<PAGE>
As filed with the Securities and Exchange Commission on March 1, 1999
File Nos. 2-90519
811-4007
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 29
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 30
CITIFUNDS TRUST II
(Exact Name of Registrant as Specified in Charter)
21 Milk Street, 5th Floor, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 617-423-1679
Philip W. Coolidge, 21 Milk Street, 5th Floor, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Roger P. Joseph, Bingham Dana LLP, 150 Federal Street,
Boston, Massachusetts 02110
It is proposed that this filing will become effective on March 1, 1999, pursuant
to paragraph (b) of Rule 485.
The Premium Portfolios, on behalf of Growth & Income Portfolio, Large Cap Growth
Portfolio and Small Cap Growth Portfolio, and Asset Allocation Portfolios, on
behalf of Small Cap Value Portfolio, have also executed this registration
statement.
<PAGE>
MARCH 1, 1999
PROSPECTUS
CitiFunds(SM)
Large Cap Growth
Portfolio
CITIBANK, N.A., INVESTMENT MANAGER
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and
any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS(SM) ACCOUNT ............................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 19
HOW THE PRICE OF YOUR SHARES IS CALCULATED 20
HOW TO SELL SHARES .................................................. 20
REINSTATING RECENTLY SOLD SHARES .................................... 22
EXCHANGES ........................................................... 22
DIVIDENDS ........................................................... 24
TAX MATTERS ......................................................... 24
MANAGEMENT OF THE FUND ................................................. 26
MANAGER ............................................................. 26
MANAGEMENT FEES ..................................................... 27
MORE ABOUT THE FUND .................................................... 28
PRINCIPAL INVESTMENT STRATEGIES ..................................... 28
RISKS ............................................................... 32
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
FUND AT A GLANCE
Fund at a Glance
This summary briefly describes CitiFunds Large Cap Growth
Portfolio and the principal risks of investing in it. Please
note that the Fund invests in securities through an underlying
mutual fund. For more information, see "More About the Fund"
on page 28.
CitiFunds Large Cap
Growth Portfolio
FUND GOAL
The Fund's goal is long-term capital growth. Dividend income,
if any, is incidental to this goal. Of course, there is no
assurance that the Fund will achieve its goal.
MAIN INVESTMENT STRATEGIES
CitiFunds Large Cap Growth Portfolio invests primarily in
equity securities of U.S. large cap issuers that, at the time
the securities are purchased, have market capitalizations
within the top 1,000 stocks of the equity market. At December
31, 1998, issuers within the top 1,000 stocks had market
capitalizations of at least $1.9 billion. Under normal
circumstances, at least 65% of the Fund's total assets is
invested in equity securities of these issuers.
The Fund's equity securities consist primarily of common
stocks. The Fund may also invest in
other securities that Citibank believes provide opportunities
for appreciation, such as preferred stock, warrants,
securities convertible into common stock and debt securities.
The Fund may invest in common stocks and other securities
issued by smaller companies. The Fund's debt securities must
be investment grade when the Fund purchases them. Investment
grade securities are those rated Baa or better by Moody's, BBB
or better by Standard & Poor's, or which Citibank believes to
be of comparable quality. Less than 5% of the Fund's assets
consist of debt securities rated Baa by Moody's or BBB by
Standard & Poor's.
In managing the Fund, Citibank emphasizes well-established
companies with superior management teams, histories of above-
average revenue and earnings growth and continuing above-
average prospects for growth.
The Fund may invest up to 25% of its assets in foreign equity
and debt securities, including depositary receipts (receipts
representing the right to receive securities of foreign
issuers deposited in a U.S. bank or a local branch of a
foreign bank). Foreign securities may be issued by issuers in
developing countries.
The Fund may use derivatives in order to protect (or "hedge")
against changes in the prices of securities held or to be
bought or changes in the values (in U.S. dollars) of
securities of foreign issuers. The Fund may also use
derivatives for non-hedging purposes, to enhance potential
gains. These derivatives include stock index futures and
forward foreign currency exchange contracts. The Fund's
ability to use derivatives successfully depends on a number of
factors, including derivatives being available at prices that
are not too costly, tax considerations, and Citibank
accurately predicting movements in stock prices or currency
exchange rates.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See page 32 for more information about risks.
o MARKET RISK. This is the risk that the prices of securities
will rise or fall due to changing economic, political or
market conditions, or due to a company's individual situation.
The value of the Fund's shares will change daily as the value
of its underlying securities change. This means that your
shares of the Fund may be worth more or less when you sell
them than when you bought them.
o EQUITY SECURITIES. Equity securities are subject to market
risk that historically has resulted in greater price
volatility than exhibited by fixed income securities.
o GROWTH SECURITIES. Growth securities typically are quite
sensitive to market movements because their market prices tend
to reflect future expectations. When it appears those
expectations will not be met, the prices of growth securities
typically fall. The success of the Fund's investment strategy
depends largely on Citibank's skill in assessing the growth
potential of companies in which the Fund invests. In addition,
the Fund may underperform certain other stock funds (those
emphasizing value stocks, for example) during periods when
growth stocks are out of favor.
o FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to adverse political, social and economic
developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign
issuers and markets are subject. These risks may include
expropriation of assets, confiscatory taxation, withholding
taxes on dividends and interest paid on Fund investments,
fluctuations in exchange rates, currency exchange controls and
other limitations on the use or transfer of assets by the Fund
or issuers of securities, and political or social instability.
There may be rapid changes in the value of foreign currencies
or securities, causing the Fund's share price to be volatile.
Also, in certain circumstances, the Fund could realize reduced
or no value in U.S. dollars from its investments in foreign
securities, causing the Fund's share price to go down.
The Fund may invest in issuers located in emerging, or developing,
markets. All of the risks of investing in foreign securities are
heightened by investing in these markets.
o SMALLER COMPANIES. The securities of smaller capitalized
companies may have more risks than those of larger, more
seasoned companies. They may be particularly susceptible to
market downturns and their prices may be more volatile,
causing the Fund's share price to be volatile.
o DERIVATIVES. The Fund's use of derivatives (such as futures
contracts and forward foreign currency contracts),
particularly for non-hedging purposes, may be risky. This
practice could result in losses that are not offset by gains
on other portfolio assets. Losses would cause the Fund's share
price to go down. The Fund's ability to use derivatives
successfully depends on Citibank's ability to accurately
predict movements in stock prices and currency exchange rates.
If Citibank's predictions are wrong, the Fund could suffer
greater losses than if the Fund had not used derivatives.
o INTEREST RATE RISK. In general, the prices of debt securities
rise when interest rates fall, and fall when interest rates
rise. Longer term obligations are usually more sensitive to
interest rate changes. A change in interest rates could cause
the Fund's share price to go down.
o CREDIT RISK. Some issuers may not make payments on debt
securities held by the Fund, causing a loss. Or, an issuer's
financial condition may deteriorate, lowering the credit
quality of a security and leading to greater volatility in the
price of the security and in shares of the Fund. The prices of
lower rated securities often are more volatile than those of
higher rated securities.
o SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted
into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate
risk and the credit risk of their issuers.
Please note that an investment in the Fund is not a deposit of
Citibank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in CitiFunds Large
Cap Growth Portfolio is not a complete investment program.
You should consider investing in CitiFunds Large Cap Growth
Portfolio if:
o You want to direct a portion of your overall investment
portfolio to stocks of large cap issuers.
o You are seeking growth of principal but are concerned about
the high level of market volatility typically associated with
more aggressive growth funds.
o You are prepared to accept daily share price fluctuations.
o Your investment horizon is longer term -- typically at least
five years.
Don't invest in CitiFunds Large Cap Growth Portfolio if:
o You are not prepared to accept volatility of the Fund's share
price and possible losses.
o Current income is more important to you than growth of
principal.
o Your investment horizon is shorter term -- usually less than
five years.
Fund Performance
The following bar chart and table can help you evaluate the
risks of investing in the Fund, and how its returns have
varied over time.
o The bar chart shows changes in the Fund's performance from
year to year over the last eight calendar years. The chart and
related information do not take into account any sales charges
that you may be required to pay. Any sales charges will reduce
your return.
o The table shows how the Fund's average annual returns for the
periods indicated compare to those of a broad measure of
market performance. Please remember that, unlike the Fund, the
market index does not include the costs of buying and selling
securities and other Fund expenses.
o In both the chart and table, the returns shown for the Fund
are for periods before the creation of share classes on
January 4, 1999. All existing Fund shares were designated
Class A shares on that date. Prior to that date, there were no
sales charges on the purchase or sale of Fund shares. The
returns for Class A in the table, but not the bar chart, have
been adjusted to reflect the maximum front-end sales charge
currently applicable to the Class A shares.
o The Class B shares are newly offered and have no investment
history. Class B performance would have been lower than that
shown for Class A shares, because of higher fund expenses and
the effects of the contingent deferred sales charge.
When you consider this information, please remember that the
Fund's past performance is not necessarily an indication of
how it will perform in the future.
<PAGE>
TOTAL RETURNS
(per calendar year -- Class A)
- --------------------------------------------------------------------------------
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
1991 ...................... 30.74%
1992 ...................... 7.60%
1993 ...................... 12.26%
1994 ...................... -0.41%
1995 ...................... 27.55%
1996 ...................... 13.84%
1997 ...................... 31.38%
1998 ...................... 37.19%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 22.62% December 31, 1998
..............................................................................
Lowest (7.71%) September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
THROUGH DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year 5 Years October 19, 1990
..............................................................................
Class A 30.33% 19.88% 18.83%
..............................................................................
Class B N/A N/A N/A
..............................................................................
S&P 500 Growth Index 42.15% 27.91% * %
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
..............................................................................
SHARE CLASS (Class descriptions begin on page 13) CLASS A CLASS B
..............................................................................
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
..............................................................................
Management Fees 0.90% 0.90%
..............................................................................
Distribution (12b-1) Fees 0.25% 1.00%
..............................................................................
Other Expenses (administrative, shareholder servicing
and other expenses) 0.17% 0.17%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.32% 2.07%
- ------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior year were (or, in the case of Class B
shares, would have been): 1.05% 1.80%
These fee waivers and reimbursements may be reduced or terminated at any
time.
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) The Fund invests in an underlying mutual fund, Large Cap Growth
Portfolio. This table reflects the expenses of the Fund and Large Cap
Growth Portfolio.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if
you own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year -- the assumption of
a 5% return is required by the SEC for the purpose of this
example and is not a prediction of the Fund's future
performance; and
o the Fund's operating expenses shown in the Fund Fees and
Expenses table remain the same before taking into
consideration any fee waivers or reimbursements.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
Class A $628 $897 $1,187 $2,011
..............................................................................
Class B
..............................................................................
Assuming redemption at end of $710 $949 $1,214 $2,167
period
..............................................................................
Assuming no redemption $210 $649 $1,114 $2,167
- --------------------------------------------------------------------------------
<PAGE>
YOUR CITIFUNDS ACCOUNT
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE
o Front-end load -- there is an initial sales charge of 5.00% or
less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 5% to 1% over five
years, and is eliminated if you hold your shares for six years
or more
o Annual distribution/service fee of up to 1.00%
o Automatic conversion to Class A shares after 8 years
- ---------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/
SERVICE FEES that are paid under a
12B-1 PLAN. These are fees, also called 12B-1 FEES, that are
deducted from Fund assets and are used to compensate those
financial professionals who sell fund shares and provide
ongoing services to shareholders and to pay other marketing
and advertising expenses. Because you pay these fees during
the whole period that you own the shares, over time you may
pay more than if you had paid other types of sales charges.
For this reason, you should consider the effects of 12b-1 fees
as well as sales loads when choosing a share class.
- ---------------------------------------------------------------------------
<PAGE>
SALES CHARGES -- CLASS A SHARES
o Class A shares are sold at net asset value plus a front- end,
or initial, sales charge. The rate you pay goes down as the
amount of your investment in Class A shares goes up. The table
below shows the rate of sales charge that you pay, depending
on the amount that you purchase.
o The table below also shows the amount of broker/dealer
compensation that is paid out of the sales charge. This
compensation includes commissions and other fees that
financial professionals who sell shares of the Fund receive.
The distributor keeps up to approximately 10% of the sales
charge imposed on Class A shares. Financial professionals that
sell Class A shares will also receive the service fee payable
on Class A shares at an annual rate equal to 0.25% of the
average daily net assets represented by the Class A shares
sold by them.
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 5.00% 5.26% 4.50%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
..............................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
..............................................................................
$500,000 or more none* none* up to 1.00%
- --------------------------------------------------------------------------------
*A contingent deferred sales charge may apply in certain instances. See below.
o After the initial sales charge is deducted from your
investment, the balance of your investment is invested in the
Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares
rather than Class B shares because Class A shares pay lower
fees.
o If you invest at least $500,000 in the Fund, you do not pay
any initial sales charge. However, you may be charged a
contingent deferred sales charge (CDSC) of 1% of the purchase
price, or the sale price, whichever is less, if you sell
within the first year. Under certain circumstances, waivers
may apply. Other policies regarding the application of the
CDSC are the same as for Class B shares. Please read the
discussion below on Class B shares for more information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares that represent capital
appreciation or the reinvestment of dividends or capital gains
distributions on those shares.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The
table below shows the rates that you pay, as a percentage of
your original purchase price (or the sale price, whichever is
less), depending upon when you sell your shares.
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 5.00%
..............................................................................
2nd year since purchase 4.00%
..............................................................................
3rd year since purchase 3.00%
..............................................................................
4th year since purchase 2.00%
..............................................................................
5th year since purchase 1.00%
..............................................................................
6th year (or later) since purchase None
- -------------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a
commission of 4.50% of the purchase price of the Class B
shares that they sell, except for sales exempt from the CDSC.
Financial professionals also receive a service fee at an
annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares that they have sold.
o When you sell your shares, the CDSC will be based on either
your original purchase price, or the sale price, whichever is
less.
o You do not pay a CDSC on shares acquired through reinvestment
of dividends and capital gain distributions or on shares
representing capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Class B shares with the lowest CDSC to fill
your sell requests.
o You do not pay a CDSC at the time you exchange your Class B
shares for Class B shares of certain CitiFunds -- any payment
will be deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
From time to time, the Fund's distributor or Citibank may
provide additional promotional bonuses, incentives or payments
to dealers that sell shares of the Fund. These may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered
representatives and their guests to locations within and
outside the United States for meetings or seminars of a
business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or
may sell significant amounts of shares. Certain dealers may
not sell all classes of shares.
The Fund's distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers,
including certain tax-exempt organizations, certain employee
benefit plans, certain entities or persons with a qualifying
affiliation or relationship with Citibank, and, under certain
circumstances, investors using the proceeds of a redemption
from another mutual fund for their purchase of Class A shares.
Further information about eligible purchasers may be found in
the Appendix to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the
shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds Large Cap Growth Portfolio are offered
continuously and purchases may be made Monday through Friday,
except on certain holidays. Shares may be purchased from the
Fund's distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please
specify whether you are purchasing Class A or Class B shares.
If you fail to specify, Class A shares will be purchased for
your account. The Fund and the distributor have the right to
reject any purchase order or cease offering Fund shares at any
time.
Shares are purchased at net asset value (NAV) the next time it
is calculated after your order is received and accepted by the
Fund's transfer agent. NAV is the value of a single share of
the Fund. If you are purchasing Class A shares, the applicable
sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for
Fund shares until it receives the purchase price in federal or
other immediately available funds. If you pay by check, the
Service Agent transmits the order when the check clears,
usually within two business days.
If you are a customer of a Service Agent, your Service Agent
will establish and maintain your account and be the
shareholder of record. If you wish to transfer your account,
you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly
with the Fund's transfer agent.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time. NAV is calculated separately
for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the
financial markets in which the Fund invests close early, NAV
will be calculated as of the close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security. For foreign securities the values are translated
from the local currency into U.S. dollars using current
exchange rates. If trading in the currency is restricted, the
Fund uses a rate believed to reflect the currency's fair value
in U.S. dollars. Trading may take place in foreign securities
held by the Fund on days when the Fund is not open for
business. As a result, the Fund's NAV may change on days on
which it is not possible to purchase or sell shares of the
Fund.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to a CDSC on the shares withdrawn under the
Plan. For more information, please contact your Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital
gain distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. The Fund has
the right to pay your redemption proceeds by giving you
securities instead of cash. In that case, you may incur costs
(such as brokerage commissions) converting the securities into
cash. You should be aware that you may have to pay taxes on
your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of shares redeemed, without paying any sales
charges. To take advantage of this reinstatement privilege,
you must notify the Fund in writing at the time you wish to
repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain CitiFunds. You may also be able to exchange your Class
A shares for shares of certain CitiFunds that offer only a
single class of shares, unless your Class A shares are subject
to a CDSC. You may not exchange Class B shares for shares of
CitiFunds that offer only a single class of shares. You may
also acquire Fund shares through an exchange from another fund
managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Fund shares were
purchased prior to January 4, 1999, you will not have to pay a
sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
CitiFunds Large Cap Growth Portfolio pays substantially all of
its net income (if any) from dividends and interest to its
shareholders of record as a dividend semi-annually during the
months of June and December.
The Fund's net realized short-term and long-term capital
gains, if any, will be distributed to Fund shareholders at
least annually, in December. The Fund may also make additional
distributions to shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain
undistributed income and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional Fund shares.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
Each year the Fund will mail you a report of your
distributions for the prior year and how they are treated for
federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transactions.
<PAGE>
Management of the Fund
MANAGER
CitiFunds Large Cap Growth Portfolio draws on the strength and
experience of Citibank. Citibank is the investment manager of
the Fund, and subject to policies set by the Fund's Trustees,
Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently
manages more than $290 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup
Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
"CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates may have banking and investment
banking relationships with the issuers of securities that are
held in the Fund. However, in making investment decisions for
the Fund, Citibank does not obtain or use material inside
information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and
its affiliates may have loans outstanding that are repaid with
proceeds of securities purchased by the Fund.
Grant D. Hobson and Richard Goldman, Vice Presidents, have
been the portfolio managers of the Fund since January 1996.
Mr. Hobson is a Senior Portfolio Manager who, since September
1993, has been responsible for managing U.S. large
capitalization equity portfolios for trust and pension
accounts of Citibank Global Asset Management. He currently
manages, or co-manages, more than $4 billion of total assets
at Citibank. Prior to joining Citibank in 1993, Mr. Hobson was
a securities analyst and sector manager for pension accounts
and mutual funds for Axe Houghton, formerly a division of
USF&G. Mr. Goldman is a Senior Investment Officer and lead
portfolio manager for the Focused Growth Large Cap Funds and
has been a member of the Large Cap Growth Team since June
1994. He joined Citibank in 1985 as an assistant portfolio
manager, working on quantitative portfolio strategies. Within
the investment unit, he has had responsibilities in both
product development and portfolio management. From September
1988 through June 1994, Mr. Goldman served as Director of
Institutional Investor Relations, where his responsibilities
included managing Citicorp's relationships with its investors
and rating agencies. He currently manages, or co-manages,
approximately $6 billion of total assets at Citibank.
MANAGEMENT OF THE FUND
MANAGEMENT FEES
For the management services Citibank provided to the Fund and
its underlying mutual fund during the fiscal year ended
October 31, 1998, Citibank received a total of 0.70% of the
Fund's average daily net assets, after waivers.
<PAGE>
More About the Fund
The Fund's goal, principal investments and risks are
summarized in FUND AT A GLANCE on page 3. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Large Cap Growth Portfolio's principal investment
strategies are the strategies that, in the opinion of
Citibank, are most likely to achieve the Fund's investment
goal. Of course, there can be no assurance that the Fund will
achieve its goal. Please note that the Fund may also use
strategies and invest in securities that are not described
below but that are described in the Statement of Additional
Information. Of course, Citibank may decide, as a matter of
investment strategy, not to use the investments and investment
techniques described below and in the Statement of Additional
Information at any particular time. The Fund's goal and
strategies may be changed without shareholder approval.
The Fund invests primarily in equity securities of U.S. large
cap issuers that, at the time the securities are purchased,
have market capitalizations within the top 1,000 stocks of the
equity market. At December 31, 1998, issuers within the top
1,000 stocks had market capitalizations of at least $1.9
billion. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of large
cap issuers.
<PAGE>
MORE ABOUT THE FUND
- --------------------------------------------------------------------------------
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest
(or a right to acquire an ownership interest) in an issuer,
and include COMMON STOCKS, SECURITIES CONVERTIBLE INTO COMMON
STOCKS, PREFERRED STOCKS, WARRANTS for the purchase of stock
and DEPOSITARY RECEIPTS (receipts which represent the right to
receive the securities of foreign issuers deposited in a U.S.
bank or a local branch of a foreign bank). While equity
securities historically have been more volatile than fixed
income securities, they historically have produced higher
levels of total return.
- ---------------------------------------------------------------------------
The Fund may also invest in securities of small cap issuers
and international issuers. Small cap issuers are those with
market capitalizations below the top 1,000 stocks of the
equity market. International issuers are those based outside
the United States.
The Fund's equity securities consist primarily of common
stocks. The Fund's other equity securities may include
securities convertible into common stocks, preferred stocks,
warrants for the purchase of stock and depositary receipts.
The Fund may also invest in debt securities. The Fund's debt
securities must be investment grade when the Fund purchases
them. Investment grade securities are those rated Baa or
better by Moody's, BBB or better by Standard & Poor's, or
which Citibank believes to be of comparable quality. Less than
5% of the Fund's assets consist of debt securities rated Baa
by Moody's or BBB by Standard & Poor's.
In selecting investments, Citibank emphasizes issuers with
long histories of strong, relatively predictable earnings
growth rates and the products and strategies for continuing
above-average growth. It seeks issuers that build earnings by
increasing sales, productivity and market share rather than by
cutting costs. Citibank also emphasizes issuers with stable
financial characteristics and low debt levels.
The Fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse
repurchase agreements for cash management purposes.
See "Risks" for more information about the risks associated
with investing in equity securities.
DERIVATIVES. The Fund may use derivatives in order to protect
(or "hedge") against declines in the value of securities held
by the Fund or increases in the cost of securities to be
purchased in the future. The Fund may also use derivatives for
non-hedging purposes, to enhance potential gains. These
derivatives include stock index futures contracts, forward
foreign currency contracts and options on foreign currencies.
In some cases, the derivatives purchased by the Fund are
standardized contracts traded on commodities exchanges or
boards of trade. This means that the exchange or board of
trade guaranties counterparty performance. In some cases, the
derivatives may be illiquid, and the Fund may bear more
counterparty risk. Derivatives may not be available on terms
that make economic sense (for example, they may be too
costly). The Fund's ability to use derivatives may also be
limited by tax considerations.
DEFENSIVE STRATEGIES. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the
Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE. The Fund does not invest directly in
securities but instead invests through an underlying mutual
fund, Large Cap Growth Portfolio, having the same investment
goals and strategies as the Fund. Large Cap Growth Portfolio
buys, holds and sells securities in accordance with these
goals and strategies. The Fund may stop investing in its
underlying mutual fund at any time, and will do so if the
Fund's Trustees believe that to be in the best interests of
the Fund's shareholders. The Fund could then invest in another
mutual fund or pooled investment vehicle or invest directly in
securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when selecting securities to purchase. Portfolio
managers for the Fund use a "bottom-up" approach when
selecting securities for purchase by the Fund. This means that
they look primarily for individual companies with consistent
earnings growth, against the context of broader market
factors. The portfolio managers use this same approach when
deciding which securities to sell. Securities are sold when
the Fund needs cash to meet redemptions, or when the managers
believe that better opportunities exist or that the security
no longer fits within the managers' overall strategies for
achieving the Fund's goals. For more information about the
portfolio managers, see "Manager" on page 26.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
Citibank may use brokers or dealers for Fund transactions who
also provide brokerage and research services to the Fund or
other accounts over which Citibank exercises investment
discretion. The Fund may "pay up" for brokerage services,
meaning that it is authorized to pay a broker or dealer who
provides these brokerage and research services a commission
for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged.
However, the Fund will "pay up" only if Citibank determines in
good faith that the higher commission is reasonable in
relation to the brokerage and research services provided,
viewed in terms of either the particular transaction or all of
the accounts over which Citibank exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing,
you should consider the risks you will assume. Certain of
these risks are described below. More information about risks
appears in the Fund's Statement of Additional Information.
Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in
this Fund.
Please remember that an investment in the Fund is not a
deposit of Citibank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
MARKET RISK. This is the risk that the prices of securities
will rise or fall due to changing economic, political or
market conditions, or due to a company's individual situation.
The value of the Fund's shares will change daily as the value
of its underlying securities change. This means that your
shares of the Fund may be worth more or less when you sell
them than when you bought them.
EQUITY SECURITIES. Equity securities are subject to market
risk that historically has resulted in greater price
volatility than exhibited by fixed income securities.
GROWTH SECURITIES. Growth securities typically are quite
sensitive to market movements because their market prices tend
to reflect future expectations. When it appears those
expectations will not be met, the prices of growth securities
typically fall. Growth securities may also be more volatile
than other investments because they generally do not pay
dividends. The success of the Fund's investment strategy
depends largely on Citibank's skill in assessing the growth
potential of companies in which the Fund invests.
FOREIGN SECURITIES. Investments in foreign 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 foreign issuers and
markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on
fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and
political or social instability.
o Foreign companies may not be subject to accounting standards
or governmental supervision comparable to U.S. companies, and
there may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in
speculative investing, contributing to volatility. Also,
equity securities may trade at price-earnings multiples that
are higher than those of comparable U.S. companies, and that
may not be sustainable. As a result, there may be rapid
changes in the value of foreign securities.
o Foreign markets may offer less protection to investors.
Enforcing legal rights may be difficult, costly and slow.
There may be special problems enforcing claims against foreign
governments.
o Since foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will
affect the Fund's net asset value, the value of dividends and
interest earned, and gains and losses realized on the sale of
securities. An increase in the U.S. dollar relative to these
other currencies will adversely affect the value of the Fund.
In addition, some foreign currency values may be volatile and
there is the possibility of governmental controls on currency
exchanges or governmental intervention in currency markets.
Controls or intervention could limit or prevent the Fund from
realizing value in U.S. dollars from its investment in foreign
securities. The Fund may also be adversely affected by the
introduction of the Euro.
o The Fund may invest in issuers located in emerging, or
developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile
than the markets of developed countries with more mature
economies.
SMALLER COMPANIES. The securities of smaller capitalization
companies may have more risks than those of larger, more
seasoned companies. They may be particularly susceptible to
market downturns because of limited financial or management
resources. Also, there may be less publicly available
information about small cap companies. As a result, their
prices may be volatile, causing the Fund's share price to be
volatile.
INTEREST RATE RISK. In general, the prices of debt securities
rise when interest rates fall, and fall when interest rates
rise. Longer term obligations are usually more sensitive to
interest rate changes. A change in interest rates could cause
the Fund's share price to go down.
CREDIT RISK. The Fund may invest in investment grade debt
securities. It is possible that some issuers will not make
payments on debt securities held by the Fund, causing a loss.
Or, an issuer may suffer adverse changes in its financial
condition that could lower the credit quality of a security,
leading to greater volatility in the price of the security and
in shares of the Fund. A change in the quality rating of a
bond or other security can also affect the security's
liquidity and make it more difficult for the Fund to sell. The
lower quality debt securities in which the Fund may invest are
more susceptible to these problems than higher quality
obligations.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted
into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate
risk and the credit risk of their issuers. Call provisions may
allow the issuer to repay the debt before it matures.
DERIVATIVES. The Fund's use of derivatives (such as futures
contracts and forward foreign currency contracts),
particularly when used for non-hedging purposes, may be risky.
This practice could result in losses that are not offset by
gains on other portfolio assets. Losses would cause the Fund's
share price to go down. There is also the risk that the
counterparty may fail to honor its contract terms. This risk
becomes more acute when the Fund invests in derivatives that
are not traded on commodities exchanges or boards of trade.
The Fund's ability to use derivatives successfully depends on
Citibank's ability to accurately predict movements in stock
prices and currency exchange rates. If Citibank's predictions
are wrong, the Fund could suffer greater losses than if the
Fund had not used derivatives.
YEAR 2000. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers are
not programmed to accurately process information on or after
January 1, 2000. The Fund, and its service providers, are
making efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not
solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FINANCIAL HIGHLIGHTS
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Class A Fund share. The total returns
in the table represent the rate that an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Fund's financial statements, is included in
the annual report which is incorporated by reference in the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended Year Ended December 31,
October 31, October 31, --------------------------------------------
1998 1997 1996 1995 1994++ 1993++ 1992++
..........................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $21.14 $18.25 $17.20 $14.13 $14.80 $13.23 $12.36
..........................................................................................................................
Income From Operations:
Net investment income (loss) (0.022)** 0.031 0.122 0.211 0.173 0.071** 0.065
Net realized and unrealized gain (loss)
on investments 4.735** 4.016 2.250 3.651 (0.245) 1.550** 0.868
..........................................................................................................................
Total from operations 4.713 4.047 2.372 3.862 (0.072) 1.621 0.933
..........................................................................................................................
Less Distributions From:
Net investment income (0.012) (0.030) (0.118) (0.210) (0.169) (0.051) (0.063)
Net realized gain on investments (4.371) (1.127) (1.204) (0.582) (0.429) -- --
..........................................................................................................................
Total distributions (4.383) (1.157) (1.322) (0.792) (0.598) (0.051) (0.063)
..........................................................................................................................
Net Asset Value, end of period $21.47 $21.14 $18.25 $17.20 $14.13 $14.80 $13.23
..........................................................................................................................
Total Return 26.90% 22.27%+ 13.84% 27.55% (0.41)% 12.26% 7.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $378,280 $248,161 $228,954 $213,729 $183,975 $200,903 $10,973
Ratio of expenses to average net assets 1.05%(A) 1.05%(A)* 1.05%(A) 1.05%(A) 1.05%(A) 1.07% 1.40%
Ratio of net investment income (loss)
to average net assets (0.11)% 0.18%* 0.67% 1.30% 1.15% 0.52% 0.53%
Portfolio turnover(B) 53% 103% 90% 67% 1% 23% 79%
Note: If agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees and had expenses
been limited to that required by certain state securities laws for the year ended December 31, 1992, the net investment
income (loss) per share and the ratios would have been as follows:
Net investment income (loss) per share $(0.078)** $(0.023) $0.067 $0.170 $0.136 $(0.029)** $(0.070)
RATIOS:
Expenses to average net assets 1.32%(A) 1.35%(A)* 1.35%(A) 1.30%(A) 1.29%(A) 1.37% 2.50%
Net investment income (loss)
to average net assets (0.38)% (0.12)%* 0.37% 1.05% 0.91% 0.21% (0.57)%
* Annualized.
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A)Includes the Fund's share of Large Cap Growth Portfolio (formerly Equity Portfolio) allocated expenses for the periods
subsequent to May 1, 1994.
(B)Portfolio turnover through April 30, 1994 represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rates for the periods beginning on May 1, 1994 represent the rate
of portfolio activity of Large Cap Growth Portfolio, the underlying portfolio through which the Fund invests.
+ Not annualized.
++ On May 1, 1994 the Fund began investing all of its investable assets in Large Cap Growth Portfolio.
</TABLE>
<PAGE>
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors or trustees (and their immediate families),
of any investment company for which Citibank or any subsidiary
or affiliate of Citibank serves as the investment adviser or
as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS and its
affiliates (including immediate families of any of the
foregoing)
[] investors participating in a fee-based or promotional
arrangement sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances
in selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan
offered to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's
Board of Trustees or by the Board of Trustees of any other
CitiFund or mutual fund managed or advised by Citibank (all of
such funds being referred to herein as CitiFunds) the terms of
which entitle those shareholders to purchase shares of the
Fund or any other CitiFund at net asset value without a sales
charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum
requirements as may be established by CFBDS with respect to
the amount of purchase; currently, the amount invested by the
qualified plan in the Fund or in any combination of CitiFunds
must total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be imposed on
the investments in the event of certain share redemptions
within 12 months following the share purchase, at the rate of
1% of the lesser of the value of the shares redeemed (not
including reinvested dividends and capital gains
distributions) or the total cost of the shares; the contingent
deferred sales charge on Class A shares will be waived under
the same circumstances as the contingent deferred sales charge
on Class B shares will be waived; in determining whether a
contingent deferred sales charge on Class A shares is payable,
and if so, the amount of the charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent
month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the
redemption proceeds when the exchanged shares are
subsequently redeemed (assuming the contingent deferred
sales charge is then payable)
o the holding period of Class A shares so acquired through
an exchange will be aggregated with the period during
which the original Class A shares were held
[] subject to appropriate documentation, investors where the
amount invested represents redemption proceeds from a mutual
fund (other than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge or
a deferred sales charge (whether or not actually imposed), and
o the redemption has occurred no more than 60 days prior to
the purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from
another investment firm within six months prior to the date of
purchase by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative,
and either paid an initial sales charge or was at some
time subject to, but did not actually pay, a deferred
sales charge or redemption fee with respect to the
redemption proceeds
o the redemption is made within 60 days prior to the
investment in the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the
proceeds of the redemption.
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at
http://www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. You can get information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You can receive copies of this information by
sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009.
SEC File Number: 811-4007
<PAGE>
PROSPECTUS
MARCH 1, 1999
CitiFunds(SM)
Small Cap Growth
Portfolio
CITIBANK, N.A., INVESTMENT MANAGER
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS(SM) ACCOUNT ............................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 19
HOW THE PRICE OF YOUR SHARES IS CALCULATED 20
HOW TO SELL SHARES .................................................. 20
REINSTATING RECENTLY SOLD SHARES .................................... 22
EXCHANGES ........................................................... 22
DIVIDENDS ........................................................... 24
TAX MATTERS ......................................................... 24
MANAGEMENT OF THE FUND ................................................. 26
MANAGER ............................................................. 26
MANAGEMENT FEES ..................................................... 27
MORE ABOUT THE FUND .................................................... 28
PRINCIPAL INVESTMENT STRATEGIES ..................................... 28
RISKS ............................................................... 32
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
FUND AT A GLANCE
Fund at a Glance
This summary briefly describes CitiFunds Small Cap Growth
Portfolio and the principal risks of investing in it. Please
note that the Fund invests in securities through an underlying
mutual fund. For more information, see "More About the Fund"
on page 28.
CitiFunds Small Cap
Growth Portfolio
FUND GOAL
The Fund's goal is long-term capital growth. Dividend income,
if any, is incidental to this goal. Of course, there is no
assurance that the Fund will achieve its goal.
MAIN INVESTMENT STRATEGIES
CitiFunds Small Cap Growth Portfolio invests primarily in
equity securities of U.S. small cap issuers that, at the time
the securities are purchased, have market capitalizations
below the top 1,000 stocks of the equity market. At December
31, 1998, the maximum capitalization of issuers in this
category was below $1.9 billion. Under normal circumstances,
at least 65% of the Fund's total assets is invested in equity
securities of these issuers. These securities may include the
stocks in the Russell 2000 Index, which is an index of small
capitalization stocks. The Fund's equity securities may
include the following:
o common stocks;
o securities convertible into common stocks;
o preferred stocks;
o warrants; and
o depositary receipts (receipts which represent the right to receive
the securities of foreign issuers deposited in a U.S. bank or a
local branch of a foreign bank).
In managing the Fund, Citibank uses an aggressive, growth-
oriented investment style that emphasizes companies with
superior management teams and good prospects for growth. In
addition, the Fund may invest in companies believed to be
emerging companies relative to their potential markets. The
Fund may continue to hold securities of issuers that become
mid cap or large cap issuers if, in Citibank's judgment, these
securities remain good investments for the Fund.
The Fund may also invest in other securities that Citibank
believes provide opportunities for appreciation, such as fixed
income securities. The Fund's debt securities must be
investment grade when the Fund purchases them. Investment
grade securities are those rated Baa or better by Moody's, BBB
or better by Standard & Poor's, or which Citibank believes to
be of comparable quality.
The Fund may invest up to 25% of its assets in foreign equity
and debt securities, including depositary receipts. Foreign
securities may be issued by issuers in developing countries.
The Fund may use derivatives in order to protect (or "hedge")
against changes in the prices of securities held or to be
bought or changes in the values (in U.S. dollars) of
securities of foreign issuers. The Fund may also use
derivatives for non-hedging purposes, to enhance potential
gains. These derivatives include stock index futures and
forward foreign currency exchange contracts. The Fund's
ability to use derivatives successfully depends on a number of
factors, including derivatives being available at prices that
are not too costly, tax considerations, and Citibank
accurately predicting movements in stock prices and currency
exchange rates.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See page 32 for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation. The value
of the Fund's shares will change daily as the value of its
underlying securities change. This means that your shares of the
Fund may be worth more or less when you sell them than when you
bought them.
o EQUITY SECURITIES. Equity securities are subject to market risk
that historically has resulted in greater price volatility than
exhibited by fixed income securities.
o SMALLER COMPANIES. The securities of smaller capitalized companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns because
of limited product lines, markets, distribution channels or
financial and management resources. Also, there may be less
publicly available information about small cap companies. As a
result, their prices may be more volatile, causing the Fund's
share price to be volatile. Funds that invest a higher percentage
of their assets in small cap stocks are generally more volatile
than funds investing a higher percentage of their assets in
larger, more established companies.
The Fund's aggressive, growth-oriented investment style may
increase the risks associated with investing in smaller companies.
For example, the securities of fast growing small cap companies
may be more volatile than those of other small cap companies.
o GROWTH SECURITIES. Growth securities typically are quite sensitive
to market movements because their market prices tend to reflect
future expectations. When it appears those expectations will not
be met, the prices of growth securities typically fall. The
success of the Fund's investment strategy depends largely on
Citibank's skill in assessing the growth potential of companies in
which the Fund invests. In addition, the Fund may underperform
certain other stock funds (those emphasizing value stocks, for
example) during periods when growth stocks are out of favor.
o FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to adverse political, social and economic
developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign
issuers and markets are subject. These risks may include
expropriation of assets, confiscatory taxation, withholding taxes
on dividends and interest paid on Fund investments, fluctuations
in currency exchange rates, currency exchange controls and other
limitations on the use or transfer of assets by the Fund or
issuers of securities and political or social instability. There
may be rapid changes in the value of foreign currencies or
securities, causing the Fund's share price to be volatile. Also,
in certain circumstances, the Fund could realize reduced or no
value in U.S. dollars from its investments in foreign securities,
causing the Fund's share price to go down.
The Fund may invest in issuers located in emerging, or developing,
markets. All of the risks of investing in foreign securities are
heightened by investing in these markets.
o DERIVATIVES. The Fund's use of derivatives (such as futures
contracts and forward foreign currency contracts), particularly
for non-hedging purposes, may be risky. This practice could result
in losses that are not offset by gains on other portfolio assets.
Losses would cause the Fund's share price to go down. The Fund's
ability to use derivatives successfully depends on Citibank's
ability to accurately predict movements in stock prices and
currency exchange rates. If Citibank's predictions are wrong, the
Fund could suffer greater losses than if the Fund had not used
derivatives.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise.
Longer term obligations are usually more sensitive to interest
rate changes. A change in interest rates could cause the Fund's
share price to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Fund, causing a loss. Or, an issuer's financial
condition may deteriorate, lowering the credit quality of a
security and leading to greater volatility in the price of the
security and in shares of the Fund. The prices of lower rated
securities often are more volatile than those of higher rated
securities.
o SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted into
stock, are subject to the market risk of stocks, and, like other
debt securities, are also subject to interest rate risk and the
credit risk of their issuers.
Please note that an investment in the Fund is not a deposit of
Citibank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in CitiFunds Small
Cap Growth Portfolio is not a complete investment program.
You should consider investing in CitiFunds Small Cap Growth
Portfolio if:
o You want to direct a portion of your overall investment portfolio
to stocks of small cap issuers.
o You are seeking growth of principal.
o Your investment horizon is longer term -- typically at least five
years.
Don't invest in CitiFunds Small Cap Growth Portfolio if:
o You are not prepared to accept high volatility of the Fund's share
price and possible losses.
o Current income is more important to you than growth of principal.
o Your investment horizon is shorter term -- usually less than five
years.
Fund Performance
The following bar chart and table can help you evaluate the
risks of investing in the Fund, and how its returns have
varied over time.
o The bar chart shows changes in the Fund's performance from year to
year over the last three calendar years. The chart and related
information do not take into account any sales charges that you
may be required to pay. Any sales charges will reduce your return.
o The table shows how the Fund's average annual returns for the
periods indicated compare to those of a broad measure of market
performance. Please remember that, unlike the Fund, the market
index does not include the costs of buying and selling securities
and other Fund expenses.
o In both the chart and table, the returns shown for the Fund are
for periods before the creation of share classes on January 4,
1999. All existing Fund shares were designated Class A shares on
that date. Prior to that date, there were no sales charges on the
purchase or sale of Fund shares. The returns for Class A in the
table, but not the bar chart, have been adjusted to reflect the
maximum front-end sales charge currently applicable to the Class A
shares.
o The Class B shares are newly offered and have no investment
history. Class B performance would have been lower than that shown
for Class A shares, because of higher fund expenses and the
effects of the contingent deferred sales charge.
When you consider this information, please remember that the
Fund's past performance is not necessarily an indication of
how it will perform in the future.
TOTAL RETURN
(per calendar year -- Class A)
- --------------------------------------------------------------------------------
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
1996 .......................... 37.80
1997 .......................... 15.81
1998 .......................... -4.43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
- --------------------------------------------------------------------------------
..............................................................................
Quarter Ending
..............................................................................
Highest 18.30% March 31, 1996
..............................................................................
Lowest (25.10%) September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
THROUGH DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year June 21, 1995
..............................................................................
Class A (9.21%) 23.34%
..............................................................................
Class B N/A N/A
..............................................................................
Russell 2000 Growth Index 1.23% *%
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
..............................................................................
SHARE CLASS (Class descriptions begin on page 13) CLASS A CLASS B
..............................................................................
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
..............................................................................
Management Fees 1.10% 1.10%
..............................................................................
Distribution (12b-1) Fees 0.25% 1.00%
..............................................................................
Other Expenses (administrative, shareholder servicing
and other expenses) 0.64% 0.64%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.99% 2.74%
- --------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior year were (or, in the case of Class B
shares, would have been):
1.35% 2.10%
These fee waivers and reimbursements may be reduced or terminated at any
time.
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) The Fund invests in an underlying mutual fund, Small Cap Growth
Portfolio. This table reflects the expenses of the Fund and Small Cap
Growth Portfolio.
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you
own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year -- the assumption of a
5% return is required by the SEC for the purpose of this example
and is not a prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the Fund Fees and Expenses
table remain the same before taking into consideration any fee
waivers or reimbursements.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
Class A $692 $1,093 $1,519 $2,701
..............................................................................
Class B
..............................................................................
Assuming redemption at end of
period $777 $1,150 $1,550 $2,887
..............................................................................
Assuming no redemption $277 $ 850 $1,450 $2,887
- --------------------------------------------------------------------------------
<PAGE>
YOUR CITIFUNDS ACCOUNT
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE
o Front-end load -- there is an initial sales charge of 5.00% or
less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 5% to 1% over five years,
and is eliminated if you hold your shares for six years or more
o Annual distribution/service fee of up to 1.00%
o Automatic conversion to Class A shares after 8 years
- --------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/ SERVICE FEES
that are paid under a 12B-1 PLAN. These are fees, also called 12B-1
FEES, that are deducted from Fund assets and are used to compensate
those financial professionals who sell fund shares and provide ongoing
services to shareholders and to pay other marketing and advertising
expenses. Because you pay these fees during the whole period that you
own the shares, over time you may pay more than if you had paid other
types of sales charges. For this reason, you should consider the
effects of 12b-1 fees as well as sales loads when choosing a share
class.
- --------------------------------------------------------------------------------
SALES CHARGES -- CLASS A SHARES
o Class A shares are sold at net asset value plus a front- end, or
initial, sales charge. The rate you pay goes down as the amount of
your investment in Class A shares goes up. The table below shows
the rate of sales charge that you pay, depending on the amount
that you purchase.
o The table below also shows the amount of broker/dealer
compensation that is paid out of the sales charge. This
compensation includes commissions and other fees that financial
professionals who sell shares of the Fund receive. The distributor
keeps up to approximately 10% of the sales charge imposed on Class
A shares. Financial professionals that sell Class A shares will
also receive the service fee payable on Class A shares at an
annual rate equal to 0.25% of the average daily net assets
represented by the Class A shares sold by them.
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 5.00% 5.26% 4.50%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
..............................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
..............................................................................
$500,000 or more none* none* up to 1.00%
- --------------------------------------------------------------------------------
*A contingent deferred sales charge may apply in certain instances. See below.
o After the initial sales charge is deducted from your investment,
the balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares rather
than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any
initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) of 1% of the purchase price, or the
sale price, whichever is less, if you sell within the first year.
Under certain circumstances, waivers may apply. Other policies
regarding the application of the CDSC are the same as for Class B
shares. Please read the discussion below on Class B shares for
more information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares that represent capital
appreciation or the reinvestment of dividends or capital gains
distributions on those shares.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The table
below shows the rates that you pay, as a percentage of your
original purchase price (or the sale price, whichever is less),
depending upon when you sell your shares.
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 5.00%
..............................................................................
2nd year since purchase 4.00%
..............................................................................
3rd year since purchase 3.00%
..............................................................................
4th year since purchase 2.00%
..............................................................................
5th year since purchase 1.00%
..............................................................................
6th year (or later) since purchase None
- --------------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a
commission of 4.50% of the purchase price of the Class B shares
that they sell, except for sales exempt from the CDSC. Financial
professionals also receive a service fee at an annual rate equal
to 0.25% of the average daily net assets represented by the Class
B shares that they have sold.
o When you sell your shares, the CDSC will be based on either your
original purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends and capital gain distributions or on shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Class B shares with the lowest CDSC to fill your
sell requests.
o You do not pay a CDSC at the time you exchange your Class B shares
for Class B shares of certain Citifunds -- any payment will be
deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
From time to time, the Fund's distributor or Citibank may
provide additional promotional bonuses, incentives or payments
to dealers that sell shares of the Fund. These may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered
representatives and their guests to locations within and
outside the United States for meetings or seminars of a
business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or
may sell significant amounts of shares. Certain dealers may
not sell all classes of shares.
The Fund's distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers,
including certain tax-exempt organizations, certain employee
benefit plans, certain entities or persons with a qualifying
affiliation or relationship with Citibank, and, under certain
circumstances, investors using the proceeds of a redemption from
another mutual fund for their purchase of Class A shares. Further
information about eligible purchasers may be found in the Appendix
to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds Small Cap Growth Portfolio are offered
continuously and purchases may be made Monday through Friday,
except on certain holidays. Shares may be purchased from the
Fund's distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please
specify whether you are purchasing Class A or Class B shares.
If you fail to specify, Class A shares will be purchased for
your account. The Fund and the distributor have the right to
reject any purchase order or cease offering Fund shares at any
time.
Shares are purchased at net asset value (NAV) the next time it
is calculated after your order is received and accepted by the
Fund's transfer agent. NAV is the value of a single share of
the Fund. If you are purchasing Class A shares, the applicable
sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for
Fund shares until it receives the purchase price in federal or
other immediately available funds. If you pay by check, the
Service Agent transmits the order when the check clears,
usually within two business days.
If you are a customer of a Service Agent, your Service Agent
will establish and maintain your account and be the
shareholder of record. If you wish to transfer your account,
you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly
with the Fund's transfer agent.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time. NAV is calculated separately
for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the
financial markets in which the Fund invests close early, NAV
will be calculated as of the close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security. For foreign securities the values are translated
from the local currency into U.S. dollars using current
exchange rates. If trading in the currency is restricted, the
Fund uses a rate believed to reflect the currency's fair value
in U.S. dollars. Trading may take place in foreign securities
held by the Fund on days when the Fund is not open for
business. As a result, the Fund's NAV may change on days on
which it is not possible to purchase or sell shares of the
Fund.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if shares are subject to a CDSC, you may only withdraw up to
10% of the value of your account in any year, but you will not
be subject to a CDSC on the shares withdrawn under the Plan.
For more information, please contact your Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. The Fund has
the right to pay your redemption proceeds by giving you
securities instead of cash. In that case, you may incur costs
(such as brokerage commissions) converting the securities into
cash. You should be aware that you may have to pay taxes on
your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of the shares redeemed, without paying any
sales charges. To take advantage of this reinstatement
privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain CitiFunds. You may also be able to exchange your Class
A shares for shares of certain CitiFunds that offer only a
single class of shares, unless your Class A shares are subject
to a CDSC. You may not exchange Class B shares for shares of
CitiFunds that offer only a single class of shares. You may
also acquire Fund shares through an exchange from another fund
managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Fund shares were
purchased prior to January 4, 1999, you will not have to pay a
sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
CitiFunds Small Cap Growth Portfolio pays substantially all of
its net income, if any, from dividends to its shareholders of
record as a dividend semi-annually during the months of June
and December.
The Fund's net realized short-term and long-term capital
gains, if any, will be distributed to Fund shareholders at
least annually, in December. The Fund may also make additional
distributions to shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain
undistributed income and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional Fund shares.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
Each year the Fund will mail you a report of your
distributions for the prior year and how they are treated for
federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transactions.
Management of the Fund
MANAGER
CitiFunds Small Cap Growth Portfolio draws on the strength and
experience of Citibank. Citibank is the investment manager of
the Fund, and subject to policies set by the Fund's Trustees,
Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently
manages more than $290 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup
Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
"CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates may have banking and investment
banking relationships with the issuers of securities that are
held in the Fund. However, in making investment decisions for
the Fund, Citibank does not obtain or use material inside
information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and
its affiliates may have loans outstanding that are repaid with
proceeds of securities purchased by the Fund.
Marguerite Wagner has been the portfolio manager for the Fund
since January 1999. Ms. Wagner joined Citibank in 1985. Since
1995, she has had portfolio management and research analyst
responsibility for an internal mid-cap common trust fund and
private equity managed accounts. From 1992 through the end of
1994, Ms. Wagner was a member of the small capitalization
equity management group of Citibank Global Asset Management.
Prior to 1992, she managed portfolios for the Private Banking
Group of Citibank.
<PAGE>
MANAGEMENT OF THE FUND
MANAGEMENT FEES
For the management services Citibank provided to the Fund and
its underlying mutual fund during the fiscal year ended
October 31, 1998, Citibank received a total of 0.75% of the
Fund's average daily net assets, after waivers.
<PAGE>
MORE ABOUT THE FUND
More About the Fund
The Fund's goal, principal investments and risks are
summarized in FUND AT A GLANCE on page 3. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Small Cap Growth Portfolio's principal investment
strategies are the strategies that, in the opinion of
Citibank, are most likely to achieve the Fund's investment
goal. Of course, there can be no assurance that the Fund will
achieve its goal. Please note that the Fund may also use
strategies and invest in securities that are not described
below but that are described in the Statement of Additional
Information. Of course, Citibank may decide, as a matter of
investment strategy, not to use the investments and investment
techniques described below and in the Statement of Additional
Information at any particular time. The Fund's goal and
strategies may be changed without shareholder approval.
The Fund invests primarily in equity securities of U.S. small
cap issuers that, at the time the securities are purchased,
have market capitalizations below the top 1,000 stocks of the
equity market. At December 31, 1998, the maximum
capitalization of issuers in this category was below $1.9
billion. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of these
issuers. These stocks may include the stocks in the Russell
2000 Index, which is an index of small capitalization stocks.
- --------------------------------------------------------------------------------
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest
(or a right to acquire an ownership interest) in an issuer,
and include COMMON STOCKS, SECURITIES CONVERTIBLE INTO COMMON
STOCKS, PREFERRED STOCKS, WARRANTS for the purchase of stock
and DEPOSITARY RECEIPTS (receipts which represent the right to
receive the securities of foreign issuers deposited in a U.S.
bank or a local branch of a foreign bank). While equity
securities historically have been more volatile than fixed
income securities, they historically have produced higher
levels of total return.
- --------------------------------------------------------------------------------
Small cap companies are generally rapidly growing, with
negligible dividend yields and extremely high levels of
volatility. They may offer more profit opportunity during
certain economic conditions than large and medium sized
companies, but they also involve special risks.
The Fund may also invest in debt securities. The Fund's debt
securities must be investment grade when the Fund purchases
them. Investment grade securities are those rated Baa or
better by Moody's, BBB or better by Standard & Poor's, or
which Citibank believes to be of comparable quality.
Generally, less than 5% of the Fund's assets consist of debt
securities rated Baa by Moody's or BBB by Standard & Poor's.
The Fund may invest up to 25% of its assets in foreign equity
and debt securities, including depositary receipts. Foreign
securities may be issued by issuers in developing countries.
Citibank follows an aggressive, growth-oriented investment
style that emphasizes small U.S. companies with superior
management teams and good prospects for growth. In selecting
investments, Citibank looks for issuers that have a
predictable, growing demand for their products or services,
and issuers with a dominant position in a niche market or
whose customers are very large companies. Citibank generally
attempts to avoid issuers in businesses where external factors
like regulatory changes or rising commodity prices may inhibit
future growth.
The Fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse
repurchase agreements for cash management purposes.
See "Risks" for more information about the risks associated
with investing in equity securities.
DERIVATIVES. The Fund may use derivatives in order to protect
(or "hedge") against declines in the value of securities held
by the Fund or increases in the cost of securities to be
purchased in the future. The Fund may also use derivatives for
non-hedging purposes, to enhance potential gains. These
derivatives include stock index futures contracts, forward
foreign currency contracts and options on foreign currencies.
In some cases, the derivatives purchased by the Fund are
standardized contracts traded on commodities exchanges or
boards of trade. This means that the exchange or board of
trade guaranties counterparty performance. In some cases, the
derivatives may be illiquid, and the Fund may bear more
counterparty risk. Derivatives may not be available on terms
that make economic sense (for example, they may be too
costly). The Fund's ability to use derivatives may also be
limited by tax considerations.
DEFENSIVE STRATEGIES. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the
Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE. The Fund does not invest directly in
securities but instead invests through an underlying mutual
fund, Small Cap Growth Portfolio, having the same investment
goals and strategies as the Fund. Small Cap Growth Portfolio
buys, holds and sells securities in accordance with these
goals and strategies. The Fund may stop investing in its
underlying mutual fund at any time, and will do so if the
Fund's Trustees believe that to be in the best interests of
the Fund's shareholders. The Fund could then invest in another
mutual fund or pooled investment vehicle or invest directly in
securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when selecting securities to purchase. Portfolio
managers for Citibank generally use a "bottom-up" approach
when selecting securities for purchase by the Fund. This means
that they look primarily at individual companies against the
context of broader market forces. The portfolio managers use
this same approach when deciding which securities to sell.
Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better
opportunities exist or that the security no longer fits within
the managers' overall strategies for achieving the Fund's
goals. However, the Fund may continue to hold securities of
issuers that become mid cap or large cap issuers if, in
Citibank's judgment, these securities remain good investments
for the Fund. For more information about the portfolio
managers, see "Manager" on page 26.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
Citibank may use brokers or dealers for Fund transactions who
also provide brokerage and research services to the Fund or
other accounts over which Citibank exercises investment
discretion. The Fund may "pay up" for brokerage services,
meaning that it is authorized to pay a broker or dealer who
provides these brokerage and research services a commission
for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged.
However, the Fund will "pay up" only if Citibank determines in
good faith that the higher commission is reasonable in
relation to the brokerage and research services provided,
viewed in terms of either the particular transaction or all of
the accounts over which Citibank exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing,
you should consider the risks you will assume. Certain of
these risks are described below. More information about risks
appears in the Fund's Statement of Additional Information.
Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in
this Fund.
Please remember that an investment in the Fund is not a
deposit of Citibank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
MARKET RISK. This is the risk that the prices of securities
will rise or fall due to changing economic, political or
market conditions, or due to a company's individual situation.
The value of the Fund's shares will change daily as the value
of its underlying securities change. This means that your
shares of the Fund may be worth more or less when you sell
them than when you bought them.
EQUITY SECURITIES. Equity securities are subject to market
risk that historically has resulted in greater price
volatility than exhibited by fixed income securities.
SMALLER COMPANIES. The securities of smaller capitalization
companies may have more risks than those of larger, more
seasoned companies. They may be particularly susceptible to
market downturns because of limited product lines, markets,
distribution channels or financial and management resources.
Also, there may be less publicly available information about
small cap companies. Investments in small cap companies may be
in anticipation of future products or services to be provided
by such companies. If those products or services are delayed,
the prices of the securities of such companies may drop.
Sometimes, the prices of the securities of smaller capitalized
companies rise and fall based on investor perception rather
than economics. Securities of small cap companies may be
thinly traded, making their disposition more difficult. For
all these reasons, the prices of the securities of small cap
companies may be more volatile, causing the Fund's share price
to be volatile. Funds that invest a higher percentage of their
assets in small cap stocks are generally more volatile than
funds investing a higher percentage of their assets in larger,
more established companies.
The Fund's aggressive, growth-oriented investment style may
increase the risks already associated with investing in
smaller companies. For example, fast growing small cap
companies may be more volatile than other small cap companies.
GROWTH SECURITIES. Growth securities typically are quite
sensitive to market movements because their market prices tend
to reflect future expectations. When it appears those
expectations will not be met, the prices of growth securities
typically fall. Growth securities may also be more volatile
than other investments because they generally do not pay
dividends. The success of the Fund's investment strategy
depends largely on Citibank's skill in assessing the growth
potential of companies in which the Fund invests.
FOREIGN SECURITIES. Investments in foreign 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 foreign issuers and
markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on fund
investments, currency exchange controls and other limitations on
the use or transfer of Fund assets and political or social
instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there
may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be
special problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest
earned, and gains and losses realized on the sale of securities.
An increase in the U.S. dollar relative to these other currencies
will adversely affect the value of the Fund. In addition, some
foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchanges or
governmental intervention in currency markets. Controls or
intervention could limit or prevent the Fund from realizing value
in U.S. dollars from its investment in foreign securities. The
Fund may also be adversely affected by the introduction of the
Euro.
o The Fund may invest in issuers located in emerging, or developing,
markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile
than the markets of developed countries with more mature
economies.
INTEREST RATE RISK. In general, the prices of debt securities
rise when interest rates fall, and fall when interest rates
rise. Longer term obligations are usually more sensitive to
interest rate changes. A change in interest rates could cause
the Fund's share price to go down.
CREDIT RISK. The Fund invests in investment grade debt
securities. It is possible that some issuers will not make
payments on debt securities held by the Fund, causing a loss.
Or, an issuer may suffer adverse changes in its financial
condition that could lower the credit quality of a security,
leading to greater volatility in the price of the security and
in shares of the Fund. A change in the quality rating of a
bond or other security can also affect the security's
liquidity and make it more difficult for the Fund to sell. The
lower quality debt securities in which the Fund may invest are
more susceptible to these problems than higher quality
obligations.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted
into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate
risk and the credit risk of their issuers. Call provisions may
allow the issuer to repay the debt before it matures.
DERIVATIVES. The Fund's use of derivatives (such as futures
contracts and forward foreign currency contracts),
particularly when used for non-hedging purposes, may be risky.
This practice could result in losses that are not offset by
gains on other portfolio assets. Losses would cause the Fund's
share price to go down. There is also the risk that the
counterparty may fail to honor contract terms. This risk
becomes more acute when the Fund invests in derivatives that
are not traded on commodities exchanges or boards of trade.
The Fund's ability to use derivatives successfully depends on
Citibank's ability to accurately predict movements in stock
prices or currency exchange rates. If Citibank's predictions
are wrong, the Fund could suffer greater losses than if the
Fund had not used derivatives.
YEAR 2000. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers are
not programmed to accurately process information on or after
January 1, 2000. The Fund, and its service providers, are
making efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not
solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems.
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Class A Fund share. The total returns
in the table represent the rate that an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP whose report, along with the Fund's financial statements, is included in
the annual report which is incorporated by reference into the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
June 21, 1995
Ten Months (Commencement of
Year Ended Ended Year Ended Operations) to
October 31, 1998 October 31, 1997 December 31, 1996 December 31, 1995
...........................................................................................................................
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period $21.24 $18.21 $14.32 $10.00
...........................................................................................................................
Income From Operations:
Net investment income (loss) (0.193)+ (0.138)+ (0.016) 0.050
Net realized and unrealized gain
(loss) (3.224)+ 3.236+ 5.407 4.420
...........................................................................................................................
Total from operations (3.417) 3.098 5.391 4.470
...........................................................................................................................
Less Distributions From:
Net investment income -- -- -- (0.050)
Net realized gain (0.863) (0.068) (1.501) (0.100)
...........................................................................................................................
Total distributions (0.863) (0.068) (1.501) (0.150)
...........................................................................................................................
Net Asset Value, end of period $16.96 $21.24 $18.21 $14.32
...........................................................................................................................
Total Return (16.56)% 17.05%** 37.80% 44.78%**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 21, 1995
Ten Months (Commencement of
Year Ended Ended Year Ended Operations) to
October 31, 1998 October 31, 1997 December 31, 1996 December 31, 1995
...........................................................................................................................
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands) $27,802 $25,799 $24,311 $5,148
Ratio of expenses to average net
assets (A) 1.35% 1.35%* 0.88% 0.00%*
Ratio of net investment income (loss)
to average net assets (0.98)% (0.87)%* (0.13)% 1.21%*
Portfolio turnover (B) 51% 108% 89% 41%
Note: If agents of the Fund and agents of Small Cap Growth Portfolio had not voluntarily waived a portion of their fees,
assumed Fund expenses for the periods indicated 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 $(0.319)+ $(0.252)+ $(0.133) $(0.288)
RATIOS:
Expenses to average net assets (A) 1.99% 2.06%* 1.83% 2.50%*
Net investment loss to average net
assets (1.62)% (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) Includes the Fund's share of Small Cap Growth Portfolio (formerly Small Cap Equity Portfolio) allocated expenses for the periods
indicated.
(B) Portfolio turnover represents the rate of portfolio activity of Small Cap Growth Portfolio, the underlying portfolio through
which the Fund invests.
</TABLE>
<PAGE>
APPENDIX
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises discretionary
investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or
affiliate of Citibank serves as the investment adviser or as a
service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS and its
affiliates (including immediate families of any of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances in
selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's Board
of Trustees or by the Board of Trustees of any other CitiFund or
mutual fund managed or advised by Citibank (all of such funds
being referred to herein as CitiFunds) the terms of which entitle
those shareholders to purchase shares of the Fund or any other
CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans qualified
under Section 401(k) of the Code, subject to minimum requirements
as may be established by CFBDS with respect to the amount of
purchase; currently, the amount invested by the qualified plan in
the Fund or in any combination of CitiFunds must total a minimum
of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however,
a contingent deferred sales charge will be imposed on the
investments in the event of certain share redemptions within 12
months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the
total cost of the shares; the contingent deferred sales charge on
Class A shares will be waived under the same circumstances as the
contingent deferred sales charge on Class B shares will be
waived; in determining whether a contingent deferred sales charge
on Class A shares is payable, and if so, the amount of the
charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently redeemed
(assuming the contingent deferred sales charge is then
payable)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other
than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed),
and
o the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from another
investment firm within six months prior to the date of purchase
by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative, and
either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales charge
or redemption fee with respect to the redemption proceeds
o the redemption is made within 60 days prior to the investment
in the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds
of the redemption
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at
http://www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. You can get information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
SEC File Number: 811-4007
<PAGE>
PROSPECTUS
MARCH 1, 1999
CitiFunds(SM)
Small Cap Value
Portfolio
CITIBANK, N.A., INVESTMENT MANAGER
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS(SM) ACCOUNT ............................................. 11
CHOOSING A SHARE CLASS .............................................. 11
HOW TO BUY SHARES ................................................... 17
HOW THE PRICE OF YOUR SHARES IS CALCULATED 18
HOW TO SELL SHARES .................................................. 18
REINSTATING RECENTLY SOLD SHARES .................................... 20
EXCHANGES ........................................................... 20
DIVIDENDS ........................................................... 21
TAX MATTERS ......................................................... 22
MANAGEMENT OF THE FUND ................................................. 24
MANAGER ............................................................. 24
MANAGEMENT FEES ..................................................... 26
MORE ABOUT THE FUND .................................................... 27
PRINCIPAL INVESTMENT STRATEGIES ..................................... 27
RISKS ............................................................... 31
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
FUND AT A GLANCE
Fund at a Glance
This summary briefly describes CitiFunds Small Cap Value
Portfolio and the principal risks of investing in it. Please
note that the Fund invests in securities through an underlying
mutual fund. For more information, see "More About the Fund"
on page 27.
CitiFunds Small Cap
Value Portfolio
FUND GOAL
The Fund's goal is long-term capital growth. Dividend income,
if any, is incidental to this goal. Of course, there is no
assurance that the Fund will achieve its goal.
MAIN INVESTMENT STRATEGIES
CitiFunds Small Cap Value Portfolio invests primarily in
equity securities of U.S. small cap issuers that, at the time
the securities are purchased, have market capitalizations
below the top 1,000 stocks of the equity market. At December
31, 1998, the maximum capitalization of issuers in this
category was below $1.9 billion. Under normal circumstances,
at least 65% of the Fund's total assets is invested in equity
securities of these issuers. These securities may include
stocks in the Russell 2000 Index, which is an index of small
capitalization stocks. The Fund's equity securities may
include the following:
o common stocks;
o securities convertible into common stocks;
o preferred stocks; and
o warrants.
The Fund's portfolio managers use a value oriented approach in
managing the Fund. This means that they look for securities
that they believe are currently undervalued, or priced below
their true worth, but whose issuers have good longer term
business prospects. The Fund's portfolio managers also look
for securities that have catalysts or factors that may soon
cause their market value to rise. The Fund may continue to
hold securities of issuers that become mid cap or large cap
issuers if, in the managers' judgment, these securities remain
good investments for the Fund.
The Fund may use derivatives in order to protect (or "hedge")
against changes in the prices of securities held or to be
bought. The Fund may also use derivatives for non-hedging
purposes, to enhance potential gains. These derivatives
include stock index futures and options. The Fund's ability to
use these derivatives successfully depends on a number of
factors, including derivatives being available at prices that
are not too costly, tax considerations, and the portfolio
managers accurately predicting movements in stock prices.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See
page 31 for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation. The value
of the Fund's shares will change daily as the value of its
underlying securities change. This means that your shares of the
Fund may be worth more or less when you sell them than when you
bought them.
o EQUITY SECURITIES. Equity securities are subject to market risk
that historically has resulted in greater price volatility than
exhibited by fixed income securities.
o SMALLER COMPANIES. The securities of smaller capitalized companies
may have more risks than those of larger, more seasoned companies.
They may be particularly susceptible to market downturns because
of limited product lines, markets, distribution channels or
financial and management resources. Also, there may be less
publicly available information about small cap companies. As a
result, their prices may be more volatile, causing the Fund's
share price to be volatile. Funds that invest a higher percentage
of their assets in small cap stocks are generally more volatile
than funds investing a higher percentage of their assets in
larger, more established companies.
o VALUE INVESTING. The success of the Fund's investment strategy
depends largely on the skill of the Fund's portfolio managers in
identifying securities of companies that are in fact undervalued,
but have good longer term business prospects. A security may not
achieve its expected value because the circumstances causing it to
be underpriced worsen (causing the security's price to decline
further) or do not change or because the portfolio managers are
incorrect in their determinations. In addition, the Fund may
underperform certain other stock funds (those emphasizing growth
stocks, for example) during periods when value stocks are out of
favor.
o DERIVATIVES. The Fund's use of derivatives (such as futures
contracts and options), particularly for non-hedging purposes, may
be risky. This practice could result in losses that are not offset
by gains on other portfolio assets. Losses would cause the Fund's
share price to go down. The Fund's ability to use derivatives
successfully depends on a number of factors, including the ability
of the Fund's portfolio managers to accurately predict movements
in stock prices. If these predictions are wrong, the Fund could
suffer greater losses than if the Fund had not used derivatives.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise.
Longer term obligations are usually more sensitive to interest
rate changes. A change in interest rates could cause the Fund's
share price to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Fund, causing a loss. Or, an issuer's financial
condition may deteriorate, lowering the credit quality of a
security and leading to greater volatility in the price of the
security and in shares of the Fund. The prices of lower rated
securities often are more volatile than those of higher rated
securities.
o SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted into
stock, are subject to the market risk of stocks, and, like other
debt securities, are also subject to interest rate risk and the
credit risk of their issuers.
Please note that an investment in the Fund is not a deposit of
Citibank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in CitiFunds Small
Cap Value Portfolio is not a complete investment program.
You should consider investing in CitiFunds Small Cap Value
Portfolio if:
o You want to direct a portion of your overall investment portfolio
to stocks of small cap issuers.
o You are seeking growth of principal through investment in
undervalued companies.
o You are prepared to accept significant daily share price
fluctuations.
o Your investment horizon is longer term -- typically five years or
longer.
Don't invest in CitiFunds Small Cap Value Portfolio if:
o You are not prepared to accept high volatility of the Fund's share
price and possible losses.
o Current income is more important to you than growth of principal.
o Your investment horizon is shorter term -- usually less than five
years.
Fund Performance
The Fund began operations in 1998 and does not have a full
calendar year of investment returns at the date of this
prospectus. The Fund's total return for the fiscal year ended
October 31, 1998 is provided in the "Financial Highlights"
section of this prospectus.
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
..............................................................................
SHARE CLASS (Class descriptions begin on page 11) CLASS A CLASS B
..............................................................................
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
..............................................................................
Management Fees 1.00% 1.00%
..............................................................................
Distribution (12b-1) Fees 0.25% 1.00%
..............................................................................
Other Expenses (administrative, shareholder servicing
and other expenses) 0.49% 0.49%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.74% 2.49%
- ------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior year were (or, in the case of Class B
shares, would have been): 1.50% 2.25%
These fee waivers and reimbursements may be reduced or terminated at any
time.
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) The Fund invests in an underlying mutual fund, Small Cap Value
Portfolio. This table reflects the expenses of the Fund and Small Cap
Value Portfolio.
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you
own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year--the assumption of a 5%
return is required by the SEC for the purpose of this example and
is not a prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the Fund Fees and Expenses
table remain the same before taking into consideration any fee
waivers or reimbursements.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
CITIFUNDS SMALL CAP VALUE PORTFOLIO
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
Class A $668 $1,021 $1,397 $2,449
..............................................................................
Class B
..............................................................................
Assuming redemption at
end of period $752 $1,076 $1,426 $2,826
..............................................................................
Assuming no redemption $252 $ 776 $1,326 $2,826
- --------------------------------------------------------------------------------
YOUR CITIFUNDS ACCOUNT
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE
o Front-end load -- there is an initial sales charge of 5.00% or
less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 5% to 1% over five years,
and is eliminated if you hold your shares for six years or more
o Annual distribution/service fee of up to 1.00%
o Automatic conversion to Class A shares after 8 years
- --------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/ SERVICE
FEES that are paid under a 12B-1 PLAN. These are fees, also
called 12B-1 FEES, that are deducted from Fund assets and are
used to compensate those financial professionals who sell fund
shares and provide ongoing services to shareholders and to pay
other marketing and advertising expenses. Because you pay these
fees during the whole period that you own the shares, over time
you may pay more than if you had paid other types of sales
charges. For this reason, you should consider the effects of
12b-1 fees as well as sales loads when choosing a share class.
- -------------------------------------------------------------------------------
SALES CHARGES--CLASS A SHARES
o Class A shares are sold at net asset value plus a front- end, or
initial, sales charge. The rate you pay goes down as the amount of
your investment in Class A shares goes up. The table below shows
the rate of sales charge that you pay, depending on the amount
that you purchase.
o The table below also shows the amount of broker/dealer
compensation that is paid out of the sales charge. This
compensation includes commissions and other fees that financial
professionals who sell shares of the Fund receive. The distributor
keeps up to approximately 10% of the sales charge imposed on Class
A shares. Financial professionals that sell Class A shares will
also receive the service fee payable on Class A shares at an
annual rate equal to 0.25% of the average daily net assets
represented by the Class A shares sold by them.
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 5.00% 5.26% 4.50%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
..............................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
..............................................................................
$500,000 or more none* none* up to 1.00%
- --------------------------------------------------------------------------------
*A contingent deferred sales charge may apply in certain instances. See below.
o After the initial sales charge is deducted from your investment,
the balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares rather
than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any
initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) of 1% of the purchase price, or the
sale price, whichever is less, if you sell within the first year.
Under certain circumstances, waivers may apply. Other policies
regarding the application of the CDSC are the same as for Class B
shares. Please read the discussion below on Class B shares for
more information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares that represent capital
appreciation or the reinvestment of dividends or capital gains
distributions on those shares.
SALES CHARGES--CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The table
below shows the rates that you pay, as a percentage of your
original purchase price (or the sale price, whichever is less),
depending upon when you sell your shares.
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 5.00%
..............................................................................
2nd year since purchase 4.00%
..............................................................................
3rd year since purchase 3.00%
..............................................................................
4th year since purchase 2.00%
..............................................................................
5th year since purchase 1.00%
..............................................................................
6th year (or later) since purchase None
- --------------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a
commission of 4.50% of the purchase price of the Class B shares
that they sell, except for sales exempt from the CDSC. Financial
professionals also receive a service fee at an annual rate equal
to 0.25% of the average daily net assets represented by the Class
B shares that they have sold.
o When you sell your shares, the CDSC will be based on either your
original purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends and capital gain distributions or on shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Class B shares with the lowest CDSC to fill your
sell requests.
o You do not pay a CDSC at the time you exchange your Class B shares
for Class B shares of certain CitiFunds -- any payment will be
deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
From time to time, the Fund's distributor or Citibank may
provide additional promotional bonuses, incentives or payments
to dealers that sell shares of the Fund. These may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered
representatives and their guests to locations within and
outside the United States for meetings or seminars of a
business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or
may sell significant amounts of shares. Certain dealers may
not sell all classes of shares.
The Fund's distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers,
including certain tax-exempt organizations, certain employee
benefit plans, certain entities or persons with a qualifying
affiliation or relationship with Citibank, and, under certain
circumstances, investors using the proceeds of a redemption from
another mutual fund for their purchase of Class A shares. Further
information about eligible purchasers may be found in the Appendix
to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds Small Cap Value Portfolio are offered
continuously and purchases may be made Monday through Friday,
except on certain holidays. Shares may be purchased from the
Fund's distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please
specify whether you are purchasing Class A or Class B shares.
If you fail to specify, Class A shares will be purchased for
your account. The Fund and the distributor have the right to
reject any purchase order or cease offering Fund shares at any
time.
Shares are purchased at net asset value (NAV) the next time it
is calculated after your order is received and accepted by the
Fund's transfer agent. NAV is the value of a single share of
the Fund. If you are purchasing Class A shares, the applicable
sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for
Fund shares until it receives the purchase price in federal or
other immediately available funds. If you pay by check, the
Service Agent transmits the order when the check clears,
usually within two business days.
If you are a customer of a Service Agent, your Service Agent
will establish and maintain your account and be the
shareholder of record. If you wish to transfer your account,
you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly
with the Fund's transfer agent.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time. NAV is calculated separately
for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the
financial markets in which the Fund invests close early, NAV
will be calculated as of the close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to a CDSC on the shares withdrawn under the
Plan. For more information, please contact your Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. The Fund has
the right to pay your redemption proceeds by giving you
securities instead of cash. In that case, you may incur costs
(such as brokerage commissions) converting the securities into
cash. You should be aware that you may have to pay taxes on
your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of the shares redeemed, without paying any
sales charges. To take advantage of this reinstatement
privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain CitiFunds. You may also be able to exchange your Class
A shares for shares of certain CitiFunds that offer only a
single class of shares, unless your Class A shares are subject
to a CDSC. You may not exchange Class B shares for shares of
CitiFunds that offer only a single class of shares. You may
acquire Fund shares through an exchange from another fund
managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Fund shares were
purchased prior to January 4, 1999, you will not have to pay a
sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
CitiFunds Small Cap Value Portfolio pays substantially all of
its net income (if any) from dividends to its shareholders of
record as a dividend semi-annually during the months of June
and December.
The Fund's net realized short-term and long-term capital
gains, if any, will be distributed to Fund shareholders at
least annually, in December. The Fund may also make additional
distributions to shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain
undistributed income and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional Fund shares.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
Each year the Fund will mail you a report of your
distributions for the prior year and how they are treated for
federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transactions.
<PAGE>
MANAGEMENT OF THE FUND
Management of the Fund
MANAGER
CitiFunds Small Cap Value Portfolio draws on the strength and
experience of Citibank. Citibank is the investment manager of
the Fund, and subject to policies set by the Fund's Trustees,
Citibank has responsibility for overall management of the
Fund. Citibank has been managing money since 1822. With its
affiliates, it currently manages more than $290 billion in
assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup
Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
"CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates may have banking and investment
banking relationships with the issuers of securities that are
held in the Fund. However, in making investment decisions for
the Fund, Citibank does not obtain or use material inside
information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and
its affiliates may have loans outstanding that are repaid with
proceeds of securities purchased by the Fund.
In addition to overall management of the Fund, Citibank is
also responsible for the daily management of that portion of
the Fund's assets allocated to cash and invested in U.S.-
dollar denominated high quality and short-term money market
instruments. The Fund may make such investments during periods
of unusual economic or market conditions or for temporary or
defensive purposes or liquidity.
Citibank has delegated the daily management of the Fund's
assets not managed by Citibank to Franklin Advisory Services,
Inc., One Parker Plaza, 9th Floor, Fort Lee, New Jersey 07024.
Franklin Advisory Services is a registered investment adviser
and a wholly-owned subsidiary of Franklin Resources, Inc.
William J. Lippman, President of Franklin Advisory Services or
its predecessor since 1988, has been responsible for the daily
management of U.S. small capitalization value securities since
the Fund's inception. Mr. Lippman holds a masters of business
administration degree from New York University and a bachelor
of business administration degree from City College of New
York. Mr. Lippman also serves as Senior Vice President of
Franklin Resources, Inc. and Franklin Advisers, Inc. He has
been in the securities industry for over 30 years and with
Franklin since 1988.
Citibank is responsible for recommending the hiring,
termination or replacement of any subadviser and for
supervising and monitoring the performance of any subadviser.
The Fund's underlying mutual fund has applied for exemptive
relief from the Securities and Exchange Commission which would
permit it to employ other or additional subadvisers without
shareholder approval. The requested exemptive relief also
would permit the terms of subadvisory agreements to be changed
and the employment of subadvisers to be continued after events
that would otherwise cause an automatic termination of a
subadvisory agreement, in each case without shareholder
approval if those changes or continuation are approved by the
Fund's Board of Trustees. There is no assurance that the SEC
will grant the requested relief. If the requested relief is
granted, the Fund would be permitted to employ subadvisers
without shareholder approval, subject to compliance with
certain conditions. If the Fund adds or changes a subadviser
without shareholder approval, this prospectus will be revised
and shareholders notified.
MANAGEMENT FEES
For the management services Citibank and the subadviser
provided to the Fund and its underlying mutual fund during the
fiscal year ended October 31, 1998, Citibank and the
subadviser received a total of 1.00% of the Fund's average
daily net assets.
<PAGE>
MORE ABOUT THE FUND
More About the Fund
The Fund's goal, principal investments and risks are
summarized in FUND AT A GLANCE on page 3. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Small Cap Value Portfolio's principal investment
strategies are the strategies that, in the opinion of Citibank
and the subadviser, are most likely to achieve the Fund's
investment goal. Of course, there can be no assurance that the
Fund will achieve its goal. Please note that the Fund may also
use strategies and invest in securities that are not described
below but that are described in the Statement of Additional
Information. Of course, the Fund's portfolio managers may
decide, as a matter of investment strategy, not to use the
investments and investment techniques described below and in
the Statement of Additional Information at any particular
time. The Fund's goal and strategies may be changed without
shareholder approval.
- --------------------------------------------------------------------------------
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest
(or a right to acquire an ownership interest) in an issuer,
and include COMMON STOCKS, SECURITIES CONVERTIBLE INTO COMMON
STOCKS, PREFERRED STOCKS, and WARRANTS for the purchase of
stock. While equity securities historically have been more
volatile than fixed income securities, they historically have
produced higher levels of total return.
- --------------------------------------------------------------------------------
The Fund invests primarily in equity securities of U.S. small
cap issuers that, at the time the securities are purchased,
have market capitalizations below the top 1,000 stocks of the
equity market. At December 31, 1998, the maximum
capitalization of issuers in this category was below $1.9
billion. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of these
issuers. These securities may include the stocks in the
Russell 2000 Index, which is an index of small capitalization
stocks.
Small cap companies are generally rapidly growing, with
negligible dividend yields and extremely high levels of
volatility. They may offer more profit opportunity during
certain economic conditions than large and medium sized
companies, but they also involve special risks.
The Fund's portfolio managers use a value oriented approach in
managing the Fund. This means that they look for securities
that they believe are currently undervalued, or priced below
their true worth, but whose issuers have good longer term
prospects. An issuer may be undervalued relative to the stock
market in general, relative to the underlying value of its
assets or relative to what a sophisticated private investor
would pay for the entire company. The Fund's portfolio
managers analyze a variety of factors to determine whether an
issuer is undervalued. These factors include:
o low price to earnings ratio relative to the market, industry group
or earnings growth;
o low stock price relative to book value or cash flow;
o valuable franchises, patents, trademarks, trade names,
distribution channels or market share for particular products or
services, tax loss carryforwards, or other intangibles that may
not be reflected in stock prices;
o ownership of understated or underutilized tangible assets such as
land, timber or minerals;
o underutilized cash or investment assets; and
o unusually high current income.
Issuers selected by the portfolio managers may exhibit one or
more of these factors, and may include companies in cyclical
businesses, turnarounds and companies emerging from
bankruptcy.
The most common reasons for undervaluation are that a
particular industry is out of favor, whether because of
problems with specific issuers or because the economic
environment is unfavorable, an issuer's management team has
made mistakes, or an issuer is hard to understand or value
because it may include many different businesses. Citibank
believes that securities of companies which are temporarily
underpriced may provide a higher total return over time than
securities of companies whose positive attributes are
reflected in the securities' current price.
The Fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse
repurchase agreements for cash management purposes.
See "Risks" for more information about the risks associated
with investing in equity securities.
DERIVATIVES. The Fund may use derivatives in order to protect
(or "hedge") against declines in the value of securities held
by the Fund or increases in cost of securities to be purchased
in the future. The Fund may also use derivatives for non-
hedging purposes, to enhance potential gains. These
derivatives include stock index futures and options. In some
cases, the derivatives purchased by the Fund are standardized
contracts traded on commodities exchanges or boards of trade.
This means that the exchange or board of trade guaranties
counterparty performance. In some cases, the derivatives may
be illiquid, and the Fund may bear more counterparty credit
risk. Derivatives may not be available on terms that make
economic sense (for example, they may be too costly). The
Fund's ability to use derivatives may also be limited by tax
considerations.
DEFENSIVE STRATEGIES. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the
Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE. The Fund does not invest directly in
securities but instead invests through an underlying mutual
fund, Small Cap Value Portfolio, having the same investment
goals and strategies as the Fund. Small Cap Value Portfolio
buys, holds and sells securities in accordance with these
goals and strategies. The Fund may stop investing in its
underlying mutual fund at any time, and will do so if the
Fund's Trustees believe that to be in the best interests of
the Fund's shareholders. The Fund could then invest in another
mutual fund or pooled investment vehicle or invest directly in
securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when selecting securities to purchase. The Fund's
portfolio managers generally use a "bottom-up" approach when
selecting securities for purchase by the Fund. This means that
they look primarily at individual companies against the
context of broader market forces. The portfolio managers use
this same approach when deciding which securities to sell.
Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better
opportunities exist or that the security no longer fits within
the managers' overall strategies for achieving the Fund's
goals. However, the Fund may continue to hold securities of
issuers that become mid cap or large cap issuers if, in the
managers' judgment, these securities remain good investments
for the Fund. For more information about the portfolio
managers, see "Manager" on page 24.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
Citibank and the subadviser may use brokers or dealers for
Fund transactions who also provide brokerage and research
services to the Fund or other accounts over which Citibank or
the subadviser exercises investment discretion. The Fund may
"pay up" for brokerage services, meaning that it is authorized
to pay a broker or dealer who provides these brokerage and
research services a commission for executing a portfolio
transaction which is higher than the commission another broker
or dealer would have charged. However, the Fund will "pay up"
only if Citibank or the subadviser determines in good faith
that the higher commission is reasonable in relation to the
brokerage and research services provided, viewed in terms of
either the particular transaction or all of the accounts over
which Citibank or the subadviser exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing,
you should consider the risks you will assume. Certain of
these risks are described below. More information about risks
appears in the Fund's Statement of Additional Information.
Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in
this Fund.
Please remember that an investment in the Fund is not a
deposit of Citibank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
MARKET RISK. This is the risk that the prices of securities
will rise or fall due to changing economic, political or
market conditions, or due to a company's individual situation.
The value of the Fund's shares will change daily as the value
of its underlying securities change. This means that your
shares of the Fund may be worth more or less when you sell
them than when you bought them.
EQUITY SECURITIES. Equity securities are subject to market
risk that historically has resulted in greater price
volatility than exhibited by fixed income securities.
SMALLER COMPANIES. The securities of smaller capitalization
companies may have more risks than those of larger, more
seasoned companies. They may be particularly susceptible to
market downturns because of limited product lines, markets,
distribution channels or financial and management resources.
Also, there may be less publicly available information about
small cap companies. Investments in small cap companies may be
in anticipation of future products or services to be provided
by such companies. If those products or services are delayed,
the prices of the securities of such companies may drop. In
addition, sometimes the prices of the securities of smaller
capitalized companies rise and fall based on investor
perception rather than economics. Securities of small cap
companies may be thinly traded, making their disposition more
difficult. For all of these reasons, the prices of the
securities of small cap companies may be more volatile,
causing the Fund's share price to be volatile. Funds that
invest a higher percentage of their assets in small cap stocks
are generally more volatile than funds investing a higher
percentage of their assets in larger, more established
companies.
VALUE INVESTING. The success of the Fund's investment strategy
depends largely on the skill of the Fund's portfolio managers
in identifying securities of companies that are in fact
undervalued, but have good longer term business prospects. A
security may not achieve its expected value because the
circumstances causing it to be underpriced worsen (causing the
security's price to decline further) or do not change or
because the portfolio managers are incorrect in their
determinations. In addition, the Fund may underperform certain
other stock funds (those emphasizing growth stocks, for
example) during periods when value stocks are out of favor.
INTEREST RATE RISK. In general, the prices of debt securities
rise when interest rates fall, and fall when interest rates
rise. Longer term obligations are usually more sensitive to
interest rate changes. A change in interest rates could cause
the Fund's share price to go down.
CREDIT RISK. The Fund invests in investment grade debt
securities. However, it is possible that some issuers will not
make payments on debt securities held by the Fund, causing a
loss. Or, an issuer may suffer adverse changes in its
financial condition that could lower the credit quality of a
security, leading to greater volatility in the price of the
security and in shares of the Fund. A change in the quality
rating of a bond or other security can also affect the
security's liquidity and make it more difficult for the Fund
to sell. The lower quality debt securities in which the Fund
may invest are more susceptible to these problems than higher
quality obligations.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities that may be converted
into stock, are subject to the market risk of stocks, and,
like other debt securities, are also subject to interest rate
risk and the credit risk of their issuers. Call provisions may
allow the issuer to repay the debt before it matures.
DERIVATIVES. The Fund's use of derivatives (such as futures
contracts and options), particularly when used for non-hedging
purposes, may be risky. This practice could result in losses
that are not offset by gains on other portfolio assets. Losses
would cause the Fund's share price to go down. There is also
the risk that the counterparty may fail to honor contract
terms. This risk becomes more acute when the Fund invests in
derivatives that are not traded on commodities exchanges or
boards of trade. The Fund's ability to use derivatives
successfully depends on the ability of Citibank and the
subadviser to accurately predict movements in stock prices. If
the Fund's portfolio managers' predictions are wrong, the Fund
could suffer greater losses than if the Fund had not used
derivatives.
YEAR 2000. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers are
not programmed to accurately process information on or after
January 1, 2000. The Fund, and its service providers, are
making efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not
solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems.
<PAGE>
FINANCIAL HIGHLIGHTS
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
performance for the fiscal period indicated. Certain information reflects
financial results for a single Class A Fund share. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Fund, assuming reinvestment of all dividends and
distributions. The information has been audited by PricewaterhouseCoopers LLP
whose report, along with the Fund's financial statements, is included in the
Annual Report which is incorporated by reference into the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 2, 1998 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 1998
..........................................................................................
<S> <C>
Net Asset Value, beginning of period $10.00
..........................................................................................
Income From Operations:
Net investment loss (0.022)+
Net realized and unrealized loss on investments (2.818)+
..........................................................................................
Total from operations (2.840)
..........................................................................................
Less Distributions From:
Net investment income --
Net realized gain on investments --
..........................................................................................
Total distributions --
..........................................................................................
Net Asset Value, end of period $ 7.16
..........................................................................................
Total Return (28.40)%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $33,313
Ratio of expenses to average net assets (A) 1.50%*
Ratio of net investment loss to average net assets (0.39%)*
Portfolio turnover (B) 47%
Note: If agents of the Fund had not voluntarily waived a portion of their
fees, the net investment loss per share and the ratios would have been as
follows:
Net investment loss per share $(0.036)
RATIOS:
Expenses to average net assets (A) 1.74%*
Net investment loss to average net assets (0.63)%*
* Annualized.
** Not Annualized.
+ The per share amounts were computed using a monthly average number of shares during
the period.
(A) Includes the Fund's share of Small Cap Value Portfolio allocated expenses for the
period indicated.
(B) Portfolio turnover represents the rate of portfolio activity of Small Cap Value
Portfolio, the underlying portfolio through which the Fund invests.
</TABLE>
<PAGE>
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises discretionary
investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or
affiliate of Citibank serves as the investment adviser or as a
service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS and its
affiliates (including immediate families of any of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances in
selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's Board
of Trustees or by the Board of Trustees of any other CitiFund or
mutual fund managed or advised by Citibank (all of such funds
being referred to herein as CitiFunds) the terms of which entitle
those shareholders to purchase shares of the Fund or any other
CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans qualified
under Section 401(k) of the Code, subject to minimum requirements
as may be established by CFBDS with respect to the amount of
purchase; currently, the amount invested by the qualified plan in
the Fund or in any combination of CitiFunds must total a minimum
of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however,
a contingent deferred sales charge will be imposed on the
investments in the event of certain share redemptions within 12
months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the
total cost of the shares; the contingent deferred sales charge on
Class A shares will be waived under the same circumstances as the
contingent deferred sales charge on Class B shares will be
waived; in determining whether a contingent deferred sales charge
on Class A shares is payable, and if so, the amount of the
charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently redeemed
(assuming the contingent deferred sales charge is then
payable)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other
than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed),
and
o the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from another
investment firm within six months prior to the date of purchase
by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative, and
either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales charge
or redemption fee with respect to the redemption proceeds
o the redemption is made within 60 days prior to the investment
in the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds
of the redemption
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at
http://www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. You can get information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
SEC File Number: 811-4007
<PAGE>
PROSPECTUS
MARCH 1, 1999
CitiFunds(SM)
Growth & Income
Portfolio
CITIBANK, N.A., INVESTMENT MANAGER
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS(SM) ACCOUNT ............................................. 12
CHOOSING A SHARE CLASS .............................................. 12
HOW TO BUY SHARES ................................................... 18
HOW THE PRICE OF YOUR SHARES IS CALCULATED 19
HOW TO SELL SHARES .................................................. 19
REINSTATING RECENTLY SOLD SHARES .................................... 21
EXCHANGES ........................................................... 21
DIVIDENDS ........................................................... 23
TAX MATTERS ......................................................... 23
MANAGEMENT OF THE FUND ................................................. 25
MANAGER ............................................................. 25
MANAGEMENT FEES ..................................................... 26
MORE ABOUT THE FUND .................................................... 27
PRINCIPAL INVESTMENT STRATEGIES ..................................... 27
RISKS ............................................................... 33
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
FUND AT A GLANCE
Fund at a Glance
This summary briefly describes CitiFunds Growth & Income
Portfolio and the principal risks of investing in it. Please
note that the Fund invests in securities through an underlying
mutual fund. For more information, see "More About the Fund"
on page 27.
CitiFunds Growth &
Income Portfolio
FUND GOAL
The Fund's goal is to provide long-term capital growth and
current income. Of course, there is no assurance that the Fund
will achieve its goal.
MAIN INVESTMENT STRATEGIES
CitiFunds Growth & Income Portfolio invests primarily in
common stocks that Citibank believes have potential for
capital growth or current income, or both. In selecting
securities, Citibank emphasizes securities of established,
large cap U.S. issuers, meaning those with market
capitalizations within the top 1,000 stocks of the U.S. equity
market. In addition, the Fund may, but is not required to,
purchase bonds, notes, mortgage-backed and asset-backed
securities (including collateralized mortgage obligations or
CMOs), U.S. government securities, preferred stock and
convertible securities (both debt securities and preferred
stocks), and may invest a portion of its assets in cash or
money market instruments.
The Fund intends to invest primarily in securities of U.S.
issuers, but the Fund may invest up to 25% of its total assets
in foreign equity and debt securities, including securities of
issuers in developing countries.
Citibank uses a value oriented approach in managing the Fund.
This means that Citibank looks for securities that it believes
are currently undervalued, or priced below their true worth,
but whose issuers have good longer term business prospects. At
the same time, Citibank looks for the catalysts or factors
that may soon cause the market value of these securities to
rise.
If the Fund purchases debt securities, it may purchase both
investment grade or lower quality debt securities, or "junk
bonds". Investment grade debt securities are those rated Baa
by Moody's, BBB by Standard & Poor's, or which Citibank
believes to be of comparable quality. Junk bonds generally
have a higher incidence of default than higher quality
securities.
The Fund may, but is not required to, use derivatives in order
to protect (or "hedge") against changes in interest rates or
the prices of securities held or to be bought. The Fund may
also use derivatives for non-hedging purposes, to enhance
potential gains or generate income. In addition, the Fund may
use derivatives to manage the maturity or duration of fixed
income securities. These derivatives include futures, options
and forward foreign currency exchange contracts. The Fund's
ability to use derivatives successfully depends on a number of
factors, including derivatives being available at prices that
are not too costly, tax considerations, and Citibank
accurately predicting movements in stock prices, interest
rates and currency exchange rates.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See page 33 for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation. The value
of the Fund's shares will change daily as the value of its
underlying securities change. This means that your shares of the
Fund may be worth more or less when you sell them than when you
bought them.
o EQUITY SECURITIES. Equity securities are subject to market risk
that historically has resulted in greater price volatility than
exhibited by fixed income securities.
o VALUE INVESTING. The success of the Fund's investment strategy
depends largely on Citibank's skill in identifying securities of
companies that are in fact undervalued, but have good longer term
business prospects. A security may not achieve its expected value
because the circumstances causing it to be underpriced worsen
(causing the security's price to decline further) or do not change
or because the portfolio managers are incorrect in their
determinations. In addition, the Fund may underperform certain
other stock funds (those emphasizing growth stocks, for example)
during periods when value stocks are out of favor.
o FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to adverse political, social and economic
developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign
issuers and markets are subject. These risks may include
expropriation of assets, confiscatory taxation, withholding taxes
on dividends and interest paid on Fund investments, fluctuations
in currency exchange rates, currency exchange controls and other
limitations on the use or transfer of assets by the Fund or
issuers of securities, and political or social instability. There
may be rapid changes in the value of foreign currencies or
securities, causing the Fund's share price to be volatile. Also,
in certain circumstances, the Fund could realize reduced or no
value in U.S. dollars from its investments in foreign securities,
causing the Fund's share price to go down.
The Fund may invest in issuers located in emerging, or developing,
markets. All of the risks of investing in foreign securities are
heightened by investing in these markets.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise.
Longer term obligations are usually more sensitive to interest
rate changes. A change in interest rates could cause the Fund's
share price to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities
held by the Fund, causing a loss. Or, an issuer's financial
condition may deteriorate, lowering the credit quality of a
security and leading to greater volatility in the price of the
security and in shares of the Fund. The prices of lower rated
securities, especially junk bonds, often are more volatile than
those of higher rated securities.
o PREPAYMENT RISK. The issuers of debt securities held by the Fund
may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The Fund
may not be able to reinvest that principal at attractive rates,
reducing income to the Fund, and the Fund may lose any premium
paid. On the other hand, rising interest rates may cause
prepayments to occur at slower than expected rates. This
effectively lengthens the maturities of the affected securities,
making them more sensitive to interest rate changes and the Fund's
share price more volatile. Mortgage-backed securities, including
CMOs, are particularly susceptible to prepayment risk and their
prices may be very volatile.
o ZERO COUPON AND PAYMENT-IN-KIND OBLIGATIONS. Zero coupon
obligations pay no current interest. Although payment- in-kind
obligations may pay interest in cash, they are similar to zero
coupon obligations because the issuer has the option to make
interest payments in additional debt obligations rather than cash.
As a result, the prices of zero coupon and payment-in-kind
obligations tend to be more volatile than those of securities that
offer regular payments of interest. This makes the Fund's share
price more volatile. In order to pay cash distributions
representing income on zero coupon and payment-in-kind
obligations, the Fund may have to sell other securities on
unfavorable terms. These sales may generate taxable gains for Fund
investors.
o SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities or preferred stock that may
be converted into common stock, are subject to the market risk of
stocks, and, like other debt securities, are also subject to
interest rate risk and the credit risk of their issuers.
o DERIVATIVES. The Fund's use of derivatives (such as futures,
options and forward foreign currency exchange contracts),
particularly for non-hedging purposes, may be risky. This practice
could result in losses that are not offset by gains on other
portfolio assets. Losses would cause the Fund's share price to go
down. The Fund's ability to use derivatives successfully depends
on Citibank's ability to accurately predict movements in stock
prices, interest rates and currency exchange rates. If these
predictions are wrong, the Fund could suffer greater losses than
if the Fund had not used derivatives.
Please note that an investment in the Fund is not a deposit of
Citibank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in CitiFunds Growth
& Income Portfolio is not a complete investment program.
You should consider investing in CitiFunds Growth & Income
Portfolio if:
o You're seeking growth of principal as well as some income from
dividends on a quarterly basis.
o Your investment horizon is longer term -- typically at least five
years.
Don't invest in CitiFunds Growth & Income Portfolio if:
o You are not prepared to accept fluctuations in dividends or daily
share price and possible losses.
o You are looking for the more significant amounts of current income
that may be available from a fixed income fund.
o Your investment horizon is shorter term -- usually less than five
years.
This Fund alone does not provide a complete investment
program.
Fund Performance
The Fund began operations in 1998 and does not have a full
calendar year of investment returns at the date of this
prospectus. The Fund's total return for the fiscal year ended
October 31, 1998 is provided in the "Financial Highlights"
section of this prospectus.
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
..............................................................................
SHARE CLASS (Class descriptions begin on page 12) CLASS A CLASS B
..............................................................................
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
..............................................................................
Management Fees 0.80% 0.80%
..............................................................................
Distribution (12b-1) Fees 0.25% 1.00%
..............................................................................
Other Expenses (administrative, shareholder servicing
and other expenses) 0.42% 0.42%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.47% 2.22%
- --------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior year were (or, in the case of Class B
shares, would have been):
1.30% 2.05%
These fee waivers and reimbursements may be reduced or terminated at any
time.
(1) Except for investment of $500,000 or more.
(2) Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within
five years of your original purchase of the shares. In the first year
after purchase, the CDSC is 5.00% of the price at which you purchased
your shares, or the price at which you sold your shares, whichever is
less, declining to 1.00% in the fifth year after purchase.
(3) The Fund invests in an underlying mutual fund, Growth & Income
Portfolio. This table reflects the expenses of the Fund and Growth &
Income Portfolio.
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you
own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year -- the assumption of a
5% return is required by the SEC for the purpose of this example
and is not a prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the Fund Fees and Expenses
table remain the same before taking into consideration any fee
waivers or reimbursements.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
CITIFUNDS GROWTH & INCOME PORTFOLIO
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
Class A $642 $942 $1,263 $2,170
..............................................................................
Class B
..............................................................................
Assuming redemption at end of
period $725 $994 $1,290 $2,362
..............................................................................
Assuming no redemption $225 $694 $1,190 $2,362
- --------------------------------------------------------------------------------
<PAGE>
YOUR CITIFUNDS ACCOUNT
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE
o Front-end load -- there is an initial sales charge of 5.00% or
less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 5% to 1% over five years,
and is eliminated if you hold your shares for six years or more
o Annual distribution/service fee of up to 1.00%
o Automatic conversion to Class A shares after 8 years
- --------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/ SERVICE
FEES that are paid under a 12B-1 PLAN. These are fees, also
called 12B-1 FEES, that are deducted from Fund assets and are
used to compensate those financial professionals who sell fund
shares and provide ongoing services to shareholders and to pay
other marketing and advertising expenses. Because you pay these
fees during the whole period that you own the shares, over time
you may pay more than if you had paid other types of sales
charges. For this reason, you should consider the effects of
12b-1 fees as well as sales loads when choosing a share class.
- --------------------------------------------------------------------------------
SALES CHARGES -- CLASS A SHARES
o Class A shares are sold at net asset value plus a front- end, or
initial, sales charge. The rate you pay goes down as the amount of
your investment in Class A shares goes up. The chart below shows
the rate of sales charge that you pay, depending on the amount
that you purchase.
o The chart below also shows the amount of broker/dealer
compensation that is paid out of the sales charge. This
compensation includes commissions and other fees that financial
professionals who sell shares of the Fund receive. The distributor
keeps up to approximately 10% of the sales charge imposed on Class
A shares. Financial professionals that sell Class A shares will
also receive the service fee payable on Class A shares at an
annual rate equal to 0.25% of the average daily net assets
represented by the Class A shares sold by them.
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 5.00% 5.26% 4.50%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 3.00% 3.09% 2.70%
..............................................................................
$250,000 to less than $500,000 2.00% 2.04% 1.80%
..............................................................................
$500,000 or more none* none* up to 1.00%
- --------------------------------------------------------------------------------
*A contingent deferred sales charge may apply in certain instances. See page 14.
o After the initial sales charge is deducted from your investment,
the balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares rather
than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any
initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) of 1% of the purchase price, or the
sale price, whichever is less, if you sell within the first year.
Under certain circumstances, waivers may apply. Other policies
regarding the application of the CDSC are the same as for Class B
shares. Please read the discussion below on Class B shares for
more information.
PLEASE NOTE: If you owned Fund shares prior to January 4,
1999, you may exchange those shares into Class A shares of
other CitiFunds and other mutual funds managed by Citibank
without paying any sales charge, subject to verification.
Shares subject to the waiver include shares purchased prior to
January 4, 1999, and any shares that represent capital
appreciation or the reinvestment of dividends or capital gains
distributions on those shares.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales
charge, but you are charged a contingent deferred sales charge
(CDSC) when you sell shares within five years of purchase. The
rate of CDSC goes down the longer you hold your shares. The table
below shows the rates that you pay, as a percentage of your
original purchase price (or the sale price, whichever is less),
depending upon when you sell your shares.
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 5.00%
..............................................................................
2nd year since purchase 4.00%
..............................................................................
3rd year since purchase 3.00%
..............................................................................
4th year since purchase 2.00%
..............................................................................
5th year since purchase 1.00%
..............................................................................
6th year (or later) since purchase None
- --------------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a
commission of 4.50% of the purchase price of the Class B shares
that they sell, except for sales exempt from the CDSC. Financial
professionals also receive a service fee at an annual rate equal
to 0.25% of the average daily net assets represented by the Class
B shares that they have sold.
o When you sell your shares, the CDSC will be based on either your
original purchase price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends and capital gain distributions or on shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Class B shares with the lowest CDSC to fill your
sell requests.
o You do not pay a CDSC at the time you exchange your Class B shares
for Class B shares of certain CitiFunds -- any payment will be
deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
From time to time, the Fund's distributor or Citibank may
provide additional promotional bonuses, incentives or payments
to dealers that sell shares of the Fund. These may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered
representatives and their guests to locations within and
outside the United States for meetings or seminars of a
business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or
may sell significant amounts of shares. Certain dealers may
not sell all classes of shares.
The Fund's distributor may make payments for distribution and/
or shareholder servicing activities out of its past profits
and other available sources. The distributor may also make
payments for marketing, promotional or related expenses to
dealers. The amount of these payments is determined by the
distributor and may vary. Citibank may make similar payments
under similar arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you
qualify for certain waivers or elect to participate in certain
programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers,
including certain tax-exempt organizations, certain employee
benefit plans, certain entities or persons with a qualifying
affiliation or relationship with Citibank, and, under certain
circumstances, investors using the proceeds of a redemption from
another mutual fund for their purchase of Class A shares. Further
information about eligible purchasers may be found in the Appendix
to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other
retirement accounts.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds Growth & Income Portfolio are offered
continuously and purchases may be made Monday through Friday,
except on certain holidays. Shares may be purchased from the
Fund's distributor or a broker-dealer or financial institution
(called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please
specify whether you are purchasing Class A or Class B shares.
If you fail to specify, Class A shares will be purchased for
your account. The Fund and the distributor have the right to
reject any purchase order or cease offering Fund shares at any
time.
Shares are purchased at net asset value (NAV) the next time it
is calculated after your order is received and accepted by the
Fund's transfer agent. NAV is the value of a single share of
the Fund. If you are purchasing Class A shares, the applicable
sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for
Fund shares until it receives the purchase price in federal or
other immediately available funds. If you pay by check, the
Service Agent transmits the order when the check clears,
usually within two business days.
If you are a customer of a Service Agent, your Service Agent
will establish and maintain your account and be the
shareholder of record. If you wish to transfer your account,
you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly
with the Fund's transfer agent.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time. NAV is calculated separately
for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the
financial markets in which the Fund invests close early, NAV
will be calculated as of the close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security. For foreign securities the values are translated
from the local currency into U.S. dollars using current
exchange rates. If trading in the currency is restricted, the
Fund uses a rate believed to reflect the currency's fair value
in U.S. dollars. Trading may take place in foreign securities
held by the Fund on days when the Fund is not open for
business. As a result, the Fund's NAV may change on days on
which it is not possible to purchase or sell shares of the
Fund.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to a CDSC on the shares withdrawn under the
Plan. For more information, please contact your Service Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. The Fund has
the right to pay your redemption proceeds by giving you
securities instead of cash. In that case, you may incur costs
(such as brokerage commissions) converting the securities into
cash. You should be aware that you may have to pay taxes on
your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of the shares redeemed, without paying any
sales charges. To take advantage of this reinstatement
privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain other CitiFunds. You may also be able to exchange your
Class A shares for shares of certain CitiFunds that offer only
a single class of shares, unless your Class A shares are
subject to a CDSC. You may not exchange Class B shares for
shares of CitiFunds that offer only a single class of shares.
You may also acquire Fund shares through an exchange from
another fund managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Fund shares were
purchased prior to January 4, 1999, you will not have to pay a
sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
CitiFunds Growth & Income Portfolio pays substantially all of
its net income, if any, from dividends and interest to its
shareholders of record as a dividend at least quarterly during
the months of March, June, September and December.
The Fund's net realized short-term and long-term capital
gains, if any, will be distributed to Fund shareholders at
least annually, in December. The Fund may also make additional
distributions to shareholders to the extent necessary to avoid
the application of the 4% non-deductible excise tax on certain
undistributed income and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will
receive them as full and fractional additional Fund shares.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
Each year the Fund will mail you a report of your
distributions for the prior year and how they are treated for
federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transactions.
<PAGE>
MANAGEMENT OF THE FUND
Management of the Fund
MANAGER
CitiFunds Growth & Income Portfolio draws on the strength and
experience of Citibank. Citibank is the investment manager of
the Fund, and subject to policies set by the Fund's Trustees,
Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently
manages more than $290 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup
Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
"CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates may have banking and investment
banking relationships with the issuers of securities that are
held in the Fund. However, in making investment decisions for
the Fund, Citibank does not obtain or use material inside
information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and
its affiliates may have loans outstanding that are repaid with
proceeds of securities purchased by the Fund.
Barbara G. Marcin has been the portfolio manager of the Fund
since its inception in 1998. Ms. Marcin is a Senior Portfolio
Manager responsible for managing over $600 million in U.S.
equity and balanced accounts for individuals, and is a member
of Citibank's Global Investment Committee. Since 1995, she has
been head of Citibank's U.S. Equity Value Investments team.
During 1994, Ms. Marcin was a portfolio manager for U.S.
equity and balanced accounts. Prior to joining Citibank as a
Vice President and portfolio manager in 1993, she was a Vice
President and portfolio manager at Fiduciary Trust Company
International. Prior to that, she was with E.F Hutton for
three years in the Personal Financial Management Group.
The Fund currently does not employ an investment subadviser,
but in the future Citibank may delegate the daily management
of all or a portion of the Fund's assets to one or more
subadvisers. Citibank would be responsible for recommending
the hiring, termination or replacement of any subadviser and
for supervising and monitoring the performance of any
subadviser. Certain CitiFunds have applied for exemptive
relief from the Securities and Exchange Commission which would
permit them to employ subadvisers without shareholder
approval. The requested exemptive relief also would permit the
terms of subadvisory agreements to be changed and the
employment of subadvisers to be continued after events that
would otherwise cause an automatic termination of a
subadvisory agreement, in each case without shareholder
approval if those changes or continuation are approved by the
Fund's Board of Trustees. If the requested relief is granted,
the Fund also would be permitted to employ subadvisers without
shareholder approval, subject to compliance with certain
conditions. If the Fund adds or changes a subadviser without
shareholder approval, this prospectus will be revised and
shareholders notified.
MANAGEMENT FEES
For the management services Citibank provided to the Fund and
its underlying mutual fund during the fiscal year ended
October 31, 1998, Citibank received a total of 0.62% of the
Fund's average daily net assets, after waivers.
<PAGE>
MORE ABOUT THE FUND
More About the Fund
The Fund's goal, principal investments and risks are
summarized in FUND AT A GLANCE on page 3. More information on
investments, investment strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Growth & Income Portfolio's principal investment
strategies are the strategies that, in the opinion of
Citibank, are most likely to achieve the Fund's investment
goal. Of course, there can be no assurance that the Fund will
achieve its goal. Please note that the Fund may also use
strategies and invest in securities that are not described
below but that are described in the Statement of Additional
Information. Of course, the Fund's portfolio managers may
decide, as a matter of investment strategy, not to use the
investments and investment techniques described below and in
the Statement of Additional Information at any particular
time. The Fund's goal and strategies may be changed without
shareholder approval.
- --------------------------------------------------------------------------------
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest
(or a right to acquire an ownership interest) in an issuer,
and include COMMON STOCKS, SECURITIES CONVERTIBLE INTO COMMON
STOCKS, PREFERRED STOCKS, WARRANTS for the purchase of stock
and DEPOSITARY RECEIPTS (receipts which represent the right to
receive the securities of foreign issuers deposited in a U.S.
bank or a local branch of a foreign bank). While equity
securities historically have been more volatile than fixed
income securities, they historically have produced higher
levels of total return.
- --------------------------------------------------------------------------------
The Fund invests primarily in common stocks. Although not
required to, the Fund may also purchase debt securities as
described below. The Fund invests primarily in equity and debt
securities of established, large cap issuers. Large cap
issuers are those with market capitalizations within the top
1,000 stocks of the equity market.
The Fund invests primarily in securities with a record of
earnings and dividend payments but may, from time to time,
invest in securities that pay no dividends or interest.
- --------------------------------------------------------------------------------
WHAT ARE DEBT SECURITIES?
These securities generally represent a debt obligation of an
issuer, and include BONDS, SHORT-TERM OBLIGATIONS and
MORTGAGE-BACKED and ASSET-BACKED SECURITIES (including
collateralized mortgage obligations or CMOs), U.S. government
securities, preferred stock, and convertible securities (both
debt securities and preferred stocks). Debt securities, in
general, offer a fixed stream of cash flow. Most bond
investments focus on generating income. The potential for
capital appreciation is a secondary objective.
- --------------------------------------------------------------------------------
The Fund may invest in investment grade debt securities (those
rated Baa by Moody's, BBB by Standard & Poor's or which
Citibank believes to be of comparable quality), but may also
invest in debt securities rated below Baa by Moody's or below
BBB by Standard & Poor's and equivalent debt securities.
Securities rated below Baa or BBB are commonly known as "junk
bonds." These securities may offer higher income than more
highly rated debt securities, but they have special risks. See
"Risks" below.
- --------------------------------------------------------------------------------
WHAT ARE MORTGAGE-BACKED SECURITIES?
Home mortgage loans are typically grouped together into
"pools" by banks and other lending institutions, and interests
in these pools are then sold to investors, allowing the bank
or other lending institution to have more money available to
loan to home buyers. When homeowners make interest and
principal payments, these payments are passed on to the
investors in the pool. Mortgage-backed securities generally
are backed or collateralized by a pool of mortgages. Certain
types of mortgage-backed securities are called collateralized
mortgage obligations, or CMOs.
- --------------------------------------------------------------------------------
The Fund may invest in mortgage-backed securities that are
issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies, such as GNMA.
These securities may or may not be backed by the full faith
and credit of the U.S. government. Even if the U.S. government
or one of its agencies guarantees principal and interest
payments of a mortgage-backed security, the market price of
the security is not insured and may be volatile. The Fund also
may invest in asset-backed securities and in mortgage-backed
securities that are not backed by the U.S. government. These
securities are backed by pools of assets such as automobile
loans, credit card receivables or mortgage loans. It may be
difficult to enforce rights against the assets backing these
securities.
The Fund may enter into "dollar rolls," where the Fund sells
mortgage-backed securities and simultaneously agrees to
repurchase similar securities in the future at a lower price.
The Fund's dollar rolls are "covered," meaning that the Fund
establishes a segregated account with liquid securities equal
in value to the securities it will repurchase.
The Fund may invest in zero coupon obligations, such as zero
coupon bonds issued by companies and securities representing
future principal and interest installments on debt obligations
of the U.S. and foreign governments. Zero coupon obligations
pay no current interest. The Fund may also invest in payment-
in-kind obligations which are similar to zero coupon
securities because the issuer has the option to make payments
in additional debt obligations rather than cash.
The Fund may invest up to 25% of its assets in foreign equity
and debt securities. Foreign securities may be issued by
issuers in developing countries.
Citibank uses a value oriented approach in managing the Fund.
This means that it looks for securities that it believes are
currently undervalued, or priced below their true worth, but
whose issuers have good longer term prospects. Citibank looks
for securities that it believes are underpriced according to
certain financial measurements of their intrinsic worth or
business prospects (such as the company's cash flow, earnings
prospects, growth rate and/or dividend paying ability).
Citibank believes that securities of companies which are
temporarily underpriced due to earnings declines, cyclical
business downturns or other adverse factors may provide a
higher total return over time than securities of companies
whose positive attributes are more accurately reflected in the
security's current price.
The Fund may hold cash pending investment, and may invest in
money market instruments, repurchase agreements and reverse
repurchase agreements for cash management purposes.
DERIVATIVES. The Fund may, but is not required to, use
derivatives in order to protect (or "hedge") against declines
in the value of securities held by the Fund or increases in
cost of securities to be purchased in the future, or to hedge
against changes in interest rates. The Fund may also use
derivatives for non-hedging purposes, to generate income or
enhance potential gains. In addition, the Fund may use
derivatives to manage the effective maturity or duration of
fixed income securities. These derivatives include financial
futures, stock index futures, foreign currency futures,
forwards and exchange contracts, options on securities and
foreign currencies, and options on interest rate and stock
index futures. In some cases, the derivatives purchased by the
Fund are standardized contracts traded on commodities
exchanges or boards of trade. This means that the exchange or
board of trade guaranties counterparty performance. In some
cases, the derivatives may be illiquid, and the Fund may bear
more counterparty risk. Derivatives may not be available on
terms that make economic sense (they may be too costly). The
Fund's ability to use derivatives may also be limited by tax
considerations.
DEFENSIVE STRATEGIES. The Fund may, from time to time, take
temporary defensive positions that are inconsistent with the
Fund's principal investment strategies in attempting to
respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be
pursuing its investment goal.
INVESTMENT STRUCTURE. The Fund does not invest directly in
securities but instead invests through an underlying mutual
fund, Growth & Income Portfolio, having the same investment
goals and strategies as the Fund. Growth & Income Portfolio
buys, holds and sells securities in accordance with these
goals and strategies. The Fund may stop investing in its
underlying mutual fund at any time, and will do so if the
Fund's Trustees believe that to be in the best interests of
the Fund's shareholders. The Fund could then invest in another
mutual fund or pooled investment vehicle or invest directly in
securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when selecting securities to purchase. The portfolio
managers for Growth & Income Portfolio generally use a
"bottom-up" approach when selecting securities to purchase or
sell for the Fund. This means that they look primarily at
individual companies against the context of broader market
forces. The portfolio managers use this same approach when
deciding which securities to sell. Securities are sold when
the Fund needs cash to meet redemptions, or when the managers
believe that better opportunities exist or that the security
no longer fits within the managers' overall strategies for
achieving the Fund's goals. For more information about the
portfolio managers, see "Manager" on page 25.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
Citibank may use brokers or dealers for Fund transactions who
also provide brokerage and research services to the Fund or
other accounts over which Citibank exercises investment
discretion. The Fund may "pay up" for brokerage services,
meaning that it is authorized to pay a broker or dealer who
provides these brokerage and research services a commission
for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged.
However, the Fund will "pay up" only if Citibank determines in
good faith that the higher commission is reasonable in
relation to the brokerage and research services provided,
viewed in terms of either the particular transaction or all of
the accounts over which Citibank exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing,
you should consider the risks you will assume. Certain of
these risks are described below. More information about risks
appears in the Fund's Statement of Additional Information.
Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in
this Fund.
Please remember that an investment in the Fund is not a
deposit of Citibank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency.
MARKET RISK. This is the risk that the prices of securities
will rise or fall due to changing economic, political or
market conditions, or due to a company's individual situation.
The value of the Fund's shares will change daily as the value
of its underlying securities change. This means that your
shares of the Fund may be worth more or less when you sell
them than when you bought them.
EQUITY SECURITIES. Equity securities are subject to market
risk that historically has resulted in greater price
volatility than exhibited by fixed income securities.
VALUE INVESTING. The success of the Fund's investment strategy
depends largely on Citibank's skill in identifying securities
of companies that are in fact undervalued, but have good
longer term business prospects. A security may not achieve its
expected value because the circumstances causing it to be
underpriced worsen (causing the security's price to decline
further) or do not change or because the portfolio managers
are incorrect in their determinations. In addition, the Fund
may underperform certain other stock funds (those emphasizing
growth stocks, for example) during periods when value stocks
are out of favor.
FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to adverse political, social and economic
developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign
issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on fund
investments, currency exchange controls and other limitations on
the use or transfer of Fund assets and political or social
instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there
may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be
special problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest
earned, and gains and losses realized on the sale of securities.
An increase in the U.S. dollar relative to these other currencies
will adversely affect the value of the Fund. In addition, some
foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchanges or
governmental intervention in currency markets. Controls or
intervention could limit or prevent the Fund from realizing value
in U.S. dollars from its investment in foreign securities. The
Fund may also be adversely affected by the introduction of the
Euro.
o The Fund may invest in issuers located in emerging, or
developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile
than the markets of developed countries with more mature
economies.
INTEREST RATE RISK. In general, the prices of debt securities
rise when interest rates fall, and fall when interest rates
rise. Longer term obligations are usually more sensitive to
interest rate changes. If the Fund holds debt securities, a
change in interest rates could cause the Fund's share price to
go down.
CREDIT RISK. The Fund may invest in debt securities of any
grade, including junk bonds. It is possible that some issuers
will not make payments on debt securities held by the Fund,
causing a loss. Or, an issuer may suffer adverse changes in
its financial condition that could lower the credit quality of
a security, leading to greater volatility in the price of the
security and in shares of the Fund. The lower quality debt
securities, especially the junk bonds, in which the Fund may
invest are more susceptible to these problems than higher
quality obligations.
Junk bonds are considered to be speculative investments and
involve greater risks than higher quality securities. A higher
percentage of issuers of junk bonds may default on payments of
principal and interest than the issuers of higher quality
bonds. The value of junk bonds will usually fall substantially
if the issuer defaults or goes bankrupt. Even anticipation of
defaults by certain issuers, or the perception of economic or
financial weakness, may cause the market for junk bonds to
fall. The price of a junk bond may therefore fluctuate
drastically due to bad news about the issuer or the economy in
general. Lower quality debt securities, especially junk bonds,
may be less liquid and may be more difficult for the Fund to
value and sell. The Fund may incur additional expenses if an
issuer defaults and the Fund tries to recover some of its
losses in a bankruptcy or other similar proceeding.
PREPAYMENT RISK. The issuers of debt securities that may be
held by the Fund may be able to prepay principal due on the
securities, particularly during periods of declining interest
rates. The Fund may not be able to reinvest that principal at
attractive rates, reducing income to the Fund, and the Fund
may lose any premium paid. On the other hand, rising interest
rates may cause prepayments to occur at slower than expected
rates. This effectively lengthens the maturities of the
affected securities, making them more sensitive to interest
rate changes and the Fund's share price more volatile.
Mortgage-backed securities, including CMOs, are particularly
susceptible to prepayment risk and their prices may be very
volatile.
ZERO COUPON AND PAYMENT-IN-KIND OBLIGATIONS. Zero coupon
obligations pay no current interest. Although payment-in-kind
obligations may pay interest in cash, they are similar to zero
coupon obligations because the issuer has the option to make
interest payments in additional debt obligations rather than
cash. As a result, the prices of zero coupon and payment-in-
kind obligations tend to be more volatile than those of
securities that offer regular payments of interest. This makes
the Fund's share price more volatile. In order to pay cash
distributions representing income on zero coupon and payment-
in-kind obligations, the Fund may have to sell other
securities on unfavorable terms. These sales may generate
taxable gains for Fund investors.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities or preferred stock that
may be converted into common stock, are subject to the market
risk of stocks, and, like other debt securities, are also
subject to interest rate risk and the credit risk of their
issuers. Call provisions may allow the issuer to repay the
debt before it matures.
DERIVATIVES. The Fund's use of derivatives (such as futures
contracts, options and forward foreign currency exchange
contracts), particularly when used for non-hedging purposes,
may be risky. This practice could result in losses that are
not offset by gains on other portfolio assets. Losses would
cause the Fund's share price to go down. There is also the
risk that the counterparty may fail to honor its contract
terms. This risk becomes more acute when the Fund invests in
derivatives that are not traded on commodities exchanges or
boards of trade. The Fund's ability to use derivatives depends
on the ability of Citibank to accurately predict movements in
stock prices, interest rates and currency exchange rates. If
Citibank's predictions are wrong, the Fund could suffer
greater losses than if the Fund had not used derivatives.
YEAR 2000. The Fund could be adversely affected if the
computer systems used by the Fund or its service providers are
not programmed to accurately process information on or after
January 1, 2000. The Fund, and its service providers, are
making efforts to resolve any potential Year 2000 problems.
While it is likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not
solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems.
<PAGE>
FINANCIAL HIGHLIGHTS
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
performance for the fiscal periods indicated. Certain information reflects
financial results for a single Class A Fund share. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by PricewaterhouseCoopers LLP
whose report, along with the Fund's financial statements, is included in the
Annual Report which is incorporated by reference into the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
For the Period March 2, 1998 (Commencement of Operations) to October 31, 1998
...........................................................................................
<S> <C>
Net Asset Value, beginning of period $10.00
...........................................................................................
Income From Operations
Net investment income 0.041
Net realized and unrealized loss on investments (0.831)
...........................................................................................
Total from operations (0.790)
...........................................................................................
Less Distributions From:
Net investment income (0.020)
...........................................................................................
Total distributions (0.020)
...........................................................................................
Net Asset Value, end of period $ 9.19
...........................................................................................
Total return (7.90)%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) $70,461
Ratio of expenses to average net assets (A) 1.30%*
Ratio of net investment income to average net assets 0.68%*
Portfolio turnover rate (B) 59%
Note: If agents of the Fund for the period indicated had not voluntarily
waived a portion of their fees, the net investment income per share and the
ratios would have been as follows:
Net investment income per share $ 0.03
RATIOS:
Expenses to average net assets 1.47%*
Net investment income to average net assets 0.51%*
* Annualized.
** Not annualized.
(A) Includes the Fund's share of Growth & Income Portfolio allocated expenses for the
period indicated.
(B) Portfolio turnover represents the rate of portfolio activity of Growth & Income
Portfolio, the underlying portfolio through which the Fund invests.
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises discretionary
investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or
affiliate of Citibank serves as the investment adviser or as a
service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS and its
affiliates (including immediate families of any of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances in
selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's Board
of Trustees or by the Board of Trustees of any other CitiFund or
mutual fund managed or advised by Citibank (all of such funds
being referred to herein as CitiFunds) the terms of which entitle
those shareholders to purchase shares of the Fund or any other
CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans qualified
under Section 401(k) of the Code, subject to minimum requirements
as may be established by CFBDS with respect to the amount of
purchase; currently, the amount invested by the qualified plan in
the Fund or in any combination of CitiFunds must total a minimum
of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however,
a contingent deferred sales charge will be imposed on the
investments in the event of certain share redemptions within 12
months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the
total cost of the shares; the contingent deferred sales charge on
Class A shares will be waived under the same circumstances as the
contingent deferred sales charge on Class B shares will be
waived; in determining whether a contingent deferred sales charge
on Class A shares is payable, and if so, the amount of the
charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently redeemed
(assuming the contingent deferred sales charge is then
payable)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other
than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed),
and
o the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from another
investment firm within six months prior to the date of purchase
by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative, and
either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales charge
or redemption fee with respect to the redemption proceeds
o the redemption is made within 60 days prior to the investment
in the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds
of the redemption.
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund also list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at
http://www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. You can get information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating
fee to the SEC's Public Reference Section, Washington, DC 20549-6009.
SEC File Number: 811-4007 CFP/G1399
<PAGE>
Statement of
Additional Information
March 1, 1999
CITIFUNDS(SM) LARGE CAP GROWTH PORTFOLIO
CITIFUNDS(SM) SMALL CAP GROWTH PORTFOLIO
CITIFUNDS(SM) SMALL CAP VALUE PORTFOLIO
CITIFUNDS(SM) GROWTH & INCOME PORTFOLIO
(Members of the CitiFunds(SM) Family of Funds)
CitiFunds Large Cap Growth Portfolio, CitiFunds Small Cap Growth Portfolio,
CitiFunds Small Cap Value Portfolio and CitiFunds Growth & Income Portfolio (the
"Funds") are series of CitiFunds Trust II (the "Trust"). The Trust is an
open-end management investment company which was organized as a business trust
under the laws of the Commonwealth of Massachusetts on April 13, 1984. The
address and telephone number of the Trust are 21 Milk Street, Boston,
Massachusetts 02109 (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 all of its investable assets in
Large Cap Growth Portfolio, CitiFunds Small Cap Growth Portfolio invests all of
its investable assets in Small Cap Growth Portfolio and CitiFunds Growth &
Income Portfolio invests all of its investable assets in Growth & Income
Portfolio. Large Cap Growth Portfolio, Small Cap Growth Portfolio and Growth &
Income Portfolio are series of The Premium Portfolios. CitiFunds Small Cap Value
Portfolio invests all of its investable assets in Small Cap Value Portfolio, a
series of Asset Allocation Portfolios. The address of each of The Premium
Portfolios and Asset Allocation Portfolios is Elizabethan Square, George Town,
Grand Cayman, British West Indies. Large Cap Growth Portfolio, Small Cap Growth
Portfolio, Small Cap Value Portfolio and Growth & Income Portfolio are referred
to as the "Portfolios." The Premium Portfolios and Asset Allocation Portfolios
are referred to as the "Portfolio Trusts."
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 Objectives and Policies ................................... 2
3. Description of Permitted Investments and Investment Practices ........ 3
4. Investment Restrictions .............................................. 18
5. Performance Information and Advertising .............................. 20
6. Determination of Net Asset Value; Valuation of Securities ............ 21
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs ................................................. 22
8. Management ........................................................... 29
9. Portfolio Transactions ............................................... 36
10. Description of Shares, Voting Rights and Liabilities ................. 37
11. Tax Matters .......................................................... 39
12. Certain Bank Regulatory Matters ...................................... 41
13. Financial Statements ................................................. 41
This Statement of Additional Information sets forth information which may be
of interest to investors but which is not necessarily included in the Funds'
separate Prospectuses, dated March 1, 1999, by which shares of the Funds are
offered. This Statement of Additional Information should be read in conjunction
with the applicable Prospectus. This Statement of Additional Information
incorporates by reference the financial statements described on page 41 hereof.
These financial statements can be found in each Fund's Annual Report to
Shareholders. An investor may obtain copies of each Fund's Prospectus and Annual
Report without charge by calling 1-800-625-4554.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
CitiFunds Trust II is an open-end management investment company organized as
a business trust under the laws of the Commonwealth of Massachusetts on April
13, 1984. The Trust was called Landmark Funds 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"),
CitiFunds Small Cap Growth Portfolio (the "Small Cap Growth Fund"), CitiFunds
Small Cap Value Portfolio (the "Small Cap Value Fund") and CitiFunds Growth &
Income Portfolio (the "Growth & Income 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 applicable Fund's Prospectus, dated March
1, 1999.
Each Fund is a diversified 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, as amended (the "1940 Act"), 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. Each of the Small Cap
Value Fund and the Growth & Income Fund invests its assets in Small Cap Value
Portfolio and Growth & Income 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, except for Small Cap Value Portfolio, which is
a series of Asset Allocation Portfolios. The Portfolios are open-end,
diversified management investment companies organized as New York trusts. Under
the 1940 Act, a diversified management investment company must invest at least
75% of its assets in cash and cash items, U.S. Government securities, investment
company securities and other securities limited as to any one issuer to not more
than 5% of the total assets of the investment company and not more than 10% of
the voting securities of the issuer.
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 Trusts, except as
otherwise noted.
Citibank, N.A. ("Citibank" or the "Manager") is the Manager of each Fund and
each Portfolio. Citibank manages the investments of the Portfolios from day to
day in accordance with each Portfolio's investment objective and policies. The
selection of investments for the Portfolios and the way they are managed depend
on the conditions and trends in the economy and the financial marketplaces.
Citibank has delegated the daily management of those assets of the Small Cap
Value Portfolio which are not managed by Citibank to Franklin Advisory Services,
Inc. (the "Subadviser"), a wholly owned subsidiary of Franklin Resources, Inc, a
publicly owned holding company whose shares are listed on the New York Stock
Exchange.
The Boards of Trustees of the Trust and the Portfolio Trusts provide broad
supervision over the affairs of the Funds and the Portfolios, respectively.
Shares of the Funds are continuously sold by CFBDS, Inc., the Funds' distributor
("CFBDS" or the "Distributor").
2. INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each of the Large Cap Growth Fund, the Small Cap
Growth Fund and the Small Cap Value Fund is long-term capital growth. Dividend
income, if any, is incidental to each of these investment objectives.
The investment objective of the Growth & Income Fund is long-term capital
growth and current income.
Each Fund's Prospectus contains a discussion of the principal investment
strategies of the Fund and the principal risks of investing in the Fund. The
following supplements the information contained in each Fund's Prospectus
concerning the investment policies and techniques of each Fund.
The policies described herein and those described below under "Description
of Permitted Investments and Investment Practices" are not fundamental and may
be changed without shareholder approval.
As noted above, a Fund does not invest directly in securities, but instead
invests all of its investable assets in a corresponding Portfolio, which has 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 a Fund or a Portfolio will
achieve its objective. The Trustees of the Trust believe that the aggregate per
share expenses of each Fund and the corresponding 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 Trust may withdraw the investment of a Fund from the 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
objective and policies described herein, either directly in securities or in
another mutual fund or pooled investment vehicle 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.
A 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 corresponding 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 Portfolios described below under
"Investment Restrictions" are fundamental and cannot be changed with respect to
a Portfolio without approval by the investors in the Portfolio. When a Fund is
asked to vote on certain matters concerning a Portfolio, the Fund will either
hold a shareholder meeting and vote in accordance with shareholder instructions
or otherwise vote in accordance with applicable rules and regulations. Of
course, the Fund could be outvoted, or otherwise adversely affected by other
investors in the Portfolio.
A Portfolio may sell interests to investors in addition to the corresponding
Fund. These investors may be mutual funds which offer shares to their
shareholders with different costs and expenses than the Fund. Therefore, the
investment return for all investors in funds investing in a Portfolio may not be
the same. These differences in returns are also present in other mutual fund
structures. Information about other holders of interests in the Portfolios is
available from the Funds' distributor, CFBDS.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
A Fund may, but need not, invest in any or all of the investments and
utilize any or all of the investment techniques described in the Fund's
Prospectus and herein. The selection of investments and the utilization of
investment techniques depend on, among other things, the Manager's and, as
applicable, the Subadviser's investment strategies for the Funds, conditions and
trends in the economy and financial markets and investments being available on
terms that, in the Manager's or the Subadviser's opinion, make economic sense.
OPTIONS
The Small Cap Value Fund and the Growth & Income Fund may write covered call
and put options and purchase call and put options on securities. Call and put
options written by a Fund may be covered in the manner set forth below.
A call option written by a Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or
liquid securities in a segregated account. A put option written by a Fund is
"covered" if the Fund maintains cash or liquid securities with a value equal to
the exercise price in a segregated account, or else holds a put on the same
security and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written or where the exercise price of the put held is less than the exercise
price of the put written if the difference is maintained by the Fund in cash or
liquid securities in a segregated account. Put and call options written by a
Fund may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counterparty with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
The Small Cap Value Fund and the Growth & Income Fund may purchase options
for hedging purposes or to increase their return. Put options may be purchased
to hedge against a decline in the value of portfolio securities. If such decline
occurs, the put options will permit a Fund to sell the securities at the
exercise price, or to close out the options at a profit. By using put options in
this way, the Fund will reduce any profit it might otherwise have realized in
the underlying security by the amount of the premium paid for the put option and
by transaction costs.
A Fund may purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the securities
at the exercise price, or to close out the options at a profit. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
A Fund may write (sell) covered call and put options and purchase call and
put options on stock indices. In contrast to an option on a security, an option
on a stock index provides the holder with the right, but not the obligation, to
make or receive a cash settlement upon exercise of the option, rather than the
right to purchase or sell a security. The amount of this settlement is equal to
(i) the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a call) or is below (in the case of a put) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier."
A Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Manager or the Subadviser, are expected to
be similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash consideration
(or for additional cash consideration held in a segregated account) upon
conversion or exchange of other securities in its portfolio. Where a Fund covers
a call option on a stock index through ownership of securities, such securities
may not match the composition of the index and, in that event, the Fund will not
be fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. A Fund may also cover call options on stock
indices by holding a call on the same index and in the same principal amount as
the call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash or liquid securities in a segregated account. A Fund may cover put
options on stock indices by maintaining cash or liquid securities with a value
equal to the exercise price in a segregated account, or by holding a put on the
same stock index and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund in
cash or liquid securities in a segregated account. Put and call options on stock
indices may also be covered in such other manner as may be in accordance with
the rules of the exchange on which, or the counterparty with which, the option
is traded, and applicable laws and regulations.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation in
the Fund's stock investments. By writing a put option, the Fund assumes the risk
of a decline in the index. To the extent that the price changes of securities
owned by the Fund correlate with changes in the value of the index, writing
covered put options on indices will increase the Fund's losses in the event of a
market decline, although such losses will be offset in part by the premium
received for writing the option.
A Fund may also purchase put options on stock indices to hedge the Fund's
investments against a decline in value. By purchasing a put option on a stock
index, a Fund will seek to offset a decline in the value of securities it owns
through appreciation of the put option. If the value of the Fund's investments
does not decline as anticipated, or if the value of the option does not
increase, the Fund's loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will largely depend
on the accuracy of the correlation between the changes in value of the index and
the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by the Small Cap
Value Fund and the Growth & Income Fund to attempt to reduce the risk of missing
a broad market advance, or an advance in an industry or market segment, at a
time when the Fund holds uninvested cash or short-term debt securities awaiting
investment. When purchasing call options for this purpose, a Fund will also bear
the risk of losing all or a portion of the premium paid if the value of the
index does not rise. The purchase of call options on stock indices when a Fund
is substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing calls on securities
the Fund owns.
The Growth & Income Fund may purchase and write options on foreign
currencies in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized.
FUTURES CONTRACTS
Each of the Funds may enter into stock index futures contracts. The Growth &
Income Fund may also enter into interest rate futures contracts and foreign
currency futures contracts. These investment strategies may be used for hedging
purposes and for nonhedging purposes, subject to applicable law.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an index
of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the United
States have been designed by exchanges which have been designated "contract
markets" by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on these
markets, and the exchanges, through their clearing organizations, guarantee that
the contracts will be performed as between the clearing members of the exchange.
Futures contracts may also be traded on markets outside the U.S.
While futures contracts 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 and
may sell such contracts to protect against a decline in the stock market.
The Growth & Income Fund may purchase or sell futures contracts to attempt
to protect the Fund from fluctuations in interest rates, or to manage the
effective maturity or duration of the Fund's investment portfolio in an effort
to reduce potential losses or enhance potential gain, without actually buying or
selling debt securities. For example, if interest rates were expected to
increase, the Fund might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as if the Fund sold
bonds that it owned, or as if the Fund sold longer-term bonds and purchased
shorter-term bonds. If interest rates did increase, the value of the Fund's debt
securities would decline, but the value of the futures contracts would increase,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. Similar results could be accomplished by selling bonds, or
by selling bonds with longer maturities and investing in bonds with shorter
maturities. However, by using futures contracts, the Fund avoids having to sell
its securities.
Similarly, when it is expected that interest rates may decline, the Growth &
Income Fund might enter into futures contracts for the purchase of debt
securities. Such a purchase would be intended to have much the same effect as if
the Fund purchased bonds, or as if the Fund sold shorter-term bonds and
purchased longer-term bonds. If interest rates did decline, the value of the
futures contracts would increase.
The Growth & Income Fund may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be acquired, even if the
value of such securities in the currencies in which they are denominated remains
constant. The Fund may sell futures contracts on a foreign currency, for
example, where it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on the value of
foreign-denominated securities may be offset, in whole or in part, by gains on
the futures contracts.
Conversely, the Growth & Income Fund could protect against a rise in the
dollar cost of foreign-denominated securities to be acquired by purchasing
futures contracts on the relevant currency, which could offset, in whole or in
part, the increased cost of such securities resulting from a rise in the dollar
value of the underlying currencies. Where the Fund purchases futures contracts
under such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
Although the use of futures for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position (e.g., if a Fund sells
a futures contract to protect against losses in the debt securities held by the
Fund), at the same time the futures contract limits any potential gain which
might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of a Fund's
investments through transactions in futures contracts depends on the degree to
which movements in the value of the securities underlying such contracts
correlate with movements in the value of the Fund's securities. If the security
underlying a futures contract is different than the security being hedged, they
may not move to the same extent or in the same direction. In that event, the
Fund's hedging strategy might not be successful and the Fund could sustain
losses on these hedging transactions which would not be offset by gains on the
Fund's other investments or, alternatively, the gains on the hedging transaction
might not be sufficient to offset losses on the Fund's other investments. It is
also possible that there may be a negative correlation between the security
underlying a futures contract and the securities being hedged, which could
result in losses both on the hedging transaction and the securities. In these
and other instances, the Fund's overall return could be less than if the hedging
transactions had not been undertaken. Similarly, even where a Fund enters into
futures transactions other than for hedging purposes, the effectiveness of its
strategy may be affected by lack of correlation between changes in the value of
the futures contracts and changes in value of the securities which the Fund
would otherwise buy or sell.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a futures contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the futures contract
was originally entered into. While a Fund will establish a futures position only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures contract at
any specific time. In that event, it may not be possible to close out a position
held by the Fund, which could require the Fund to purchase or sell the
instrument underlying the futures contract or to meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the ability effectively to use futures transactions for
hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges, which
limit the amount of fluctuation in the price of a futures contract during a
single trading day and prohibit trading beyond such limits once they have been
reached. The trading of futures contracts also is subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Investments in futures contracts also entail the risk that if the Manager's
investment judgment about the general direction of interest rates, equity
markets, or other economic factors is incorrect, the Fund's overall performance
may be poorer than if any such contract had not been entered into. For example,
if the Growth & Income Fund hedged against the possibility of an increase in
interest rates which would adversely affect the price of the Fund's bonds and
interest rates decrease instead, part or all of the benefit of the increased
value of the Fund's bonds which were hedged will be lost because the Fund will
have offsetting losses in its futures positions. Similarly, if the Growth &
Income Fund purchases futures contracts expecting a decrease in interest rates
and interest rates instead increased, the Fund will have losses in its futures
positions which will increase the amount of the losses on the securities in its
portfolio which will also decline in value because of the increase in interest
rates. In addition, in such situations, if the Fund had insufficient cash, the
Fund might have to sell bonds from its investments to meet daily variation
margin requirements, possibly at a time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Manager
does not believe that these trading and position limits would have an adverse
impact on a Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Fund from purchasing or
selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish that Fund's non-hedging futures positions would exceed 5% of that
Fund's net assets.
Each Fund will comply with this CFTC requirement, and each Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or liquid securities will be maintained by each Fund in a segregated
account so that the amount so segregated, plus the applicable margin held on
deposit, will be approximately equal to the amount necessary to satisfy the
Fund's obligations under the futures contract. The second is that 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 potentially exposes a Fund to the effects of
"leveraging," which occurs when futures are used so that the Fund's exposure to
the market is greater than it would have been if the Fund had invested directly
in the underlying securities. "Leveraging" increases a Fund's potential for both
gain and loss. As noted above, each of the Funds intends to adhere to certain
policies relating to the use of futures contracts, which should have the effect
of limiting the amount of leverage by the Fund.
The use of futures contracts may increase the amount of taxable income of a
Fund and may affect the amount, timing and character of a Fund's income for tax
purposes, as more fully discussed herein in the section entitled "Tax Matters."
OPTIONS ON FUTURES CONTRACTS
The Small Cap Value Fund and the Growth & Income Fund may purchase and write
options to buy or sell futures contracts in which the Funds may invest. These
investment strategies may be used for hedging purposes and for non- hedging
purposes, subject to applicable law.
An option on a futures contract provides the holder with the right to enter
into a "long" position in the underlying futures contract, in the case of a call
option, or a "short" position in the underlying futures contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by a Fund on U.S.
exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC and
the performance guarantee of the exchange clearinghouse. In addition, options on
futures contracts may be traded on foreign exchanges.
A Fund may cover the writing of call options on futures contracts (a)
through purchases of the underlying futures contract, (b) through ownership of
the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract and
in the same principal amount as the call written where the exercise price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if the difference is
maintained by the Funds in cash or securities in a segregated account. A Fund
may cover the writing of put options on futures contracts (a) through sales of
the underlying futures contract, (b) through segregation of cash or liquid
securities in an amount equal to the value of the security or index underlying
the futures contract, (c) through the holding of a put on the same futures
contract and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written or where the exercise price of the put held is less than the exercise
price of the put written if the difference is maintained by the Funds in cash or
liquid securities in a segregated account. Put and call options on futures
contracts may also be covered in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations. Upon the exercise of a call option on a futures contract written by
a Fund, the Fund will be required to sell the underlying futures contract which,
if the Fund has covered its obligation through the purchase of such contract,
will serve to liquidate its futures position. Similarly, where a put option on a
futures contract written by a Fund is exercised, the Fund will be required to
purchase the underlying futures contract which, if the Fund has covered its
obligation through the sale of such contract, will close out its futures
position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A Fund will receive an option premium when it writes the call,
and, if the price of the futures contract at expiration of the option is below
the option exercise price, the Fund will retain the full amount of this option
premium, which provides a partial hedge against any decline that may have
occurred in the Fund's security holdings. Similarly, the writing of a put option
on a futures contract constitutes a partial hedge against increasing prices of
the securities deliverable upon exercise of the futures contract. If a Fund
writes an option on a futures contract and that option is exercised, the Fund
may incur a loss, which loss will be reduced by the amount of the option premium
received, less related transaction costs. A Fund's ability to hedge effectively
through transactions in options on futures contracts depends on, among other
factors, the degree of correlation between changes in the value of securities
held by the Fund and changes in the value of its futures positions. This
correlation cannot be expected to be exact, and a Fund bears a risk that the
value of the futures contract being hedged will not move in the same amount, or
even in the same direction, as the hedging instrument. Thus it may be possible
for a Fund to incur a loss on both the hedging instrument and the futures
contract being hedged.
The Small Cap Value Fund and the Growth & Income Fund may purchase options
on futures contracts for hedging purposes instead of purchasing or selling the
underlying futures contracts. For example, where a decrease in the value of
portfolio securities is anticipated as a result of a projected market-wide
decline or changes in interest or exchange rates, the Fund could, in lieu of
selling futures contracts, purchase put options thereon. In the event that such
decrease occurs, it may be offset, in whole or part, by a profit on the option.
Conversely, where it is projected that the value of securities to be acquired by
a Fund will increase prior to acquisition, due to a market advance or changes in
interest or exchange rates, the Fund could purchase call options on futures
contracts, rather than purchasing the underlying futures contracts.
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. In the
event of the bankruptcy of the other party to a repurchase agreement, a Fund
could experience delays in recovering the resale price. To the extent that, in
the meantime, the value of the securities purchased has decreased, the Fund
could experience a loss.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed-upon price, date and interest
payment. When a Fund enters into reverse repurchase transactions, securities of
a dollar amount equal in value to the securities subject to the agreement will
be segregated. The segregation of assets could impair the Fund's ability to meet
its current obligations or impede investment management if a large portion of
the Fund's assets are involved. Reverse repurchase agreements are considered to
be a form of borrowing. In the event of the bankruptcy of the other party to a
reverse repurchase agreement, a Fund could experience delays in recovering the
securities sold. To the extent that, in the meantime, the value of the
securities sold has increased, the Fund could experience a loss.
SECURITIES OF NON-U.S. ISSUERS
Each of the Funds (other than the Small Cap Value Fund) 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 (other than the Small Cap Value Fund) may buy
and sell securities denominated in currencies other than the U.S. dollar, and
receive interest, dividends and sale proceeds in currencies other than the
U.S. dollar, the Funds (other than the Small Cap Value Fund) 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.)
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. A Fund may enter into forward
contracts for hedging and non-hedging purposes, including transactions entered
into for the purposes of profiting from anticipated changes in foreign currency
exchange rates.
Forward contracts are traded over-the-counter and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in the futures and options
contracts described herein.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a non-U.S. currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of non-U.S. currency
involved in the underlying security transaction, the Fund may be able to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on
which payment is made or received.
When the Manager believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, a Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of the Fund's
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date it
matures. The projection of a short-term hedging strategy is highly uncertain.
The Funds generally do not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts obligates a
Fund to deliver an amount of non-U.S. currency in excess of the value of the
Fund's securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in the investment decisions made with regard to overall
diversification strategies. However, the Manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of 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 (other than the Small Cap Value Fund) may also purchase
put options on a non-U.S. currency in order to protect against currency rate
fluctuations. If a Fund purchases a put option on a non-U.S. currency and the
value of the non-U.S. currency declines, the Fund will have the right to sell
the non-U.S. currency for a fixed amount in U.S. dollars and will thereby
offset, in whole or in part, the adverse effect on the Fund which otherwise
would have resulted. Conversely, where a rise in the U.S. dollar value of
another currency is projected, and where 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 (other than the Small Cap Value Fund) 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
may be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a 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 and liquid securities in an amount sufficient to
discharge the Fund's obligations with respect to the option, by acquisition of
the non-U.S. currency or of a right to acquire such currency (in the case of a
call option) or the acquisition of a right to dispose of the currency (in the
case of a put option), or in such other manner as may be in accordance with the
requirements of any exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
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 the transactions described
above and does not do so unless deemed appropriate by the Manager. It should
also be realized that under certain circumstances the Funds may not be able to
hedge against a decline in the value of a currency, even if the Manager deems it
appropriate to try to do so, because doing so would be too costly. It should
also be realized that this method of protecting the value of a Fund's securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Those policies currently require that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment. Therefore, each Fund expects to always have cash or liquid
securities available sufficient to cover any commitments under these contracts.
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 or the Subadviser to be of good
standing, and when, in the judgment of the Manager or the Subadviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. In addition, a Fund could suffer loss if the borrower
terminates the loan and the Fund is forced to liquidate investments in order to
return the cash collateral to the buyer. If the Manager or the Subadviser
determines to make loans, it is not intended that the value of the securities
loaned by a Fund would exceed 30% of the market 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, meaning that delivery of the securities will occur
beyond normal settlement times. It is expected that, under normal circumstances,
the applicable Fund would take delivery of such securities. In general, the Fund
does not pay for the securities until received and does not start earning
interest until the contractual settlement date. When a Fund commits to purchase
a security on a "when-issued" or on a "forward delivery" basis, it sets up
procedures consistent with 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, each Fund expects
always to have cash or liquid securities sufficient to cover any commitments or
to limit any potential risk. However, even though the Funds do not intend to
make such purchases for speculative purposes and intend to adhere to the
provisions of 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 or the Subadviser 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). An
increase in the percentage of a Fund's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net asset
value.
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 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
Consistent with applicable investment restrictions, each of the Funds may
purchase securities that are not registered ("restricted securities") under the
Securities Act of 1933, as amended (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
(taken at market value) 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, in the case of
restricted securities, the Board of Trustees of the Trust determines, based on
the trading markets for the specific restricted security, that it is liquid. The
Trustees have adopted guidelines and, subject to oversight by the Trustees, have
delegated to the Manager or to the Subadviser the daily function of determining
and monitoring liquidity of restricted securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
Each Fund may invest up to 15% of its net assets in securities for which
there is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market exists.
The absence of a trading market can make it difficult to ascertain a market
value for illiquid investments. Disposing of illiquid investments may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price.
BANK OBLIGATIONS
The Funds may invest in bank obligations, i.e., certificates of deposit,
time deposits (including, with respect to the Growth & Income Fund, Eurodollar
time deposits) and bankers' acceptances and other short-term debt obligations
issued by domestic banks, foreign subsidiaries or foreign branches of domestic
banks, domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. A bankers' acceptance is a bill of
exchange or time draft drawn on and accepted by a commercial bank. It is used by
corporations to finance the shipment and storage of goods and to furnish dollar
exchange. Maturities are generally six months or less. A certificate of deposit
is a negotiable interest-bearing instrument with a specific maturity.
Certificates of deposit are issued by banks and savings and loan institutions in
exchange for the deposit of funds and normally can be traded in the secondary
market prior to maturity. A time deposit is a non-negotiable receipt issued by a
bank in exchange for the deposit of funds. Like a certificate of deposit, it
earns a specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities.
COMMERCIAL PAPER
Each Fund may invest in commercial paper, which is unsecured debt of
corporations usually maturing in 270 days or less from its date of issuance.
OTHER INVESTMENT COMPANIES
Subject to applicable statutory and regulatory limitations, assets of each
Fund may be invested in shares of other investment companies. Each Fund (other
than the Small Cap Value Fund) may invest up to 5% of its assets in closed-end
investment companies which primarily hold securities of non-U.S. issuers.
MORTGAGE-BACKED SECURITIES
The Growth & Income Fund may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in pools
of mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the U.S. Government while obligations of FNMA and FHLMC are supported
by the respective agency only. Although GNMA certificates may offer yields
higher than those available from other types of U.S. Government securities, GNMA
certificates may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature. For
instance, when interest rates decline, the value of a GNMA certificate likely
will not rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a GNMA
certificate originally purchased at a premium to decline in price to its par
value, which may result in a loss.
The Growth & Income Fund may also invest a portion of its assets in
collateralized mortgage obligations or "CMOs," a type of mortgage-backed
security. CMOs are securities collateralized by mortgages, mortgage pass-through
certificates, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
Even if the U.S. government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market volatility.
When interest rates decline, mortgage-backed securities experience higher rates
of prepayment because the underlying mortgages are refinanced to take advantage
of the lower rates. The price of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid. When interest rates go up,
mortgage-backed securities experience lower rates of prepayment. This has the
effect of lengthening the expected maturity of a mortgage-backed security. This
particular risk, referred to as "maturity extension risk," may effectively
convert a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities. Thus, rising interest rates would not only likely
decrease the value of a Fund's fixed income securities, but would also increase
the inherent volatility of the Fund by effectively converting short-term debt
instruments into long-term debt instruments. As a result, prices of
mortgage-backed securities may decrease more than prices of other debt
obligations when interest rates go up.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Growth & Income Fund may enter into mortgage "dollar roll" transactions
pursuant to which it sells mortgage-backed securities for delivery in the future
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. During the roll period, the Fund foregoes principal and
interest paid on the mortgage-backed securities. The Growth & Income Fund is
compensated for the lost principal and interest by the difference between the
current sales price and the lower price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. The Growth & Income Fund may also be compensated by receipt of a
commitment fee. However, the Growth & Income Fund takes the risk that the market
price of the mortgage-backed security will drop below the future purchase price.
When the Growth & Income Fund uses a mortgage dollar roll, it is also subject to
the risk that the other party to the agreement will not be able to perform. A
"covered roll" is a specific type of dollar roll for which a Fund establishes a
segregated account with liquid high grade debt securities equal in value to the
securities subject to repurchase by the Fund. The Growth & Income Fund will
invest only in covered rolls.
CORPORATE ASSET-BACKED SECURITIES
The Growth & Income Fund may invest in corporate asset-backed securities.
These securities, issued by trusts and special purpose corporations, are backed
by a pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
Growth & Income Fund will not pay any additional or separate fees for credit
support. The degree of credit support provided for each issue is generally based
on historical information respecting the level of credit risk associated with
the underlying assets. Delinquency or loss in excess of that anticipated or
failure of the credit support could adversely affect the return on an investment
in such a security.
SECURITIES RATED BAA OR BBB
Each Fund may purchase securities rated Baa by Moody's or BBB by S&P and
securities of comparable quality, which may have poor protection of payment of
principal and interest. These securities are often considered to be speculative
and involve greater risk of default or price changes than securities assigned a
higher quality rating due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates.
LOWER RATED DEBT SECURITIES
The Growth & Income Fund may invest in lower rated fixed income securities
(commonly known as "junk bonds"), to the extent described in its Prospectus. The
lower ratings of certain securities held by the Fund reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of such
securities held by the Fund more volatile and could limit the Fund's ability to
sell its securities at prices approximating the values the Fund had placed on
such securities. In the absence of a liquid trading market for securities held
by it, the Fund at times may be unable to establish the fair value of such
securities.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating. Consequently,
the rating assigned to any particular security is not necessarily a reflection
of the issuer's current financial condition, which may be better or worse than
the rating would indicate. In addition, the rating assigned to a security by
Moody's Investors Service, Inc. or Standard & Poor's Ratings Group (or by any
other nationally recognized securities rating organization) does not reflect an
assessment of the volatility of the security's market value or the liquidity of
an investment in the security. See Appendix I to this SAI for a description of
security ratings.
Like those of other fixed-income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of fixed income
securities. Conversely, during periods of rising interest rates, the value of
the Fund's fixed-income securities will generally decline. The values of lower
rated securities may often be affected to a greater extent by changes in general
economic conditions and business conditions affecting the issuers of such
securities and their industries. Negative publicity or investor perceptions may
also adversely affect the values of lower rated securities. Changes by
recognized rating services in their ratings of any fixed-income security and
changes in the ability of an issuer to make payments of interest and principal
may also affect the value of these investments. Changes in the value of
portfolio securities generally will not affect income derived from these
securities, but will affect the Fund's net asset value. The Fund will not
necessarily dispose of a security when its rating is reduced below its rating at
the time of purchase. However, the Manager will monitor the investment to
determine whether its retention will assist in meeting the Fund's investment
objective.
Issuers of lower rated securities are often highly leveraged, so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. Such issuers may not
have more traditional methods of financing available to them and may be unable
to repay outstanding obligations at maturity by refinancing. The risk of loss
due to default in payment of interest or repayment of principal by such issuers
is significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
To the extent the Growth & Income Fund invests in securities in the lower
rating categories, the achievement of the Fund's objective is more dependent on
the Manager's investment analysis than would be the case if the Fund were
investing in securities in the higher rating categories. This may be
particularly true with respect to tax-exempt securities, as the amount of
information about the financial condition of an issuer of tax-exempt securities
may not be as extensive as that which is made available by corporations whose
securities are publicly traded.
CALL FEATURES
Certain securities held by the Growth & Income Fund may permit the issuer at
its option to "call," or redeem, its securities. If an issuer were to redeem
securities held by the Fund during a time of declining interest rates, the Fund
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
ZERO-COUPON BONDS AND PAYMENT-IN-KIND BONDS
The Growth & Income Fund may invest without limit in "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from their principal amount in lieu of paying interest periodically.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Because zero-coupon
and payment-in kind bonds do not pay current interest in cash, their value is
subject to greater fluctuation in response to changes in market interest rates
than bonds that pay interest currently. Both zero-coupon and payment-in-kind
bonds allow an issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater credit risks than
bonds paying interest currently in cash. The Fund is required to accrue interest
income on such investments and to distribute such amounts at least annually to
shareholders even though such bonds do not pay current interest in cash. Thus,
it may be necessary at times for the Fund to liquidate investments in order to
satisfy its dividend requirements.
ADDITIONAL DISCLOSURE REGARDING DERIVATIVES
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while forward
contracts may be entered into only in the over-the-counter market. Futures
contracts and options on futures contracts may be entered into on U.S. exchanges
regulated by the CFTC and on foreign exchanges. The securities underlying
options and futures contracts traded by a Fund may include domestic as well as
foreign securities (except in the case of the Small Cap Value Fund, which does
not invest in non-U.S. securities). Investors should recognize that transactions
involving foreign securities or foreign currencies, and transactions entered
into in foreign countries, may involve considerations and risks not typically
associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts and
forward contracts entered into for non-hedging purposes involve greater risk and
could result in losses which are not offset by gains on other portfolio assets.
For example, a Fund may sell futures contracts on an index of securities in
order to profit from any anticipated decline in the value of the securities
comprising the underlying index. In such instances, any losses on the futures
transactions will not be offset by gains on any portfolio securities comprising
such index, as might occur in connection with a hedging transaction.
ADDITIONAL INFORMATION
At times, a substantial portion of the Growth & Income Fund's assets may be
invested in securities as to which the Fund, by itself or together with other
funds and accounts managed by Citibank and its affiliates, holds all or a major
portion. Although Citibank generally considers such securities to be liquid
because of the availability of an institutional market for such securities, it
is possible that, under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the Fund could find it
more difficult to sell these securities when Citibank believes it advisable to
do so or may be able to sell the securities only at prices lower than if they
were more widely held. Under these circumstances, it may also be more difficult
to determine the fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the event of a default
under such securities, the Fund may be required to participate in various legal
proceedings or take possession of and manage assets securing the issuer's
obligations on such securities. This could increase the Fund's operating
expenses and adversely affect the Fund's net asset value. In addition, the
Fund's intention to qualify as a "regulated investment company" under the
Internal Revenue Code may limit the extent to which the Fund may exercise its
rights by taking possession of such assets.
DEFENSIVE STRATEGIES
Each Fund may, from time to time, take temporary defensive positions that
are inconsistent with the Fund's principal investment strategies in attempting
to respond to adverse market, political or other conditions. When doing so, the
Funds may invest without limit in high quality money market and other short-term
instruments, and may not be pursuing their investment goals.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Funds, and the Portfolio Trusts, on behalf of
the Portfolios, have each adopted the following policies which may not be
changed with respect to any 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.
For purposes of restriction (1) above, covered mortgage dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.
If a percentage or rating restriction on investment or utilization of assets
set forth above or referred to in the applicable 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 or Portfolio will not be
considered a violation of policy.
5. PERFORMANCE INFORMATION AND ADVERTISING
Fund performance may be quoted in advertising, shareholder reports and other
communications in terms of 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 a Fund's shares when redeemed may
be worth more or less than their original cost.
Each Fund may provide its period and average annualized "total rates of
return". The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period, reflects any change in net asset
value per share and is compounded to include the value of any shares purchased
with any dividends or capital gains declared during such period. Period total
rates of return may be "annualized". An "annualized" total rate of return
assumes that the period rate of return is generated over a one-year period.
A total rate of return quotation for a Fund is calculated for any period by
(a) dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains distributions declared during such
period with respect to a share held at the beginning of such period and with
respect to shares purchased with such dividends and capital gains distributions,
by (ii) the public offering price per share on the first day of such period, and
(b) subtracting 1 from the result. Any annualized total rate of return quotation
is calculated by (x) adding 1 to the period total rate of return quotation
calculated above, (y) raising such sum to a power which is equal to 365 divided
by the number of days in such period, and (z) subtracting 1 from the result.
Total returns calculated for the Small Cap Value Fund for any period which
includes a period prior to the commencement of operations of the Fund will
reflect the historical performance of the Small Cap Value Portfolio, as adjusted
for Fund expenses.
Each 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. Each Fund may also provide yield and
effective yield quotations for longer periods.
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.
Of course, any fees charged by a shareholder's Service Agent will reduce the
shareholder's net return on investment.
Set forth below is total rate of return information for the Class A shares
of each Fund for the periods indicated, assuming that dividends and capital
gains distributions, if any, were reinvested. All outstanding shares were
designated Class A shares on January 4, 1999. The return information relates to
periods prior to January 4, 1999, when there were no sales charges on the
purchase or sale of the Funds' shares. The Class A performance for past periods
has therefore been adjusted to reflect the maximum sales charge currently in
effect. The Class B shares are newly offered and have no investment history.
Performance results include any applicable fee waivers or expense subsidies in
place during the time period, which may cause the results to be more favorable
than they would otherwise have been.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
AVERAGE OF A HYPOTHETICAL
ANNUAL $1,000 INVESTMENT
TOTAL RATE AT THE END OF
OF RETURN THE PERIOD
--------- ----------
<S> <C> <C>
LARGE CAP GROWTH FUND
October 19, 1990 (Commencement of Operations) to October 31, 1998 ...................... 17.05% $3,546.01
Five Years Ended October 31, 1998 ...................................................... 16.77% $2,170.85
One Year Ended October 31, 1998 ........................................................ 20.56% $1,205.51
SMALL CAP GROWTH FUND
June 21, 1995 (Commencement of Operations) to October 31, 1998 ......................... 20.08% $1,851.12
One Year Ended October 31, 1998 ........................................................ (20.73)% $ 792.75
SMALL CAP VALUE FUND
March 2, 1998 (Commencement of Operations) to October 31, 1998 ......................... (31.98)%** $ 680.20
GROWTH & INCOME FUND
March 2, 1998 (Commencement of Operations) to October 31, 1998 ......................... (12.51)%** $ 874.95
- ----------
**Not Annualized.
</TABLE>
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.
For advertising and sales purposes, the Funds will generally use the
performance of Class A shares. All outstanding Fund shares were designated Class
A shares on January 4, 1999. Performance prior to that date will be adjusted to
include the sales charges currently in effect. Class A shares are sold at net
asset value plus a current maximum sales charge of 5.00%. Performance will
typically include this maximum sales charge for the purposes of calculating
performance figures. If the performance of Class B shares is used for
advertising and sales purposes, performance after class inception on January 4,
1999 will be actual performance, while performance prior to that date will be
Class A performance, adjusted to reflect the differences in sales charges (but
not the differences in fees and expenses) between the classes. For these
purposes, it will be assumed that the maximum contingent deferred sales charge
applicable to the Class B shares is deducted at the times, in the amount, and
under the terms stated in the Prospectus. Class B share performance generally
would have been lower than Class A performance, had the Class B shares been
offered for the entire period, because the expenses attributable to Class B
shares are higher than the expenses attributable to the Class A shares. Fund
performance may also be presented in advertising and sales literature without
the inclusion of sales charges.
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
The net asset value per share of each Fund is determined for each class on
each day during which the New York Stock Exchange is open for trading ("Business
Day"). As of the date of this Statement of Additional Information, the Exchange
is open for trading every weekday except for the following holidays (or the days
on which they are observed): New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. This determination 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 attributable
to the class (including its interest in its corresponding Portfolio), then
subtracting the liabilities attributable to the class, and then dividing the
result by the number of outstanding shares of the class. The net asset value per
share is effective for orders received and accepted by the Transfer Agent prior
to its calculation.
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 or if there are no market rates, at
fair value, at the time of valuation. Equity securities are valued at the last
sale price on the exchange on which they are primarily traded or on the NASDAQ
system for unlisted national market issues, or at the last quoted bid price for
securities in which there were no sales during the day or for unlisted
securities not reported on the NASDAQ system. Securities listed on a 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. Trading may also take place on days on which the Exchange is closed
and on which it is not possible to purchase or redeem shares of the Funds. If
events materially affecting the value of 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.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE OF FUND SHARES AND
SHAREHOLDER PROGRAMS
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing shares based upon your individual investment needs.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class is identical in all respects except that each class
bears its own class expenses, including distribution and service fees, and each
class has exclusive voting rights with respect to any distribution or service
plan applicable to its shares. As a result of the differences in the expenses
borne by each class of shares, net income per share, dividends per share and net
asset value per share will vary for each class of shares. There are no
conversion, preemptive or other subscription rights, except that Class B shares
automatically convert to Class A shares in eight years as more fully described
below.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares will
bear only those expenses that are directly attributable to that class, where the
type or amount of services received by a class varies from one class to another.
The expenses that may be borne by specific classes of shares may include (i)
transfer agency fees attributable to a specific class of shares, (ii) printing
and postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxy statements to current shareholders
of a specific class of shares, (iii) Securities and Exchange Commission ("SEC")
and state securities registration fees incurred by a specific class, (iv) the
expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal
expenses relating to a specific class of shares, (vi) accounting expenses
relating to a specific class of shares and (vii) any additional incremental
expenses subsequently identified and determined to be properly allocated to one
or more classes of shares.
CLASS A SHARES
You may purchase Class A shares at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the applicable Prospectus. You may qualify
for a reduced sales charge depending upon the amount of your purchase, or the
sales charge may be waived in its entirety, as described below under "Sales
Charge Waivers." If you qualify to purchase Class A shares without a sales load,
you should purchase Class A shares rather than Class B shares because Class A
shares pay lower fees. Class A shares are also subject to an annual
distribution/service fee of up to .25%. See "Distributor." Set forth below is an
example of the method of computing the offering price of the Class A shares of
the Fund. The example assumes a purchase on October 31, 1998 of Class A shares
from the Fund aggregating less than $25,000 subject to the schedule of sales
charges set forth below.
<TABLE>
<CAPTION>
LARGE CAP SMALL CAP SMALL CAP GROWTH &
GROWTH GROWTH VALUE INCOME
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value per share ................................................ $21.47 $16.96 $7.16 $9.19
Per Share Sales Charge - 5.00% of public offering price (5.26% of net
asset value per share) ................................................. $ 1.13 0.89 0.38 0.48
Per Share Offering Price to the Public ................................... $22.60 17.85 7.54 9.67
</TABLE>
The Fund receives the entire net asset value of all Class A shares that are
sold. The Distributor retains the full applicable sales charge from which it
pays the uniform reallowances shown in the table below.
The front-end sales charge for Class A shares expressed as a percentage of
offering price and net asset value, and the dealer reallowance expressed as a
percentage of the offering price is set forth in the table below. The Funds have
established certain shareholder programs that may permit you to take advantage
of the lower rates available for larger purchases, as described under
"Shareholder Programs" below.
<TABLE>
<CAPTION>
BROKER/DEALER
SALES CHARGE SALES CHARGE COMMISSION
AMOUNT OF AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
- --------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $25,000 ................................ 5.00% 5.26% 4.50%
$25,000 to less than $50,000 ..................... 4.00% 4.17% 3.60%
$50,000 to less than $100,000 .................... 3.50% 3.63% 3.15%
$100,000 to less than $250,000 ................... 3.00% 3.09% 2.70%
$250,000 to less than $500,000 ................... 2.00% 2.04% 1.80%
$500,000 or more ................................. none* none* up to 1.00%
- ----------
*A contingent deferred sales charge may apply in certain instances. See "Sales Charge Waivers--Class A" below.
</TABLE>
CLASS B SHARES
Class B shares are sold without a front-end, or initial, sales charge, but
you are charged a "contingent deferred sales charge" (CDSC) when you sell shares
within five years of purchase. The rate of CDSC goes down the longer you hold
your shares. The table below shows the rates that you pay, as a percentage of
the purchase price (or the sale price, whichever is less), depending upon when
you sell your shares.
SALE DURING CDSC ON SHARES BEING SOLD
- ----------- -------------------------
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 2%
5th year since purchase 1%
6th year (or later) since purchase None
Class B shares pay distribution/service fees of up to 1.00% of the average
daily net assets of a Fund represented by the Class B shares. Commissions will
be paid to brokers, dealers and other institutions that sell Class B shares in
the amount of 4.50% of the purchase price of Class B shares sold by these
entities. These commissions are not paid on exchanges from other CitiFunds or on
sales of Class B shares to investors exempt from the CDSC. Entities that sell
Class B shares will also receive a portion of the service fee payable under the
Class B Service Plan at an annual rate equal to 0.25% of the average daily net
assets represented by the Class B shares sold by them.
When you sell your shares, the CDSC will be based on either your purchase
price, or the sale price, whichever is less. You do not pay a CDSC on shares
acquired through reinvestment of dividends and capital gain distributions and
shares representing capital appreciation. Each Fund will assume that a
redemption of Class B shares is made:
[] first, of Class B shares representing capital appreciation
[] next, of shares representing the reinvestment of dividends and capital gains
distributions
[] finally, of other shares held by the investor for the longest period of
time.
Under certain circumstances, as set forth below in "Sales Charge Waivers," the
CDSC will be waived.
The holding period of Class B shares of a Fund acquired through an exchange
with another CitiFund will be calculated from the date that the Class B shares
were initially acquired in the other CitiFund, and Class B shares being redeemed
will be considered to represent, as applicable, capital appreciation or dividend
and capital gains distribution reinvestments in the other fund. When determining
the amount of the CDSC, each Fund will use the CDSC schedule of any fund from
which you have exchanged shares that would result in you paying the highest
CDSC.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will with
persons or entities with which Citibank or the Distributor or their affiliates
have business relationships, or because the sales effort, if any, involved in
making such sales is negligible, or, in the case of certain CDSC waivers,
because the circumstances surrounding the sale of Fund shares were not
foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
CLASS A -- FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares acquired
through the reinvestment of dividends and capital gains distributions.
o Eligible Purchasers. Class A shares may be purchased without a sales
charge by:
[] tax exempt organizations under Section 501(c)(3-13) of the Internal
Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or affiliate
of Citibank acts as trustee and exercises discretionary investment
management authority
[] accounts for which Citibank or any subsidiary or affiliate of Citibank
performs investment advisory services or charges fees for acting as
custodian
[] directors or trustees (and their immediate families), and retired
directors and trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or affiliate
of Citibank serves as the investment adviser or as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired employees of
Citibank and its affiliates or CFBDS, Inc. and its affiliates
(including immediate families of any of the foregoing)
[] investors participating in a fee- based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund shares
as an investment option based on an investor's balances in selected
Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the assurance of
the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or
repurchase
[] separate accounts used to fund certain unregistered variable annuity
contracts
[] direct rollovers by plan participants from a 401(k) plan offered to
Citigroup employees
[] shareholder accounts established through a reorganization or similar
form of business combination approved by a Fund's Board of Trustees or
by the Board of Trustees of any other CitiFund or mutual fund managed
or advised by Citibank (all of such funds being referred to herein as
CitiFunds) the terms of which entitle those shareholders to purchase
shares of a Fund or any other CitiFund at net asset value without a
sales charge
[] employee benefit plans qualified under Section 401(k) of the Internal
Revenue Code with accounts outstanding on January 4, 1999.
[] employee benefit plans qualified under Section 401 of the Internal
Revenue Code, including salary reduction plans qualified under Section
401(k) of the Code, subject to minimum requirements as may be
established by CFBDS with respect to the amount of purchase;
currently, the amount invested by the qualified plan in a Fund or in
any combination of CitiFunds must total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however, a
contingent deferred sales charge will be imposed on the investments in
the event of certain share redemptions within 12 months following the
share purchase, at the rate of 1% of the lesser of the value of the
shares redeemed (not including reinvested dividends and capital gains
distributions) or the total cost of the shares; the contingent
deferred sales charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class B
shares will be waived; in determining whether a contingent deferred
sales charge on Class A shares is payable, and if so, the amount of
the charge:
+ it is assumed that shares not subject to the contingent deferred
sales charge are the first redeemed followed by other shares held
for the longest period of time
+ all investments made during a calendar month will age one month on
the last day of the month and each subsequent month
+ any applicable contingent deferred sales charge will be deferred
upon an exchange of Class A shares for Class A shares of another
CitiFund and deducted from the redemption proceeds when the
exchanged shares are subsequently redeemed (assuming the contingent
deferred sales charge is then payable)
+ the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other than
a CitiFund), if:
+ the redeemed shares were subject to an initial sales charge or a
deferred sales charge (whether or not actually imposed), and
+ the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a broker-
dealer which has a sales agreement with CFBDS from another investment
firm within six months prior to the date of purchase by the investor,
if:
+ the investor redeems shares of another mutual fund sold through the
investment firm that previously employed that investment consultant
or other registered representative, and either paid an initial
sales charge or was at some time subject to, but did not actually
pay, a deferred sales charge or redemption fee with respect to the
redemption proceeds,
+ the redemption is made within 60 days prior to the investment in a
Fund, and
+ the net asset value of the shares of the Fund sold to that investor
without a sales charge does not exceed the proceeds of the
redemption
CONTINGENT DEFERRED SALES CHARGE:
o Reinvestment. There is no CDSC on shares representing capital
appreciation or on shares acquired through reinvestment of dividends or
capital gains distributions.
o Waivers. The CDSC will be waived in connection with:
[] a total or partial redemption made within one year of the death of the
shareholder; this waiver is available where the deceased shareholder
is either the sole shareholder or owns the shares with his or her
spouse as a joint tenant with right of survivorship, and applies only
to redemption of shares held at the time of death
[] a lump sum or other distribution in the case of an Individual
Retirement Account (IRA), a self-employed individual retirement plan
(Keogh Plan) or a custodian account under Section 403(b) of the
Internal Revenue Code, in each case following attainment of age 59 1/2
[] a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement plan
[] a redemption resulting from a tax- free return of an excess
contribution to an IRA
[] redemptions under a Fund's Systematic Withdrawal Plan
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A shares
in the same Fund approximately eight years after the date of issuance. At the
same time, a portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares will be converted in accordance
with procedures from time to time approved by the Funds' Trustees. The
conversion will be effected at the relative net asset values per share of the
two classes on the first business day of the month in which the eighth
anniversary of the issuance of the Class B shares occurs. If a shareholder
effects one or more exchanges among Class B shares of the CitiFunds during the
eight-year period, the holding periods for the shares so exchanged will be
counted toward the eight-year period. Because the per share net asset value of
the Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
SHAREHOLDER PROGRAMS
The Funds make the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Class A shares or
exchange Fund shares for shares of other CitiFunds without, in many cases, the
payment of a sales charge. These programs may be changed or discontinued at any
time. For more information, please contact your Service Agent.
REDUCED SALES CHARGE PLAN
A qualified group may purchase shares as a single purchaser under the
reduced sales charge plan. The purchases by the group are lumped together
and the sales charge is based on the lump sum. A qualified group must:
[] have been in existence for more than six months
[] have a purpose other than acquiring Fund shares at a discount
[] satisfy uniform criteria that enable CFBDS to realize economies of
scale in its costs of distributing shares
[] have more than ten members
[] be available to arrange for group meetings between representatives of
the Funds and the members
[] agree to include sales and other materials related to the Funds in its
publications and mailings to members at reduced or no cost to the
distributor
[] seek to arrange for payroll deduction or other bulk transmission of
investments to the Funds
LETTER OF INTENT
If an investor anticipates purchasing $25,000 or more of Class A shares of a
Fund alone or in combination with Class B shares of the Fund or any of the
classes of other CitiFunds or of any other mutual fund managed or advised by
Citibank (all of such funds being referred to herein as CitiFunds) within a
13-month period, the investor may obtain the shares at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
a letter of intent on the terms described below. Subject to acceptance by CFBDS,
Inc., the Funds' distributor, and the conditions mentioned below, each purchase
will be made at a public offering price applicable to a single transaction of
the dollar amount specified in the letter of intent.
[] The shareholder or, if the shareholder is a customer of a Service
Agent, his or her Service Agent must inform CFBDS that the letter of
intent is in effect each time shares are purchased.
[] The shareholder makes no commitment to purchase additional shares, but
if his or her purchases within 13 months plus the value of shares
credited toward completion of the letter of intent do not total the
sum specified, an increased sales charge will apply as described
below.
[] A purchase not originally made pursuant to a letter of intent may be
included under a subsequent letter of intent executed within 90 days
of the purchase if CFBDS is informed in writing of this intent within
the 90-day period.
[] The value of shares of a Fund presently held, at cost or maximum
offering price (whichever is higher), on the date of the first
purchase under the letter of intent, may be included as a credit
toward the completion of the letter, but the reduced sales charge
applicable to the amount covered by the letter is applied only to new
purchases.
[] Instructions for issuance of shares in the name of a person other than
the person signing the letter of intent must be accompanied by a
written statement from the Transfer Agent or a Service Agent stating
that the shares were paid for by the person signing the letter.
[] Neither income dividends nor capital gains distributions taken in
additional shares will apply toward the completion of the letter of
intent.
[] The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the letter of intent
are deducted from the total purchases made under the letter of intent.
If the investment specified in the letter of intent is not completed (either
prior to or by the end of the 13-month period), the Transfer Agent will redeem,
within 20 days of the expiration of the letter of intent, an appropriate number
of the shares in order to realize the difference between the reduced sales
charge that would apply if the investment under the letter of intent had been
completed and the sales charge that would normally apply to the number of shares
actually purchased. By completing and signing the letter of intent, the
shareholder irrevocably grants a power of attorney to the Transfer Agent to
redeem any or all shares purchased under the letter of intent, with full power
of substitution.
RIGHT OF ACCUMULATION
A shareholder qualifies for cumulative quantity discounts on the purchase of
Class A shares when his or her new investment, together with the current
offering price value of all holdings of that shareholder in the CitiFunds,
reaches a discount level. For example, if a Fund shareholder owns shares valued
at $50,000 and purchases an additional $50,000 of Class A shares of the Fund,
the sales charge for the additional $50,000 purchase would be at the rate of
3.00% (the rate applicable to single transactions from $100,000 to less than
$250,000). A shareholder must provide the Transfer Agent with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
SYSTEMATIC WITHDRAWAL PLAN
Each Fund's Systematic Withdrawal Plan permits you to have a specified
dollar amount (minimum of $100 per withdrawal) automatically withdrawn from your
account on a regular basis if you have at least $10,000 in your Fund account at
the time of enrollment. You are limited to one withdrawal per month under the
Plan.
If you redeem Class A or Class B shares under the Plan that are subject to a
CDSC, you are not subject to any CDSC applicable to the shares redeemed, but the
maximum amount that you can redeem under the Plan in any year is limited to 10%
of the average daily balance in your account.
You may receive your withdrawals by check, or have the monies transferred
directly into your bank account. Or you may direct that payments be made
directly to a third party.
To participate in the Plan, you must complete the appropriate forms provided
by your Service Agent.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed (with a credit
for any contingent deferred sales charge paid) by purchasing Class A shares of
the same Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Service Agents in
writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of each Fund may be exchanged for shares of the same class of certain
other CitiFunds that are made available by your Service Agent, or may be
acquired through an exchange of shares of the same class of those funds. Class A
shares also may be exchanged for shares of certain CitiFunds money market funds
that offer only a single class of shares, unless the Class A shares are subject
to a contingent deferred sales charge. Class B shares may not be exchanged for
shares of CitiFunds money market funds other than Cash Reserves.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares are being acquired and the sales charge for Class
A of the fund being exchanged into is greater than the current sales charge of
the Fund (in which case an initial sales charge will be imposed at a rate equal
to the difference). Investors whose shares are outstanding on January 4, 1999
will be able to exchange those Class A shares, and any shares acquired through
capital appreciation and the reinvestment of dividends and capital gains
distributions on those shares, into Class A shares of the other funds without
paying any sales charge.
No CDSC is imposed on Class B shares at the time they are exchanged for
Class B shares of certain other CitiFunds that are made available by your
Service Agent. However, you may be required to pay a CDSC when you sell those
shares. When determining the amount of the CDSC, each Fund will use the CDSC
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
You must notify your Service Agent at the time of exchange if you believe
that you qualify for share prices which do not include the sales charge or which
reflect a reduced sales charge, because the Fund shares you are exchanging were:
(a) purchased with a sales charge, (b) acquired through a previous exchange from
shares purchased with a sales charge, (c) outstanding as of January 4, 1999, or
(d) acquired through capital appreciation or the reinvestment of dividends and
capital gains distributions on those shares. Any such qualification may be
subject to confirmation, through a check of appropriate records and
documentation, of your existing share balances and any sales charges paid on
prior share purchases.
This exchange privilege may be modified or terminated at any time, and is
available only in those jurisdictions where such exchanges legally may be made.
Before making any exchange, shareholders should contact their Service Agents to
obtain more information and prospectuses of the funds to be acquired through the
exchange. An exchange is treated as a sale of the shares exchanged and could
result in taxable gain or loss to the shareholder making the exchange.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of a Fund appropriate prior written disclosure of any fees that it
may charge them directly. Each Service Agent is responsible for transmitting
promptly orders of its customers. Your Service Agent is the shareholder of
record for the shares of a Fund you own.
Investors may be able to establish new accounts in the Funds under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and certain
other qualified pension and profit-sharing plans. Investors should consult with
their Service Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the transfer agent or, if they are
customers of a Service Agent, their Service Agent. During periods of drastic
economic or market changes or severe weather or other emergencies, shareholders
may experience difficulties implementing a telephone exchange or redemption. In
such an event, another method of instruction, such as a written request sent via
an overnight delivery service, should be considered. The Funds, the transfer
agent and each Service Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may include
recording of the telephone instructions and verification of a caller's identity
by asking for his or her name, address, telephone, Social Security number, and
account number. If these or other reasonable procedures are not followed, the
Funds, the transfer agent or the Service Agent may be liable for any losses to a
shareholder due to unauthorized or fraudulent instructions. Otherwise, the
shareholder will bear all risk of loss relating to a redemption or exchange by
telephone.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption or repurchase price of shares of the Funds,
either totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a holder of shares received a distribution in kind,
such holder could incur brokerage or other charges in converting the securities
to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of a Fund more than seven days during any period when (a)
trading in the markets a Fund normally utilizes is restricted, or an emergency,
as defined by the rules and regulations of the Securities and Exchange
Commission (the "SEC"), exists making disposal of a Fund's investments or
determination of its net asset value not reasonably practicable; (b) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings); or (c) the SEC has by order permitted such suspension.
8. MANAGEMENT
Each Fund is supervised by the Board of Trustees of the Trust. Each
Portfolio is supervised by the Board of Trustees of Asset Allocation Portfolios
or The Premium Portfolios, as the case may be. In each case, a majority of the
Trustees are not affiliated with Citibank.
The Trustees and officers of the Trust and the Portfolio Trusts, 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 Trusts. Unless otherwise indicated below, the address
of each Trustee and officer is 21 Milk Street, Boston, Massachusetts. The
address of each Portfolio Trust is Elizabethan Square, George Town, Grand
Cayman, British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 72 -- Vice President and General Counsel, Corporate Property
Investors (November 1988 to December 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December 1987). His address is 4041 Gulf Shore Boulevard
North, Naples, Florida.
DIANA R. HARRINGTON; 58 -- Professor, Babson College (since September 1993);
Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate School
of Business, University of Virginia (September 1978 to September 1993); Trustee,
The Highland Family of Funds (March 1997 to March 1998). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 47 -- President, Global Research Associates, Inc. (Investment
Research) (since August 1990); Manager, Rockefeller & Co. (March 1988 to July
1990); Trustee, Mainstay Institutional Funds (since December 1990). Her
address is P.O. Box 9572, New Haven, Connecticut.
HEATH B. MCLENDON*; 65 -- Chairman, President, and Chief Executive Officer of
Mutual Management Corp. (since March 1996); Managing Director of Salomon Smith
Barney (since August 1993); and Chairman, President and Chief Executive
Officer of fifty-eight investment companies sponsored by Salomon Smith Barney.
His address is 388 Greenwich Street, New York, New York.
C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trusts; Managing Director, Morong Capital Management (since
February 1993); Senior Vice President and Investment Manager, CREF Investments,
Teachers Insurance & Annuity Association (retired, January 1993); Director,
Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385 Outlook
Drive West, Mountainside, New Jersey.
E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR.; 78 -- Vice President-Investments, Sun Company, Inc.
(retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUSTS
ELLIOTT J. BERV; 55 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
MARK T. FINN; 55 -- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading
Advisory Firm) (since March 1997); Director, Vantage Consulting Group, Inc.
(since October 1988). His address is 3500 Pacific Avenue, P.O. Box 539,
Virginia Beach, Virginia.
C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trusts; Managing Director, Morong Capital Management (since
February 1993); Senior Vice President and Investment Manager, CREF Investments,
Teachers Insurance & Annuity Association (retired, January 1993); Director,
Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385 Outlook
Drive West, Mountainside, New Jersey.
WALTER E. ROBB, III; 72 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUSTS
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE A. DRAPEAU*; 28 -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc. (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996).
JOHN R. ELDER*; 50 -- Treasurer of the Trust and the Portfolio Trusts; Vice
President, Signature Financial Group, Inc. (since April 1995); Assistant
Treasurer, CFBDS (since April 1995); Treasurer, the Phoenix Family of Mutual
Funds (Phoenix Home Life Mutual Insurance Company) (1983 to March 1995).
LINDA T. GIBSON*; 33 -- Secretary of the Trust and the Portfolio Trusts;
Senior Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
JAMES E. HOOLAHAN*; 52 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trusts; Senior Vice President,
Signature Financial Group, Inc.
SUSAN JAKUBOSKI*; 34 -- 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).
MOLLY S. MUGLER*; 47 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN*; 30 -- Assistant Secretary of the Trust and the Portfolio Trusts;
Office Manager, Signature Financial Group (Europe) Limited. Her address is 117
Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON*; 50 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trusts; Assistant Vice President, Signature Financial
Group, Inc.
JULIE J. WYETZNER*; 39 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group, Inc.
The trustees and officers of the Trust and the Portfolio Trusts also hold
comparable positions with certain other funds for which CFBDS, Signature
Financial Group, Inc., or their affiliates serve as distributor or
administrator.
The following table shows Trustee compensation for the fiscal year ended
October 31, 1998:
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
RETIREMENT ANNUAL FROM TRUST AND
AGGREGATE BENEFITS BENEFITS FUND COMPLEX
COMPENSATION ACCRUED AS PART UPON PAID TO
TRUSTEE FROM REGISTRANT OF FUND EXPENSES RETIREMENT TRUSTEES(1)
------- --------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Philip W. Coolidge ................... $ 0 None None $ 0
Riley C. Gilley ...................... $4,293 None None $41,500
Diana R. Harrington .................. $5,538 None None $59,000
Susan B. Kerley ...................... $5,299 None None $55,000
Heath B. McLendon (2) ................ $ 0 None None $ 0
C. Oscar Morong, Jr. ................. $6,392 None None $71,000
E. Kirby Warren ...................... $5,090 None None $49,000
William S. Woods, Jr. ................ $5,389 None None $54,000
- ------------
</TABLE>
(1) Messrs. Coolidge, Gilley, McLendon, Morong, Warren and Woods, and Mses.
Harrington and Kerley are Trustees of 49, 33, 20, 40, 40, 26, 28 and 28
funds and portfolios, respectively, in the family of open-end registered
investment companies advised or managed by Citibank.
(2) Mr. McLendon was appointed as Trustee in February, 1999.
As of February 22, 1999, all Trustees and officers as a group owned less
than 1% of 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 Trusts provides that
the Trust or the Portfolio Trust, as the case may be, will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust or a Portfolio Trust, as the case may be, unless, as to liability to the
Trust, such Portfolio Trust or their respective investors, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust or such Portfolio Trust, as the case may be. In the
case of settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees of the Trust or
such Portfolio Trust, or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
MANAGER
Citibank manages the assets of each Fund and each Portfolio and provides
certain administrative services to the Funds and the Portfolios pursuant to
separate management agreements (the "Management Agreements"). Subject to such
policies as the Board of Trustees of the applicable 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 Agreements with the Portfolio Trusts provide that
Citibank may delegate the daily management of the securities of each Portfolio
to one or more subadvisers.
Unless otherwise terminated, the Management Agreements with The Premium
Portfolios relating to the Large Cap Growth Portfolio, the Small Cap Growth
Portfolio and the Growth & Income Portfolio will each continue in effect
indefinitely as long as such continuance is specifically approved at least
annually by the Board of Trustees of The Premium Portfolios 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 Premium Portfolios who are
not parties to the Management Agreement or interested persons of any such party,
at a meeting called for the purpose of voting on the Management Agreement.
Unless otherwise terminated, the Management Agreements with the Trust relating
to the Large Cap Growth Fund, the Small Cap Growth Fund and the Growth & Income
Fund will each continue in effect indefinitely as long as such continuance is
specifically approved at least annually by the Board of Trustees of the Trust or
by a vote of a majority of the outstanding voting securities of the applicable
Fund, and, in either case, by a majority of the Trustees of the Trust who are
not parties to the Management Agreement or interested persons of any such party,
at a meeting called for the purpose of voting on the Management Agreement.
Unless otherwise terminated, the Management Agreement with Asset Allocation
Portfolios relating to the Small Cap Value Portfolio will continue in effect
indefinitely as long as such continuance is specifically approved at least
annually by the Board of Trustees of Asset Allocation Portfolios or by a vote of
a majority of the outstanding voting securities of the Small Cap Value
Portfolio, and, in either case, by a majority of the Trustees of the Asset
Allocation Portfolios who are not parties to the Management Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Management Agreement. Unless otherwise terminated, the Management
Agreement with the Trust relating to the Small Cap Value Fund will continue in
effect indefinitely as long as such continuance is specifically approved at
least annually by the Board of Trustees of the Trust or by a vote of a majority
of the outstanding voting securities of the Small Cap Value Fund, and, in either
case, by a majority of the Trustees of the Trust who are not parties to the
Management Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Management Agreement.
Citibank provides the Funds and the Portfolios with general office
facilities and supervises the overall administration of the Funds and the
Portfolios, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of, the
Funds' or the Portfolios' independent contractors and agents; the preparation
and filing of all documents required for compliance by the Funds and the
Portfolios with applicable laws and regulations; and arranging for the
maintenance of books and records of the Funds or the Portfolios. Trustees,
officers, and investors in the Trust and the Portfolio Trusts are or may be or
may become interested in Citibank, as directors, officers, employees, or
otherwise and directors, officers and employees of Citibank are or may become
similarly interested in the Trust and the Portfolio Trusts.
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by a Portfolio Trust or the
Trust, as the case may be, when authorized either by a vote of a majority of the
outstanding voting securities of the applicable Portfolio or Fund or by a vote
of a majority of the Board of Trustees of a Portfolio Trust or the Trust, or by
Citibank on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Management
Agreement with each Portfolio Trust provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in the execution
of security transactions for the applicable Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or their
obligations and duties under the Management Agreement with such Portfolio Trust.
The Management Agreement with the Trust provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for any
omission in the administration or management of the Trust or the performance of
its duties under the Management Agreement, except for willful misfeasance, bad
faith or gross negligence or reckless disregard of its or their obligations and
duties under the Management Agreement with the Trust.
The Prospectus for each Fund contains a description of the fees payable to
Citibank for services under each of the Management Agreements. These fees are
higher than the management fees paid by most mutual funds. Citibank may
reimburse any Fund or Portfolio or waive all or a portion of its management
fees.
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 $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 fiscal year ended October 31,
1998, the fees paid to Citibank under its Management Agreements with respect to
Large Cap Growth Fund and Large Cap Growth Portfolio were $84,677 and
$3,167,841, respectively.
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
agreements 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 year
ended October 31, 1998, the fees paid to Citibank under its Management
Agreements with respect to Small Cap Growth Fund and Small Cap Growth Portfolio
were $0 and $1,673,322, respectively.
For the period from March 2, 1998 (commencement of operations) to October
31, 1998, the fee paid to Citibank under its Management Agreement with respect
to Small Cap Value Fund was $4,129. For the period from November 1, 1997 to
October 31, 1998, the fee paid to Citibank under its Management Agreement with
respect to Small Cap Value Portfolio was $396,874.
For the period from March 2, 1998 (commencement of operations) to October
31, 1998, the fees paid to Citibank under its Management Agreements with respect
to Growth & Income Fund and Growth & Income Portfolio were $48,279 and $246,222,
respectively.
For the fiscal years ended December 31, 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 $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). 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 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 fiscal years ended December 31, 1995 and 1996
and the period from January 1, 1997 to October 31, 1997, The Premium Portfolios
paid Signature Financial Group (Cayman) Ltd. ("SFG") under a prior
administrative services agreement $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
Premium Portfolios 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 separate sub-administrative services agreements with Citibank,
CFBDS and SFG perform such sub-administrative duties for the Trust and the
Portfolio Trusts, respectively, as from time to time are agreed upon by
Citibank, CFBDS and SFG, as appropriate. For performing such sub- administrative
services, CFBDS and SFG receive compensation as from time to time is agreed upon
by Citibank, not in excess of the amount paid to Citibank for its services under
the Management Agreements with the Trust and the Portfolio Trusts, respectively.
All such compensation is paid by Citibank.
Pursuant to its Management Agreement with Asset Allocation Portfolios with
respect to the Small Cap Value Portfolio, Citibank is responsible for managing
that portion of the Small Cap Value Portfolio's assets allocated to cash and
invested in U.S. dollar-denominated high quality and short-term money market
instruments. The Portfolio may make such investments during periods of unusual
economic or market conditions or for temporary defensive purposes or liquidity.
Pursuant to a Submanagement Agreement with Asset Allocation Portfolios, the
Subadviser manages those assets of the Small Cap Value Portfolio not managed by
Citibank. Small Cap Value Portfolio pays the Subadviser the following fees,
which are accrued daily and payable monthly and are at the annual rates equal to
the percentages specified below of the aggregate assets of Small Cap Value
Portfolio allocated to the Subadviser:
0.55% on first $250 million
0.50% on remaining assets
For the period from November 1, 1997 (commencement of operations of the
Portfolio) to October 31, 1998, the fees paid to the Subadviser with respect to
the Small Cap Value Portfolio were $1,091,403.
It is the responsibility of the Subadviser to make the day-to-day investment
decisions for its allocated assets of the Small Cap Value Fund, and to place the
purchase and sales orders for securities transactions concerning those assets,
subject in all cases to the general supervision of Citibank. The Subadviser
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the assets of the Small Cap Value Fund allocated to it
and effecting securities transactions concerning those assets.
The Submanagement Agreement will continue in effect indefinitely as long as
such continuance is specifically approved at least annually by the Board of
Trustees of Asset Allocation Portfolios or by a vote of a majority of the
outstanding voting securities of the Small Cap Value Portfolio, and, in either
case, by a majority of the Trustees of Asset Allocation Portfolios who are not
parties to the Submanagement Agreement or interested persons of any such party,
at a meeting called for the purpose of voting on the Submanagement Agreement.
The Submanagement Agreement provides that the Subadviser may render services
to others. The Submanagement Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by Asset Allocation
Portfolios, when authorized either by a vote of a majority of the outstanding
voting securities of the Small Cap Value Portfolio or by a vote of a majority of
the Board of Trustees of Asset Allocation Portfolios, or by Citibank on not more
than 60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Submanagement Agreement may be
terminated by the Subadviser on not less than 90 days' written notice. Upon
termination of the Submanagement Agreement, Citibank will maintain
responsibility for managing those assets formerly managed by the Subadviser. The
Submanagement Agreement provides that neither the Subadviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
security transactions for the Small Cap Value Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or their
obligations and duties under the Submanagement Agreement.
DISTRIBUTOR
CFBDS, 21 Milk Street, Boston, MA 02109, serves as the Distributor of each
Fund's shares pursuant to Distribution Agreements with the Trust with respect to
each class of shares of the Funds (each, a "Distribution Agreement"). In those
states where CFBDS is not a registered broker-dealer, shares of the Funds are
sold through Signature Broker-Dealer Services, Inc., as dealer. Under the
Distribution Agreements, CFBDS is obligated to use its best efforts to sell
shares of each class of the Funds.
Either party may terminate a Distribution Agreement on not less than thirty
days' nor more than sixty days' written notice to the other party. Unless
otherwise terminated each Distribution Agreement will continue from year to year
upon annual approval by the Trust's Board of Trustees and by the vote of a
majority of the 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. Each Distribution Agreement will terminate in the event
of its assignment, as defined in the 1940 Act.
Each class of each Fund has a Service Plan (each, a "Service Plan") adopted
in accordance with Rule 12b-1 under the 1940 Act. Under the Plans, a Fund may
pay monthly fees at an annual rate not to exceed 0.25% of the average daily net
assets of the Fund attributable to that class in the case of the Plans relating
to Class A shares, and not to exceed 1.00% of the average daily net assets of
the Fund attributable to that class in the case of the Plans relating to Class B
shares. Such fees may be used to make payments to the Distributor for
distribution services, to securities dealers and other industry professionals
(called Service Agents) that have entered into service agreements with the
Distributor and others in respect of the sale of shares of the Funds, and to
other parties in respect of the sale of shares of the Funds, and to make
payments for advertising, marketing or other promotional activity, and payments
for preparation, printing, and distribution of prospectuses, statements of
additional information and reports for recipients other than regulators and
existing shareholders. The Funds also may make payments to the Distributor,
Service Agents and others for providing personal service or the maintenance of
shareholder accounts. The amounts paid by the Distributor to each recipient may
vary based upon certain factors, including, among other things, the levels of
sales of Fund shares and/or shareholder services provided. Recipients may
receive different compensation for sales for Class A and Class B shares.
The Service Plan with respect to Class A shares also provides that the
Distributor, broker-dealers, banks and other financial intermediaries may
receive the sales charge paid by Class A investors as partial compensation for
their services in connection with the sale of shares. The Service Plan with
respect to Class B shares provides that the Distributor, dealers, and others may
receive all or a portion of the deferred sales charges paid by Class B
investors.
The Service Plans permit the Funds to pay fees to the Distributor, Service
Agents and others as compensation for their services, not as reimbursement for
specific expenses incurred. Thus, even if their expenses exceed the fees
provided for by the applicable Plan, the Fund will not be obligated to pay more
than those fees and, if their expenses are less than the fees paid to them, they
will realize a profit. Each Fund will pay the fees to the Distributor and others
until the applicable Plan or Distribution Agreement is terminated or not
renewed. In that event, the Distributor's or other recipient's expenses in
excess of fees received or accrued through the termination date will be the
Distributor's or other recipient's sole responsibility and not obligations of
the Fund. In their annual consideration of the continuation of the Service Plans
for each Fund, the Trustees will review the Service Plans and the expenses for
each Fund separately.
Each Service Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Trust's Trustees
and a majority of the Trust's Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Service Plan or in any agreement related to the Plan (for purposes of this
paragraph "Qualified Trustees"). Each Service Plan requires that the Trust and
the Distributor provide to the Board of Trustees, and the Board of Trustees
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Service Plan. Each Service Plan further provides
that the selection and nomination of the Qualified Trustees is committed to the
discretion of such Qualified Trustees then in office. A Service Plan may be
terminated with respect to any class of a Fund at any time by a vote of a
majority of the Trust's Qualified Trustees or by a vote of a majority of the
outstanding voting securities of that class. A Service Plan may not be amended
to increase materially the amount of a class's permitted expenses thereunder
without the approval of a majority of the outstanding securities of that class
and may not be materially amended in any case without a vote of a majority of
both the Trustees and Qualified Trustees. The Distributor will preserve copies
of any plan, agreement or report made pursuant to the Service Plans for a period
of not less than six years, and for the first two years the Distributor will
preserve such copies in an easily accessible place.
As contemplated by the Service Plans, CFBDS acts as the agent of the Trust
in connection with the offering of shares of the Funds pursuant to the
Distribution Agreements. The Prospectus contains a description of fees payable
to the Distributor under the Distribution Agreements. For the fiscal years ended
December 31, 1995 and 1996, the fees payable to CFBDS under a prior distribution
agreement with respect to Large Cap Growth Fund were $98,112 and $336,950 (of
which $224,633 was voluntarily waived), respectively. For the period from
January 1, 1997 to October 31, 1997, the fees payable to CFBDS under a prior
distribution agreement with respect to Large Cap Growth Fund were $101,807. For
the fiscal year ended October 31, 1998, the fees payable to CFBDS under the
current Distribution Agreement with respect to Class A shares of Large Cap
Growth Fund were $763,085. 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. For the period from January 1, 1997 to
October 31, 1997, the fees payable to CFBDS under a prior distribution agreement
with respect to Small Cap Growth Fund were $31,537 (all of which was voluntarily
waived). For the fiscal year ended October 31, 1998, the fees payable to CFBDS
under the current Distribution Agreement with respect to Class A shares of Small
Cap Growth Fund were $67,515. For the period from March 2, 1998 (commencement of
operations) to October 31, 1998, the fees payable to CFBDS under the current
Distribution Agreement with respect to Class A shares of Small Cap Value Fund
were $72,642. For the period from March 2, 1998 (commencement of operations) to
October 31, 1998, the fees payable to CFBDS under the current Distribution
Agreement with respect to Class A shares of Growth & Income Fund were $120,697.
The Distributor may enter into agreements with Service Agents and may pay
compensation to such Service Agents for accounts for which the Service Agents
are holders of record. Payments may be made to the Service Agents or for other
distribution expenses out of the distribution fees received by the Distributor
and out of the Distributor's past profits or any other source available to it.
EXPENSES
In addition to amounts payable under the Management Agreements and the
Service Plans, each Fund is responsible for its own expenses, including, among
other things, the costs of securities transactions, the compensation of Trustees
that are not affiliated with Citibank or the Fund's distributor, government
fees, taxes, accounting and legal fees, expenses of communication with
shareholders, interest expense, and insurance premiums. The Prospectus for each
Fund contains more information about the expenses of each Fund.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street") pursuant to which State
Street acts as transfer agent for each Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street, pursuant
to which custodial and fund accounting services, respectively, are provided for
each Fund. Among other things, State Street calculates the daily net asset value
for the Funds. Securities may be held by a sub-custodian bank approved by the
Trustees.
Each Portfolio Trust, on behalf of the Portfolios, has entered into
Custodian Agreements with State Street pursuant to which State Street acts as
custodian for each Portfolio. Each Portfolio Trust, on behalf of the Portfolios,
also has entered into a Fund Accounting Agreement with State Street Cayman Trust
Company, Ltd. ("State Street Cayman") pursuant to which State Street Cayman
provides fund accounting services for each Portfolio. State Street Cayman also
provides transfer agency services to each Portfolio 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
PricewaterhouseCoopers LLP are the independent accountants for the Trust,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of PricewaterhouseCoopers LLP
is 160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP
(Canada) are the chartered accountants for each Portfolio Trust. The address of
PricewaterhouseCoopers LLP (Canada) 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.
9. PORTFOLIO TRANSACTIONS
The Trust trades securities for a Fund if it believes that a transaction net
of costs (including custodian charges) will help achieve the Fund's investment
objective. Changes in the Fund's investments are made without regard to the
length of time a security has been held, or whether a sale would result in the
recognition of a profit or loss. Therefore, the rate of turnover is not a
limiting factor when changes are appropriate. Specific decisions to purchase or
sell securities for each Fund are made by a portfolio manager who is an employee
of Citibank and who is appointed and supervised by its senior officers or, in
the case of the Small Cap Value Fund, by the Subadviser. The portfolio manager
or Subadviser may serve other clients of Citibank in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to a Fund and/or the other
accounts over which Citibank, the Subadviser or their affiliates exercise
investment discretion. Citibank and the Subadviser are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for a Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if Citibank or the Subadviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which Citibank, the Subadviser and their affiliates
have with respect to accounts over which they exercise investment discretion.
The Trustees of the Trust periodically review the commissions paid by 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 or the Subadviser will not
be reduced as a consequence of Citibank's or the Subadviser's receipt of
brokerage and research services. While such services are not expected to reduce
the expenses of Citibank or the Subadviser, Citibank and the Subadviser would,
through the use of the services, avoid the additional expenses which would be
incurred if they should attempt to develop comparable information through their
own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for a Fund as well as for one or more of Citibank's or the
Subadviser's other clients. Investment decisions for a Fund and for Citibank's
and the Subadviser's other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling the same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable in a security for a Fund.
When purchases or sales of the same security for a Fund and for other portfolios
managed by Citibank or the Subadviser occur contemporaneously, the purchase or
sale orders may be aggregated in order to obtain any price advantages available
to large volume purchases or sales.
For the fiscal years ended December 31, 1995 and 1996, for the period from
January 1, 1997 to October 31, 1997 and for the fiscal year ended October 31,
1998, the Large Cap Growth Portfolio paid brokerage commissions of $418,145,
$586,248, $643,728 and $855,648, respectively. For the period from June 21, 1995
(commencement of operations) to December 31, 1995, for the fiscal year ended
December 31, 1996, for the period from January 1, 1997 to October 31, 1997 and
for the fiscal year ended October 31, 1998, the Small Cap Growth Portfolio paid
brokerage commissions in the amount of $6,544, $84,320, $77,226 and $214,401,
respectively. For the period from March 2, 1998 (commencement of operations of
the Small Cap Value Fund) to October 31, 1998, the Small Cap Value Portfolio
paid brokerage commissions in the amount of $183,702. For the period from March
2, 1998 (commencement of operations) to October 31, 1998, the Growth & Income
Portfolio paid brokerage commissions in the amount of $187,468.
10. 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 each class represents an equal
proportionate interest in the Fund with each other share of that class. 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 (except for any differences between classes of shares of a series).
Shares of each series are entitled to vote separately to approve advisory
agreements or changes in investment policy, and shares of a class are entitled
to vote separately to approve any distribution or service agreements relating to
that class, but shares of all series may vote together in the election or
selection of Trustees and accountants for the Trust. In matters affecting only a
particular 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.")
At any meeting of shareholders of any Fund, a Service Agent may vote any
shares of which it is the holder of record and for which it does not receive
voting instructions proportionately in accordance with the instructions it
receives for all other shares of which that Service Agent is the holder of
record.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's or the affected
series' outstanding shares would be sufficient. The Trust or any series of the
Trust, as the case may be, may be terminated (i) by a vote of a majority of the
outstanding voting securities of the Trust or the affected series or (ii) by the
Trustees by written notice to the shareholders of the Trust or the affected
series. If not so terminated, each Trust will continue indefinitely.
The Fund's Transfer Agent maintains a share register for shareholders of
record. Share certificates are not issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Trust property for any shareholder held personally liable for the obligations
of the Trust. The Declaration of Trust 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 (other than the Small Cap Value Portfolio) are series of The
Premium Portfolios. The Small Cap Value Portfolio is a series of Asset
Allocation Portfolios. Each of the Portfolio Trusts is organized as a trust
under the laws of the State of New York. Each investor in a Portfolio, including
the 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.
11. TAX MATTERS
TAXATION OF THE FUNDS AND THE PORTFOLIO TRUSTS
FEDERAL TAXES. 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. 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. Each Portfolio
Trust believes its Portfolios also will not be required to pay any U.S.
federal income or excise taxes on their income.
FOREIGN TAXES. Investment income and gains received by a Fund from non-
U.S. securities may be subject to non-U.S. taxes. The U.S. has entered into
tax treaties with many other countries that may entitle a Fund to a reduced
rate of tax or an exemption from tax on such income. Each Fund intends to
qualify for treaty reduced rates where applicable. It is not possible,
however, to determine a Fund's effective rate of non-U.S. tax in advance since
the amount of the Fund's assets to be invested within various countries is not
known.
If a Fund holds more than 50% of its assets in foreign stock and securities
at the close of its taxable year, the Fund may elect to "pass through" to the
Fund's shareholders foreign income taxes paid. If 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.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. Shareholders of a Fund will generally have to pay
federal income taxes and any state or local taxes on the dividends and capital
gain distributions they receive from the Fund. Dividends from ordinary income
and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the length
of time the shareholders have held their shares. Any Fund dividend that is
declared in October, November, or December of any calendar year, that is payable
to shareholders of record in such a month, and that is paid the following
January, will be treated as if received by the shareholders on December 31 of
the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
DIVIDENDS-RECEIVED DEDUCTION. The portion of each Fund's ordinary income
dividends attributable to dividends received in respect 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.
SPECIAL CONSIDERATIONS FOR NON-U.S. PERSONS. 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.
BACKUP WITHHOLDING. The account application asks each new shareholder to
certify that the shareholder's Social Security or taxpayer identification number
is correct and that the shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. 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.
DISPOSITION OF SHARES. In general, any gain or loss realized upon a taxable
disposition of shares of a Fund by a shareholder that holds such shares as a
capital asset will be treated as a long-term capital gain or loss if the shares
have been held for more than twelve months and otherwise as a short-term capital
gain or loss. However, any loss realized upon a disposition of shares in a Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any distributions of net capital gain made with respect to those
shares. Any loss realized upon a disposition of shares may also be disallowed
under rules relating to wash sales. Gain may be increased (or loss reduced) upon
a redemption of Class A Fund shares held for 90 days or less followed by any
purchase of shares of a Fund or another of the CitiFunds, including purchases by
exchange or by reinvestment, without payment of a sales charge which would
otherwise apply because of any sales charge paid on the original purchase of the
Class A Fund shares.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INVESTMENTS. Any investment by a Fund in zero coupon bonds,
deferred interest bonds, payment-in-kind bonds, certain stripped securities, and
certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, a
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or loss
to the Fund. An investment by a Fund in residual interests of a CMO that has
elected to be treated as a real estate mortgage investment conduit, or "REMIC,"
can create complex tax problems, especially if the Fund has state or local
governments or other tax-exempt organizations as shareholders.
OPTIONS, ETC. Each Fund's transactions in options, futures 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.
FOREIGN INVESTMENTS. The Funds (other than the Small Cap Value Fund) may
make non-U.S. investments. Special tax considerations apply with respect to such
investments. Foreign exchange gains and losses realized by a Fund will generally
be treated as ordinary income and loss. Use of non-U.S. currencies for
non-hedging purposes and investment by a Fund in certain "passive foreign
investment companies" may have to be limited in order to avoid a tax on a Fund.
A Fund may elect to mark to market any investments in "passive foreign
investment companies" on the last day of each taxable year. This election may
cause the Fund to recognize ordinary income prior to the receipt of cash
payments with respect to those investments; in order to distribute this income
and avoid a tax on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold potentially resulting
in additional taxable gain or loss to the Fund.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such as
the Funds. Citibank believes that its services under the Management Agreements
and the activities performed by it or its affiliates as Service Agents are not
underwriting and are consistent with the Glass-Steagall Act and other relevant
federal and state laws. However, there is no controlling precedent regarding the
performance of the combination of investment advisory, shareholder servicing and
administrative activities by banks. State laws on this issue may differ from
applicable federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either federal
or state statutes or regulations, or in their interpretations, could prevent
Citibank or its affiliates from continuing to perform these services. If
Citibank or its affiliates were to be prevented from acting as the Manager or a
Service Agent, the Funds would seek alternative means for obtaining these
services. The Funds do not expect that shareholders would suffer any adverse
financial consequences as a result of any such occurrence.
13. FINANCIAL STATEMENTS
The audited financial statements of the Large Cap Growth Fund (Statement of
Assets and Liabilities at October 31, 1998, Statement of Operations for the year
ended October 31, 1998, Statement of Changes in Net Assets for the year ended
December 31, 1996, for the ten months ended October 31, 1997 and for the year
ended October 31, 1998, Financial Highlights for each of the years in the
five-year period ended December 31, 1996, for the ten months ended October 31,
1997 and for the year ended October 31, 1998, 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 PricewaterhouseCoopers LLP, independent
accountants, on behalf of the Fund.
The audited financial statements of the Large Cap Growth Portfolio
(Portfolio of Investments at October 31, 1998, Statement of Assets and
Liabilities at October 31, 1998, Statement of Operations for the year ended
October 31, 1998, Statement of Changes in Net Assets for the year ended December
31, 1996, for the ten months ended October 31, 1997 and for the year ended
October 31, 1998, Financial Highlights for the period May 1, 1994 (commencement
of operations) to December 31, 1994, the fiscal years ended December 31, 1995
and 1996, for the ten months ended October 31, 1997 and for the year ended
October 31, 1998, 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 PricewaterhouseCoopers LLP, 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, 1998, Statement of Operations for the year
ended October 31, 1998, Statement of Changes in Net Assets for the year ended
December 31, 1996, for the ten months ended October 31, 1997 and for the year
ended October 31, 1998, Financial Highlights for the period June 21, 1995
(commencement of operations) to December 31, 1995, the year ended December 31,
1996, for the ten months ended October 31, 1997 and for the year ended October
31, 1998, 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
PricewaterhouseCoopers LLP, independent accountants, on behalf of the Fund.
The audited financial statements of the Small Cap Growth Portfolio
(Portfolio of Investments at October 31, 1998, Statement of Assets and
Liabilities at October 31, 1998, Statement of Operations for the year ended
October 31, 1998, Statement of Changes in Net Assets for the year ended December
31, 1996, for the ten months ended October 31, 1997 and for the year ended
October 31, 1998, Financial Highlights for the period June 21, 1995
(commencement of operations) to December 31, 1995, the fiscal year ended
December 31, 1996, for the ten months ended October 31, 1997 and for the year
ended October 31, 1998, 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 PricewaterhouseCoopers LLP, chartered accountants, on behalf of the
Portfolio.
The audited financial statements of the Small Cap Value Fund (Statement of
Assets and Liabilities at October 31, 1998, Statement of Operations for the
period March 2, 1998 (commencement of operations) to October 31, 1998, Statement
of Changes in Net Assets for the period March 2, 1998 (commencement of
operations) to October 31, 1998, Financial Highlights for the period March 2,
1998 (commencement of operations) to October 31, 1998, Notes to Financial
Statements and Independent Auditors' Report), each of which is included in the
Annual Report to Shareholders of the Small Cap Value Fund, are incorporated by
reference into this Statement of Additional Information and have been so
incorporated in reliance upon the reports of PricewaterhouseCoopers LLP,
independent accountants, on behalf of the Fund.
The audited financial statements of the Small Cap Value Portfolio (Portfolio
of Investments at October 31, 1998, Statement of Assets and Liabilities at
October 31, 1998, Statement of Operations for the period November 1, 1997
(commencement of operations) to October 31, 1998, Statement of Changes in Net
Assets for the period November 1, 1997 (commencement of operations) to October
31, 1998, Financial Highlights for the period November 1, 1997 (commencement of
operations) to October 31, 1998, Notes to Financial Statements and Independent
Auditors' Report), each of which is included in the Annual Report to
Shareholders of the Small Cap Value Fund, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP, chartered accountants,
on behalf of the Portfolio.
The audited financial statements of the Growth & Income Fund (Statement of
Assets and Liabilities at October 31, 1998, Statement of Operations for the
period March 2, 1998 (commencement of operations) to October 31, 1998, Statement
of Changes in Net Assets for the period March 2, 1998 (commencement of
operations) to October 31, 1998, Financial Highlights for the period March 2,
1998 (commencement of operations) to October 31, 1998, Notes to Financial
Statements and Independent Auditors' Report), each of which is included in the
Annual Report to Shareholders of the Growth & Income Fund, are incorporated by
reference into this Statement of Additional Information and have been so
incorporated in reliance upon the reports of PricewaterhouseCoopers LLP,
independent accountants, on behalf of the Fund.
The audited financial statements of the Growth & Income Portfolio (Portfolio
of Investments at October 31, 1998, Statement of Assets and Liabilities at
October 31, 1998, Statement of Operations for the period March 2, 1998
(commencement of operations) to October 31, 1998, Statement of Changes in Net
Assets for the period March 2, 1998 (commencement of operations) to October 31,
1998, Financial Highlights for the period March 2, 1998 (commencement of
operations) to October 31, 1998, Notes to Financial Statements and Independent
Auditors' Report), each of which is included in the Annual Report to
Shareholders of the Growth & Income Fund, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance upon the reports of PricewaterhouseCoopers LLP, chartered accountants,
on behalf of the Portfolio.
Copies of the Annual Report for each Fund accompany this Statement of
Additional Information.
<PAGE>
APPENDIX I
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa rate judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
STANDARD & POOR'S RATINGS GROUP
BONDS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only to a small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to pay interest and
repay principal on obligations in this category than in higher rated categories.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair the capacity or willingness
to pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC ratings category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- Debt rated CC is currently highly vulnerable to nonpayment. The rating CC
typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC rating.
C -- The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but debt service payments are continued.
D -- Bonds rated D are in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if debt
service payments are jeopardized.
DUFF & PHELPS CREDIT RATING CO.
LONG-TERM DEBT
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
FITCH IBCA, INC.
AAA -- Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA -- Very high credit quality. "AA" ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A -- High credit quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB -- Good credit quality. "BBB" ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
BB -- Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B -- Highly speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained favorable business and economic environment.
CCC, CC and C -- High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D -- Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for recovery
of amounts outstanding on any securities involved. For U.S. corporates, for
example, "DD" indicates expected recovery of 50% - 90% of such outstandings, and
"D" the lowest recovery potential, i.e., below 50%.
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
CITIFUNDS SMALL CAP VALUE PORTFOLIO
CITIFUNDS GROWTH & INCOME PORTFOLIO
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, Boston, MA 02109 (617) 423-1679
TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
PART C
Item 23. Exhibits.
* a(1) Amended and Restated Declaration of Trust of the
Registrant
****** a(2) Amendments to Amended and Restated Declaration of Trust
of the Registrant
**** b(1) Amended and Restated By-Laws of the Registrant
**** b(2) Amendments to Amended and Restated By-Laws of the
Registrant
*** d(1) Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Small Cap Growth
Portfolio
****** d(2) Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Small Cap Value
Portfolio
*** d(3) Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Large Cap Growth
Portfolio
****** d(4) Management Agreement between the Registrant and
Citibank, N.A., as manager to CitiFunds Growth & Income
Portfolio
e(1) Amended and Restated Distribution Agreement between the
Registrant and CFBDS, Inc. ("CFBDS"), as distributor
with respect to Class A shares
e(2) Distribution Agreement between the Registrant and
CFBDS, as distributor with respect to Class B shares
** g(1) Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street"), as
custodian
****** g(2) Letter Agreement adding CitiFunds Small Cap Value
Portfolio and CitiFunds Growth & Income Portfolio to the
Custodian Contract between the Registrant and State
Street
****** h(1) Amended and Restated Sub-Administrative Services
Agreement between Citibank, N.A. and CFBDS with respect
to CitiFunds Large Cap Growth Portfolio and CitiFunds
Small Cap Growth Portfolio
****** h(2) Sub-Administrative Services Agreement between Citibank,
N.A. and CFBDS with respect to CitiFunds Small Cap Value
Portfolio and CitiFunds Growth & Income Portfolio
**** h(3) Transfer Agency and Service Agreement between the
Registrant and State Street, as transfer agent
****** h(4) Letter Agreement adding CitiFunds Small Cap Value
Portfolio and CitiFunds Growth & Income Portfolio to the
Transfer Agency and Service Agreement between the
Registrant and State Street
** h(5) Accounting Services Agreement between the Registrant
and State Street, as fund accounting agent
***** h(6) Letter Agreement adding CitiFunds Small Cap Value
Portfolio and CitiFunds Growth & Income Portfolio to the
Accounting Services Agreement between the Registrant and
State Street
***** i Opinion and consent of counsel
j Independent auditor's consent
m(1) Amended and Restated Service Plan of the Registrant
for Class A shares
m(2) Service Plan of the Registrant for Class B shares
n Financial Data Schedule
o Multiple Class Plan of the Registrant
**** and filed p(1) Powers of Attorney for the Registrant
herewith
***** p(2) Powers of Attorney for The Premium Portfolios
***** p(3) Powers of Attorney for Asset Allocation Portfolios
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 17 to
the Registrant's Registration Statement on Form N-1A (File No. 2-90519)
as filed with the Securities and Exchange Commission on February 28,
1997.
** Incorporated herein by reference to Post-Effective Amendment No. 19 to
the Registrant's Registration Statement on Form N-1A (File No. 2-90519)
as filed with the Securities and Exchange Commission on October 24,
1997.
*** Incorporated herein by reference to Post-Effective Amendment No. 20 to
the Registrant's Registration Statement on Form N-1A (File No. 2-90519)
as filed with the Securities and Exchange Commission on November 3,
1997.
**** Incorporated herein by reference to Post-Effective Amendment No. 24 to
the Registrant's Registration Statement on Form N-1A (File No. 2-90519)
as filed with the Securities and Exchange Commission on June 29, 1998.
***** Incorporated herein by reference to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement on Form N-1A (File No. 2-90519)
as filed with the Securities and Exchange Commission on December 16,
1998.
****** Incorporated herein by reference to Post-Effective Amendment No. 28 to
the Registrant's Registration Statement on Form N-1A (File No. 2-90519)
as filed with the Securities and Exchange Commission on December 21,
1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 17 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, filed as Exhibits hereto; and (c)
the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, Growth & Income Portfolio, Balanced Portfolio, Large Cap
Growth Portfolio, International Equity Portfolio, Government Income Portfolio
and Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury
Reserves Portfolio, Cash Reserves Portfolio, CitiFunds(SM) Tax Free Income Trust
(CitiFunds(SM) New York Tax Free Income Portfolio, CitiFunds(SM) National Tax
Free Income Portfolio and CitiFunds(SM) California Tax Free Income Portfolio),
CitiFunds(SM) Multi-State Tax Free Trust (CitiFunds(SM) California Tax Free
Reserves, CitiFunds(SM) New York Tax Free Reserves and CitiFunds(SM) Connecticut
Tax Free Reserves), CitiFunds(SM) Institutional Trust (CitiFunds(SM)
Institutional Cash Reserves) and Variable Annuity Portfolios (CitiSelect(R) VIP
Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400,
CitiSelect(R) VIP Folio 500 and CitiFunds(SM) Small Cap Growth VIP Portfolio).
Citibank and its affiliates manage assets in excess of $290 billion worldwide.
The principal place of business of Citibank is located at 399 Park Avenue, New
York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J.
Menezes is the President and a Director of Citibank. William R. Rhodes and H.
Onno Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group Inc.
and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup
Inc. In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President, Travelers
Property Casualty Co.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Franklin Advisory Services, Inc. ("Franklin"), a sub-adviser with
respect to the small cap value securities of Small Cap Value Portfolio, a series
of Asset Allocation Portfolios, maintains its principal office at One Parker
Plaza, 16th Floor, Fort Lee, New Jersey 07024. Franklin, a Delaware corporation
incorporated in 1996, is a registered investment adviser under the Investment
Advisers Act of 1940 and is a wholly-owned subsidiary of Franklin Resources,
Inc., a publicly owned holding company. Franklin is an investment adviser to
various open-end and closed-end investment companies.
William J. Lippman is the President and Director of Franklin Advisory
Services, Inc. Mr. Lippman holds a master of business administration degree from
New York University and a bachelor of business administration degree from City
College of New York. Mr. Lippman also serves as Senior Vice President of
Franklin Resources, Inc. and Franklin Management, Inc. and has been with the
Franklin Templeton Group since 1988. Prior to joining Franklin Advisers Inc.,
Mr. Lippman was president of L.F. Rothschild Fund Management, Inc. and has been
in the securities industry for over 30 years.
Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:
<TABLE>
<CAPTION>
Name: Affiliations:
<S> <C>
William J. Lippman Senior Vice President, Franklin Resources, Inc.
President and Director Senior Vice President, Franklin Advisers, Inc.
Senior Vice President, Franklin Templeton Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Mr. Lippman also serves as officer and/or director or trustee
of eight of the investment companies in the Franklin Group of
Funds.
Charles B. Johnson President, Chief Executive Officer and Director, Franklin
Chairman of the Resources, Inc.
Board and Director Chairman of the Board and Director, Franklin Advisers, Inc.
Chairman of the Board and Director, Franklin Investment Advisory
Services, Inc.
Chairman of the Board and Director, Franklin Templeton
Distributors, Inc.
Director, Franklin/Templeton Investor Services, Inc.
Director, Franklin Templeton Services, Inc.
Director, General Host Corporation
Mr. Johnson also serves as officer and/or director or trustee,
as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 54 of the investment companies
in the Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. Executive Vice President and Director, Franklin Resources, Inc.
Senior Vice President Executive Vice President and Director, Franklin Templeton
and Director Distributors, Inc.
President and Director, Franklin Advisers, Inc.
Senior Vice President and Director, Franklin Investment
Advisory Services, Inc.
Director, Franklin/Templeton Investor Services, Inc.
Mr. Johnson also serves as officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the
investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek Senior Vice President and General Counsel, Franklin Resources,
Vice President and Assistant Inc.
Secretary Senior Vice President, Franklin Templeton Distributors, Inc.
Vice President, Franklin Advisers, Inc.
Vice President, Franklin Investment Advisory Services, Inc.
Ms. Gatzek also serves as officer of 60 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan Senior Vice President, Chief Financial Officer and Treasurer,
Treasurer Franklin Resources, Inc.
Executive Vice President, Templeton Worldwide, Inc.
Senior Vice President and Treasurer, Franklin Advisers, Inc.
Senior Vice President and Treasurer, Franklin Templeton
Distributors, Inc.
Senior Vice President, Franklin/Templeton Investor Services, Inc.
Treasurer, Franklin Investment Advisory Services, Inc.
Mr. Flanagan also serves as officer of most other subsidiaries
of Franklin Resources, Inc. and officer, director and/or
trustee of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Leslie M. Kratter Vice President, Franklin Resources, Inc.
Secretary Vice President, Franklin Institutional Services Corporation
President and Director, Franklin/Templeton Travel, Inc.
</TABLE>
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM)
International Growth Portfolio, CitiFunds(SM) U.S. Treasury Reserves,
CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S. Treasury Reserves,
CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM) Institutional U.S. Treasury
Reserves, CitiFunds(SM) Institutional Liquid Reserves, CitiFunds(SM)
Institutional Cash Reserves, CitiFunds(SM) Tax Free Reserves, CitiFunds(SM)
Institutional Tax Free Reserves, CitiFunds(SM) California Tax Free Reserves,
CitiFunds(SM) Connecticut Tax Free Reserves, CitiFunds(SM) New York Tax Free
Reserves, CitiFunds(SM) Intermediate Income Portfolio, CitiFunds(SM) Short-Term
U.S. Government Income Portfolio, CitiFunds(SM) New York Tax Free Income
Portfolio, CitiFunds(SM) National Tax Free Income Portfolio, CitiFunds(SM)
California Tax Free Income Portfolio, CitiFunds(SM) Balanced Portfolio,
CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP
Folio 400, CitiSelect(R) VIP Folio 500, CitiFunds(SM) Small Cap Growth VIP
Portfolio, CitiSelect(R) Folio 200, CitiSelect(R) Folio 300, CitiSelect(R) Folio
400, and CitiSelect(R) Folio 500. CFBDS is also the placement agent for Large
Cap Value Portfolio, Small Cap Value Portfolio, International Portfolio, Foreign
Bond Portfolio, Intermediate Income Portfolio, Short-Term Portfolio, Growth &
Income Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio, Small
Cap Growth Portfolio, International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio. CFBDS also serves as the
distributor for the following funds: The Travelers Fund U for Variable
Annuities, The Travelers Fund VA for Variable Annuities, The Travelers Fund BD
for Variable Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for
Variable Annuities, The Travelers Fund ABD for Variable Annuities, The Travelers
Fund ABD II for Variable Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account PF II for Variable Annuities,
The Travelers Separate Account QP for Variable Annuities, The Travelers Separate
Account TM for Variable Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account Five for Variable Annuities,
The Travelers Separate Account Six for Variable Annuities, The Travelers
Separate Account Seven for Variable Annuities, The Travelers Separate Account
Eight for Variable Annuities, The Travelers Fund UL for Variable Annuities, The
Travelers Fund UL II for Variable Annuities, The Travelers Variable Life
Insurance Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account Four, The Travelers Separate
Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities,
The Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization Value
Equity Investments, Long-Term Bond Investments, Mortgage Backed Investments,
Municipal Bond Investments, Small Capitalization Growth Investments, Small
Capitalization Value Equity Investments, Appreciation Portfolio, Diversified
Strategic Income Portfolio, Emerging Growth Portfolio, Equity Income Portfolio,
Equity Index Portfolio, Growth & Income Portfolio, Intermediate High Grade
Portfolio, International Equity Portfolio, Money Market Portfolio, Total Return
Portfolio, Smith Barney Adjustable Rate Government Income Fund, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund, Smith Barney
Arizona Municipals Fund Inc., Smith Barney California Municipals Fund Inc.,
Balanced Portfolio, Conservative Portfolio, Growth Portfolio, High Growth
Portfolio, Income Portfolio, Global Portfolio, Select Balanced Portfolio, Select
Conservative Portfolio, Select Growth Portfolio, Select High Growth Portfolio,
Select Income Portfolio, Concert Social Awareness Fund, Smith Barney Large Cap
Blend Fund, Smith Barney Fundamental Value Fund Inc., Large Cap Value Fund,
Short-Term High Grade Bond Fund, U.S. Government Securities Fund, Smith Barney
Balanced Fund, Smith Barney Convertible Fund, Smith Barney Diversified Strategic
Income Fund, Smith Barney Exchange Reserve Fund, Smith Barney High Income Fund,
Smith Barney Municipal High Income Fund, Smith Barney Premium Total Return Fund,
Smith Barney Total Return Bond Fund, Cash Portfolio, Government Portfolio,
Municipal Portfolio, Concert Peachtree Growth Fund, Smith Barney Contrarian
Fund, Smith Barney Government Securities Fund, Smith Barney Hansberger Global
Small Cap Value Fund, Smith Barney Hansberger Global Value Fund, Smith Barney
Investment Grade Bond Fund, Smith Barney Special Equities Fund, Smith Barney
Intermediate Maturity California Municipals Fund, Smith Barney Intermediate
Maturity New York Municipals Fund, Smith Barney Large Capitalization Growth
Fund, Smith Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith
Barney Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Cash Portfolio, Government
Portfolio, Retirement Portfolio, California Money Market Portfolio, Florida
Portfolio, Georgia Portfolio, Limited Term Portfolio, New York Money Market
Portfolio, New York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal
Money Market Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney
New Jersey Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus
Emerging Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney
Small Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income
and Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed
Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion
Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund,
Centurion U.S. Protection Fund, Centurion International Protection Fund, Global
High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund,
Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp
Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government
Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio,
Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity
VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World
Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return
Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers
Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of Form
BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and fund North Quincy, MA 02171
accounting agent)
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 26th day of February, 1999.
CITIFUNDS TRUST II
By: Philip W. Coolidge
----------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on February 26, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
---------------------- Officer and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
---------------------- Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
----------------------
Riley C. Gilley
Diana R. Harrington* Trustee
----------------------
Diana R. Harrington
Susan B. Kerley* Trustee
----------------------
Susan B. Kerley
Heath B. McLendon* Trustee
----------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
----------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
----------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
----------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
----------------------
Philip W. Coolidge
Executed by Philip W. Coolidge
on behalf of those indicated
pursuant to
Powers of Attorney.
<PAGE>
SIGNATURES
The Premium Portfolios has duly caused this Post-Effective Amendment to
the Registration Statement on Form N-1A of CitiFunds Trust II to be signed on
its behalf by the undersigned, thereunto duly authorized, in Grand Cayman,
Cayman Islands, on the 26th day of February, 1999.
THE PREMIUM PORTFOLIOS
on behalf of Growth & Income Portfolio,
Large Cap Growth Portfolio and Small Cap
Growth Portfolio
By: Tamie Ebanks-Cunningham
---------------------------
Tamie Ebanks-Cunningham,
Assistant Secretary of
The Premium Portfolios
This Post-Effective Amendment to the Registration Statement on Form
N-1A of CitiFunds Trust II has been signed by the following persons in the
capacities indicated on February 26th, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
---------------------- Officer and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
---------------------- Accounting Officer
John R. Elder
Elliott J. Berv* Trustee
----------------------
Elliott J. Berv
Mark T. Finn* Trustee
----------------------
Mark T. Finn
C. Oscar Morong, Jr.* Trustee
----------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
----------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
----------------------
E. Kirby Warren
*By: Tamie Ebanks-Cunningham
----------------------
Tamie Ebanks-Cunningham
Executed by Tamie Ebanks-Cunningham
on behalf of those indicated as
attorney in fact.
<PAGE>
SIGNATURES
Asset Allocation Portfolios has duly caused this Post-Effective
Amendment to the Registration Statement on Form N-1A of CitiFunds Trust II to be
signed on its behalf by the undersigned, thereunto duly authorized, in Grand
Cayman, Cayman Islands, on the 26th of February, 1999.
ASSET ALLOCATION PORTFOLIOS
on behalf of Small Cap Value Portfolio
By: Tamie Ebanks-Cunningham
---------------------------
Tamie Ebanks-Cunningham,
Assistant Secretary of
Asset Allocation Portfolios
This Post-Effective Amendment to the Registration Statement on Form
N-1A of CitiFunds Trust II has been signed by the following persons in the
capacities indicated on February 26th, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
---------------------- Officer and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
---------------------- Accounting Officer
John R. Elder
Elliott J. Berv* Trustee
----------------------
Elliott J. Berv
Mark T. Finn* Trustee
----------------------
Mark T. Finn
C. Oscar Morong, Jr.* Trustee
----------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
----------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
----------------------
E. Kirby Warren
*By: Tamie Ebanks-Cunningham
----------------------
Tamie Ebanks-Cunningham
Executed by Tamie Ebanks-Cunningham
on behalf of those indicated as
attorney in fact.
<PAGE>
EXHIBIT INDEX
e(1) Amended and Restated Distribution Agreement between the Registrant
and CFBDS, Inc. ("CFBDS"), as distributor with respect to Class A shares
e(2) Distribution Agreement between the Registrant and CFBDS, as distributor
with respect to Class B shares
j Independent auditor's consent
m(1) Amended and Restated Service Plan of the Registrant for Class A shares
m(2) Service Plan of the Registrant for Class B shares
n Financial Data Schedule
o Multiple Class Plan of the Registrant
p(1) Powers of Attorney for the Registrant
<PAGE>
Exhibit e(1)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of August 21, 1986 (November 14, 1997 for CitiFunds
Small Cap Value Portfolio and CitiFunds Growth & Income Portfolio) and amended
and restated as of January 4, 1999, by and between CitiFunds Trust II (formerly,
Landmark Funds II), a Massachusetts business trust (the "Trust"), and CFBDS,
Inc., a Massachusetts corporation ("Distributor"). This Agreement relates solely
to (i) Shares of Beneficial Interest of each series of the Trust with Shares
that are not divided into classes and (ii) Shares of Beneficial Interest of each
series of the Trust that are divided into classes which are designated "Class A"
("Shares").
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and other
assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Shares of each of the Trust's series listed on Exhibit A hereto (the "Funds")
and has registered the Shares of the Funds under the Securities Act of 1933, as
amended (the "1933 Act");
WHEREAS, the Trust has adopted an Amended and Restated Service Plan
pursuant to Rule 12b-1 under the 1940 Act (the "Service Plan") and may enter
into related agreements providing for the distribution and servicing of Shares
of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Shares of
the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Shares of the Funds in jurisdictions wherein such Shares may be
legally offered for sale; provided, however, that the Trust in its absolute
discretion may issue Shares of the Funds in connection with (i) the payment or
reinvestment of dividends or distributions; (ii) any merger or consolidation of
the Trust or of the Funds with any other investment company or trust or any
personal holding company, or the acquisition of the assets of any such entity or
another series of the Trust; or (iii) any offer of exchange permitted by Section
11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Shares of the Funds and agrees that it will sell the Shares
as agent for the Trust at prices determined as hereinafter provided and on the
terms hereinafter set forth, all according to the then-current prospectus and
statement of additional information of each Fund (collectively, the "Prospectus"
and the "Statement of Additional Information"), applicable laws, rules and
regulations and the Declaration of Trust of the Trust. Distributor agrees to use
its best efforts to solicit orders for the sale of Shares of the Funds, and
agrees to transmit promptly to the Trust (or to the transfer agent of the Funds,
if so instructed in writing by the Trust) any orders received by it for purchase
or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the Statement
of Additional Information or advertisements and sales literature prepared by or
on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares of
that Fund or any necessary amendments thereto shall be suspended under any of
the provisions of the 1933 Act, or if and so long as a current prospectus for
Shares of that Fund as required by Section 10 of the 1933 Act is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph (g) shall in any way restrict the Trust's obligation
to repurchase any Shares from any shareholder in accordance with the provisions
of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the
Shares of each Fund shall be the net asset value of such Shares plus the amount
of any applicable sales charge, as provided in the Prospectus. The excess, if
any, of the public offering price of the Shares over the net asset value of the
Shares, and any contingent deferred sales charge applicable to Shares of any
Fund as set forth in the applicable Fund's Prospectus, may be paid to, or
retained by, the Distributor, securities dealers, financial institutions
(including banks) and others, as partial compensation for their services in
connection with the sale of Shares. At no time shall the Trust receive less than
the full net asset value of the Shares of each Fund, determined in the manner
set forth in the Prospectus and the Statement of Additional Information.
Distributor also may receive such compensation under the Trust's Service Plan
for Shares as may be authorized by the Trustees of the Trust from time to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably request
for use in connection with the sale of Shares of the Funds under this Agreement.
The Trust shall also make available a sufficient number of copies of the Funds'
Prospectus and Statement of Additional Information for use by the Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission
for amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
any such registration statement or Prospectus or the initiation of any
proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such
registration statement or Prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to any such registration statement or
Prospectus which may from time to time be filed with the Securities and
Exchange Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the Funds;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Funds, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Funds (including but not limited to the fees of independent pricing
services); expenses of meetings of shareholders; expenses relating to the
issuance, registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of
the Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of
the Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify Distributor,
its officers and directors, and any person which controls Distributor within the
meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor. Nothing herein contained
shall require the Trust to take any action contrary to any provision of its
Declaration of Trust or any applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon (i) any alleged untrue statement
of a material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, if such statement or omission was made
in reliance upon and in conformity with information furnished to the Trust in
connection therewith by or on behalf of Distributor; and (ii) any act or deed of
Distributor or its sales representatives that has not been authorized by the
Trust in any Prospectus or Statement of Additional Information or by this
Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 13, 1999 and shall continue in effect
for successive periods of one year, but only so long as each such continuance is
specifically approved by votes of a majority of both the Trustees of the Trust
and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Service Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder
shall not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the particular
Fund in question, and not any other Fund or series of the Trust. The term
"CitiFunds Trust II" means and refers to the Trustees from time to time serving
under the Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and delivery of
this Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the assets and property of the Trust as provided in the
Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust II
By: /s/ Philip Coolidge
-----------------------
CFBDS, Inc.
By: /s/ Philip Coolidge
-----------------------
<PAGE>
Exhibit A
Funds
CitiFunds Large Cap Growth Portfolio
CitiFunds Small Cap Growth Portfolio
CitiFunds Small Cap Value Portfolio
CitiFunds Growth & Income Portfolio
<PAGE>
Exhibit e(2)
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of January 4, 1999, by and between CitiFunds Trust
II (formerly, Landmark Funds II), a Massachusetts business trust (the "Trust"),
and CFBDS, Inc., a Massachusetts corporation ("Distributor"). This Agreement
relates solely to Shares of Beneficial Interest designated "Class B."
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are
divided into separate series representing interests in separate funds of
securities and other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Class B Shares of each of the Trust's series listed on Exhibit A hereto (the
"Funds") and has registered the Shares of the Funds under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust has adopted a Service Plan pursuant to Rule 12b-1
under the 1940 Act (the "Service Plan") and may enter into related agreements
providing for the distribution and servicing of Shares of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Class B
Shares of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Class B Shares of the Funds in jurisdictions wherein such Shares
may be legally offered for sale; provided, however, that the Trust in its
absolute discretion may issue Shares of the Funds in connection with (i) the
payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another series of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Class B Shares of the Funds and agrees that it will sell the
Shares as agent for the Trust at prices determined as hereinafter provided and
on the terms hereinafter set forth, all according to the then-current prospectus
and statement of additional information of each Fund (collectively, the
"Prospectus" and the "Statement of Additional Information"), applicable laws,
rules and regulations and the Declaration of Trust of the Trust. Distributor
agrees to use its best efforts to solicit orders for the sale of Shares of the
Funds, and agrees to transmit promptly to the Trust (or to the transfer agent of
the Funds, if so instructed in writing by the Trust) any orders received by it
for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the Statement
of Additional Information or advertisements and sales literature prepared by or
on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares of
that Fund or any necessary amendments thereto shall be suspended under any of
the provisions of the 1933 Act, or if and so long as a current prospectus for
Shares of that Fund as required by Section 10 of the 1933 Act is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph (g) shall in any way restrict the Trust's obligation
to repurchase any Shares from any shareholder in accordance with the provisions
of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the Class
B Shares of each Fund shall be the net asset value of such Shares, as provided
in the Prospectus. Any contingent deferred sales charge applicable to Class B
Shares of any Fund as set forth in the applicable Fund's Prospectus, may be paid
to, or retained by, the Distributor, securities dealers, financial institutions
(including banks) and others, as partial compensation for their services in
connection with the sale of Class B Shares. At no time shall the Trust receive
less than the full net asset value of the Shares of each Fund, determined in the
manner set forth in the Prospectus and the Statement of Additional Information.
Distributor also may receive such compensation under the Trust's Service Plan
for Class B Shares as may be authorized by the Trustees of the Trust from time
to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably request
for use in connection with the sale of Shares of the Funds under this Agreement.
The Trust shall also make available a sufficient number of copies of the Funds'
Prospectus and Statement of Additional Information for use by the Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission
for amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
any such registration statement or Prospectus or the initiation of any
proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such
registration statement or Prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to any such registration statement or
Prospectus which may from time to time be filed with the Securities and
Exchange Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the Funds;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Funds, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Funds (including but not limited to the fees of independent pricing
services); expenses of meetings of shareholders; expenses relating to the
issuance, registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of
the Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of
the Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify Distributor,
its officers and directors, and any person which controls Distributor within the
meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor. Nothing herein contained
shall require the Trust to take any action contrary to any provision of its
Declaration of Trust or any applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon (i) any alleged untrue statement
of a material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, if such statement or omission was made
in reliance upon and in conformity with information furnished to the Trust in
connection therewith by or on behalf of Distributor; and (ii) any act or deed of
Distributor or its sales representatives that has not been authorized by the
Trust in any Prospectus or Statement of Additional Information or by this
Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 13, 1999 and shall continue in effect
for successive periods of one year, but only so long as each such continuance is
specifically approved by votes of a majority of both the Trustees of the Trust
and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Service Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder
shall not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the particular
Fund in question, and not any other Fund or series of the Trust. The term
"CitiFunds Trust II" means and refers to the Trustees from time to time serving
under the Declaration of Trust of the Trust, a copy of which is on file with the
Secretary of the Commonwealth of Massachusetts. The execution and delivery of
this Agreement has been authorized by the Trustees, and this Agreement has been
signed on behalf of the Trust by an authorized officer of the Trust, acting as
such and not individually, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the assets and property of the Trust as provided in the
Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Trust II
By: /s/ Philip Coolidge
-----------------------
CFBDS, Inc.
By: /s/ Philip Coolidge
-----------------------
<PAGE>
Exhibit A
Funds
CitiFunds Large Cap Growth Portfolio
CitiFunds Small Cap Growth Portfolio
CitiFunds Small Cap Value Portfolio
CitiFunds Growth & Income Portfolio
<PAGE>
Exhibit j
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 29
to the registration statement on Form N-1A (the "Registration Statement") of
CitiFunds Trust II of our reports dated December 14, 1998, relating to the
financial statements and financial highlights of Small Cap Growth Portfolio,
Small Cap Value Portfolio, Large Cap Growth Portfolio and Growth & Income
Portfolio appearing in the October 31, 1998 Annual Report of CitiFunds Small Cap
Growth Portfolio, CitiFunds Small Cap Value Portfolio, CitiFunds Large Cap
Growth Portfolio and CitiFunds Growth & Income Portfolio, respectively, which
are also incorporated by reference into the Registration Statement. We also
consent to the references to us under the headings "Auditors" and "Financial
Statements" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
February 26, 1999
<PAGE>
Exhibit j
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting part of this Post-Effective
Amendment No. 29 to the registration statement on Form N-1A (the "Registration
Statement") of CitiFunds Trust II of our reports dated December 14, 1998,
relating to the financial statements and financial highlights of CitiFunds Small
Cap Growth Portfolio, CitiFunds Small Cap Value Portfolio, CitiFunds Large Cap
Growth Portfolio and CitiFunds Growth & Income Portfolio appearing in the
October 31, 1998 Annual Report of CitiFunds Small Cap Growth Portfolio,
CitiFunds Small Cap Value Portfolio, CitiFunds Large Cap Growth Portfolio and
CitiFunds Growth & Income Portfolio, respectively, which are also incorporated
by reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" in the Prospectuses and under
headings "Auditors" and "Financial Statements" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 1999
<PAGE>
Exhibit m(1)
AMENDED AND RESTATED
SERVICE PLAN
SERVICE PLAN, dated as of August 8, 1997 (November 14, 1997 for
CitiFunds Small Cap Value Portfolio and CitiFunds Growth & Income Portfolio) and
amended and restated effective as of January 4, 1999, of CitiFunds Trust II, a
Massachusetts business trust (the "Trust"), with respect to shares of beneficial
interest of its series CitiFunds Large Cap Growth Portfolio, CitiFunds Small Cap
Growth Portfolio, CitiFunds Small Cap Value Portfolio and CitiFunds Growth &
Income Portfolio and any other series of the Trust adopting this plan (the
"Series"). This Plan relates solely to (i) shares of beneficial interest of the
Series that are not divided into Classes and (ii) shares of beneficial interest
of each of the Series that are divided into Classes which are designated "Class
A" ("Shares").
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and other
assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Non-Interested Trustees"), having determined, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Section 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that this Plan will benefit the Trust and the
shareholders of the Series, have approved this Plan by votes cast at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
WHEREAS, an initial sales charge may be paid by investors who purchase
Shares, and CFBDS, Inc. (the "Distributor"), broker-dealers, banks and other
financial intermediaries may receive such sales charge as partial compensation
for their services in connection with the sale of Shares;
WHEREAS, each Series or the Distributor may impose certain deferred
sales charges in connection with the repurchase of Shares by such Series, and
the Series may pay to the Distributor, dealers and others, or the Series may
permit such persons to retain, as the case may be, all or any portion of such
deferred sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms of
the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
(a) engage, directly or indirectly, in any activities
primarily intended to result in the sale of Shares of the Series, which
activities may include, but are not limited to (i) payments to the
Trust's Distributor for distribution services, (ii) payments to
securities dealers, financial institutions (which may include banks)
and others in respect of the sale of Shares of the Series, (iii)
payments for advertising, marketing or other promotional activity, and
(iv) payments for preparation, printing, and distribution of
prospectuses and statements of additional information and reports of
the Trust for recipients other than regulators and existing
shareholders of the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may
include banks) and others for providing personal service and/or the
maintenance of shareholder accounts.
The Trust is authorized to engage in the activities listed above either directly
or through other persons with which the Trust has entered into agreements
related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances,
an initial sales charge may be paid by investors who purchase Shares of each
Series, and the Series may pay to the Distributor, securities dealers, financial
institutions (including banks) and others, or the Series may permit such persons
to retain, as the case may be, such sales charge as partial compensation for
their services in connection with the sale of Shares. It is also understood
that, under certain circumstances, each Series or the Distributor may impose
certain deferred sales charges in connection with the repurchase of Shares of
such Series, and the Series may pay to the Distributor, securities dealers,
financial institutions (including banks) and others, or the Series may permit
such persons to retain, as the case may be, all or any portion of such deferred
sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures will
be made shall be determined by the Trustees of the Trust, but in no event may
such expenditures exceed an amount calculated at the rate of 0.25% per annum of
the average daily net assets of the Shares of each Series. Payments pursuant to
this Plan may be made directly by the Trust to the Distributor or to other
persons with which the Trust has entered into agreements related to this Plan.
For purposes of determining the fees payable under this Plan, the value of each
Series' average daily net assets shall be computed in the manner specified in
the applicable Series' then-current prospectus and statement of additional
information.
4. Trust's Expenses. The Trust shall pay all expenses of its
operations, including the following, and such expenses shall not constitute
expenditures under this Plan: organization costs of each Series; compensation of
Trustees; governmental fees; interest charges; loan commitment fees; taxes;
membership dues in industry associations allocable to the Trust; fees and
expenses of independent auditors, legal counsel and any transfer agent,
distributor, shareholder servicing agent, registrar or dividend disbursing agent
of the Trust; expenses of issuing and redeeming shares of beneficial interest
and servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Series (including
but not limited to the fees of independent pricing services); expenses of
meetings of shareholders; expenses relating to the issuance, registration and
qualification of shares; and such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
Trust may be a party and the legal obligation which the Trust may have to
indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the Trustees
of the Trust and the Non-Interested Trustees, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series
by a vote of a majority of the Non-Interested Trustees or by a vote of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
Shares of the applicable Series.
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Non-Interested Trustees of the Trust shall
be committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
<PAGE>
Exhibit m(2)
SERVICE PLAN
SERVICE PLAN, dated as of January 4, 1999, of CitiFunds Trust II, a
Massachusetts business trust (the "Trust"), with respect to shares of beneficial
interest of its series CitiFunds Large Cap Growth Portfolio, CitiFunds Small Cap
Growth Portfolio, CitiFunds Small Cap Value Portfolio and CitiFunds Growth &
Income Portfolio and any other series of the Trust adopting this plan (the
"Series"). This Plan relates solely to shares of beneficial interest of each
Series which are designated "Class B" ("Shares").
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and other
assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Non-Interested Trustees"), having determined, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Section 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that this Plan will benefit the Trust and the
shareholders of the Series, have approved this Plan by votes cast at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
WHEREAS, each Series or CFBDS, Inc. (the "Distributor") may impose
certain deferred sales charges in connection with the repurchase of Shares by
such Series, and the Series may pay to the Distributor, dealers and others, or
the Series may permit such persons to retain, as the case may be, all or any
portion of such deferred sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms of
the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
(a) engage, directly or indirectly, in any activities
primarily intended to result in the sale of Shares of the Series, which
activities may include, but are not limited to (i) payments to the
Trust's Distributor for distribution services, (ii) payments to
securities dealers, financial institutions (which may include banks)
and others in respect of the sale of Shares of the Series, (iii)
payments for advertising, marketing or other promotional activity, and
(iv) payments for preparation, printing, and distribution of
prospectuses and statements of additional information and reports of
the Trust for recipients other than regulators and existing
shareholders of the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may
include banks) and others for providing personal service and/or the
maintenance of shareholder accounts.
The Trust is authorized to engage in the activities listed above either directly
or through other persons with which the Trust has entered into agreements
related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances,
each Series or the Distributor may impose certain deferred sales charges in
connection with the repurchase of Shares of such Series, and the Series may pay
to the Distributor, securities dealers, financial institutions (including banks)
and others, or the Series may permit such persons to retain, as the case may be,
all or any portion of such deferred sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures will
be made shall be determined by the Trustees of the Trust, but in no event may
such expenditures exceed an amount calculated at the rate of 1.00% per annum of
the average daily net assets of the Shares of each Series. Payments pursuant to
this Plan may be made directly by the Trust to the Distributor or to other
persons with which the Trust has entered into agreements related to this Plan.
For purposes of determining the fees payable under this Plan, the value of each
Series' average daily net assets shall be computed in the manner specified in
the applicable Series' then-current prospectus and statement of additional
information.
4. Trust's Expenses. The Trust shall pay all expenses of its
operations, including the following, and such expenses shall not constitute
expenditures under this Plan: organization costs of each Series; compensation of
Trustees; governmental fees; interest charges; loan commitment fees; taxes;
membership dues in industry associations allocable to the Trust; fees and
expenses of independent auditors, legal counsel and any transfer agent,
distributor, shareholder servicing agent, registrar or dividend disbursing agent
of the Trust; expenses of issuing and redeeming shares of beneficial interest
and servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Series (including
but not limited to the fees of independent pricing services); expenses of
meetings of shareholders; expenses relating to the issuance, registration and
qualification of shares; and such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
Trust may be a party and the legal obligation which the Trust may have to
indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) This Plan shall become effective as to a
Series upon (i) approval by a vote of at least a majority of the outstanding
voting securities (as defined in the 1940 Act) of Shares of the particular
Series, and (ii) approval by a majority of the Trustees of the Trust and a
majority of the Non-Interested Trustees cast in person at a meeting called for
the purpose of voting on this Plan. Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the Trustees
of the Trust and the Non-Interested Trustees, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series
by a vote of a majority of the Non-Interested Trustees or by a vote of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
Shares of the applicable Series.
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Non-Interested Trustees of the Trust shall
be committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000744389
<NAME> CITIFUNDS TRUST II
<SERIES>
<NUMBER> 001
<NAME> CITIFUNDS LARGE CAP GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 376,041,100
<RECEIVABLES> 2,801,177
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 378,842,277
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 267,237,237
<SHARES-COMMON-STOCK> 17,625,228
<SHARES-COMMON-PRIOR> 11,741,347
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (335,195)
<ACCUMULATED-NET-GAINS> 34,815,329
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76,662,830
<NET-ASSETS> 378,380,201
<DIVIDEND-INCOME> 2,183,182
<INTEREST-INCOME> 689,628
<OTHER-INCOME> 0
<EXPENSES-NET> 3,205,032
<NET-INVESTMENT-INCOME> (332,222)
<REALIZED-GAINS-CURRENT> 34,918,080
<APPREC-INCREASE-CURRENT> 31,323,892
<NET-CHANGE-FROM-OPS> 65,909,750
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (138,253)
<DISTRIBUTIONS-OF-GAINS> (50,358,634)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,344,145
<NUMBER-OF-SHARES-REDEEMED> (43,022,818)
<SHARES-REINVESTED> 50,485,303
<NET-CHANGE-IN-ASSETS> 130,219,493
<ACCUMULATED-NII-PRIOR> 135,280
<ACCUMULATED-GAINS-PRIOR> 50,255,883
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 915,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,036,058
<AVERAGE-NET-ASSETS> 305,234,368
<PER-SHARE-NAV-BEGIN> 21.14
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> (4.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.47
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000744389
<NAME> CITIFUNDS TRUST II
<SERIES>
<NUMBER> 002
<NAME> CITIFUNDS SMALL CAP GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 27,572,720
<RECEIVABLES> 471,390
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,044,110
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,285,600
<SHARES-COMMON-STOCK> 1,639,161
<SHARES-COMMON-PRIOR> 1,214,393
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (263,943)
<ACCUMULATED-NET-GAINS> (1,526,729)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,307,383
<NET-ASSETS> 27,802,311
<DIVIDEND-INCOME> 46,612
<INTEREST-INCOME> 54,058
<OTHER-INCOME> 0
<EXPENSES-NET> 364,613
<NET-INVESTMENT-INCOME> (263,943)
<REALIZED-GAINS-CURRENT> (1,484,882)
<APPREC-INCREASE-CURRENT> (3,811,810)
<NET-CHANGE-FROM-OPS> (5,560,635)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,049,618)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,634,929
<NUMBER-OF-SHARES-REDEEMED> (8,041,832)
<SHARES-REINVESTED> 1,020,162
<NET-CHANGE-IN-ASSETS> 2,003,006
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,007,771
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 536,884
<AVERAGE-NET-ASSETS> 27,006,114
<PER-SHARE-NAV-BEGIN> 21.24
<PER-SHARE-NII> (0.16)
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.86)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.96
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000744389
<NAME> CITIFUNDS TRUST II
<SERIES>
<NUMBER> 003
<NAME> CITIFUNDS SMALL CAP VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 10-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 33,284,029
<RECEIVABLES> 140,174
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,424,203
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,218,217
<SHARES-COMMON-STOCK> 4,653,487
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (112,586)
<ACCUMULATED-NET-GAINS> 1,621,139
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (17,414,112)
<NET-ASSETS> 33,312,658
<DIVIDEND-INCOME> 269,331
<INTEREST-INCOME> 54,664
<OTHER-INCOME> 0
<EXPENSES-NET> 436,581
<NET-INVESTMENT-INCOME> (112,586)
<REALIZED-GAINS-CURRENT> 1,621,139
<APPREC-INCREASE-CURRENT> (17,414,112)
<NET-CHANGE-FROM-OPS> (15,905,559)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 67,749,327
<NUMBER-OF-SHARES-REDEEMED> (18,531,110)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,312,658
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,642
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 505,094
<AVERAGE-NET-ASSETS> 43,644,944
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.16
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000744389
<NAME> CITIFUNDS TRUST II
<SERIES>
<NUMBER> 004
<NAME> CITIFUNDS GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 8-mos
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 70,584,600
<RECEIVABLES> 114,590
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70,699,190
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,653,140
<SHARES-COMMON-STOCK> 7,666,049
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 161,919
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,352,369)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,002,138)
<NET-ASSETS> 70,460,552
<DIVIDEND-INCOME> 822,900
<INTEREST-INCOME> 130,277
<OTHER-INCOME> 0
<EXPENSES-NET> 625,841
<NET-INVESTMENT-INCOME> 327,336
<REALIZED-GAINS-CURRENT> (4,352,369)
<APPREC-INCREASE-CURRENT> (5,002,138)
<NET-CHANGE-FROM-OPS> (9,027,171)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (165,417)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 101,995,868
<NUMBER-OF-SHARES-REDEEMED> (22,508,144)
<SHARES-REINVESTED> 165,416
<NET-CHANGE-IN-ASSETS> 70,460,552
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48,279
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 625,841
<AVERAGE-NET-ASSETS> 72,517,557
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit o
CITIFUNDS TRUST II
MULTIPLE CLASS PLAN
MULTIPLE CLASS PLAN, dated as of November 13, 1998, of CitiFunds Trust
II, a Massachusetts business trust (the "Trust"), with respect to each of its
series whether now existing or hereafter established (collectively, the
"Funds").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the shares of beneficial interest (without par value) of the
Trust (the "Shares") are divided into separate series and may be divided into
one or more separate classes;
WHEREAS, the Trust desires to adopt this Multiple Class Plan (the
"Plan") on behalf of the Funds as a plan pursuant to Rule 18f-3 in order that
the Funds may issue multiple classes of Shares;
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Trust should adopt and implement this Plan, has evaluated such information and
considered such pertinent factors as it deemed necessary to an informed
evaluation of this Plan and determination as to whether this Plan should be
adopted and implemented, and has determined that the adoption and implementation
of this Plan, including the expense allocation contemplated herein, are in the
best interests of each class of Shares individually, as well as the best
interests of the Funds;
NOW THEREFORE, the Trust hereby adopts this Plan pursuant to Rule 18f-3
under the 1940 Act, on the following terms and conditions:
1. The Funds may issue Shares in one or more classes (each, a "Class"
and collectively, the "Classes"). Shares so issued will have the rights and
preferences set forth in the Establishment and Designation of Classes and the
Trust's then current registration statement relating to the Funds.
2. Shares issued in Classes will be issued subject to and in accordance
with the terms of Rule 18f-3 under the 1940 Act, including, without limitation:
(a) Each Class shall have a different arrangement for
shareholder services or the distribution of securities or both, and
shall pay all of the expenses of that arrangement;
(b) Each Class may pay a different share of other expenses,
not including advisory or custodial fees or other expenses related to
the management of the Trust's assets, if these expenses are actually
incurred in a different amount by that Class, or if the Class receives
services of a different kind or to a different degree than other
Classes;
(c) Each Class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its
arrangement;
(d) Each Class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one Class differ
from the interests of any other Class; and
(e) Except as otherwise permitted under Rule 18f-3 under the
1940 Act, each Class shall have the same rights and obligations as each
other Class.
3. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Trust.
4. This Plan shall become effective as to the Funds upon the later to
occur of (a) approval by a vote of the Board of Trustees and vote of a majority
of the Trustees who are not "interested persons" of the Trust (the "Qualified
Trustees"), and (b) January 4, 1999.
5. This Plan shall continue in effect indefinitely unless terminated by
a vote of the Board of Trustees of the Trust. This Plan may be terminated at any
time with respect to the Funds by a vote of the Board of Trustees of the Trust.
This Plan supercedes any and all other multiple class plans heretofore approved
by the Board of Trustees of the Trust with respect to the Funds.
6. This Plan may be amended at any time by the Board of Trustees of the
Trust, provided that any material amendment of this Plan shall be effective only
upon approval by a vote of the Board of Trustees of the Trust and a majority of
the Qualified Trustees.
7. This Plan shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
8. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
EXHIBIT P(1)
CITIFUNDS TRUST II
The undersigned hereby constitutes and appoints Philip W. Coolidge, John R.
Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of them,
with full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by CitiFunds
Trust II (on behalf of each of its series now or hereinafter created) (the
"Registrant") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, and under the Investment Company Act of 1940, as
amended, and any and all other instruments which such attorneys and agents, or
any of them, deem necessary or advisable to enable the Registrant to comply with
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction; and the undersigned hereby ratifies and confirms as his own act
and deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the 11th day
of February, 1999.
/s/ Heath B. McLendon
---------------------
Heath B. McLendon
