 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.
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 shares of the Fund. For more information on costs and
expenses, see "Management" -- page 15 and "General Information -- Expenses" --
page 20.*
CITIFUNDS
LARGE CAP
GROWTH PORTFOLIO
- ----------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after fee waivers)(1)(3) 0.70%
12b-1 Fees (including service fees) (2) 0.25%
Other Expenses (after fee waivers and reimbursements) (3) 0.10%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses (3) 1.05%
- ----------------------------------------------------------------------------
* This table is intended to assist investors in understanding the various
costs and expenses that a shareholder of the Fund 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
and reimbursements. There can be no assurance that the fee waivers and
reimbursements reflected in the table will continue at these levels. The
information in the table and in the example below is based on the Fund's
expenses for the fiscal year ended October 31, 1997, as revised to
reflect current fees.
(1) A combined fee for investment advisory and administrative services.
(2) 12b-1 distribution fees are asset-based sales charges. 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.
(3) Absent fee waivers and reimbursements "Management Fees" and "Total Fund
Operating Expenses" would be 0.90% and 1.25%, respectively, as revised to
reflect the Fund's current fees and expense structure.
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 FIVE TEN
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------------------
CITIFUNDS LARGE CAP GROWTH PORTFOLIO $11 $33 $ 58 $128
- ----------------------------------------------------------------------------
The Example assumes that all dividends are reinvested and reflects certain
voluntary fee waivers. If fee waivers were not made the amounts in the example
would be $13, $40, $69 and $151. The assumption of a 5% annual return is
required by the Securities and Exchange 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.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following table provides condensed financial information about the Fund for
the periods indicated. The information below should be read in conjunction with
the financial statements appearing in the Fund's Annual Report to Shareholders,
which are incorporated by reference in the Statement of Additional Information.
The financial statements and notes, as well as the table below, have been
audited by Price Waterhouse LLP, independent accountants on behalf of CitiFunds
Large Cap Growth Portfolio (formerly Landmark Equity Fund). The report of Price
Waterhouse LLP is included in the Fund's Annual Report. Copies of the Annual
Report may be obtained without charge from an investor's Service Agent or by
calling 1-800-625-4554.
<TABLE>
<CAPTION>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO -- FINANCIAL HIGHLIGHTS
OCTOBER 19, 1990
(COMMENCEMENT OF
TEN MONTHS ENDED OPERATIONS) TO
OCTOBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
1997 (A) 1996 1995 1994+ 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period $18.25 $17.20 $14.13 $14.80 $13.23 $12.36 $ 9.57 $ 9.14
- ----------------------------------------------------------------------------------------------------------------------------------
Income from Operations:
Net investment income 0.031 0.122 0.211 0.173 0.071** 0.065 0.126 0.065
Net realized and
unrealized gain (loss)
on investments 4.016 2.250 3.651 (0.245) 1.550+ 0.868 2.797 0.423
- ----------------------------------------------------------------------------------------------------------------------------------
Total from operations 4.047 2.372 3.862 (0.072) 1.621 0.933 2.923 0.488
- ----------------------------------------------------------------------------------------------------------------------------------
Less dividends and Distributions From:
Net investment income (0.030) (0.118) (0.210) (0.169) (0.051) (0.063) (0.133) (0.058)
Net realized gain on
investments (1.127) (1.204) (0.582) (0.429) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total from dividends and
distributions (1.157) (1.322) (0.792) (0.598) (0.051) (0.063) (0.133) (0.058)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of
period $21.14 $18.25 $17.20 $14.13 $14.80 $13.23 $12.36 $ 9.57
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $248,161 $228,954 $213,729 $183,975 $200,903 $10,973 $9,181 $6,026
Ratio of expenses to
average net assets 1.05%(B)* 1.05%(B) 1.05%(B) 1.05%(B) 1.07% 1.40%* 1.40% 1.40%*
Ratio of net investment
income to average
net assets 0.18%* 0.67% 1.30% 1.15% 0.52% 0.53% 1.12% 3.48%*
Portfolio turnover (C) -- -- -- 1% 23% 79% 68% 0%
Total return 22.27%++ 13.84% 27.55% (0.41%) 12.26% 7.60% 30.73% 5.34%++
Note: If agents of the Fund for the periods indicated had not waived a portion of their fees and had expenses been limited as
required by certain state securities laws for periods before December 31, 1992, the net investment income (loss) per share and
the ratios would have been as follows:
Net investment income (loss)
per share $ (0.023) $0.067 $0.170 $0.136 $0.029** $(0.070) $0.002 $0.044
RATIOS:
Expenses to average net
assets 1.35%(B)* 1.35%(B) 1.30%(B) 1.29%(B) 1.37% 2.50% 2.50% 2.50%*
Net investment income (loss)
to average net assets (0.12)%* 0.37% 1.05% 0.91% 0.21% (0.57)% 0.02% 2.38%*
* Annualized.
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A) The Fund changed its fiscal year end from December 31 to October 31.
(B) Includes the Fund's share of the Portfolio's allocated expenses for periods subsequent to May 1, 1994.
(C) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in
securities. The portfolio turnover rates for the fiscal years ended December 31, 1995 and 1996 and for the ten months ended
October 31, 1997 are included under "Investment Information -- Certain Additional Investment Policies."
+ On May 1, 1994 the Fund began investing all of its investable assets in the Portfolio.
++ Not annualized.
</TABLE>
<PAGE>
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE: The investment objective of the Fund 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 seeks its objective by investing in a broadly
diversified portfolio of equity securities consisting mainly of common stocks of
U.S. issuers. Under normal circumstances, at least 65% of the Fund's total
assets is invested in equity securities issued by Established Companies with
medium to large capitalizations (i.e., those issuers with market capitalizations
within the top 1,000 stocks of the equity market).
In selecting equity securities the Manager emphasizes securities issued by
Established Companies which the Manager believes possess above-average prospects
for growth. The Manager may also select other securities which it believes
provide an opportunity for appreciation, such as fixed income securities and
convertible and non-convertible bonds, preferred stocks and warrants. All of the
Fund's long-term non-convertible debt investments are investment grade
securities or securities which the Manager believes to be of comparable quality.
Less than 5% of the Fund's investments consist of securities rated Baa by
Moody's Investors Service, Inc. or BBB by Standard & Poor's Ratings Group.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
Non-U.S. Securities. While the Fund emphasizes U.S. securities, the Fund may
invest a portion of its assets in non-U.S. equity and debt securities,
including depository receipts. The Fund does not intend to invest more than
25% of its assets in non-U.S. securities, including sponsored American
Depositary Receipts, which represent the right to receive securities of non-
U.S. issuers deposited in a U.S. or correspondent bank. The Fund may invest up
to 5% of its assets in closed-end investment companies which primarily hold
non-U.S. securities.
Futures. The Fund may purchase or sell stock index futures in order to protect
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. 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.
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 -- Permitted Investments
and Investment Practices on page 20. The Fund will not necessarily invest or
engage in each of the investments and investment practices 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 Portfolio will be sold whenever the
Manager believes 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. For the fiscal years ended December 31, 1995 and 1996, and for the
period from January 1, 1997 to October 31, 1997, the turnover rates for the
Portfolio were 67%, 90% and 103%, respectively. The amount of brokerage
commissions and realization of taxable capital gains will tend to increase as
the level of portfolio activity increases.
Brokerage Transactions. The primary consideration in placing the Fund's security
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most effective
manner possible.
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 shares 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.
Credit Risk of Debt Securities. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may have
speculative characteristics. 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.
Small Cap Companies. Investors in the Fund should be aware that 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. Further,
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.
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 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.
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
attributable to U.S. investing. As a result, the operating expense ratio of
the Fund may be higher than those of investment companies investing
exclusively in U.S. securities.
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.
Investment Practices. Certain of the investment practices employed for the
Fund may entail certain risks. These risks are in addition to risks described
above and are described in the Appendix. See the Appendix -- Permitted
Investments and Investment Practices on page 20.
Special Information Concerning Investment Structure. The Fund does not invest
directly in securities. Instead, the Fund is permitted to invest 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 all of its investable assets in the Portfolio, which is a mutual fund
having the same investment objective and policies as the Fund. The Portfolio, in
turn, buys, holds and sells securities in accordance with this objective and
these policies. Of course, there can be no assurance that the Fund or the
Portfolio will achieve its objective. The Trustees of the Fund believe that the
aggregate per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses that the Fund would incur if the assets of
the Fund were invested directly in the types of securities held by the
Portfolio. The Fund may withdraw its investment in the Portfolio at any time,
and will do so if the Fund's Trustees believe it to be in the best interest of
the Fund's shareholders. If the Fund were to withdraw its investment in the
Portfolio the Fund could either invest directly in securities in accordance with
the investment policies described above or invest in one or more mutual funds or
pooled investment vehicles having the same investment objective and policies. If
the Fund were to withdraw, the Fund could receive securities from the Portfolio
instead of cash causing the Fund to incur brokerage, tax and other charges or
leaving it with securities which may or may not be readily marketable or widely
diversified.
The Portfolio may change its investment objective and certain of its investment
policies and restrictions without approval by its investors, but the Portfolio
will notify the Fund (which in turn will notify its shareholders) and its other
investors at least 30 days before implementing any change in its investment
objective. A change in investment objective, policies or restrictions may cause
the Fund to withdraw its investment in the Portfolio.
Certain investment restrictions of the Portfolio cannot be changed without
approval by the investors in the Portfolio. These policies are described in the
Statement of Additional Information. When the Fund is asked to vote on certain
matters concerning the Portfolio, the Fund will hold a shareholder meeting and
vote in accordance with shareholder instructions. Of course, the Fund could be
outvoted, or otherwise adversely affected, by other investors in the Portfolio.
The Portfolio may sell interests to investors in addition to the Fund. These
investors may be mutual funds which offer shares to their shareholders with
different costs and expenses than the Fund. Therefore, the investment returns
for all investors in funds investing in the Portfolio may not be the same. The
differences in returns are also present in other mutual fund structures.
Information about other holders of interests in the Portfolio is available from
the Fund's distributor, CFBDS, at (617) 423-1679.
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 Portfolio), 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 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 which are not Business Days and on which
it will not be possible to purchase or redeem shares of the Fund.
PURCHASES
Shares of the Fund are offered continuously and may be purchased on any Business
Day at the public offering price. The public offering price is the 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.
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
prior 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 other
CitiFunds, or may be acquired through an exchange of shares of those funds.
Shareholders must place exchange orders through the Transfer Agent or, if they
are customers of a Service Agent, though 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 and accepted 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
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 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).
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 semiannually.
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. 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. The Portfolio is supervised by the Board of Trustees of The
Premium Portfolios. In each case, a majority of the Trustees are not affiliated
with Citibank. In addition, a majority of the disinterested Trustees of the Fund
are different from a majority of the disinterested Trustees of the Portfolio.
More information on the Trustees and officers of the Fund and Portfolio appears
under "Management" in the Statement of Additional Information.
INVESTMENT MANAGER: 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.
Subject to policies set by the Trustees, Citibank is responsible for overall
management of the Fund pursuant to 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 Distributor. The Distributor's compensation as sub-
administrator is paid by Citibank.
Grant D. Hobson and Richard Goldman have managed the Fund since January 1996.
Mr. Hobson is 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 in 1993, Mr. Hobson was a securities analyst and sector
manager for pension accounts and mutual funds for Axe Houghton, formerly a
division of USF&G. Mr. Goldman is 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
Investor Relations Department.
Management's discussion of the Fund's performance is included in the Fund's
Annual Report to Shareholders, which investors may obtain without charge by
calling 1-800-625-4554.
Management Fees. For its services under the Management Agreements with respect
to the Fund and the Portfolio, Citibank receives fees, which are computed daily
and paid monthly, at annual rates equal to 0.30% of the Fund's average net
assets, and 0.60% of the Portfolio's average net assets. These combined
management fees are higher than the management fees paid by most mutual funds.
For the fiscal year ended December 31, 1996, the investment advisory fees paid
to Citibank under a prior investment advisory agreement were 0.50% of the Fund's
average daily net assets for that fiscal year. For the period from January 1,
1997 to October 31, 1997, the management fees paid to Citibank under its
investment advisory agreement were 0.50% of the Fund's average daily net assets
for that period.
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
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 for the
Fund. 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, Massachusetts 02110.
DISTRIBUTION ARRANGEMENTS: CFBDS, 6 St. James Avenue, Boston, MA 02116
(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.
During the period they are in effect, the Service Plan and related 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 the requirements of the Internal Revenue Code
applicable to regulated investment companies so that it will not be liable for
any federal or state income or federal excise taxes. The Fund may pay
withholding or other taxes to foreign governments during the year, however, and
these taxes may 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 upon 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
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 his or her 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 series of CitiFunds Trust II, a Massachusetts
business trust which was organized on April 13, 1984. The Trust is also an
open-end management investment company registered under the 1940 Act. Prior to
March 2, 1998, the Fund was called Landmark Equity Fund. Prior to January 7,
1998, CitiFunds Trust II was called Landmark Funds II.
The Fund is a diversified mutual fund. Under the 1940 Act, a diversified series
or 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
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 is permitted to invest all or a portion of its assets in one or more
investment companies. The Fund currently invests in the Portfolio. The Portfolio
is a series of The Premium Portfolios, a New York trust. Prior to November 1,
1997, the Portfolio was called Equity Portfolio.
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 the 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 or Portfolio'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 Agents 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 and reimbursements are voluntary and may be reduced or
terminated at any time.
Counsel and Independent Auditors: 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 and the Portfolio, including information
relating 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 or the Statement of Additional
Information 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.
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 total assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, the Fund could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has increased
or the value of the securities purchased has decreased, the Fund could
experience a loss.
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.
Convertible Securities. The Fund may invest in convertible securities. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of common stock or other equity securities of the same or a
different issuer. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. While providing a fixed-income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar non-convertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
In general, the market value of a convertible security is at least the higher of
its "investment value" (i.e., its value as a fixed-income security), or its
"conversion value" (i.e., its value upon conversion into its underlying stock).
As a fixed-income security, a convertible security tends to increase in market
value when interest rates decline and tends to decrease in value when interest
rates rise. However, the price of a convertible security is also influenced by
the market value of the security's underlying common stock. The price of a
convertible security tends to increase as the market value of the underlying
stock rises, whereas it tends to decrease as the market value of the underlying
stock declines. While no securities investment is without some risk, investments
in convertible securities generally entail less risk than investments in the
common stock of the same issuer.
Private Placements and Illiquid Investments. The Fund may invest up to 15% of
its net assets in securities for which there is no readily available market.
These illiquid securities may include privately placed restricted securities for
which no institutional market exists. The absence of a trading market can make
it difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a 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.
Futures Contracts. The Fund may purchase stock index futures in order to protect
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. 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 by the Fund
are standardized contracts traded on commodities exchanges or boards of trade.
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." Futures contracts are a generally accepted part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. 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 total assets
other than its futures contracts 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
the Manager's ability to predict stock price 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 the Manager's view as to stock
price movements is incorrect, the use of futures contracts 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
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. The use of futures contracts may
increase the amount of taxable income of the Fund and may affect in other ways
the amount, timing and character of the Fund's income for tax purposes, as more
fully discussed in the section entitled "Certain Additional Tax Matters" in the
Statement of Additional Information.
The use of futures by the Fund and some of their risks are described more fully
in the Statement of Additional Information.
Securities of Issuers in Developing Countries. Shareholders should be aware that
investing in the equity and fixed income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the markets of
developed countries with more mature economies; such markets often have provided
higher rates of return and greater risks. 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.
Currency Exchange Contracts. Forward currency exchange contracts may be entered
into for the Fund for the purchase or sale of non-U.S. currency for hedging
purposes against adverse rate changes or otherwise to achieve the Fund's
investment objectives. 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.
Lower-Rated Debt Securities. The Fund may purchase lower-rated securities (those
rated Baa or better by Moody's or BBB or better by S&P) 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.
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>
CFP/LCG 398 [recycle symbol] Printed on recycled paper
<PAGE>
497(c) File Nos. 2-90519 and 811-4007
Prospectus March 2, 1998
CitiFunds(SM) Small Cap Growth Portfolio
This Prospectus describes CitiFunds(SM) Small Cap Growth Portfolio, a mutual
fund in the CitiFunds Family of Funds. Citibank, N.A. is the investment manager.
Unlike other mutual funds which directly acquire and manage their own portfolios
of securities, the Fund may seek its investment objective by investing all of
its investable assets in one or more investment companies. See "Special
Information Concerning Investment Structure" on page 10.
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated March 2, 1998 (and incorporated by reference in this
Prospectus) has been filed with the Securities and Exchange Commission ("SEC").
Copies of the Statement of Additional Information may be obtained without
charge, and further inquiries about the Fund may be made, 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
..............................................................................
Condensed Financial Information 6
..............................................................................
Investment Information 7
..............................................................................
Risk Considerations 8
..............................................................................
Valuation of Shares 11
..............................................................................
Purchases 11
..............................................................................
Exchanges 12
..............................................................................
Redemptions 12
..............................................................................
Dividends and Distributions 13
..............................................................................
Management 14
..............................................................................
Tax Matters 16
..............................................................................
Performance Information 17
..............................................................................
General Information 18
..............................................................................
Appendix -- Permitted Investments and Investment Practices 19
..............................................................................
<PAGE>
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed in
this summary.
THE FUND: This Prospectus describes CitiFunds Small Cap Growth Portfolio (the
"Fund"). The Fund is a diversified mutual fund.
INVESTMENT OBJECTIVE AND POLICIES: The Fund's objective is long-term capital
growth. Dividend income, if any, is incidental to this investment objective.
Through Small Cap Growth Portfolio (the "Portfolio"), the Fund invests primarily
in stocks of U.S. issuers that have small market capitalizations (i.e., those
issuers with market capitalizations below the top 1,000 stocks of the equity
market). In addition, the Fund may invest in companies that are believed to be
emerging companies relative to their potential markets. In selecting equity
securities, the Manager emphasizes securities of small cap companies with strong
management teams. Because the Fund invests through the Portfolio, all references
in this Prospectus to the Fund include the Portfolio, except as otherwise noted.
INVESTMENT MANAGER AND DISTRIBUTOR: Citibank, N.A. ("Citibank" or the
"Manager"), a wholly-owned subsidiary of Citicorp, is the investment manager.
Citibank and its affiliates manage more than $88 billion in assets worldwide.
CFBDS, Inc. ("CFBDS" or the "Distributor") 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(R) Portfolios
and other CitiFunds. See "Exchanges."
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: Investing primarily in common stock of U.S. issuers, the Fund
is designed for investors seeking long-term capital growth and for whom current
income is not a primary consideration. The Fund is designed for long-term
investors who are willing to accept the risks of potential loss associated with
opportunities for above-average growth, who can tolerate substantial changes in
the value of their investment and who do not require current income from 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 creditworthiness of
issuers. Also, the value of debt securities generally goes down when interest
rates go up, and vice versa. As a result, an investor's shares may be worth more
or less at redemption than at the time of purchase.
Investors in the Fund should be aware that 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. Further, 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 an
equity fund investing primarily 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 shares of the Fund. For more information on costs and
expenses, see "Management" -- page 14 and "General Information -- Expenses" --
page 19.*
CITIFUNDS
SMALL CAP
GROWTH PORTFOLIO
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after fee waivers)(1)(3) 0.85%
12b-1 Fees (including service fees)(2) 0.25%
Other Expenses (after fee waivers and reimbursements)(3) 0.25%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses(3) 1.35%
- ------------------------------------------------------------------------------
* This table is intended to assist investors in understanding the various
costs and expenses that a shareholder of the Fund 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
and reimbursements. There can be no assurance that the fee waivers and
reimbursements reflected in the table will continue at these levels. The
information in the table and in the example below is based on the Fund's
expenses for the fiscal year ended October 31, 1997, as revised to
reflect current fees.
(1) A combined fee for investment advisory and administrative services.
(2) 12b-1 distribution fees are asset-based sales charges. 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.
(3) After voluntary fee waivers and reimbursements. Absent fee waivers and
reimbursements "Management Fees", "Other Expenses" and "Total Fund
Operating Expenses" would be 1.10%, 0.38%, and 1.73%, respectively, revised
to reflect the Fund's current fees and expense structure.
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 FIVE TEN
YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------
CITIFUNDS SMALL CAP GROWTH PORTFOLIO $14 $43 $74 $162
- --------------------------------------------------------------------------
The Example assumes that all dividends are reinvested and reflects certain
voluntary fee waivers and reimbursements. If fee waivers and reimbursements were
not made, the amounts in the example would be $18, $54, $94 and $204. The
assumption of a 5% annual return is required by the Securities and Exchange
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.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following table provides condensed financial information about the Fund for
the periods indicated. The information below should be read in conjunction with
the financial statements appearing in the Fund's Annual Report to Shareholders,
which are incorporated by reference in the Statement of Additional Information.
The financial statements and notes, as well as the table below, have been
audited by Price Waterhouse LLP, independent accountants on behalf of CitiFunds
Small Cap Growth Portfolio (formerly Landmark Small Cap Equity Fund). The report
of Price Waterhouse LLP is included in the Fund's Annual Report. Copies of the
Annual Report may be obtained without charge from an investor's Service Agent or
by calling 1-800-625-4554.
<TABLE>
<CAPTION>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO -- FINANCIAL HIGHLIGHTS
JUNE 21, 1995
TEN MONTHS ENDED YEAR ENDED (COMMENCEMENT OF
OCTOBER 31, DECEMBER 31, OPERATIONS) TO
1997(A) 1996 DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, beginning of period $18.21 $14.32 $10.00
- -----------------------------------------------------------------------------------------------------
Income from Operations:
Net investment income (loss) (0.138)(+) (0.016) 0.05
Net realized and unrealized gain 3.236(+) 5.407 4.42
- -----------------------------------------------------------------------------------------------------
Total from operations 3.098 5.391 4.47
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.05)
Net realized gain (0.068) (1.501) (0.10)
- -----------------------------------------------------------------------------------------------------
Total from distributions (0.068) (1.501) (0.15)
- -----------------------------------------------------------------------------------------------------
Net Asset Value, end of period $21.24 $18.21 $14.32
- -----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted) $25,799 $24,311 $5,148
Ratio of expenses to average net assets(B) 1.35%* 0.88% 0%
Ratio of net investment income (loss)
to average net assets (0.87)%* (0.13)% 1.21%*
Total return 17.05%** 37.80% 44.78%**
Note: If agents of the Fund and of the Portfolio had not voluntarily waived a portion of their fees or
assumed Fund expenses and had expenses been limited to that required by certain state securities laws for
the period ended December 31, 1995, the net investment income (loss) per share and the ratios would have
been as follows:
Net investment loss per share $(0.252)(+) $(0.133) $(0.288)
RATIOS:
Expenses to average net assets (B) 2.06%* 1.83% 2.50%*
Net investment income (loss) to average
net assets (1.58)%* (1.08)% (1.29)%*
* Annualized. ** Not annualized.
(+) The per share amounts were computed using a monthly average number of shares outstanding during the period.
(A) The Fund changed its fiscal year end from December 31 to October 31.
(B) Includes the Fund's share of the Portfolio's allocated expenses.
</TABLE>
<PAGE>
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE: The investment objective of the Fund 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 seeks its objective by investing in a diversified
portfolio consisting primarily of equity securities of U.S. companies that have
small market capitalizations. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of these companies. Small
market capitalization companies are those with market capitalizations below the
top 1,000 stocks of the equity market. In addition, the Fund may invest in
companies that are believed to be emerging companies relative to their potential
markets. In selecting equity securities to invest in, the Manager emphasizes
securities of small cap companies with strong management teams.
The Manager may also select other securities for the Fund that it believes
provide an opportunity for appreciation, such as fixed income securities and
convertible and non-convertible bonds. Most of the Fund's long-term
non-convertible debt investments are investment grade securities, and less than
5% of the Fund's investments consist of securities rated Baa by Moody's
Investors Service, Inc. or BBB by Standard & Poor's Ratings Group.
The Fund will not sell the equity securities of an issuer solely due to the fact
that the issuer's market capitalization has grown above the small cap level.
Rather, the Fund will evaluate the continued appropriateness of such securities
within its investment criteria.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
Non-U.S. Securities. While the Fund emphasizes U.S. securities, the Fund may
invest a portion of its assets in non-U.S. equity and debt securities,
including depository receipts. The Fund does not intend to invest more than
25% of its assets in non-U.S. securities, including sponsored American
Depositary Receipts, which represent the right to receive securities of non-
U.S. issuers deposited in a U.S. or correspondent bank. The Fund may invest up
to 5% of its assets in closed-end investment companies which primarily hold
non-U.S. securities.
Futures. The Fund may purchase or sell stock index futures in order to protect
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. 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.
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 -- Permitted Investments
and Investment Practices on page 19. The Fund will not necessarily invest or
engage in each of the investments and investment practices 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 Portfolio will be sold whenever the
Manager believes 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. For the period from June 2, 1995 (commencement of operations) to
December 31, 1995, the fiscal year ended December 31, 1996, and the period from
January 1, 1997 to October 31, 1997, the turnover rates for the Portfolio were
41%, 89% and 108%, respectively. The amount of brokerage commissions and
realization of taxable capital gains will tend to increase as the level of
portfolio activity increases.
Brokerage Transactions. The primary consideration in placing the Fund's security
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most effective
manner possible.
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 shares 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.
Credit Risk of Debt Securities. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may have
speculative characteristics. 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.
Small Cap Companies. Investors in the Fund should be aware that 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. Further,
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.
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.
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
attributable to U.S. investing. As a result, the operating expense ratio of
the Fund may be higher than those of investment companies investing
exclusively in U.S. securities.
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.
Investment Practices. Certain of the investment practices employed for the
Fund may entail certain risks. These risks are in addition to risks described
above and are described in the Appendix. See the Appendix -- Permitted
Investments and Investment Practices on page 20.
Special Information Concerning Investment Structure: The Fund does not invest
directly in securities. Instead, the Fund is permitted to invest 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 all of its investable assets in the Portfolio, which is a mutual fund
having the same investment objective and policies as the Fund. The Portfolio, in
turn, buys, holds and sells securities in accordance with this objective and
these policies. Of course, there can be no assurance that the Fund or the
Portfolio will achieve its objective. The Trustees of the Fund believe that the
aggregate per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses that the Fund would incur if the assets of
the Fund were invested directly in the types of securities held by the
Portfolio. The Fund may withdraw its investment in the Portfolio at any time,
and will do so if the Fund's Trustees believe it to be in the best interest of
the Fund's shareholders. If the Fund were to withdraw its investment in the
Portfolio the Fund could either invest directly in securities in accordance with
the investment policies described above or invest in one or more mutual funds or
pooled investment vehicles having the same investment objective and policies. If
the Fund were to withdraw, the Fund could receive securities from the Portfolio
instead of cash causing the Fund to incur brokerage, tax and other charges or
leaving it with securities which may or may not be readily marketable or widely
diversified.
The Portfolio may change its investment objective and certain of its investment
policies and restrictions without approval by its investors, but the Portfolio
will notify the Fund (which in turn will notify its shareholders) and its other
investors at least 30 days before implementing any change in its investment
objective. A change in investment objective, policies or restrictions may cause
the Fund to withdraw its investment in the Portfolio.
Certain investment restrictions of the Portfolio cannot be changed without
approval by the investors in the Portfolio. These policies are described in the
Statement of Additional Information. When the Fund is asked to vote on certain
matters concerning the Portfolio, the Fund will hold a shareholder meeting and
vote in accordance with shareholder instructions. Of course, the Fund could be
outvoted, or otherwise adversely affected, by other investors in the Portfolio.
The Portfolio may sell interests to investors in addition to the Fund. These
investors may be mutual funds which offer shares to their shareholders with
different costs and expenses than the Fund. Therefore, the investment returns
for all investors in funds investing in the Portfolio may not be the same. The
differences in returns are also present in other mutual fund structures.
Information about other holders of interests in the Portfolio is available from
the Fund's distributor, CFBDS, at (617) 423-1679.
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 Portfolio), 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 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 which are not Business Days and on which
it will not be possible to purchase or redeem shares of the Fund.
PURCHASES
Shares of the Fund are offered continuously and may be purchased on any Business
Day at the public offering price. The public offering price is the 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.
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
prior 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 other
CitiFunds, or may be acquired through an exchange of shares of those funds.
Shareholders must place exchange orders through the Transfer Agent or, if they
are customers of a Service Agent, though 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 and accepted 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
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 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).
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 semiannually.
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. 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. The Portfolio is supervised by the Board of Trustees of The
Premium Portfolios. In each case, a majority of the Trustees are not affiliated
with Citibank. In addition, a majority of the disinterested Trustees of the Fund
are different from a majority of the disinterested Trustees of the Portfolio.
More information on the Trustees and officers of the Fund and Portfolio appears
under "Management" in the Statement of Additional Information.
INVESTMENT MANAGER: 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.
Subject to policies set by the Trustees, Citibank is responsible for overall
management of the Fund pursuant to 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 Distributor. The Distributor's compensation as sub-
administrator is paid by Citibank.
Linda J. Intini has managed the Fund since February 1997. 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. Ms Intini has managed small cap equities since joining Citibank in
1992. Prior to joining Citibank, 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.
Management's discussion of the Fund's performance is included in the Fund's
Annual Report to Shareholders, which investors may obtain without charge by
calling 1-800-625-4554.
Management Fees. For its services under the Management Agreements with respect
to the Fund and the Portfolio, Citibank receives fees, which are computed daily
and paid monthly, at annual rates equal to 0.35% of the Fund's average net
assets, and 0.75% of the Portfolio's average net assets. These combined
management fees are higher than the management fees paid by most mutual funds.
For the fiscal year ended December 31, 1996, the investment advisory fees paid
to Citibank under a prior investment advisory agreement (after waivers) were
0.24% of the Fund's average daily net assets for that fiscal year. For the
period from January 1, 1997 to October 31, 1997, the management fees paid to
Citibank under its investment advisory agreement (after waivers) were 0.60% of
the Fund's average daily net assets for that period.
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
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 for the
Fund. 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, Massachusetts 02110.
DISTRIBUTION ARRANGEMENTS: CFBDS, 6 St. James Avenue, Boston, MA 02116
(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.
During the period they are in effect, the Service Plan and related 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 the requirements of the Internal Revenue Code
applicable to regulated investment companies so that it will not be liable for
any federal or state income or federal excise taxes. The Fund may pay
withholding or other taxes to foreign governments during the year, however, and
these taxes may 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 upon 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
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 his or her 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 series of CitiFunds Trust II, a Massachusetts
business trust which was organized on April 13, 1984. The Trust is also an
open-end management investment company registered under the 1940 Act. Prior to
March 2, 1998, the Fund was called Landmark Small Cap Equity Fund. Prior to
January 7, 1998, CitiFunds Trust II was called Landmark Funds II.
The Fund is a diversified mutual fund. Under the 1940 Act, a diversified series
or 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
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 is permitted to invest all or a portion of its assets in one or more
investment companies. The Fund currently invests in the Portfolio. The Portfolio
is a series of The Premium Portfolios, a New York trust. Prior to November 1,
1997, the Portfolio was called Small Cap Equity Portfolio.
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 the 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 or Portfolio'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 Agents 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 and reimbursements are voluntary and may be reduced or
terminated at any time.
COUNSEL AND INDEPENDENT AUDITORS: 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 and the Portfolio, including information
relating 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 or the Statement of Additional
Information 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.
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 total assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, the Fund could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has increased
or the value of the securities purchased has 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
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 15% of
its net assets in securities for which there is no readily available market.
These illiquid securities may include privately placed restricted securities for
which no institutional market exists. The absence of a trading market can make
it difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Fund to sell them promptly at an
acceptable price.
"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.
Futures Contracts. The Fund may purchase stock index futures in order to protect
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. 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 by the Fund
are standardized contracts traded on commodities exchanges or boards of trade.
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." Futures contracts are a generally accepted part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. 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 total assets
other than its futures contracts 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
the Manager's ability to predict stock price 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 the Manager's view as to stock
price movements is incorrect, the use of futures contracts 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
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. The use of futures contracts may
increase the amount of taxable income of the Fund and may affect in other ways
the amount, timing and character of the Fund's income for tax purposes, as more
fully discussed in the section entitled "Certain Additional Tax Matters" in the
Statement of Additional Information.
The use of futures by the Fund and some of their risks are described more fully
in the Statement of Additional Information.
Securities of Issuers in Developing Countries. Shareholders should be aware that
investing in the equity and fixed income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability,
than those of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the markets of
developed countries with more mature economies; such markets often have provided
higher rates of return and greater risks. 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.
Currency Exchange Contracts. Forward currency exchange contracts may be entered
into for the Fund for the purchase or sale of non-U.S. currency for hedging
purposes against adverse rate changes or otherwise to achieve the Fund's
investment objectives. 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.
Lower-Rated Debt Securities. The Fund may purchase lower-rated securities (those
rated Baa or better by Moody's or BBB or better by S&P) 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.
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>
CFP/SCG 398 [recycle symbol] Printed on recycled paper
<PAGE>
497(c) File Nos. 2-90519 and 811-4007
Statement of
CITIFUNDS(SM) LARGE CAP GROWTH PORTFOLIO Additional Information
CITIFUNDS(SM) SMALL CAP GROWTH PORTFOLIO March 2, 1998
(Members of the CitiFunds(SM) Family of Funds)
CitiFunds Large Cap Growth Portfolio and CitiFunds Small Cap Growth
Portfolio (the "Funds") are 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 6 St. James Avenue, Boston, Massachusetts
02116, (617) 423-1679. Each Fund is permitted to invest all or a portion of its
assets in one or more other investment companies. Currently, CitiFunds Large Cap
Growth Portfolio invests its assets in Large Cap Growth Portfolio and CitiFunds
Small Cap Growth Portfolio invests its assets in Small Cap Growth Portfolio.
Both Large Cap Growth Portfolio and Small Cap Growth Portfolio (the
"Portfolios") are series of The Premium Portfolios (the "Portfolio Trust"). The
address of the Portfolio Trust is Elizabethan Square, George Town, Grand Cayman,
British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, CITIBANK,
N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER 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 .............................................. 10
5. Performance Information .............................................. 11
6. Determination of Net Asset Value; Valuation of Securities; Additional
Redemption Information ............................................... 12
7. Management ........................................................... 13
8. Portfolio Transactions ............................................... 19
9. Description of Shares, Voting Rights and Liabilities ................. 19
10. Certain Additional Tax Matters ....................................... 21
11. Independent Accountants and Financial Statements ..................... 22
This Statement of Additional Information sets forth information which may be
of interest to investors but which is not necessarily included in each Fund's
Prospectus, dated March 2, 1998. This Statement of Additional Information should
be read in conjunction with the Prospectuses; copies 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 an investment company organized as a business trust
under the laws of the Commonwealth of Massachusetts on April 13, 1984. The Trust
was called Landmark Funds II until its name was changed effective January 7,
1998. This Statement of Additional Information describes shares of CitiFunds
Large Cap Growth Portfolio (the "Large Cap Growth Fund") and CitiFunds Small Cap
Growth Portfolio (the "Small Cap Growth Fund"), each of which is a separate
series of the Trust. Prior to March 2, 1998, the Large Cap Growth Fund was
called Landmark Equity Fund, and the Small Cap Growth Fund was called Landmark
Small Cap Equity Fund. References in this Statement of Additional Information to
the "Prospectus" of a Fund are to the Prospectus, dated March 2, 1998, of such
Fund.
Each 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, each of the
Large Cap Growth Fund and the Small Cap Growth Fund invests its assets in Large
Cap Growth Portfolio and Small Cap Growth Portfolio, respectively. Prior to
November 1, 1997, Large Cap Growth Portfolio was called Equity Portfolio and
Small Cap Growth Portfolio was called Small Cap Equity Portfolio. The Portfolios
are series of The Premium Portfolios and are open-end, diversified management
investment companies. Each Portfolio has the same investment objective and
policies as the Fund that invests in it. Because each Fund invests through its
corresponding Portfolio, all references in this Statement of Additional
Information to a Fund include such Fund's corresponding Portfolio, except as
otherwise noted. In addition, references to the Trust include the Portfolio
Trust, 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.
The Boards of Trustees of the Trust and the Portfolio Trust provide broad
supervision over the affairs of the Funds and the Portfolios, respectively.
Shares of the Funds are continuously sold by CFBDS, Inc., the Funds' distributor
("CFBDS" or the "Distributor"). Shares of the Funds are sold at net asset value.
CFBDS may receive distribution fees from the Funds 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 investment objective of each of the Funds is long-term capital growth.
Dividend income, if any, is incidental to this investment objective.
The investment objective of each Fund may be changed by its Trustees without
approval by that Fund's shareholders, but shareholders will be given written
notice at least 30 days before any change is implemented. Of course, there can
be no assurance that any Fund will achieve its investment objective.
Each Fund's Prospectus contains a discussion of the various types of
securities in which that Fund may invest and the risks involved in such
investments. The following supplements the information contained in each
Prospectus concerning the investment objective, policies and techniques of each
Fund.
While it is the policy of each of the Funds to invest its assets in a
broadly diversified portfolio of equity securities consisting mainly of common
stocks of U.S. issuers, each Fund may also invest in other types of securities
such as fixed income securities and convertible and non-convertible bonds.
The Trust has also adopted the following policies with respect to each
Fund's investments in (i) warrants and (ii) securities of issuers with less than
three years' continuous operation. The Trust's purchases of warrants for each
Fund will not exceed 5% of the Fund's net assets. Included within that amount,
but not exceeding 2% of its net assets, may be warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange. Any such warrants
will be valued at their market value except that warrants which are attached to
securities at the time such securities are acquired for a Fund will be deemed to
be without value for the purpose of this restriction. The Trust will not invest
more than 5% of each Fund's assets in companies which, including their
respective predecessors, have a record of less than three years' continuous
operation.
The Trust may withdraw the investment of any Fund from its corresponding
Portfolio 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
FUTURES CONTRACTS
Each of the Funds may enter into stock index futures contracts. This
investment strategy will be used for hedging purposes and for nonhedging
purposes, subject to applicable law.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an index
of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts 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 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.
Each of the Funds may enter into stock index futures contracts to gain stock
market exposure while holding cash available for investments and redemptions.
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, at the same time the
futures contracts limits any potential gain which might result from an increase
in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of a Fund's
investments through transactions in futures contracts depends on the degree to
which movements in the value of the securities underlying such contracts
correlate with movements in the value of the Fund's securities. If the security
underlying a futures contract is different than the security being hedged, they
may not move to the same extent or in the same direction. In that event, the
Fund's hedging strategy might not be successful and the Fund could sustain
losses on these hedging transactions which would not be offset by gains on the
Fund's other investments or, alternatively, the gains on the hedging transaction
might not be sufficient to offset losses on the Fund's other investments. It is
also possible that there may be a negative correlation between the security
underlying a futures contract and the securities being hedged, which could
result in losses both on the hedging transaction and the securities. In these
and other instances, the Fund's overall return could be less than if the hedging
transactions had not been undertaken. Similarly, even where a Fund enters into
futures transactions other than for hedging purposes, the effectiveness of its
strategy may be affected by lack of correlation between changes in the value of
the futures contracts and changes in value of the securities which the Fund
would otherwise buy 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
contracts was originally entered into. While a Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing variation
margin requirements. The inability to close out futures positions also could
have an adverse impact on the ability effectively to use futures transactions
for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges, which
limit the amount of fluctuation in the price of a futures contract during a
single trading day and prohibit trading beyond such limits once they have been
reached. The trading of futures contracts also is subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Investments in futures contracts also entail the risk that if the Manager's
investment judgment about the general direction of the market is incorrect, the
Fund's overall performance may be poorer than if any such contract had not been
entered into.
Each contract market on which futures contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Manager
does not believe that these trading and position limits would have an adverse
impact on a Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Fund from purchasing or
selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish that Fund's non-hedging futures positions would exceed 5% of that
Fund's net assets.
Each Fund will comply with this CFTC requirement, and each Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by each 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 a
Fund not exceed approximately 50% of the market value of the Fund's total assets
other than its futures contracts. For purposes of this third policy, "market
value" of a futures contract is deemed to be the amount obtained by multiplying
the number of units covered by the futures contract times the per unit price of
the securities covered by that contract.
The use of futures contracts may increase the amount of taxable income of a
Fund and may affect the amount, timing and character of a Fund's income for tax
purposes, as more fully discussed herein in the section entitled "Certain
Additional Tax Matters."
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund purchases a security and simultaneously commits to
resell that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed-upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed-upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security, usually
U.S. Government or Government agency issues. Under the 1940 Act, repurchase
agreements may be considered to be loans by the buyer. A Fund's risk is limited
to the ability of the seller to pay the agreed-upon amount on the delivery date.
If the seller defaults, the underlying security constitutes collateral for the
seller's obligation to pay although a 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 a Fund are
fully collateralized, with such collateral being marked to market daily.
SECURITIES OF NON-U.S. ISSUERS
Each of the Funds may invest in securities of non-U.S. issuers. Investing
in securities issued by companies whose principal business activities are
outside the United States may involve significant risks not present in U.S.
investments. For example, the value of such securities fluctuates based on the
relative strength of the U.S. dollar. In addition, there is generally less
publicly available information about non-U.S. issuers, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Non-U.S. issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to U.S.
issuers. Investments in securities of non-U.S. issuers also involve the risk
of possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of a Fund, political or financial instability or diplomatic and
other developments which would affect such investments. Further, economies of
other countries or areas of the world may differ favorably or unfavorably from
the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the
U.S., and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Non-U.S. securities trading practices, including
those involving securities settlement where a Fund's assets may be released
prior to receipt of payments, may expose the Funds to increased risk in the
event of a failed trade or the insolvency of a non-U.S. broker-dealer. In
addition, non-U.S. brokerage commissions are generally higher than commissions
on securities traded in the U.S. and may be non-negotiable. In general, there
is less overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of such
investments may be substantially less than their net asset value and that there
would be duplication of investment management and other fees and expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Funds to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement. ADRs, EDRs and GDRs 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 Funds 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 a 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 a 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 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 each of the Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Funds may enter
into currency exchange transactions to convert U.S. currency to non-U.S.
currency and non-U.S. currency to U.S. currency, as well as convert one non-
U.S. currency to another non-U.S. currency. A Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange markets, or uses forward contracts to purchase or sell non-
U.S. currencies. The Funds may also enter into currency hedging transactions
in an attempt to protect the value of their assets as measured in U.S. dollars
from unfavorable changes in currency exchange rates and control regulations.
(Although each Fund's assets are valued daily in terms of U.S. dollars, the
Trust does not intend to convert a Fund's holdings of non-U.S. currencies into
U.S. dollars on a daily basis.) It is not currently intended that the Funds
speculate in currency exchange rates or forward contracts.
The Funds may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although currency
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should a 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 a Fund enters into a contract for the purchase or sale of a security
denominated in a non-U.S. currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of non-U.S. currency
involved in the underlying security transaction, the Fund may be able to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on
which payment is made or received.
When the Manager believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, a Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of the Fund's
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date it
matures. The projection of a short-term hedging strategy is highly uncertain.
The Funds do not enter into such forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts obligates a Fund to
deliver an amount of non-U.S. currency in excess of the value of the Fund's
securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in the investment decisions made with regard to overall
diversification strategies. However, the Manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of a Fund will be served.
The Funds generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, a Fund will either
sell the security and make delivery of the non-U.S. currency, or retain the
security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the non-U.S. currency. Should forward prices decline
during the period between the date a Fund enters into a forward contract for the
sale of the non-U.S. currency and the date it enters into an offsetting contract
for the purchase of such currency, the Fund will realize a gain to the extent
the selling price of the currency exceeds the purchase price of the currency.
Should forward prices increase, the Fund will suffer a loss to the extent that
the purchase price of the currency exceeds the selling price of the currency.
It is impossible to forecast with precision the market value of a Fund's
securities at the expiration of a forward contract. Accordingly, it may be
necessary for a Fund to purchase additional non-U.S. currency on the spot market
if the market value of the security is less than the amount of non-U.S. currency
the Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of such currency. Conversely, it may be necessary to sell on
the spot market some of the non-U.S. currency received upon the sale of the
security if its market value exceeds the amount of such currency the Fund is
obligated to deliver.
Each of the Funds may also purchase put options on a non-U.S. currency in
order to protect against currency rate fluctuations. If a Fund purchases a put
option on a non-U.S. currency and the value of the 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 a 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 adverse movements in exchange rates. However, the benefit to each Fund from
purchases of non-U.S. currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, a Fund could
sustain losses on transactions in non-U.S. currency options which would require
it to forgo a portion or all of the benefits of advantageous changes in such
rates.
The Funds may write options on non-U.S. currencies for hedging purposes or
otherwise to achieve their investment objectives. For example, where a Fund
anticipates a decline in the value of the U.S. dollar value of a non-U.S.
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 non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the premium.
However, the writing of a currency option will constitute only a partial hedge
up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at a loss which
may not be offset by the amount of the premium. Through the writing of options
on currencies, a Fund also may be required to forgo all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
Put and call options on non-U.S. currencies written by a Fund will be
covered by segregation of cash, 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,
a decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other currency remains constant, and thus will reduce the
value of the receipts covering such securities. A Fund may employ any of the
above described non-U.S. currency hedging techniques to protect the value of its
assets invested in depositary receipts.
Of course, a Fund is not required to enter into such transactions and does
not do so unless deemed appropriate by the Manager. It should also be realized
that these methods of protecting the value of a Fund's securities against a
decline in the value of a currency do not eliminate fluctuations in the
underlying prices of the securities. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Since those policies currently recommend that an amount of a Fund's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
the commitment, each Fund is expected always to have cash, cash equivalents or
high quality debt securities available sufficient to cover any commitments under
these contracts or to limit any potential risk.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to generate
income, each of the Funds may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks of
the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate a
loan at any time on customary industry settlement notice (which will not usually
exceed three business days). During the existence of a loan, a Fund would
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned and with respect to cash collateral would also
receive compensation based on investment of the collateral (subject to a rebate
payable to the borrower). Where the borrower provides a Fund with collateral
consisting of U.S. Treasury obligations, the borrower is also obligated to pay
the Fund a fee for use of the borrowed securities. The Fund would not, however,
have the right to vote any securities having voting rights during the existence
of the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the Manager to be of good standing, and when, in
the judgment of the Manager, the consideration which can be earned currently
from loans of this type justifies the attendant risk. In addition, a Fund could
suffer loss if the borrower terminates the loan and the Fund is forced to
liquidate investments in order to return the cash collateral to the buyer. If
the Manager determines to make loans, it is not intended that the value of the
securities loaned by a Fund would exceed 30% of the value of its total assets.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Fund would take delivery of such securities. When a 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 a Fund's assets equal to the amount of the purchase be
held aside or segregated to be used to pay for the commitment, the 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 Funds do not intend to make such purchases for speculative purposes and
intend 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, a
Fund may have to sell assets which have been set aside in order to meet
redemptions. Also, if the Manager determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
a 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).
CONVERTIBLE SECURITIES
The Funds 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 smaller non-convertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
attendant upon a market price advance in the convertible security's underlying
common stock.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the Funds may
purchase securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, no Fund will invest more than 15% of its net assets in illiquid
investments, which includes 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 determines, based on the
trading markets for the specific restricted security, that it is liquid. The
Trustees have adopted guidelines and delegated to the Manager the daily function
of determining and monitoring liquidity of restricted securities. The Trustees,
however, retain oversight and are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market
for restricted securities will develop, the Trustees will carefully monitor each
Fund's investments in these securities, focusing on such factors, among others,
as valuation, liquidity and availability of information.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Funds, and the Portfolio Trust, on behalf of the
Portfolios, have each adopted the following policies which may not be changed
with respect to any Fund or Portfolio without approval by holders of a majority
of the outstanding voting securities of that Fund or Portfolio, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding voting securities of the Fund or Portfolio present at
a meeting at which the holders of more than 50% of the outstanding voting
securities of the Fund or Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding voting securities of the Fund or Portfolio. The
term "voting securities" as used in this paragraph has the same meaning as in
the 1940 Act.
None of the Funds or Portfolios may:
(1) Borrow money, except that as a temporary measure for extraordinary
or emergency purposes it may borrow in an amount not to exceed 1/3 of the
current value of its net assets, including the amount borrowed; or purchase
any securities at any time at which borrowings exceed 5% of the total assets
of the Fund or Portfolio, taken at market value. It is intended that a Fund
or Portfolio would borrow money only from banks and only to accommodate
requests for the repurchase of shares of the Fund or beneficial interests in
the Portfolio while effecting an orderly liquidation of portfolio
securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Fund's or Portfolio's total assets (taken at market value), (b) through the
use of repurchase agreements 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.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund or
Portfolio more than 10% of the voting securities of such issuer to be held
by the Fund or Portfolio; provided that, for purposes of this restriction,
the issuer of an option or futures contract shall not be deemed to be the
issuer of the security or securities underlying such contract; and provided
further that each Fund and Portfolio may invest all or any portion of its
assets in one or more investment companies, to the extent not prohibited by
the 1940 Act, the rules and regulations thereunder, and exemptive orders
granted under such Act.
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's or Portfolio's total assets more
than 5% of the Fund's or Portfolio's assets (taken at market value) to be
invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or
political subdivision thereof, or any political subdivision of any such
state, or any agency or instrumentality of the United States or of any state
or of any political subdivision of any state); provided that, for purposes
of this restriction, the issuer of an option or futures contract shall not
be deemed to be the issuer of the security or securities underlying such
contract; and provided further that each Fund and Portfolio may invest all
or any portion of its assets in one or more investment companies, to the
extent not prohibited by the 1940 Act, the rules and regulations thereunder,
and exemptive orders granted under such Act.
(5) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Fund's or Portfolio's
investment objective, up to 25% of its assets, at market value at the time
of each investment, may be invested in any one industry, except that
positions in futures contracts shall not be subject to this restriction.
(6) Underwrite securities issued by other persons, except that all or
any portion of the assets of the Fund or Portfolio may be invested in one or
more investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such
Act, and except insofar as the Fund or Portfolio may technically be deemed
an underwriter under the Securities Act in selling a security.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts in the ordinary course of business (the foregoing shall not be
deemed to preclude the Fund or Portfolio from purchasing or selling futures
contracts or options thereon, and each 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).
(8) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
If a percentage or rating restriction on investment or utilization of assets
set forth above or referred to in 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 a Fund will not be considered a violation of
policy.
5. PERFORMANCE INFORMATION
A total rate of return quotation for a Fund is calculated for any period by
(a) dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains distributions declared during such
period with respect to a share held at the beginning of such period and with
respect to shares purchased with such dividends and capital gains distributions,
by (ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. Any annualized total rate of return quotation
is calculated by (x) adding 1 to the period total rate of return quotation
calculated above, (y) raising such sum to a power which is equal to 365 divided
by the number of days in such period, and (z) subtracting 1 from the result.
Any current yield quotation for a Fund consists of an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a 30
calendar day or one month period and is calculated by (a) raising to the sixth
power the sum of 1 plus the quotient obtained by dividing the Fund's net
investment income earned during the period by the product of the average daily
number of shares outstanding during the period that were entitled to receive
dividends and the public offering price per share on the last day of the period,
(b) subtracting 1 from the result, and (c) multiplying the result by 2.
Set forth below is total rate of return information for the shares of each
Fund for the periods indicated, assuming that dividends and capital gains
distributions, if any, were reinvested.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
OF A HYPOTHETICAL
$1,000 INVESTMENT
TOTAL RATE AT THE END OF
LARGE CAP GROWTH FUND OF RETURN THE PERIOD
- --------------------- ---------- -----------------
<S> <C> <C>
October 19, 1990 (Commencement of Operations) to October 31, 1997 . 16.57%+ $2,942
Five Years Ended October 31, 1997 .................................... 16.14%+ $2,113
One Year Ended October 31, 1997 ...................................... 24.83%++ $1,248
Ten Months Ended October 31, 1997 .................................... 22.27%++ $1,223
<CAPTION>
REDEEMABLE VALUE
OF A HYPOTHETICAL
$1,000 INVESTMENT
TOTAL RATE AT THE END OF
SMALL CAP GROWTH FUND OF RETURN THE PERIOD
- --------------------- ---------- -----------------
<S> <C> <C>
June 21, 1995 (Commencement of Operations) to October 31, 1997 ....... 43.15%+ $2,335
One Year Ended October 31, 1997 ...................................... 16.32%++ $1,163
Ten Months Ended October 31, 1997 .................................... 17.05%++ $1,171
- ------------
+Annualized.
++Not Annualized.
</TABLE>
The annualized yield of the shares of the Large Cap Growth Fund for the
30-day period ended on October 31, 1997 was 0.10%.
Comparative performance information may be used from time to time in
advertising shares of each Fund, including data from Lipper Analytical Services,
Inc. and other industry sources and publications. From time to time each 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 each 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 each 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 each Fund is determined each day during
which the New York Stock Exchange is open for trading ("Business Day"). As of
the date of this Statement of Additional Information, the Exchange is open for
trading every weekday except for the following holidays (or the days on which
they are observed): New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. This determination 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 a Fund (including the Fund's
interest in its corresponding Portfolio), then subtracting the Fund's
liabilities, 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.
The value of each Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of its corresponding Fund is determined. The net asset value of each
Fund's investment in the Portfolio in which it invests is equal to the Fund's
pro rata share of the net assets of the Portfolio.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ system. Securities
listed on a non-U.S. exchange are valued at the last quoted sale price available
before the time when net assets are valued. Bonds and other fixed income
securities (other than short-term obligations) are valued on the basis of
valuations furnished by a pricing service, use of which has been approved by the
Board of Trustees of the Trust. In making such valuations, the pricing service
utilizes both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data, without exclusive
reliance upon quoted prices or exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Short-term obligations (maturing in 60 days or less) are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees of the Trust. Futures contracts are normally valued at the settlement
price on the exchange on which they are traded. Securities for which there are
no such valuations are valued at fair value as determined in good faith by or at
the direction of the Board of Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter markets
is normally completed before the close of regular trading on the New York Stock
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of non-U.S. securities occur between the
time when the exchange on which they are traded closes and the time when a
Fund's net asset value is calculated, such securities may be valued at fair
value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for a Fund is determined on
the basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued less amortization of any premiums.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of shares of a 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 a Fund more than seven days during any period when (a)
trading in the markets the Fund or Portfolio normally utilizes is restricted, or
an emergency, as defined by the rules and regulations of the SEC, exists making
disposal of a Fund's investments or determination of its net asset value not
reasonably practicable; (b) the New York Stock Exchange is closed (other than
customary weekend and holiday closings); or (c) the SEC has by order permitted
such suspension.
7. MANAGEMENT
The Trustees and officers of the Trust and the Portfolio Trust, their ages
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust or the Portfolio Trust. Unless otherwise indicated below, the address
of each Trustee and officer is 6 St. James Avenue, Boston, Massachusetts. The
address of the Portfolio Trust is Elizabethan Square, George Town, Grand Cayman,
British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE*; 46 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 71 -- 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; 57 -- 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; 46 -- 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.; 62 -- 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; 63 -- 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.; 77 -- Vice President-Investments, Sun Company, Inc.
(retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUST
ELLIOTT J. BERV; 54 -- 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 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE*; 46 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
MARK T. FINN; 54 -- 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.; 62 -- 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; 71 -- 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 TRUST
PHILIP W. COOLIDGE*; 46 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE A. DRAPEAU*; 27 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; 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*; 25 -- Assistant Secretary of the Trust and the
Portfolio Trust; 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*; 49 -- Treasurer of the Trust and the Portfolio Trust; Vice
President, Signature Financial Group, Inc. (since April 1995); Treasurer,
CFBDS (since April 1995); Treasurer, the Phoenix Family of Mutual Funds
(Phoenix Home Life Mutual Insurance Company) (1983 to March 1995).
LINDA T. GIBSON*; 32 -- Secretary of the Trust and the Portfolio Trust; Vice
President, Signature Financial Group, Inc. (since May 1992); Assistant
Secretary, CFBDS (since October 1992).
JOAN R. GULINELLO*; 42 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group, Inc.
(since October 1993); Secretary, CFBDS (since October 1995); Vice President
and Assistant General Counsel, Massachusetts Financial Services Company (prior
to October 1993).
JAMES E. HOOLAHAN*; 51 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Senior Vice President,
Signature Financial Group, Inc.
SUSAN JAKUBOSKI*; 33 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and the Portfolio Trust; 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 HM11, Bermuda.
MOLLY S. MUGLER*; 46 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN*; 29 -- Assistant Secretary of the Trust and the Portfolio Trust;
Office Manager, Signature Financial Group (Europe) Limited (since 1993). Her
address is 117 Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON*; 49 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Assistant Vice President, Signature Financial
Group, Inc.
JULIE J. WYETZNER*; 38 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group, Inc.
The trustees and officers of the Trust and the Portfolio Trust also hold
comparable positions with certain other funds for which CFBDS, Signature
Financial Group, Inc., or their affiliates serve as distributor or
administrator.
The following table shows Trustee compensation for the periods indicated.
TRUSTEE COMPENSATION TABLE
AGGREGATE AGGREGATE
COMPENSATION COMPENSATION TOTAL
FROM THE FROM THE COMPENSATION
LARGE CAP SMALL CAP FROM TRUST AND
TRUSTEE GROWTH FUND(1) GROWTH FUND(1) COMPLEX(2)
- ------- -------------- -------------- --------------
H.B. Alvord(3) ......... $1,624 $ 809 $32,000
Philip W. Coolidge ..... $ -0- $ -0- $ -0-
Riley C. Gilley ........ $2,456 $1,640 $50,000
Diana R. Harrington .... $3,038 $1,699 $57,000
Susan B. Kerley ........ $3,131 $1,708 $59,000
C. Oscar Morong, Jr. ... $3,505 $1,746 $70,000
E. Kirby Warren ........ $2,565 $1,651 $50,000
William S. Woods, Jr. .. $3,078 $1,703 $58,000
- ----------
(1) For the fiscal year ended October 31, 1997.
(2) Information relates to the fiscal year ended October 31, 1997. Messrs.
Coolidge, Gilley, Morong, Warren and Woods, and Mses. Harrington and Kerley
are Trustees of 55, 31, 28, 28, 30, 29 and 29 funds and portfolios,
respectively, in the family of open-end registered investment companies
advised or managed by Citibank.
(3) Mr. Alvord retired as a Trustee on May 31, 1997.
As of February 28, 1998, all Trustees and officers as a group owned less
than 1% of the outstanding shares of each Fund. As of the same date, more than
95% of the outstanding shares of each Fund were held of record by Citibank, N.A.
or its affiliates as Service Agents of the Fund for the accounts of their
respective clients.
The Declaration of each of the Trust and the Portfolio Trust provides that
the Trust or the Portfolio Trust, as the case may be, will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust or the Portfolio Trust, as the case may be, unless, as to liability to the
Trust, the Portfolio Trust or their respective investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust or the Portfolio Trust, as the case may be. In the
case of settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees of the Trust or
the Portfolio Trust, or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
MANAGER
Citibank manages the assets of each Portfolio and provides certain
administrative services to the Trust and the Portfolio Trust pursuant to
separate management agreements (the "Management Agreements"). Subject to such
policies as the Board of Trustees of the Portfolio Trust may determine, Citibank
manages the securities of each Portfolio and makes investment decisions for each
Portfolio. Citibank furnishes at its own expense all services, facilities and
personnel necessary in connection with managing each Portfolio's investments and
effecting securities transactions for each Portfolio. The Management Agreement
with the Portfolio Trust provides that Citibank may delegate the daily
management of the securities of each Portfolio to one or more subadvisers. The
Management Agreement with the Portfolio Trust will continue in effect until
August 8, 1999 and thereafter as long as such continuance is specifically
approved at least annually by the Board of Trustees of the 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 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 will continue in effect until
August 8, 1999 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 applicable Fund, and, in
either case, by a majority of the Trustees of the Trust who are not parties to
the Management Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Management Agreement.
Citibank provides the Trust and the Portfolio Trust with general office
facilities and supervises the overall administration of the Trust and the
Portfolio Trust, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of, the
Trust's or the Portfolio Trust's independent contractors and agents; the
preparation and filing of all documents required for compliance by the Trust or
the Portfolio Trust with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trust or the Portfolio Trust. Trustees,
officers, and investors in the Trust and the 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 and the 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 the Portfolio Trust or the
Trust, as the case may be, when authorized either by a vote of a majority of the
outstanding voting securities of the applicable Portfolio or Fund or by a vote
of a majority of the Board of Trustees of the Portfolio Trust or the Trust, or
by Citibank on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Management
Agreement with the Portfolio 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 the Portfolio Trust.
The Management Agreement with the Trust provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for any
omission in the administration or management of the Trust or the performance of
its duties under the Management Agreement, except for willful misfeasance, bad
faith or gross negligence or reckless disregard of its or their obligations and
duties under the Management Agreement with the Trust.
The Prospectus for each Fund contains a description of the fees payable to
Citibank for services under each of the Management Agreements. Citibank may
reimburse any Fund or Portfolio or waive all or a portion of its management
fees.
For the four months ended April 30, 1994, the fees payable to Citibank under
a prior investment advisory agreement between the Large Cap Growth Fund and
Citibank were $326,242 (of which $62,569 was voluntarily waived). For the period
from May 1, 1994 to December 31, 1994 and for the fiscal years ended December
31, 1995 and 1996 the fees paid to Citibank under a prior investment advisory
agreement with respect to Large Cap Growth Portfolio were $639,933, $1,049,008
and $1,387,227, respectively. For the period from January 1, 1997 to October 31,
1997 the fees paid to Citibank under its investment advisory agreement with
respect to Large Cap Growth Fund and Large Cap Growth Portfolio were $1,312,700.
For the period from June 21, 1995 (commencement of operations) to December
31, 1995 and for the fiscal year ended December 31, 1996 the fees payable to
Citibank under a prior investment advisory agreement with respect to Small Cap
Growth Portfolio were $10,222 (all of which was voluntarily waived) and $147,259
(of which $100,088 was voluntarily waived). For the period from January 1, 1997
to October 31, 1997, the fees paid to Citibank under its investment advisory
agreement with respect to Small Cap Growth Fund and Small Cap Growth Portfolio
were $284,285 (of which $57,125 was voluntarily waived).
For the fiscal years ended December 31, 1994, 1995 and 1996, and for the
period from January 1, 1997 to October 31, 1997, the fees payable by the Large
Cap Growth Fund to CFBDS under a prior administrative services agreement with
respect to the Large Cap Growth Fund were $320,872 (of which $126,917 was
voluntarily waived), $294,337 (of which $196,224 was voluntarily waived),
$561,584 (of which $449,267 was voluntarily waived) and $508,746 (of which
$406,939 was voluntarily waived), respectively. For the period June 21, 1995
(commencement of operations) to December 31, 1995, for the fiscal year ended
December 31, 1996 and for the period from January 1, 1997 to October 31, 1997,
the fees payable by the Small Cap Growth Fund to CFBDS under a prior
administrative services agreement were $2,063 (all of which was voluntarily
waived), $39,957 (all of which was voluntarily waived) and $52,561 (all of which
was voluntarily waived). For the period from May 1, 1994 through December 31,
1994, the fiscal years ended December 31, 1995 and 1996 and the period from
January 1, 1997 to October 31, 1997, the Portfolio Trust paid Signature
Financial Group (Cayman) Ltd. ("SFG") under a prior administrative services
agreement $63,999, $104,901, $138,723 and $131,270, respectively, with respect
to the Large Cap Growth Portfolio. For the period June 21, 1995 (commencement of
operations) to December 31, 1995, the fiscal year ended December 31, 1996 and
the period from January 1, 1997 to October 31, 1997, the Portfolio Trust was
obligated to pay SFG under a prior administrative services agreement $682 (all
of which was voluntarily waived), $9,817 (all of which was voluntarily waived)
and $18,952 (of which $13,008 was voluntarily waived), respectively with respect
to the Small Cap Growth Portfolio.
Pursuant to a sub-administrative services agreement with Citibank, CFBDS
performs such sub-administrative duties for the Trust and the Portfolio Trust as
from time to time are agreed upon by Citibank and CFBDS. For performing such
sub-administrative services, CFBDS receives compensation as from time to time is
agreed upon by Citibank, not in excess of the amount paid to Citibank for its
services under the Management Agreements with the Trust and the Portfolio Trust.
All such compensation is paid by Citibank.
DISTRIBUTOR
CFBDS, 6 St. James Avenue, Boston, MA 02116, serves as the Distributor of
each 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, or by the vote of a majority of the outstanding voting
securities of the particular Fund and by the vote of a majority of the Board of
Trustees of the Trust who are not parties to the Distribution Agreement or
interested persons of any party to the Distribution Agreement, cast in person at
a meeting called for the purpose of voting on such approval. 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 Funds (the "Service Plan") which has
been adopted in accordance with Rule 12b-1 under the 1940 Act, the Funds may pay
monthly fees at an annual rate not to exceed 0.25% of the average daily net
assets of each Fund. Such fees may be used to make payments to the Distributor
for distribution services, to securities dealers and other industry
professionals (called Service Agents) that have entered into service agreements
with the Distributor and others in respect of the sale of shares of the Funds,
and to other parties in respect of the sale of shares of the Funds, and to make
payments for advertising, marketing or other promotional activity, and payments
for preparation, printing, and distribution of prospectuses, statements of
additional information and reports for recipients other than regulators and
existing shareholders. The Funds also may make payments to the Distributor,
Service Agents and others for providing personal service or the maintenance of
shareholder accounts. The Funds and the Distributor provide to the Trustees
quarterly a written report of amounts expended pursuant to Service Plan and the
purposes for which the expenditures were made.
The Service Plan obligates the Funds to pay fees to the Distributor, Service
Agents and others as compensation for their services, not as reimbursement for
specific expenses incurred. Thus, even if their expenses exceed the fees
provided for by the Service Plan for any 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. Each 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. In their annual consideration of
the continuation of the Service Plan for each Fund, the Trustees will review the
Service Plan and the expenses for each Fund separately.
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 Trustees who are not "interested persons" of the Trust and
who have no direct or indirect financial interest in the operation of the
Service Plan or in any agreement related to the Plan (for purposes of this
paragraph "Qualified Trustees"). 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 any Fund at any time
by a vote of a majority of the Trust's Qualified Trustees or by a vote of a
majority of the outstanding voting securities of that Fund. The Service Plan may
not be amended to increase materially the amount of a Fund's permitted expenses
thereunder without the approval of a majority of the outstanding securities of
that Fund and may not be materially amended in any case without a vote of a
majority of both the Trustees and Qualified Trustees. The Distributor will
preserve copies of any plan, agreement or report made pursuant to the Service
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.
As contemplated by the Service Plan, CFBDS acts as the agent of the Trust in
connection with the offering of shares of the Funds pursuant to the Distribution
Agreement. The Prospectus contains a description of fees payable to the
Distributor under the Distribution Agreement. For the fiscal years ended
December 31, 1994, 1995 and 1996, the fees payable to CFBDS under a prior
distribution agreement with respect to Large Cap Growth Portfolio were $96,083,
$98,112 and $336,950 (of which $224,633 was voluntarily waived), respectively,
no portion of which was applicable to reimbursement for expenses incurred in
connection with print or electronic media advertising. For the period from
January 1, 1997 to October 31, 1997, the fees payable to CFBDS under a prior
distribution agreement and the current Distribution Agreement with respect to
Large Cap Growth Portfolio were $101,807. For the period from June 21, 1995
(commencement of operations) to December 31, 1995 and for the fiscal year ended
December 31, 1996, the fees payable to CFBDS under a prior distribution
agreement with respect to Small Cap Growth Fund were $687 and $23,974 (all of
which was voluntarily waived), respectively, no portion of which was applicable
to reimbursement for expenses incurred in connection with print or electronic
media advertising. For the period from January 1, 1997 to October 31, 1997, the
fees payable to CFBDS under a prior distribution agreement and the current
Distribution Agreement with respect to Small Cap Growth Fund were $31,537 (all
of which was voluntarily waived). The foregoing amounts were spent on
advertising, printing and mailing expenses.
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
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 each Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street, pursuant
to which custodial and fund accounting services, respectively, are provided for
each Fund. See "Transfer Agent, Custodian and Fund Accountant" in each
Prospectus for additional information.
The Portfolio Trust, on behalf of the Portfolios, has entered into Custodian
Agreements with State Street pursuant to which State Street acts as custodian
for each Portfolio. The Portfolio Trust, on behalf of the Portfolios, also has
entered into Fund Accounting Agreements with State Street Cayman Trust Company,
Ltd. ("State Street Cayman") pursuant to which State Street Cayman provides fund
accounting services for each Portfolio. State Street Cayman also provides
transfer agency services to the Portfolio Trust.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.
AUDITORS
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 the Portfolio Trust. The address of Price Waterhouse is Suite
3000, Box 82, Royal Trust Towers, Toronto Dominion Center, Toronto, Ontario,
Canada M5K 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel for
the Funds.
8. PORTFOLIO TRANSACTIONS
The Trust trades securities for a Fund if it believes that a transaction net
of costs (including custodian charges) will help achieve the Fund's investment
objective. Changes in the Fund's investments are made without regard to the
length of time a security has been held, or whether a sale would result in the
recognition of a profit or loss. Therefore, the rate of turnover is not a
limiting factor when changes are appropriate. Specific decisions to purchase or
sell securities for each Fund are made by a portfolio manager who is an employee
of Citibank and who is appointed and supervised by its senior officers. The
portfolio manager 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
28(e) of the Securities Exchange Act of 1934) to a Fund and/or the other
accounts over which Citibank or its affiliates exercise investment discretion.
Citibank is authorized to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for a Fund
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if Citibank 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 and its affiliates have with respect
to accounts over which they exercise investment discretion. The Trustees of the
Trust periodically review the commissions paid by a Fund to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits to a Fund.
The management fees that a 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 a Fund as well as for one or more of Citibank's other clients.
Investment decisions for a Fund and for Citibank's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could adversely affect the price of or the size of the
position obtainable in a security for a Fund. When purchases or sales of the
same security for a Fund and for other portfolios managed by Citibank occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large volume purchases or sales.
For the period from May 1, 1994 to December 31, 1994, for the fiscal years
ended December 31, 1995 and 1996 and for the period from January 1, 1997 to
October 31, 1997, the Large Cap Growth Portfolio paid brokerage commissions of
$342,356, $418,145, $586,248 and $643,728, respectively. For the period from
June 21, 1995 (commencement of operations) to December 31, 1995, for the fiscal
year ended December 31, 1996 and for the period from January 1, 1997 to October
31, 1997, the Small Cap Growth Portfolio paid brokerage commissions in the
amount of $6,544, $84,320 and $77,226, respectively.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value)
of each series and to divide or combine the shares of any series into a greater
or lesser number of shares of that series without thereby changing the
proportionate beneficial interests in that series and to divide such series into
classes. The Trust has reserved the right to create and issue additional series
and classes of shares. Each share of a Fund represents an equal proportionate
interest in the Fund with each other share. Shares of each series 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 advisory 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 particular series or class are
entitled to vote.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required and has no present
intention of holding, annual meetings of shareholders but the Trust will hold
special meetings of a 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 the application and
submission of certain specified documents to the Trustees by a specified number
of shareholders), the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of each series affected by the amendment.
(See "Investment Restrictions.")
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's or the affected
series' outstanding shares would be sufficient. The Trust or any series of the
Trust, as the case may be, may be terminated (i) by a vote of a majority of the
outstanding voting securities of the Trust or the affected series or (ii) by the
Trustees by written notice to the shareholders of the Trust or the affected
series. If not so terminated, each 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 of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Trust property for any shareholder held personally liable for the obligations
of the Trust. The Declaration of Trust also provides that the Trust may maintain
appropriate insurance (e.g., fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
The Portfolios are series of the Portfolio Trust, organized as a trust under
the laws of the State of New York. Each investor in a Portfolio, including the
applicable Fund, may add to or withdraw from its investment in the applicable
Portfolio on each Business Day. As of the close of regular trading on each
Business Day, the value of each investor's beneficial interest in each Portfolio
is determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or withdrawals
that are to be effected on that day are then effected. The investor's percentage
of the aggregate beneficial interests in the Portfolio is then re-computed as
the percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the close of regular trading
on such day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the close of regular trading on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined is then applied to determine the value of the
investor's interest in the Portfolio as of the close of regular trading on the
next following Business Day.
10. CERTAIN ADDITIONAL TAX MATTERS
Each 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 or
state income or federal excise taxes generally will be required to be paid by a
Fund, although non-U.S. source income earned by a Fund may be subject to
non-U.S. withholding or other taxes. If any Fund should fail to qualify as a
"regulated investment company" for any year, the Fund would incur a regular
corporate federal income tax upon its taxable income and Fund distributions
would generally be taxable as ordinary income to shareholders. The Portfolio
Trust believes the Portfolios also will not be required to pay any U.S.
federal income or excise taxes on their income.
The portion of each 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 a Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual shareholder will be eligible
for reduced tax rates if the shares were held for more than eighteen months.
However, any loss realized upon a disposition of shares in a Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
Each Fund's transactions in options, futures contracts and forward contracts
will be subject to special tax rules that may affect the amount, timing and
character of Fund income and distributions to shareholders. For example, certain
positions held by each Fund on the last business day of each taxable year will
be marked to market (i.e., treated as if closed out) on that day, and any gain
or loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by a Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. Each Fund will limit its activities in options, futures contracts and
forward contracts to the extent necessary to meet the requirements of Subchapter
M of the Code.
The Funds may make non-U.S. investments. Special tax considerations apply
with respect to such investments. Foreign exchange gains and losses realized by
a Fund will generally be treated as ordinary income and loss. Use of non- U.S.
currencies for non-hedging purposes may be limited in order to avoid a tax on a
Fund. A Fund may elect to mark to market any investments in "passive foreign
investment companies" on the last day of each taxable year. This election may
cause the Fund to recognize ordinary income prior to the receipt of cash
payments with respect to those investments; in order to distribute this income
and avoid a tax on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold. Investment by a Fund
in certain "passive foreign investment companies" may also be limited in order
to avoid a tax on the Fund. Investment income received by a Fund from non-U.S.
securities may be subject to non-U.S. taxes. The U.S. has entered into tax
treaties with many other countries that may entitle a Fund to a reduced rate of
tax or an exemption from tax on such income. Each Fund intends to qualify for
treaty reduced rates where applicable. It is not possible, however, to determine
a Fund's effective rate of non-U.S. tax in advance since the amount of the
Fund's assets to be invested within various countries is not known.
If a Fund holds more than 50% of its assets in foreign stock and securities
at the close of its taxable year, the Fund may elect to "pass through" to the
Fund's shareholders foreign income taxes paid. If a Fund so elects, shareholders
will be required to treat their pro rata portion of the foreign income taxes
paid by the Fund as part of the amounts distributed to them by the Fund and thus
includable in their gross income for federal income tax purposes. Shareholders
who itemize deductions would then be allowed to claim a deduction or credit (but
not both) on their federal income tax returns for such amounts, subject to
certain limitations. Shareholders who do not itemize deductions would (subject
to such limitations) be able to claim a credit but not a deduction. No deduction
for such amounts will be permitted to individuals in computing their alternative
minimum tax liability. If a Fund does not qualify or elect to "pass through" to
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.
Each 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 a 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. Each 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
distributions and redemption proceeds paid to shareholders who fail to provide
this information or who otherwise violate IRS regulations.
11. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The audited financial statements of the Large Cap Growth Fund (Statement of
Assets and Liabilities at October 31, 1997, Statement of Operations for the
fiscal year ended December 31, 1996 and for the ten months ended October 31,
1997, Statement of Changes in Net Assets for each of the years in the two-year
period ended December 31, 1996 and for the ten months ended October 31, 1997,
Financial Highlights for each of the years in the five-year period ended
December 31, 1996 and for the ten months ended October 31, 1997, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of the Large Cap Growth Fund, are
incorporated by reference into this Statement of Additional Information and have
been so incorporated in reliance upon the reports of Price Waterhouse LLP,
independent accountants, on behalf of the Fund.
The audited financial statements of the Large Cap Growth Portfolio
(Portfolio of Investments at October 31, 1997, Statement of Assets and
Liabilities at October 31, 1997, Statement of Operations for the fiscal year
ended December 31, 1996 and for the ten months ended October 31, 1997, Statement
of Changes in Net Assets for each of the years in the two-year period ended
December 31, 1996 and for the ten months ended October 31, 1997, Financial
Highlights for the period May 1, 1994 (commencement of operations) to December
31, 1994, the fiscal years ended December 31, 1995 and 1996 and for the ten
months ended October 31, 1997, Notes to Financial Statements and Independent
Auditors' Report), each of which is included in the Annual Report to
Shareholders of the Large Cap Growth Fund, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance upon the reports of Price Waterhouse, chartered accountants, on behalf
of the Portfolio.
The audited financial statements of the Small Cap Growth Fund (Statement of
Assets and Liabilities at October 31, 1997, Statement of Operations for the
fiscal year ended December 31, 1996 and for the ten months ended October 31,
1997, Statement of Changes in Net Assets for the period June 21, 1995
(commencement of operations) to December 31, 1995, the fiscal year ended
December 31, 1996 and for the ten months ended October 31, 1997, Financial
Highlights for the period June 21, 1995 (commencement of operations) to December
31, 1995, the fiscal year ended December 31, 1996 and for the ten months ended
October 31, 1997, Notes to Financial Statements and Independent Auditors'
Report), each of which is included in the Annual Report to Shareholders of the
Small Cap Growth Fund, are incorporated by reference into this Statement of
Additional Information and have been so incorporated in reliance upon the
reports of Price Waterhouse LLP, independent accountants, on behalf of the Fund.
The audited financial statements of the Small Cap Growth Portfolio
(Portfolio of Investments at October 31, 1997, Statement of Assets and
Liabilities at October 31, 1997, Statement of Operations for the fiscal year
ended December 31, 1996 and for the ten months ended October 31, 1997, Statement
of Changes in Net Assets for the period June 21, 1995 (commencement of
operations) to December 31, 1995, the fiscal year ended December 31, 1996 and
for the ten months ended October 31, 1997, Financial Highlights for the period
June 21, 1995 (commencement of operations) to December 31, 1995, the fiscal year
ended December 31, 1996 and for the ten months ended October 31, 1997, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of the Small Cap Growth Fund, are
incorporated by reference into this Statement of Additional Information and have
been so incorporated in reliance upon the reports of Price Waterhouse, chartered
accountants, on behalf of the Portfolio.
Copies of the Annual Report for each Fund accompany this Statement of
Additional Information.
