<PAGE>
As filed with the Securities and Exchange Commission on March 1, 1999
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. 30
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 31
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 (b) of Rule 485.
The Premium Portfolios, on behalf of U.S. Fixed Income Portfolio, has
also executed this registration statement.
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* This filing relates solely to shares of the Trust's series CitiFunds
Intermediate Income Portfolio.
<PAGE>
MARCH 1, 1999
PROSPECTUS
CitiFunds(SM)
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.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS(SM) ACCOUNT ............................................. 13
CHOOSING A SHARE CLASS .............................................. 13
HOW TO BUY SHARES ................................................... 19
HOW THE PRICE OF YOUR SHARES IS CALCULATED ......................... 20
HOW TO SELL SHARES .................................................. 21
REINSTATING RECENTLY SOLD SHARES .................................... 22
EXCHANGES ........................................................... 22
DIVIDENDS ........................................................... 24
TAX MATTERS ......................................................... 24
MANAGEMENT OF THE FUND ................................................. 26
MANAGER ............................................................. 26
MANAGEMENT FEES ..................................................... 27
MORE ABOUT THE FUND .................................................... 28
PRINCIPAL INVESTMENT STRATEGIES ..................................... 28
RISKS ............................................................... 35
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
FUND AT A GLANCE
Fund at a Glance
This summary briefly describes CitiFunds Intermediate Income
Portfolio and the principal risks of investing in it. Please
note that the Fund invests in securities through an underlying
mutual fund. For more information, see "More About the Fund"
on page 28.
Intermediate Income
Portfolio
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
CitiFunds 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. 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 interest rates and other economic
factors.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in CitiFunds
Intermediate Income Portfolio are described below. See page 35
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,
fluctuations in currency exchange rates, currency exchange
controls and other limitations on the use or transfer of
assets by the Fund or issuers of securities, and political or
social instability. There may be rapid changes in the value
of foreign currencies or securities, causing the Fund's share
price to be volatile. Also, in certain circumstances, the
Fund could realize reduced or no value in U.S. dollars from
its investments in foreign securities, causing the Fund's
share price to go down.
The Fund may invest in issuers located in emerging, or
developing, markets. All of the risks of investing in foreign
securities are heightened by investing in these markets.
o PREPAYMENT RISK. The issuers of debt securities held by the
Fund may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The
Fund may not be able to reinvest that principal at attractive
rates, reducing income to the Fund, and the Fund may lose any
premium paid. On the other hand, rising interest rates may
cause prepayments to occur at slower than expected rates.
This effectively lengthens the maturities of the affected
securities, making them more sensitive to interest rate
changes and the Fund's share price more volatile.
Mortgage-backed securities, including CMOs, are particularly
susceptible to prepayment risk and their prices may be very
volatile.
o ZERO COUPON 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 CitiFunds
Intermediate Income Portfolio is not a complete investment
program.
You should consider investing in CitiFunds 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 CitiFunds 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 and possible losses.
o Your investment horizon is shorter term -- usually 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.
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
index does not include the costs of buying and selling
securities and other Fund expenses.
o In both the chart and table, the returns shown for the Fund
are for periods before the creation of share classes on
January 4, 1999. All existing Fund shares were designated
Class A shares on that date. Prior to that date, there were
no sales charges on the purchase or sale of Fund shares. The
returns for Class A in the table, but not the bar chart, have
been adjusted to reflect the maximum front-end sales charge
currently applicable to the Class A shares.
o The Class B shares are newly offered and have no investment
history. Class B performance would have been lower than that
shown for Class A shares, because of higher fund expenses and
the effects of the contingent deferred sales charge.
When you consider this information, please remember that the
Fund's past performance is not necessarily an indication of
how it will perform in the future. For current yield
information, please call 800-625-4554 toll free, or contact
your account representative.
TOTAL RETURN
(per calendar year -- Class A)
[Graphic Omitted]
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CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
- --------------------------------------------------------------------------------
1994 ..................... -4.48
1995 ..................... 16.45
1996 ..................... 2.73
1997 ..................... 8.87
1998 ..................... 8.07
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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
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- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
THROUGH DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year 5 Years June 25, 1993
..............................................................................
Class A 3.21% 5.13% 5.19%
..............................................................................
Class B N/A N/A N/A
..............................................................................
Lehman Aggregate Bond Index 8.69% 7.27% *%
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
..............................................................................
SHARE CLASS (Class descriptions begin on page 13) CLASS A CLASS B
..............................................................................
Maximum Sales Charge (Load) Imposed on Purchases 4.50% None
..............................................................................
Maximum Deferred Sales Charge (Load) None(1) 4.50%(2)
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ANNUAL FUND OPERATING EXPENSES(3)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
..............................................................................
Management Fees 0.70% 0.70%
..............................................................................
Distribution (12b-1) Fees 0.25% 0.75%
..............................................................................
Other Expenses (administrative and other expenses) 0.38% 0.38%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.33% 1.83%
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* 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%
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, U.S. Fixed Income
Portfolio. This table reflects the expenses of the Fund and U.S. Fixed
Income Portfolio.
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods
indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if
you own Class A shares.
If you own Class B shares, two numbers are given, one showing
your expenses if you sold (redeemed) all your shares at the
end of each time period and one if you held onto your shares.
The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year--the assumption of
a 5% return is required by the SEC for the purpose of this
example and is not a prediction of the Fund's future
performance; and
o the Fund's operating expenses shown in the Fund Fees and
Expenses table above remain the same before taking into
consideration any fee waivers or reimbursements.
<PAGE>
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
Class A $579 $852 $1,146 $1,979
..............................................................................
Class B
..............................................................................
Assuming redemption at end of $636 $876 $1,090 $1,909
period
..............................................................................
Assuming no redemption $186 $576 $ 990 $1,909
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<PAGE>
YOUR CITIFUNDS ACCOUNT
Your CitiFunds Account
CHOOSING A SHARE CLASS
The Fund offers two share classes, Class A and Class B. Each
class has its own sales charge and expense structure. Please
read the information below carefully to help you decide which
share class is best for you.
CLASS A AT A GLANCE
o Front-end load -- there is an initial sales charge of 4.50%
or less
o Lower sales charge rates for larger investments
o Annual distribution/service fee of up to 0.25%
o Lower annual expenses than Class B shares
CLASS B AT A GLANCE
o No initial sales charge
o The deferred sales charge declines from 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 0.75%
o Automatic conversion to Class A shares after 8 years
- --------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/ SERVICE
FEES THAT are paid under a 12B-1 PLAN. These are fees, also
called 12B-1 FEES, that are deducted from fund assets and are
used to compensate those financial professionals who sell fund
shares and provide ongoing services to shareholders and to pay
other marketing and advertising expenses. Because you pay these
fees during the whole period that you own the shares, over time
you may pay more than if you had paid other types of sales
charges. For this reason, you should consider the effects of
12b-1 fees as well as sales loads when choosing a share class.
- ---------------------------------------------------------------------------
SALES CHARGES -- CLASS A SHARES
o Class A shares are sold at net asset value plus a front-end,
or initial, sales charge. The rate you pay goes down as the
amount of your investment in Class A shares goes up. The
chart below shows the rate of sales charge that you pay,
depending on the amount that you purchase.
o The chart below also shows the amount of broker/dealer
compensation that is paid out of the sales charge. This
compensation includes commissions and other fees that
financial professionals who sell shares of the Fund receive.
The distributor keeps up to approximately 10% of the sales
charge imposed on Class A shares. Financial professionals
that sell Class A shares will also receive the service fee
payable on Class A shares at an annual rate equal to 0.25% of
the average daily net assets represented by the Class A
shares sold by them.
- --------------------------------------------------------------------------------
BROKER/
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF COMMISSION
AMOUNT OF OFFERING YOUR AS A % OF
YOUR INVESTMENT PRICE INVESTMENT OFFERING PRICE
..............................................................................
Less than $25,000 4.50% 4.71% 4.05%
..............................................................................
$25,000 to less than $50,000 4.00% 4.17% 3.60%
..............................................................................
$50,000 to less than $100,000 3.50% 3.63% 3.15%
..............................................................................
$100,000 to less than $250,000 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 below.
o After the initial sales charge is deducted from your
investment, the balance of your investment is invested in the
Fund.
o The sales charge may also be waived or reduced in certain
circumstances, as described in "Sales Charge Waivers or
Reductions" below. If you qualify to purchase Class A shares
without a sales load, you should purchase Class A shares
rather than Class B shares because Class A shares pay lower
fees.
o If you invest at least $500,000 in the Fund, you do not pay
any initial sales charge. However, you may be charged a
contingent deferred sales charge (CDSC) of 1% of the purchase
price, or the sale price, whichever is less, if you sell
within the first year. Under certain circumstances, waivers
may apply. Other policies regarding the application of the
CDSC are the same as for Class B shares. Please read the
discussion below on Class B shares for more information.
PLEASE NOTE: If you owned Fund shares prior to January 4, 1999,
you may exchange those shares into Class A shares of other
CitiFunds and other mutual funds managed by Citibank without
paying any sales charge, subject to verification. Shares subject
to the waiver include shares purchased prior to January 4, 1999,
and any shares that represent capital appreciation or the
reinvestment of dividends or capital gains distributions on those
shares.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial,
sales charge, but you are charged a contingent deferred sales
charge (CDSC) when you sell shares within five years of
purchase. The rate of CDSC goes down the longer you hold your
shares. The table below shows the rates that you pay, as a
percentage of your original purchase price (or the sale
price, whichever is less), depending upon when you sell your
shares.
- --------------------------------------------------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
..............................................................................
1st year since purchase 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 for sales exempt from the CDSC.
Financial professionals also receive a service fee at an
annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares that they have sold.
o When you sell your shares, the CDSC will be based on either
your original purchase price, or the sale price, whichever is
less.
o You do not pay a CDSC on shares acquired through reinvestment
of dividends and capital gain distributions or on shares
representing capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund
will always use the Class B shares with the lowest CDSC to
fill your sell requests.
o You do not pay a CDSC at the time you exchange your Class B
shares for Class B shares of certain CitiFunds - any payment
will be deferred until your Class B shares are redeemed.
o If you acquired your Class B shares through an exchange from
another fund managed or advised by Citibank, the date of your
initial investment will be used as the basis of the CDSC
calculations. If the rate of CDSC on the shares exchanged was
higher than the rate of CDSC on your Fund shares, you will be
charged the higher rate when you sell your Fund shares.
From time to time, the 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.
o Redemptions made under the Fund's Systematic Withdrawal Plan.
You may learn more about the requirements for waiver or
reduction and how the programs work by requesting a copy of
the Fund's Statement of Additional Information, or by
consulting with your account representative.
AUTOMATIC CONVERSION OF CLASS B
SHARES
Class B shares automatically convert to Class A shares
approximately eight years after purchase. If you acquired your
shares through an exchange, the date of your initial
investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the
Class B shares converted. The price of Class A shares may be
higher than Class B shares at the time of conversion, because
of the lower expenses of Class A shares. Therefore, you may
receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of CitiFunds 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. If you wish to transfer your account,
you may only transfer it to another financial institution that
acts as a Service Agent, or you may set up an account directly
with the Fund's transfer agent.
HOW THE PRICE OF YOUR SHARES
IS CALCULATED
The Fund calculates its NAV every day the New York Stock
Exchange is open for trading. This calculation is made at the
close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time. NAV is calculated separately
for each class of shares. NAV may be higher for Class A shares
because Class A shares bear lower expenses. On days when the
financial markets in which the Fund invests close early, NAV
will be calculated as of the close of those markets.
The Fund's securities are valued primarily on the basis of
market quotations. When market quotations are not readily
available, the Fund may price securities at fair value. Fair
value is determined in accordance with procedures approved by
the Fund's Board of Trustees. When the Fund uses the fair
value pricing method, a security may be priced higher or lower
than if the Fund had used a market quotation to price the same
security. For foreign securities the values are translated
from the local currency into U.S. dollars using current
exchange rates. If trading in the currency is restricted, the
Fund uses a rate believed to reflect the currency's fair value
in U.S. dollars. Trading may take place in foreign securities
held by the Fund on days when the Fund is not open for
business. As a result, the Fund's NAV may change on days on
which it is not possible to purchase or sell shares of the
Fund.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day. The
price will be the NAV the next time it is calculated after
your redemption request in proper form has been received by
the Fund's transfer agent. If your shares are subject to a
CDSC, the applicable charge will be deducted from your sale
proceeds.
You may make redemption requests in writing through the Fund's
transfer agent or, if you are a customer of a Service Agent,
through your Service Agent. If your account application
permits, you may also make redemption requests by calling the
Fund's transfer agent or, if you are a customer of a Service
Agent, your Service Agent. Each Service Agent is responsible
for promptly submitting redemption requests to the Fund's
transfer agent. You are responsible for making sure your
redemption request is in proper form.
The Fund has a Systematic Withdrawal Plan which allows you to
automatically withdraw a specific dollar amount from your
account on a regular basis. You must have at least $10,000 in
your account to participate in this program. Under the Plan,
if your shares are subject to a CDSC, you may only withdraw up
to 10% of the value of your account in any year, but you will
not be subject to a CDSC on the shares withdrawn under the
Plan. For more information, please contact your Services
Agent.
If you own both Class A and Class B shares, and want to sell
shares, you should specify which class of shares you wish to
sell. If you fail to specify, Class A shares will be redeemed
first.
When you sell your Class B shares, they will be redeemed so as
to minimize your CDSC. Shares on which the CDSC is not
payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital
gain distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds
normally on the business day after you sell your shares but
generally within seven days. Your redemption proceeds may be
delayed for up to ten days if your purchase was made by check.
Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock
Exchange is closed (other than on weekends or holidays) or
trading is restricted, or if an emergency exists. The Fund has
the right to pay your redemption proceeds by giving you
securities instead of cash. In that case, you may incur costs
(such as brokerage commissions) converting the securities into
cash. You should be aware that you may have to pay taxes on
your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund
permits you to repurchase Class A shares in the Fund, up to
the dollar amount of the shares redeemed, without paying any
sales charges. To take advantage of this reinstatement
privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
EXCHANGES
You may exchange Fund shares for shares of the same class of
certain other CitiFunds. You may also be able to exchange your
Class A shares for shares of certain CitiFunds that offer only
a single class of shares unless your Class A shares are
subject to a CDSC. You may not exchange Class B shares for
shares of CitiFunds that offer only a single class of shares.
You may also acquire Fund shares through an exchange from
another fund managed by Citibank.
You may place exchange orders through the transfer agent or,
if you are a customer of a Service Agent, through your Service
Agent. You may place exchange orders by telephone if your
account application permits. The transfer agent or your
Service Agent can provide you with more information, including
a prospectus for any fund that may be acquired through an
exchange.
The exchange will be based on the relative NAVs of both funds
when they are next determined after your order is accepted by
the Fund's transfer agent, subject to any applicable sales
charge. You cannot exchange shares until the Fund has received
payment in federal funds for your shares.
When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales
charge payable on the shares to be acquired in the exchange
and the sales charge paid in connection with your original
purchase of Class A shares. However, if your Fund shares were
purchased prior to January 4, 1999, you will not have to pay a
sales charge when you exchange those shares for Class A
shares, subject to confirmation through a check of appropriate
records and documentation.
When you exchange your Class B shares, you will not pay any
initial sales charge, and no CDSC is imposed when your Class B
shares are exchanged for Class B shares of certain other
CitiFunds that are made available by your Service Agent.
However, you may be required to pay a CDSC when you sell those
shares. The length of time that you owned Fund shares will be
included in the holding period of your new Class B shares.
The exchange privilege may be changed or terminated at any
time. You should be aware that you may have to pay taxes on
your exchange.
DIVIDENDS
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.
TAX MATTERS
This discussion of taxes is for general information only. You
should consult your own tax adviser about your particular
situation, and the status of your account under state and
local laws.
TAXABILITY OF DISTRIBUTIONS. You will normally have to pay
federal income taxes on the distributions you receive from the
Fund, whether you take the distributions in cash or reinvest
them in additional shares. Distributions designated by the
Fund as capital gain dividends are taxable as long-term
capital gains. Other distributions are generally taxable as
ordinary income. Some distributions paid in January may be
taxable to you as if they had been paid the previous December.
The IRS Form 1099 that is mailed to you every January details
your distributions for the prior year and how they are treated
for federal tax purposes.
Fund distributions will reduce the Fund's net asset value per
share. As a result, if you buy shares just before the Fund
makes a distribution, you may pay the full price for the
shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
BACKUP WITHHOLDING. The account application asks each new
investor to certify that the investor's Social Security or
taxpayer identification number is correct and that the
shareholder is not subject to 31% backup withholding for
failing to report income to the IRS. The Fund may be required
to withhold (and pay over to the IRS for your credit) 31% of
certain distributions and proceeds it pays you if you fail to
provide this information or otherwise violate IRS regulations.
FOREIGN SHAREHOLDERS. If you are not a citizen or resident of
the U.S., the Fund will withhold U.S. federal income tax
payments at the rate of 30% (or any lower applicable treaty
rate) on taxable dividends and other payments subject to
withholding taxes. Fund distributions received by non-U.S.
persons also may be subject to tax under the laws of their own
jurisdictions.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange
shares, it is considered a taxable event for you. Depending on
the purchase price and the sale price of the shares you sell
or exchange, you may have a gain or a loss on the transaction.
You are responsible for any tax liabilities generated by your
transactions.
Management of the Fund
MANAGER
CitiFunds 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 has
been managing money since 1822. With its affiliates, it
currently manages more than $290 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citigroup
Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
"CitiFunds" is a service mark of Citicorp.
Citibank and its affiliates may have banking and investment
banking relationships with the issuers of securities that are
held in the Fund. However, in making investment decisions for
the Fund, Citibank does not obtain or use material inside
information acquired by any division, department or affiliate
of Citibank in the course of those relationships. Citibank and
its affiliates may have loans outstanding that are repaid with
proceeds of securities purchased by the Fund.
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.
<PAGE>
MANAGEMENT OF THE FUND
MANAGEMENT FEES
For the management services Citibank provided the 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 FUND AT A GLANCE on page 3. 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.
MORE ABOUT THE FUND
- ---------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------
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. Certain types of mortgage-backed
securities are 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 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
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.
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 does not invest directly in
securities but instead invests through an underlying mutual
fund, U.S. Fixed Income Portfolio, having the same investment
goals and strategies as the Fund. U.S. Fixed Income Portfolio
buys, holds and sells securities in accordance with these
goals and strategies. The Fund may stop investing in its
underlying mutual fund at any time, and will do so if the
Fund's Trustees believe that to be in the best interests of
the Fund's shareholders. The Fund could then invest in another
mutual fund or pooled investment vehicle or invest directly in
securities.
MANAGEMENT STYLE. Managers of mutual funds use different
styles when 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 for the Fund. When using a
"top-down" approach the portfolio managers look 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. The portfolio managers use these
same approaches when deciding which securities to sell.
Securities are sold when the Fund needs cash to meet
redemptions, or when the managers believe that better
opportunities exist or that the security no longer fits within
the managers' overall strategies for achieving the Fund's
goals. For more information about the portfolio managers, see
"Manager" on page 26.
The Fund is actively managed. Although the portfolio managers
attempt to minimize portfolio turnover, from time to time the
Fund's annual portfolio turnover rate may exceed 100%. The
sale of securities may produce capital gains, which, when
distributed, are taxable to investors. Active trading may also
increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities. The
"Financial Highlights" section of this prospectus shows the
Fund's historical portfolio turnover rate.
Citibank may use brokers or dealers for Fund transactions who
also provide brokerage and research services to the Fund or
other accounts over which Citibank exercises investment
discretion. The Fund may "pay up" for brokerage services,
meaning that it is authorized to pay a broker or dealer who
provides these brokerage and research services a commission
for executing a portfolio transaction which is higher than the
commission another broker or dealer would have charged.
However, the Fund will "pay up" only if Citibank determines in
good faith that the higher commission is reasonable in
relation to the brokerage and research services provided,
viewed in terms of either the particular transaction or all of
the accounts over which Citibank exercises investment
discretion.
RISKS
Investing in a mutual fund involves risk. Before investing,
you should consider the risks you will assume. Certain of
these risks are described below. More information about risks
appears in the Fund's Statement of Additional Information. 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.
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, causing a loss. Or, an issuer may
suffer adverse changes in its financial condition that could
lower the credit quality of a security, leading to greater
volatility in the price of the security and in shares of the
Fund. A change in the quality rating of a bond or other
security can also affect the security's liquidity and make it
more difficult for the Fund to sell. The lower quality debt
securities in which the Fund may invest are more susceptible
to these problems than higher quality obligations.
FOREIGN SECURITIES. Investments in foreign securities involve
risks relating to adverse political, social and economic
developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign
issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on
fund investments, currency exchange controls and other
limitations on the use or transfer of Fund assets and
political or social instability.
o Foreign companies may not be subject to accounting standards
or governmental supervision comparable to U.S. companies, and
there may be less public information about their operations.
o Foreign markets may be less liquid and more volatile than
U.S. markets. Rapid increases in money supply may result in
speculative investing, contributing to volatility. Also,
equity securities may trade at price-earnings multiples that
are higher than those of comparable U.S. companies, and that
may not be sustainable. As a result, there may be rapid
changes in the value of foreign securities.
o Foreign markets may offer less protection to investors.
Enforcing legal rights may be difficult, costly and slow.
There may be special problems enforcing claims against
foreign governments.
o Since foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will
affect the Fund's net asset value, the value of dividends and
interest earned, and gains and losses realized on the sale of
securities. An increase in the U.S. dollar relative to these
other currencies will adversely affect the value of the Fund.
In addition, some foreign currency values may be volatile and
there is the possibility of governmental controls on currency
exchanges or governmental intervention in currency markets.
Controls or intervention could limit or prevent the Fund from
realizing value in U.S. dollars from its investment in
foreign securities. The Fund may also be adversely affected
by the introduction of the Euro.
o The Fund may invest in issuers located in emerging, or
developing, markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile
than the markets of developed countries with more mature
economies.
PREPAYMENT RISK. The issuers of debt securities held by the
Fund may be able to prepay principal due on the securities,
particularly during periods of declining interest rates. The
Fund may not be able to reinvest that principal at attractive
rates, reducing income to the Fund, and the Fund may lose any
premium paid. On the other hand, rising interest rates may
cause prepayments to occur at slower than expected rates. This
effectively lengthens the maturities of the affected
securities, making them more sensitive to interest rate
changes and the Fund's share price more volatile. Mortgage-
backed securities, including CMOs, are particularly
susceptible to prepayment risk and their prices may be very
volatile.
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 likely these efforts will be successful, the
failure to implement any necessary modifications could have an
adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not
solve their Year 2000 problems, or if it costs them large
amounts of money to solve these problems.
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single Class A Fund share. The total returns
in the table represent the rate that an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP
whose report, along with the Fund's financial statements, is included in the
annual report which is incorporated by reference into the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
For the Period
June 25, 1993
Ten Months (Commencement of
Ended Year Ended December 31, Operations) to
October 31, ---------------------------------------- December 31,
1998 1997 1996 1995 1994 1993
.................................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88 $10.00
.................................................................................................................................
Income From Operations:
Net investment income 0.447 0.575 0.54 0.57 0.521 0.261
Net realized and unrealized gain
(loss) on investments 0.272 0.239 (0.29) 0.86 (0.959) 0.037
.................................................................................................................................
Total from operations 0.719 0.814 0.25 1.43 (0.438) 0.298
.................................................................................................................................
Less Distributions From:
Net investment income (0.439) (0.574) (0.54) (0.57) (0.516) (0.261)
In excess of net investment income -- -- -- -- -- (0.006)
Net realized gain on investments -- -- -- -- (0.016) (0.151)
.................................................................................................................................
Total distributions (0.439) (0.574) (0.54) (0.57) (0.532) (0.418)
.................................................................................................................................
Net Asset Value, end of period $10.00 $ 9.72 $ 9.48 $ 9.77 $ 8.91 $ 9.88
.................................................................................................................................
Total Return 7.57%** 8.87% 2.73% 16.45% (4.48)% 2.99%**
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands) $76,788 $36,702 $43,919 $49,618 $47,582 $61,183
Ratio of expenses to average net assets (A) 0.91%* 0.92% 0.90% 0.90% 0.90% 0.90%*
Ratio of expenses to average net assets after
fees paid indirectly (A) 0.90%* 0.90% 0.90% 0.90% 0.90% 0.90%*
Ratio of net investment income to
average net assets 5.30%* 5.92% 5.72% 5.97% 5.52% 4.95%*
Portfolio turnover 120% 146% 495% 396% 291% 103%
Note: If agents of the Fund had not voluntarily agreed to waive all or a portion of their fees for the periods indicated the
net investment income per share and the ratios would have been as follows:
Net investment income per share $0.412 $0.522 $0.50 $0.52 $0.475 $0.236
RATIOS:
Expenses to average net assets 1.33%* 1.47% 1.39% 1.42% 1.39% 1.38%*
Net investment income to average net assets 4.88%* 5.37% 5.23% 5.45% 5.03% 4.47%*
* Annualized.
** Not Annualized.
(A) The expense ratios for the year ended December 31, 1995 and the periods thereafter have been adjusted to reflect a change
in rep orting requirements. The new reporting guidelines require the Fund to increase its expense ratio by the effect of
any expense offset ar rangements with its service providers. The expense ratios for each of the periods ended before
December 31, 1995 have not been adjusted to reflect this change.
</TABLE>
<PAGE>
APPENDIX
Appendix
CLASS A SHARES -- ELIGIBLE PURCHASERS
Class A shares may be purchased without a sales charge by the
following eligible purchasers:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate
of Citibank performs investment advisory services or charges
fees for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors or trustees (and their immediate
families), of any investment company for which Citibank or
any subsidiary or affiliate of Citibank serves as the
investment adviser or as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and
its affiliates or any Service Agent and its affiliates
(including immediate families of any of the foregoing), and
retired employees of Citibank and its affiliates or CFBDS
and its affiliates (including immediate families of any of
the foregoing)
[] investors participating in a fee-based or promotional
arrangement sponsored or advised by Citibank or its
affiliates
[] investors participating in a rewards program that offers
Fund shares as an investment option based on an investor's
balances in selected Citigroup Inc. products and services
[] employees of members of the National Association of
Securities Dealers, Inc., provided that such sales are made
upon the assurance of the purchaser that the purchase is
made for investment purposes and that the securities will
not be resold except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan
offered to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's
Board of Trustees or by the Board of Trustees of any other
CitiFund or mutual fund managed or advised by Citibank (all
of such funds being referred to herein as CitiFunds) the
terms of which entitle those shareholders to purchase shares
of the Fund or any other CitiFund at net asset value without
a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January
4, 1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to
minimum requirements as may be established by CFBDS with
respect to the amount of purchase; currently, the amount
invested by the qualified plan in the Fund or in any
combination of CitiFunds must total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be imposed
on the investments in the event of certain share redemptions
within 12 months following the share purchase, at the rate
of 1% of the lesser of the value of the shares redeemed (not
including reinvested dividends and capital gains
distributions) or the total cost of the shares; the
contingent deferred sales charge on Class A shares will be
waived under the same circumstances as the contingent
deferred sales charge on Class B shares will be waived; in
determining whether a contingent deferred sales charge on
Class A shares is payable, and if so, the amount of the
charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
o all investments made during a calendar month will age
one month on the last day of the month and each
subsequent month
o any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the
redemption proceeds when the exchanged shares are
subsequently redeemed (assuming the contingent deferred
sales charge is then payable)
o the holding period of Class A shares so acquired through
an exchange will be aggregated with the period during
which the original Class A shares were held
[] subject to appropriate documentation, investors where the
amount invested represents redemption proceeds from a mutual
fund (other than a CitiFund), if:
o the redeemed shares were subject to an initial sales
charge or a deferred sales charge (whether or not
actually imposed), and
o the redemption has occurred no more than 60 days prior
to the purchase of Class A shares of the Fund
[] an investor who has a business relationship with an
investment consultant or other registered representative who
joined a broker-dealer which has a sales agreement with
CFBDS from another investment firm within six months prior
to the date of purchase by the investor, if:
o the investor redeems shares of another mutual fund sold
through the investment firm that previously employed
that investment consultant or other registered
representative, and either paid an initial sales charge
or was at some time subject to, but did not actually
pay, a deferred sales charge or redemption fee with
respect to the redemption proceeds
o the redemption is made within 60 days prior to the
investment in the Fund, and
o the net asset value of the shares of the Fund sold to
that investor without a sales charge does not exceed the
proceeds of the redemption
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe 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 CFP/INI399
<PAGE>
Statement of
Additional Information
March 1, 1999
CITIFUNDS(SM) 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
CitiFunds(SM) 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
2. Investment Objectives and Policies;
Special Information Concerning Investment Structure ................. 2
3. Description of Permitted Investments and Investment Practices ........ 3
4. Investment Restrictions .............................................. 13
5. Performance Information .............................................. 14
6. Determination of Net Asset Value; Valuation of Securities ............ 16
7. Additional Information on the Purchase and Sale of
Fund Shares and Shareholder Programs ................................ 17
8. Management ........................................................... 23
9. Portfolio Transactions ............................................... 29
10. Description of Shares, Voting Rights and Liabilities ................. 30
11. Tax Matters .......................................................... 32
12. Certain Bank Regulatory Matters ...................................... 34
13. Financial Statements ................................................. 34
Appendix ................................................................. 35
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. This Statement of Additional Information
incorporates by reference the financial statements described on page 34
hereof. These financial statements can be found in the Fund's Annual Report to
Shareholders. An investor may obtain copies of the Fund's Prospectus and
Annual Report without charge by calling toll-free 1-800-625-4554.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
CitiFunds 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.
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 any or 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.
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 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 contract was originally entered into. While the Fund will
establish a futures position only if there appears to be a liquid secondary
market therefor, there can be no assurance that such a market will exist for
any particular futures contract at any specific time. In that event, it may
not be possible to close out a position held by the Fund, which could require
the Fund to purchase or sell the instrument underlying the futures contract or
to meet ongoing variation margin requirements. The inability to close out
futures positions also could have an adverse impact on the ability effectively
to use futures transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. The trading of futures contracts also is subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times
make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Investments in futures contracts also entail the risk that if the
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 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 liquid securities will be maintained by the Fund in a segregated
account so that the amount so segregated, plus the applicable margin held on
deposit, will be approximately equal to the amount necessary to satisfy the
Fund's obligations under the futures contract. 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
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
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 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 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
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.
However, the Fund takes the risk that the market price of the mortgage-backed
security will drop below the future purchase price. When the Fund uses a
mortgage dollar roll, it is also subject to the risk that the other party to
the agreement will not be able to perform. A "covered roll" is a specific type
of dollar roll for which 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 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 market 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 (taken at market value) 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 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
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 (taken at market value) in securities for which there is no readily
available market. This policy is not fundamental and may be changed without
shareholder approval.
For purposes of restriction (1) above, covered mortgage dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.
If a percentage 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 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.
CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
<TABLE>
<CAPTION>
REDEEMABLE VALUE
OF A HYPOTHETICAL
AVERAGE ANNUAL $1,000 INVESTMENT
TOTAL AT THE END OF
RATE OF RETURN THE PERIOD
-------------- -----------------
<S> <C> <C>
Period from January 1, 1997 to October 31, 1998 .................................. 2.73% $1,027.58
Five years ended October 31, 1998 ................................................ 4.95% $1,263.66
June 25, 1993 (commencement of operations) to October 31, 1998 ................... 5.27% $1,315.99
</TABLE>
The annualized yield of shares of the Fund for the 30-day period ended
October 31, 1998 was 4.55%.
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
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.
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.
<TABLE>
<CAPTION>
CITIFUNDS INTERMEDIATE
INCOME PORTFOLIO
----------------
<S> <C>
Net Asset Value per share .............................................. $10.00
Per Share Sales Charge -- 4.50% of public offering price
(4.71% of net asset value per share) ................................. $ 0.47
Per Share Offering Price to the Public ................................. $10.47
</TABLE>
The Fund receives the entire net asset value of all Class A shares that
are sold. The Distributor retains the full applicable sales charge from which
it pays the uniform reallowances shown in the table below.
The front-end sales charge for Class A shares expressed as a percentage of
offering price and net asset value, and the dealer reallowance expressed as a
percentage of the offering price is set forth in the table below. The 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.
<TABLE>
<CAPTION>
DEALER
SALES CHARGE SALES CHARGE REALLOWANCE
AMOUNT OF AS A % OF AS A % OF AS A % OF
INVESTMENT OFFERING PRICE INVESTMENT OFFERING PRICE
- ---------- -------------- ---------- --------------
<S> <C> <C> <C>
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% 3.63% 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 "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 ............................. 4.00%
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
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.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will
with persons or entities with which Citibank or the Distributor or their
affiliates have business relationships, or because the sales effort, if any,
involved in making such sales is negligible, or, in the case of certain CDSC
waivers, because the circumstances surrounding the sale of Fund shares were
not foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
CLASS A -- FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares
acquired through the reinvestment of dividends and capital gains
distributions.
o Eligible Purchasers. Class A shares may be purchased without a sales
charge by:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors 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 or promotional
arrangement sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances
in selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's
Board of Trustees or by the Board of Trustees of any other
CitiFund or mutual fund managed or advised by Citibank (all of
such funds being referred to herein as CitiFunds) the terms of
which entitle those shareholders to purchase shares of the Fund
or any other CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum
requirements as may be established by CFBDS with respect to the
amount of purchase; currently, the amount invested by the
qualified plan in the Fund or in any combination of CitiFunds
must total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be imposed on
the investments in the event of certain share redemptions within
12 months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the
total cost of the shares; the contingent deferred sales charge
on Class A shares will be waived under the same circumstances as
the contingent deferred sales charge on Class B shares will be
waived; in determining whether a contingent deferred sales
charge on Class A shares is payable, and if so, the amount of
the charge:
+ it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
+ all investments made during a calendar month will age one
month on the last day of the month and each subsequent month
+ any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently redeemed
(assuming the contingent deferred sales charge is then
payable)
+ the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund
(other than a CitiFund), if:
+ the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually imposed),
and
+ the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker- dealer which has a sales agreement with CFBDS from
another investment firm within six months prior to the date of
purchase by the investor, if:
+ the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative, and
either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales charge
or redemption fee with respect to the redemption proceeds
+ the redemption is made within 60 days prior to the investment
in 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:
o Reinvestment. There is no CDSC on shares representing capital
appreciation or on shares acquired through reinvestment of dividends
or capital gains distributions.
o Waivers. The CDSC will be waived in connection with:
[] a total or partial redemption made within one year of the death
of the shareholder; this waiver is available where the deceased
shareholder is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with right of
survivorship, and applies only to redemption of shares held at
the time of death
[] a lump sum or other distribution in the case of an Individual
Retirement Account (IRA), a self-employed individual retirement
plan (Keogh Plan) or a custodian account under Section 403(b) of
the Internal Revenue Code, in each case following attainment of
age 59 1/2
[] a total or partial redemption resulting from any distribution
following retirement in the case of a tax- qualified retirement
plan
[] a redemption resulting from a tax-free return of an excess
contribution to an IRA
[] redemptions under the Fund's Systematic Withdrawal Plan
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the 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 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.
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 2.50%
(the rate applicable to single transactions from $100,000 to less than
$250,000). A shareholder must provide the Transfer Agent with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
SYSTEMATIC WITHDRAWAL PLAN
The Fund's Systematic Withdrawal Plan permits you to have a specified
dollar amount (minimum of $100 per withdrawal) automatically withdrawn from
your account on a regular basis if you have at least $10,000 in your Fund
account at the time of enrollment. You are limited to one withdrawal per month
under the Plan.
If you redeem Class A or Class B shares under the Plan that are subject to
a CDSC, you are not subject to any CDSC applicable to the shares redeemed, but
the maximum amount that you can redeem under the Plan in any year is limited
to 10% of the average daily balance in your account.
You may receive your withdrawals by check, or have the monies transferred
directly into your bank account. Or you may direct that payments be made
directly to a third party.
To participate in the Plan, you must complete the appropriate forms
provided by your Service Agent.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed (with a credit
for any contingent deferred sales charge paid) by purchasing Class A shares of
the 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 your Service Agent, or may
be acquired through an exchange of shares of the same class of those funds.
Class A shares also may be exchanged for shares of certain CitiFunds money
market funds that offer only a single class of shares, unless the Class A
shares are subject to a contingent deferred sales charge. Class B shares may
not be exchanged for shares of CitiFunds money market funds other than Cash
Reserves.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares are being acquired and the sales charge for
Class A of the fund being exchanged into is greater than the current sales
charge of the Fund (in which case an initial sales charge will be imposed at a
rate equal to the difference). Investors whose shares are outstanding on
January 4, 1999 will be able to exchange those Class A shares, and any shares
acquired through capital appreciation and the reinvestment of dividends and
capital gains distributions on those shares, into Class A shares of the other
funds without paying any sales charge.
No CDSC is imposed on Class B shares at the time they are exchanged for
Class B shares of certain other CitiFunds that are made available by your
Service Agent. However, you may be required to pay a CDSC when you sell those
shares. When determining the amount of the CDSC, 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.
You must notify your Service Agent at the time of exchange if you believe
that you qualify for share prices which do not include the sales charge or
which reflect a reduced sales charge, because the Fund shares you are
exchanging were: (a) purchased with a sales charge, (b) acquired through a
previous exchange from shares purchased with a sales charge, (c) outstanding
as of January 4, 1999, or (d) acquired through capital appreciation or the
reinvestment of dividends and capital gains distributions on those shares. Any
such qualification may be subject to confirmation, through a check of
appropriate records and documentation, of your existing share balances and any
sales charges paid on prior share purchases.
This exchange privilege may be modified or terminated at any time, and is
available only in those jurisdictions where such exchanges legally may be
made. Before making any exchange, shareholders should contact their Service
Agents to obtain more information and prospectuses of the funds to be acquired
through the exchange. An exchange is treated as a sale of the shares exchanged
and could result in taxable gain or loss to the shareholder making the
exchange.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of 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. Your Service Agent is the
shareholder of record for the shares of the Fund you own.
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.
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.
HEATH B. MCLENDON*; 65 -- Chairman, President, and Chief Executive Officer of
Mutual Management Corp. (since March 1996); Managing Director of Salomon Smith
Barney (since August 1993); and Chairman, President and Chief Executive
Officer of fifty-eight investment companies sponsored by Salomon Smith Barney.
His address is 388 Greenwich Street, New York, New York.
C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the Trust and
the Portfolio 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.
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 -- Chairman of the Board of Trustees of the Trust and
the Portfolio 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.
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).
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.
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.
<TABLE>
<CAPTION>
TRUSTEES COMPENSATION TABLE
TOTAL COMPENSATION
PENSION OR FROM THE
AGGREGATE RETIREMENT BENEFITS ESTIMATED REGISTRANT AND
COMPENSATION ACCRUED AS PART ANNUAL BENEFITS FUND COMPLEX
TRUSTEE FROM FUND(1) OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES(1)(2)
------- ------------ ---------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Philip W. Coolidge .............. $ 0 None None $ 0
Riley C. Gilley ................. $2,704 None None $41,500
Diana R. Harrington ............. $2,825 None None $59,000
Susan B. Kerley ................. $2,804 None None $55,000
Heath B. McLendon(3) ............ $ 0 None None $ 0
C. Oscar Morong, Jr. ............ $2,827 None None $71,000
E. Kirby Warren ................. $2,781 None None $49,000
William S. Woods, Jr. ........... $2,780 None None $54,000
</TABLE>
- ------------
(1) For the fiscal year ended October 31, 1998.
(2) Information relates to the fiscal year ended October 31, 1998. Messrs.
Coolidge, Gilley, McLendon, Morong, Warren, and Woods and Mses. Harrington
and Kerley are Trustees of 49, 33, 20, 40, 40, 26, 28, and 28 funds and
portfolios, respectively, in the family of open-end registered investment
companies advised or managed by Citibank.
(3) Mr. McLendon was appointed as Trustee in February, 1999.
As of February 22, 1999 all Trustees and officers as a group owned less
than 1% of the outstanding shares of 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. Unless otherwise terminated, 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. Unless otherwise terminated,
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.
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 $273,701 (of which $165,498 was voluntarily
waived).
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 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 by the applicable Plan, the Fund will not be obligated to pay
more than those fees and, if their expenses are less than the fees paid to
them, they will realize a profit. 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 $97,750.
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.
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
Effective November 1, 1998, 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.
Effective November 1, 1998, 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.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to a Fund and/or the other
accounts over which Citibank or its affiliates exercise investment discretion.
Citibank is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for a
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if Citibank determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer. This determination may be viewed in terms of either that particular
transaction or the overall responsibilities which Citibank and its affiliates
have with respect to accounts over which they exercise investment discretion.
The Trustees of the Trust periodically review the commissions paid by a Fund
to determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Fund.
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
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.
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. TAX MATTERS
TAXATION OF THE FUND AND PORTFOLIO
FEDERAL TAXES. 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. 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.
FOREIGN TAXES. Investment income and gains 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
shareholders will be able to claim any federal income tax credits or
deductions with respect to foreign taxes paid by the Fund.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS. 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. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the
length of time the shareholders have held their shares. Any Fund dividend that
is declared in October, November or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by the shareholders on
December 31 of the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
DIVIDENDS RECEIVED DEDUCTION. 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.
SPECIAL CONSIDERATIONS FOR NON-U.S. PERSONS. 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.
BACKUP WITHHOLDING. The account application asks each new shareholder to
certify that the shareholder's Social Security or taxpayer identification
number is correct and that the shareholder is not subject to 31% backup
withholding for failing to report income to the IRS. 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.
STATE AND LOCAL TAXES; U.S. GOVERNMENT SECURITIES. 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.
DISPOSITION OF SHARES. 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. 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. Gain may be
increased (or loss reduced) upon a redemption of Class A Fund shares held for
90 days or less followed by any purchase (including purchases by exchange or
by reinvestment) without payment of a sales charge which would otherwise apply
because of any sales charge paid on the original purchase of the Class A Fund
shares.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INVESTMENTS. Any 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.
OPTIONS, ETC. 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 Fund shares. 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.
FOREIGN INVESTMENTS. 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 and investment by the Fund
in certain "passive foreign investment companies" may have to 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 potentially resulting in additional taxable gain or loss to
the Fund.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the 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 as
of October 31, 1998, Statement of Assets and Liabilities at October 31, 1998,
Statement of Operations for the ten months ended October 31, 1998 and the year
ended December 31, 1997, Statement of Changes in Net Assets for the ten months
ended October 31, 1998 and the years ended December 31, 1997 and 1996,
Financial Highlights for the ten months 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 Deloitte & Touche 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
Item 23. Exhibits.
* a(1) Declaration of Trust of Registrant
*, **** a(2) Amendments to Registrant's Declaration of Trust
* 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) Amended and Restated Distribution Agreement between
the Registrant and CFBDS, Inc. ("CFBDS"), as
distributor with respect to Class A shares of
CitiFunds Intermediate Income Portfolio
e(2) 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
j Independent auditor's consent
m(1) Amended and Restated Service Plan of the Registrant
for Class A shares of CitiFunds Intermediate Income
Portfolio
m(2) Service Plan of the Registrant for Class B shares of
CitiFunds Intermediate Income Portfolio
n Financial Data Schedule
o Multiple Class Plan of the Registrant
* and filed p(1) Powers of Attorney for the Registrant
herewith
*** p(2) Powers of Attorney for The Premium Portfolios
- ---------------------
* 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.
**** Incorporated herein by reference to Post-Effective Amendment No. 28 to the
Registrant's Registration Statement on Form N-1A (File No. 33-6540) as
filed with the Securities and Exchange Commission on December 21, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to Post-Effective Amendment No. 24 to
its Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, filed as Exhibits hereto; and (c)
the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range
of banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, Growth & Income Portfolio, Balanced Portfolio, Large Cap
Growth Portfolio, International Equity Portfolio, Government Income Portfolio
and Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury
Reserves Portfolio, Cash Reserves Portfolio, CitiFunds(SM) Tax Free Income Trust
(CitiFunds(SM) New York Tax Free Income Portfolio, CitiFunds(SM) National Tax
Free Income Portfolio and CitiFunds(SM) California Tax Free Income Portfolio),
CitiFunds(SM) Multi-State Tax Free Trust (CitiFunds(SM) California Tax Free
Reserves, CitiFunds(SM) New York Tax Free Reserves and CitiFunds(SM) Connecticut
Tax Free Reserves), CitiFunds(SM) Institutional Trust (CitiFunds(SM)
Institutional Cash Reserves) and Variable Annuity Portfolios (CitiSelect(R) VIP
Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400,
CitiSelect(R) VIP Folio 500 and CitiFunds(SM) Small Cap Growth VIP Portfolio).
Citibank and its affiliates manage assets in excess of $290 billion worldwide.
The principal place of business of Citibank is located at 399 Park Avenue, New
York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J.
Menezes is the President and a Director of Citibank. William R. Rhodes and H.
Onno Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group Inc.
and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup
Inc. In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President,
Travelers Property Casualty Co.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding Corporation
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFunds(SM) International Growth & Income Portfolio, CitiFunds(SM)
International Growth Portfolio, CitiFunds(SM) U.S. Treasury Reserves,
CitiFunds(SM) Cash Reserves, CitiFunds(SM) Premium U.S. Treasury Reserves,
CitiFunds(SM) Premium Liquid Reserves, CitiFunds(SM) Institutional U.S. Treasury
Reserves, CitiFunds(SM) Institutional Liquid Reserves, CitiFunds(SM)
Institutional Cash Reserves, CitiFunds(SM) Tax Free Reserves, CitiFunds(SM)
Institutional Tax Free Reserves, CitiFunds(SM) California Tax Free Reserves,
CitiFunds(SM) Connecticut Tax Free Reserves, CitiFunds(SM) New York Tax Free
Reserves, CitiFunds(SM) New York Tax Free Income Portfolio, CitiFunds(SM)
National Tax Free Income Portfolio, CitiFunds(SM) California Tax Free Income
Portfolio, CitiFunds(SM) Short-Term U.S. Government Income Portfolio,
CitiFunds(SM) Balanced Portfolio, CitiFunds(SM) Small Cap Value Portfolio,
CitiFunds(SM) Growth & Income Portfolio, CitiFunds(SM) Large Cap Growth
Portfolio, CitiFunds(SM) Small Cap Growth Portfolio, CitiSelect(R) VIP Folio
200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP
Folio 500, CitiFunds(SM) Small Cap Growth VIP Portfolio, CitiSelect(R) Folio
200, CitiSelect(R) Folio 300, CitiSelect(R) Folio 400, and CitiSelect(R) Folio
500. CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio, Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed
Income Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Government Income Portfolio,
Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio. CFBDS also serves as the distributor for the following funds: The
Travelers Fund U for Variable Annuities, The Travelers Fund VA for Variable
Annuities, The Travelers Fund BD for Variable Annuities, The Travelers Fund BD
II for Variable Annuities, The Travelers Fund BD III for Variable Annuities, The
Travelers Fund BD IV for Variable Annuities, The Travelers Fund ABD for Variable
Annuities, The Travelers Fund ABD II for Variable Annuities, The Travelers
Separate Account PF for Variable Annuities, The Travelers Separate Account PF II
for Variable Annuities, The Travelers Separate Account QP for Variable
Annuities, The Travelers Separate Account TM for Variable Annuities, The
Travelers Separate Account TM II for Variable Annuities, The Travelers Separate
Account Five for Variable Annuities, The Travelers Separate Account Six for
Variable Annuities, The Travelers Separate Account Seven for Variable Annuities,
The Travelers Separate Account Eight for Variable Annuities, The Travelers Fund
UL for Variable Annuities, The Travelers Fund UL II for Variable Annuities, The
Travelers Variable Life Insurance Separate Account One, The Travelers Variable
Life Insurance Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The Travelers Separate Account MGA II,
The Travelers Growth and Income Stock Account for Variable Annuities, The
Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable Annuities,
Emerging Growth Fund, Government Fund, Growth and Income Fund, International
Equity Fund, Municipal Fund, Balanced Investments, Emerging Markets Equity
Investments, Government Money Investments, High Yield Investments, Intermediate
Fixed Income Investments, International Equity Investments, International Fixed
Income Investments, Large Capitalization Growth Investments, Large
Capitalization Value Equity Investments, Long-Term Bond Investments, Mortgage
Backed Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation
Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio, Growth
Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio, Select
Balanced Portfolio, Select Conservative Portfolio, Select Growth Portfolio,
Select High Growth Portfolio, Select Income Portfolio, Concert Social Awareness
Fund, Smith Barney Large Cap Blend Fund, Smith Barney Fundamental Value Fund
Inc., Large Cap Value Fund, Short-Term High Grade Bond Fund, U.S. Government
Securities Fund, Smith Barney Balanced Fund, Smith Barney Convertible Fund,
Smith Barney Diversified Strategic Income Fund, Smith Barney Exchange Reserve
Fund, Smith Barney High Income Fund, Smith Barney Municipal High Income Fund,
Smith Barney Premium Total Return Fund, Smith Barney Total Return Bond Fund,
Cash Portfolio, Government Portfolio, Municipal Portfolio, Concert Peachtree
Growth Fund, Smith Barney Contrarian Fund, Smith Barney Government Securities
Fund, Smith Barney Hansberger Global Small Cap Value Fund, Smith Barney
Hansberger Global Value Fund, Smith Barney Investment Grade Bond Fund, Smith
Barney Special Equities Fund, Smith Barney Intermediate Maturity California
Municipals Fund, Smith Barney Intermediate Maturity New York Municipals Fund,
Smith Barney Large Capitalization Growth Fund, Smith Barney S&P 500 Index Fund,
Smith Barney Mid Cap Blend Fund, Smith Barney Managed Governments Fund Inc.,
Smith Barney Managed Municipals Fund Inc., Smith Barney Massachusetts Municipals
Fund, Cash Portfolio, Government Portfolio, Retirement Portfolio, California
Money Market Portfolio, Florida Portfolio, Georgia Portfolio, Limited Term
Portfolio, New York Money Market Portfolio, New York Portfolio, Pennsylvania
Portfolio, Smith Barney Municipal Money Market Fund, Inc., Smith Barney Natural
Resources Fund Inc., Smith Barney New Jersey Municipals Fund Inc., Smith Barney
Oregon Municipals Fund, Zeros Plus Emerging Growth Series 2000, Smith Barney
Security and Growth Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Income Fund, Income and Growth Portfolio, Reserve Account
Portfolio, U.S. Government/High Quality Securities Portfolio, Emerging Markets
Portfolio, European Portfolio, Global Government Bond Portfolio, International
Balanced Portfolio, International Equity Portfolio, Pacific Portfolio, AIM
Capital Appreciation Portfolio, Alliance Growth Portfolio, GT Global Strategic
Income Portfolio, MFS Total Return Portfolio, Putnam Diversified Income
Portfolio, Smith Barney High Income Portfolio, Smith Barney Large Cap Value
Portfolio, Smith Barney International Equity Portfolio, Smith Barney Large
Capitalization Growth Portfolio, Smith Barney Money Market Portfolio, Smith
Barney Pacific Basin Portfolio, TBC Managed Income Portfolio, Van Kampen
American Capital Enterprise Portfolio, Centurion Tax-Managed U.S. Equity Fund,
Centurion Tax-Managed International Equity Fund, Centurion U.S. Protection Fund,
Centurion International Protection Fund, Global High-Yield Bond Fund,
International Equity Fund, Emerging Opportunities Fund, Core Equity Fund,
Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp Private Equity L.P.,
AIM V.I. Capital Appreciation Fund, AIM V.I. Government Series Fund, AIM V.I.
Growth Fund, AIM V.I. International Equity Fund, AIM V.I. Value Fund, Fidelity
VIP Growth Portfolio, Fidelity VIP High Income Portfolio, Fidelity VIP Equity
Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity VIP II Contrafund
Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World Government Series, MFS
Money Market Series, MFS Bond Series, MFS Total Return Series, MFS Research
Series, MFS Emerging Growth Series, Salomon Brothers Institutional Money Market
Fund, Salomon Brothers Cash Management Fund, Salomon Brothers New York Municipal
Money Market Fund, Salomon Brothers National Intermediate Municipal Fund,
Salomon Brothers U.S. Government Income Fund, Salomon Brothers High Yield Bond
Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Total Return Fund,
Salomon Brothers Asia Growth Fund, Salomon Brothers Capital Fund Inc, Salomon
Brothers Investors Fund Inc, Salomon Brothers Opportunity Fund Inc, Salomon
Brothers Institutional High Yield Bond Fund, Salomon Brothers Institutional
Emerging Markets Debt Fund, Salomon Brothers Variable Investors Fund, Salomon
Brothers Variable Capital Fund, Salomon Brothers Variable Total Return Fund,
Salomon Brothers Variable High Yield Bond Fund, Salomon Brothers Variable
Strategic Bond Fund, Salomon Brothers Variable U.S. Government Income Fund, and
Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule A of Form
BD filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and North Quincy, MA 02171
fund accounting agent)
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts on the 26th day of February, 1999.
CITIFUNDS 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 February 26th, 1999.
Signature Title
--------- -----
President, Principal Executive Officer
Philip W. Coolidge and Trustee
- -------------------------
Philip W. Coolidge
Principal Financial Officer and
John R. Elder Principal Accounting Officer
- -------------------------
John R. Elder
Riley C. Gilley* Trustee
- -------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- -------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- -------------------------
Susan B. Kerley
Heath B. McLendon * Trustee
- -------------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
- -------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- -------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- -------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
------------------
Philip W. Coolidge
Executed by Philip W. Coolidge
on behalf of those indicated
pursuant to Powers of Attorney.
<PAGE>
SIGNATURES
The Premium Portfolios has duly caused this Post-Effective Amendment to
the Registration Statement on Form N-1A of CitiFunds Fixed Income Trust to be
signed on its behalf by the undersigned, thereunto duly authorized, in Grand
Cayman, Cayman Islands, on the 26th day of February, 1999.
THE PREMIUM PORTFOLIOS
on behalf of 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 February 26, 1999.
Signature Title
--------- -----
Philip W. Coolidge* President, Principal Executive Officer
- ----------------------------- and Trustee
Philip W. Coolidge
John R. Elder* Principal Financial Officer and
- ----------------------------- Principal Accounting Officer
John R. Elder
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:
------------ ------------
e(1) 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) Distribution Agreement between the Registrant and CFBDS
as distributor with respect to Class B shares of CitiFunds
Intermediate Income Portfolio
j Independent auditor's consent
m(1) Amended and Restated Service Plan of the Registrant for Class
A shares of CitiFunds Intermediate Income Portfolio
m(2) Service Plan of the Registrant for Class B shares of
CitiFunds Intermediate Income Portfolio
n Financial Data Schedule
o Multiple Class Plan of the Registrant
p(1) Powers of Attorney for the Registrant
<PAGE>
Exhibit e(1)
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of June 24, 1986 and amended and restated as of
January 4, 1999, by and between CitiFunds Fixed Income Trust (formerly, Landmark
Fixed Income Funds), a Massachusetts business trust (the "Trust"), and CFBDS,
Inc., a Massachusetts corporation ("Distributor"). This Agreement relates solely
to (i) Shares of Beneficial Interest of each series of the Trust with Shares
that are not divided into classes and (ii) Shares of Beneficial Interest of each
series of the Trust that are divided into classes which are designated "Class A"
("Shares").
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and other
assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Shares of each of the Trust's series listed on Exhibit A hereto (the "Funds")
and has registered the Shares of the Funds under the Securities Act of 1933, as
amended (the "1933 Act");
WHEREAS, the Trust has adopted an Amended and Restated Service Plan
pursuant to Rule 12b-1 under the 1940 Act (the "Service Plan") and may enter
into related agreements providing for the distribution and servicing of Shares
of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Shares of
the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Shares of the Funds in jurisdictions wherein such Shares may be
legally offered for sale; provided, however, that the Trust in its absolute
discretion may issue Shares of the Funds in connection with (i) the payment or
reinvestment of dividends or distributions; (ii) any merger or consolidation of
the Trust or of the Funds with any other investment company or trust or any
personal holding company, or the acquisition of the assets of any such entity or
another series of the Trust; or (iii) any offer of exchange permitted by Section
11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Shares of the Funds and agrees that it will sell the Shares
as agent for the Trust at prices determined as hereinafter provided and on the
terms hereinafter set forth, all according to the then-current prospectus and
statement of additional information of each Fund (collectively, the "Prospectus"
and the "Statement of Additional Information"), applicable laws, rules and
regulations and the Declaration of Trust of the Trust. Distributor agrees to use
its best efforts to solicit orders for the sale of Shares of the Funds, and
agrees to transmit promptly to the Trust (or to the transfer agent of the Funds,
if so instructed in writing by the Trust) any orders received by it for purchase
or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the Statement
of Additional Information or advertisements and sales literature prepared by or
on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares of
that Fund or any necessary amendments thereto shall be suspended under any of
the provisions of the 1933 Act, or if and so long as a current prospectus for
Shares of that Fund as required by Section 10 of the 1933 Act is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph (g) shall in any way restrict the Trust's obligation
to repurchase any Shares from any shareholder in accordance with the provisions
of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the
Shares of each Fund shall be the net asset value of such Shares plus the amount
of any applicable sales charge, as provided in the Prospectus. The excess, if
any, of the public offering price of the Shares over the net asset value of the
Shares, and any contingent deferred sales charge applicable to Shares of any
Fund as set forth in the applicable Fund's Prospectus, may be paid to, or
retained by, the Distributor, securities dealers, financial institutions
(including banks) and others, as partial compensation for their services in
connection with the sale of Shares. At no time shall the Trust receive less than
the full net asset value of the Shares of each Fund, determined in the manner
set forth in the Prospectus and the Statement of Additional Information.
Distributor also may receive such compensation under the Trust's Service Plan
for Shares as may be authorized by the Trustees of the Trust from time to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably request
for use in connection with the sale of Shares of the Funds under this Agreement.
The Trust shall also make available a sufficient number of copies of the Funds'
Prospectus and Statement of Additional Information for use by the Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission
for amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
any such registration statement or Prospectus or the initiation of any
proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such
registration statement or Prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to any such registration statement or
Prospectus which may from time to time be filed with the Securities and
Exchange Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the Funds;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Funds, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Funds (including but not limited to the fees of independent pricing
services); expenses of meetings of shareholders; expenses relating to the
issuance, registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of
the Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of
the Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify Distributor,
its officers and directors, and any person which controls Distributor within the
meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor. Nothing herein contained
shall require the Trust to take any action contrary to any provision of its
Declaration of Trust or any applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon (i) any alleged untrue statement
of a material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, if such statement or omission was made
in reliance upon and in conformity with information furnished to the Trust in
connection therewith by or on behalf of Distributor; and (ii) any act or deed of
Distributor or its sales representatives that has not been authorized by the
Trust in any Prospectus or Statement of Additional Information or by this
Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 13, 1999 and shall continue in effect
for successive periods of one year, but only so long as each such continuance is
specifically approved by votes of a majority of both the Trustees of the Trust
and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Service Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder
shall not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the particular
Fund in question, and not any other Fund or series of the Trust. The term
"CitiFunds Fixed Income Trust" means and refers to the Trustees from time to
time serving under the Declaration of Trust of the Trust, a copy of which is on
file with the Secretary of the Commonwealth of Massachusetts. The execution and
delivery of this Agreement has been authorized by the Trustees, and this
Agreement has been signed on behalf of the Trust by an authorized officer of the
Trust, acting as such and not individually, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Fixed Income Trust
By: /s/ Philip Coolidge
------------------------------
CFBDS, Inc.
By: /s/ Philip Coolidge
------------------------------
<PAGE>
Exhibit A
Funds
CitiFunds Intermediate Income Portfolio
<PAGE>
Exhibit e(2)
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of January 4, 1999, by and between CitiFunds Fixed
Income Trust (formerly, Landmark Fixed Income Funds), a Massachusetts business
trust (the "Trust"), and CFBDS, Inc., a Massachusetts corporation
("Distributor"). This Agreement relates solely to Shares of Beneficial Interest
designated "Class B."
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are
divided into separate series representing interests in separate funds of
securities and other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Class B Shares of each of the Trust's series listed on Exhibit A hereto (the
"Funds") and has registered the Shares of the Funds under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Trust has adopted a Service Plan pursuant to Rule 12b-1
under the 1940 Act (the "Service Plan") and may enter into related agreements
providing for the distribution and servicing of Shares of the Funds;
WHEREAS, Distributor has agreed to act as distributor of the Class B
Shares of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as
follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Class B Shares of the Funds in jurisdictions wherein such Shares
may be legally offered for sale; provided, however, that the Trust in its
absolute discretion may issue Shares of the Funds in connection with (i) the
payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another series of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for
the distribution of Class B Shares of the Funds and agrees that it will sell the
Shares as agent for the Trust at prices determined as hereinafter provided and
on the terms hereinafter set forth, all according to the then-current prospectus
and statement of additional information of each Fund (collectively, the
"Prospectus" and the "Statement of Additional Information"), applicable laws,
rules and regulations and the Declaration of Trust of the Trust. Distributor
agrees to use its best efforts to solicit orders for the sale of Shares of the
Funds, and agrees to transmit promptly to the Trust (or to the transfer agent of
the Funds, if so instructed in writing by the Trust) any orders received by it
for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to
the extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information
or make any representations regarding Shares of the Funds, except such
information or representations as are contained in the Prospectus, the Statement
of Additional Information or advertisements and sales literature prepared by or
on behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
effectiveness of the Trust's then current registration statement as to Shares of
that Fund or any necessary amendments thereto shall be suspended under any of
the provisions of the 1933 Act, or if and so long as a current prospectus for
Shares of that Fund as required by Section 10 of the 1933 Act is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph (g) shall in any way restrict the Trust's obligation
to repurchase any Shares from any shareholder in accordance with the provisions
of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate,
suspend or withdraw the offering of Shares of any Fund whenever, in its sole
discretion, it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The public offering price of the Class
B Shares of each Fund shall be the net asset value of such Shares, as provided
in the Prospectus. Any contingent deferred sales charge applicable to Class B
Shares of any Fund as set forth in the applicable Fund's Prospectus, may be paid
to, or retained by, the Distributor, securities dealers, financial institutions
(including banks) and others, as partial compensation for their services in
connection with the sale of Class B Shares. At no time shall the Trust receive
less than the full net asset value of the Shares of each Fund, determined in the
manner set forth in the Prospectus and the Statement of Additional Information.
Distributor also may receive such compensation under the Trust's Service Plan
for Class B Shares as may be authorized by the Trustees of the Trust from time
to time.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably request
for use in connection with the sale of Shares of the Funds under this Agreement.
The Trust shall also make available a sufficient number of copies of the Funds'
Prospectus and Statement of Additional Information for use by the Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
(i) of any request by the Securities and Exchange Commission
for amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
any such registration statement or Prospectus or the initiation of any
proceeding for that purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in any such registration statement or
Prospectus or which requires the making of a change in such
registration statement or Prospectus in order to make the statements
therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission
with respect to any amendments to any such registration statement or
Prospectus which may from time to time be filed with the Securities and
Exchange Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"affiliated persons" of the Distributor; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the Funds;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Funds, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Funds (including but not limited to the fees of independent pricing
services); expenses of meetings of shareholders; expenses relating to the
issuance, registration and qualification of shares; and such non-recurring or
extraordinary expenses as may arise, including those relating to actions, suits
or proceedings to which the Trust may be a party and the legal obligation which
the Trust may have to indemnify its Trustees and officers with respect thereto.
(b) Except as otherwise provided in this Agreement and except to the
extent such expenses are borne by the Trust pursuant to the Service Plan,
Distributor will pay or cause to be paid all expenses connected with its own
qualification as a dealer under state and federal laws and all other expenses
incurred by Distributor in connection with the sale of Shares of each Fund as
contemplated by this Agreement.
(c) Distributor shall prepare and deliver reports to the Trustees of
the Trust on a regular basis, at least quarterly, showing the expenditures with
respect to each Fund pursuant to the Service Plan and the purposes therefor, as
well as any supplemental reports that the Trustees of the Trust, from time to
time, may reasonably request.
5. Repurchase of Shares. Distributor as agent and for the account of
the Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value, subject to the imposition of any deferred
sales charge.
6. Indemnification by the Trust. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Distributor, the Trust agrees to indemnify Distributor,
its officers and directors, and any person which controls Distributor within the
meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor. Nothing herein contained
shall require the Trust to take any action contrary to any provision of its
Declaration of Trust or any applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon (i) any alleged untrue statement
of a material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, if such statement or omission was made
in reliance upon and in conformity with information furnished to the Trust in
connection therewith by or on behalf of Distributor; and (ii) any act or deed of
Distributor or its sales representatives that has not been authorized by the
Trust in any Prospectus or Statement of Additional Information or by this
Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue
in effect as to each Fund until November 13, 1999 and shall continue in effect
for successive periods of one year, but only so long as each such continuance is
specifically approved by votes of a majority of both the Trustees of the Trust
and the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party and who have
no direct or indirect financial interest in this Agreement or in the operation
of the Service Plan or in any agreement related thereto ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated as to any Fund on not less than
thirty days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder
shall not be binding upon any of the Trustees, officers or shareholders of the
Trust personally, but shall bind only the assets and property of the particular
Fund in question, and not any other Fund or series of the Trust. The term
"CitiFunds Fixed Income Trust" means and refers to the Trustees from time to
time serving under the Declaration of Trust of the Trust, a copy of which is on
file with the Secretary of the Commonwealth of Massachusetts. The execution and
delivery of this Agreement has been authorized by the Trustees, and this
Agreement has been signed on behalf of the Trust by an authorized officer of the
Trust, acting as such and not individually, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CitiFunds Fixed Income Trust
By: /s/ Philip Coolidge
------------------------------
CFBDS, Inc.
By: /s/ Philip Coolidge
------------------------------
<PAGE>
Exhibit A
Funds
CitiFunds Intermediate Income Portfolio
Exhibit j
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post Effective Amendment
No. 31 to Registration Statement No. 33-6540 of CitiFunds Fixed Income Trust of
our report dated December 14, 1998 appearing in the annual report to
shareholders for the ten months ended October 31, 1998 of CitiFunds Intermediate
Income Portfolio, (a separate series of CitiFunds Fixed Income Trust), and to
the references to us under the headings "Financial Highlights" in the Prospectus
and "Financial Statements" in the Statement of Additional Information, both of
which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 26, 1999
<PAGE>
Exhibit m(1)
AMENDED AND RESTATED
SERVICE PLAN
SERVICE PLAN, dated as of August 8, 1997 and amended and restated
effective as of January 4, 1999, of CitiFunds Fixed Income Trust, a
Massachusetts business trust (the "Trust"), with respect to shares of beneficial
interest of its series CitiFunds Intermediate Income Portfolio and any other
series of the Trust adopting this plan (the "Series"). This Plan relates solely
to (i) shares of beneficial interest of the Series that are not divided into
Classes and (ii) shares of beneficial interest of each of the Series that are
divided into Classes which are designated "Class A" ("Shares").
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and other
assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Non-Interested Trustees"), having determined, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Section 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that this Plan will benefit the Trust and the
shareholders of the Series, have approved this Plan by votes cast at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
WHEREAS, an initial sales charge may be paid by investors who purchase
Shares, and CFBDS, Inc. (the "Distributor"), broker-dealers, banks and other
financial intermediaries may receive such sales charge as partial compensation
for their services in connection with the sale of Shares;
WHEREAS, each Series or the Distributor may impose certain deferred
sales charges in connection with the repurchase of Shares by such Series, and
the Series may pay to the Distributor, dealers and others, or the Series may
permit such persons to retain, as the case may be, all or any portion of such
deferred sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms of
the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
(a) engage, directly or indirectly, in any activities
primarily intended to result in the sale of Shares of the Series, which
activities may include, but are not limited to (i) payments to the
Trust's Distributor for distribution services, (ii) payments to
securities dealers, financial institutions (which may include banks)
and others in respect of the sale of Shares of the Series, (iii)
payments for advertising, marketing or other promotional activity, and
(iv) payments for preparation, printing, and distribution of
prospectuses and statements of additional information and reports of
the Trust for recipients other than regulators and existing
shareholders of the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may
include banks) and others for providing personal service and/or the
maintenance of shareholder accounts.
The Trust is authorized to engage in the activities listed above either directly
or through other persons with which the Trust has entered into agreements
related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances,
an initial sales charge may be paid by investors who purchase Shares of each
Series, and the Series may pay to the Distributor, securities dealers, financial
institutions (including banks) and others, or the Series may permit such persons
to retain, as the case may be, such sales charge as partial compensation for
their services in connection with the sale of Shares. It is also understood
that, under certain circumstances, each Series or the Distributor may impose
certain deferred sales charges in connection with the repurchase of Shares of
such Series, and the Series may pay to the Distributor, securities dealers,
financial institutions (including banks) and others, or the Series may permit
such persons to retain, as the case may be, all or any portion of such deferred
sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures will
be made shall be determined by the Trustees of the Trust, but in no event may
such expenditures exceed an amount calculated at the rate of 0.25% per annum of
the average daily net assets of the Shares of each Series. Payments pursuant to
this Plan may be made directly by the Trust to the Distributor or to other
persons with which the Trust has entered into agreements related to this Plan.
For purposes of determining the fees payable under this Plan, the value of each
Series' average daily net assets shall be computed in the manner specified in
the applicable Series' then-current prospectus and statement of additional
information.
4. Trust's Expenses. The Trust shall pay all expenses of its
operations, including the following, and such expenses shall not constitute
expenditures under this Plan: organization costs of each Series; compensation of
Trustees; governmental fees; interest charges; loan commitment fees; taxes;
membership dues in industry associations allocable to the Trust; fees and
expenses of independent auditors, legal counsel and any transfer agent,
distributor, shareholder servicing agent, registrar or dividend disbursing agent
of the Trust; expenses of issuing and redeeming shares of beneficial interest
and servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Series (including
but not limited to the fees of independent pricing services); expenses of
meetings of shareholders; expenses relating to the issuance, registration and
qualification of shares; and such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
Trust may be a party and the legal obligation which the Trust may have to
indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the Trustees
of the Trust and the Non-Interested Trustees, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series
by a vote of a majority of the Non-Interested Trustees or by a vote of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
Shares of the applicable Series.
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Non-Interested Trustees of the Trust shall
be committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
<PAGE>
Exhibit m(2)
SERVICE PLAN
SERVICE PLAN, dated as of January 4, 1999, of CitiFunds Fixed Income
Trust, a Massachusetts business trust (the "Trust"), with respect to shares of
beneficial interest of its series CitiFunds Intermediate Income Portfolio and
any other series of the Trust adopting this plan (the "Series"). This Plan
relates solely to shares of beneficial interest of each Series which are
designated "Class B" ("Shares").
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series representing interests in separate funds of securities and other
assets;
WHEREAS, the Trust intends to distribute Shares in accordance with Rule
12b-1 under the 1940 Act, and wishes to adopt this Plan as a plan of
distribution pursuant to Rule 12b-1;
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Non-Interested Trustees"), having determined, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law and under Section 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that this Plan will benefit the Trust and the
shareholders of the Series, have approved this Plan by votes cast at a meeting
called for the purpose of voting hereon and on any agreements related hereto;
WHEREAS, each Series or CFBDS, Inc. (the "Distributor") may impose
certain deferred sales charges in connection with the repurchase of Shares by
such Series, and the Series may pay to the Distributor, dealers and others, or
the Series may permit such persons to retain, as the case may be, all or any
portion of such deferred sales charges;
NOW, THEREFORE, the Trust hereby adopts this Plan as a plan of
distribution in accordance with Rule 12b-1 under the 1940 Act, with the terms of
the Plan being as follows:
1. Distribution and Servicing Activities. Subject to the supervision of
the Trustees of the Trust, the Trust may:
(a) engage, directly or indirectly, in any activities
primarily intended to result in the sale of Shares of the Series, which
activities may include, but are not limited to (i) payments to the
Trust's Distributor for distribution services, (ii) payments to
securities dealers, financial institutions (which may include banks)
and others in respect of the sale of Shares of the Series, (iii)
payments for advertising, marketing or other promotional activity, and
(iv) payments for preparation, printing, and distribution of
prospectuses and statements of additional information and reports of
the Trust for recipients other than regulators and existing
shareholders of the Trust; and
(b) make payments, directly or indirectly, to the Trust's
Distributor, securities dealers, financial institutions (which may
include banks) and others for providing personal service and/or the
maintenance of shareholder accounts.
The Trust is authorized to engage in the activities listed above either directly
or through other persons with which the Trust has entered into agreements
related to this Plan.
2. Sales Charges. It is understood that, under certain circumstances,
each Series or the Distributor may impose certain deferred sales charges in
connection with the repurchase of Shares of such Series, and the Series may pay
to the Distributor, securities dealers, financial institutions (including banks)
and others, or the Series may permit such persons to retain, as the case may be,
all or any portion of such deferred sales charges.
3. Maximum Expenditures. The expenditures to be made by the Trust
pursuant to this Plan and the basis upon which payment of such expenditures will
be made shall be determined by the Trustees of the Trust, but in no event may
such expenditures exceed an amount calculated at the rate of 0.75% per annum of
the average daily net assets of the Shares of each Series. Payments pursuant to
this Plan may be made directly by the Trust to the Distributor or to other
persons with which the Trust has entered into agreements related to this Plan.
For purposes of determining the fees payable under this Plan, the value of each
Series' average daily net assets shall be computed in the manner specified in
the applicable Series' then-current prospectus and statement of additional
information.
4. Trust's Expenses. The Trust shall pay all expenses of its
operations, including the following, and such expenses shall not constitute
expenditures under this Plan: organization costs of each Series; compensation of
Trustees; governmental fees; interest charges; loan commitment fees; taxes;
membership dues in industry associations allocable to the Trust; fees and
expenses of independent auditors, legal counsel and any transfer agent,
distributor, shareholder servicing agent, registrar or dividend disbursing agent
of the Trust; expenses of issuing and redeeming shares of beneficial interest
and servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Series; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Series,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Series (including
but not limited to the fees of independent pricing services); expenses of
meetings of shareholders; expenses relating to the issuance, registration and
qualification of shares; and such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
Trust may be a party and the legal obligation which the Trust may have to
indemnify its Trustees and officers with respect thereto.
5. Term and Termination. (a) This Plan shall become effective as to a
Series upon (i) approval by a vote of at least a majority of the outstanding
voting securities (as defined in the 1940 Act) of Shares of the particular
Series, and (ii) approval by a majority of the Trustees of the Trust and a
majority of the Non-Interested Trustees cast in person at a meeting called for
the purpose of voting on this Plan. Unless terminated as herein provided, this
Plan shall continue in effect until November 13, 1999 and shall continue in
effect for successive periods of one year, but only so long as each such
continuance is specifically approved by votes of a majority of both the Trustees
of the Trust and the Non-Interested Trustees, cast in person at a meeting called
for the purpose of voting on such approval.
(b) This Plan may be terminated at any time with respect to any Series
by a vote of a majority of the Non-Interested Trustees or by a vote of a
majority of the outstanding voting securities, as defined in the 1940 Act, of
Shares of the applicable Series.
6. Amendments. This Plan may not be amended to increase materially the
maximum expenditures permitted by Section 3 hereof unless such amendment is
approved by a vote of the majority of the outstanding voting securities, as
defined in the 1940 Act, of Shares of the applicable Series, and no material
amendment to this Plan shall be made unless approved in the manner provided for
annual renewal of this Plan in Section 5(a) hereof.
7. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of the Non-Interested Trustees of the Trust shall
be committed to the discretion of such Non-Interested Trustees.
8. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review quarterly a written report
of the amounts expended pursuant to this Plan and any related agreement and the
purposes for which such expenditures were made.
9. Recordkeeping. The Trust shall preserve copies of this Plan and any
related agreement and all reports made pursuant to Section 8 hereof, for a
period of not less than six years from the date of this Plan. Any such related
agreement or such reports for the first two years will be maintained in an
easily accessible place.
10. Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts and the provisions
of the 1940 Act.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000795808
<NAME> CITIFUNDS INTERMEDIATE INCOME PORTFOLIO
<SERIES>
<NUMBER> 002
<NAME> CITIFUNDS FIXED INCOME TRUST
<S> <C>
<PERIOD-TYPE> 10-Mos
<FISCAL-YEAR-END> Oct-30-1998
<PERIOD-END> Oct-30-1998
<INVESTMENTS-AT-COST> 78,126,142
<INVESTMENTS-AT-VALUE> 79,809,528
<RECEIVABLES> 2,683,155
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 759,150
<TOTAL-ASSETS> 83,251,833
<PAYABLE-FOR-SECURITIES> 6,316,613
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 6,316,613
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77,349,154
<SHARES-COMMON-STOCK> 7,676,368
<SHARES-COMMON-PRIOR> 3,775,843
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,244,176)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,683,386
<NET-ASSETS> 76,788,364
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,423,695
<OTHER-INCOME> 0
<EXPENSES-NET> 351,864
<NET-INVESTMENT-INCOME> 2,071,831
<REALIZED-GAINS-CURRENT> 743,318
<APPREC-INCREASE-CURRENT> 662,088
<NET-CHANGE-FROM-OPS> 3,477,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,112,415)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,904,926
<NUMBER-OF-SHARES-REDEEMED> (9,293,925)
<SHARES-REINVESTED> 2,110,978
<NET-CHANGE-IN-ASSETS> 40,086,801
<ACCUMULATED-NII-PRIOR> 40,584
<ACCUMULATED-GAINS-PRIOR> (2,987,494)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 273,701
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 519,650
<AVERAGE-NET-ASSETS> 39,493,419
<PER-SHARE-NAV-BEGIN> 9.72
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit o
CITIFUNDS FIXED INCOME TRUST
MULTIPLE CLASS PLAN
MULTIPLE CLASS PLAN, dated as of November 13, 1998, of CitiFunds Fixed
Income Trust, a Massachusetts business trust (the "Trust"), with respect to
CitiFunds Intermediate Income Portfolio (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the shares of beneficial interest (without par value) of the
Trust (the "Shares") are divided into separate series and may be divided into
one or more separate classes;
WHEREAS, the Trust desires to adopt this Multiple Class Plan (the
"Plan") on behalf of the Fund as a plan pursuant to Rule 18f-3 in order that the
Fund may issue multiple classes of Shares;
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Trust should adopt and implement this Plan, has evaluated such information and
considered such pertinent factors as it deemed necessary to an informed
evaluation of this Plan and determination as to whether this Plan should be
adopted and implemented, and has determined that the adoption and implementation
of this Plan, including the expense allocation contemplated herein, are in the
best interests of each class of Shares individually, as well as the best
interests of the Fund;
NOW THEREFORE, the Trust hereby adopts this Plan pursuant to Rule 18f-3
under the 1940 Act, on the following terms and conditions:
1. The Fund may issue Shares in one or more classes (each, a "Class"
and collectively, the "Classes"). Shares so issued will have the rights and
preferences set forth in the Establishment and Designation of Classes and the
Trust's then current registration statement relating to the Fund.
2. Shares issued in Classes will be issued subject to and in accordance
with the terms of Rule 18f-3 under the 1940 Act, including, without limitation:
(a) Each Class shall have a different arrangement for
shareholder services or the distribution of securities or both, and
shall pay all of the expenses of that arrangement;
(b) Each Class may pay a different share of other expenses,
not including advisory or custodial fees or other expenses related to
the management of the Trust's assets, if these expenses are actually
incurred in a different amount by that Class, or if the Class receives
services of a different kind or to a different degree than other
Classes;
(c) Each Class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its
arrangement;
(d) Each Class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one Class differ
from the interests of any other Class; and
(e) Except as otherwise permitted under Rule 18f-3 under the
1940 Act, each Class shall have the same rights and obligations as each
other Class.
3. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Trust.
4. This Plan shall become effective as to the Fund upon the later to
occur of (a) approval by a vote of the Board of Trustees and vote of a majority
of the Trustees who are not "interested persons" of the Trust (the "Qualified
Trustees"), and (b) January 4, 1999.
5. This Plan shall continue in effect indefinitely unless terminated by
a vote of the Board of Trustees of the Trust. This Plan may be terminated at any
time with respect to the Fund by a vote of the Board of Trustees of the Trust.
This Plan supercedes any and all other multiple class plans heretofore approved
by the Board of Trustees of the Trust with respect to the Fund.
6. This Plan may be amended at any time by the Board of Trustees of the
Trust, provided that any material amendment of this Plan shall be effective only
upon approval by a vote of the Board of Trustees of the Trust and a majority of
the Qualified Trustees.
7. This Plan shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
8. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
Exhibit p(1)
CITIFUNDS FIXED INCOME TRUST
The undersigned hereby constitutes and appoints Philip W. Coolidge,
John R. Elder, Susan Jakuboski, Molly S. Mugler and Linda T. Gibson, and each of
them, with full powers of substitution as his true and lawful attorneys and
agents to execute in his name and on is behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, filed
by CitiFunds Fixed Income Trust (on behalf of each of its series now or
hereinafter created) (the "Registrant") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and under the
Investment Company Act of 1940, as amended, and any and all other instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Registrant to comply with the Securities Act of 1933, as amended, and
the Invstment Company Act of 1940, as amended, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction; and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents shall have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the
11th day of February, 1999.
/s/ Heath B. McLendon
- -----------------------------------
Heath B. McLendon
