As filed with the Securities and Exchange Commission on December 21, 1998
File Nos. 33-6540
811-5033
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 28
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 29
CITIFUNDS FIXED INCOME TRUST*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on March 1, 1999,
pursuant to paragraph (a)(1) of Rule 485.
The Premium Portfolios, on behalf of U.S. Fixed Income Portfolio, has also
executed this registration statement.
___________________________________________________________________________
* This filing relates solely to shares of the Trust's series CitiFunds
Intermediate Income Portfolio.
<PAGE>
Prospectus
CITIFUNDSSM INTERMEDIATE 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.
March 1, 1999
<PAGE>
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
TABLE OF CONTENTS
The Fund at a Glance
Your CitiFunds Account
Choosing a Share Class
How to Buy Shares
How the Price of Your Shares is Calculated
Reinstating Recently Sold Shares
How to Sell Shares
Exchanges
Dividends
Tax Matters
Management of the Fund
Manager
Management Fees
More About the Fund
Principal Investment Strategies
Risks
Financial Highlights
Appendix
<PAGE>
THE FUND AT A GLANCE
THIS SUMMARY BRIEFLY DESCRIBES INTERMEDIATE INCOME PORTFOLIO AND THE PRINCIPAL
RISKS OF INVESTING IN IT. FOR MORE INFORMATION, SEE "MORE ABOUT THE FUND" ON
PAGE _____.
FUND GOALS
The Fund's goals are to generate a high level of current income and preserve
the value of its shareholders' investment. Of course, there is no assurance
that the Fund will achieve its goals.
MAIN INVESTMENT STRATEGIES
Intermediate Income Portfolio invests in a broad range of fixed income
securities. Under normal circumstances, the Fund invests at least 65% of its
total assets in fixed income securities. However, the Fund expects that in
general substantially all of its assets will be invested in fixed income
securities. The Fund's fixed income securities include:
o debt securities of U.S. and foreign companies, such as bonds,
short-term notes and mortgage-backed and asset-backed securities
(including collateralized mortgage obligations, or CMOs);
o U.S. government securities, such as U.S. Treasury bills, notes and
bonds, and obligations issued or guaranteed by U.S. government
agencies or instrumentalities;
o debt securities of foreign governments; and
o preferred stock of U.S. and foreign companies.
The Fund may invest up to 20% of its assets in foreign securities, including
securities of issuers in developing countries, and generally purchases U.S.
dollar denominated foreign securities. The Fund may invest up to 15% of its
assets in zero coupon obligations that pay no current interest.
Under normal market conditions, the Fund's dollar weighted average portfolio
maturity is from three to ten years.
The Fund's debt securities issued by U.S. companies must be investment grade
when the Fund purchases them. Investment grade securities are those rated Baa
or better by Moody's, BBB or better by Standard & Poor's, or which Citibank
believes to be of comparable quality.
The Fund may 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 may 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.
<PAGE>
These derivatives include futures, options and forward foreign currency
exchange contracts. The Fund's ability to use derivatives successfully depends
on a number of factors, including derivatives being available at prices that
are not too costly, tax considerations, and Citibank accurately predicting
movements in stock prices.
MAIN RISKS
The principal risks of investing in the Intermediate Income Portfolio are
described below. See page ___ for more information about risks.
o MARKET RISK. This is the risk that the prices of securities will
rise or fall due to changing economic, political or market
conditions, or due to a company's individual situation. The value of
the 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 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 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, currency exchange controls and other
limitations on the use or transfer of Fund assets 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 PREPAYMENT RISK. The issuers of debt securities held by the Fund may
be able to prepay principal due on the securities, particularly
during periods of declining interest rates. The Fund may not be able
to reinvest that principal at attractive rates, reducing income to
the Fund. 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
<PAGE>
more sensitive to interest rate changes and the Fund's share price
more volatile. Mortgage-backed securities are particularly
susceptible to prepayment risk and their prices may be volatile.
o ZERO COUPON OBLIGATIONS. Zero coupon obligations pay no current
interest. As a result, their prices tend to be more volatile than
those of securities that offer regular payments of interest. This
makes the Fund's share price more volatile. In order to pay cash
distributions representing income on zero coupon obligations, the
Fund may have to sell other securities on unfavorable terms. These
sales may generate taxable gains for Fund investors.
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 a number of
factors, including Citibank's ability to accurately predict interest
rate, currency exchange rate and other market movements. If
Citibank's predictions are wrong, the Fund could suffer greater
losses than if the Fund had not used derivatives.
Please note that an investment in the Fund is not a deposit of Citibank and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in Intermediate Income Portfolio is
not a complete investment program.
You should consider investing in Intermediate Income Portfolio if:
o You're seeking higher current income than is available from money
market instruments, and you are willing to accept the greater share
price fluctuations associated with higher income.
o Your investment horizon is at least intermediate term--typically
three years or longer.
Don't invest in Intermediate Income Portfolio if:
o Growth of principal is more important to you than current income.
o You are not prepared to accept daily share price or income
fluctuations.
o Your investment horizon is shorter term (less than three years).
FUND PERFORMANCE
The following bar chart and table can help you evaluate the risks of investing
in the Fund, and how its returns have varied over time.
<PAGE>
o The bar chart shows changes in the Fund's performance from year to year
over the last five calendar years. The chart and related information do not
take into account any sales charges that you may be required to pay. Any
sales charges will reduce your return.
o The table 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 indexes do not include the costs
of buying and selling securities and other Fund expenses.
o In both the chart and table, the returns shown for the Fund are for periods
before the creation of share classes on January 4, 1999. All existing Fund
shares were designated Class A shares on that date. Prior to that date,
there were no sales charges on the purchase or sale of Fund shares. The
returns for Class A in the table, but not the bar chart, have been adjusted
to reflect the maximum front-end sales charge currently applicable to the
Class A shares.
o The Class B shares are newly offered and have no investment history. Class
B performance would have been lower than that shown for Class A shares,
because of higher fund expenses and the effects of the contingent deferred
sales charge.
When you consider this information, please remember that the Fund's past
performance is not necessarily an indication of how it will perform in the
future. For current yield information, please call 800-625-4554 toll free, or
contact your account representative.
TOTAL RETURN (per calendar year - Class A)
1994 1995 1996 1997 1998
[bar chart -- for calendar years 1994
through 1998]
1994 . . . . . . . . . . . . . . . . -4.48%
1995 . . . . . . . . . . . . . . . . 16.45%
1996 . . . . . . . . . . . . . . . . 2.73%
1997 . . . . . . . . . . . . . . . . 8.87%
1998 . . . . . . . . . . . . . . . .
- --------------------------------------------------
HIGHEST AND LOWEST RETURNS
(for calendar quarters covered by the bar chart)
- --------------------------------------------------
Quarter Ending
- --------------------------------------------------
Highest [6.49%] [June 30, 1995]
- --------------------------------------------------
Lowest [-3.21%] [March 31, 1994]
- --------------------------------------------------
<PAGE>
- --------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 1998)
- --------------------------------------------------
1 Year 5 years Life of Fund
(since
6/25/93)
- --------------------------------------------------
Class A
_____ % ____ % _____%
- --------------------------------------------------
Class B
N/A N/A N/A
- --------------------------------------------------
Lehman
Aggregate _____ % ____ % _____%
Bond Index
- --------------------------------------------------
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A CLASS B
Class descriptions begin on page [---]
SHAREHOLDER FEES (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.50% None
Maximum Deferred Sales Charge (Load) None(1) 4.50%(2)
ANNUAL FUND OPERATING EXPENSES (expenses that are
deducted from Fund assets)(3):
Management Fees 0.70% 0.70%
Distribution (12b-1) Fees 0.25% 0.75%
Other Expenses (administrative and 0.38% 0.38%
other expenses)
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.33% 1.83%
- ---------------------------------------------------------------------------------------------
*Because some of the Fund's expenses were waived or reimbursed, actual total operating
expenses for the prior year were (or, in the case of Class B shares, would have been):
0.90% 1.40%
</TABLE>
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 4.50% of the price at which you purchased your shares, or
the price at which you sold your shares, whichever is less, declining to 1.00%
in the fifth year after purchase.
3 The Fund invests in an underlying mutual fund. This table reflects the
expenses of the Fund and the underlying fund in which it invests.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you own
Class A shares.
If you own Class B shares, two numbers are given, one showing your expenses if
you sold all your shares at the end of each time period and one if you held
onto your shares. The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year--the assumption of a 5% return
is required by the SEC for the purpose of this example and is not a
prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the table above remain the same
before taking into consideration any fee waivers or reimbursements.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------
Class A $135 $421 $729 $1,601
Class B
Assuming sale at end of period $636 $876 $1,090 $1,909
Assuming no sale $136 $576 $990 $1,909
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
CLASS A AT A GLANCE: CLASS B AT A GLANCE:
o Front-end load--there is an initial sales o No initial sales charge
charge of 4.50% or less
o Lower sales charge rates for larger o The deferred sales charge declines
investments from 4.50% to 1% over five years, and
is eliminated if you hold your shares
for six years or more
o Annual distribution/service fee of up to o Annual distribution/service fee of up
0.25% to 0.75%
o Lower annual expenses than Class B shares o Automatic conversion to Class A
shares after 8 years
</TABLE>
- -------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/SERVICE FEES that are
paid under a 12B-1 PLAN. These are fees, also called 12B-1 FEES, that are
deducted from Fund assets and are used to compensate those financial
professionals who sell fund shares and provide ongoing services to shareholders
and to pay other marketing and advertising expenses. Because you pay these fees
during the whole period that you own the shares, over time, you may pay more
than if you had paid other types of sales charges. For this reason, you should
consider the effects of 12b-1 fees as well as sales loads when choosing a share
class.
- -------------------------------------------------------------------------------
SALES CHARGES--CLASS A SHARES
o Class A shares are sold at net asset value plus a front-end, or
initial, sales charge. The rate you pay goes down as the amount of
your investment in Class A shares goes up. The chart below shows the
rate of sales charge that you pay, depending on the amount that you
purchase.
o The chart below also shows the amount of broker/dealer compensation
that is paid out of the sales charge. This compensation includes
commissions and other fees that financial professionals who sell
shares of the Fund receive. The distributor keeps up to
approximately 10% of the sales charge imposed on Class A shares.
Financial professionals that sell Class A shares will also receive
the service fee payable on Class A shares at an annual rate equal to
0.25% of the average daily net assets represented by the Class A
shares sold by them.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES CHARGE SALES CHARGE BROKER/DEALER
AS A % OF AS A % OF COMMISSION AS
AMOUNT OF OFFERING YOUR A % OF OFFERING
YOUR INVESTMENT PRICE INVESTMENT PRICE
- ------------------------------------------------------------------------------------
Less than $25,000 4.50% 4.71% 4.05%
- ------------------------------------------------------------------------------------
$25,000 to less than $50,000 4.00% 4.16% 3.60%
- ------------------------------------------------------------------------------------
$50,000 to less than $100,000 3.50% 3.59% 3.15%
- ------------------------------------------------------------------------------------
$100,000 to less than $250,000 2.50% 2.56% 2.25%
- ------------------------------------------------------------------------------------
$250,000 to less than $500,000 1.50% 1.52% 1.35%
- ------------------------------------------------------------------------------------
$500,000 or more none* none* up to 1.00%
- ------------------------------------------------------------------------------------
</TABLE>
*A contingent deferred sales charge may apply in certain
instances. See below.
o After the initial sales charge is deducted from your investment, the
balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain circumstances, as
described in "Sales Charge Waivers or Reductions" below. If you qualify to
purchase Class A shares without a sales load, you should purchase Class A
shares rather than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in 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.
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 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 4.50%
- ---------------------------------------------------------------------------
2nd year since purchase 4.00%
- ---------------------------------------------------------------------------
3rd year since purchase 3.00%
- ---------------------------------------------------------------------------
4th year since purchase 2.00%
- ---------------------------------------------------------------------------
5th year since purchase 1.00%
- ---------------------------------------------------------------------------
6th year(or later) since purchase None
- ---------------------------------------------------------------------------
o Financial professionals selling Class B shares receive a commission of
4.00% of the purchase price of the Class B shares that they sell, except
sales exempt from the CDSC. Financial professionals also receive a service
fee at an annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares that they have sold.
<PAGE>
o When you sell your shares, the CDSC will be based on either your purchase
price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of dividends,
capital gain distributions and shares representing capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will always use
the Class B shares with the lowest CDSC to fill your sell requests.
o If you acquired your Class B shares through an exchange from another fund
managed or advised by Citibank, the date of your initial investment will be
used as the basis of the CDSC calculations. If the rate of CDSC on the
shares exchanged was higher than the rate of CDSC on your Fund shares, you
will be charged the higher rate when you sell your Fund shares.
From time to time, the distributor or Citibank may provide additional
promotional bonuses, incentives or payments to dealers that sell shares of the
Fund. These may include payments for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and their guests to locations within and outside the United States for meetings
or seminars of a business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all classes of
shares.
The Fund's distributor may make payments for distribution and/or shareholder
servicing activities out of its past profits and other available sources. The
distributor may also make payments for marketing, promotional or related
expenses to dealers. The amount of these payments are determined by the
distributor and may vary. Citibank may make similar payments under similar
arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you qualify for
certain waivers or elect to participate in certain programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers, including certain
tax-exempt organizations, certain employee benefit plans, certain entities
or persons with a qualifying affiliation or relationship with Citibank,
and, under certain circumstances, investors using the proceeds of a
redemption from another mutual fund for their purchase of Class A shares.
Further information about eligible purchasers may be found in the Appendix
to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other retirement
accounts.
<PAGE>
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 financial professional.
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 Intermediate Income Portfolio are offered continuously and purchases
may be made Monday through Friday, except on certain holidays. Shares may be
purchased from the Fund's distributor or a broker-dealer or financial
institution (called a Service Agent) that has entered into a service agreement
with the distributor concerning the Fund. Please specify whether you are
purchasing Class A or Class B shares. If you fail to specify, Class A shares
will be purchased for your account. The Fund and the distributor have the right
to reject any purchase order or cease offering Fund shares at any time.
Shares are purchased at net asset value (NAV) the next time it is calculated
after your order is received and accepted by the Fund's transfer agent. NAV is
the value of a single share of the Fund. If you are purchasing Class A shares,
the applicable sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for Fund shares until
it receives the purchase price in federal or other immediately available funds.
If you pay by check, the Service Agent transmits the order when the check
clears, usually within two business days.
If you are a customer of a Service Agent, your Service Agent will establish and
maintain your account and be the shareholder of record.
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 normally made at 4:00 p.m. Eastern time. NAV is
calculated separately for each class of shares. NAV may be higher for Class A
shares because Class A shares bear lower expenses. On days when the financial
markets in which the Fund invests close early, NAV will be calculated as of the
close of those markets.
Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. 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
<PAGE>
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 without a sales charge.
The price will be the NAV the next time it is calculated after your redemption
request in proper form has been received by the Fund's transfer agent. If your
shares are subject to a CDSC, the applicable charge will be deducted from your
sale proceeds.
You may make redemption requests in writing through the Fund's transfer agent
or, if you are a customer of a Service Agent, through your Service Agent. If
your account application permits, you may also make redemption requests by
calling the Fund's transfer agent or, if you are a customer of a Service Agent,
your Service Agent. Each Service Agent is responsible for promptly submitting
redemption requests to the Fund's transfer agent. You are responsible for
making sure your redemption request is in proper form.
If you own both Class A and Class B shares, and want to sell shares, you should
specify which class of shares you wish to sell. If you fail to specify, Class A
shares will be redeemed first.
When you sell your Class B shares, they will be redeemed so as to minimize your
CDSC. Shares on which the CDSC is not payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds normally on the
business day after you sell your shares but generally within seven days. Your
redemption proceeds may be delayed for up to ten days if your purchase was made
by check. Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock Exchange is closed
(other than on weekends or holidays) or trading is restricted, or if an
emergency exists. The Fund has the right to pay your redemption proceeds by
giving you securities instead of cash. In that case, you may incur costs (such
as brokerage commissions) converting the securities into cash. You should be
aware that you may have to pay taxes on your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund permits you to
repurchase Class A shares in the Fund, up to the dollar amount of shares
redeemed, without paying any sales charges. To take advantage of this
reinstatement privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
<PAGE>
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 contingent deferred sales charge. You may not exchange
Class B shares for shares of CitiFunds that offer only a single class of
shares. You may also acquire Fund shares through an exchange from another fund
managed by Citibank. You may place exchange orders through the transfer agent
or, if you are a customer of a Service Agent, through your Service Agent. You
may place exchange orders by telephone if your account applications permits.
The transfer agent or your Service Agent can provide you with more information,
including a prospectus for any fund that may be acquired through an exchange.
The exchange will be based on the relative NAVs of both funds when they are
next determined after your order is accepted by the Fund's transfer agent. 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. When you exchange your Class B
shares, you will not pay any initial sales charge, and no CDSC is imposed when
your Class B shares are exchanged for Class B shares of certain other CitiFunds
that are made available by your Service Agent. However, you may be required to
pay a contingent deferred sales charge when you sell those shares. The length
of time that you owned Fund shares will be included in the holding period of
your new Class B shares.
The exchange privilege may be changed or terminated at any time. You should be
aware that you may have to pay taxes on your exchange.
DIVIDENDS
The Fund pays substantially all of its net income (if any) from dividends and
interest to its shareholders of record as a dividend monthly.
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.
<PAGE>
TAX MATTERS
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation, and the status of your
account under state and local laws.
Shareholders are required to pay federal income tax on any dividends or other
distributions received, whether it is in cash or Fund shares. Generally,
distributions from a Fund's net investment income and short-term capital gains
will be taxed as ordinary income. A portion of distributions from net
investment income may be eligible for the dividends-received deduction
available to corporations. Distributions from long-term net capital gains will,
for tax purposes, be treated as long-term capital gains no matter how long you
have held the shares of the Fund. The tax you pay on a given capital gains
distribution generally depends on how long the Fund has held the portfolio
securities it sold, and not on how long you have held your Fund shares.
Fund distributions will reduce the Fund's net asset value per share. As a
result, shareholders who buy shares just before the Fund makes a distribution
may pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
If you sell your shares of the Fund, or exchange them for shares of another
mutual fund, you generally will be subject to tax on any taxable gain. Your
taxable gain is computed by subtracting your tax basis in the shares from the
redemption proceeds (in the case of a sale) or the value of the shares received
(in the case of an exchange).
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided complete, correct taxpayer information.
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 that are made to persons who are not citizens or
residents of the United States. Fund distributions received by non-U.S. persons
also may be subject to tax under the laws of their own jurisdictions.
MANAGEMENT OF THE FUND
MANAGER
Intermediate Income Portfolio draws on the strength and experience of Citibank.
Citibank is the investment manager of the Fund, and subject to policies set by
the Fund's Trustees, Citibank makes investment decisions. Citibank, with
headquarters at 153 East 53rd Street, New York, New York, has been managing
money since 1822. With its affiliates, it currently manages more than $290
billion in assets worldwide. Citibank is a wholly-owned subsidiary of Citicorp,
which is, in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc.
was formed as a result of the merger of Citicorp and Travelers Group, Inc.,
which was completed on October 8, 1998. "CitiFunds" is a service mark of
Citicorp.
Citibank and its affiliates may have banking (including investment banking)
relationships with the issuers of securities that are held in the Fund.
<PAGE>
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.
Mark Lindbloom, a Vice President of Citibank, has been responsible for the
daily management of the Fund's securities since June 1993, and has been a
portfolio manager for fixed income securities since joining Citibank in 1986.
Mr. Lindbloom has more than 19 years of investment management experience. Prior
to joining Citibank, Mr. Lindbloom was a Fixed Income Portfolio Manager with
Brown Brothers Harriman & Co., where he managed fixed income assets for
discretionary corporate portfolios.
MANAGEMENT FEES
For the management services Citibank provided the Fund and its underlying
mutual fund, for the Fund's fiscal year ended October 31, 1998 Citibank
received a total of 0.20% of the Fund's average daily net assets, after
waivers.
MORE ABOUT THE FUND
The Fund's goals, principal investments and risks are summarized in "The Fund
at a Glance" on page ____. More information on investments, investment
strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
The Fund's principal investment strategies are the strategies that, in the
opinion of Citibank, are most likely to achieve the Fund's investment goals. Of
course, there can be no assurance that the Fund will achieve its goals. Please
note that the Fund may also use strategies and invest in securities that are
not described below but that are described in the Statement of Additional
Information. Of course, Citibank may decide, as a matter of investment
strategy, not to use the investments and investment techniques described below
and in the Statement of Additional Information at any particular time. The
Fund's goals and strategies may be changed without shareholder approval.
Under normal circumstances, the Fund invests at least 65% of its total assets
in fixed income securities. However, the Fund expects that, in general,
substantially all of its assets will be invested in fixed income securities.
- -------------------------------------------------------------------------------
WHAT ARE FIXED INCOME SECURITIES?
FIXED INCOME SECURITIES generally represent a debt obligation of an issuer, and
include BONDS, SHORT-TERM OBLIGATIONS and MORTGAGE-BACKED and ASSET-BACKED
SECURITIES and PREFERRED STOCK. Fixed income securities, in general, offer a
fixed stream of cash flow. Most bond investments focus on generating income.
The potential for capital appreciation is a secondary objective. The value of
fixed income securities generally goes up when interest rates go down, and down
when rates go up. The value of these securities also fluctuates based on other
market and credit factors.
- -------------------------------------------------------------------------------
<PAGE>
The Fund's fixed income securities include:
o debt securities of U.S. and foreign companies, such as bonds,
short-term notes and mortgage-backed and asset-backed securities
(including collateralized mortgage obligations or CMOs);
o U.S. government securities, such as U.S. Treasury bills, notes and
bonds, and obligations issued or guaranteed by U.S. government
agencies or instrumentalities;
o debt securities of foreign governments; and
o preferred stock of U.S. and foreign companies.
The Fund may invest up to 20% of its assets in foreign securities, including
securities of issuers in developing countries, and generally purchases U.S.
dollar denominated foreign securities.
- -------------------------------------------------------------------------------
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 are sometimes called collateralized mortgage
obligations, or CMOs.
- -------------------------------------------------------------------------------
The Fund's mortgage-backed securities may be 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. See "Risks" below for more
information.
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 U.S. government securities in which the Fund may invest include U.S.
Treasury bills, notes and bonds, and obligations issued or guaranteed by U.S.
government agencies or instrumentalities. Securities issued by U.S. government
agencies or instrumentalities may or may not be backed by the full faith and
credit of the U.S. government. U.S. government securities have minimal credit
risk, but they still fluctuate in value when interest rates or currency
exchange rates change.
Securities issued or guaranteed as to principal and interest by foreign
governments or agencies or instrumentalities of foreign governments (which
include securities of supranational agencies) also may provide opportunities
<PAGE>
for income with minimal credit risk. As with U.S. government securities,
however, they still fluctuate in value when interest rates change.
The Fund may invest up to 15% of its assets 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.
The Fund's debt securities issued by U.S. companies 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. Securities rated Baa or BBB and
securities of comparable quality may have speculative characteristics. Also,
changes in economic or market conditions or the issuers' circumstances are more
likely to adversely affect the issuers' ability to make payments on the
securities than is the case for higher rated securities. If the credit quality
of a security deteriorates after the Fund buys it, Citibank will decide whether
the security should be held or sold.
Under normal market conditions, the Fund's dollar weighted average portfolio
maturity is from three to ten years. Citibank determines the average maturity
of mortgage-backed and asset-backed securities based on its expectations of
prepayments of these securities. Actual prepayments will vary depending on
changes in interest rates. The Fund's average maturity may deviate from its
normal range as a result of actual or expected prepayments. The Fund will not
consider such a deviation a violation of investment policy.
The Fund may enter into "dollar rolls" where it sells mortgage-backed
securities and simultaneously agrees to repurchase substantially similar
securities on a specified future date. The Fund's dollar rolls are "covered,"
meaning that the Fund establishes a segregated account with liquid high grade
debt securities equal in value to the securities it will repurchase.
The Fund may hold cash pending investment, and may invest in money market
instruments, repurchase agreements and reverse repurchase agreements for cash
management purposes.
See "Risks" for more information about the risks associated with investing in
fixed income securities.
DERIVATIVES. The Fund may use derivatives in order to protect (or "hedge")
against declines in the value of securities held by the Fund or increases in
the cost of securities to be purchased in the future, 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 bond index futures, foreign
currency futures, forwards and exchange contracts, options on securities and
foreign currencies, options on interest rate futures and swaps. 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 derivatives
may be illiquid, and the Fund may bear more counterparty risk. Derivatives may
not be available on terms that make economic sense (they may be too costly).
The Fund's ability to use derivatives may also be limited by tax
considerations.
<PAGE>
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 goals.
INVESTMENT STRUCTURE. The Fund invests in securities through an underlying
mutual fund having the same investment goals and strategies. The Fund may stop
investing in its underlying mutual fund at any time, and will do so if the
Fund's Trustees believe that to be in the best interests of the Fund's
shareholders. The Fund could then invest in another mutual fund or pooled
investment vehicle or invest directly in securities.
MANAGEMENT STYLE. Managers of mutual funds use different styles when managing
portfolios. Portfolio managers for Citibank generally use a "top-down" approach
when establishing duration and sector allocation and a "bottom-up" approach
when selecting securities to purchase or sell for the Fund. When using a
"top-down" approach the portfolio manager looks first at broad economic factors
and market conditions. Security selection combines fundamental credit analysis
with relative value decisions. Portfolio managers, working from an approved
list of issuers, compare the yield advantage of an issue to other issues in its
peer group. For more information, see "Manager" on page _____.
Citibank may use brokers or dealers for Fund transactions who also provide
brokerage and research services to the Fund or other accounts over which
Citibank exercises investment discretion. The Fund may "pay up" for brokerage
services, meaning that it is authorized to pay a broker or dealer who provides
these brokerage and research services a commission for executing a portfolio
transaction which is higher than the commission another broker or dealer would
have charged. However, the Fund will "pay up" only if Citibank determines in
good faith that the higher commission is reasonable in relation to the
brokerage and research services provided, viewed in terms of either the
particular transaction or all of the accounts over which Citibank exercises
investment discretion.
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 broker or
dealers when it buys and sells securities. The "Financial Highlights" section
of this prospectus shows the Fund's historical portfolio turnover rate.
RISKS
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Certain of these risks are described below. More
information about risks appears in the Fund's Statement of Additional
Information. The Fund is designed for investors who seek higher current income
than is generally available from short-term securities and who are willing to
accept the greater share price fluctuations associated with higher income.
Remember that you may receive little or no return on your investment in the
Fund. You may lose money if you invest in this Fund.
<PAGE>
Please remember that an investment in the Fund is not a deposit of Citibank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
individual situation. The value of the Fund's shares will change daily as the
value of its underlying securities change. This means that your shares of the
Fund may be worth more or less when you sell them than when you bought them.
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. Some issuers may not make payments on debt securities held by the
Fund. 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.
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
<PAGE>
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.
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.
These markets often have provided higher rates of return, and
greater risks, to investors.
PREPAYMENT RISK. The issuers of debt securities held by the Fund may be able to
prepay principal due on the securities, particularly during periods of
declining interest rates. The Fund may not be able to reinvest that principal
at attractive rates, reducing income to the Fund. 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. Prepayment risk is a major risk of mortgage-backed securities, but it
affects other fixed income securities too.
ZERO COUPON OBLIGATIONS. Zero coupon obligations pay no current interest. As a
result, their prices tend to be more volatile than those of securities that
offer regular payments of interest. This makes the Fund's share price more
volatile. In order to pay cash distributions representing income on zero coupon
obligations, the Fund may have to sell other securities on unfavorable terms.
These sales may generate taxable gains for Fund investors.
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 interest rates, currency exchange rates and other
market movements. If Citibank's predictions are wrong, the Fund could suffer
greater losses than if the Fund had not used derivatives.
YEAR 2000. The Fund could be adversely affected if the computer systems used by
the Fund or its service providers are not programmed to accurately process
information on or after January 1, 2000. The Fund, and its service providers,
are making efforts to resolve any potential Year 2000 problems. While it is
<PAGE>
likely these efforts will be successful, the failure to implement any necessary
modifications could have an adverse impact on the Fund. The Fund also could be
adversely affected if the issuers of securities held by the Fund do not solve
their Year 2000 problems, or if it costs them large amounts of money to solve
these problems.
<PAGE>
FINANCIAL HIGHLIGHTS
This table is intended to help you understand the Fund's performance and other
financial information for the fiscal periods indicated. "Total return" shows
how much your investment in the Fund would have increased or decreased during
each period, assuming you had reinvested all dividends and distributions. These
financial statements and notes have been audited by PricewaterhouseCoopers LLP,
independent accountants for the Fund, whose report is included in the Fund's
Annual Report.
<PAGE>
Appendix
CLASS A SHARES - ELIGIBLE PURCHASERS:
Class A shares may be purchased without a sales charge by the following
eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of
the Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary
or affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or
affiliate of Citibank performs investment advisory
services or charges fees for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors or trustees (and their immediate
families), of any investment company for which Citibank
or any subsidiary or affiliate of Citibank serves as the
investment adviser or as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and
its affiliates or any Service Agent and its affiliates
(including immediate families of any of the foregoing),
and retired employees of Citibank and its affiliates or
CFBDS and its affiliates (including immediate families of
any of the foregoing)
[] investors participating in a fee-based arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers
Fund shares as an investment option based on an
investor's balances in selected Citigroup Inc. products
and services
[] employees of members of the National Association of
Securities Dealers, Inc., provided that such sales are
made upon the assurance of the purchaser that the
purchase is made for investment purposes and that the
securities will not be resold except through redemption
or repurchase
[] separate accounts used to fund certain unregistered
variable annuity contracts
[] direct rollovers by plan participants from a 401(k) plan
offered to Citigroup employees
[] shareholder accounts established through a reorganization
or similar form of business combination approved by the
Fund's Board of Trustees or by the Board of Trustees of
any other CitiFund or mutual fund managed or advised by
Citibank (all of such funds being referred to herein as
CitiFunds) the terms of which entitle those shareholders
to purchase shares of the Fund or any other CitiFund at
net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of
the Internal Revenue Code with accounts outstanding on
January 4, 1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to
minimum requirements as may be established by CFBDS with
respect to the amount of purchase; currently, the amount
invested by the qualified plan in the Fund or in any
combination of CitiFunds must total a minimum of $1
million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be
imposed on the investments in the event of certain share
redemptions within 12 months following the share
purchase, at the rate of 1% of the lesser of the value of
the shares redeemed (not including reinvested dividends
and capital gains distributions) or the total cost of the
shares; the contingent deferred sales charge on Class A
shares will be waived under the same circumstances as the
contingent deferred sales charge on Class B shares will
be waived; in determining whether a contingent deferred
sales charge on Class A shares is payable, and if so, the
amount of the charge:
+ 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
<PAGE>
[] 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 the 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
<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 performance.
To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call toll-free 1-800-625-4554.
The SAI is also available from the Securities and Exchange Commission. You can
find it on the SEC Internet site at http://www.sec.gov. Information about the
Fund (including the SAI) can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
SEC file number: 811-5033
<PAGE>
Statement of
Additional Information
March 1, 1999
CITIFUNDSSM INTERMEDIATE INCOME PORTFOLIO
CitiFunds Fixed Income 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 June 23, 1986. The Trust offers shares of
CitiFundsSM Intermediate Income Portfolio (the "Fund"), to which this Statement
of Additional information relates, as well as shares of one other active
series. The address and telephone number of the Trust are 21 Milk Street,
Boston, Massachusetts 02109, (617) 423-1679. The Fund is permitted to invest
all or a portion of its assets in one or more other investment companies.
Currently, the Fund invests all of its investable assets in U.S. Fixed Income
Portfolio (the "Portfolio"), which is a series of The Premium Portfolios (the
"Portfolio Trust"). The address of the Portfolio Trust is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
TABLE OF CONTENTS PAGE
1. The Trust........................................................... __
2. Investment Objectives and Policies; Special Information Concerning
Investment Structure................................................ __
3. Description of Permitted Investments and Investment Practices....... __
4. Investment Restrictions............................................. __
5. Performance Information............................................. __
6. Determination of Net Asset Value; Valuation of Securities........... __
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs................................................ __
8. Management.......................................................... __
9. Portfolio Transactions.............................................. __
10. Description of Shares, Voting Rights and Liabilities................ __
11. Certain Additional Tax Matters...................................... __
12. Certain Bank Regulatory Matters..................................... __
13. Financial Statements................................................ __
Appendix................................................................. __
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Fund's
Prospectus, dated March 1, 1999, by which shares of the Fund are offered. This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
calling 1-800-625-4554.
This Statement of Additional Information incorporates by reference the
financial statements described on page ___ hereof. These financial statements
can be found in the Fund's Annual Report to Shareholders, a copy of which
accompanies this Statement of Additional Information.
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 Fixed Income 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 June 23, 1986. The Trust was called
Landmark U.S. Government Income Fund until its name was changed to Landmark
Fixed Income Funds effective June 11, 1992. Effective March 2, 1998, the
Trust's name was changed to CitiFunds Fixed Income Trust. This Statement of
Additional Information describes CitiFunds Intermediate Income Portfolio (the
"Fund"), which is one of two active series of the Trust. Prior to March 2,
1998, the Fund was called Landmark Intermediate Income Fund. References in this
Statement of Additional Information to the "Prospectus" are to the Prospectus,
dated March 1, 1999, of the Fund.
The Fund is a diversified fund. The Fund is permitted to seek its
investment objective by investing all or a portion of its assets in one or more
investment companies to the extent not prohibited by the Investment Company Act
of 1940, as amended (the "1940 Act"), the rules and regulations thereunder, and
exemptive orders granted under the 1940 Act. Currently, the Fund invests all of
its investable assets in U.S. Fixed Income Portfolio. The Portfolio is a series
of The Premium Portfolios, a New York trust, and is an open-end diversified
management investment company. The Portfolio has the same investment objective
and policies as the Fund.
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.
Because the Fund invests through the Portfolio, all references in this
Statement of Additional Information to the Fund include the Portfolio, except
as otherwise noted. In addition, references to the Trust include the Portfolio
Trust, except as otherwise noted.
Citibank, N.A. ("Citibank" or the "Manager") is the Manager of the Fund
and the Portfolio. Citibank manages the investments of the Portfolio from day
to day in accordance with the Portfolio's investment objectives and policies.
The selection of investments for the Portfolio and the way they are managed
depend on the conditions and trends in the economy and the financial
marketplaces.
The Boards of Trustees of the Trust and the Portfolio Trust provide broad
supervision over the affairs of the Fund and the Portfolio, respectively.
Shares of the Fund are continuously sold by CFBDS, Inc., the Fund's distributor
("CFBDS" or the "Distributor").
2. INVESTMENT OBJECTIVES AND POLICIES;
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
The investment objectives of the Fund are to generate a high level of
current income and preserve the value of its shareholders' investment.
The investment objectives of the Fund may be changed without approval by
the Fund's shareholders, but shareholders will be given written notice at least
30 days before any change is implemented. Of course, there can be no assurance
that the Fund will achieve its investment objectives.
The 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 the Prospectus concerning
the investment, policies and techniques of the 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, the Fund does not invest directly in securities, but
instead invests all of its investable assets in the Portfolio, which has the
same investment objective and policies as the Fund. The Portfolio, in turn,
buys, holds and sells securities in accordance with this objective and these
policies. Of course, there can be no assurance that the Fund or the Portfolio
will achieve its objective. The Trustees of the Fund believe that the aggregate
per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses that the Fund would incur if the assets of
the Fund were invested directly in the types of securities held by the
Portfolio.
<PAGE>
The Trust may withdraw the investment of the Fund from the 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.
The Portfolio may change its investment objective and certain of its
investment policies and restrictions without approval by its investors, but the
Portfolio will notify the Fund (which in turn will notify its shareholders) and
its other investors at least 30 days before implementing any change in its
investment objective. A change in investment objective, policies or
restrictions may cause the Fund to withdraw its investment in the Portfolio.
Certain investment restrictions of the Portfolio described below under
"Investment Restrictions" are fundamental and cannot be changed without
approval by the investors in the Portfolio. When the Fund is asked to vote on
certain matters concerning the Portfolio, the Fund either will 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.
The Portfolio may sell interests to investors in addition to the Fund.
These investors may be mutual funds which offer shares to their shareholders
with different costs and expenses than the Fund. Therefore, the investment
return for all investors in funds investing in the 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 Portfolio is
available from the Fund's distributor, CFBDS.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
The Fund may, but need not, invest in all of the investments and utilize
any or all of the investment techniques described in the Prospectus and herein.
The selection of investments and the utilization of investment techniques
depend on, among other things, the Manager's investment strategies for the
Fund, conditions and trends in the economy and financial markets and
investments being available on terms that, in the Manager's opinion, make
economic sense.
U.S. GOVERNMENT SECURITIES
The Fund may invest in debt obligations that are backed, as to the timely
payment of interest and principal, by the full faith and credit of the U.S.
Government. The Fund may also invest in other obligations issued by agencies or
instrumentalities of the U.S. Government, some of which are supported by the
right of the issuer to borrow from the U.S. Treasury and some of which are
backed only by the credit of the issuer itself.
The debt obligations in which assets of the Fund are invested include (1)
U.S. Treasury obligations, which differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less), U.S. Treasury notes (maturities of one to 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years); and (2)
obligations issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities.
When and if available, U.S. Government obligations may be purchased at a
discount from face value. However, it is not intended that such securities will
be held to maturity for the purpose of achieving potential capital gains,
unless current yields on these securities remain attractive.
ALTHOUGH U.S. GOVERNMENT OBLIGATIONS WHICH ARE PURCHASED FOR THE FUND MAY
BE BACKED, AS TO THE TIMELY PAYMENT OF INTEREST AND PRINCIPAL, BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT, SHARES OF THE FUND ARE NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT OR ITS AGENCIES, AUTHORITIES OR
INSTRUMENTALITIES.
SECURITIES RATED BAA OR BBB
The Fund may purchase securities rated Baa by Moody's Investors Service,
Inc. or BBB by Standard & Poor's Ratings Group and securities of comparable
quality, which may have poor protection of payment of principal and interest.
These securities are often considered to be speculative and involve greater
risk of default or price changes than securities assigned a higher quality
rating due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-rated securities and may
decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. The Appendix contains a description of
these ratings.
<PAGE>
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by securities
in which the Fund may otherwise invest. Repurchase agreements are agreements by
which the Fund purchases a security and simultaneously commits to resell that
security to the seller (which is usually a member bank of the U.S. Federal
Reserve System or a member firm of the New York Stock Exchange (or a subsidiary
thereof)) at an agreed-upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed-upon market rate of interest which is unrelated to the coupon
rate or maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security, usually U.S. Government
or government agency issues. Under the 1940 Act, repurchase agreements may be
considered to be loans by the buyer. The Fund's risk is limited to the ability
of the seller to pay the agreed-upon amount on the delivery date. If the seller
defaults, the underlying security constitutes collateral for the seller's
obligation to pay although the Fund may incur certain costs in liquidating this
collateral and in certain cases may not be permitted to liquidate this
collateral. All repurchase agreements entered into by the Fund are fully
collateralized, with such collateral being marked to market daily. In the event
of the bankruptcy of the other party to a repurchase agreement, the 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
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed-upon price, date and
interest payment. When the Fund enters into reverse repurchase transactions,
securities of a dollar amount equal in value to the securities subject to the
agreement will be segregated. The segregation of assets could impair the Fund's
ability to meet its current obligations or impede investment management if a
large portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing. In the event of the bankruptcy of the
other party to a reverse repurchase agreement, the 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.
FUTURES CONTRACTS
The Fund may enter into financial futures contracts. Such futures
contracts will be used for hedging purposes and for nonhedging purposes,
subject to applicable law.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when the Fund purchases
or sells a futures contracts. At the same time such a purchase or sale is made,
the Fund must provide cash or securities as a deposit ("initial deposit") known
as "margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant
to such a contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate than the
specific security that provides the standard for the contract. In some (but not
many) cases, securities called for by a futures contract may not have been
issued when the contract was entered into.
The Fund may purchase or sell futures contracts to attempt to protect
itself from fluctuations in interest rates, or to manage the effective maturity
or duration of the Fund's portfolio in an effort to reduce potential losses or
enhance potential gain, without actually buying or selling debt securities. For
<PAGE>
example, if interest rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as if the Fund sold bonds that it owned, or as if the Fund sold
longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Fund's debt securities would decline, but the value
of the futures contracts would increase, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with longer
maturities and investing in bonds with shorter maturities. However, by using
futures contracts, the Fund avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, the Fund
might enter into futures contracts for the purchase of debt securities. Such a
transaction 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 the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if the Fund
sells a futures contract to protect against losses in the debt securities held
by the Fund), at the same time the futures contracts limit any potential gain
which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Fund's securities. If
the security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by gains
on the Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where the Fund enters into futures transactions other than for hedging
purposes, the effectiveness of its strategy may be affected by lack of
correlation between changes in the value of the futures contracts and changes
in value of the securities which the Fund would otherwise buy or sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contracts was originally entered into. While the Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing
variation margin requirements. The inability to close out futures positions
also could have an adverse impact on the ability effectively to use futures
transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. The trading of futures contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
Manager's investment judgment about the general direction of interest rates 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
Fund hedged against the possibility of an increase in interest rates which
would adversely affect the price of the Fund's bonds and interest rates
decrease instead, part or all of the benefit of the increased value of the
Fund's bonds which were hedged will be lost because the Fund will have
offsetting losses in its futures positions. Similarly, if the Fund purchases
futures contracts expecting a decrease in interest rates and interest rates
instead increased, the Fund will have losses in its futures positions which
will increase the amount of the losses on the securities in its portfolio which
<PAGE>
will also decline in value because of the increase in interest rates. In
addition, in such situations, if the Fund has insufficient cash, the Fund may
have to sell bonds from its investments to meet daily variation margin
requirements, possibly at a time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has established
a number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Manager
does not believe that these trading and position limits would have an adverse
impact on the Fund's strategies involving futures.
CFTC regulations require compliance with certain limitations in order to
assure that the Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit the Fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions)
if, immediately thereafter, the sum of the amount of initial margin required to
establish the Fund's non-hedging futures positions would exceed 5% of the
Fund's net assets.
The Fund will comply with this CFTC requirement, and the Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by the Fund in a segregated
account so that the amount so segregated, plus the applicable margin held on
deposit, will be approximately equal to the amount necessary to satisfy the
Fund's obligations under the futures contract. The second is that the Fund will
not enter into a futures contract if immediately thereafter the amount of
initial margin deposits on all the futures contracts held by the Fund would
exceed approximately 5% of the net assets of the Fund. The third is that the
aggregate market value of the futures contracts held by the Fund not generally
exceed 50% of the market value of the Fund's total assets other than its
futures contracts. For purposes of this third policy, "market value" of a
futures contract is deemed to be the amount obtained by multiplying the number
of units covered by the futures contract times the per unit price of the
securities covered by that contract.
The use of futures contracts potentially exposes the Fund to the effects
of "leveraging," which occurs when futures are used so that the Fund's exposure
to the market is greater than it would have been if the Fund had invested
directly in the underlying securities. "Leveraging" increases the Fund's
potential for both gain and loss. As noted above, the Fund intends to adhere to
certain policies relating to the use of futures contracts, which should have
the effect of limiting the amount of leverage by the Fund.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, meaning that delivery of the securities occurs beyond normal
settlement times. In general, the Fund does not pay for the securities until
received and does not start earning interest until the contractual settlement
date. It is expected that, under normal circumstances, the Fund would take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with Securities and Exchange Commission ("SEC") policies. Since
those policies currently require that an amount of the Fund's assets equal to
the amount of the purchase be held aside or segregated to be used to pay for
the commitment, the Fund expects always to have cash or liquid securities
sufficient to cover any commitments or to limit any potential risk. However,
even though the Fund does not intend to make such purchases for speculative
purposes and intends to adhere to the provisions of SEC policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, the Fund may have to sell assets which have been set aside in
order to meet redemptions. Also, if the Manager determines it is advisable as a
matter of investment strategy to sell the "when-issued" or "forward delivery"
securities, the Fund would be required to meet its obligations from the then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the "when-issued" or "forward
delivery" securities themselves (which may have a value greater or less than
the Fund's payment obligation). An increase in the percentage of the Fund's
assets committed to the purchase of securities on a "when-issued basis" may
increase the volatility of its net asset value.
SECURITIES OF NON-U.S. ISSUERS
The Fund may invest in securities of non-U.S. issuers. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in U.S.
investments. For example, the value of such securities fluctuates based on the
relative strength of the U.S. dollar. In addition, there is generally less
publicly available information about non-U.S. issuers, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Non-U.S. issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to U.S.
issuers. Investments in securities of non-U.S. issuers also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of funds or
other assets of the Fund, political or financial instability or diplomatic and
other developments which would affect such investments. Further, economies of
other countries or areas of the world may differ favorably or unfavorably from
<PAGE>
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. Prices at which the Fund may acquire securities may
be affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the Fund.
Non-U.S. security trading practices, including those involving securities
settlement where the Fund's assets may be released prior to receipt of
payments, may expose the Fund to increased risk in the event of a failed trade
or the insolvency of a non-U.S. broker-dealer. In addition, 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.
The Fund may invest in issuers located in developing countries, which are
generally defined as countries in the initial stages of their industrialization
cycles with lower per capita income. All of the risks of investing in non-U.S.
securities are heightened by investing in developing countries. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to economic structures that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries with more mature economies;
such markets often have provided higher rates or return, and greater risks, to
investors. These heightened risks include (i) greater risks of expropriation,
confiscatory taxation and nationalization, and less social, political and
economic stability; (ii) the small current size of markets for securities of
issuers based in developing countries and the currently low or non-existent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the Fund's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures. Such characteristics can be expected to continue in
the future.
It is the Trust's policy to invest not more than 5% of the Fund's assets
in closed-end investment companies which primarily hold foreign securities.
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. The
Trust may invest a portion of the Fund's assets in foreign securities that
impose restrictions on transfer within the United States or to United States
persons. Although securities subject to such transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
The Trust's policy is not to invest more than 20% of the Fund's assets in
the securities of foreign issuers. It is the intention of the Trust to limit
the Fund's investments in non-U.S. obligations to securities rated A or better
and securities which, in the opinion of the Manager, are of comparable quality
to such rated securities.
CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest and sale proceeds in
currencies other than the U.S. dollar, the Fund may enter into currency
exchange transactions to convert U.S. currency to non-U.S. currency and non-
U.S. currency to U.S. currency, as well as convert one non-U.S. currency to
another non-U.S. currency. The 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
Fund may also enter into currency hedging transactions in an attempt to protect
the value of its assets as measured in U.S. dollars from unfavorable changes in
currency exchange rates and control regulations. (Although the Fund's assets
are valued daily in terms of U.S. dollars, the Trust does not intend to convert
the Fund's holdings of non-U.S. currencies into U.S. dollars on a daily basis.)
It is not intended that the Fund speculate in currency exchange rates or
forward contracts.
The Fund may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
<PAGE>
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.
Because these contracts are traded in the interbank market and not on organized
commodities or securities exchanges, these contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in the futures and options contracts
described herein. A forward contract generally has no deposit requirement, and
no fees or commissions are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-
U.S. currency involved in the underlying security transaction, the Fund may be
able to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Manager believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, the Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of its respective
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of a short-term hedging strategy is highly
uncertain. The Fund generally does not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts obligates the Fund to deliver an amount of non-U.S. currency in
excess of the value of the Fund's securities or other assets denominated in
that currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated in the investment decisions made with
regard to overall diversification strategies. However, the Manager believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be
served.
The Fund generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund will
either sell the security and make delivery of the non-U.S. currency, or retain
the security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If the Fund retains the security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
If the Fund engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the non-U.S. currency. Should forward
prices decline during the period between the date the Fund enters into a
forward contract for the sale of the non-U.S. currency and the date it enters
into an offsetting contract for the purchase of such currency, the Fund will
realize a gain to the extent the selling price of the currency exceeds the
purchase price of the currency. Should forward prices increase, the Fund will
suffer a loss to the extent that the purchase price of the currency exceeds the
selling price of the currency.
It is impossible to forecast with precision the market value of the Fund's
securities at the expiration of a forward contract. Accordingly, it may be
necessary for the Fund to purchase additional non-U.S. currency on the spot
market if the market value of the security is less than the amount of non-U.S.
currency the Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of such currency. Conversely, it may be necessary to
sell on the spot market some of the non-U.S. currency received upon the sale of
the security if its market value exceeds the amount of such currency the Fund
is obligated to deliver.
The Fund may also purchase put options on a non-U.S. currency in order to
protect against currency rate fluctuations. If the Fund purchases a put option
on a non-U.S. currency and the value of the non-U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects
of adverse movements in exchange rates. However, the benefit to the Fund from
purchases of non-U.S. currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund could
<PAGE>
sustain losses on transactions in non-U.S. currency options which would require
it to forgo a portion or all of the benefits of advantageous changes in such
rates.
The Fund may write options on non-U.S. currencies for hedging purposes or
otherwise to achieve its investment objectives. For example, where the Fund
anticipates a decline in the value of the U.S. dollar value of a non-U.S.
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund may be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the
premium. However, the writing of a currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on currencies, the Fund also may be required to forgo all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Put and call options on non-U.S. currencies written by the 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 Fund's dealings in non-U.S. currency contracts are limited to the
transactions described above. Of course, the Fund is not required to enter into
such transactions and does not do so unless deemed appropriate by the Manager.
It should be realized that under certain circumstances, hedging arrangements to
protect the value of the Fund's securities against a decline in currency values
may not be available to the Fund on terms that make economic sense (they may be
too costly). It should also be realized that these methods of protecting the
value of the Fund's securities against a decline in the value of a currency do
not eliminate fluctuations in the underlying prices of the securities.
Additionally, although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Fund has established procedures consistent with policies of the SEC
concerning forward contracts. Those policies currently require that an amount
of a fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment. Therefore, the Fund is
expected always to have cash or liquid securities available sufficient to cover
any commitments under these contracts.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Fund, in accordance with applicable investment restrictions, may engage in
short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Fund engages in a short sale, the collateral for the short
position is maintained for the Fund by the custodian or qualified
sub-custodian. While the short sale is open, an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities are maintained in a segregated
account for the Fund. These securities constitute the Fund's long position.
The Fund does not engage in short sales against the box for investment
purposes. The Fund may, however, make a short sale against the box as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Fund (or a security convertible or
exchangeable for such security). In such case, any future losses in the Fund's
long position should be reduced by a gain in the short position. Conversely,
any gain in the long position should be reduced by a loss in the short
position. The extent to which such gains or losses are reduced depends upon the
amount of the security sold short relative to the amount the Fund owns. There
are certain additional transaction costs associated with short sales against
<PAGE>
the box, but the Fund endeavors to offset these costs with the income from the
investment of the cash proceeds of short sales.
The Manager does not expect that more than 40% of the Fund's total assets
would be involved in short sales against the box. The Manager does not
currently intend to engage in such sales.
CORPORATE ASSET-BACKED SECURITIES
As described in the Prospectus, certain of the Fund's assets may be
invested in corporate asset-backed securities. These securities, issued by
trusts and special purpose corporations, are backed by a pool of assets,
including but not limited to 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 assets 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. No
additional or separate fees will be paid for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security. It is intended that no more than 5% of the Fund's total assets would
be invested in corporate asset-backed securities.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. Interests in pools of
mortgage-related securities differ from other forms of debt securities which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price
of a GNMA certificate originally purchased at a premium to decline in price to
its par value which may result in a loss.
A portion of the Fund's assets may be invested in collateralized mortgage
obligations ("CMOs"), which are debt obligations collateralized by mortgage
<PAGE>
loans or mortgage pass-through securities. Typically, CMOs are collateralized
by certificates issued by GNMA, FNMA, or FHLMC but also may be collateralized
by whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). The Fund may also
invest a portion of its assets in multi-class pass-through securities which are
interests in a trust composed of Mortgage Assets. CMOs (which include
multi-class pass-through securities) may be issued by agencies, authorities or
instrumentalities of the U.S. Government or by private originators of or
investors in mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multi- class pass-through
securities. In a CMO, a series of bonds or certificates is usually issued in
multiple classes with different maturities. Each class of a CMO, often referred
to as a "tranche," is issued at a specific fixed or floating coupon rate and
has a stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of all
or part of the premium if any has been paid. Interest is paid or accrues on all
classes of the CMOs on a monthly, quarterly or semiannual basis. The principal
of and interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in various ways. In a common structure, payments
of principal, including any principal prepayments, on the Mortgage Assets are
applied to the classes of the series of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of principal
will be made on any class of CMOs until all other classes having an earlier
stated maturity or final distribution date have been paid in full.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The prices of mortgage-backed securities may
not increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates go
up, mortgage-backed securities experience lower rates of prepayment. This has
the effect of lengthening the expected maturity of a mortgage-backed security.
This particular risk, referred to as "maturity extension risk," may effectively
convert a security that was considered short or intermediate-term at the time
of purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or
intermediate-term securities. Thus, rising interest rates would not only likely
decrease the value of the 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 ROLLS"
The Fund may enter into mortgage "dollar roll" transactions pursuant to
which it sells mortgage-backed securities for delivery in the future and
simultaneously contracts to repurchase substantially similar securities on a
specified future date. During the roll period, the Fund forgoes principal and
interest paid on the mortgage-backed securities. The Fund is compensated for
the lost principal and interest by the difference between the current sales
price and the lower price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. The Fund may also be compensated by receipt of a commitment fee. A
"covered roll" is a specific type of dollar roll for which the Fund establishes
a segregated account with liquid high grade debt securities equal in value to
the securities subject to repurchase by the Fund. The Fund will invest only in
covered rolls.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks
of the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to call a loan
at any time on customary industry settlement notice (which will not usually
exceed three business days). During the existence of a loan, the Fund would
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned and with respect to cash collateral would also
receive compensation based on investment of the collateral (subject to a rebate
payable to the borrower). Where the borrower provides the Fund with collateral
consisting of U.S. Treasury obligations, the borrower is also obligated to pay
the Fund a fee for use of the borrowed securities. The Fund would not, however,
have the right to vote any securities having voting rights 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
<PAGE>
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the Manager to be of good standing, and when,
in the judgment of the Manager, the consideration which can be earned currently
from loans of this type justifies the attendant risk. In addition, the Fund
could suffer a loss if the borrower terminates the loan and the Fund is forced
to liquidate investments in order to return the cash collateral to the buyer.
If the Manager determines to make loans, it is not intended that the value of
the securities loaned by the Fund would exceed 30% of the value of its total
assets.
RULE 144A SECURITIES
The Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 (the "Securities Act"), but can
be offered and sold to "qualified institutional buyers" under Rule 144A under
the Securities Act. However, the Fund will not invest more than 15% of its net
assets in illiquid investments, which include securities for which there is no
readily available market, securities subject to contractual restrictions on
resale and restricted securities, unless, in the case of restricted securities,
the Board of Trustees of the Trust determines, based on the trading markets for
the specific restricted security, that it is liquid. The Trustees have adopted
guidelines and, subject to oversight by the Trustees, have delegated to the
Manager the daily function of determining and monitoring liquidity of
restricted securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets (taken at market value) in
securities for which there is no readily available market. These illiquid
securities may include privately placed restricted securities for which no
institutional market exists. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
DEFENSIVE STRATEGIES
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, the Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and short-term
instruments. These investments may result in a lower yield than would be
available from investments in a lower quality or longer term.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trust, on behalf of
the Portfolio, have adopted the following policies which may not be changed
with respect to the Fund or Portfolio without approval by holders of a majority
of the outstanding voting securities of the 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.
Neither the Fund nor the Portfolio may:
(1) Borrow money except that as a temporary measure for extraordinary
or emergency purposes it may borrow in an amount not to exceed 1/3 of the
current value of its net assets, including the amount borrowed; or
purchase any securities at any time at which borrowings exceed 5% of the
total assets of the Fund or Portfolio, taken at market value. It is
intended that the Fund and Portfolio would borrow money only from banks
and only to accommodate requests for the repurchase of shares of the Fund
or beneficial interests in the Portfolio while effecting an orderly
liquidation of portfolio securities.
(2) Underwrite securities issued by other persons, except that all or
any portion of the assets of the Fund or Portfolio may be invested in one
or more 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 of 1933 in
selling a portfolio security.
(3) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of
the Fund's or Portfolio's total assets (taken at market value), (b)
through the use of repurchase agreements or fixed time deposits or the
<PAGE>
purchase of short-term obligations or (c) by purchasing all or a portion
of an issue of debt securities of types commonly distributed privately to
financial institutions. The purchase of short-term commercial paper or a
portion of an issue of debt securities which is part of an issue to the
public shall not be considered the making of a loan.
(4) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business (the foregoing
shall not be deemed to preclude the Fund or Portfolio from purchasing or
selling futures contracts or options thereon, and the Fund and Portfolio
reserve the freedom of action to hold and to sell real estate acquired as
a result of the ownership of securities by the Fund or Portfolio).
(5) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund or
Portfolio more than 10% of the voting securities of such issuer to be held
by the Fund or Portfolio; provided that, for purposes of this restriction,
the issuer of an option or futures contract shall not be deemed to be the
issuer of the security or securities underlying such contract; and
provided further that the Fund and Portfolio may invest all or any portion
of their respective 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.
(6) 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 any option or futures contract
shall not be deemed to be the issuer of the security or securities
underlying such contract; and provided further that the Fund and Portfolio
may invest all or any portion of their respective 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.
(7) 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.
(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.
As an operating policy, the Fund will not invest more than 15% of its net
assets in securities for which there is no readily available market. This
policy is not fundamental and may be changed without shareholder approval.
If a percentage restriction on investment or utilization of assets set
forth above or referred to in the Prospectus is adhered to at the time an
investment is made or assets are so utilized, a later change in percentage
resulting from changes in the value of the securities held for the Fund or
Portfolio is not considered a violation of policy.
5. PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of yield, effective yield or total rate of
return. All performance information is historical and is not intended to
indicate future performance. Yield and total rates of return fluctuate in
response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period, reflects any change in net asset
value per share and is compounded to include the value of any shares purchased
with any dividends or capital gains declared during such period. Period total
rates of return may be "annualized." An "annualized" total rate of return
assumes that the period total rate of return is generated over a one-year
period.
A total rate of return quotation for the Fund is calculated for any period
by (a) dividing (i) the sum of the net asset value per share on the last day of
<PAGE>
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.
The Fund may provide annualized "yield" and "effective yield" quotations.
The "yield" of the Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period (which period is stated in any such
advertisement or communication). This income is then annualized, that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of the
public 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. A "yield" quotation, unlike a total rate
of return quotation, does not reflect changes in net asset value.
Any current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the public offering price per share on the last day of
the period, (b) subtracting 1 from the result, and (c) multiplying the result
by 2.
Any tax equivalent yield quotation of the Fund is calculated as follows:
If the entire current yield quotation for such period is state tax-exempt, the
tax equivalent yield would be the current yield quotation divided by 1 minus a
stated income tax rate or rates. If a portion of the current yield quotation is
not state tax-exempt, the tax equivalent yield would be the sum of (a) that
portion of the yield which is state tax-exempt divided by 1 minus a stated
income tax rate or rates and (b) the portion of the yield which is not state
tax-exempt.
Set forth below is total rate of return information for the Class A shares
of the Fund for the periods indicated, assuming that dividends and capital
gains distributions, if any, were reinvested. All outstanding shares were
designated Class A shares on January 4, 1999. The return information relates to
periods prior to January 4, 1999, when there were no sales charges on the
purchase or sale of the Fund's shares. The Class A performance for past periods
has therefore been adjusted to reflect the maximum sales charge currently in
effect. The Class B shares are newly offered and have no investment history.
Performance results include any applicable fee waivers or expense subsidies in
place during the time period, which may cause the results to be more favorable
than they would otherwise have been.
REDEEMABLE VALUE
OF A HYPOTHETICAL
ANNUALIZED $1,000 INVESTMENT
TOTAL AT THE END
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO RATE OF RETURN OF THE PERIOD
Period from January 1, 1997 to
October 31, 1998 ____% $_____
June 25, 1993 (commencement of operations)
to October 31, 1998 ____% $_____
The annualized yield of shares of the Fund for the 30-day period ended
October 31, 1998 was ____%.
Comparative performance information may be used from time to time in
advertising shares of the Fund, including data from Lipper Analytical Services,
Inc. and other industry sources and publications. From time to time the Fund
may compare its performance against inflation with the performance of other
instruments against inflation, such as FDIC-insured bank money market accounts.
In addition, advertising for the Fund may indicate that investors should
consider diversifying their investment portfolios in order to seek protection
of the value of their assets against inflation. From time to time, advertising
materials for the Fund may refer to or discuss current or past economic or
financial conditions, developments and events. The Fund's advertising materials
also may refer to the integration of the world's securities markets, discuss
the investment opportunities available worldwide and mention the increasing
importance of an investment strategy including non- U.S. investments.
For advertising and sales purposes, the Fund will generally use the
performance of Class A shares. All outstanding Fund shares were designated
<PAGE>
Class A shares on January 4, 1999. Performance prior to that date will be
adjusted to include the sales charges currently in effect. Class A shares are
sold at net asset value plus a current maximum sales charge of 4.50%.
Performance will typically include this maximum sales charge for the purposes
of calculating performance figures. If the performance of Class B shares is
used for advertising and sales purposes, performance after class inception on
January 4, 1999 will be actual performance, while performance prior to that
date will be Class A performance, adjusted to reflect the differences in sales
charges (but not the differences in fees and expenses) between the classes. For
these purposes, it will be assumed that the maximum contingent deferred sales
charge applicable to the Class B shares is deducted at the times, in the
amount, and under the terms stated in the Prospectus. Class B share performance
generally would have been lower than Class A performance, had the Class B
shares been offered for the entire period, because the expenses attributable to
Class B shares are higher than the expenses attributable to the Class A shares.
Fund performance may also be presented in advertising and sales literature
without the inclusion of sales charges.
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
The net asset value per share of the 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 the Portfolio),
then subtracting the liabilities attributable to that class, and then dividing
the result by the number of outstanding shares of the class. The net asset
value per share is effective for orders received and accepted by the Transfer
Agent prior to its calculation.
Bonds and other fixed income securities (other than short-term
obligations) held for the Fund are valued on the basis of valuations furnished
by a pricing service, use of which has been approved by the Board of Trustees
of the Trust. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
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 non-U.S. exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the Exchange is
closed. If events materially affecting the value of non-U.S. securities occur
between the time when the exchange on which they are traded closes and the time
when the Fund's net asset value is calculated, such securities may be valued at
fair value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for the Fund is determined
on the basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued less amortization of any premiums.
<PAGE>
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE OF FUND SHARES AND
SHAREHOLDER PROGRAMS
As described in the Prospectus, the Fund provides you with alternative
ways of purchasing shares based upon your individual investment needs.
Each class of shares of the 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) SEC and
state securities registration fees incurred by a specific class, (iv) the
expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal
expenses relating to a specific class of shares, (vi) accounting expenses
relating to a specific class of shares and (vii) any additional incremental
expenses subsequently identified and determined to be properly allocated to one
or more classes of shares.]
CLASS A SHARES
You may purchase Class A shares at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. You may qualify for a
reduced sales charge depending upon the amount of your purchase, or the sales
charge may be waived in its entirety, as described below under "Sales Charge
Waivers." If you qualify to purchase Class A shares without a sales load, you
should purchase Class A shares rather than Class B shares because Class A
shares pay lower fees. Class A Shares are also subject to an annual
distribution/service fee of .25%. See "Distributor." Set forth below is an
example of the method of computing the offering price of the Class A shares of
the Fund. The example assumes a purchase on October 31, 1998 of Class A shares
from the Fund aggregating less than $25,000 subject to the schedule of sales
charges set forth below.
____________________________________________________________________
CITIFUNDS INTERMEDIATE
INCOME PORTFOLIO
Net Asset Value per share $
____________________________________________________________________
Per Share Sales Charge - 4.50% of $
public offering price (4.71% of
net asset value per share)
____________________________________________________________________
Per Share Offering Price to the $
Public
____________________________________________________________________
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 Fund has
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.
<PAGE>
SALES CHARGE DEALER
AS A % OF SALES CHARGE REALLOWANCE AS
AMOUNT OF OFFERING AS A % OF A % OF
INVESTMENT PRICE INVESTMENT OFFERING PRICE
_______________________________________________________________________________
Less than $25,000 4.50% 4.71% 4.05%
_______________________________________________________________________________
$25,000 to less than $50,000 4.00% 4.16% 3.60%
_______________________________________________________________________________
$50,000 to less than $100,000 3.50% 3.59% 3.15%
_______________________________________________________________________________
$100,000 to less than $250,000 2.50% 2.56% 2.25%
_______________________________________________________________________________
$250,000 to less than $500,000 1.50% 1.52% 1.35%
_______________________________________________________________________________
$500,000 or more none* none* up to 1.00%
_______________________________________________________________________________
*A contingent deferred sales charge may apply in certain instances. See
"Sales Charge Waivers--Class A" below.
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 4.50%
_______________________________________________________________________________
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 None
purchase
_______________________________________________________________________________
Class B shares pay distribution/service fees of up to 0.75% of the average
daily net assets of the Fund represented by the Class B shares. The Distributor
pays commissions to brokers, dealers and other institutions of 4.00% of the
offering 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. The Distributor is compensated for these
payments through the receipt of the ongoing distribution fees from the Fund,
and through the CDSC, if any. The Distributor will also advance the first year
service fee to dealers at an annual rate equal to 0.25% of the average daily
net assets represented by Class B shares sold by them. As a result, the total
amount paid to a dealer upon the purchase of Class B shares may be a maximum of
4.25% of the purchase price of the Class B shares.
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. The 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 the 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, the Fund will use the CDSC
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
<PAGE>
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
- Reinvestment. The sales charge does not apply to Class A shares
acquired through the reinvestment of dividends and capital gains
distributions.
- 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 or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or
affiliate of Citibank serves as the investment adviser or as a
service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired employees
of Citibank and its affiliates or CFBDS, Inc. and its affiliates
(including immediate families of the foregoing)
[] investors participating in a fee-based arrangement sponsored or
advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances in
selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's Board
of Trustees or by the Board of Trustees of any other CitiFund or
mutual fund managed or advised by Citibank (all of such funds
being referred to herein as CitiFunds) the terms of which entitle
those shareholders to purchase shares of the Fund or any other
CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4, 1999
[] employee benefit plans qualified under Section 401 of the Internal
Revenue Code, including salary reduction plans qualified under
Section 401(k) of the Code, subject to minimum requirements as may
be established by CFBDS with respect to the amount of purchase;
currently, the amount invested by the qualified plan in the Fund
or in any combination of CitiFunds must total a minimum of $1
million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however,
a contingent deferred sales charge will be imposed on the
investments in the event of certain share redemptions within 12
months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the total
cost of the shares; the contingent deferred sales charge on Class
A shares will be waived under the same circumstances as the
contingent deferred sales charge on Class B shares will be waived;
in determining whether a contingent deferred sales charge on
Class A shares is payable, and if so, the amount of the charge:
-- 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
<PAGE>
-- 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 the 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:
- Reinvestment. There is no CDSC on shares representing capital
appreciation or on shares acquired through reinvestment of dividends or
capital gains distributions.
- Waivers. The CDSC will be waived in connection with:
[] exchanges into certain CitiFunds
[] 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
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the 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 Fund's 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 Fund makes the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Class A shares or to
exchange Fund shares for shares of other CitiFunds without, in many cases, the
<PAGE>
payment of a sales charge. These programs may be changed or discontinued at any
time. For more information, please contact your Service Agent.
REDUCED SALES CHARGE PLAN
A qualified group may purchase shares as a single purchaser under the
reduced sales charge plan. The purchases by the group are lumped together and
the sales charge is based on the lump sum. A qualified group must:
[] have been in existence for more than six months
[] have a purpose other than acquiring Fund shares at a discount
[] satisfy uniform criteria that enable CFBDS to realize economies of
scale in its costs of distributing shares
[] have more than ten members
[] be available to arrange for group meetings between representatives
of the Fund and the members
[] agree to include sales and other materials related to the Fund 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 Fund
LETTER OF INTENT
If an investor anticipates purchasing $25,000 or more of Class A shares of
the Fund alone or in combination with Class B shares of the Fund or any of the
classes of other CitiFunds or of any other mutual fund managed or advised by
Citibank (all of such funds being referred to herein as CitiFunds) within a
13-month period, the investor may obtain the shares at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
a letter of intent on the terms described below. Subject to acceptance by
CFBDS, Inc., the Fund's distributor, and the conditions mentioned below, each
purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the letter of intent.
[] The shareholder or, if the shareholder is a customer of a Service
Agent, his or her Service Agent must inform CFBDS that the letter of
intent is in effect each time shares are purchased.
[] The shareholder makes no commitment to purchase additional shares, but
if his or her purchases within 13 months plus the value of shares
credited toward completion of the letter of intent do not total the sum
specified, an increased sales charge will apply as described below.
[] A purchase not originally made pursuant to a letter of intent may be
included under a subsequent letter of intent executed within 90 days of
the purchase if CFBDS is informed in writing of this intent within the
90-day period.
[] The value of shares of the Fund presently held, at cost or maximum
offering price (whichever is higher), on the date of the first purchase
under the letter of intent, may be included as a credit toward the
completion of the letter, but the reduced sales charge applicable to
the amount covered by the letter is applied only to new purchases.
[] Instructions for issuance of shares in the name of a person other than
the person signing the letter of intent must be accompanied by a
written statement from the Transfer Agent or a Service Agent stating
that the shares were paid for by the person signing the letter.
[] Neither income dividends nor capital gains distributions taken in
additional shares will apply toward the completion of the letter of
intent.
[] The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the letter of intent
are deducted from the total purchases made under the letter of intent.
If the investment specified in the letter of intent is not completed
(either prior to or by the end of the 13-month period), the Transfer Agent will
redeem, within 20 days of the expiration of the letter of intent, an
appropriate number of the shares in order to realize the difference between the
reduced sales charge that would apply if the investment under the letter of
intent had been completed and the sales charge that would normally apply to the
number of shares actually purchased. By completing and signing the letter of
intent, the shareholder irrevocably grants a power of attorney to the Transfer
Agent to redeem any or all shares purchased under the letter of intent, with
full power of substitution.
<PAGE>
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 $50,000 purchase would be at the rate of 3.50% (the
rate applicable to single transactions from $50,000 to less than $100,000). 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.
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 Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Service Agents in
writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of
certain other CitiFunds that are made available by a shareholder's Service
Agent, or may be acquired through an exchange of shares of the same class of
those funds. Class A shares also may be exchanged for shares of certain
CitiFunds money market funds that offer only a single class of shares, unless
the Class A shares are subject to a contingent deferred sales charge. Class B
shares may not be exchanged for shares of CitiFunds money market funds other
than Cash Reserves. No initial sales charge is imposed on shares being acquired
through an exchange unless Class A shares are being acquired and the sales
charge for Class A of the fund being exchanged into is greater than the current
sales charge of the Fund (in which case an initial sales charge will be imposed
at a rate equal to the difference). Investors whose shares are outstanding on
January 4, 1999 will be able to exchange those Class A shares, and any shares
acquired through capital appreciation and the reinvestment of dividends and
capital gains distributions on those shares, into Class A shares of the other
funds without paying any sales charge. No CDSC is imposed on Class B shares
when they are exchanged for Class B shares of certain other CitiFunds that are
made available by the shareholder's Service Agent. If you are exchanging into a
fund that imposes a sales charge, you may qualify for share prices which do not
include the sales charge or which reflect a reduced sales charge, if 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. To qualify for this sales charge waiver or reduced sales charge, at the
time of exchange you must notify [your Service Agent] [your Shareholder
Servicing Agent]. 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. However,
you may be required to pay a CDSC when you sell those shares. When determining
the amount of the CDSC, the Fund will use the CDSC schedule of any fund from
which you have exchanged shares that would result in you paying the highest
CDSC.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate prior written disclosure of any fees that
it may charge them directly. Each Service Agent is responsible for transmitting
promptly orders of its customers.
Investors may be able to establish new accounts in the Fund under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and certain
other qualified pension and profit-sharing plans. Investors should consult with
their Service Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the transfer agent or, if they are
customers of a Service Agent, their Service Agent. During periods of drastic
economic or market changes or severe weather or other emergencies, shareholders
may experience difficulties implementing a telephone exchange or redemption. In
such an event, another method of instruction, such as a written request sent
via an overnight delivery service, should be considered. The Fund, the transfer
agent and each Service Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may
include recording of the telephone instructions and verification of a caller's
identity by asking for his or her name, address, telephone, Social Security
number, and account number. If these or other reasonable procedures are not
followed, the Fund, the transfer agent or the Service Agent may be liable for
any losses to a shareholder due to unauthorized or fraudulent instructions.
Otherwise, the shareholder will bear all risk of loss relating to a redemption
or exchange by telephone.
<PAGE>
Subject to compliance with applicable regulations, the Trust has reserved the
right to pay the redemption or repurchase price of shares of the Fund, either
totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a holder of shares received a distribution in kind,
such holder could incur brokerage or other charges in converting the securities
to cash.
The Trust may suspend the right of redemption or postpone the date of payment
for shares of the Fund more than seven days during any period when (a) trading
in the markets the Fund normally utilizes is restricted, or an emergency, as
defined by the rules and regulations of the SEC exists making disposal of the
Fund's investments or determination of its net asset value not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC has by order permitted such
suspension.
8. MANAGEMENT
The Fund is supervised by the Board of Trustees of the Trust, and the
Portfolio is supervised by the Board of Trustees of the Portfolio Trust. In
each case, a majority of the Trustees are not affiliated with Citibank.
The Trustees and officers of the Trust and the Portfolio Trust, their ages
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust or the Portfolio Trust. Unless otherwise indicated below, the address
of each Trustee and officer is 21 Milk Street, Boston, Massachusetts.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 72 -- Vice President and General Counsel, Corporate Property
Investors (November 1988 to December 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON; 58 -- Professor, Babson College (since September 1993);
Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, The Highland Family of Funds (March 1997 to March 1998). Her address
is 120 Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 47 -- President, Global Research Associates, Inc. (Investment
Research) (since August 1990); Manager, Rockefeller & Co. (March 1988 to July
1990); Trustee, Mainstay Institutional Funds (since December 1990). Her address
is P.O. Box 9572, New Haven, Connecticut.
C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the Trust;
Managing Director, Morong Capital Management (since February 1993); Senior Vice
President and Investment Manager, CREF Investments, Teachers Insurance &
Annuity Association (retired, January 1993); Director, Indonesia Fund; Trustee,
MAS Funds (since 1993). His address is 1385 Outlook Drive West, Mountainside,
New Jersey.
E. KIRBY WARREN; 64 -- Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR.; 78 -- Vice President-Investments, Sun Company, Inc.
(retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New Jersey.
TRUSTEES OF THE PORTFOLIO TRUST
ELLIOTT J. BERV; 55- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
<PAGE>
PHILIP W. COOLIDGE*; 47- President of the Trust and the Portfolio Trust; Chief
Executive Officer and President, Signature Financial Group, Inc. and CFBDS.
MARK T. FINN; 55- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Vantage Consulting Group, Inc. (since
October 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia
Beach, Virginia.
C. OSCAR MORONG, JR.; 63- Managing Director, Morong Capital Management (since
February 1993); Senior Vice President and Investment Manager, CREF Investments,
Teachers Insurance & Annuity Association (retired, January 1993); Director,
Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385 Outlook
Drive, West, Mountainside, New Jersey.
WALTER E. ROBB, III; 72- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President, Benchmark Advisors, Inc. (Corporate Financial Advisors) (since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN; 64- Professor of Management, Graduate School of Business,
Columbia University (since 1987). Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
PHILIP W. COOLIDGE*; 47 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE A. DRAPEAU*; 28 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group, Inc.
(since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996).
TAMIE EBANKS-CUNNINGHAM*; 26 -- Assistant Secretary of the Trust and the
Portfolio Trust; Office Manager, Signature Financial Group (Cayman) Ltd. (since
April 1995); Administrator, Cayman Islands Primary School (prior to April
1995). Her address is P.O. Box 2494, Elizabethan Square, George Town, Grand
Cayman, Cayman Islands, B.W.I.
JOHN R. ELDER*; 50 -- Treasurer of the Trust and the Portfolio Trust; Vice
President, Signature Financial Group, Inc. (since April, 1995); Assistant
Treasurer, CFBDS (since April 1995); Treasurer of the Phoenix Family of Mutual
Funds, Phoenix Home Life Mutual Insurance Company (1983 to March 1995).
LINDA T. GIBSON*; 33 -- Secretary of the Trust and the Portfolio Trust; Senior
Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
JAMES E. HOOLAHAN*; 52 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Senior Vice President,
Signature Financial Group, Inc.
SUSAN JAKUBOSKI*; 34 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994). Her
address is Suite 193, 12 Church St., Hamilton HM 11, Bermuda.
MOLLY S. MUGLER*; 47 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group, Inc.;
Assistant Secretary, CFBDS.
CLAIR TOMALIN*; 30 -- Assistant Secretary of the Trust and the Portfolio Trust;
Office Manager, Signature Financial Group (Europe) Limited. Her address is 117
Charterhouse Street, London ECIM 6AA.
<PAGE>
SHARON M. WHITSON*; 50 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Assistant Vice President, Signature Financial
Group, Inc.
JULIE J. WYETZNER*; 39 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group, Inc.
The Trustees and officers of the Trust also hold comparable positions with
certain other funds for which CFBDS, Signature Financial Group, Inc., or their
affiliates serve as the distributor or administrator.
The following table shows Trustee compensation for the periods indicated.
<PAGE>
<TABLE>
TRUSTEES COMPENSATION TABLE
<CAPTION>
Pension or Total Compensation
Retirement from the
Aggregate Benefits Accrued Estimated Annual Registrant and
Compensation from as Part of Fund Benefits Upon Fund Complex Paid
Fund (1) Expenses Retirement to Trustees(1)(2)
<S> <C> <C> <C> <C>
Philip W. Coolidge..................... $ None None $
Riley C. Gilley........................ $ None None $
Diana R. Harrington.................... $ None None $
Susan B. Kerley........................ $ None None $
C. Oscar Morong, Jr.................... $ None None $
E. Kirby Warren........................ $ None None $
William S. Woods, Jr................... $ None None $
</TABLE>
(1) For the fiscal year ended October 31, 1998.
(2) Information relates to the fiscal year ended October 31, 1998. Messrs.
Coolidge, Gilley, Morong, , Warren, and Woods and Mses. Harrington and
Kerley are Trustees of 49, 33, 40, 40, 26, 28, and 28 funds and portfolios,
respectively, in the family of open-end registered investment companies
advised or managed by Citibank.
As of __________, 1998 all Trustees and officers as a group owned less
than 1% of the outstanding shares of the Fund. As of the same date, more than
95% of the outstanding shares of the Fund were held of record by Citibank or
its affiliates, as Service Agents of the Fund for the accounts of their
respective clients.
The Declaration of Trust of the Trust provides that the Trust 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, unless, as to liability to the Trust or its 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. 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 in a written opinion of
independent counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
MANAGER
Citibank serves as the manager of the Portfolio and provides certain
administrative services to the Fund and the Portfolio pursuant to separate
management agreements (the "Management Agreements"). Subject to policies as the
Board of Trustees of the Portfolio Trust may determine, Citibank manages the
securities of the Portfolio and makes investment decisions for the Portfolio.
The Management Agreement with the Portfolio Trust provides that Citibank may
delegate the daily management of the securities of the Portfolio to one or more
subadvisers. Citibank furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio. The Management Agreement
with respect to the Portfolio will continue in effect indefinitely as long as
such continuance is specifically approved at least annually by the Board of
Trustees of the Portfolio Trust or by a vote of a majority of the outstanding
voting securities of the Portfolio, and, in either case, by a majority of the
Trustees of the Portfolio Trust who are not parties to the Management Agreement
or interested persons of any such party, at a meeting called for the purpose of
voting on the Management Agreement. The Management Agreement with the Trust
with respect to the Fund will continue in effect indefinitely as long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust or by a vote of a majority of the outstanding voting securities of
the Fund, and, in either case, by a majority of the Trustees of the Trust who
are not parties to the Management Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Management
Agreement.
Citibank provides the Fund and the Portfolio with general office
facilities and supervises the overall administration of the Fund and the
Portfolio, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of, the
Fund's or the Portfolio's independent contractors and agents; the preparation
and filing of all documents required for compliance by the Fund or Portfolio
with applicable laws and regulations; and arranging for the maintenance of
books and records of the Fund or Portfolio. Trustees, officers, and investors
in the Trust or Portfolio Trust are or may be or may become interested in
Citibank, as directors, officers, employees, or otherwise and directors,
officers and employees of Citibank are or may become similarly interested in
the Trust or Portfolio Trust.
<PAGE>
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Portfolio Trust or
the Trust, as the case may be, when authorized either by a vote of a majority
of the outstanding voting securities of the Portfolio or Fund or by a vote of a
majority of the Board of Trustees of the Portfolio Trust or the Trust, or by
Citibank on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Management
Agreement with the Portfolio Trust provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Management Agreement with the Portfolio
Trust. The Management Agreement with the Trust provides that neither Citibank
nor its personnel shall be liable for any error of judgment or mistake of law
or for any omission in the administration or management of the Trust or the
performance of its duties under the Management Agreement, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Management Agreement with the Trust.
For its services under the Management Agreement with respect to the Fund,
Citibank receives fees, which are computed daily and paid monthly, at an annual
rate equal to 0.70% of the Fund's average daily net assets, minus the aggregate
investment management fee allocated to the Fund from the Portfolio. For its
services under the Management Agreement with respect to the Portfolio, Citibank
receives fees, which are computed daily and paid monthly at an annual rate
equal to 0.35% of the Portfolio's average daily net assets. Citibank may
reimburse the Fund or Portfolio or waive all or a portion of its management
fees.
For the fiscal years ended December 31, 1995, 1996 and 1997, the fees
payable from the Fund to Citibank under a prior investment advisory agreement
with the Trust were $171,213 (of which $115,475 was voluntarily waived),
$162,525 (of which $80,994 was voluntarily waived) and $137,525 (of which
$82,010 was voluntarily waived), respectively. For the period ended October 31,
1998, the fee payable from the Fund to Citibank under a prior management
agreement with the Trust was $__________.
For the fiscal years ended December 31, 1995, 1996 and 1997, the fees
payable from the Fund to CFBDS under a prior administrative services agreement
with the Trust were $97,836 (of which $38,337 was voluntarily waived), $116,090
(of which $72,966 was voluntarily waived) and $98,232 (of which $75,116 was
voluntarily waived), respectively.
Pursuant to separate sub-administrative services agreements with Citibank,
CFBDS and Signature Financial Group (Cayman) Ltd. ("SFG") perform such
sub-administrative duties for the Trust and the Portfolio Trust, 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 Trust, respectively. All such
compensation is paid by Citibank.
DISTRIBUTOR
CFBDS, 21 Milk Street, Boston, MA 02109, serves as the Distributor of the
Fund's shares pursuant to a Distribution Agreement with the Trust with respect
to each class of shares of the Fund (each, a "Distribution Agreement"). In
those states where CFBDS is not a registered broker-dealer, shares of the Fund
are sold through Signature Broker-Dealer Services, Inc., as dealer. Under the
Distribution Agreements, CFBDS is obligated to use its best efforts to sell
shares of each class of the Fund.
Either party may terminate a Distribution Agreement on not less than
thirty days' nor more than sixty days' prior written notice to the other party.
Unless otherwise terminated each Distribution Agreement will continue from year
to year upon annual approval by the Trust's Board of Trustees and by the vote
of a majority of the Board of Trustees of the Trust who are not parties to the
Distribution Agreement or interested persons of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. Each Distribution Agreement will terminate in the event of its
assignment, as defined in the 1940 Act.
Each class of the Fund has a Service Plan (each, a "Service Plan") adopted
in accordance with Rule 12b-1 under the 1940 Act. Under the Plans, the 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 Plan relating
to Class A shares, and not to exceed 0.75% of the average daily net assets of
<PAGE>
the Fund attributable to that class in the case of the Plan 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 Fund, and to
other parties in respect of the sale of shares of the Fund, and to make
payments for advertising, marketing or other promotional activity, and payments
for preparation, printing, and distribution of prospectuses, statements of
additional information and reports for recipients other than regulators and
existing shareholders. The Fund also may make payments to the Distributor,
Service Agents and others for providing personal service or the maintenance of
shareholder accounts. The 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 Fund to pay fees to the Distributor, Service
Agents and others as compensation for their services, not as reimbursement for
specific expenses incurred. Thus, even if their expenses exceed the fees
provided for 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. The 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.
Each Service Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Trust's Trustees
and a majority of the Trustees who are not "interested persons" of the Trust
and who have no direct or indirect financial interest in the operation of the
Service Plan or in any agreement related to the Plan (for purposes of this
paragraph "Qualified Trustees"). Each Service Plan requires that the Trust and
the Distributor provide to the Board of Trustees, and the Board of Trustees
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Service Plan. Each Service Plan further provides
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 the Fund at any time by a vote of a
majority of the Trust's Qualified Trustees or by a vote of a majority of the
outstanding voting securities of that class. A Service Plan may not be amended
to increase materially the amount of permitted expenses of the class 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 Fund pursuant to the
Distribution Agreements. For the fiscal years ended December 31, 1995, 1996 and
1997, the fees payable to CFBDS under a prior distribution agreement with
respect to the Fund were $24,459 (all of which was voluntarily waived), $69,654
(of which $67,679 was voluntarily waived) and $58,940 (all of which was
voluntarily waived), respectively. For the period ended October 31, 1998, the
fee payable to CFBDS under a prior distribution agreement with respect to the
Fund was $_________.
The Distributor may enter into agreements with Service Agents and may pay
compensation to such Service Agents for accounts for which the Service Agents
are holders of record. Payments may be made to the Service Agents or for other
distribution expenses out of the distribution fees received by the Distributor
and out of the Distributor's past profits or any other source available to it.
EXPENSES
In addition to amounts payable under its Management Agreement and Service
Plans, the Fund is responsible for its own expenses, including, among other
things, the costs of securities transactions, the compensation of Trustees that
are not affiliated with Citibank or the Fund's Distributor, government fees,
taxes, accounting and legal fees, expenses of communication with shareholders,
interest expense, and insurance premiums.
<PAGE>
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street") pursuant to which State
Street acts as transfer agent for the Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street, pursuant
to which custodial and fund accounting services, respectively, are provided for
the Fund. Among other things, State Street calculates the daily net asset value
for the Fund. Securities may be held by a sub-custodian bank approved by the
Trustees. The principal business address of State Street is 225 Franklin
Street, Boston, Massachusetts 02110.
The Portfolio Trust, on behalf of the Portfolio, has entered into a
Custodian Agreement with State Street pursuant to which State Street acts as
custodian for the Portfolio. The Portfolio Trust, on behalf of the Portfolio,
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 the Portfolio. State Street Cayman
also provides transfer agency services to the Portfolio. 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 are the chartered accountants for the Portfolio
Trust. The address of PricewaterhouseCoopers LLP 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 Fund.
9. PORTFOLIO TRANSACTIONS
The Trust trades securities for the Fund if it believes that a transaction
net of costs (including custodian charges) will help achieve the Fund's
investment objectives. Changes in the Fund's investments are made without
regard to the length of time a security has been held, or whether a sale would
result in the recognition of a profit or loss. Therefore, the rate of turnover
is not a limiting factor when changes are appropriate. Specific decisions to
purchase or sell securities for the Fund are made by a portfolio manager who is
an employee of Citibank and who is appointed and supervised by its senior
officers. The portfolio manager may serve other clients of Citibank in a
similar capacity.
The primary consideration in placing portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. Citibank attempts to achieve this result by selecting broker-dealers
to execute transactions on behalf of the Fund and other clients of Citibank on
the basis of their professional capability, the value and quality of their
brokerage services, and the level of their brokerage commissions. In the case
of securities traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's markup or markdown),
Citibank normally seeks to deal directly with the primary market makers, unless
in its opinion, best execution is available elsewhere. In the case of
securities purchased from underwriters, the cost of such securities generally
includes a fixed underwriting commission or concession. From time to time,
soliciting dealer fees are available to Citibank on the tender of the Fund's
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Fund by Citibank. At present no other
recapture arrangements are in effect.
Under the Management Agreement, in connection with the selection of such
brokers or dealers and the placing of such orders, Citibank is directed to seek
for the Fund in its best judgment, prompt execution in an effective manner at
the most favorable price. Subject to this requirement of seeking the most
favorable price, securities may be bought from or sold to broker-dealers who
have furnished statistical, research and other information or services to
Citibank or the Fund, subject to any applicable laws, rules and regulations.
The management fee that the Fund pays to Citibank will not be reduced as a
consequence of Citibank's receipt of brokerage and research services. While
such services are not expected to reduce the expenses of Citibank, Citibank
would, through the use of the services, avoid the additional expenses which
would be incurred if it should attempt to develop comparable information
<PAGE>
through its own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for the Fund as well as for one or more of Citibank's other clients.
Investment decisions for the Fund and for Citibank's other clients are made
with a view to achieving their respective investment objectives. It may develop
that a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives
of more than one client. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could adversely affect the price of or the size of the
position obtainable in a security for the Fund. When purchases or sales of the
same security for the Fund and for other portfolios managed by Citibank occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large volume purchases or sales.
For the fiscal years ended December 31, 1995, 1996 and 1997, and the
period ended October 31, 1998, the Fund paid no brokerage commissions.
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. 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 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 arrangements relating to that class, but shares of all series may
vote together in the election or selection of Trustees and accountants for the
Trust. In matters affecting only a particular 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 to hold, and
has no present intention of holding, annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have, under certain circumstances (e.g., upon the application and
submission of certain specified documents to the Trustees by a specified number
of shareholders), the right to communicate with other shareholders in
connection with requesting a meeting of shareholders for the purpose of
removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of each
series affected by the amendment. (See "Investment Restrictions.")
At any meeting of shareholders of the Fund, a Service Agent may vote any
shares of which it is the holder of record and for which it does not receive
voting instructions proportionately in accordance with the instructions it
receives for all other shares of which that Service Agent is the holder of
record.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's (or the
affected series') outstanding shares would be sufficient. The Trust or any
series of the Trust, as the case may be, may be terminated (i) by a vote of a
majority of the outstanding voting securities of the Trust or the affected
series or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated, the Trust will continue
indefinitely.
The Fund's Transfer Agent maintains a share register for shareholders of
record. Share certificates are not issued.
<PAGE>
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust of the Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Trust property for any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust of the Trust also provides
that the Trust may maintain appropriate insurance (e.g., fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Trust's Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust of each Trust protects a
Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
The Portfolio is a series of The Premium Portfolios. The Portfolio Trust
is organized as a trust under the laws of the state of New York. Each investor
in the Portfolio, including the Fund, may add to or withdraw from its
investment in the Portfolio on each Business Day. As of the close of regular
trading on each Business Day, the value of each investor's beneficial interest
in the Portfolio is determined by multiplying the net asset value of the
Portfolio by the percentage, effective for that day, that represents that
investor's share of the aggregate beneficial interest in the Portfolio. Any
additions or withdrawals that are to be effected on that day are then effected.
The investor's percentage of the aggregate beneficial interests in the
Portfolio is then recomputed 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. CERTAIN ADDITIONAL TAX MATTERS
The Fund has elected to be treated, and intends to qualify each year, as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition of the Fund's
portfolio assets. Provided all such requirements are met and all of the Fund's
net investment income and net realized capital gains are distributed to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes generally will be required to be paid by the
Fund, although foreign source income earned by the Fund may be subject to non-
U.S. taxes and the Fund may be required to pay federal income taxes on certain
distributions and realized capital gains from securities in "passive foreign
investment companies." If the Fund should fail to qualify as a "regulated
investment company" for any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to shareholders. The Portfolio
Trust believes the Portfolio also will not be required to pay any U.S. federal
income or excise taxes on its income.
Shareholders of the 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. Because the Fund expects to earn
primarily interest income, it is expected that no Fund dividends will qualify
for the dividends received deduction for corporations; however, a portion of
the Fund's ordinary income dividends may be eligible for this deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular shareholders is subject to certain limitations, and deducted amounts
may be subject to the alternative minimum tax or result in certain basis
adjustments. Distributions of net capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses), whether made in
<PAGE>
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. Such capital gains may be taxable to shareholders that are individuals,
estates, or trusts at maximum rates of 20%, 25%, or 28%, depending upon the
source of the gains. Any Fund dividend that is declared in October, November or
December of any calendar year, that is payable to shareholders of record in
such a month, and that is paid the following January will be treated as if
received by the shareholders on December 31 of the year in which the dividend
is declared.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares
of the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual shareholder will be eligible
for reduced tax rates if the shares were held for more than 18 months. However,
any loss realized upon a redemption of shares in the Fund held for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
Any investments in zero coupon bonds 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, the Trust may be required to liquidate securities of
the Fund that it might otherwise have continued to hold and thereby potentially
cause the Fund to realize additional taxable gain or loss. An investment in
residual interests of a CMO that has elected to be treated as a real estate
mortgage investment conduit, or "REMIC," may result in a federal tax to the
extent the Fund has tax exempt entities as shareholders.
The Fund's transactions in options, short sales "against the box," 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
holders of beneficial interests. For example, certain positions held by the
Fund on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out) on that day, and any gain or loss associated
with the positions will be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by the Fund that substantially diminish
its risk of loss with respect to other positions in its portfolio may
constitute straddles, and may be subject to special tax rules that would cause
deferral of Fund losses, adjustments in the holding periods of securities held
by the Fund and conversion of short-term into long-term capital losses. Certain
tax elections exist for straddles which may alter the effects of these rules.
The Fund will limit its investment activities in options, futures contracts and
forward contracts to the extent necessary to meet the requirements of
Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments of
the Fund. Foreign exchange gains and losses realized by the Fund will generally
be treated as ordinary income and losses. The Fund's use of non-U.S. currencies
for non-hedging purposes may be limited in order to avoid a tax on the Fund.
Investment by the Fund in certain "passive foreign investment companies" may
also be limited in order to avoid a tax on the Fund. The Fund may elect to mark
to market any investments in "passive foreign investment companies" on the last
day of each taxable year. This election may cause the Fund to recognize
ordinary income prior to the receipt of cash payments with respect to those
investments; in order to distribute this income and avoid a tax on the Fund,
the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold. Investment income received by the Fund from
non-U.S. securities may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many other
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on such income. The Fund intends to qualify for treaty reduced rates
where available. It is not possible, however, to determine the Fund's effective
rate of foreign tax in advance since the amount of the respective assets to be
invested within various countries is not known. The Fund generally does not
expect to be able to pass through to shareholders foreign tax credits with
respect to any foreign taxes imposed on non-U.S. investments.
The Fund will withhold tax payments at the rate of 30% (or any lower rate
permitted under an applicable treaty) on taxable dividends and other payments
subject to withholding taxes that are made to persons who are not citizens or
residents of the United States. Distributions received from the Fund by non-
U.S. persons also may be subject to tax under the laws of their own
jurisdiction.
The account application asks each new shareholder to certify that the
shareholder's Social Security or taxpayer identification number is correct and
<PAGE>
that the shareholder is not subject to 31% backup withholding for failing to
report income to the IRS. If a shareholder fails to provide this information,
or otherwise violates IRS regulations, the Fund may be required to withhold tax
at the rate of 31% on certain distributions and redemption proceeds paid to
that shareholder.
Distributions of the Fund that are derived from interest on obligations of
the U.S. Government and certain of its agencies and instrumentalities (but not
generally from capital gains realized upon the dispositions of such
obligations) may be exempt from state and local taxes. Shareholders are urged
to consult their tax advisers regarding the possible exclusion of such portion
of their dividends for state and local income tax purposes.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Fund. Citibank believes that its services under the Management
Agreements and the activities performed by it or its affiliates as Service
Agents are not underwriting and are consistent with the Glass-Steagall Act and
other relevant federal and state laws. However, there is no controlling
precedent regarding the performance of the combination of investment advisory,
shareholder servicing and administrative activities by banks. State laws on
this issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Changes in either federal or state statutes or regulations, or
in their interpretations, could prevent Citibank or its affiliates from
continuing to perform these services. If Citibank or its affiliates were to be
prevented from acting as the Manager or Service Agent, the Fund would seek
alternative means for obtaining these services. The Fund does not expect that
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
13. FINANCIAL STATEMENTS
The audited financial statements of the Fund (Portfolio of Investments at
October 31, 1998, Statement of Assets and Liabilities at October 31, 1998,
Statement of Operations for the period ended October 31, 1998, Statement of
Changes in Net Assets for the period ended October 31, 1998 and the years ended
December 31, 1997 and 1996, Financial Highlights for the period ended October
31, 1998, each of the years in the four-year period ended December 31, 1997,
and for the period June 25, 1993 (commencement of operations) to December 31,
1993, Notes to Financial Statements and Independent Auditors' Report), each of
which is included in the Annual Report to Shareholders of the Fund, are
incorporated by reference into this Statement of Additional Information and
have been so incorporated in reliance upon the report of PricewaterhouseCoopers
LLP, independent accountants, on behalf of the Fund.
A copy of the Annual Report to Shareholders of the Fund accompanies this
Statement of Additional Information.
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Ratings Group ("S&P") represent their opinions as to the quality of
various debt securities. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, debt securities with the same
maturity, coupon and rating may have different yields while debt securities of
the same maturity and coupon with different ratings may have the same yield.
The ratings below are as described by the rating agencies. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so.
MOODY'S INVESTORS SERVICE, INC.
FOUR HIGHEST BOND RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and generally are 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 in 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 sometime 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.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
STANDARD & POOR'S RATINGS GROUP
FOUR HIGHEST BOND RATINGS
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.
PLUS (+) OR MINUS (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
PART C
<TABLE>
<CAPTION>
Item 23. Exhibits.
<S> <C>
* a(1) Declaration of Trust of Registrant
* and filed a(2) Amendments to Registrant's Declaration of Trust
herewith
* b(1) Amended and Restated By-Laws of Registrant
* b(2) Amendments to Amended and Restated By-Laws of Registrant
*** d Management Agreement between the Registrant and Citibank, N.A., as
manager to CitiFunds Intermediate Income Portfolio
*** e(1) Form of Amended and Restated Distribution Agreement between the
Registrant and CFBDS, as distributor with respect to Class A shares of
CitiFunds Intermediate Income Portfolio
*** e(2) Form of Distribution Agreement between the Registrant and CFBDS, as
distributor with respect to Class B shares of CitiFunds Intermediate Income
Portfolio
* g Custodian Contract between the Registrant and State Street Bank and Trust
Company ("State Street"), as custodian
** h(1) Form of Amended and Restated Sub-Administrative 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) Accounting Services Agreement between the Registrant and State Street, as
Fund accounting agent
*** i Opinion and consent of counsel
*** m(1) Form of Amended and Restated Service Plan of the Registrant for Class A
Shares of CitiFunds Intermediate Income Portfolio
*** m(2) Form of Service Plan of the Registrant for Class B Shares of CitiFunds
Intermediate Income Portfolio
*** o Form of Multiple Class Plan of the Registrant
* p(1) Powers of Attorney for the Registrant
*** p(2) Powers of Attorney for The Premium Portfolios
</TABLE>
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No.
24 to the Registrant's Registration Statement on Form N-1A (File
No. 33-6540) as filed with the Securities and Exchange
Commission on February 20, 1998.
** Incorporated herein by reference to Post-Effective Amendment No.
25 to the Registrant's Registration Statement on Form N-1A (File
No. 33-6540) 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. 33-6540) as filed with the Securities and Exchange
Commission on December 16, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
<PAGE>
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. 24 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. 27 to its Registration Statement on Form N-1A; and
(c) the undertaking of the Registrant regarding indemnification set forth in
its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, Growth & Income Portfolio, Balanced Portfolio, Large Cap
Growth Portfolio, International Equity Portfolio, Government Income Portfolio
and Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury
Reserves Portfolio, Cash Reserves Portfolio, CitiFundsSM Tax Free Income Trust
(CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio and CitiFundsSM California Tax Free Income Portfolio),
CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM California Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves and CitiFundsSM Connecticut
Tax Free Reserves), CitiFundsSM Institutional Trust (CitiFundsSM Institutional
Cash Reserves) and Variable Annuity Portfolios (CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500
and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates
manage assets in excess of $290 billion worldwide. The principal place of
business of Citibank is located at 399 Park Avenue, New York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J. Menezes
is the President and a Director of Citibank. William R. Rhodes and H. Onno
Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group
Inc. and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup Inc.
In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President, Travelers
Property Casualty Co.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
<PAGE>
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
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM New York Tax Free
Income Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
California Tax Free Income Portfolio, CitiFundsSM Short-Term U.S. Government
Income Portfolio, CitiFundsSM Balanced Portfolio, CitiFundsSM Small Cap Value
Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM Large Cap Growth
Portfolio, CitiFundsSM Small Cap Growth Portfolio, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect Folio 200, CitiSelect
Folio 300, CitiSelect Folio 400, and CitiSelect Folio 500. CFBDS is also the
placement agent for Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International Equity
Portfolio, Balanced Portfolio, Government Income Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio. CFBDS
also serves as the distributor for the following funds: The Travelers Fund U
for Variable Annuities, The Travelers Fund VA for Variable Annuities, The
Travelers Fund BD for Variable Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable Annuities, The Travelers Fund
BD IV for Variable Annuities, The Travelers Fund ABD for Variable Annuities,
The Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF II for
Variable Annuities, The Travelers Separate Account QP for Variable Annuities,
The Travelers Separate Account TM for Variable Annuities, The Travelers
Separate Account TM II for Variable Annuities, The Travelers Separate Account
Five for Variable Annuities, The Travelers Separate Account Six for Variable
Annuities, The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The Travelers Fund UL
for Variable Annuities, The Travelers Fund UL II for Variable Annuities, The
Travelers Variable Life Insurance Separate Account One, The Travelers Variable
Life Insurance Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The Travelers Separate Account MGA
II, The Travelers Growth and Income Stock Account for Variable Annuities, The
Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account
for Variable Annuities, The Travelers Timed Bond Account for Variable
Annuities, Emerging Growth Fund, Government Fund, Growth and Income Fund,
International Equity Fund, Municipal Fund, Balanced Investments, Emerging
Markets Equity Investments, Government Money Investments, High Yield
<PAGE>
Investments, Intermediate Fixed Income Investments, International Equity
Investments, International Fixed Income Investments, Large Capitalization
Growth Investments, Large Capitalization Value Equity Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Municipal Bond Investments,
Small Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth & Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Balanced Portfolio,
Conservative Portfolio, Growth Portfolio, High Growth Portfolio, Income
Portfolio, Global Portfolio, Select Balanced Portfolio, Select Conservative
Portfolio, Select Growth Portfolio, Select High Growth Portfolio, Select Income
Portfolio, Concert Social Awareness Fund, Smith Barney Large Cap Blend Fund,
Smith Barney Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High
Grade Bond Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund,
Smith Barney Convertible Fund, Smith Barney Diversified Strategic Income Fund,
Smith Barney Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney
Municipal High Income Fund, Smith Barney Premium Total Return Fund, Smith
Barney Total Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal
Portfolio, Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith
Barney Government Securities Fund, Smith Barney Hansberger Global Small Cap
Value Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment
Grade Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond
Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.
<PAGE>
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and fund accounting North Quincy, MA 02171
agent)
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 21st day of December, 1998.
CITIFUNDS FIXED INCOME TRUST
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 December 21, 1998.
Signature Title
Philip W. Coolidge President, Principal Executive Officer and Trustee
- ----------------------
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
- ---------------------- Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
- ----------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- ----------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- ----------------------
Susan B. Kerley
C. Oscar Morong, Jr.* Trustee
- ----------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- ----------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- ----------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
----------------------
Philip W. Coolidge
Executed by Philip W. Coolidge on behalf
of those indicated pursuant to Powers of
Attorney.
<PAGE>
SIGNATURES
The Premium Portfolios has duly caused this Post-Effective Amendment to
the Registration Statement on Form N-1A of CitiFunds Fixed Income Trust to be
signed on its behalf by the undersigned, thereunto duly authorized, in Grand
Cayman, Cayman Islands, on the 21st day of December, 1998.
THE PREMIUM PORTFOLIOS
on behalf of U.S. Fixed Income 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 Fixed Income Trust has been signed by the following persons in the
capacities indicated on December 21, 1998.
Signature Title
Philip W. Coolidge* President, Principal Executive Officer and Trustee
- ----------------------
Philip W. Coolidge
John R. Elder* Principal Financial Officer and Principal
- ---------------------- Accounting Officer
John R. Elder
Elliott J. Berv* Trustee
- ----------------------
Elliott J. Berv
Mark T. Finn* Trustee
- ----------------------
Mark T. Finn
C. Oscar Morong, Jr.* Trustee
- ----------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
- ----------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
- ----------------------
E. Kirby Warren
*By: Tamie Ebanks-Cunningham
-------------------------
Tamie Ebanks-Cunningham
Executed by Tamie Ebanks-
Cunningham on behalf of those
indicated as attorney in fact.
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
a(2) Amendment to Registrant's Declaration of Trust
Exhibit a(2)
CITIFUNDS FIXED INCOME TRUST
AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
SHARES OF BENEFICIAL INTEREST (WITHOUT PAR VALUE)
Pursuant to Section 6.9 of the Declaration of Trust, dated June 23, 1986,
as amended (the "Declaration of Trust"), of CitiFunds Fixed Income Trust
(formerly, Landmark Fixed Income Funds) (the "Trust"), the undersigned, being a
majority of the Trustees of the Trust, do hereby amend and restate the Trust's
existing Establishment and Designation of Series of Shares of Beneficial
Interest (without par value) in order to add an additional series of the Trust.
No changes to the special and relative rights of the existing series are
intended by this amendment and restatement.
1. The series shall be as follows:
The new series of the Trust shall be designated as "CitiFunds
Diversified Income Portfolio."
The other existing series of the Trust are as follows:
"CitiFunds Intermediate Income Portfolio" and
"CitiFunds Short-Term U.S. Government Income Portfolio."
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Securities Act of
1933 to the extent pertaining to the offering of Shares of each series. Each
Share of each series shall be redeemable, shall be entitled to one vote or
fraction thereof in respect of a fractional share on matters on which shares of
that series shall be entitled to vote, shall represent a pro rata beneficial
interest in the assets allocated or belonging to such series, and shall be
entitled to receive its pro rata share of the net assets of such series upon
liquidation of the series, all as provided in Section 6.9 of the Declaration of
Trust.
3. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to each series as provided in, Rule 18f-2,
as from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
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4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter created or
otherwise to change the special and relative rights of any such series.
IN WITNESS WHEREOF, the undersigned have executed this Establishment and
Designation of Series on separate counterparts this 7th day of August, 1998.
Philip W. Coolidge Riley C. Gilley
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PHILIP W. COOLIDGE RILEY C. GILLEY
As Trustee and Not Individually As Trustee and Not Individually
Diana R. Harrington Susan B. Kerley
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DIANA R. HARRINGTON SUSAN B. KERLEY
As Trustee and Not Individually As Trustee and Not Individually
C. Oscar Morong, Jr. E. Kirby Warren
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C. OSCAR MORONG, JR. E. KIRBY WARREN
As Trustee and Not Individually As Trustee and Not Individually
William S. Woods, Jr.
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WILLIAM S. WOODS, JR.
As Trustee and Not Individually
