<PAGE>
As filed with the Securities and Exchange Commission on February 28, 2000
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. 31
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 32
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, 2000 pursuant
to paragraph (b) of Rule 485.
Asset Allocation Portfolios, on behalf of Large Cap Value Portfolio and Small
Cap Value Portfolio, and The Premium Portfolios, on behalf of Large Cap Growth
Portfolio and Small Cap Growth Portfolio, have also executed this registration
statement.
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- ----------
PROSPECTUS
- ----------
MARCH 1, 2000
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 ACCOUNT ................................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 18
HOW THE PRICE OF YOUR SHARES IS CALCULATED 19
HOW TO SELL SHARES .................................................. 20
REINSTATING RECENTLY SOLD SHARES .................................... 22
EXCHANGES ........................................................... 22
ACCOUNT INQUIRIES ................................................... 23
DIVIDENDS ........................................................... 23
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
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FUND AT A GLANCE
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Fund at a Glance
This summary briefly describes CitiFunds Large Cap Growth Portfolio
and the principal risks of investing in it. 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. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of these issuers.
At December 31, 1999, issuers within the top 1,000 stocks had market
capitalizations of at least $1.4 billion. This number will change with
changes in the market. The Fund may also invest in common stocks and
other securities issued by smaller companies.
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.
In managing the Fund, Citibank uses a growth approach, emphasizing
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 continue to hold
securities of issuers that become mid cap or small cap issuers, if, in
the manager's judgment, these securities remain good investments for
the Fund.
Although the Fund expects to invest mainly in equity securities, the
Fund is permitted to invest in debt securities to a limited extent.
The Fund's debt securities must be investment grade when the Fund
purchases them.
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.
Please note that the Fund invests in securities through an underlying
mutual fund.
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.
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 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. Some
securities held by the Fund may be quite volatile, meaning that
their price can change significantly in a short time.
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 Fund may underperform certain other stock funds (those
emphasizing value stocks, for example) during periods when growth
stocks are out of favor.
o PORTFOLIO SELECTION. 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. The
portfolio managers may fail to pick stocks that outperform the
market or that fail to do as well as the market. In that case,
you may lose money, or your investment may not do as well as an
investment in another stock fund using a growth approach.
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 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.
Please keep in mind that an investment in any large cap equity fund is
not a complete investment program.
<PAGE>
Fund Performance
The following bar chart and table can help you evaluate the risks and
performance of the Fund.
o The bar chart shows changes in the Fund's performance from year
to year for the calendar years indicated. 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 compares the Fund's average annual returns for the
periods indicated 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 or sales charges. The Fund's returns in
the table reflect the maximum sales charge currently applicable.
o In both the chart and table, the returns shown for Class A shares
include returns for periods before the creation of share classes
on January 4, 1999. 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 have been adjusted to reflect the maximum
front-end sales charge currently applicable to the Class A
shares.
o Class B shares have been offered since January 4, 1999.
Ordinarily, Class B performance is lower than that of Class A
shares, because of higher fund expenses and the effects of the
contingent deferred sales charge.
o The Fund's performance reflects certain fee waivers or
reimbursements. If these are reduced or eliminated, the Fund's
performance may go down.
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. For current yield information, please call
800-625-4554 toll free, or contact your account representative.
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS -- CLASS A
(WITHOUT SALES CHARGE)
1991 30.74%
1992 7.60%
1993 12.26%
1994 (0.41)%
1995 27.55%
1996 13.84%
1997 31.38%
1998 37.19%
1999 17.18%
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FUND'S 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
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AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
..............................................................................
Life of Fund
Since
1 Year 5 Years October 19, 1990
..............................................................................
Class A 11.32% 23.84% 18.65%
..............................................................................
Class B 11.64% N/A N/A
..............................................................................
S&P 500 Barra Growth Index 27.98% 33.55% *
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* 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.
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
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)
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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) 0.12% 0.12%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.27% 2.02%
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* Because some of the Fund's expenses were waived or
reimbursed, actual total operating expenses for the
prior year were: 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 securities through an underlying mutual fund, Large Cap
Growth Portfolio. This table reflects the expenses of the Fund and Large
Cap Growth Portfolio.
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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;
o you then sell all your shares at the end of those periods -- for
Class B shares a number is also given showing your expenses 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;
o your 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 as shown in the table without
waivers remain the same.
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 $623 $883 $1,162 $1,957
..............................................................................
Class B
..............................................................................
Assuming redemption at end of period $705 $934 $1,188 $2,153
..............................................................................
Assuming no redemption $205 $634 $1,088 $2,153
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<PAGE>
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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 5.00% to 1.00% 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 intermediaries such as broker/dealers that 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
intermediaries that sell shares of the Fund receive. The
distributor keeps up to approximately 10% of the sales charge
imposed on Class A shares. Financial intermediaries 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 intermediaries 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
intermediaries 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 applicable CDSC, 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.
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 sales or 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. The Fund does not impose any minimum
initial or subsequent investment requirements but your Service Agent
may.
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.
If you hold your shares through 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 transfer it to
another financial institution, 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 may be calculated as of the earlier 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 hold your shares through a Service Agent,
through your Service Agent. If your account application permits, you
may also make redemption requests by telephone. 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
the Fund's transfer agent or, if you hold your shares through a
Service Agent, 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 third business day after you sell your shares but in any event
within seven days. However, 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.
Your account balance may be subject to a $500 minimum. If so, the Fund
reserves the right to close your account if it falls below $500
because of redemptions. You will have 60 days to make an additional
investment. If you do not increase your balance, the Fund may close
your account and send the proceeds to you. Your shares will be sold at
NAV on the day your account was closed.
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
hold your shares through 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 NAVs of each fund the next time they
are 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 for exchange. 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.
ACCOUNT INQUIRIES
Please contact your Service Agent. If you hold your shares through the
transfer agent, please call 1-800-625-4554.
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 federal 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 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 $351 billion
in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York, New
York, is a wholly-owned subsidiary of Citigroup Inc. "CitiFunds" is a
service mark of Citicorp.
Citibank and its affiliates, including their directors, officers or
employees, may have banking and investment banking relationships with
the issuers of securities that are held in the Fund. They may also own
the securities of these issuers. 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.
Richard Goldman, Vice President, has been responsible, first as a
co-manager and then as manager, for the daily management of the Fund
since January 1996. 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
currently manages, or co- manages, approximately $4 billion of total
assets at Citibank.
MANAGEMENT FEES
For the Fund's fiscal year ended October 31, 1999, Citibank received
management fees totaling 0.68% 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 Large Cap Growth Portfolio's principal investment strategies
are described below. The Fund may use other strategies and invest in
other securities that are described in the Statement of Additional
Information. However, the Fund may not use all of the strategies and
techniques or invest in all of the types of securities described in
the Prospectus or in the Statement of Additional Information. The
Fund's goal and strategies may be changed without shareholder
approval. Of course, there can be no assurance that the Fund will
achieve its goal.
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.
Under normal circumstances, at least 65% of the Fund's total assets is
invested in equity securities of large cap issuers. At December 31,
1999, issuers within the top 1,000 stocks had market capitalizations
of at least $1.4 billion. This number will change with changes in the
market.
- --------------------------------------------------------------------------------
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 most 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 may be
invested in 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.
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 other cases, the Fund may bear more
counterparty risk. Derivatives may be thinly traded or illiquid.
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. Unless otherwise
indicated, references to the Fund in this Prospectus include the
underlying fund. 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. The Fund
may continue to hold securities of issuers that become mid cap or
small cap issuers, if, in the managers' judgment, these securities
remain good investments for the Fund.
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 that 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 that 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. Please note that there are many other factors that
could adversely affect your investment and that could prevent the Fund
from achieving its goals, which are not described here. More
information about risks appears in the Fund's Statement of Additional
Information.
The value of the Fund's shares will change daily as the value of its
underlying securities changes. This means that your shares of the Fund
may be worth more or less when you sell them than when you bought
them. 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. Some securities held by the
Fund may be quite volatile, meaning that their prices can change
significantly in a short time.
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.
PORTFOLIO SELECTION. 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. The portfolio managers may
fail to pick stocks that outperform the market or that fail to do as
well as the market. In that case, you may lose money, or your
investment may not do as well as an investment in another stock fund
using a growth approach.
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 conversion of European
currencies to 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 RISK. Year 2000 Risk, the risk that computers will fail or
generate faulty information after December 31, 1999, may continue to
cause problems well into the Year 2000. The Fund may be adversely
affected by the Year 2000 problems of its service providers, the
markets on which it trades securities, or the issuers of the
securities it holds.
<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 or Class B 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>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
CLASS A
----------------------------------------------------------------------------------------------------
Ten Months
Year Ended October 31, Ended Year Ended December 31,
--------------------------- October 31, -----------------------------------------
1999 1998 1997 1996 1995 1994++
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $21.47 $21.14 $18.25 $17.20 $14.13 $14.80
...........................................................................................................................
Income From Operations:
Net investment income
(loss) (0.079)** (0.022)** 0.031 0.122 0.211 0.173
Net realized and
unrealized gain
(loss) on
investments 4.944 4.735 4.016 2.250 3.651 (0.245)
...........................................................................................................................
Total from
operations 4.865 4.713 4.047 2.372 3.862 (0.072)
...........................................................................................................................
Less Distributions From:
Net investment income -- (0.012) (0.030) (0.118) (0.210) (0.169)
Net realized gain on
investments (1.915) (4.371) (1.127) (1.204) (0.582) (0.429)
...........................................................................................................................
Total distributions (1.915) (4.383) (1.157) (1.322) (0.792) (0.598)
...........................................................................................................................
Net Asset Value, end
of period $24.42 $21.47 $21.14 $18.25 $17.20 $14.13
...........................................................................................................................
Total Return 23.60% 26.90% 22.27%+ 13.84% 27.55% (0.41)%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten Months
Year Ended October 31, Ended Year Ended December 31,
--------------------------- October 31, -----------------------------------------
1999 1998 1997 1996 1995 1994++
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands) $513,883 $378,280 $248,161 $228,954 $213,729 $183,975
Ratio of expenses to
average net assets (A) 1.05% 1.05% 1.05%* 1.05% 1.05% 1.05%
Ratio of net
investment income
(loss) to average
net assets (0.34)% (0.11)% 0.18%* 0.67% 1.30% 1.15%
Portfolio turnover(B) 108% 53% 103% 90% 67% 1%
Note: If agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees, the net investment
income (loss) per share and the ratios would have been as follows:
Net investment income
(loss) per share $(0.131)** $(0.078)** $(0.023) $0.067 $0.170 $0.136
RATIOS:
Expenses to average
net assets 1.27% 1.32%(A) 1.35%(A)* 1.35%(A) 1.30%(A) 1.29%(A)
Net investment income
(loss) to average
net assets (0.56)% (0.38)% (0.12)%* 0.37% 1.05% 0.91%
* 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>
CLASS B
---------------------
January 4, 1999
(Commencement
of Operations) to
October 31, 1999
..........................................................................
Net Asset Value, beginning of period $22.73
..........................................................................
Income From Operations:
Net investment loss (0.206)+
Net realized and unrealized gain on investments 1.756
..........................................................................
Total from operations 1.55
..........................................................................
Less Distributions From:
Net investment income --
Net realized gain on investments --
..........................................................................
Total distributions --
..........................................................................
Net Asset Value, end of period $24.28
..........................................................................
Total Return 6.82%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $28,275
Ratio of expenses to average net assets (A) 1.80%*
Ratio of net investment loss to average net assets (1.13)%*
Portfolio Turnover (B) 108%
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 the net investment loss per share and the ratios
would have been as follows:
Net investment loss per share $(0.258)+
RATIOS:
Expenses to average net assets (A) 2.02%*
Net investment loss to average net assets (1.35)%*
..........................................................................
* Annualized.
** Not Annualized.
+ The per share amounts were computed using the monthly average of shares
outstanding during the period.
(A) Includes the Fund's share of Large Cap Growth Portfolio allocated expenses.
(B) Portfolio turnover rate represents the rate of portfolio activity of Large
Cap Growth Portfolio, the underlying portfolio through which the Fund
invests.
<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 and retired employees of Citibank and its affiliates,
CFBDS, Inc. and its affiliates, any Service Agent and its
affiliates and certain other Fund service providers (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 (qualified plans investing through certain programs
sponsored by Citibank or its affiliates are not subject to this
minimum)
[] 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 SemiAnnual Reports
or to make other inquiries, please call toll-free 1-800-625-4554.
The SAI, reports, and other information about the Fund are also
available on the Edgar Database 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 1-202-942-8090. Copies may also
be obtained upon payment of a duplicating fee by electronic request to
[email protected], or by writing to the SEC's Public Reference
Section, Washington, DC 20549-6009.
SEC File Number: 811-4007 CFP/LCG/300
<PAGE>
- ----------
PROSPECTUS
- ----------
MARCH 1, 2000
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 ACCOUNT ................................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 18
HOW THE PRICE OF YOUR SHARES IS CALCULATED 19
HOW TO SELL SHARES .................................................. 20
REINSTATING RECENTLY SOLD SHARES .................................... 22
EXCHANGES ........................................................... 22
ACCOUNT INQUIRIES ................................................... 23
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. 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. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of these issuers.
At December 31, 1999, the maximum capitalization of issuers in this
category was below $1.4 billion. This number will change with changes
in the market. The Fund's equity securities may include stocks listed
in the Russell 2000 Index, which is an index of small capitalization
stocks.
The Fund's equity securities may include:
o common stocks;
o securities convertible into common stocks;
o preferred stocks; and
o warrants
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.
Although the Fund expects to invest mainly in equity securities, 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.
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.
Please note that the Fund invests in securities through an underlying
mutual fund.
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.
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 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. Some
securities held by the Fund may be quite volatile, meaning that
their prices can change significantly in a short time.
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
and the shares of small companies tend to be less liquid than the
shares of large 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.
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 PORTFOLIO SELECTION. 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. The
portfolio managers may fail to pick stocks that outperform the
market or that do as well as the market. In that case, you may
lose money, or your investment may not do as well as an
investment in another stock fund using a growth approach.
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 the risks of
debt securities. These risks include interest rate risk, and
credit risk.
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 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 the Fund 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.
Please keep in mind that an investment in any small cap growth fund is
not a complete investment program.
<PAGE>
- ----------------
FUND PERFORMANCE
- ----------------
Fund Performance
The following bar chart and table can help you evaluate the risks and
performance of the Fund.
o The bar chart shows changes in the Fund's performance from year
to year for the calendar years indicated. 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 compares the Fund's average annual returns for the
periods indicated 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 or sales charges. The Fund's returns in
the table reflect the maximum sales charge currently applicable.
o In both the chart and table, the returns shown for Class A shares
include returns for periods before the creation of share classes
on January 4, 1999. 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 have been adjusted to reflect the maximum
front-end sales charge currently applicable to the Class A
shares.
o Class B shares have been offered since January 4, 1999.
Ordinarily, Class B performance is lower than that of Class A
shares, because of higher fund expenses and the effects of the
contingent deferred sales charge.
o The Fund's performance reflects certain fee waivers or
reimbursements. If these are reduced or eliminated, the Fund's
performance may go down.
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.
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS - CLASS A
(WITHOUT SALES CHARGE)
1996 37.80%
1997 15.81%
1998 (4.43)%
1999 41.16%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 32.41% December 31, 1999
..............................................................................
Lowest (25.10)% September 30, 1998
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
..............................................................................
Life of Fund
Since
1 Year June 21, 1995
..............................................................................
Class A 34.10% 27.07%
..............................................................................
Class B 35.01% N/A
..............................................................................
Russell 2000 Growth Index 43.09% *
- --------------------------------------------------------------------------------
*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.
- --------------------------------------------------------------------------------
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
..............................................................................
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) 0.81% 0.81%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 2.16% 2.91%
- ------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or
reimbursed, actual total operating expenses for the
prior year were: 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 securities through 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;
o you then sell all your shares at the end of those periods -- for
Class B shares a number is also given showing your expenses 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;
o your 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 as shown in the table without
waivers remain the same.
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 $708 $1,142 $1,601 $2,868
..............................................................................
Class B
..............................................................................
Assuming redemption at end of period $794 $1,201 $1,633 $3,052
..............................................................................
Assuming no redemption $294 $ 901 $1,533 $3,052
<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 5.00% to 1.00% 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 intermediaries such as broker/dealers that 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
intermediaries that sell shares of the Fund receive. The
distributor keeps up to approximately 10% of the sales charge
imposed on Class A shares. Financial intermediaries 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
15.
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 intermediaries 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
intermediaries 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 applicable CDSC, 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.
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 sales or 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. The Fund does not impose any minimum
initial or subsequent investment requirements but your Service Agent
may.
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.
If you hold your shares through 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 transfer it to
another financial institution, 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 may be calculated as of the earlier 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 hold your shares through a Service Agent,
through your Service Agent. If your account application permits, you
may also make redemption requests by telephone. 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 the
Fund's transfer agent or, if you hold your shares through a Service
Agent, 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 third business day after you sell your shares but in any event
within seven days. However, 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.
Your account balance may be subject to a $500 minimum. If so, the Fund
reserves the right to close your account if it falls below $500
because of redemptions. You will have 60 days to make an additional
investment. If you do not increase your balance, the Fund may close
your account and send the proceeds to you. Your shares will be sold at
NAV on the day your account was closed.
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
hold your shares through 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 NAVs of each fund the next time they
are 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
for exchange. 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.
ACCOUNT INQUIRIES
Please contact your Service Agent. If you hold your shares through the
transfer agent, please call 1-800-625-4554.
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 federal 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 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 $351 billion
in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York, New
York, is a wholly-owned subsidiary of Citigroup Inc. "CitiFunds" is a
service mark of Citicorp.
Citibank and its affiliates, including their directors, officers or
employees, may have banking and investment banking relationships with
the issuers of securities that are held in the Fund. They may also own
the securities of these issuers. 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 and Stephen Rich are co-portfolio managers
of the Fund. From January 1999 to March 2000, Ms. Wagner was
the lead portfolio manager. 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. Mr. Rich
joined Citibank in 1999 and began co-managing the Fund with
Ms. Wagner in March 2000. Mr. Rich spent the previous eight
years at J.P. Morgan Investment Management in various
investment capacities. From 1997 to 1999 he was a co-portfolio
manager for multiple styles of small capitalization
institutional products and mutual funds. Before that, he
worked in J.P. Morgan's Balanced & Structured Equity Group.
MANAGEMENT FEES
For the Fund's fiscal year ended October 31, 1999, Citibank received
management fees totaling 0.75% of the Fund's average daily net assets,
after waivers.
- -------------------
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
described below. The Fund may also use other strategies and invest in
other securities that are described in the Statement of Additional
Information. However, the Fund may not use all of the strategies and
techniques or invest in all of the types of securities described in
this Prospectus or in the Statement of Additional Information. The
Fund's goal and strategies may be changed without shareholder
approval. Of course, there can be no assurance that the Fund will
achieve its goal.
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. Under
normal circumstances, at least 65% of the Fund's total assets is
invested in equity securities of these issuers. At December 31, 1999,
the maximum capitalization of issuers in this category was below $1.4
billion. This number will change with changes in the market. The
Fund's equity securities may include stocks listed 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 most fixed income securities, they historically have
produced higher levels of total return.
- --------------------------------------------------------------------------------
Small cap companies generally have negligible dividend yields and
extremely high levels of volatility. They may offer more profit
opportunity during certain economic conditions than large and medium
sized companies, but they also involve special risks.
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.
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 other cases, the Fund may bear more
counterparty risk. Derivatives may be thinly traded or illiquid.
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. Unless otherwise
indicated, references to the Fund in this Prospectus include the
underlying fund. 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.
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 that 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 that 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. Please note that there are many other factors that
could adversely affect your investment and that could prevent the Fund
from achieving its goals, which are not described here. More
information about risks appears in the Fund's Statement of Additional
Information. The value of the Fund's shares will change daily as the
value of its underlying securities changes. This means that your
shares of the Fund may be worth more or less when you sell them than
when you bought them. 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.
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 Fund may underperform certain other stock funds
(those emphasizing value stocks, for example) during periods when
growth stocks are out of favor.
PORTFOLIO SELECTION. 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. The portfolio managers may
fail to pick stocks that outperform the market or that do as well as
the market. In that case, you may lose money, or your investment may
not do as well as an investment in another stock fund using a growth
approach.
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 conversion of European
currencies to 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 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 the risks of debt
securities. These risks include interest rate risk, the risk that the
prices of debt securities will fall when interest rates rise, and
credit risk, the risk that issuers may not make payments on the
securities held by the Fund.
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 RISK. Year 2000 Risk, the risk that computers will fail or
generate faulty information after December 31, 1999, may continue to
cause problems well into the Year 2000. The Fund may be adversely
affected by the Year 2000 problems of its service providers, the
markets on which it trades securities, or the issuers of the
securities it holds.
<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 or Class B 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>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
CLASS A
-----------------------------------------------------------------------------------------------
June 21, 1995
Year Ended October 31, Ten Months (Commencement of
---------------------------- Ended Year Ended Operations) to
1999 1998 October 31, 1997 December 31, 1996 December 31, 1995
............................................................................................................................
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $16.96 $21.24 $18.21 $14.32 $10.00
............................................................................................................................
Income From Operations:
Net investment income
(loss) (0.196)+ (0.193)+ (0.138)+ (0.016) 0.050
Net realized and
unrealized gain
(loss) on investments 4.676 (3.224) 3.236 5.407 4.420
............................................................................................................................
Total from operations 4.480 (3.417) 3.098 5.391 4.470
............................................................................................................................
Less Distributions From:
Net investment income -- -- -- -- (0.050)
Net realized gain on
investments -- (0.863) (0.068) (1.501) (0.100)
............................................................................................................................
Total distributions -- (0.863) (0.068) (1.501) (0.150)
............................................................................................................................
Net Asset Value, end of
period $21.44 $16.96 $21.24 $18.21 $14.32
............................................................................................................................
Total Return 26.42% (16.56)% 17.05%** 37.80% 44.78%**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 21, 1995
Year Ended Ten Months (Commencement of
---------------------------- Ended Year Ended Operations) to
October 31, 1999 October 31, 1998 October 31, 1997 December 31, 1996 December 31, 1995
............................................................................................................................
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in thousands) $23,794 $27,802 $25,799 $24,311 $5,148
Ratio of expenses to
average net assets (A) 1.35% 1.35% 1.35%* 0.88% 0.00%*
Ratio of net investment
income (loss) to
average net assets (1.03)% (0.98)% (0.87)%* (0.13)% 1.21%*
Portfolio turnover (B) 104% 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 $(0.351)+ $(0.319)+ $(0.252)+ $(0.133) $(0.288)
RATIOS:
Expenses to average net
assets (A) 2.16% 1.99% 2.06%* 1.83% 2.50%*
Net investment loss to
average net assets (1.84)% (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 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>
CLASS B
-----------------
January 4, 1999
(Commencement
of Operations) to
October 31, 1999
............................................................................
Net Asset Value, beginning of period $18.95
............................................................................
Income From Operations:
Net investment loss (0.265)+
Net realized and unrealized gain 2.625
............................................................................
Total from operations 2.36
............................................................................
Less Distributions From:
Net investment income --
Net realized gain --
............................................................................
Total distributions --
............................................................................
Net Asset Value, end of period $21.31
............................................................................
Total return 12.45%**
............................................................................
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $737,188
Ratio of expenses to average net assets (A) 2.10%*
Ratio of net investment loss to average net assets (1.77)%*
Portfolio turnover (B) 104%
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 the net investment loss per share and the ratios would have
been as follows:
Net investment loss per share $ (0.420)+
RATIOS:
Expenses to average net assets (A) 2.91%*
Net investment loss to average net assets (2.58)%*
..............................................................................
* Annualized.
** Not annualized.
(A) Includes the Fund's share of Small Cap Growth 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.
+ The per share amounts were computed using a monthly average number of
shares outstanding during the period.
<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 and retired employees of Citibank and its affiliates,
CFBDS, Inc. and its affiliates, any Service Agent and its
affiliates and certain other Fund service providers (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 (qualified plans investing through certain programs
sponsored by Citibank or its affiliates are not subject to this
minimum)
[] 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
<PAGE>
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<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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 SemiAnnual Reports
or to make other inquiries, please call toll-free 1-800-625-4554.
The SAI, reports, and other information about the Fund are also
available on the Edgar Database 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 1-202-942-8090. Copies may also
be obtained upon payment of a duplicating fee by electronic request to
[email protected], or by writing to the SEC's Public Reference
Section, Washington, DC 20549-6009.
SEC File Number: 811-4007 CFP/SCG/300
<PAGE>
- ----------
PROSPECTUS
- ----------
MARCH 1, 2000
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 ACCOUNT ................................................. 12
CHOOSING A SHARE CLASS .............................................. 12
HOW TO BUY SHARES ................................................... 17
HOW THE PRICE OF YOUR SHARES IS CALCULATED 18
HOW TO SELL SHARES .................................................. 19
REINSTATING RECENTLY SOLD SHARES .................................... 21
EXCHANGES ........................................................... 21
ACCOUNT INQUIRIES ................................................... 22
DIVIDENDS ........................................................... 22
TAX MATTERS ......................................................... 23
MANAGEMENT OF THE FUND ................................................. 25
MANAGER ............................................................. 25
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. 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. Under normal
circumstances, at least 65% of the Fund's total assets is
invested in equity securities of these issuers. At December
31, 1999, the maximum capitalization of issuers in this
category was below $1.4 billion. This number will change with
changes in the market. The Fund's equity securities may
include stocks listed in the Russell 2000 Index, which is an
index of small capitalization stocks.
The Fund's equity securities may include:
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.
Please note that the Fund invests in securities through an
underlying mutual fund.
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.
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 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. Some
securities held by the Fund may be quite volatile, meaning that
their prices can change significantly in a short time.
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,
and the shares of smaller companies tend to be less liquid than
the shares of large 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. Value investing involves selecting stocks that
are inexpensive compared to other companies with similar earnings
or assets. However, value stocks may continue to be inexpensive
for long periods of time, and may never realize their potential.
A security may not achieve its expected value because the
circumstances causing it to be underpriced stay the same or
worsen. Or, value stocks as a class may be out of favor with
investors. In that case, the Fund may underperform other stock
funds that do not use a value approach.
o PORTFOLIO SELECTION. The success of the Fund's investment
strategy depends largely on the portfolio manager's skill in
identifying securities of companies that are in fact undervalued,
but have good longer term business prospects. The portfolio
managers may not be correct in their determinations. In that
case, you may lose money, or your investment may not do as well
as an investment in another stock fund using a value approach.
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 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 the risks of
debt securities. These risks include interest rate risk, the risk
that the prices of debt securities will fall when interest rates
rise, and credit risk, the risk that issuers may not make
payments on the securities held by the Fund.
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 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 the Fund 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.
Please keep in mind that an investment in any value-oriented
stock fund is not a complete investment.
<PAGE>
Fund Performance
The following bar chart and table can help you evaluate the
risks and performance of the Fund.
o The bar chart shows the Fund's total return for the calendar year
indicated. 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 compares the Fund's average annual returns for the
periods indicated 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 or sales charges. The Fund's returns in
the table reflect the maximum sales charge currently applicable.
o In both the chart and the table, the returns shown for Class A
shares include returns for periods before the creation of share
classes on January 4, 1999. Prior to that date, there were no
sales charges on the purchase of Fund shares. The returns for
Class A in the table have been adjusted to reflect the maximum
front-end sales charge currently applicable to the Class A
shares.
o Class B shares have been offered since January 4, 1999. Class B
performance is lower than that shown for Class A shares, because
of higher fund expenses and the effects of the contingent
deferred sales charge.
o The Fund's performance reflects certain fee waivers or
reimbursements. If these are reduced or terminated, the Fund's
performance may go down.
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.
CITIFUNDS SMALL CAP VALUE PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURN - CLASS A
(WITHOUT SALES CHARGE)
1999 (1.62)%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 20.88% June 30, 1999
..............................................................................
Lowest (11.23)% March 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
..............................................................................
Life of
Fund Since
1 Year March 2, 1998
..............................................................................
Class A (6.54)% (18.29)%
..............................................................................
Class B (8.43)% N/A
..............................................................................
Russell 2000 Value Index (1.49)% *
- --------------------------------------------------------------------------------
* 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 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 1.00% 1.00%
..............................................................................
Distribution (12b-1) Fees 0.25% 1.00%
..............................................................................
Other Expenses (administrative, shareholder servicing
and other expenses) 0.72% 0.72%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.97% 2.72%
- ------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or
reimbursed, actual total operating expenses for the
prior year were: 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 securities through 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;
o you then sell all your shares at the end of those periods -- for
Class B shares a number is also given showing your expenses 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;
o your 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 as shown in the table without
waivers remain the same.
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 $690 $1,087 $1,509 $2,681
..............................................................................
Class B
..............................................................................
Assuming redemption at
end of period $775 $1,144 $1,540 $2,867
..............................................................................
Assuming no redemption $275 $ 844 $1,440 $2,867
- --------------------------------------------------------------------------------
<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 5.00% to 1.00% 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 intermediaries such as broker/dealers that 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
intermediaries that sell shares of the Fund receive. The
distributor keeps up to approximately 10% of the sales charge
imposed on Class A shares. Financial intermediaries 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 intermediaries 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
intermediaries 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 applicable CDSC, 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.
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 sales or
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. The
Fund does not impose any minimum initial or subsequent
investment requirements but your Service Agent may.
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.
If you hold your shares through 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 transfer it to another financial institution, 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
may be calculated as of the earlier 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 hold your shares through a Service
Agent, through your Service Agent. If your account application
permits, you may also make redemption requests by telephone.
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 the Fund's transfer
agent or, if you hold your shares through a Service Agent,
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 third business day after you sell your shares
but in any event within seven days. However, 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.
Your account balance may be subject to a $500 minimum. If so,
the Fund reserves the right to close your account if it falls
below $500 because of redemptions. You will have 60 days to
make an additional investment. If you do not increase your
balance, the Fund may close your account and send the proceeds
to you. Your shares will be sold at NAV on the day your
account was closed.
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 hold your shares through 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 NAVs of each fund the next
time they are 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 for exchange. 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.
ACCOUNT INQUIRIES
Please contact your Service Agent. If you hold
your shares through the transfer agent, please call
1-800-625-4554.
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 federal 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 $351 billion in
assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citigroup Inc.
"CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates, including their directors,
officers or employees, may have banking and investment banking
relationships with the issuers of securities that are held in
the Fund. They may also own the securities of these issuers.
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 is responsible for recommending the hiring,
termination or replacement of any subadviser and for
supervising and monitoring the performance of any subadviser.
Citibank has delegated the daily management of the Fund's
assets not managed by Citibank to Franklin Advisory Services
LLC, 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.
MANAGEMENT FEES
For the Fund's fiscal year ended October 31, 1999, Citibank
and the subadviser received management fees totaling 0.75% of
the Fund's average daily net assets after waivers.
- -------------------
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 described below. The Fund may use other
strategies and invest in other securities that are described
in the Statement of Additional Information. However, the Fund
may not use all of the strategies and techniques or invest in
all of the types of securities described in the Prospectus or
in the Statement of Additional Information. The Fund's goal
and strategies may be changed without shareholder approval. Of
course, there can be no assurance that the Fund will achieve
its goal.
- --------------------------------------------------------------------------------
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 most 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. Under normal circumstances, at least 65% of the
Fund's total assets is invested in equity securities of these
issuers. At December 31, 1999, the maximum capitalization of
issuers in this category was below $1.4 billion. This number
will change with changes in the market. The Fund's equity
securities may include stocks listed in the Russell 2000
Index, which is an index of small capitalization stocks.
Small cap companies generally have negligible dividend yields
and extremely high levels of volatility. They may offer more
profit opportunity during certain economic conditions than
large and medium sized companies, but they also involve
special risks.
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.
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 other cases, the Fund may bear
more counterparty credit risk. Derivatives may be thinly
traded or illiquid. 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. Unless otherwise indicated, references
to the Fund in this Prospectus include the underlying fund.
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.
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 that 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 that 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. Please note that there are
many other factors that could adversely affect your investment
and that could prevent the Fund from achieving its goals,
which are not described here. More information about risks
appears in the Fund's Statement of Additional Information. The
value of the Fund's shares will change daily as the value of
its underlying securities changes. This means that your shares
of the Fund may be worth more or less when you sell them than
when you bought them. 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.
Some securities held by the Fund may be quite volatile,
meaning that their prices can change significantly in a short
time.
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. Value investing involves selecting stocks
that are inexpensive compared to other companies with similar
earnings or assets. However, value stocks may continue to be
inexpensive for long periods of time, and may never realize
their potential. A security may not achieve its expected value
because the circumstances causing it to be underpriced stay
the same or worsen. Or, value stocks as a class may be out of
favor with investors. In that case, the Fund may underperform
other stock funds that do not use a value approach.
PORTFOLIO SELECTION. The sucess of the Fund's investment
strategy depends largely on the portfolio managers' skill in
identifying securities of companies that are in fact
undervalued, but have good longer term business prospects. The
portfolio managers may not be correct in their determinations.
In that case, you may lose money, or your investment may not
do as well as an investment in another stock fund using a
value approach.
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 the
risks of debt securities. These risks include interest rate
risk, the risk that the prices of debt securities will fall
when interest rates rise, and credit risk, the risk that
issuers may not make payments on the securities held by the
Fund. 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 the portfolio managers
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 RISK. Year 2000 Risk, the risk that computers will
fail or generate faulty information after December 31, 1999,
may continue to cause problems well into the Year 2000. The
Fund may be adversely affected by the Year 2000 problems of
its service providers, the markets on which it trades
securities, or the issuers of the securities it holds.
<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 or Class B 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>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
CLASS A
-----------------------------------------------------------
March 2, 1998
(Commencement of
Year Ended Operations) to
October 31, 1999 October 31, 1998
................................................................................................................
<S> <C> <C>
Net Asset Value, beginning of period $ 7.16 $10.00
................................................................................................................
Income From Operations
Net investment income (0.023)+ (0.022)+
Net realized and unrealized loss on investments (0.287) (2.818)
................................................................................................................
Total from operations (0.310) (2.840)
................................................................................................................
Less Distributions From:
Net investment income -- --
................................................................................................................
Total distributions -- --
................................................................................................................
Net Asset Value, end of period $ 6.85 $ 7.16
................................................................................................................
Total return (4.33)% 28.40%**
RATIOS/SUPPLEMENTAL DATA:
$17,662 $33,313*
Net Assets, end of period (in thousands) 1.50 % 1.50 %*
Ratio of expenses to average net assets (A) (0.31)% (0.39)%*
Ratio of net investment income to average net assets
Portfolio turnover rate (B) 37 % 47 %
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 $(0.058)+ $(0.036)+
RATIOS:
Expenses to average net assets 1.97% 1,74%*
Net investment income to average net assets
(0.79)% (0.63)%*
* Annualized.
** Not Annualized.
+ The per share amounts were computed using the monthly average 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>
CLASS B
----------------------
January 4, 1999
(Commencement
of Operations) to
October 31, 1999
..............................................................................
Net Asset Value, beginning of period $7.48
..............................................................................
Net investment loss (0.059)+
Net realized and unrealized loss on investments (0.611)
..............................................................................
Total from operations (0.670)
..............................................................................
Less Distributions From:
Net investment income --
Net realized gain on investments --
..............................................................................
Total distributions --
..............................................................................
Net Asset Value, end of period $6.81
..............................................................................
Total return (8.96)%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $135,411
Ratio of expenses to average net assets 2.25%*
Ratio of net investment loss to average net assets (1.06)%*
Portfolio turnover (B) 37%
Note: If agents of the Fund for the period indicated 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 $(0.094)+
RATIOS:
Expenses to average net assets (A) 2,72%*
Net investment loss to average net assets (1.54)%*
* Annualized.
** Not Annualized.
+ The per share amounts were computed using the monthly average 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.
<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 and retired employees of Citibank and its affiliates,
CFBDS, Inc. and its affiliates, any Service Agent and its
affiliates and certain other Fund service providers (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 (qualified plans investing through certain programs
sponsored by Citibank or its affiliates are not subject to this
minimum)
[] 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
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
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, reports, and other information about the Fund are
also available on the Edgar Database 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 1-202-942-8090. Copies may also be obtained upon payment of
a duplicating fee by electronic request to [email protected],
or by writing to the SEC's Public Reference Section,
Washington, DC 20549-6009.
SEC File Number: 811-4007 CFP/SCV/300
<PAGE>
- ----------
PROSPECTUS
- ----------
MARCH 1, 2000
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 ACCOUNT ................................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 18
HOW THE PRICE OF YOUR SHARES IS CALCULATED 19
HOW TO SELL SHARES .................................................. 20
REINSTATING RECENTLY SOLD SHARES .................................... 22
EXCHANGES ........................................................... 22
ACCOUNT INQUIRIES ................................................... 23
DIVIDENDS ........................................................... 23
TAX MATTERS ......................................................... 24
MANAGEMENT OF THE FUND ................................................. 26
MANAGERS ............................................................ 26
MANAGEMENT FEES ..................................................... 27
MORE ABOUT THE FUND .................................................... 28
PRINCIPAL INVESTMENT STRATEGIES ..................................... 28
RISKS ............................................................... 34
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. For more information, see MORE
ABOUT THE FUND on page 28.
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 the Fund's managers believe have potential for capital growth or
current income, or both. In selecting securities, the managers
emphasize 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.
The 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. At the same time, they look for
the catalysts or factors that may soon cause the market value of these
securities to rise.
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. If the Fund purchases debt securities, it may
purchase both investment grade and lower quality debt securities, or
"junk bonds".
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.
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.
Please note that the Fund invests in securities through an underlying
mutual fund.
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 34 for more information about risks.
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 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. Some
securities held by the Fund may be quite volatile, meaning that
their prices can change significantly in a short time.
o VALUE INVESTING. Value investing involves selecting stocks that
are inexpensive compared to other companies with similar earnings
or assets. However, value stocks may continue to be inexpensive
for long periods of time, and may never realize their potential. A
security may not achieve its expected value because the
circumstances causing it to be underpriced stay the same or
worsen. Or, value stocks as a class may be out of favor with
investors. In that case, the Fund may underperform other stock
funds that do not use a value approach.
o PORTFOLIO SELECTION. The success of the Fund's investment strategy
depends largely on the portfolio managers' skill in identifying
securities of companies that are in fact undervalued, but have
good longer term business prospects. The portfolio managers may
fail to be correct in their determinations. In that case, you may
lose money, or your investment may not do as well as an investment
in another stock fund using a value approach.
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. If the Fund holds debt securities, 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 AND EXTENSION RISK. The issuers of debt securities held
by the Fund may be able to call a bond or prepay principal due on
the securities, particularly during periods of declining interest
rates. In that case, 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 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
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. The Fund's ability to use derivatives
successfully depends on a number of factors, including the ability
of the managers 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 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.
WHO MAY WANT TO INVEST
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 the Fund 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.
Please keep in mind that an investment in any value-oriented stock
fund is not a complete investment program.
<PAGE>
Fund Performance
The following bar chart and table can help you evaluate the risks and
performance of the Fund.
o The bar chart shows the Fund's total return for the calendar year
indicated. 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 compares the Fund's average annual returns for the
periods indicated 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 or sales charges. The Fund's returns in
the table reflect the maximum sales charge currently applicable.
o In both the chart and table, the returns shown for Class A shares
include returns for periods before the creation of share classes
on January 4, 1999. 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 have been adjusted to reflect the maximum
front-end sales charge currently applicable to the Class A shares.
o Class B shares have been offered since January 4, 1999. Class B
performance is lower than that shown for Class A shares, because
of higher fund expenses and the effects of the contingent deferred
sales charge.
o The Fund's performance reflects certain fee waivers or
reimbursements. If these are reduced or eliminated, the Fund's
performance may go down.
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. For current yield information, please call
800-625-4554 toll free, or contact your account representative.
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURN - CLASS A
(WITHOUT SALES CHARGE)
1999 4.64%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUND'S HIGHEST AND LOWEST RETURNS
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 12.70 % June 30, 1999
..............................................................................
Lowest (11.75)% September 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
..............................................................................
Life of
Fund Since
1 Year March 2, 1998
..............................................................................
Class A (0.59)% (1.06)%
..............................................................................
Class B (1.57)% N/A
..............................................................................
Standard & Poor's Barra Value Index 12.72% *
- --------------------------------------------------------------------------------
*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.
- --------------------------------------------------------------------------------
CITIFUNDS GROWTH & INCOME PORTFOLIO
..............................................................................
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 0.80% 0.80%
..............................................................................
Distribution (12b-1) Fees 0.25% 1.00%
..............................................................................
Other Expenses (administrative, shareholder servicing
and other expenses) 0.40% 0.40%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.45% 2.20%
- ------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior fiscal year were:
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 securities through an underlying mutual fund, Large Cap
Value Portfolio. This table reflects the expenses of the Fund and Large Cap
Value 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;
o you then sell all your shares at the end of those periods -- for
Class B shares a number is also given showing your expenses 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;
o your 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 as shown in the table without
waivers remain the same.
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 $640 $936 $1,253 $2,148
..............................................................................
Class B
..............................................................................
Assuming redemption at end of period $723 $988 $1,280 $2,344
..............................................................................
Assuming no redemption $223 $688 $1,180 $2,344
- --------------------------------------------------------------------------------
<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 5.00% to 1.00% 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 intermediaries such as broker/dealers that 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
intermediaries that sell shares of the Fund receive. The
distributor keeps up to approximately 10% of the sales charge
imposed on Class A shares. Financial intermediaries 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 15.
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 intermediaries 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
intermediaries 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 applicable CDSC, 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.
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 sales or 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. The Fund does not impose any minimum
initial or subsequent investment requirements but your Service Agent
may.
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 hold your shares through 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 transfer it to
another financial institution 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 may be calculated as of the earlier 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 hold your shares through a Service Agent,
through your Service Agent. If your account application permits, you
may also make redemption requests by telephone. 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
the Fund's transfer agent or, if you hold your shares through a
Service Agent, 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 third business day after you sell your shares but in any event
within seven days. However, 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.
Your account balance may be subject to a $500 minimum. If so, the Fund
reserves the right to close your account if it falls below $500
because of redemptions. You will have 60 days' notice to make an
additional investment. If you do not increase your balance, the Fund
may close your account and send the proceeds to you. Your shares will
be sold at NAV on the day your account was closed.
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
hold your shares through 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 NAVs of each fund the next time they
are 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 for exchange. 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.
ACCOUNT INQUIRIES
Please contact your Service Agent. If you hold your shares through the
transfer agent, please call 1-800-625-4554.
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 federal 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
MANAGERS
CitiFunds Growth & Income Portfolio draws on the strength and
experience of Citibank. Citibank is the investment manager of the
Fund. 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 $351 billion in
assets worldwide.
Citibank, with its headquarters at 153 East 53rd Street, New York, New
York, is a wholly-owned subsidiary of Citigroup Inc. "CitiFunds" is a
service mark of Citicorp.
Citibank and its affiliates, including their directors, officers or
employees, may have banking and investment banking relationships with
the issuers of securities that are held in the Fund. They may also own
the securities of these issuers. 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.
Citibank is responsible for recommending the hiring, termination or
replacement of any subadviser and for supervising and monitoring the
performance of any subadviser. Citibank has delegated the daily
management of the Fund to a subadviser, SSB Citi Fund Management LLC
(SSB Citi). SSB Citi is an affiliate of Citibank and an indirect
wholly-owned subsidiary of Citigroup Inc. SSB Citi's address is 388
Greenwich Street, New York, New York 10013. Both Citibank and SSB Citi
are referred to as the Fund's managers.
Frances A. Root has been the portfolio manager of the Fund since May
17, 1999. Ms. Root is a Managing Director and a Senior Equity
Portfolio Manager of SSB Citi. She joined Smith Barney Capital
Management in 1992 as a Vice President and Equity Portfolio Manager
and she continued in that role until 1998, when she became a Managing
Director of SSB Citi and a Senior Equity Portfolio Manager.
MANAGEMENT FEES
For the Fund's fiscal year ended October 31, 1999, Citibank and the
subadviser received management fees totaling 0.65% 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 described below. The Fund may use other strategies and invest in
other securities that are described in the Statement of Additional
Information. However, the Fund may not use all of the strategies and
techniques or invest in all of the types of securities described in
this Prospectus or in the Statement of Additional Information. The
Fund's goal and strategies may be changed without shareholder
approval. Of course, there can be no assurance that the Fund will
achieve its goal.
- --------------------------------------------------------------------------------
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 most 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.
The 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. The portfolio managers look
for securities that they believe 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). The portfolio managers believe 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.
- --------------------------------------------------------------------------------
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 the managers believe
to be of comparable quality), and 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.
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 other cases,
the Fund may bear more counterparty risk. Derivatives may be thinly
traded or illiquid. 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, Large Cap Value
Portfolio, having the same investment goals and similar strategies as
the Fund. Large Cap Value Portfolio buys, holds and sells securities
in accordance with these goals and strategies. Unless otherwise
indicated, references to the Fund in this Prospectus include the
underlying fund. The Fund may stop investing in an 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 one or more mutual funds or pooled investment vehicles
or invest directly in securities. Prior to August 1, 1999, the Fund
invested in Growth & Income Portfolio.
MANAGEMENT STYLE. Managers of mutual funds use different styles when
selecting securities to purchase. The portfolio managers 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.
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.
The managers may use brokers or dealers for Fund transactions that
also provide brokerage and research services to the Fund or other
accounts over which the managers or their affiliates exercise
investment discretion. The Fund may "pay up" for brokerage services,
meaning that it is authorized to pay a broker or dealer that 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 the managers determine 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 the managers exercise
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. Please note that there are many other factors that
could adversely affect your investment and that could prevent the Fund
from achieving its goals, which are not described here. More
information about risks appears in the Fund's Statement of Additional
Information. 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. 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. Some securities held by the
Fund may be quite volatile meaning that their prices can change
significantly in a short time.
VALUE INVESTING. Value investing involves selecting stocks that are
inexpensive compared to other companies with similar earnings or
assets. However, value stocks may continue to be inexpensive for long
periods of time, and may never realize their potential. A security may
not achieve its expected value because the circumstances causing it to
be underpriced stay the same or worsen. Or, value stocks as a class
may be out of favor with investors. In that case, the Fund may
underperform other stock funds that do not use a value approach.
PORTFOLIO SELECTION. The success of the Fund's investment strategy
depends largely on the portfolio managers' skill in identifying
securities of companies that are in fact undervalued, but have good
longer term business prospects. The portfolio managers may fail to be
correct in their determinations. In that case, you may lose money, or
your investment may not do as well as an investment in another stock
fund using a value approach.
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 conversion of European
currencies to 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 AND EXTENSION RISK. The issuers of debt securities that may
be held by the Fund may be able to call a bond or prepay principal due
on the securities, particularly during periods of declining interest
rates. In that case, 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. The Fund would also lose the benefit
of falling interest rates on the price of the repaid bond. 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. Securities
subject to prepayment risk generally offer less potential for gains
when interest rates decline, and may offer a greater potential for
loss when interest rates rise. 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. If the Fund
invests in these obligations, the Fund's share price may be 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
the Managers to accurately predict movements in stock prices, interest
rates and currency exchange rates. If the Managers' predictions are
wrong, the Fund could suffer greater losses than if the Fund had not
used derivatives.
YEAR 2000 RISK. Year 2000 Risk, the risk that computers will fail or
generate faulty information after December 31, 1999, may continue to
cause problems well into the Year 2000. The Fund may be adversely
affected by the Year 2000 problems of its service providers, the
markets on which it trades securities, or the issuers of the
securities it holds.
<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 or Class B 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>
CITIFUNDS GROWTH & INCOME PORTFOLIO
CLASS A
-----------------------------------
March 2, 1998
(Commencement of
Year Ended Operations) to
October 31, 1999 October 31, 1998
.......................................................................................................
<S> <C> <C>
Net Asset Value, beginning of period $ 9.19 $10.00
.......................................................................................................
Income From Operations
Net investment income 0.068+ 0.041
Net realized and unrealized gain (loss) on investments 1.276 (0.831)
.......................................................................................................
Total from operations 1.344 (0.790)
.......................................................................................................
Less Distributions From:
Net investment income (0.094) (0.020)
.......................................................................................................
Total distributions (0.094) (0.020)
.......................................................................................................
Net Asset Value, end of period $10.44 $ 9.19
.......................................................................................................
Total return 14.63% (7.90)%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) $47,451 $70,461*
Ratio of expenses to average net assets (A) 1.30% 1.30%*
Ratio of net investment income to average net assets 0.67% 0.68%*
Portfolio turnover rate (B) 74% 61%
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 $0.054+ $0.03
RATIOS:
Expenses to average net assets (A) 1.45% 1.47%*
Net investment income to average net assets 0.52% 0.51%*
* Annualized.
** Not annualized.
+ The per share amounts were computed using the monthly average of shares during the period.
(A) Includes the Fund's share of Growth & Income Portfolio and Large Cap Value Portfolio allocated expenses
for the periods indicated.
(B) Portfolio turnover represents the rate of portfolio activity of Large Cap Value Portfolio, the underlying
portfolio through which the Fund invests.
</TABLE>
<PAGE>
CLASS B
----------------------
January 4, 1999
(Commencement of Operations)
to October 31, 1999
................................................................................
Net Asset Value, beginning of period $ 9.87
................................................................................
Income From Operations:
Net investment income (loss) (0.003)+
Net realized and unrealized gain 0.601
................................................................................
Total from operations 0.598
................................................................................
Less Distributions From:
In excess of net income (0.048)
................................................................................
Total distributions (0.048)
................................................................................
Net Asset Value, end of period $10.42
................................................................................
Total return 6.05%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) $868
Ratio of expenses to average net assets (A) 2.05%*
Ratio of net investment income to average net assets (0.09)%*
Portfolio turnover rate (B) 74%
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 $(0.019)+
RATIOS:
Expenses to average net assets (A) 2.20%*
Net investment income to average net assets (0.23)%*
* Annualized.
** Not annualized.
+ The per share amounts were computed using the monthly average of shares
during the period.
(A) Includes the Fund's share of Growth & Income Portfolio and Large Cap Value
Portfolio allocated expenses for the period indicated.
(B) Portfolio turnover represents the rate of portfolio activity of Large
Cap Value
Portfolio, the underlying portfolio through which the Fund invests.
<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 and retired employees of Citibank and its affiliates,
CFBDS, Inc. and its affiliates, any Service Agent and its
affiliates and certain other Fund service providers (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 (qualified plans investing through certain programs
sponsored by Citibank or its affiliates are not subject to this
minimum)
[] 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.
<PAGE>
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<PAGE>
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 SemiAnnual Reports
or to make other inquiries, please call toll-free 1-800-625-4554.
The SAI, reports, and other information about the Fund are also
available on the Edgar Database 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 1-202-942-8090. Copies may also
be obtained upon payment of a duplicating fee by electronic request to
[email protected], or by writing to the SEC's Public Reference
Section, Washington, DC 20549-6009.
SEC File Number: 811-4007 CFP/G&IP/300
<PAGE>
Statement of
Additional Information
March 1, 2000
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, and CitiFunds Small Cap Growth Portfolio
invests all of its investable assets in Small Cap Growth Portfolio. Large Cap
Growth Portfolio and Small Cap Growth Portfolio are series of The Premium
Portfolios. CitiFunds Growth & Income Portfolio invests all of its investable
assets in Large Cap Value Portfolio, and CitiFunds Small Cap Value Portfolio
invests all of its investable assets in Small Cap Value Portfolio. Large Cap
Value Portfolio and Small Cap Value Portfolio are 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, Large Cap
Value Portfolio and Small Cap Value 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 .............................................. 23
5. Performance Information and Advertising .............................. 25
6. Determination of Net Asset Value; Valuation of Securities ............ 27
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs ................................................. 28
8. Management ........................................................... 35
9. Portfolio Transactions ............................................... 43
10. Description of Shares, Voting Rights and Liabilities ................. 44
11. Tax Matters .......................................................... 45
12. Financial Statements ................................................. 47
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, 2000, 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 47 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, 2000.
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 Growth & Income Fund and the Small Cap Value Fund invests its assets in
Large Cap Value Portfolio and Small Cap Value 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. Large
Cap Growth Portfolio and Small Cap Growth Portfolio are series of The Premium
Portfolios, and Large Cap Value Portfolio and Small Cap Value Portfolio are
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.
Except with respect to the Growth & Income Fund, which invests in Large
Cap Value Portfolio, 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 the Large Cap
Value Portfolio to SSB Citi Fund Management LLC (formerly, SSBC Fund
Management Inc.), an affiliate of Citibank and an indirect wholly-owned
subsidiary of Citigroup Inc. 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 LLC, a wholly owned subsidiary of
Franklin Resources, Inc, a publicly owned holding company whose shares are
listed on the New York Stock Exchange. Each of SSB Citi Fund Management LLC
and Franklin Advisory Services LLC is referred to herein as a "Subadviser."
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. 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 all of the investments and utilize all
of the investment techniques described below and in the Fund's Prospectus. The
selection of investments and the utilization of investment techniques depend
on, among other things, the Manager's and, as applicable, a 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
Managers' opinion, make economic sense.
OPTIONS
The Funds may write covered call and put options and purchase call and put
options on securities for hedging and non-hedging purposes. Call and put
options written by a Fund may be covered in the manner set forth below, or a
Fund will segregate cash or liquid securities equal to the value of the
securities underlying the option.
A call option written by a Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if 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. Even if the Fund's obligation is covered, it is subject to the
risk of the full change in value of the underlying security from the time the
option is written until exercise. Covering an option does not protect the Fund
from risk of loss.
When a Fund writes a call option, the Fund, in return for a fee, or
"premium", agrees to sell a security at the exercise price, if the holder
exercises the right to purchase prior to the expiration date of the call
option. If the Fund holds the security in question, the Fund gives up some or
all of the opportunity to profit from the increase in the market price of the
security during the life of the option. The Fund retains the risk of loss
should the price of the security decline. If the option expires unexercised,
the Fund realizes a gain equal to the premium, which may be offset by a
decline in price of the underlying security. If the option is exercised, the
Fund realizes a gain or loss equal to the difference between the fund's cost
for the underlying security and the proceeds of sale (exercise price minus
commissions) plus the amount of the premium.
A Fund may terminate a call option it has written before it expires by
entering into a closing purchase transaction. A Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security
or to write another call on the security, realize a profit on a previously
written call option, or protect a security from being called in an unexpected
market rise. Any profits from closing a purchase transaction may be offset by
a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, if the Fund holds
the underlying security any loss resulting from a closing purchase transaction
is likely to be offset in whole or in part by unrealized appreciation of the
underlying security. If the Fund does not hold the underlying security, the
Fund's loss could be unlimited.
A Fund may write put options in an attempt to enhance its current return.
Such option transactions may also be used as a limited form of hedging against
an increase in the price of securities that a Fund plans to purchase. A put
option written by the Fund gives the holder the right to sell, and, in return
for a premium, obligates the Fund to buy, a security at the exercise price at
any time before the expiration date.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Fund may also
receive a return on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Fund assumes the
risk that it may be required to purchase the underlying security for an
exercise price higher than its then current market value, resulting in a loss
to the Fund, unless the security later appreciates in value. A Fund may
terminate a put option it has written before it expires by a closing purchase
transaction. Any loss from this transaction may be partially or entirely
offset by the premium received on the terminated option.
Each of the Funds may purchase options for hedging purposes or to increase
the Fund's return. When put options are purchased as a hedge against a decline
in the value of portfolio securities, the put options may be purchased at or
about the same time that the Fund purchases the underlying security or at a
later time. If such decline occurs, the put options will permit a Fund to sell
the securities at the exercise price, or to close out the options at a profit.
By using put options in this way, the Fund will reduce any profit it might
otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs. Similarly, when put
options are used for non-hedging purposes, the Fund may make a profit when the
price of the underlying security or instrument falls below the strike price.
If the price of the underlying security or instrument does not fall
sufficiently, the options may expire unexercised and the Fund would lose the
premiums it paid for the option. If the price of the underlying security or
instrument falls sufficiently and the option is exercised, the amount of any
resulting profit will be offset by the amount of premium paid.
Each of the Funds may purchase call options to hedge against an increase
in the price of securities that the Fund anticipates purchasing in the future.
If such increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund and the premium would be lost.
Call options may also be purchased in order to increase a Fund's return at
a time when the call is expected to increase in value due to anticipated
appreciation of the underlying security. Prior to its expiration, a call
option may be sold by a Fund in closing sale transactions, which are sales by
the Fund, prior to the exercise of options that it has purchased, of options
of the same series. Profit or loss from the sale will depend upon whether the
amount received is more or less than the premium paid for the option plus the
related transaction costs. The purchase of call options on securities that a
Fund owns, when a Fund is substantially fully invested, is a form of leverage,
up to the amount of the premium and related transaction costs, and involves
risks of loss and of increased volatility.
Each of the Funds may write (sell) call and put options and purchase call
and put options on securities indices. The delivery requirements of options on
securities indices differ from options on securities. Unlike a securities
option, which contemplates the right to take or make delivery of securities at
a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (1) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (2) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the securities index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. The writer may offset its position
in securities index options prior to expiration by entering into a closing
transaction on an exchange or it may allow the option to expire unexercised.
Each of the Funds may cover call options on securities indices by owning
securities whose price changes, in the opinion of the Manager or a Subadviser,
are expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where a Fund covers a call option on a securities index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. A Fund may also cover call options on securities indices by holding a
call on the same index and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash or
liquid securities in a segregated account. A Fund may cover put options on
securities indices by maintaining cash or liquid securities with a value equal
to the exercise price in a segregated account or by holding a put on the same
securities index and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written or where the exercise price of the put held is less than
the exercise price of the put written if the difference is maintained by the
Fund in cash or liquid securities in a segregated account. Put and call
options on securities indices may also be covered in such other manner as may
be in accordance with the rules of the exchange on which, or the counterparty
with which, the option is traded, and applicable laws and regulations.
Investors should be aware that although a Fund will only write call or put
options on securities indices that are covered, covering an option does not
protect the Fund from risk of loss.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which a Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, a Fund
assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by a Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
Each of the Funds may purchase put options on securities indices when the
portfolio managers believe that there may be a decline in the prices of the
securities covered by the index. The Fund will realize a gain if the put
option appreciates in excess of the premium paid for the option. If the option
does not increase in value, the Fund's loss will be limited to the premium
paid for the option plus related transaction costs.
A Fund may purchase call options on securities indices to take advantage
of an anticipated broad market advance, or an advance in an industry or market
segment. A Fund will bear the risk of losing all or a portion of the premium
paid if the value of the index does not rise. The purchase of call options on
securities indices when a Fund is substantially fully invested is a form of
leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility.
Securities index options are subject to position and exercise limits and
other regulations imposed by the exchange on which they are traded. The
ability of a Fund to engage in closing purchase transactions with respect to
securities index options depends on the existence of a liquid secondary
market. However, no such secondary market may exist, or the market may cease
to exist at some future date, for some options. No assurance can be given that
a closing purchase transaction can be effected when the Manager or a
Subadviser desires that a Fund engage in such a transaction.
Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular security, whether a Fund
realizes a gain or loss from purchasing or writing options on an index depends
upon movements in the level of prices in the market generally or, in the case
of certain indices, in an industry or market segment, rather than movements in
the price of a particular security. As a result, successful use by a Fund of
options on securities indices is subject to the portfolio managers' ability to
predict correctly movements in the direction of the market generally or of a
particular industry. This ability contemplates different skills and techniques
from those used in predicting changes in the price of individual securities.
When a Fund purchases or writes securities index options as a hedging
technique, the Fund's success will depend upon the extent to which price
movements in the portion of a securities portfolio being hedged correlate with
price movements of the securities index selected.
A Fund's purchase or sale of securities index options in an attempt to
enhance performance involves speculation and may be very risky and cause
losses, which, in the case of call options written, are potentially unlimited.
The Funds may purchase over-the-counter ("OTC") or dealer options or sell
covered OTC options. Unlike exchange-listed options where an intermediary or
clearing corporation assures that all transactions are properly executed, the
responsibility for performing all transactions with respect to OTC options
rests solely with the writer and the holder of those options. A listed call
option writer, for example, is obligated to deliver the underlying stock to
the clearing organization if the option is exercised, and the clearing
organization is then obligated to pay the writer the exercise price of the
option. If a Fund were to purchase a dealer option, however, it would rely on
the dealer from whom it purchased the option to perform if the option were
exercised. If the dealer fails to honor the exercise of the option by the
Fund, the Fund would lose the premium it paid for the option and the expected
benefit of the transaction.
Listed options may have a liquid market while dealer options have none.
Consequently, a Fund will generally be able to realize the value of a dealer
option it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when a Fund writes a dealer option, it generally
will be able to close out the option prior to the expiration only by entering
into a closing purchase transaction with the dealer to which the Fund
originally sold the option. Although the Funds will seek to enter into dealer
options only with dealers who will agree to and that are expected to be
capable of entering into closing transactions with the Funds, there can be no
assurance that a Fund will be able to liquidate a dealer option at a favorable
price at any time prior to expiration. The inability to enter into a closing
transaction may result in material losses to a Fund. Until a Fund, as an OTC
call option writer, is able to effect a closing purchase transaction, it will
not be able to liquidate securities (or other assets) used to cover the
written option until the option expires or is exercised. This requirement may
impair a Fund's ability to sell portfolio securities or, with respect to
currency options, currencies at a time when such sale might be advantageous.
In the event of insolvency of the other party, the Fund may be unable to
liquidate a dealer option.
Each of the Funds (other than Small Cap Value Fund) may purchase and write
options on foreign currencies as more fully described in "Foreign Currency
Exchange Transactions" below. Each of the Funds may also purchase or write
call options on futures contracts as more fully described in "Options on
Futures Contracts" below.
The use of options by the Funds may involve leveraging. Leveraging adds
increased risks to a Fund, because the Fund's losses may be out of proportion
to the amount invested in the instrument--a relatively small investment may
lead to much greater losses.
FUTURES CONTRACTS
Each of the Funds may enter into 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.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for
by the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
Futures contracts based on debt securities provide for the delivery and
acceptance of securities, although such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when 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. Interest
rate futures, which are typically based on shorter-term interest rates, such
as overnight to six-month time periods, settle in cash only rather than by
delivery of the underlying instrument.
The Growth & Income Fund may purchase or sell interest rate futures
contracts or bond futures contracts to attempt to protect the Fund from
fluctuations in interest rates, to manage the effective maturity or duration
of the Fund's investment portfolio in an effort to reduce potential losses, or
in an effort to enhance potential gain, without actually buying or selling
debt securities. For example, if the Fund owned long-term bonds and interest
rates were expected to increase, the Fund might enter into futures contracts
for the sale of debt securities. Such a sale would have much the same effect
as if the Fund sold bonds that it owned, or as if the Fund sold longer-term
bonds and purchased shorter-term bonds. If interest rates did increase, the
value of the Fund's debt securities would decline, but the value of the
futures contracts would increase, thereby keeping the net asset value of the
Fund from declining as much as it otherwise would have. Similar results could
be accomplished by selling bonds, or by selling bonds with longer maturities
and investing in bonds with shorter maturities. However, by using futures
contracts, the Fund avoids having to sell its securities.
Bond futures may be used for non-hedging purposes. For example, even if
the Growth & Income Fund were not trying to protect the value of any bonds
held by it, if the portfolio managers anticipate that interest rates are about
to rise, depressing future prices of bonds, the portfolio managers may sell
bond futures short, closing out the position later at a lower price, if the
future prices had fallen, as expected. If the prices had not fallen, the Fund
would experience a loss and such loss may be unlimited.
Similarly, when it is expected that interest rates may decline, 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.
Although futures on individual equity securities are not available in
United States markets, futures contracts on individual equity securities may
be available in foreign markets, and may be purchased or sold by the Funds.
Each of the Funds may buy and sell stock index futures contracts to
attempt to increase investment return, to gain stock market exposure while
holding cash available for investments and redemptions, or to protect against
a decline in the stock market.
A stock index futures contract is a contract to buy or sell units of a
stock index at a specified future date at the price agreed upon when the
contract is made. A unit is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100
Index were $180, one contract would be worth $18,000 (100 units x $180). The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur
upon the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if a Fund enters into a futures
contract to buy 100 units of the S&P 100 Index at a specified future date at a
contract price of $180 and the S&P 100 Index is at $184 on that future date,
the Fund will gain $400 (100 units x gain of $4) reduced by transaction costs.
If the Fund enters into a futures contract to sell 100 units of the stock
index at a specified future date at a contract price of $180 and the S&P 100
Index is at $182 on that future date, the Fund will lose $200 (100 units x
loss of $2) increased by transaction costs.
Positions in index futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures.
The Growth & Income Fund may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended foreign investments
from fluctuations in currency exchange rates, or for non-hedging purposes in
an attempt to benefit from such fluctuations. Such fluctuations could reduce
the dollar value of 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. The Growth & Income Fund may also sell futures
contracts in a foreign currency even if it does not hold securities
denominated in such currency, if it anticipates a decline in the value of such
currency.
Conversely, the 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. The Growth & Income Fund could also
purchase futures contracts on a currency if it expected the currency to rise
in value, even if the Fund did not anticipate purchasing securities
denominated in that currency.
Although the use of futures for hedging may 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 debt securities underlying such contracts
correlate with movements in the value of the Fund's securities. If the
security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by
gains on the Fund's other investments or, alternatively, the gains on the
hedging transaction might not be sufficient to offset losses on the Fund's
other investments. It is also possible that there may be a negative
correlation between the security underlying a futures contract and the
securities being hedged, which could result in losses both on the hedging
transaction and the securities. In these and other instances, the Fund's
overall return could be less than if the hedging transactions had not been
undertaken. Similarly, even where a Fund enters into futures transactions
other than for hedging purposes, the effectiveness of its strategy may be
affected by lack of correlation between changes in the value of the futures
contracts and changes in value of the underlying securities, currencies or
indices.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, there is the potential that the
liquidity of the futures market may be lacking. Prior to expiration, a futures
contract may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the contract market on which
the futures contract was originally entered into. There can be no assurance
that a liquid secondary market will exist for any particular futures contract
at any specific time. In that event, it may not be possible to close out a
position held by the Fund, which could require the Fund to purchase or sell
the instrument underlying the futures contract or to meet ongoing variation
margin requirements. The inability to close out futures positions also could
have an adverse impact on the ability effectively to use futures transactions
for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Each contract market on which futures contracts are traded
has established a number of limitations governing the maximum number of
positions which may be held by a trader, whether acting alone or in concert
with others. The trading of futures contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
portfolio managers' 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 entered into a
futures contract in the belief that interest rates would increase, and
interest rates decreased instead, the Fund would have offsetting losses in its
futures positions. Similarly, if the Growth & Income Fund purchased futures
contracts expecting a decrease in interest rates and interest rates instead
increased, the Fund would have losses in its futures positions which would
increase the amount of the losses on the securities in its portfolio which
would 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.
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. These limitations apply only to instruments regulated by
the CFTC, and may not apply to all of the Funds' transactions in futures
contracts.
Each Fund will comply with this CFTC requirement, if applicable. In
addition, an amount of cash or liquid securities will be maintained by the
Fund in a segregated account so that the amount so segregated, plus the
applicable margin held on deposit, will be approximately equal to the amount
necessary to satisfy the Fund's obligations under the futures contract, or the
Fund will otherwise "cover" its positions in accordance with applicable
policies and regulations.
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.
OPTIONS ON FUTURES CONTRACTS
The Funds 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 Funds may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, 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.
The Funds may also purchase options on futures contracts for non-hedging
purposes, in order to take advantage of projected market advances or declines
or changes in interest rates or exchange rates. For example, a Fund can buy a
call option on a futures contract when the portfolio managers believe that the
underlying futures contract will rise. If prices do rise, the Fund could
exercise the option and acquire the underlying futures contract at the strike
price or the Fund could offset the long call position with a sale and realize
a profit. Or, a Fund can sell a call option if the portfolio managers believe
that futures prices will decline. If prices decline, the call will likely not
be exercised and the Fund would profit. However, if the underlying futures
contract should rise, the buyer of the option would likely exercise the call
against the Fund and acquire the underlying futures position at the strike
price; the Fund's loss in this case could be unlimited.
The Funds' use of options on futures contracts may involve leveraging.
Leveraging adds increased risks to a Fund, because the Fund's losses may be
out of proportion to the amount invested in the instrument -- a relatively
small investment may lead to much greater losses.
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
(frequently overnight and usually not more than seven days) 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 by the Fund. 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 foreign
governments or 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 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.
EURO CONVERSION
The Funds may invest in securities of issuers in European countries.
Certain European countries have joined the European Economic and Monetary
Union (EMU). Each EMU participant's currency began a conversion into a single
European currency, called the euro, on January 1, 1999, to be completed by
July 1, 2002. The consequences of the euro conversion for foreign exchange
rates, interest rates and the value of European securities held by the Funds
are presently unclear. European financial markets, and therefore, the Funds,
could be adversely affected if the euro conversion does not continue as
planned or if a participating country chooses to withdraw from the EMU. The
Funds could also be adversely affected if the computing, accounting and
trading systems used by its service providers are not capable of processing
transactions related to the euro. These issues may negatively affect the
operations of the companies in which the Funds invest as well.
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 engage in
foreign currency exchange transactions as an attempt to protect against
uncertainty in the level of future foreign currency exchange rates or as an
attempt to enhance performance.
The Funds may enter into foreign currency exchange transactions to convert
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 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 portfolio managers believe that the currency of a particular
country may suffer a substantial decline against the U.S. dollar, a Fund may
enter into a forward contract to sell the non-U.S. currency, for a fixed
amount of U.S. dollars. If a Fund owns securities in that currency, the
portfolio managers may enter into a contract to sell the non-U.S. currency in
an amount approximating the value of some or all of the Fund's securities
denominated in such non-U.S. currency. The precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible since the future value of such securities in non-U.S. currencies
changes as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
At the maturity of a forward contract, a Fund will either deliver the non-
U.S. currency, or terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a Fund engages in an offsetting transaction, the Fund
will incur a gain or a loss (as described below) to the extent that there has
been movement in forward contract prices. If a Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
non-U.S. currency. Should forward prices decline during the period between the
date a Fund enters into a forward contract for the sale of the non-U.S.
currency and the date it enters into an offsetting contract for the purchase
of such currency, the Fund will realize a gain to the extent the selling price
of the currency exceeds the purchase price of the currency. Should forward
prices increase, the Fund will suffer a loss to the extent that the purchase
price of the currency exceeds the selling price of the currency.
Where a Fund enters into a forward contract with respect to securities it
holds denominated in the non-U.S. currency, it is impossible to forecast with
precision the market value of 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.
When a Fund enters into a forward contract for non-hedging purposes, there
is a greater potential for profit but also a greater potential for loss. For
example, a Fund may purchase a given foreign currency through a forward
contract if the value of such currency is expected to rise relative to the
U.S. dollar or another foreign currency. Conversely, a Fund may sell the
currency through a forward contract if the value of the currency is expected
to decline against the dollar or another foreign currency. The Fund will
profit if the anticipated movements in foreign currency exchange rates occur,
which will increase gross income. Where exchange rates do not move in the
direction or the extent anticipated, however, the Fund may sustain losses
which will reduce its gross income. Such transactions should be considered
speculative and could involve significant risk of loss.
Each Fund (other than the Small Cap Value Fund) has established procedures
consistent with policies of 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 or that the Fund otherwise covers its position in accordance with
applicable regulations and policies.
Each of the Funds (other than Small Cap Value Fund) may purchase put
options on a currency in an attempt to protect against currency rate
fluctuations or to seek to enhance gains. When a Fund purchases a put option
on a currency, the Fund will have the right to sell the currency for a fixed
amount in U.S. dollars, or other currency. Conversely, where a rise in the
value of one currency is projected against another, the Fund may purchase call
options on the currency, giving it the right to purchase the currency for a
fixed amount of U.S. dollars or another currency. Each Fund (other than Small
Cap Value Fund) may purchase put or call options on currencies, even if the
Fund does not currently hold or intend to purchase securities denominated in
such currencies.
The benefit to the Fund from purchases of currency options will be reduced
by the amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options.
The Funds may write options on currencies for hedging purposes or
otherwise in an attempt to achieve their investment objectives. For example,
where a Fund anticipates a decline in the value of the U.S. dollar value of a
foreign security due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of the security held by the Fund may be
offset by the amount of the premium received. If the expected decline does not
occur, the Fund may be required to sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. A Fund could also write call options
on a currency, even if it does not own any securities denominated in that
currency, in an attempt to enhance gains. In that case, if the expected
decline does not occur, the Fund would be required to purchase the currency
and sell it at a loss, which may not be offset by the premium received. The
losses in this case could be unlimited.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because
of an increase in the U.S. dollar value of the currency in which the
underlying security is primarily traded, a Fund could write a put option on
the relevant currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased cost up to the
amount of the premium. However, the writing of a currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may
be exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium.
Through the writing of options on currencies, a Fund also may be required to
forgo all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates. A Fund could also write
put options on a currency, even if it does not own, or intend to purchase, any
securities denominated in that currency. In that case, if the expected
increase does not occur, the Fund would be required to purchase the currency
at a price that is greater than the current exchange rate for the currency,
and the losses in this case could exceed the amount of premium received for
writing the options, and could be unlimited.
Options on foreign currencies are traded on U.S. or foreign exchanges or
in the over-the-counter market. Each of the Funds (other than Small Cap Value
Fund) may enter into transactions in options on foreign currencies that are
traded in the over-the-counter market. These transactions are not afforded the
protections provided to traders on organized exchanges or those regulated by
the CFTC. In particular, over-the-counter options are not cleared and
guaranteed by a clearing corporation, thereby increasing the risk of
counterparty default. In addition, there may not be a liquid market on these
options, which may prevent a Fund from liquidating open positions at a profit
prior to exercise or expiration, or to limit losses in the event of adverse
market conditions.
The purchase and sale of foreign currency options are subject to the risks
of the availability of a liquid secondary market and counterparty risk, as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible interventions by governmental authorities and the effects of other
political and economic events. In addition, the value of a Fund's positions in
foreign currency options could be adversely affected by (1) other complex
foreign political and economic factors, (2) lesser availability of data on
which to make trading decisions than in the United States, (3) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, and (4) imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States.
In addition, because foreign currency transactions occurring in the
interbank market generally involve substantially larger amounts than those
that may be involved in the use of foreign currency options, the Funds may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets, or other markets used by
the portfolio managers are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that may not be reflected in the U.S. or other markets
used by the Funds.
Put and call options on non-U.S. currencies written by a Fund will be
covered by segregation of cash and liquid securities in an amount sufficient
to discharge the Fund's obligations with respect to the option, by acquisition
of the non-U.S. currency or of a right to acquire such currency (in the case
of a call option) or the acquisition of a right to dispose of the currency (in
the case of a put option), or in such other manner as may be in accordance
with the requirements of any exchange on which, or the counterparty with
which, the option is traded and applicable laws and regulations.
The Funds (other than Small Cap Value Fund) may engage in proxy hedges and
cross hedges. For example, in a proxy hedge, a Fund, having purchased a
security, would sell a currency whose value is believed to be closely linked
to the currency in which the security is denominated. Interest rates
prevailing in the country whose currency was sold might be expected to be
closer to those in the U.S. and lower than those of securities denominated in
the currency of the original holding. This type of hedging entails greater
risk than a direct hedge because it is dependent on a stable relationship
between the two currencies paired as proxies and the relationships can be very
unstable at times. A Fund may enter into a cross hedge if a particular
currency is expected to decrease against another currency. For example, the
Fund would sell the currency expected to decrease and purchase a currency
which is expected to increase against the currency sold in an attempt to
protect against declines in value of the Fund's holdings denominated in the
currency sold.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
underlying ADRs are traded primarily in non-U.S. currencies, changes in
currency exchange rates will affect the value of these receipts. For example,
a decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other non-U.S. currency remains constant, and thus will
reduce the value of the receipts covering such securities. A Fund may employ
any of the above described foreign currency hedging techniques to protect the
value of its assets invested in depositary receipts.
Of course, a Fund is not required to enter into the transactions described
above and does not do so unless deemed appropriate by the portfolio managers.
It should be realized that under certain circumstances, the Funds may not be
able to hedge against a decline in the value of a currency, even if the
portfolio managers deem it appropriate to try to do so, because doing so would
be too costly. Transactions entered into to protect the value of a Fund's
securities against a decline in the value of a currency (even when successful)
do not eliminate fluctuations in the underlying prices of the securities.
Additionally, although hedging transactions may tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they also tend to
limit any potential gain which might result should the value of such currency
increase.
Investors should also be aware of the increased risk to a Fund and its
investors when it enters into foreign currency exchange transactions for non-
hedging purposes. Non-hedging transactions in such instruments involve greater
risks and may result in losses which are not offset by increases in the value
of a Fund's other assets. Although a Fund is required to segregate assets or
otherwise cover certain types of transactions, this does not protect the Fund
against risk of loss. Furthermore, the Funds' use of foreign currency exchange
transactions may involve leveraging. Leveraging adds increased risks to a
Fund, because the Fund's losses may be out of proportion to the amount
invested in the instrument--a relatively small investment may lead to much
greater losses.
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 portfolio managers to be of good standing, and when, in the
judgment of the portfolio managers, 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. The portfolio managers will make loans only when, in the judgment of
the portfolio managers, the consideration which can be earned currently from
loans of this type justifies the attendant risk. If the portfolio managers
determine 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 customary settlement time. It is expected that, under normal
circumstances, the applicable Fund would take delivery of such securities, but
the Fund may sell them before the settlement date. 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
intend to adhere to the provisions of SEC policies, purchases of securities on
such bases may involve more risk than other types of purchases. The when-
issued securities are subject to market fluctuation, and no interest accrues
on the security to the purchaser during this period. The payment obligation
and the interest rate that will be received on the securities are each fixed
at the time the purchaser enters into the commitment. Purchasing obligations
on a when-issued basis is a form of leveraging and can involve a risk that the
yields available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself. In that case, there
could be an unrealized loss at the time of delivery. 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 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 ("Rule 144A
securities"). 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 Rule 144A securities, unless, in the case of Rule
144A securities, the Board of Trustees of the Trust determines, based on the
trading markets for the specific Rule 144A security, that it is liquid. The
Trustees have adopted guidelines and, subject to oversight by the Trustees,
have delegated to the Manager or to a Subadviser the daily function of
determining and monitoring liquidity of Rule 144A 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 Funds other than the Small Cap
Value 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 as permitted by applicable law.
MORTGAGE-BACKED SECURITIES
The Growth & Income Fund may invest in mortgage-backed securities. Some
mortgage-backed securities represent 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.
Mortgage-backed securities may also be issued by private issuers such as
commercial banks, savings and loans, mortgage bankers and private mortgage
insurance companies. These obligations are not backed by any governmental
authority or agency.
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 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. 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. If the issuer defaults on its obligation, the value of the
security would fall and the Fund's income would also decline.
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 portfolio managers 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 portfolio managers' 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.
SWAPS AND RELATED TRANSACTIONS
The Growth & Income Fund may enter into interest rate swaps, currency
swaps, equity swaps and other types of available swap agreements, such as
caps, collars and floors, for the purpose of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Interest rate
swaps involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest. An equity swap is an agreement to
exchange cash flows on a principal amount based on changes in the values of
the reference index. A currency swap is an agreement to exchange cash flows on
a principal amount based on changes in the values of the currency exchange
rates. In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the counterparty. For example, the purchase of an interest rate cap entitles
the buyer, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the counterparty selling such interest rate cap. The
sale of an interest rate floor obligates the seller to make payments to the
extent that a specified interest rate falls below an agreed-upon level. A
collar arrangement combines elements of buying a cap and selling a floor.
The Growth & Income Fund will maintain liquid assets with its custodian or
otherwise cover its current obligations under swap transactions in accordance
with current regulations and policies applicable to the Fund.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity, currency or other
factor that determines the amount of payments to be made under the
arrangement. If the portfolio managers are incorrect in their forecasts of
such factors, the investment performance of the Growth & Income Fund would be
less than what it would have been if these investment techniques had not been
used. If a swap agreement calls for payments by the Fund, the Fund must be
prepared to make such payments when due. The Growth & Income Fund will not
enter into any swap unless the portfolio managers deem the counterparty to be
creditworthy. If the counterparty's creditworthiness declined, the value of
the swap agreement would be likely to decline, potentially resulting in
losses. If the counterparty defaults, the Fund's risk of loss consists of the
net amount of payments that the Fund is contractually entitled to receive. The
Growth & Income Fund anticipates that it will be able to eliminate or reduce
its exposure under these arrangements by assignment or other disposition or by
entering into an offsetting agreement with the same or another counterparty.
Swap agreements are subject to the Fund's overall limit that not more than
15% of its net assets may be invested in illiquid securities.
Engaging in swap and related transactions may involve leveraging.
Leveraging adds increased risks to the Fund, because the Fund's losses may be
out of proportion to the amount invested in the instrument -- a relatively
small investment may lead to much greater losses.
ADDITIONAL DISCLOSURE REGARDING DERIVATIVES
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the CFTC and on foreign exchanges. The securities
underlying options and futures contracts traded by a Fund may include domestic
as well as foreign securities (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.
The use of certain derivatives, such as futures, forward contracts, and
written options may involve leverage for the Funds because they create an
obligation, or indebtedness, to someone other than the Funds' investors and
enable a Fund to participate in gains and losses on an amount that exceeds its
initial investment. If a Fund writes a stock put option, for example, it makes
no initial investment, but instead receives a premium in an amount equal to a
fraction of the price of the underlying stock. In return, the Fund is
obligated to purchase the underlying stock at a fixed price, thereby being
subject to losses on the full stock price.
Likewise, if a Fund purchases a futures contract, it makes an initial
margin payment that is typically a small percentage of the contract's price.
However, because of the purchase, the Fund will participate in gains or losses
on the full contract price.
Other types of derivatives provide the economic equivalent of leverage
because they display heightened price sensitivity to market fluctuations, such
as changes in stock prices or interest rates. These derivatives magnify a
Fund's gain or loss from an investment in much the same way that incurring
indebtedness does. For example, if a Fund purchases a stock call option, the
Fund pays a premium in an amount equal to a fraction of the stock price, and
in return, the Fund participates in gains on the full stock price. If there
were no gains, the Fund generally would lose the entire initial premium.
Options, futures contracts, options on futures contracts, forward
contracts and swaps may be used alone or in combinations in order to create
synthetic exposure to securities in which a Fund otherwise invests.
The use of derivatives may increase the amount of taxable income of a Fund
and may affect the amount, timing and character of a Fund's income for tax
purposes, as more fully discussed herein in the section entitled "Tax
Matters."
ADDITIONAL INFORMATION
At times, a substantial portion of a Fund's assets may be invested in
securities as to which 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, annualized, cumulative and average
annual "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. Average annual total return figures
represent the average annual percentage change over the specified period.
Cumulative total return figures are not annualized and represent the aggregate
percentage or dollar-value changes over a stated period of time.
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.
Average annual total return is a measure of a Fund's performance over
time. It is determined by taking a Fund's performance over a given period and
expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by
SEC rules. The average annual total return for a specific period is found by
taking a hypothetical $1,000 initial investment in Fund shares on the first
day of the period, reducing the amount to reflect the maximum sales charge,
and computing the redeemable value of the investment at the end of the period.
The redeemable value is then divided by the initial investment, and its
quotient is taken to the Nth root (N representing the number of years in the
period) and is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains
distributions have been reinvested in Fund shares at net asset value on the
reinvestment dates during the period.
Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of a
period, deducting (as applicable) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by each Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
Average annual and cumulative total returns may also be presented in
advertising and sales literature without the inclusion of sales charges. Total
return calculations that do not include the effect of the sales charge would
be reduced if such charge were included.
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.
In computing total rates of return and yield quotations, all Fund expenses
are included. However, fees that may be charged directly to a shareholder by
that shareholder's broker dealer, Service Agent or other financial
intermediaries are not included. Of course, any such fees charged by a
shareholder's Service Agent will reduce the shareholder's net return on
investment.
Set forth below is the average annual total rate of return information for
the shares of each Fund for the periods indicated, assuming that dividends and
capital gains distributions, if any, were reinvested. All outstanding shares
were designated Class A shares on January 4, 1999. Prior to January 4, 1999
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 Fund offered Class B shares
beginning January 4, 1999. For periods prior to that date, Class B share
performance includes the performance of the Fund's Class A shares, adjusted to
take into account the deduction of the Class B contingent deferred sales
charge, which declines over six years from 5% to 0%, rather than the initial
sales charge applicable to Class A shares. This blended performance has
been adjusted to take into account differences in class specific operating
expenses.
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
CLASS A
October 19, 1990 (Commencement of Operations) to October 31, 1999 ...................... 17.76% $4,383.03
Five Years Ended October 31, 1999 ...................................................... 21.01% $2,594.47
One Year Ended October 31, 1999 ........................................................ 17.42% $1,174.25
CLASS B
January 4, 1999 (Commencement of Operations) to October 31, 1999 ....................... 1.48% $1,014.78
Five Years Ended October 31, 1999 ...................................................... 20.36% $2,525.73
One Year Ended October 31, 1999 ........................................................ 17.74% $1,177.44
SMALL CAP GROWTH FUND
CLASS A
June 21, 1995 (Commencement of Operations) to October 31, 1999 ......................... 21.51% $2,340.09
One Year Ended October 31, 1999 ........................................................ 20.09% $1,200.94
CLASS B
January 4, 1999 (Commencement of Operations) to October 31, 1999 ....................... 6.83% $1,068.31
One Year Ended October 31, 1999 ........................................................ 20.92% $1,209.24
SMALL CAP VALUE FUND
CLASS A
March 2, 1998 (Commencement of Operations) to October 31, 1999 ......................... (22.73)% $ 650.75
One Year Ended October 31, 1999 ........................................................ (9.11)% $ 908.87
CLASS B
January 4, 1999 (Commencement of Operations) to October 31, 1999 ....................... (13.51)% $ 864.91
One Year Ended October 31, 1999 ........................................................ (10.84)% $ 891.59
GROWTH & INCOME FUND
CLASS A
March 2, 1998 (Commencement of Operations) to October 31, 1999 ......................... 0.18% $1,002.95
One Year Ended October 31, 1999 ........................................................ 8.90% $1,089.02
CLASS B
January 4, 1999 (Commencement of Operations) to October 31, 1999 ....................... 0.75% $1,007.49
One Year Ended October 31, 1999 ........................................................ 7.78% $1,077.88
- ----------
** 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
may not reflect 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, 1999 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 ................................................ $24.42 $21.44 $6.85 $10.44
Per Share Sales Charge - 5.00% of public
offering price (5.26% of net asset value
per share) ............................................................. 1.29 1.13 0.36 0.55
Per Share Offering Price to the Public ................................... 25.71 22.57 7.21 10.99
</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 applicable CDSC.
ADDITIONAL DEALER CONCESSIONS
From time to time, the Funds' Distributor or Citibank, at its expense, may
provide additional commissions, compensation or promotional incentives
("concessions") to dealers that sell or arrange for the sale of shares of the
Funds. Such concessions provided by the Funds' Distributor or Citibank may
include financial assistance to dealers in connection with pre-approved
conferences or seminars, sales or training programs for invited registered
representatives and other employees, payment for travel expenses, including
lodging, incurred by registered representatives and other employees for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding the Funds, and/or other dealer-sponsored events. From time
to time, the Funds' Distributor or Citibank may make expense reimbursements
for special training of a dealer's registered representatives and other
employees in group meetings or to help pay the expenses of sales contests.
Other concessions may be offered to the extent not prohibited by state laws or
any self-regulatory agency, such as the NASD.
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 or retired 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)
[ ] 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
(qualified plans investing through certain programs sponsored by
Citibank or its affiliates are not subject to this minimum).
[ ] 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 the Transfer Agent or, if you
hold your shares through a Service Agent, 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 front-end
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 holds Fund shares through 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.
[ ] Class B shares included in the shares covered by the Letter of
Intent will continue to be subject to the applicable CDSC.
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 the Transfer Agent or, if you hold your shares through a Service
Agent, 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, you must notify the Transfer Agent, or, if you hold
your shares through a Service Agent, your Service Agent 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, 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 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 that offer only a single
class of shares.
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 were outstanding on
January 4, 1999 are 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. 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 the Transfer Agent or, if you hold your shares through a
Service Agent, 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 the Transfer
Agent or, if they hold their shares through Service Agents, 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. If you hold your shares through
a Service Agent, your Service Agent is the shareholder of record for the
shares of a Fund you own.
Investors may be able to invest 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 hold
shares through 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 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*; 48 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 73 -- 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 1994); Trustee,
The Highland Family of Funds (March 1997 to March 1998). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 48 -- President, Global Research Associates, Inc. (Investment
Research) (since September 1990); Trustee, Mainstay Institutional Funds (since
December 1990). Her address is P.O. Box 9572, New Haven, Connecticut.
HEATH B. MCLENDON*; 66 -- Chairman, President, and Chief Executive Officer of
SSB Citi Fund Management LLC (formerly known as SSBC Fund Management Inc.)
(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.; 64 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trusts; Managing Director, Morong Capital Management (since
February 1993); Director, Indonesia Fund (since 1990); Trustee, MAS Funds
(since 1993). His address is 1385 Outlook Drive West, Mountainside, New
Jersey.
E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987). His address is Columbia University, Graduate
School of Business, 725 Uris Hall, New York, New York.
TRUSTEES OF THE PORTFOLIO TRUSTS
ELLIOTT J. BERV; 56 -- President and Chief Executive Officer, Catalyst, Inc.
(Management Consultants) (since 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*; 48 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
MARK T. FINN; 56 -- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and part Owner, FX 500 Ltd. (Commodity Trading
Advisory Firm) (April 1990 to February 1996); General Partner and Shareholder,
Greenwich Ventures LLC (Investment Partnership) (since January 1996);
President, Secretary and Owner, Phoenix Trading Co. (Commodity Trading
Advisory Firm) (since March 1997); Chairman and Owner, Vantage Consulting
Group, Inc. (since October 1988). His address is 3500 Pacific Avenue, P.O. Box
539, Virginia Beach, Virginia.
C. OSCAR MORONG, JR.; 64 -- Chairman of the Board of Trustees of the Trust and
the Portfolio Trusts; Managing Director, Morong Capital Management (since
February 1993); Director, Indonesia Fund (since 1990); Trustee, MAS Funds
(since 1993). His address is 1385 Outlook Drive West, Mountainside, New
Jersey.
WALTER E. ROBB, III; 73 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President and Treasurer, Benchmark Advisors, Inc. (Corporate Financial
Advisors) (since 1989); Trustee of certain registered investment companies in
the MFS Family of Funds (since 1985). His address is 35 Farm Road, Sherborn,
Massachusetts.
E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (since 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*; 48 -- President of the Trust and the Portfolio Trusts;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE D. DORSEY*; 29 -- 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).
LINWOOD C. DOWNS; 38* -- Treasurer of the Trust and the Portfolio Trusts;
Chief Financial Officer and Senior Vice President, Signature Financial Group,
Inc.; Treasurer, CFBDS.
TAMIE EBANKS-CUNNINGHAM*; 27 -- Assistant Secretary of the Trust and the
Portfolio Trusts; Office Manager, Signature Financial Group (Cayman) Ltd.
(since April 1995); Administrator, Cayman Islands Primary School (prior to
April 1995). Her address is P.O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, B.W.I.
LINDA T. GIBSON*; 34 -- Secretary of the Trust and the Portfolio Trusts;
Senior Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
SUSAN JAKUBOSKI*; 35 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and the Portfolio Trusts; Vice President, Signature
Financial Group (Cayman) Ltd.
MOLLY S. MUGLER*; 48 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trusts; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
JULIE J. WYETZNER*; 40 -- 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, 1999:
<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 ...................... $5,485 None None $65,250
Diana R. Harrington .................. $7,013 None None $71,250
Susan B. Kerley ...................... $6,930 None None $69,750
Heath B. McLendon (2) ................ $ 0 None None $ 0
C. Oscar Morong, Jr. ................. $8,148 None None $92,000
E. Kirby Warren ...................... $6,226 None None $62,750
William S. Woods, Jr. (3) ............ $8,123 None None $66,000
- ------------
(1) Messrs. Coolidge, Gilley, McLendon, Morong and Warren, and Mses. Harrington and Kerley are
Trustees of 48, 35, 23, 39, 39, 30 and 30 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.
(3) Effective December 31, 1999, Mr. Woods became a Trustee Emeritus of the Trust. Per the terms
of the Trust's Trustee Emeritus Plan, Mr. Woods serves the Board of Trustees in an advisory
capacity. As a Trustee Emeritus, Mr. Woods is paid 50% of the annual retainer fee and
meeting fees otherwise applicable to Trustees, together with reasonable out-of-pocket
expenses for each meeting attended.
</TABLE>
As of February 23, 2000, 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 Trust
relating to the Large Cap Growth Fund, the Small Cap Growth Fund, the Small
Cap Value 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 Agreements with The Premium
Portfolios relating to the Large Cap Growth Portfolio and the Small Cap Growth
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 Asset Allocation
Portfolios relating to the Large Cap Value Portfolio and 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 applicable 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.
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 year ended December 31, 1996, the fee paid to Citibank
under a prior investment advisory agreement with respect to Large Cap Growth
Portfolio was $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 years ended October 31, 1998 and 1999, the
fees paid to Citibank under its Management Agreements with respect to Large
Cap Growth Fund were $84,677 and $329,700, respectively, and with respect to
Large Cap Growth Portfolio were $3,167,841 and $4,351,046, respectively.
For the fiscal year ended December 31, 1996 the fee payable to Citibank
under a prior investment advisory agreement with respect to Small Cap Growth
Portfolio was $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 years ended October 31, 1998 and 1999, the fees paid
to Citibank under its Management Agreements with respect to Small Cap Growth
Fund were $0 and $94,556 (all of which was voluntarily waived), respectively,
and with respect to Small Cap Growth Portfolio were $1,673,322 and $1,112,230,
respectively.
For the period from March 2, 1998 (commencement of operations) to October
31, 1998 and for the fiscal year ended October 31, 1999, the fees paid to
Citibank under its Management Agreement with respect to Small Cap Value Fund
were $4,129 and $64,246, respectively. For the period from November 1, 1997 to
October 31, 1998 and for the fiscal year ended October 31, 1999, the fees paid
to Citibank under its Management Agreement with respect to Small Cap Value
Portfolio were $396,874 and $264,279, respectively.
For the period from March 2, 1998 (commencement of operations) to October
31, 1998, and for the fiscal year ended October 31, 1999, the fees paid to
Citibank under its Management Agreement with respect to Growth & Income Fund
were $48,279 and $60,395 (of which $22,833 was voluntarily waived),
respectively. For the period from March 2, 1998 (commencement of operations)
to October 31, 1998, and for the period from November 1, 1998 to July 31,
1999, the fees paid to Citibank under a prior management agreement with Growth
& Income Portfolio, the Portfolio in which the Growth & Income Fund previously
invested, were $246,222 and $268,817 (of which $49,884 was waived),
respectively. For the period from August 1, 1999 to October 31, 1999, the fees
paid to Citibank under the Management Agreement with respect to Large Cap
Value Portfolio, the Portfolio in which the Growth & Income Fund currently
invests, were $380,698.
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 Large Cap Growth
Fund to CFBDS under a prior administrative services agreement with respect to
the Large Cap Growth Fund were $561,584 (of which $449,267 was voluntarily
waived) and $508,746 (of which $406,939 was voluntarily waived), respectively.
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 $39,957 (all of
which was voluntarily waived) and $52,561 (all of which was voluntarily
waived). For the fiscal year ended December 31, 1996 and for 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 $138,723 and $131,270, respectively, with respect to the Large Cap
Growth Portfolio. For the fiscal year ended December 31, 1996 and for the
period from January 1, 1997 to October 31, 1997, The Premium Portfolios was
obligated to pay SFG under a prior administrative services agreement $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 and for the fiscal year ended October 31, 1999,
the fees paid to the Subadviser with respect to the Small Cap Value Portfolio
were $1,091,403 and $726,766, respectively.
Large Cap Value Portfolio has entered into a Submanagement Agreement with
SSB Citi Fund Management LLC ("SSB Citi"), an affiliate of Citibank and an
indirect wholly-owned subsidiary of Citigroup Inc. SSB Citi's compensation is
payable by Large Cap Value Portfolio from the assets of the Portfolio. Large
Cap Value Portfolio pays SSB Citi 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 the Portfolio allocated to SSB
Citi:
0.65% on the first $10 million;
0.50% on the next $10 million;
0.40% on the next $10 million; and
0.30% on remaining assets.
For the period from August 1, 1999 to October 31, 1999, the fees paid to
SSB Citi with respect to the Large Cap Value Portfolio were $420,678 and the
fees paid to Miller Anderson & Sherrerd LLP were $116,277.
It is the responsibility of a Subadviser to make the day-to-day investment
decisions for the applicable Portfolio and to place the purchase and sales
orders for securities transactions concerning the applicable Portfolio,
subject in all cases to the general supervision of Citibank. Each Subadviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the assets of the Portfolio allocated to it and
effecting securities transactions concerning those assets.
Each Submanagement Agreement will continue in effect indefinitely as long
as such continuance is specifically approved at least annually by the Board of
Trustees of the applicable Portfolio Trust or by a vote of a majority of the
outstanding voting securities of the applicable Portfolio, and, in either
case, by a majority of the Trustees of the Portfolio Trust who are not parties
to the Submanagement Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Submanagement Agreement.
Each Submanagement Agreement provides that the Subadviser may render
services to others. Each Submanagement Agreement is terminable without penalty
on not more than 60 days' nor less than 30 days' written notice by the
applicable Portfolio Trust, when authorized either by a vote of a majority of
the outstanding voting securities of the applicable Portfolio or by a vote of
a majority of the Board of Trustees of the applicable Portfolio Trust or by
Citibank on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. Each
Submanagement Agreement may be terminated by the Subadviser on not less than
90 days' written notice. Upon termination of a Submanagement Agreement,
Citibank will maintain responsibility for managing those assets formerly
managed by the Subadviser. Each Submanagement Agreement provides that neither
the Subadviser nor its personnel shall be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the execution of security transactions for the applicable
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 year
ended December 31, 1996, the fees payable to CFBDS under a prior distribution
agreement with respect to Large Cap Growth Fund were $336,950 (of which
$224,633 was voluntarily waived). 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
years ended October 31, 1998 and 1999, the fees payable to CFBDS under the
current Distribution Agreement with respect to Class A shares of Large Cap
Growth Fund were $763,085 and $1,249,253, respectively. For the period from
January 4, 1999 to October 31, 1999, the fees payable to CFBDS under the
current Distribution Agreement with respect to Class B Shares of Large Cap
Growth Fund were $175,091. 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 $23,974 (all of which was voluntarily waived). 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 years ended
October 31, 1998 and 1999, the fees payable to CFBDS under the current
Distribution Agreement with respect to Class A shares of Small Cap Growth Fund
were $67,515 and $66,445, respectively. For the period from January 4, 1999 to
October 31, 1999, the fees payable to CFBDS under the current Distribution
Agreement with respect to Class B Shares of Small Cap Growth Fund were $4,379.
For the period from March 2, 1998 (commencement of operations) to October 31,
1998 and for the fiscal year ended October 31, 1999, the fees payable to CFBDS
under the current Distribution Agreement with respect to Class A shares of
Small Cap Value Fund were $72,642 and $64,060, respectively. For the period
from January 4, 1999 to October 31, 1999, the fees payable to CFBDS under the
current Distribution Agreement with respect to Class B Shares of Small Cap
Value Fund were $744. For the period from March 2, 1998 (commencement of
operations) to October 31, 1998, and for the fiscal year ended October 31,
1999, the fees payable to CFBDS under the current Distribution Agreement with
respect to Class A shares of Growth & Income Fund were $120,697 and $149,839,
respectively. For the period from January 4, 1999 to October 31, 1999, the
fees payable to CFBDS under the current Distribution Agreement with repsect to
Class B shares of Growth & Income Fund were $4,595.
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. The 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 are
determined by the Distributor and may vary. Citibank may make similar payments
under similar arrangements.
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
Citibank or the applicable Subadviser trade securities for a Fund if they
believe 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, if applicable, by a
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 Subadvisers or their affiliates exercise
investment discretion. Citibank and each Subadviser is authorized to pay a
broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for a Fund which is in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction if Citibank 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 Subadvisers 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 a Subadviser will not
be reduced as a consequence of Citibank's or the Subadviser's receipt of
brokerage and research services. While such services are not expected to
reduce the expenses of Citibank or the Subadvisers, Citibank and the
Subadvisers 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 a
Subadviser's other clients. Investment decisions for a Fund and Citibank's or
the Subadvisers' other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought
or sold for, other clients. Likewise, a particular security may be bought for
one or more clients when one or more clients are selling the same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed to be equitable to each. It is recognized that in some cases this
system could adversely affect the price of or the size of the position
obtainable in a security for a Fund. When purchases or sales of the same
security for a Fund and for other portfolios managed by Citibank or the
Subadvisers 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 year ended December 31, 1996, for the period from January 1,
1997 to October 31, 1997 and for the fiscal years ended October 31, 1998 and
1999, the Large Cap Growth Portfolio paid brokerage commissions of $586,248,
$643,728, $855,648 and $1,463,273, respectively. For the fiscal year ended
December 31, 1996, for the period from January 1, 1997 to October 31, 1997 and
for the fiscal years ended October 31, 1998 and 1999, the Small Cap Growth
Portfolio paid brokerage commissions in the amount of $84,320, $77,226, $214,401
and $372,100, respectively. For the period from March 2, 1998 (commencement of
operations of the Small Cap Value Fund) to October 31, 1998 and for the fiscal
year ended October 31, 1999, the Small Cap Value Portfolio paid brokerage
commissions in the amount of $183,702 and $503,839 respectively. For the period
from March 2, 1998 (commencement of operations) to October 31, 1998, and the
period from November 1, 1998 to July 31, 1999, Growth & Income Portfolio, the
Portfolio in which the Growth & Income Fund previously invested, paid brokerage
commissions in the amount of $187,468 and $101,047, respectively. For the fiscal
year ended October 31, 1999, Large Cap Value Portfolio, the Portfolio in which
the Growth & Income Fund currently invests, paid brokerage commissions of
$163,985.
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.
Large Cap Growth Portfolio and Small Cap Growth Portfolio are series of
The Premium Portfolios. Large Cap Value Portfolio and Small Cap Value
Portfolio are 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 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. FINANCIAL STATEMENTS
The audited Statements of Assets and Liabilities as of October 31, 1999
for Large Cap Growth Fund, Small Cap Growth Fund, Small Cap Value Fund and
Growth & Income Fund, and each of their respective Statements of Operations
for the year ended October 31, 1999, and each of their respective Statements
of Changes in Net Assets and Financial Highlights for the periods presented in
the 1999 Annual Reports to Shareholders of the Funds, the Notes to Financial
Statements of each of the Funds and Independent Auditors' Reports for each of
the Funds, each of which is included in the Annual Report to Shareholders of
the Funds, are incorporated by reference into this Statement of Additional
Information. These financial statements and notes thereto have been so
incorporated in reliance upon the reports of PricewaterhouseCoopers LLP,
independent accountants, on behalf of each of the Funds.
The audited Statements of Assets and Liabilities, including its Portfolio
of Investments, as of October 31, 1999 for Large Cap Growth Portfolio, Small
Cap Growth Portfolio, Small Cap Value Portfolio, and Large Cap Value Portfolio
and each of their repsective Statements of Operations for the year ended
October 31, 1999, and each of their respective Statements of Changes in Net
Assets and Financial Highlights for the periods presented in the 1999 Annual
Reports to Shareholders of the Funds, the Notes to Financial Statements of
each of the Funds and Independent Auditors' Reports for each of the Funds, are
incorporated by reference into this Statement of Additional Information. These
financial statements have been so incorporated in reliance upon the reports of
PricewaterhouseCoopers LLP, on behalf of each of the Portfolios.
Copies of the above referenced Annual Reports for the Funds and Portfolios
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 -- An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA -- An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A -- An obligation rated A is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB -- 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 meet its financial commitment
on the obligation.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this
obligation are being continued. C is also used for a preferred stock that is
in arrears (as well as for junior debt of issuers rated CCC- and CC).
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, upon the completion of a tender or
exchange offer whereby some or all of an issue is either repurchased for an
amount of cash or replaced with other securities having a total value that is
clearly less than par value, and, in the case of preferred stock of
deferrable-payment securities, upon nonpayment of the dividend or deferral of
the interest payment.
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) Services Agreement between Citibank, N.A. and CFBDS
**** h(2) Transfer Agency and Service Agreement between the
Registrant and State Street, as transfer agent
****** h(3) 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(4) Accounting Services Agreement between the Registrant
and State Street, as fund accounting agent
***** h(5) 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 Auditors' 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
******* o Multiple Class Plan of the Registrant
****, ******** p(1) Powers of Attorney for the Registrant
*****, ******** p(2) Powers of Attorney for Asset Allocation Portfolios
p(3) Powers of Attorney for The Premium 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.
******* Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on March
1, 1999.
******** Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registrant's Registration Statement on Form N-1A (File No.
2-90519) as filed with the Securities and Exchange Commission on
December 29, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 17 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, filed as Exhibits to Post-Effective
Amendment No. 29 to its Registration Statement on Form N-1A; and (c) the
undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio), The Premium
Portfolios (U.S. Fixed Income Portfolio, Balanced Portfolio, Large Cap Growth
Portfolio, International Equity Portfolio, Government Income Portfolio, Small
Cap Growth Portfolio and High Yield 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 Conservative, CitiSelect(R) VIP
Folio 300 Balanced, CitiSelect(R) VIP Folio 400 Growth, CitiSelect(R) VIP Folio
500 Growth Plus and CitiFunds(SM) Small Cap Growth VIP Portfolio). Citibank and
its affiliates manage assets in excess of $351 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 Corp.
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 LLC (formerly, 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, 9th 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 LLC. 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 LLC, 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 LLC
Senior Vice President, Franklin Templeton Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Mr. Lippman also serves as officer and/or director or trustee of
eight of the investment companies in the Franklin Group of Funds.
Charles B. Johnson President, Chief Executive Officer and Director, Franklin
Chairman of the Board and Resources, Inc.
Director Chairman of the Board and Director, Franklin Advisers LLC
Chairman of the Board and Director, Franklin Investment Advisory
Services, Inc.
Chairman of the Board and Director, Franklin Templeton
Distributors, Inc.
Director, Franklin/Templeton Investor Services, Inc.
Director, Franklin Templeton Services, Inc.
Director, General Host Corporation
Mr. Johnson also serves as officer and/or director or trustee, as
the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 54 of the investment companies in the
Franklin Templeton Group of Funds.
Rupert H. Johnson, Jr. Executive Vice President and Director, Franklin Resources, Inc.
Senior Vice President and Executive Vice President and Director, Franklin Templeton
Director Distributors, Inc.
President and Director, Franklin Advisers LLC
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 LLC
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 LLC
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>
For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of SSB Citi Fund
Management LLC ("SSB Citi"), a subadviser of Large Cap Value Portfolio, a series
of the Asset Allocation Portfolios, reference is made to SSB Citi's current Form
ADV (File No. 801-8314) filed under the Advisers Act, incorporated herein by
reference.
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM)
International Growth Portfolio, CitiFunds(SM) U.S. Treasury Reserves,
CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S. Treasury Reserves,
CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM) Institutional U.S. Treasury
Reserves, CitiFunds(SM) Institutional Liquid Reserves, CitiFunds(SM)
Institutional Cash Reserves, CitiFunds(SM) Tax Free Reserves, CitiFunds(SM)
Institutional Tax Free Reserves, CitiFunds(SM) California Tax Free Reserves,
CitiFunds(SM) Connecticut Tax Free Reserves, CitiFunds(SM) New York Tax Free
Reserves, CitiFunds(SM) Intermediate Income Portfolio, CitiFunds(SM) Short-Term
U.S. Government Income Portfolio, CitiFunds(SM) New York Tax Free Income
Portfolio, CitiFunds(SM) National Tax Free Income Portfolio, CitiFunds(SM)
California Tax Free Income Portfolio, CitiFunds(SM) Small Cap Value Portfolio,
CitiFunds(SM) Growth & Income Portfolio, CitiFunds(SM) Large Cap Growth
Portfolio, CitiFunds(SM) Small Cap Growth Portfolio, CitiFunds(SM) Balanced
Portfolio, CitiSelect(R) VIP Folio 200 Conservative, CitiSelect(R) VIP Folio 300
Balanced, CitiSelect(R) VIP Folio 400 Growth, CitiSelect(R) VIP Folio 500 Growth
Plus and CitiFunds(SM) Small Cap Growth VIP Portfolio. CFBDS is also the
placement agent for Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International Equity
Portfolio, Balanced Portfolio, Government Income Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio. CFBDS
also serves as the distributor for the following funds: The Travelers Fund U for
Variable Annuities, The Travelers Fund VA for Variable Annuities, The Travelers
Fund BD for Variable Annuities, The Travelers Fund BD II for Variable Annuities,
The Travelers Fund BD III for Variable Annuities, The Travelers Fund BD IV for
Variable Annuities, The Travelers Fund ABD for Variable Annuities, The Travelers
Fund ABD II for Variable Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account PF II for Variable Annuities,
The Travelers Separate Account QP for Variable Annuities, The Travelers Separate
Account TM for Variable Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account Five for Variable Annuities,
The Travelers Separate Account Six for Variable Annuities, The Travelers
Separate Account Seven for Variable Annuities, The Travelers Separate Account
Eight for Variable Annuities, The Travelers Fund UL for Variable Annuities, The
Travelers Fund UL II for Variable Annuities, The Travelers Variable Life
Insurance Separate Account One, The Travelers Variable Life Insurance Separate
Account Two, The Travelers Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account Four, The Travelers Separate
Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities,
The Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities, Small Cap Fund, Government
Fund, Growth Fund, Growth and Income Fund, International Equity Fund, Mid Cap
Fund, Municipal Bond Fund, Select Small Cap Portfolio, Select Government
Portfolio, Select Growth Portfolio, Select Growth and Income Portfolio, Select
Mid Cap Portfolio, 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, S&P Index Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Multi-Sector Fixed
Income Investments, Multi-Strategy Market Neutral 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 Inc., 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 Premier Selections Fund, Smith Barney Small Cap Value Fund, Smith Barney
Small Cap Growth 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 EAFE Index Fund, Smith Barney US 5000 Index
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,
National Portfolio, Massachusetts Money Market 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
Financial Services Fund, Smith Barney Health Sciences Fund, Smith Barney
Technology Fund, 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
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio, Smith
Aggressive Growth Portfolio, Smith Mid Cap Portfolio, Alliance Growth Portfolio,
INVESCO 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, Travelers Managed Income
Portfolio, Van Kampen Enterprise Portfolio, Centurion U.S. Equity Fund,
Centurion International Equity Fund, Centurion U.S. Contra Fund, Centurion
International Contra 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 International Equity Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Large Cap Growth Fund, Salomon Brothers Balanced
Fund, Salomon Brothers Asia Growth Fund, Salomon Brothers Capital Fund Inc,
Salomon Brothers Investors Value 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, Salomon Brothers Variable Asia Growth Fund, and Salomon Brothers Variable
Small Cap 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
(subadministrator 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
(manager) New York, NY 10043
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 28th day of February, 2000.
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 28, 2000.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
---------------------- Officer and Trustee
Philip W. Coolidge
Linwood C. Downs Principal Financial Officer and Principal
---------------------- Accounting Officer
Linwood C. Downs
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
*By: Philip W. Coolidge
----------------------
Philip W. Coolidge
Executed by Philip W. Coolidge
on behalf of those indicated
pursuant to
Powers of Attorney.
<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 28th day of February, 2000.
ASSET ALLOCATION PORTFOLIOS
on behalf of Large Cap Value Portfolio and
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 28, 2000.
Signature Title
--------- -----
Philip W. Coolidge* President, Principal Executive
---------------------- Officer and Trustee
Philip W. Coolidge
Linwood C. Downs* Principal Financial Officer and Principal
---------------------- Accounting Officer
Linwood C. Downs
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
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 28th day of February, 2000.
THE PREMIUM PORTFOLIOS
on behalf of 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 28, 2000.
Signature Title
--------- -----
Philip W. Coolidge* President, Principal Executive
---------------------- Officer and Trustee
Philip W. Coolidge
Linwood C. Downs* Principal Financial Officer and Principal
---------------------- Accounting Officer
Linwood C. Downs
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
j Independent Auditors' Consent
p(3) Power of Attorney for The Premium Portfolios
<PAGE>
Exhibit j
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 31 to the registration statement on Form N1-A (the "Registration
Statement") of CitiFunds Trust II of our report dated December 14, 1999,
relating to the financial statements and financial highlights appearing in the
October 31, 1999 Annual Report of CitiFunds Large Cap Growth Portfolio,
CitiFunds Small Cap Growth Portfolio, CitiFunds Small Cap Value Portfolio,
CitiFunds Growth & Income Portfolio, which financial statements and financial
highlights are also incorporated by reference into the Registration Statement.
We also consent to the reference to us under the heading "Financial Highlights"
in the Prospectuses and under the headings "Auditors" and "Financial Statements"
in the Statements of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 25, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statements of
Additional Information constituting part of this Post-Effective Amendment No. 31
to the registration statement on Form N1-A (the "Registration Statement") of
CitiFunds Trust II of our report dated December 14, 1999, relating to the
financial statements and financial highlights of the Large Cap Growth Portfolio,
Large Cap Value Portfolio, Small Cap Growth Portfolio, and Small Cap Value
Portfolio appearing in the October 31, 1999 Annual Report of CitiFunds Large Cap
Growth Portfolio, CitiFunds Growth & Income Portfolio, CitiFunds Small Cap
Growth Portfolio, and CitiFunds Small Cap Value Portfolio, 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 Statements of Additional Information.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
February 25, 2000
<PAGE>
Exhibit p(3)
THE PREMIUM PORTFOLIOS
The undersigned hereby constitutes and appoints Philip W. Coolidge, Susan
Jakuboski, Tamie Ebanks-Cunningham, 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 The Premium Portfolios (on behalf of each of its series now existing or
hereinafter created) (the "Registrant") with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, the
Registration Statements on Form N-1A, and any and all amendments thereto, to be
executed by the Registrant and filed by another registrant with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended, or
under the Securities Act of 1933, 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 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 28th day
of December, 1999.
Linwood C. Downs
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Linwood C. Downs
