<PAGE>
As filed with the Securities and Exchange Commission on April 30, 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. 32
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 33
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 May 3, 1999,
pursuant to paragraph (b) of Rule 485.
The Premium Portfolios, on behalf of Government Income Portfolio, has also
executed this registration statement.
- --------------------------------------------------------------------------------
* This filing relates solely to shares of the Trust's series CitiFunds
Short-Term U.S. Government Income Portfolio.
<PAGE>
----------
PROSPECTUS
----------
MAY 3, 1999
CitiFunds(SM) Short-Term
U.S. Government
Income Portfolio
CITIBANK, N.A., INVESTMENT ADVISER
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus, and
any representation to the contrary is a criminal offense.
<PAGE>
Table of Contents
FUND AT A GLANCE ....................................................... 3
YOUR CITIFUNDS ACCOUNT ................................................. 11
YOUR FUND SHARES .................................................... 11
HOW TO BUY SHARES ................................................... 15
HOW THE PRICE OF YOUR SHARES IS CALCULATED 16
HOW TO SELL SHARES .................................................. 16
REINSTATING RECENTLY SOLD SHARES .................................... 18
EXCHANGES ........................................................... 18
DIVIDENDS ........................................................... 19
TAX MATTERS ......................................................... 19
MANAGEMENT OF THE FUND ................................................. 22
INVESTMENT ADVISER .................................................. 22
ADVISORY FEES ....................................................... 23
MORE ABOUT THE FUND .................................................... 24
PRINCIPAL INVESTMENT STRATEGIES ..................................... 24
RISKS ............................................................... 28
FINANCIAL HIGHLIGHTS ................................................... A-1
APPENDIX ............................................................... B-1
<PAGE>
----------------
FUND AT A GLANCE
----------------
Fund at a Glance
This summary briefly describes CitiFunds Short-Term U.S.
Government 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 about the Fund's investment strategies, risks, and
investment structure, see MORE ABOUT THE FUND on page 24.
CitiFunds(SM) Short-Term
U.S. Government
Income Portfolio
FUND GOAL
The Fund's goals are to generate 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 Short-Term U.S. Government Income Portfolio invests
in securities that are backed by the full faith and credit of
the United States. The Fund invests in U.S. Treasury bills,
notes and bonds, and obligations issued or guaranteed by U.S.
government agencies or instrumentalities, including mortgage-
backed securities guaranteed by the Government National
Mortgage Association (GNMA), as long as the timely payment of
interest and principal are backed by the U.S. government.
The Fund may use derivatives, such as financial futures and
options on futures contracts, in order to protect (or "hedge")
against changes in the prices of securities held or to be
bought, or changes in interest rates, or to manage the
maturity or duration of fixed income securities. The Fund may
also invest in derivatives for non-hedging purposes, to
enhance yields. 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, the availability of liquid markets, and
Citibank accurately predicting movements in interest rates.
The Fund's average weighted maturity is generally expected to
be three years or less.
MAIN RISKS
As with all mutual funds, you may lose money if you invest in
this Fund. The principal risks of investing in the Fund are
described below. See page 28 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. The value of the Fund's shares will change daily as
the value of its underlying securities changes. This means that
your shares of the Fund may be worth more or less when you sell
them than when you bought them.
o INTEREST RATE RISK. In general, the prices of debt securities rise
when interest rates fall, and fall when interest rates rise,
although shorter term obligations are usually less sensitive to
interest rate changes. A change in interest rates could cause the
Fund's share price to go down.
o CREDIT RISK. The Fund invests only in securities that are backed
by the full faith and credit of the United States. These
securities are generally thought to have minimal credit risk.
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
collateralized mortgage obligations (CMOs), are particularly
susceptible to prepayment risk and their prices may be very
volatile.
o DERIVATIVES. The Fund's use of derivatives such as futures and
options on futures 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,
causing the Fund's share price to go down. In addition, the Fund's
ability to use derivatives successfully depends on Citibank's
ability to accurately predict movements in interest rates and
other economic factors and the availability of liquid markets. If
Citibank's predictions are wrong, or if the derivatives do not
work as anticipated, 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 Short-
Term U.S. Government Income Portfolio is not a complete
investment program.
You should consider investing in CitiFunds Short-Term U.S.
Government Income Portfolio if:
o You are seeking current income from your investments.
o You are seeking the added protection against credit risk provided
by U.S. government securities.
o Your investment horizon is at least intermediate term -- typically
at least three years.
Don't invest in CitiFunds Short-Term U.S. Government Income
Portfolio if:
o Your main objective is growth of principal over time.
o You are not prepared to accept volatility of the Fund's share
price and possible losses.
o You are looking for an aggressive investment that provides the
maximum potential for long-term return.
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 ten 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 or sales charges.
o In both the chart and table, the returns shown for the Fund are
for periods before January 4, 1999. Prior to that date, there were
no sales charges on the purchase or sale of Fund shares. The
returns for Fund shares in the table, but not the bar chart, have
been adjusted to reflect the maximum front-end sales charge
currently applicable to the Fund shares.
When you consider this information, please remember that the
Fund's past performance is not necessarily an indication of
how it will perform in the future.
<PAGE>
TOTAL RETURN (WITHOUT SALES CHARGE)
(per calendar year)
[Graphic Omitted]
- --------------------------------------------------------------------------------
CITIFUNDS SHORT-TERM U.S.
GOVERNMENT INCOME PORTFOLIO
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
12.01% 7.90% 13.80% 5.56% 6.06% (1.72%) 11.48% 3.02% 6.11% 6.33%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(WITHOUT SALES CHARGE)
FOR CALENDAR QUARTERS COVERED BY THE BAR CHART
..............................................................................
Quarter Ending
..............................................................................
Highest 3.89% June 30, 1989
..............................................................................
Lowest (1.79)% March 31, 1990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1998
..............................................................................
Life of Fund
Since
1 Year 5 Years 10 Years September 8, 1986
..............................................................................
CitiFunds Short-Term U.S.
Government Income Portfolio
(with maximum sales charge) 4.74% 4.64% 6.81% 6.14%
..............................................................................
Lehman 1-3 Year U.S. Gov't.
Index 6.98% 5.96% 7.36% * %
- --------------------------------------------------------------------------------
*Information regarding performance for this period is not available.
<PAGE>
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
FEES PAID DIRECTLY FROM YOUR INVESTMENT
..............................................................................
Maximum Sales Charge 1.50%
(Load) Imposed on
Purchases
..............................................................................
Maximum Deferred Sales None(1)
Charge (Load)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS(2)
..............................................................................
Management Fees 0.35%
..............................................................................
Distribution (12b-1)Fees 0.20%
..............................................................................
Other Expenses (administrative,
shareholder servicing and other expenses) 0.92%
..............................................................................
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.47%
- --------------------------------------------------------------------------------
* Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior year were: 0.80%
Fee waivers and reimbursements may be reduced or terminated at any time.
(1)Except for investment of $500,000 or more.
(2)The Fund invests in an underlying mutual fund, Government Income Portfolio.
This table reflects the expenses of the Fund and Government Income Portfolio.
- --------------------------------------------------------------------------------
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual
funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods.
The example also assumes that:
o each investment has a 5% return each year -- the assumption of a
5% return is required by the SEC for the purpose of this example
and is not a prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the Fund Fees and Expenses
table remain the same before taking into consideration any fee
waivers or reimbursements.
Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
- --------------------------------------------------------------------------------
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
..............................................................................
1 Year 3 Years 5 Years 10 Years
..............................................................................
$297 $608 $941 $1,881
- --------------------------------------------------------------------------------
<PAGE>
----------------------
YOUR CITIFUNDS ACCOUNT
----------------------
Your CitiFunds Account
YOUR FUND SHARES:
o Front-end load -- there is an initial sales charge of 1.50% or
less
o Lower sales charge rates for larger investments
o Annual Shareholder Servicing fee of up to 0.25%
o Annual distribution/service fee of up to 0.15%
o Annual fee of up to 0.05% for certain advertising costs currently
not being paid
- --------------------------------------------------------------------------------
WHAT ARE DISTRIBUTION/SERVICE FEES?
Shares of the Fund 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.
- --------------------------------------------------------------------------------
SALES CHARGES
o Fund 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 Fund 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, called Shareholder Servicing Agents, who sell
shares of the Fund receive. The distributor generally keeps up to
approximately 10% of the sales charge imposed on shares of the
Fund. Shareholder Servicing Agents that sell shares of the Fund
will also receive the shareholder servicing fee payable on such
shares at an annual rate equal to up to 0.25% of the average
daily net assets represented by the shares of the Fund 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 $50,000 1.50% 1.52% 1.35%
..............................................................................
$50,000 to less than $250,000 1.00% 1.01% 0.90%
..............................................................................
$250,000 to less than $500,000 0.50% 0.50% 0.45%
..............................................................................
$500,000 or more none* none* up to 0.45%
- --------------------------------------------------------------------------------
*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.
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.
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.
If you are subject to a CDSC,
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 will not pay a CDSC on shares acquired through reinvestment
of dividends, capital gain distributions and shares representing
capital appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will
always use the Fund shares, if any, without a CDSC to fill your
sell requests.
o You will not pay a CDSC at the time you exchange your Fund shares
for shares of certain CitiFunds -- any payment will be deferred
until your shares are redeemed.
o If you acquired your Fund 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.
From time to time, the Fund's distributor or Citibank may
provide additional promotional bonuses, incentives or payments
to dealers that sell shares of the Fund. These may include
payments for travel expenses, including lodging, incurred in
connection with trips taken by invited registered
representatives and their guests to locations within and
outside the United States for meetings or seminars of a
business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or
may sell significant amounts of shares.
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 shares of the Fund.
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.
HOW TO BUY SHARES
Shares of CitiFunds Short-Term U.S. Government 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 Shareholder Servicing Agent)
that has entered into a shareholder servicing agreement with
the distributor concerning the Fund. 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. The applicable sales charge will be added to the
cost of your shares.
Your Shareholder Servicing 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 Shareholder Servicing Agent transmits the
order when the check clears, usually within two business days.
Your Shareholder Servicing Agent establishes and maintains
your account and is the shareholder of record. If you wish to
transfer your account, you may only transfer it to another
financial institution that acts as a Shareholder Servicing
Agent for the Fund.
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. 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. Short-term obligations (maturing in 60 days or less)
are valued at amortized cost, which is approximately equal to
market value.
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 your
Shareholder Servicing Agent. If your account application
permits, you may also make redemption requests by calling your
Shareholder Servicing Agent. Each Shareholder Servicing 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 Shareholder
Servicing Agent.
When you sell your shares of the Fund that are subject to a
CDSC, they will be redeemed so as to minimize your CDSC.
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 Fund shares, the Fund permits
you to repurchase shares in the Fund, up to the dollar amount
of shares redeemed, without paying any sales charges. To take
advantage of this reinstatement privilege, you must notify
your Shareholder Servicing Agent in writing at the time you
wish to repurchase the shares.
EXCHANGES
You may exchange Fund shares for Class A shares of certain
other CitiFunds. You may also be able to exchange your Fund
shares for shares of certain CitiFunds that offer only a
single class of shares, unless your Fund shares are subject to
a CDSC. You may also acquire Fund shares through an exchange
from another fund managed by Citibank.
You may place exchange orders through your Shareholder
Servicing Agent. You may place exchange orders by telephone if
your account application permits. Your Shareholder Servicing
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 shares of the Fund, 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 Fund 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.
If your Fund shares are subject to a CDSC, no CDSC is imposed
when you exchange your shares for Class A shares of certain
CitiFunds that are made available by your Shareholder
Servicing Agent. However, you may be required to pay a CDSC
when you sell those 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 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 semi-annually. 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.
You may choose to receive your dividends either in cash or 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 law.
TAXABILITY OF DISTRIBUTIONS; FEDERAL INCOME TAXES. 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.
STATE AND LOCAL TAXES. Generally, you will have to pay state
or local taxes on Fund dividends and other distributions,
although distributions derived from interest on U.S.
government obligations may be exempt from certain state and
local taxes.
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
transaction.
<PAGE>
----------------------
MANAGEMENT OF THE FUND
----------------------
INVESTMENT ADVISER
CitiFunds Short-Term U.S. Government Income Portfolio draws on
the strength and experience of Citibank. Citibank is the
investment adviser 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 $327 billion in
assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York,
New York, is 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.
Denise Guetta, a Vice President of Citibank, has served as
manager of the Fund since April 1997. Ms. Guetta is a Senior
Portfolio Manager responsible for managing institutional
liquidity and short-duration portfolios. Ms. Guetta has over
ten years investment experience. Prior to joining Citibank in
1996, she was a portfolio manager at Fischer Francis Trees and
Watts, Inc., managing leveraged risk positions in the U.S.
Treasury and Canadian markets. She began her career as an
account executive at Drexel Burnham Lambert, Inc. managing
fixed income and equity portfolios.
ADVISORY FEES
For the investment advisory services Citibank provided to the
Fund and its underlying mutual fund during the fiscal year
ended December 31, 1998, Citibank received a total of 0.35% of
the Fund's average daily net assets.
<PAGE>
----------------------
MORE ABOUT THE FUND
----------------------
The Fund's goal, principal investments and risks are summarized in
FUND AT A GLANCE. More information on investments, investment
strategies and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
CitiFunds Short-Term U.S. Government Income Portfolio's principal
investment strategies are the strategies that, in the opinion of
Citibank, are most likely to achieve the Fund's investment goal. Of
course, there can be no assurance that the Fund will achieve its goal.
Please note that the Fund may also use strategies and invest in
securities that are not described below but that are described in the
Statement of Additional Information. Of course, the Fund's portfolio
manager may decide, as a matter of investment strategy, not to use the
investments and investment techniques described below and in the
Statement of Additional Information at any particular time. The Fund's
goal and strategies may be changed without shareholder approval.
The Fund invests in debt securities that are backed, as to timely
repayment of principal and interest, by the full faith and credit of
the U.S. Government. These include U.S. Treasury bills, notes and
bonds, and obligations, including mortgage-backed securities, issued
or guaranteed by U.S. government agencies or instrumentalities. Even
if the U.S. government or one of its agencies guarantees principal and
interest payments, the market price of the security is not insured and
may be volatile.
- --------------------------------------------------------------------------------
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. Interest and principal payments on many
mortgage-backed securities are guaranteed by U.S. government agencies
or instrumentalities. Certain types of mortgage- backed securities are
called collateralized mortgage obligations, or CMOs.
- --------------------------------------------------------------------------------
The Fund may invest up to 80% of its assets in mortgage-backed
securities that are direct pass-through certificates called "GNMAs" or
in collateralized mortgage obligations that are backed by GNMAs. GNMAs
are securities backed by a pool of mortgages guaranteed as to payment
and principal by the Government National Mortgage Association.
The Fund may hold cash pending investment, and may invest in money
market instruments, repurchase agreements and reverse repurchase
agreements for cash management purposes. The Fund may also lend its
portfolio securities or sell its securities short, as long as, in the
case of a short sale, the Fund owns, or has the right to obtain, the
securities being sold short.
DERIVATIVES. The Fund may invest in derivatives including financial
futures and options on futures contracts. The Fund may use derivatives
in order to protect (or "hedge") against declines in the value of
securities held by the Fund or increases in the cost of securities to
be purchased in the future. The Fund may also use derivatives, for
non-hedging purposes, to enhance yields, price sensitivity, and
potential gain.
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 guarantees counterparty performance. In
some cases, the derivatives may be illiquid, and the Fund may bear
more counterparty risk. Derivatives may not be available on terms that
make economic sense (for example, they may be too costly).
DEFENSIVE STRATEGIES. The Fund may, from time to time, take temporary
defensive positions in attempting to respond to adverse market,
political or other conditions. When doing so, the Fund may invest
without limit in money market instruments and other very short-term
instruments. The income on money market and other very short-term
instruments is likely to be less than the income on the debt
obligations generally purchased by the Fund.
INVESTMENT STRUCTURE. The Fund does not invest directly in securities
but instead invests through an underlying mutual fund, Government
Income Portfolio, having the same investment goals and strategies as
the Fund. Government Income Portfolio buys, holds and sells securities
in accordance with these goals and strategies. The Fund may stop
investing in its underlying mutual fund at any time, and will do so if
the Fund's Trustees believe that to be in the best interests of the
Fund's shareholders. The Fund could then invest in another mutual fund
or pooled investment vehicle or invest directly in securities.
MANAGEMENT STYLE
>
Managers of mutual funds use different styles when selecting
securities to purchase. In selecting securities to buy for the Fund,
Citibank first establishes the overall duration of the portfolio and
its yield curve position, based upon the portfolio managers' outlook
on the economy, prospects for economic growth and inflation, and the
U.S. government bond market. The portfolio managers then allocate the
portfolio between the two primary sectors of the U.S. government
securities market, U.S. Treasury and agency obligations, in an attempt
to maximize exposure to securities providing the best relative values.
The portfolio managers then choose individual securities based upon
their relative value within their sector. The portfolio managers use
this same approach when deciding which securities to sell. Securities
are sold when the Fund needs cash to meet redemptions, or when the
portfolio 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 information about the portfolio
managers, see "Investment Adviser" on page 22.
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 or its affiliates exercise investment discretion.
The Fund may "pay up" for brokerage services, meaning that it is
authorized to pay a broker or dealer who provides these brokerage and
research services a commission for executing a portfolio transaction
which is higher than the commission another broker or dealer would
have charged. However, the Fund will "pay up" only if Citibank
determines in good faith that the higher commission is reasonable in
relation to the brokerage and research services provided, viewed in
terms of either the particular transaction or all of the accounts over
which Citibank exercises investment discretion.
RISKS
Investing in a mutual fund involves risk. Before investing, you should
consider the risks you will assume. Certain of these risks are
described below. More information about risks appears in the Fund's
Statement of Additional Information. Remember that you may receive
little or no return on your investment in the Fund. You may lose money
if you invest in this Fund.
Please remember that an investment in the Fund is not a deposit of
Citibank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions. 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, although
shorter term obligations are usually less sensitive to interest rate
changes. A change in interest rates could cause the Fund's share price
to go down.
CREDIT RISK. The Fund invests only in securities that are backed by
the full faith and credit of the United States. These securities are
generally thought to have minimal credit risk.
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.
DERIVATIVES. The Fund's use of derivatives such as futures and options
on futures 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, causing the Fund's share price to
go down. In addition, the Fund's ability to use derivatives
successfully depends on Citibank's ability to accurately predict
movements in interest rates and other economic factors and the
availability of liquid markets. If Citibank's predictions are wrong,
or if the derivatives do not work as anticipated, the Fund could
suffer greater losses than if the Fund had not used derivatives.
YEAR 2000. The Fund could be adversely affected if the computer
systems used by the Fund or its service providers are not programmed
to accurately process information on or after January 1, 2000. The
Fund, and its service providers, are making efforts to resolve any
potential Year 2000 problems. While it is likely these efforts will be
successful, the failure to implement any necessary modifications could
have an adverse impact on the Fund. The Fund also could be adversely
affected if the issuers of securities held by the Fund do not solve
their Year 2000 problems, or if it costs them large amounts of money
to solve these problems.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
----------------------
FINANCIAL HIGHLIGHTS
----------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single 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 investment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Fund's financial statements, is included in
the annual report which is incorporated by reference in the Statement of
Additional Information and which is available upon request.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994+
..........................................................................................................................
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period $ 9.61 $ 9.55 $ 9.78 $ 9.28 $ 9.91
..........................................................................................................................
Income From Operations:
Net investment income 0.473 0.504 0.516 0.543 0.466
Net realized and unrealized gain
(loss) 0.121 0.064 (0.232) 0.500 (0.635)
..........................................................................................................................
Total from operations 0.594 0.568 0.284 1.043 (0.169)
..........................................................................................................................
Less Distributions From:
Net investment income (0.474) (0.508) (0.514) (0.543) (0.461)
..........................................................................................................................
Total distributions (0.474) (0.508) (0.514) (0.543) (0.461)
..........................................................................................................................
Net Asset Value, end of period $ 9.73 $ 9.61 $ 9.55 $ 9.78 $ 9.28
..........................................................................................................................
Total return 6.33% 6.11% 3.02% 11.48% (1.72)%
..........................................................................................................................
<PAGE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994+
..........................................................................................................................
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) $48,034 $20,237 $26,744 $35,325 $52,933
Ratio of expenses to average net
assets (A) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to
average net assets 4.98% 5.20% 5.31% 5.38% 4.72%
Portfolio turnover (B) 288% 126% 100% 284% 40%
Note: If agents of the Fund for the periods indicated and agents of Government Income Portfolio for the periods after May 1,
1994 had not voluntarily waived a portion of their fees and assumed Fund expenses, the net investment income per share and
the ratios would have been as follows:
Net investment income per share $0.413 $0.442 $0.460 $0.499 $0.421
RATIOS:
Expenses to average net assets (A) 1.42% 1.43% 1.38% 1.23% 1.26%
Net investment income to average
net assets 4.36% 4.57% 4.73% 4.95% 4.26%
(A) Includes the Fund's share of Government Income Portfolio allocated expenses for the periods subsequent to May 1, 1994.
(B) The portfolio turnover rates for the periods beginning May 1, 1994 represent the rate of portfolio activity of
Government Income Portfolio, the underlying portfolio through which the Fund invests. The Fund's portfolio turnover for
the period January 1, 1994 to April 30, 1994 was 22% which represents the rate of portfolio activity for the period the
Fund was making investments directly in securities.
+ On May 1, 1994, the Fund began investing all of its investable assets in Government Income Portfolio.
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
--------
APPENDIX
--------
SHARES OF THE FUND -- ELIGIBLE PURCHASERS
Fund 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 or shareholder servicing agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Shareholder Servicing 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 shares of the Fund;
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
will be waived under certain circumstances, as described below;
in determining whether a contingent deferred sales charge on Fund
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 Fund shares for certain 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 shares so acquired through an exchange
will be aggregated with the period during which the original
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 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>
The Statement of Additional Information (SAI) provides more
details about the Fund and its policies. The SAI is
incorporated by reference into this prospectus and is legally
part of it.
Additional information about the Fund's investments is
available in the Fund's Annual and Semi-Annual Reports to
Shareholders. In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its
portfolio holdings and describe its performance.
To obtain free copies of the SAI and the Annual and Semi-
Annual Reports or to make other inquiries, please call toll-
free 1-800-625-4554.
The SAI is also available from the Securities and Exchange
Commission. You can find it on the SEC Internet site at http:/
/www.sec.gov. Information about the Fund (including the SAI)
can also be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. You can get information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You can receive copies of this information by
sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009.
SEC File Number: 811-5033 CFP-USG 5/99
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Statement of
Additional Information
May 3, 1999
CITIFUNDS(SM) SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
CitiFunds(SM) Short-Term U.S. Government Income Portfolio (the "Fund") is a
series of CitiFunds Fixed Income Trust (the "Trust"). The address and telephone
number of the Trust are 21 Milk Street, Boston, Massachusetts 02109, (617)
423-1679. The Trust invests all of the investable assets of the Fund in
Government Income Portfolio (the "Portfolio"), which is a separate series of The
Premium Portfolios, a trust organized under the laws of the State of New York
(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 OR ENDORSED
BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT 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 ............................................. 11
5. Performance Information ............................................. 13
6. Determination of Net Asset Value; Valuation of Securities ........... 15
7. Additional Information on the Purchase and Sale of Fund Shares and
Shareholder Programs ................................................ 15
8. Management .......................................................... 21
9. Portfolio Transactions .............................................. 28
10. Description of Shares, Voting Rights and Liabilities ................ 29
11. Tax Matters ......................................................... 30
12. Certain Bank Regulatory Matters ..................................... 31
13. Financial Statements ................................................ 32
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 May 3, 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 32 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 Short-Term U.S. Government Income
Portfolio (the "Fund"), a series of the Trust. Prior to March 2, 1998, the
Fund was called Landmark U.S. Government Income Fund. References in this
Statement of Additional Information to the "Prospectus" are to the Prospectus,
dated May 3, 1999, of the Fund.
The Fund is a diversified fund. The Fund is permitted to seek its
investment objectives 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 Government Income Portfolio (the
"Portfolio"). The Portfolio is a series of The Premium Portfolios (the
"Portfolio Trust") and is an open-end, diversified management investment
company. The Portfolio has the same investment objectives 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, unless
the context otherwise requires. In addition, references to the Trust include
the Portfolio Trust, unless the context otherwise requires.
Citibank, N.A. ("Citibank" or the "Adviser") is investment adviser to the
Portfolio. The Adviser 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 it is managed depend on
the conditions and trends in the economy and the financial marketplaces.
CFBDS, Inc. ("CFBDS"), the administrator of the Fund (the
"Administrator"), and Signature Financial Group (Cayman) Ltd. ("SFG"), the
administrator of the Portfolio (the "Portfolio Administrator"), supervise the
overall administration of the Fund and the Portfolio, respectively. 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, the Fund's distributor (the
"Distributor"), only to investors who are customers of a financial
institution, such as a federal or state-chartered bank, trust company, savings
and loan association or savings bank, or a securities broker, that has entered
into a shareholder servicing agreement with the Trust (collectively,
"Shareholder Servicing Agents").
2. INVESTMENT OBJECTIVES AND POLICIES;
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
The investment objectives of the Fund are to generate 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.
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 objectives and policies as the Fund. The Portfolio, in turn,
buys, holds and sells securities in accordance with these objectives and
policies. Of course, there can be no assurance that the Fund or the Portfolio
will achieve their objectives. 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 its investment
objectives and policies, either directly in securities or in another mutual
fund or pooled investment vehicle having the same investment objectives 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 objectives 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 objectives,
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 will either hold a
shareholder meeting and vote in accordance with shareholder instructions or
otherwise vote in accordance with applicable rules and regulations. Of course,
the Fund could be outvoted, or otherwise adversely affected by other investors
in the Portfolio.
The Portfolio may sell interests to investors in addition to the Fund.
These investors may be mutual funds which offer shares to their shareholders
with different costs and expenses than the Fund. Therefore, the investment
return for all investors in funds investing in the Portfolio may not be the
same. These differences in returns are also present in other mutual fund
structures. Information about other holders of interests in the Portfolio is
available from the Fund's distributor, CFBDS.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
The Fund may, but need not, invest in all of the investments and utilize
any or all of the investment techniques described below and in the Prospectus.
The selection of investments and the utilization of investment techniques
depend on, among other things, the Adviser's investment strategies for the
Fund, conditions and trends in the economy and financial markets and
investments being available on terms that, in the Adviser's opinion, make
economic sense.
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 are not fundamental and may be changed without shareholder approval.
U.S. GOVERNMENT SECURITIES
The Fund invests 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 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 the U.S. Government or its agencies,
authorities or instrumentalities. The Fund may only invest in obligations
issued or guaranteed by U.S. Government agencies if such obligations are
backed, as to the timely payment of interest and principal, by the full faith
and credit of the U.S. Government, e.g., direct pass-through certificates of
the Government National Mortgage Association.
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.
The Adviser intends to fully manage the investments of the Fund by buying
and selling U.S. Government obligations, and by entering into repurchase
agreements covering such obligations, as well as by holding selected
obligations to maturity. In managing the Fund's investments, the Adviser seeks
to maximize the return for the Fund by taking advantage of market developments
and yield disparities, which may include use of the following strategies:
(1) shortening the average maturity of the Fund's securities in
anticipation of a rise in interest rates so as to minimize depreciation of
principal;
(2) lengthening the average maturity of the Fund's securities in
anticipation of a decline in interest rates so as to maximize appreciation
of principal;
(3) selling one type of U.S. Government obligation (e.g., Treasury
bonds) and buying another (e.g., GNMA direct pass-through certificates)
when disparities arise in the relative values of each; and
(4) changing from one U.S. Government obligation to an essentially
similar U.S. Government obligation when their respective yields are
distorted due to market factors.
These strategies may result in increases or decreases in the Fund's
current income and in the holding for the Fund of obligations which sell at
moderate to substantial premiums or discounts from face value. Moreover, if
the Adviser's expectations of changes in interest rates or its valuation of
the normal yield relationship between two obligations proves to be incorrect,
the Fund's income, net asset value and potential capital gain may be decreased
or its potential capital loss may be increased.
In order to enhance the stability of the value of shares of the Fund by
reducing volatility resulting from changes in interest rates and other market
conditions, the dollar weighted average maturity of the Fund's investment
securities is generally three years or less. The Fund is managed to provide an
income yield that is generally higher than those offered by money market funds,
which have a share price which is more stable than the value of an investment
in the Fund and which have a portfolio of investments with an average maturity
which is shorter than the Fund's securities. It is intended that the Fund will
have a share price that is more stable than the share price of other fixed
income funds that have a longer term investment focus. Debt securities with
longer maturities than those in which the assets of the Fund are invested
generally tend to produce higher yields and are subject to greater market
fluctuation as a result of changes in interest rates than debt securities with
shorter maturities. At the same time, the securities in which the assets of the
Fund are invested tend to produce lower yields and are subject to lower market
fluctuation as a result of changes in interest rates than debt securities with
longer maturities that tend to be purchased by longer term bond funds than the
Fund. However, since available yields vary over time, no specific level of
income can be assured. The income derived from an investment in the Fund
increases or decreases in relation to the income received by the Fund from its
investments, which in any case is reduced by the Fund's expenses.
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.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements subject to the
Fund's investment restriction on borrowing. 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 changed, the Fund could experience a
loss.
FUTURES CONTRACTS
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 contract. At the same time such a purchase or
sale is made, the Fund must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may
be as low as 1% or less of a contract's face value. Daily thereafter, the
futures contract is valued through a process known as "marking to market," and
the Fund may receive or be required to pay additional "variation margin" as
the futures contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was entered into.
The Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective maturity
or duration of the Fund's 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, if correctly used, 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), they do not eliminate the risk of loss and
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 debt securities underlying such
contracts correlate with movements in the value of the Fund's securities. If
the security underlying a futures contract is different than the security
being hedged, they may not move to the same extent or in the same direction.
In that event, the Fund's hedging strategy might not be successful and the
Fund could sustain losses on these hedging transactions which would not be
offset by gains on the Fund's other investments or, alternatively, the gains
on the hedging transaction might not be sufficient to offset losses on the
Fund's other investments. It is also possible that there may be a negative
correlation between the security underlying a futures contract and the
securities being hedged, which could result in losses both on the hedging
transaction and the securities. In these and other instances, the Fund's
overall return could be less than if the hedging transactions had not been
undertaken. Similarly, even where the Fund enters into futures transactions
other than for hedging purposes, the effectiveness of its strategy may be
affected by lack of correlation between changes in the value of the futures
contracts and changes in value of the securities which the Fund would
otherwise buy or sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, there is the potential that the
liquidity of the futures market may be lacking. Prior to expiration, a futures
contract may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the contract market on which
the futures contracts was originally entered into. While the Fund will
establish a futures position only if there appears to be a liquid secondary
market therefor, there can be no assurance that such a market will exist for
any particular futures contract at any specific time. In that event, it may
not be possible to close out a position held by the Fund, which could require
the Fund to purchase or sell the instrument underlying the futures contract or
to meet ongoing variation margin requirements. The inability to close out
futures positions also could have an adverse impact on the ability effectively
to use futures transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. The trading of futures contracts also is subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times
make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Investments in futures contracts also entail the risk that if the
Adviser'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 Adviser
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, together with any
premiums on options on futures contracts (see "Options on Futures Contracts"
below) used for non-hedging purposes, 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.
The use of futures contracts may increase the amount of taxable income of
the Fund and may affect the amount, timing and character of the Fund's income
for tax purposes, as more fully discussed herein in the section entitled "Tax
Matters."
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write options to buy or sell futures contracts
in which the Fund may invest. Such investment strategies may be used for
hedging purposes and for non-hedging purposes, subject to applicable law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract, in
the case of a put option, at a fixed exercise price up to a stated expiration
date or, in the case of certain options, on such date. Upon exercise of the
option by the holder, the contract market clearinghouse establishes a
corresponding short position for the writer of the option, in the case of a
call option, or a corresponding long position in the case of a put option. In
the event that an option is exercised, the parties will be subject to all the
risks associated with the trading of futures contracts, such as payment of
initial and variation margin deposits. In addition, the writer of an option on
a futures contract, unlike the holder, is subject to initial and variation
margin requirements on the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date), as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profits or loss on the transaction.
Options on futures contracts that are written or purchased by the Fund on
U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by
the CFTC and the performance guarantee of the exchange clearinghouse. In
addition, options on futures contracts may be traded on foreign exchanges.
The Fund may cover the writing of call options on futures contracts (a)
through purchases of the underlying futures contract, (b) through ownership of
the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract
and in the same principal amount as the call written where the exercise price
of the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or securities in a segregated
account. The Fund may cover the writing of put options on futures contracts
(a) through sales of the underlying futures contract, (b) through segregation
of cash or liquid securities in an amount equal to the value of the security
or index underlying the futures contract, (c) through the holding of a put on
the same futures contract and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written or where the exercise price of the put held
is less than the exercise price of the put written if the difference is
maintained by the Fund in cash or liquid securities in a segregated account.
Put and call options on futures contracts may also be covered in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Upon the exercise of a
call option on a futures contract written by the Fund, the Fund will be
required to sell the underlying futures contract which, if the Fund has
covered its obligation through the purchase of such contract, will serve to
liquidate its futures position. Similarly, where a put option on a futures
contract written by the Fund is exercised, the Fund will be required to
purchase the underlying futures contract which, if the Fund has covered its
obligation through the sale of such contract, will close out its futures
position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of
the futures contract. The Fund will receive an option premium when it writes
the call, and, if the price of the futures contract at expiration of the
option is below the option exercise price, the Fund will retain the full
amount of this option premium, which provides a partial hedge against any
decline that may have occurred in the Fund's security holdings. Similarly, the
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the securities deliverable upon exercise of the
futures contract. If the Fund writes an option on a futures contract and that
option is exercised, the Fund may incur a loss, which loss will be reduced by
the amount of the option premium received, less related transaction costs. The
Fund's ability to hedge effectively through transactions in options on futures
contracts depends on, among other factors, the degree of correlation between
changes in the value of securities held by the Fund and changes in the value
of its futures positions. This correlation cannot be expected to be exact, and
the Fund bears a risk that the value of the futures contract being hedged will
not move in the same amount, or even in the same direction, as the hedging
instrument. Thus it may be possible for the Fund to incur a loss on both the
hedging instrument and the futures contract being hedged.
The Fund may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of projected changes in interest rates, the Fund could, in lieu of
selling futures contracts, purchase put options thereon. In the event that
such decrease occurs, it may be offset, in whole or part, by a profit on the
option. Conversely, where it is projected that the value of securities to be
acquired by the Fund will increase prior to acquisition, due to a market
advance or changes in interest rates, the Fund could purchase call options on
futures contracts, rather than purchasing the underlying futures contracts.
FURTHER INFORMATION REGARDING DERIVATIVES
Transactions in financial futures and options on futures contracts entered
into for non-hedging purposes involve greater risk and could result in losses
which are not offset by gains on other portfolio assets. Financial futures and
options on futures contracts may be used alone or in combinations in order to
create synthetic exposure to securities in which the Fund otherwise invests.
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 but the Fund may sell them before the settlement
date. 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. The when-issued
securities are subject to market fluctuation, and no interest accrues on the
security to the purchaser during this period. The payment obligation and the
interest rate that will be received on the securities are each fixed at the
time the purchaser enters into the commitment. Purchasing obligations on a
when-issued basis is a form of leveraging and can involve a risk that the
yields available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself. In that case, there
could be an unrealized loss at the time of delivery. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when-issued" basis may increase the volatility of its net asset value.
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 Adviser does not expect that more than 40% of the Fund's total assets
would be involved in short sales against the box. The Adviser does not
currently intend to engage in such sales.
MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans, as long as they are backed
by the full faith and credit of the United States Government. 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 Fund may purchase mortgage-backed securities issued or guaranteed by the
Government National Mortgage Association ("GNMA"). Obligations of GNMA are
backed by the full faith and credit of the United States Government. 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 (such collateral collectively
hereinafter referred to as "Mortgage Assets"); provided, however, that the
CMOs 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 a portion of
its assets in multi-class pass-through securities which are interests in a
trust composed of Mortgage Assets; provided, however, that the Mortgage Assets
are backed as to the timely payment of interest and principal by the full
faith and credit of the U.S. Government. 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.
Determinations of average maturity of mortgage-backed securities take into
account expectations of prepayments, which may change in different interest
rate environments. The Fund will not consider it a violation of policy if its
average maturity deviates from its normal range as a result of actual or
expected changes in prepayments.
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 cash 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 Adviser to be
of good standing. 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. The Adviser will make loans only
when, in the judgment of the Adviser, the consideration which can be earned
currently from loans of this type justifies the attendant risk. If the Adviser
determines to make loans, it is not intended that the value of the securities
loaned would exceed 30% of the market value of the Fund's total assets.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, the Fund may purchase
securities that are not registered 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 ("Rule 144A securities").
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 Rule 144A securities, unless, in the case of
restricted securities, the Board of Trustees determines, based on the trading
markets for the specific Rule 144A security, that it is liquid. The Trustees
have adopted guidelines and, subject to oversight by the Trustees, have
delegated to the Adviser the daily function of determining and monitoring
liquidity of Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in securities for which
there is no readily available market. These illiquid securities may include
privately placed restricted securities for which no institutional market
exists. The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price.
DEFENSIVE STRATEGIES
The Fund may, from time to time, take temporary defensive positions in
attempting to respond to adverse market, political or other conditions. When
doing so, the Fund may invest without limit in money market instruments and
other very short-term instruments, as long as the instruments purchased are
backed by the full faith and credit of the United States. The income on money
market and other very short-term instruments is likely to be less than the
income on the debt obligations generally purchased by the Fund.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trust, on behalf of
the Portfolio, have each adopted the following policies which may not be
changed with respect to the Fund or the 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 or pledge, mortgage or hypothecate assets of the Fund
or Portfolio, 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 the Fund's or the Portfolio's net assets, including the
amount borrowed, and may pledge, mortgage or hypothecate not more than 1/
3 of such assets to secure such borrowings (it is intended that money
would be borrowed for the Fund or Portfolio 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), provided that collateral
arrangements with respect to futures contracts, including deposits of
initial and variation margin, are not considered a pledge of assets for
purposes of this restriction.
(2) Purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained for the Fund or
Portfolio as may be necessary for the clearance of purchases and sales of
securities and except that deposits of initial and variation margin may be
made for the Fund or Portfolio in connection with the purchase, ownership,
holding or sale of futures contracts.
(3) Write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the writing, purchasing
or selling of puts, calls or combinations thereof with respect to U.S.
Government securities or with respect to futures contracts, or (ii) the
writing, purchase, ownership, holding or sale of futures contracts.
(4) Underwrite securities issued by other persons except insofar as
either the Trust or the Portfolio Trust may technically be deemed an
underwriter under the Securities Act of 1933 in selling a portfolio
security (provided, however, that the Fund may invest all of its assets in
an open-end management investment company with the same investment
objective and policies and substantially the same investment restrictions
as the Fund (a "Qualifying Portfolio")).
(5) Make loans to other persons except (a) through the lending of the
Fund's or Portfolio's securities and provided that any such loans not
exceed 30% of the Fund's or Portfolio's total assets, as the case may be
(taken at market value), (b) through the use of repurchase agreements or
the purchase of short-term obligations, or (c) by purchasing 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 are part of an issue to the
public shall not be considered the making of a loan.
(6) 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 (except futures contracts) in the ordinary course of
business (the Trust and Portfolio Trust 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).
(7) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer
to be held for the Fund or Portfolio, except that all of the assets of the
Fund may be invested in a Qualifying Portfolio.
(8) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 5% of the assets of the Fund or Portfolio
(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 any political subdivision of the United States or any
state, or any agency or instrumentality of the United States or of any
state or of any political subdivision of any state or the United States);
provided that for purposes of this restriction the issuer of a futures
contract shall not be deemed to be the issuer of the security or
securities underlying such contract; and further provided that all of the
assets of the Fund may be invested in a Qualifying Portfolio.
(9) Make short sales of securities or maintain a short position,
unless at all times when a short position is open the Fund or Portfolio
owns an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities
of the same issue as, and equal in amount to, the securities sold short,
and unless not more than 10% of the net assets of the Fund or Portfolio
(taken at market value), is held as collateral for such sales at any one
time.
(10) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the investment objective of
the Fund or Portfolio 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
and except that all of the assets of the Fund may be invested in a
Qualifying Portfolio.
(11) 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, provided that collateral
arrangements with respect to futures contracts, including deposits of
initial and variation margin, are not considered to be the issuance of a
senior security for purposes of this restriction.
The Trust, with respect to the Fund, and the Portfolio Trust, with respect
to the Portfolio, have each also adopted a policy which is fundamental and
which provides that all of the assets of the Fund or Portfolio will be
invested in obligations that are backed by the full faith and credit of the
U.S. Government except that all of the assets of the Fund may be invested in a
Qualifying Portfolio all of whose assets will be invested in obligations that
are backed by the full faith and credit of the U.S. Government. This policy is
not intended to prohibit the use of futures contracts on fixed income
securities or options on futures contracts by the Fund. Investment Restriction
(9) above applies only to short sales of or short positions in securities, and
does not prevent the writing, purchase, ownership, holding or sale of futures
contracts.
For purposes of restriction (1) above, arrangements with respect to
securities lending are not treated as borrowing.
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.
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 is not
considered a violation of policy. If the value of the Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable
at the time of acquisition due to subsequent fluctuations in value or other
reasons, the Board of Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
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. Yields and total rates of return fluctuate in
response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund may provide its period, annualized, cumulative and average annual
"total rates of return." The "total rate of return" refers to the change in the
value of an investment in the Fund over a stated period, reflects any change in
net asset value per share and is compounded to include the value of any shares
purchased with any dividends or capital gains declared during such period.
Period total rates of return may be "annualized." An "annualized" total rate of
return assumes that the period total rate of return is generated over a one-year
period. Average annual total return figures represent the average annual
percentage change over the specified period. Cumulative total return figures are
not annualized and represent the aggregate percentage or dollar value change
over a stated period of time.
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.
Average annual total return is a measure of the Fund's performance over
time. It is determined by taking the Fund's performance over a given period
and expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by
SEC rules. The average annual total return for a specific period is found by
taking a hypothetical $1,000 initial investment in Fund shares on the first
day of the period, reducing the amount to reflect the maximum sales charge,
and computing the redeemable value of that investment at the end of the
period. The redeemable value is then divided by the initial investment, and
this quotient is taken to the Nth root (N representing the number of years in
the period) and 1 is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains
distributions have been reinvested in Fund shares at net asset value on the
reinvestment dates during the period.
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 fees charged by a shareholder's Shareholder Servicing Agent will reduce
that shareholder's net return on his or her investment.
A 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 maximum 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 average annual total rate of return information for
shares of the Fund for the periods indicated, assuming that dividends and
capital gains distributions, if any, were reinvested. 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. Performance for past periods has
therefore been adjusted to reflect the maximum sales charge currently in
effect. Performance results include any applicable fee waivers or expense
subsidies in place during the time period, which may cause the results to be
more favorable than they would otherwise have been.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
AVERAGE ANNUAL OF A HYPOTHETICAL
TOTAL RATE $1,000 INVESTMENT
OF RETURN AT THE END OF THE PERIOD
--------- ------------------------
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
<S> <C> <C>
Ten years ended December 31, 1998 ................................... 6.81% $1,931
Five years ended December 31, 1998 .................................. 4.64% $1,254
One year ended December 31, 1998 .................................... 4.74% $1,047
</TABLE>
The annualized yield of shares of the Fund for the 30-day period ended
December 31, 1998 was 4.18%.
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.
Performance prior to January 4, 1999 used for advertising and sales
purposes will be adjusted to include the sales charges currently in effect.
Shares of the Fund are sold at net asset value plus a current maximum sales
charge of 1.50%. Performance will typically include this maximum sales charge
for the purposes of calculating performance figures. 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 of each share of the Fund is determined each day
during which the New York Stock Exchange is open for trading (a "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 of net asset value
is made once each day as of the close of regular trading on such Exchange
(normally 4:00 p.m. Eastern time) by adding the market value of all securities
and other assets attributable to shares of the Fund (including its interest in
the Portfolio), then subtracting the liabilities charged to the shares, and
then dividing the result by the number of outstanding shares. The net asset
value per share is effective for orders received and accepted by the
Distributor prior to its calculation.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined at the same time and on the same days as the net asset value per
share of the Fund is determined. The net asset value of the Fund's investment
in the Portfolio is equal to the Fund's pro rata share of the net assets of
the Portfolio.
Bonds and other fixed income securities (other than short-term obligations
maturing in 60 days or less) 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.
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 plus amortization
of any premium.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE
OF FUND SHARES AND SHAREHOLDER PROGRAMS
You may purchase your Fund 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 on the amount of your purchase, or the sales
charge may be waived in its entirety, as described below under "Sales Charge
Waivers." Shares of the Fund are also subject to an annual distribution fee of
up to 0.15%, an additional fee of up to 0.05% for expenses incurred in
connection with print or electronic media advertising, and a 0.25% shareholder
servicing agent fee. See "Distributor." Set forth below is an example of the
method of computing the offering price of the shares of the Fund. The example
assumes a purchase on December 31, 1998 of shares of the Fund aggregating less
than $25,000 subject to the schedule of sales charges set forth below:
<TABLE>
<CAPTION>
CITIFUNDS SHORT-TERM U.S.
GOVERNMENT INCOME PORTFOLIO
---------------------------
<S> <C>
Net Asset Value per share ..................................................... $9.73
Per Share Sales Charge -- 1.50% of public offering price
(1.52% of net asset value per share) ........................................ $0.15
Per Share Offering Price to the Public ........................................ $9.88
</TABLE>
The Fund receives the entire net asset value of all shares of the Fund
that are sold. The Distributor retains the full applicable sales charge from
which it pays the uniform reallowances shown in the table below to shareholder
servicing agents which are broker-dealers. The Distributor keeps the full
applicable sales charge with respect to shares of the Fund sold by shareholder
servicing agents that are not broker-dealers.
The front-end sales charge for shares of the Fund 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>
SALES CHARGE SALES CHARGE DEALER REALLOWANCE
AMOUNT OF AS A % OF AS A % OF AS A % OF
INVESTMENT OFFERING PRICE INVESTMENT OFFERING PRICE
- ---------- -------------- ---------- --------------
<S> <C> <C> <C>
Less than $50,000 ................................ 1.50% 1.52% 1.35%
$50,000 to less than $250,000 .................... 1.00% 1.01% 0.90%
$250,000 to less than $500,000 ................... 0.50% 0.50% 0.45%
$500,000 or more ................................. none* none* up to 0.45%
</TABLE>
- ----------
*A contingent deferred sales charge ("CDSC") may apply in certain instances.
See "Sales Charge Waivers" below.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Fund shares, and any CDSC imposed upon sales of Fund shares, are waived.
Waivers are generally instituted in order to promote goodwill 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.
FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Fund shares acquired through
the reinvestment of dividends and capital gains distributions.
o Eligible Purchasers. Shares of the Fund 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 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 or shareholder servicing
agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its affiliates
or any Shareholder Servicing Agent and its affiliates (including
immediate families of any of the foregoing), and retired employees of
Citibank and its affiliates or CFBDS, Inc. and its affiliates (including
immediate families of any of the foregoing)
[] investors participating in a fee-based or promotional arrangement
sponsored or advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund shares as
an investment option based on an investor's balances in selected
Citigroup Inc. products and services
[] employees of members of the National Association of Securities Dealers,
Inc., provided that such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that the
securities will not be resold except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable annuity
contracts
[] direct rollovers by plan participants from a 401(k) plan offered to
Citigroup employees
[] shareholder accounts established through a reorganization or similar form
of business combination approved by 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 shares of the Fund; 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 will be waived under certain circumstances, as described
below; in determining whether a contingent deferred sales charge on Fund
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 Fund shares for certain 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 shares so acquired through an exchange will be
aggregated with the period during which the original 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 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 made under the Fund's Systematic Withdrawal Plan
SHAREHOLDER PROGRAMS
The Fund makes the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Fund shares, to
exchange Fund shares for shares of other CitiFunds, without, in many cases,
the payment of a sales charge or to provide for the automatic withdrawal of
cash. These programs may be changed or discontinued at any time. For more
information, please contact your Shareholder Servicing 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 shares of the
Fund alone or in combination with 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's Shareholder Servicing 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 a Shareholder Servicing 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 shares of the Fund 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 $40,000 and purchases an additional $10,000 of shares of the
Fund, the sales charge for the $10,000 purchase would be at the rate of 1.00%
(the rate applicable to single transactions from $50,000 to less than
$250,000). A shareholder must provide his or her Shareholder Servicing 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 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 Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed shares of the Fund 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 shares of the
Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Shareholder Servicing
Agents in writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for Class A shares of certain other
CitiFunds that are made available by your Shareholder Servicing Agent, or may
be acquired through an exchange of Class A shares of those funds. Fund shares
also may be exchanged for shares of certain CitiFunds that offer only a single
class of shares, unless the Fund shares are subject to a contingent deferred
sales charge.
No initial sales charge is imposed on shares being acquired through an
exchange unless Class A shares of the other Fund 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). No contingent deferred sales
charge is imposed on Fund shares that are subject to a CDSC when they are
exchanged for Class A shares of certain other CitiFunds. Investors whose
shares were outstanding on January 4, 1999 are able to exchange those 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.
You must notify your Shareholder Servicing 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. To qualify for this sales charge waiver or reduced sales
charge, at the time of exchange you must notify your Shareholder Servicing
Agent. Any such qualification may be subject to confirmation, through a check
of appropriate records and documentation, of your existing share balances and
any sales charges paid on prior share purchases.
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
Shareholder Servicing 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 shareholder's account is established and maintained by his or her
Shareholder Servicing Agent, which is the shareholder of record of the Fund.
Each Shareholder Servicing Agent establishes its own terms, conditions and
charges with respect to services it offers to its customers. Charges for these
services may include fixed annual fees and account maintenance fees. Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate written disclosure of any fees that it
may charge them directly. The effect of any such fees will be to reduce the
net return on the investment of customers of that Shareholder Servicing Agent.
Each Shareholder Servicing Agent is responsible for transmitting promptly
orders of its customers.
Investors may be able to establish new accounts in the Fund under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and
certain other qualified pension and profit-sharing plans. Investors should
consult with their Shareholder Servicing Agent and their tax and retirement
advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling their Shareholder Servicing 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 Shareholder
Servicing 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 Shareholder Servicing 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 and the
Portfolio Trust have each reserved the right to pay the redemption price of
shares of the Fund or beneficial interests in the Portfolio, 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 or
beneficial interests being sold. If a holder of shares or beneficial interests
received a distribution in kind, such holder could incur brokerage or other
charges in converting the securities to cash.
The Trust or the Portfolio Trust may suspend the right of redemption or
postpone the date of payment for shares of the Fund or beneficial interests in
the Portfolio more than seven days during any period when (a) trading in the
markets the Fund or the Portfolio normally utilizes is restricted or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of the Fund's or the Portfolio'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.
A redemption is treated as a sale of the shares redeemed and could result
in taxable gain or loss to the shareholder making the redemption.
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. In
addition, a majority of the disinterested Trustees of the Fund are different
from a majority of the disinterested Trustees of the Portfolio.
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. The address of the Portfolio Trust is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE*; 47 - President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 72 - Vice President and General Counsel, Corporate Property
Investors (November 1988 to December 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December 1987). His address is 4041 Gulf Shore Boulevard
North, Naples, Florida.
DIANA R. HARRINGTON; 59 - 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
SSBC Fund Management, Inc. (formerly known as 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.; 64 - Chairman of the Board of Trustees of the Trust;
Managing Director, Morong Capital Management (since February 1993); Senior
Vice President and Investment Manager, CREF Investments, Teachers Insurance &
Annuity Association (retired January 1993); Director, Indonesia Fund; Trustee,
MAS Funds (since 1993). His address is 1385 Outlook Drive West, Mountainside,
New Jersey.
E. KIRBY WARREN; 64 - Professor of Management, Graduate School of Business,
Columbia University (since 1987); Samuel Bronfman Professor of Democratic
Business Enterprise (1978 to 1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR.; 78 - Vice President-Investments, Sun Company, Inc.
(retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUST
ELLIOTT J. BERV; 56 - 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.; 64 - Chairman of the Board of Trustees of the Trust;
Managing Director, Morong Capital Management (since February 1993); Senior
Vice President and Investment Manager, CREF Investments, Teachers Insurance &
Annuity Association (retired January 1993); Director, Indonesia Fund; Trustee,
MAS Funds (since 1993). His address is 1385 Outlook Drive West, Mountainside,
New Jersey.
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; Assistant 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*; 35 - Vice President, Assistant Secretary and Assistant
Treasurer 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 (since 1993). 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 and the Portfolio Trust also hold
comparable positions with certain other funds for which CFBDS, SFG or their
affiliates serve as the distributor or administrator.
The following table shows Trustee compensation for the periods indicated.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED FROM THE REGISTRANT
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND COMPLEX PAID
COMPENSATION AS PART OF FUND BENEFITS TO
TRUSTEE FROM FUND(1) EXPENSES UPON RETIREMENT TRUSTEES(1)(2)
------- ------------ -------- --------------- --------------
<S> <C> <C> <C> <C>
Philip W. Coolidge $ 0 None None $ 0
Riley C. Gilley $1,687 None None $41,500
Diana R. Harrington $1,756 None None $59,000
Susan B. Kerley $1,744 None None $55,000
Heath B. McLendon (3) 0 None None 0
C. Oscar Morong, Jr. $1,810 None None $71,000
E. Kirby Warren $1,731 None None $49,000
William S. Woods, Jr. $1,731 None None $54,000
- ----------
(1) For the fiscal year ended December 31, 1998.
(2) Messrs. Coolidge, Gilley, McLendon, Morong, Warren and Woods, and Mses. Harrington and Kerley are
Trustees of 50, 34, 22, 41, 41, 27, 29, and 29 funds or 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.
</TABLE>
As of April 9, 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, N.A. or
its affiliates, as Shareholder Servicing Agents of the Fund for the accounts
of their respective clients.
The Declaration of Trust of each of the Trust and the Portfolio Trust
provides that the Trust or the Portfolio Trust, as the case may be, will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Trust or the Portfolio Trust, as the case may be, unless, as
to liability to the Trust, the Portfolio Trust or their respective investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their
offices, or unless with respect to any other matter it is finally adjudicated
that they did not act in good faith in the reasonable belief that their
actions were in the best interests of the Trust or the Portfolio Trust, as the
case may be. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon
a review of readily available facts, by vote of a majority of disinterested
Trustees of the Trust or the Portfolio Trust, or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ADVISER
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees of the Portfolio Trust, may determine, the Adviser manages
the securities of the Portfolio and makes investment decisions for the
Portfolio. The Adviser furnishes at its own expense all services, facilities
and personnel necessary in connection with managing the Portfolio's
investments and effecting securities transactions for the Portfolio. The
Advisory Agreement will continue in effect 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 Advisory Agreement
or interested persons of any such party, at a meeting called for the purpose
of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio Trust, when
authorized either by a vote of a majority of the outstanding voting securities
of the Portfolio or by a vote of a majority of the Board of Trustees of the
Portfolio Trust, as appropriate, or by the Adviser on not more than 60 days'
nor less than 30 days' written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser 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 and management of the Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Advisory Agreement.
For its services under the Advisory 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
on an annualized basis for the Portfolio's then-current fiscal year. Citibank
may reimburse the Portfolio or waive all or a portion of its advisory fees.
For the fiscal years ended December 31, 1996, 1997 and 1998, the fees paid to
Citibank under the Advisory Agreement, were $198,024 (of which $2,044 was
voluntarily waived), $196,529 (of which $5,466 was voluntarily waived), and
$235,934, respectively.
ADMINISTRATOR
Pursuant to administrative services agreements (the "Administrative
Services Agreements"), CFBDS and SFG provide the Trust and the Portfolio
Trust, respectively, with general office facilities and CFBDS and SFG
supervise the overall administration of the Trust or the Portfolio Trust,
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of, the Trust's or the
Portfolio Trust's independent contractors and agents; the preparation and
filing of all documents required for compliance by the Trust or the Portfolio
Trust with applicable laws and regulations; and arranging for the maintenance
of books and records of the Trust or the Portfolio Trust. The Administrator
and the Portfolio Administrator provide persons satisfactory to the Board of
Trustees of the Trust or the Portfolio Trust to serve as Trustees and officers
of the Trust and the Portfolio Trust, respectively. Such Trustees and
officers, as well as certain other employees and Trustees of the Trust and the
Portfolio Trust, may be directors, officers or employees of CFBDS, SFG or
their affiliates.
The fees payable to the Administrator and the Portfolio Administrator,
respectively, under the Administrative Services Agreements are 0.25% of the
average daily net assets of the Fund, and 0.05% of the average daily net
assets of the Portfolio, accrued daily and paid monthly, in each case on an
annualized basis for the Fund's or the Portfolio's then-current fiscal year.
However, each of the Administrator and the Portfolio Administrator has
voluntarily agreed to waive a portion of the fees payable as necessary to
maintain the projected rate of total operating expenses. For the fiscal years
ended December 31, 1996, 1997 and 1998, the fees payable to CFBDS from the
Fund under the Administrative Services Agreement were $74,177 (all of which
was voluntarily waived) $58,254 (all of which was voluntarily waived), and
$72,730 (all of which was voluntarily waived), respectively. For the fiscal
years ended December 31, 1996, 1997 and 1998, the fees payable to SFG from the
Portfolio under the Administrative Services Agreement with the Portfolio Trust
were $28,289 (of which $27,649 was voluntarily waived), $28,076 (of which
$27,174 was voluntarily waived), and $33,706 (all of which was voluntarily
waived), respectively.
The Administrative Services Agreement with the Trust continues in effect
with respect to the Fund if 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 Trust and, in either case, by a
majority of the Trustees who are not parties to the Administrative Services
Agreement or interested persons of any such party. The Administrative Services
Agreement with the Trust terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the outstanding voting
securities of the Trust or by either party on not more than 60 days' nor less
than 30 days' written notice. The Administrative Services Agreement with the
Trust also provides that neither CFBDS, as the Administrator, nor its
personnel shall be liable for any error of judgment or mistake of law or for
any act or omission in the administration or management of the Trust, except
for willful misfeasance, bad faith or gross negligence in the performance of
its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Administrative Services Agreement.
The Administrative Services Agreement with the Portfolio Trust provides
that SFG may render administrative services to others. The Administrative
Services Agreement with the Portfolio Trust terminates automatically if it is
assigned and may be terminated without penalty by a vote of a majority of the
outstanding voting securities of the Portfolio Trust or by either party on not
more than 60 days' nor less than 30 days' written notice. The Administrative
Services Agreement with the Portfolio Trust also provides that neither SFG, as
the Portfolio Administrator, nor its personnel shall be liable for any error
of judgment or mistake of law or for any act or omission in the administration
or management of the Portfolio Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Portfolio Trust's Administrative Services Agreement.
CFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group,
Inc. SFG is a company organized under the laws of the Cayman Islands. Its
principal place of business is in George Town, Grand Cayman, British West
Indies.
Pursuant to sub-administrative services agreements, Citibank performs such
sub-administrative duties for the Trust and the Portfolio Trust as from time
to time are agreed upon by Citibank and, respectively, CFBDS or SFG.
Citibank's sub-administrative duties may include providing equipment and
clerical personnel necessary for maintaining the Trust's or the Portfolio
Trust's organization, participation in the preparation of documents required
for compliance by the Trust or the Portfolio Trust with applicable laws and
regulations, the preparation of certain documents in connection with meetings
of Trustees and shareholders, and other functions which would otherwise be
performed by the Administrator. For performing such sub-administrative
services, Citibank receives compensation as from time to time is agreed upon
by Citibank and, respectively, CFBDS or SFG, not in excess of the amount paid
to CFBDS or SFG for its respective services under the Administrative Services
Agreements with the Trust and the Portfolio Trust. All such compensation is
paid by CFBDS or SFG.
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 (the
"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 Agreement, CFBDS is
obligated to use its best efforts to sell shares of the Fund.
Either party may terminate the Distribution Agreement on not less than 30
days' nor more than 60 days' written notice to the other party. Unless
otherwise terminated, the Distribution Agreement will continue in effect from
year to year upon annual approval by the Trust's Board of Trustees, by vote of
a majority of the Board of Trustees of the Trust who are not parties to the
Distribution Agreement or interested persons of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement will terminate in the event of its assignment, as
defined in the 1940 Act.
The Trust has adopted a Distribution Plan (the "Distribution Plan") in
accordance with Rule 12b-1 under the 1940 Act with respect to shares of the
Fund after concluding that there is a reasonable likelihood that the
Distribution Plan will benefit the Fund and its shareholders. The Distribution
Plan provides that the Fund may pay a distribution fee to the Distributor at
an annual rate not to exceed 0.15% of the Fund's average daily net assets. The
Distributor receives the distribution fees for its services under the
Distribution Agreement in connection with the distribution of the Fund's
shares (exclusive of any advertising expenses incurred by the Distributor in
connection with the sale of shares of the Fund). The Distributor may use all
or any portion of such distribution fee to pay for expenses of printing
prospectuses and reports used for sales purposes, expenses of the preparation
and printing of sales literature, commissions to dealers who sell shares of
the Fund and other distribution-related expenses. The Distribution Plan
permits the Fund to pay the Distributor an additional fee (not to exceed 0.05%
of the average daily net assets of the Fund) in anticipation of or as
reimbursement for print or electronic media advertising expenses incurred in
connection with the sale of shares.
The Distribution 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 Distribution Plan or in any agreement related to the Plan
(for purposes of this paragraph "Qualified Trustees"). The Distribution 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 Distribution Plan. The
Distribution Plan further provides that the selection and nomination of the
Qualified Trustees is committed to the discretion of the disinterested
Trustees (as defined in the 1940 Act) then in office. The Distribution Plan
may be terminated 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
the Fund. The Distribution Plan may not be amended to increase materially the
amount of the Fund's permitted expenses thereunder without the approval of a
majority of the outstanding securities of the Fund and may not be materially
amended in any case without a vote of a majority of both the Trustees and
Qualified Trustees. The Distributor will preserve copies of any plan,
agreement or report made pursuant to the Distribution Plan for a period of not
less than six years from the date of the Plan, and for the first two years the
Distributor will preserve such copies in an easily accessible place.
As contemplated by the Distribution Plan, CFBDS acts as the agent of the
Trust in connection with the offering of shares of the Fund pursuant to the
Distribution Agreement. After the prospectuses and periodic reports of the
Fund have been prepared, set in type and mailed to existing shareholders, the
Distributor pays for the printing and distribution of copies thereof which are
used in connection with the offering of shares of the Fund to prospective
investors. For the fiscal years ended December 31, 1996, 1997 and 1998, the
fees payable to the Distributor by the Fund under the Distribution Agreement
were $44,506 (all of which was voluntarily waived), $34,953 (all of which was
voluntarily waived) and $43,638 (all of which was voluntarily waived),
respectively, no portion of which was applicable to reimbursement for expenses
incurred in connection with print or electronic media advertising.
The Distributor may enter into agreements with Shareholder Servicing
Agents and may pay compensation to such Shareholder Servicing Agents for
accounts for which the Shareholder Servicing Agents are holders of record.
Payments may be made to the Shareholder Servicing 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.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Trust has adopted an administrative services plan (the "Administrative
Services Plan") after having concluded that there is a reasonable likelihood
that the Administrative Services Plan will benefit the Fund and its
shareholders. The Administrative Services Plan provides that the Trust may
obtain the services of an administrator, a transfer agent, a custodian and one
or more Shareholder Servicing Agents, and may enter into agreements providing
for the payment of fees for such services. Under the Trust's Administrative
Services Plan, the total of the fees paid from the Fund to the Trust's
Administrator and Shareholder Servicing Agents may not exceed 0.65% of the
Fund's average daily net assets on an annualized basis for the Fund's then-
current fiscal year. Any distribution fees (other than any fee concerning
electronic or other media advertising) payable under the Distribution Plan are
included in this expense limitation. Within this overall limitation,
individual fees may vary. Distribution fees may be used to offset the Fund's
marketing costs, such as preparation of sales literature, advertising, and
printing and distributing prospectuses and other shareholder materials to
prospective investors, and to pay costs related to distribution activities,
including employee salaries, bonuses and other overhead expenses.
The Administrative Services Plan continues in effect if such continuance
is specifically approved at least annually by a vote of both a majority of the
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 Administrative Services Plan or in any agreement related to
such Plan (for purposes of this paragraph "Qualified Trustees"). The
Administrative Services Plan requires that the Trust provide to its 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
Administrative Services Plan. The Administrative Services Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees of
the Trust or by a vote of a majority of the outstanding voting securities of
the Fund. The Administrative Services Plan may not be amended to increase
materially the amount of permitted expenses thereunder without the approval of
a majority of the outstanding voting securities of the Fund. The
Administrative Services Plan with respect to the Fund may not be materially
amended in any case without a vote of the majority of both the Trustees and
the Qualified Trustees.
The Trust has entered into a shareholder servicing agreement (a
"Shareholder Servicing Agreement") with each Shareholder Servicing Agent
pursuant to which such Shareholder Servicing Agent provides shareholder
services, including answering customer inquiries, assisting in processing
purchase, exchange and redemption transactions and furnishing Fund
communications to shareholders. Some Shareholder Servicing Agents may impose
certain conditions on their customers in addition to or different from those
imposed by the Fund, such as requiring a minimum initial investment or
charging their customers a direct fee for their services. Each Shareholder
Servicing 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 and to provide written notice at least 30 days prior to
imposition of any transaction fees. Shareholder Servicing Agents that sell
shares of the Fund receive a shareholder servicing fee payable on such shares
at an annual rate equal to 0.25% of the average daily net assets represented
by such shares. For the fiscal years ended December 31, 1996, 1997 and 1998,
the aggregate fees paid to Shareholder Servicing Agents under the Shareholder
Servicing Agreements for the Fund, were $74,177, $58,254 and $72,730,
respectively.
The Trust has also 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 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 Portfolio Trust has also adopted an administrative services plan (the
"Portfolio Administrative Plan"), which provides that the Portfolio Trust may
obtain the services of an administrator, a transfer agent and a custodian and
may enter into agreements providing for the payment of fees for such services.
Under the Portfolio Administrative Plan, the administrative services fee
payable to the Portfolio Administrator from the Portfolio may not exceed 0.05%
of the Portfolio's average daily net assets on an annualized basis for its
then-current fiscal year.
The Portfolio Administrative Plan continues in effect if such continuance
is specifically approved at least annually by a vote of both a majority of the
Portfolio Trust's Trustees and a majority of the Portfolio Trust's Trustees
who are not "interested persons" of the Portfolio and who have no direct or
indirect financial interest in the operation of the Portfolio Administrative
Plan or in any agreement related to such Plan (for purposes of this paragraph
"Qualified Trustees"). The Portfolio Administrative Plan requires that the
Portfolio Trust 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 Portfolio Administrative Plan. The Portfolio
Administrative Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the Portfolio Trust and may not be materially
amended in any case without a vote of the majority of both the Portfolio
Trust's Trustees and the Portfolio Trust's Qualified Trustees.
State Street acts as transfer agent and dividend disbursing agent for the
Fund. 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 Trust.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.
AUDITORS
PricewaterhouseCoopers LLP are the independent accountants for the Fund,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of PricewaterhouseCoopers LLP
is 160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP
are the chartered accountants for the Portfolio Trust. The address of
PricewaterhouseCoopers LLP is Suite 3000, Box 82, Royal Trust Towers, Toronto
Dominion Center, Toronto, Ontario, Canada M5X 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, serves 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. The amount of brokerage
commissions and realization of taxable capital gains will tend to increase as
the level of Portfolio activity increases. Specific decisions to purchase or
sell securities for the Fund are made by a portfolio manager who is an
employee of the Adviser and who is appointed and supervised by its senior
officers. The portfolio manager may serve other clients of the Adviser 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. The Adviser attempts to achieve this result by selecting broker-
dealers to execute transactions on behalf of the Fund and other clients of the
Adviser 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),
the Adviser 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 the Adviser 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 the Adviser. 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 the 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
the 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 the Fund to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits to the Fund.
The investment advisory fee that the Fund pays to the Adviser will not be
reduced as a consequence of the Adviser's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of the
Adviser, the Adviser 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 the Adviser's other
clients. Investment decisions for the Fund and for the Adviser'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 the Adviser 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, 1996, 1997 and 1998, the Portfolio
paid no brokerage commissions.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value) of each series and to divide or combine the shares of any series into a
greater or lesser number of shares of that series without thereby changing the
proportionate beneficial interests in that series and to divide such shares
into classes. The Trust has reserved the right to create and issue additional
series and classes of shares. Each share of each class of each series
represents an equal proportionate interest in the series 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 among classes of shares
in a series). Shares of each series are entitled to vote separately to approve
advisory agreements or changes in investment policy, but shares of all series
may vote together in the election or selection of Trustees and accountants for
the Trust. In matters affecting only a particular series or class, only shares
of that 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 any series, a Shareholder Servicing 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 Shareholder
Servicing Agent is the holder of record. Shares have no preference,
preemptive, conversion or similar rights. Shares, when issued, are fully paid
and non-assessable, except as set forth below.
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.
Each shareholder's account is established and maintained by his or her
Shareholder Servicing Agent, which is the shareholder of record of the Fund.
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 the 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 Portfolio Trust, organized as a trust
under the laws of the State of New York. The Portfolio Trust's Declaration of
Trust provides that investors in the Portfolio (e.g., other investment
companies (including the Fund), insurance company separate accounts and common
and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account
of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
It is not expected that the liabilities of the Portfolio would ever exceed its
assets.
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 interests in the Portfolio. Any
additions or withdrawals that are to be effected on that day are then
effected. The investor's percentage of the aggregate beneficial interests in
the Portfolio is then 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
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 federal income or excise taxes.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS; FEDERAL. Shareholders of the Fund will
generally have to pay federal income taxes on the dividends and capital gain
distributions they receive from the Fund. Dividends from ordinary income and
any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. Because the Fund
expects to earn primarily interest income, it is expected that no Fund
dividends will qualify for the dividends received deduction for corporations.
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.
TAXATION OF DISTRIBUTIONS; STATE. Although shareholders of the Fund
generally will have to pay state and local taxes on the dividends and capital
gain distributions they receive from the Fund, 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.
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.
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 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 Fund shares.
EFFECTS OF CERTAIN INVESTMENTS. The Fund's and the Portfolio'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 or Portfolio income and distributions to
shareholders. For example, certain positions held by the Fund or the Portfolio
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 or the Portfolio 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 or Portfolio losses, adjustments in the
holding periods of securities held by the Fund or the Portfolio 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 and the
Portfolio each intend to 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.
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 Advisory Agreement
and the activities performed by it or its affiliates as Shareholder Servicing
Agents and sub-administrator 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 sub-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 Adviser, sub-administrator
or Shareholder Servicing 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 (Statement of Assets and
Liabilities at December 31, 1998, Statement of Operations for the year ended
December 31, 1998, Statement of Changes in Net Assets for the years in the
two-year period ended December 31, 1998 and Financial Highlights for each of
the years in the five-year period ended December 31, 1998, Notes to Financial
Statements and Independent Auditors' Report), each of which is included in the
Annual Report to Shareholders of the Fund, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance upon the report of PricewaterhouseCoopers LLP, on behalf of the Fund.
The audited financial statements of the Portfolio (Portfolio of
Investments at December 31, 1998, Statement of Assets and Liabilities at
December 31, 1998, Statement of Operations for the year ended December 31,
1998, Statement of Changes in Net Assets for the years in the two-year period
ended December 31, 1998 and Financial Highlights for each of the years in the
four-year period ended December 31, 1998 and for the period May 1, 1994
(commencement of operations) to December 31, 1994, Notes to Financial
Statements and Independent Auditors' Report), each of which is included in the
Annual Report to Shareholders of the Fund, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance upon the report of PricewaterhouseCoopers LLP, chartered accountants,
on behalf of the Portfolio.
Copies of the Annual Report to Shareholders of the Fund accompany this
Statement of Additional Information.
<PAGE>
PART C
Item 23. Exhibits.
* a(1) Declaration of Trust of Registrant
* and **** 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
* e Amended and Restated Distribution Agreement between
the Registrant and CFBDS, Inc. ("CFBDS"), as
distributor with respect to shares of CitiFunds
Short-Term U.S. Government Income Portfolio
* g Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street"), as
custodian
*** h(1) Amended and Restated Administrative Services Plan of
the Registrant with respect to CitiFunds Short-Term
U.S. Government Income Portfolio
*** h(2) Administrative Services Agreement between the
Registrant and CFBDS, as administrator with respect to
CitiFunds Short-Term U.S. Government Income Portfolio
*** h(3) Sub-Administrative Services Agreement between
Citibank, N.A. and CFBDS with respect to CitiFunds
Short-Term U.S. Government Income Portfolio
***** h(4)(i) Form of Shareholder Servicing Agreement between the
Registrant and Citibank, N.A., as shareholder servicing
agent for CitiFunds Short-Term U.S. Government Income
Portfolio
***** h(4)(ii) Form of Shareholder Servicing Agreement between the
Registrant and a federal savings bank, as shareholder
servicing agent for CitiFunds Short-Term U.S.
Government Income Portfolio
***** h(4)(iii) Form of Shareholder Servicing Agreement between the
Registrant and CFBDS, as shareholder servicing agent
for CitiFunds Short-Term U.S. Government Income
Portfolio
** h(4)(iv) Form of Shareholder Servicing Agreement between the
Registrant and a national banking association or
subsidiary thereof or state chartered banking
association, as shareholder servicing agent for
CitiFunds Short-Term U.S. Government Income Portfolio
* h(5) Transfer Agency and Service Agreement between the
Registrant and State Street, as transfer agent
* h(6) Accounting Services Agreement between the Registrant
and State Street, as Fund accounting agent
*** i Opinion and consent of counsel
j Independent auditors' consent
* m Amended and Restated Distribution Plan of the
Registrant for shares of CitiFunds Short-Term U.S.
Government Income Portfolio
n Financial data schedule
*and ****** p(1) Powers of Attorney for the Registrant
*** 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
***** Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registrant's Registration Statement on Form N-1A (File No. 33-6540)
as filed with the Securities and Exchange Commission on February 16,
1999.
****** Incorporated herein by reference to Post-Effective Amendment No. 31 to
the Registrant's Registration Statement on Form N-1A (file No. 33-6540)
as filed with the Securities and Exchange Commission on April 16, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to Post-Effective Amendment No. 24 to its
Registration Statement on Form N-1A; (b) Section 6 of the Distribution Agreement
between the Registrant and CFBDS, filed as an Exhibit to Post-Effective
Amendment No. 24 to the Registrant's Registration Statement on Form N-1A; and
(c) the undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and around
the world. Citibank is a wholly-owned subsidiary of Citicorp, which is, in turn,
a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as investment
adviser to the following registered investment companies (or series thereof):
Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate Income
Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed Income
Portfolio, High Yield 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 $327 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) Intermediate 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 100, 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, High Yield 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 Life Insurance, The
Travelers Fund UL II for Variable Life Insurance, The Travelers Fund UL III for
Variable Life Insurance, The Travelers Variable Life Insurance Separate Account
One, The Travelers Variable Life Insurance Separate Account Two, The Travelers
Variable Life Insurance Separate Account Three, The Travelers Variable Life
Insurance Separate Account Four, The Travelers Separate Account MGA, The
Travelers Separate Account MGA II, The Travelers Growth and Income Stock Account
for Variable Annuities, The Travelers Quality Bond Account for Variable
Annuities, The Travelers Money Market Account for Variable Annuities, The
Travelers Timed Growth and Income Stock Account for Variable Annuities, The
Travelers Timed Short-Term Bond Account for Variable Annuities, The Travelers
Timed Aggressive Stock Account for Variable Annuities, The Travelers Timed Bond
Account for Variable Annuities, Emerging Growth Fund, Government Fund, Growth
and Income Fund, International Equity Fund, Municipal Fund, Balanced
Investments, Emerging Markets Equity Investments, Government Money Investments,
High Yield Investments, Intermediate Fixed Income Investments, International
Equity Investments, International Fixed Income Investments, Large Capitalization
Growth Investments, Large Capitalization Value Equity Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Municipal Bond Investments, Small
Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth & Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Balanced Portfolio, Conservative
Portfolio, Growth Portfolio, High Growth Portfolio, Income Portfolio, Global
Portfolio, Select Balanced Portfolio, Select Conservative Portfolio, Select
Growth Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value Fund,
Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade Bond
Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate Maturity
California Municipals Fund, Smith Barney Intermediate Maturity New York
Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith Barney S&P
500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio, Retirement
Portfolio, California Money Market Portfolio, Florida Portfolio, Georgia
Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New York
Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC Managed
Income Portfolio, Van Kampen American Capital Enterprise Portfolio, Centurion
Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International Equity Fund,
Centurion U.S. Protection Fund, Centurion International Protection Fund, Global
High-Yield Bond Fund, International Equity Fund, Emerging Opportunities Fund,
Core Equity Fund, Long-Term Bond Fund, Global Dimensions Fund L.P., Citicorp
Private Equity L.P., AIM V.I. Capital Appreciation Fund, AIM V.I. Government
Series Fund, AIM V.I. Growth Fund, AIM V.I. International Equity Fund, AIM V.I.
Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP High Income Portfolio,
Fidelity VIP Equity Income Portfolio, Fidelity VIP Overseas Portfolio, Fidelity
VIP II Contrafund Portfolio, Fidelity VIP II Index 500 Portfolio, MFS World
Government Series, MFS Money Market Series, MFS Bond Series, MFS Total Return
Series, MFS Research Series, MFS Emerging Growth Series, Salomon Brothers
Institutional Money Market Fund, Salomon Brothers Cash Management Fund, Salomon
Brothers New York Municipal Money Market Fund, Salomon Brothers National
Intermediate Municipal Fund, Salomon Brothers U.S. Government Income Fund,
Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic Bond Fund,
Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth Fund, Salomon
Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc, Salomon Brothers
Opportunity Fund Inc, Salomon Brothers Institutional High Yield Bond Fund,
Salomon Brothers Institutional Emerging Markets Debt Fund, Salomon Brothers
Variable Investors Fund, Salomon Brothers Variable Capital Fund, Salomon
Brothers Variable Total Return Fund, Salomon Brothers Variable High Yield Bond
Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon Brothers Variable
U.S. Government Income Fund, and Salomon Brothers Variable Asia Growth Fund.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD filed
by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and fund North Quincy, MA 02171
accounting agent)
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
SHAREHOLDER SERVICING AGENTS
Citibank, N.A. 450 West 33rd Street
New York, NY 10001
Citibank, N.A. - Citigold Citicorp Mortgage Inc. - Citigold
15851 Clayton Road
Ballwin, MO 63011
Citibank, N.A. - The Citibank 153 East 53rd Street
Private Bank New York, NY 10043
Citibank, N.A. - Citibank Global 153 East 53rd Street
Asset Management New York, NY 10043
Citibank, N.A. - North American 111 Wall Street
Investor Services New York, NY 10094
Citicorp Investment Services One Court Square
Long Island City, NY 11120
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 29th day of April, 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 April 29, 1999.
Signature Title
--------- -----
Philip W. Coolidge President, Principal Executive
- ---------------------------- Officer and Trustee
Philip W. Coolidge
John R. Elder Principal Financial Officer and
- ---------------------------- Principal Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
- ----------------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- ----------------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- ----------------------------
Susan B. Kerley
Heath B. McLendon* Trustee
- ----------------------------
Heath B. McLendon
C. Oscar Morong, Jr.* Trustee
- ----------------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- ----------------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- ----------------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
------------------------
Philip W. Coolidge
Executed by Philip W. Coolidge
on behalf of those indicated
pursuant to Powers of Attorney.
<PAGE>
SIGNATURES
The Premium Portfolios has duly caused this Post-Effective Amendment to
the Registration Statement on Form N-1A of CitiFunds Fixed Income Trust to be
signed on its behalf by the undersigned, thereunto duly authorized, in Grand
Cayman, Cayman Islands, on the 29th day of April, 1999.
THE PREMIUM PORTFOLIOS
on behalf of Government 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 April 29, 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:
------- ------------
j Independent auditors' consent
n Financial data schedule
<PAGE>
EXHIBIT J
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 32 to the registration statement on Form N-1A (the "Registration
Statement") of CitiFunds Fixed Income Trust of our report dated February 12,
1999, relating to the financial statements and financial highlights of CitiFunds
Short-Term U.S. Government Income Portfolio appearing in the December 31, 1998
Annual Report of CitiFunds Short-Term U.S. Government Income Portfolio, which
are also incorporated by reference into the Registration Statement. We also
consent to the references to us under the heading "Financial Highlights" in the
Prospectus and under the headings "Auditors" and "Financial Statements" in the
Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 29, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 32
to the registration statement on Form N-1A (the "Registration Statement") of
CitiFunds Fixed Income Trust of our report dated February 12, 1999, relating to
the financial statements and financial highlights of Government Income Portfolio
appearing in the December 31, 1998 Annual Report of CitiFunds Short-Term U.S.
Government Income Portfolio, which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Auditors" and "Financial Statements" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
April 29, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000795808
<NAME> CITIFUNDS FIXED INCOME TRUST
<SERIES>
<NUMBER> 001
<NAME> CITIFUNDS SHORT TERM U.S. GOVERNMENT INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 46,866,334
<RECEIVABLES> 1,393,418
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,259,752
<PAYABLE-FOR-SECURITIES> 177,324
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 177,324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,509,198
<SHARES-COMMON-STOCK> 4,937,101
<SHARES-COMMON-PRIOR> 2,105,044
<ACCUMULATED-NII-CURRENT> 14,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,392,695)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (97,063)
<NET-ASSETS> 48,034,097
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,680,796
<OTHER-INCOME> 0
<EXPENSES-NET> 231,824
<NET-INVESTMENT-INCOME> 1,448,972
<REALIZED-GAINS-CURRENT> 230,601
<APPREC-INCREASE-CURRENT> 40,666
<NET-CHANGE-FROM-OPS> 1,720,239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,442,038)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,423,583
<NUMBER-OF-SHARES-REDEEMED> (10,340,734)
<SHARES-REINVESTED> 1,435,786
<NET-CHANGE-IN-ASSETS> 27,796,836
<ACCUMULATED-NII-PRIOR> 7,723
<ACCUMULATED-GAINS-PRIOR> (2,623,296)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,730
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 399,693
<AVERAGE-NET-ASSETS> 29,091,888
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
