As filed with the Securities and Exchange Commission on February 16, 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. 29
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 30
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 the 60th day
after the date of filing hereof, pursuant to paragraph (a)(1) 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
CITIFUNDSSM 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.
_______ __, 1999
<PAGE>
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
TABLE OF CONTENTS
Fund at a Glance
Your CitiFunds Account
Your Fund Shares
How to Buy Shares
How the Price of Your Shares is Calculated
How to Sell Shares
Reinstating Recently Sold Shares
Exchanges
Dividends
Tax Matters
Management of the Fund
Investment Adviser
Advisory Fees
More About the Fund
Principal Investment Strategies
Risks
Financial Highlights
Appendix
<PAGE>
FUND AT A GLANCE
THIS SUMMARY BRIEFLY DESCRIBES 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, SEE "MORE
ABOUT THE FUND" ON PAGE _____.
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
Short-Term U.S. Government Income Portfolio invests in U.S. government
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, 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 average weighted maturity is generally expected to be three years or
less.
MAIN RISKS
Like 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 ___ for
more information about risks.
o MARKET RISK. This is the risk that the prices of securities will rise
or fall due to changing economic, political or market conditions, or
due to a company's individual situation. The value of the Fund's shares
will change daily as the value of its underlying securities 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. Longer term
obligations are usually more sensitive to interest rate changes. A
change in interest rates could cause the Fund's share price to go down.
o CREDIT RISK. 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
<PAGE>
periods of declining interest rates. The Fund may not be able to
reinvest that principal at attractive rates, reducing income to the
Fund, and the Fund may lose any premium paid. On the other hand, rising
interest rates may cause prepayments to occur at slower than expected
rates. This effectively lengthens the maturities of the affected
securities, making them more sensitive to interest rate changes and the
Fund's share price more volatile. Mortgage-backed securities, including
CMOs, are particularly susceptible to prepayment risk and their prices
may be very volatile.
o DERIVATIVES. The Fund's use of derivatives such as futures and options,
particularly when used for non-hedging purposes, may be risky. This
practice could result in losses that are not offset by gains on other
portfolio assets. The Fund's ability to use derivatives successfully
depends on Citibank's ability to accurately predict movements in
interest rates and other economic factors. If Citibank's predictions
are wrong, the Fund could suffer greater losses than if the Fund had
not used derivatives. Losses would cause the Fund's share price to go
down.
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 Short-Term U.S. Government Income
Portfolio is not a complete investment program.
You should consider investing in 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 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.
<PAGE>
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.
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 __________________________________________
(per calendar year) HIGHEST AND LOWEST RETURNS
For Calendar Quarters Covered by the Bar
1989 _____ Chart
1990 _____ __________________________________________
1991 _____ Quarter
1992 _____ Ending
1993 _____ __________________________________________
1994 -1.72% Highest ____% _______
1995 11.48% __________________________________________
1996 3.02% Lowest ____% _______
1997 6.11% __________________________________________
1998 ____%
_____________________________________________________________________
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1998
_____________________________________________________________________
1 Year 5 years 10 years Life of Fund
Since September 8,
1986
_____________________________________________________________________
CitiFunds
Short-Term
U.S.
Government
Income _____% _____ % _____% _____%
Portfolio
_____________________________________________________________________
1-3 year U.S.
Govt. Index _____% _____% _____% _____%
_____________________________________________________________________
<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 (Load) Imposed on Purchases 1.50%
Maximum Deferred Sales Charge (Load) None(1)
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) 0.75%
TOTAL ANNUAL FUND OPERATING EXPENSES* 1.30%
_____________________________________________________________________________
*Because some of the Fund's expenses were waived or reimbursed, actual total
operating expenses for the prior year were: 0.80%
These 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.
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 these examples 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:
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- ------------- -------------- ----------------- ------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------- -------------- ----------------- ------------
$ $ $ $
- ------------- -------------- ----------------- ------------
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 0.20%, currently waived on a
voluntary basis
_____________________________________________________________________________
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. If a Shareholder Servicing Agent is not
a broker-dealer, the distributor keeps the entire amount of the sales
charge. 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.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SALES CHARGE SALES CHARGE BROKER/DEALER
AMOUNT OF AS A % OF AS A % OF COMMISSION AS
YOUR INVESTMENT OFFERING YOUR A % OF OFFERING
PRICE INVESTMENT 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.
</TABLE>
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 you received through capital appreciation or
through 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
<PAGE>
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 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.
<PAGE>
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. 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
<PAGE>
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.
<PAGE>
The Fund's net realized short-term and long-term capital gains, if any, will be
distributed to Fund shareholders at least 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. Anytime 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. If you purchased and held your shares in the Fund only a short
time, your gain or loss could also be affected by whether you reinvest the
proceeds you receive in shares of the Fund or another regulated investment
company, without having to pay a sales charge that would otherwise be due
<PAGE>
because you paid a sales charge on the shares of the Fund you sold. You are
responsible for any tax liabilities generated by your transaction.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
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, with headquarters at 153 East 53rd Street, New York, New
York, has been managing money since 1822. With its affiliates, it currently
manages more than $290 billion in assets worldwide. Citibank is a wholly-owned
subsidiary of Citicorp, which is, in turn, a wholly-owned subsidiary of
Citigroup Inc. Citigroup Inc. was formed as a result of the merger of Citicorp
and Travelers Group, Inc., which was completed on October 8, 1998. "CitiFunds"
is a service mark of Citicorp.
Citibank and its affiliates may have banking 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.
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
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
<PAGE>
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 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. These derivatives include
financial futures and options. The Fund may also use derivatives, for
non-hedging purposes, to enhance yields, price sensitivity, and potential gain.
In some cases, the derivatives purchased by the Fund are standardized contracts
traded on commodities exchanges or boards of trade. This means that the
exchange or board of trade 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
<PAGE>
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 or sell for the Fund, Citibank first
establishes the overall duration of the portfolio and it's yield curve
position, based upon the portfolio manager's outlook on the economy, prospects
for economic growth and inflation, and the U.S. government bond market. The
portfolio manager then allocates the portfolio between the two primary sectors
of the U.S. government securities market in an attempt to maximize exposure to
securities providing the best relative values. The portfolio manager then
chooses individual securities based upon their relative value within their
sector. The portfolio managers use this same approach when deciding when to
sell securities and which securities to sell. For information about the
portfolio manager, see "Investment Adviser" on page ___.
The Fund is actively managed. Although the portfolio manager attempts 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.
<PAGE>
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
individual situation. The value of the Fund's shares will change daily as the
value of its underlying securities change. This means that your shares of the
Fund may be worth more or less when you sell them than when you bought them.
INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term obligations
are usually more sensitive to interest rate changes. A change in interest rates
could cause the Fund's share price to go down.
CREDIT RISK. 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,
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.
The Fund's ability to use derivatives successfully depends on Citibank's
ability to accurately predict movements in interest rates and other economic
factors. If Citibank's predictions are wrong, the Fund could suffer greater
losses than if the Fund had not used derivatives. Losses would cause the Fund's
share price to go down.
YEAR 2000. The Fund could be adversely affected if the computer systems used by
the Fund or its service providers are not programmed to accurately process
information on or after January 1, 2000. The Fund, and its service providers,
are making efforts to resolve any potential Year 2000 problems. While it is
likely these efforts will be successful, the failure to implement any necessary
modifications could have an adverse impact on the Fund. The Fund also could be
adversely affected if the issuers of securities held by the Fund do not solve
their Year 2000 problems, or if it costs them large amounts of money to solve
these problems.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the fiscal periods indicated. Certain information
reflects financial results for a single 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, independent accountants for the Fund, whose report, along with the Fund's
financial statements, is included in the annual report which is incorporated by
reference into the Statement of Additional Information and which is available
upon request.
<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
<PAGE>
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
<PAGE>
broker-dealer which has a sales agreement with CFBDS from another
investment firm within six months prior to the date of purchase by
the investor, if:
+ the investor redeems shares of another mutual fund sold through
the investment firm that previously employed that investment
consultant or other registered representative, and either paid
an initial sales charge or was at some time subject to, but did
not actually pay, a deferred sales charge or redemption fee with
respect to the redemption proceeds
+ the redemption is made within 60 days prior to the investment in
the Fund, and
+ the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds of
the redemption
<PAGE>
The Statement of Additional Information (SAI) provides more details about the
Fund and its policies. The SAI is incorporated by reference into this
prospectus and is legally part of it.
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its portfolio holdings and
describe 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 1800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, DC 20549-6009.
SEC file number: 811-5033
<PAGE>
Statement of
Additional Information
_________ __, 1999
CITIFUNDSSM SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO
CitiFundsSM 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 AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS PAGE
1. The Trust...............................................................................
2. Investment Objectives and Policies; Special Information Concerning Investment Structure.
3. Description of Permitted Investments and Investment Practices...........................
4. Investment Restrictions.................................................................
5. Performance Information.................................................................
6. Determination of Net Asset Value; Valuation of Securities...............................
7. Additional Information on the Purchase and Sale of Fund Shares and Shareholder Programs.
8. Management..............................................................................
9. Portfolio Transactions..................................................................
10. Description of Shares, Voting Rights and Liabilities....................................
11. Certain Additional Tax Matters..........................................................
12. Certain Bank Regulatory Matters.........................................................
13. Financial Statements....................................................................
</TABLE>
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 ________ __, 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 ___ 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
_________ __, 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, except
as otherwise noted. In addition, references to the Trust include the Portfolio
Trust, except as otherwise noted.
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 objective and policies as the Fund. The Portfolio, in turn,
buys, holds and sells securities in accordance with this objective and these
policies. Of course, there can be no assurance that the Fund or the Portfolio
will achieve its objective. The Trustees of the Fund believe that the aggregate
per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses that the Fund would incur if the assets of
the Fund were invested directly in the types of securities held by the
Portfolio.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the
best interests of the Fund to do so. Upon any such withdrawal, the Fund's
assets would continue to be invested in accordance with the investment
<PAGE>
objective and policies described herein, either directly in securities or in
another mutual fund or pooled investment vehicle having the same investment
objective and policies. If the Fund were to withdraw, the Fund could receive
securities from the Portfolio instead of cash, causing the Fund to incur
brokerage, tax and other charges or leaving it with securities which may or may
not be readily marketable or widely diversified.
The Portfolio may change its investment objective and certain of its
investment policies and restrictions without approval by its investors, but the
Portfolio will notify the Fund (which in turn will notify its shareholders) and
its other investors at least 30 days before implementing any change in its
investment objective. A change in investment objective, policies or
restrictions may cause the Fund to withdraw its investment in the Portfolio.
Certain investment restrictions of the Portfolio described below under
"Investment Restrictions" are fundamental and cannot be changed without
approval by the investors in the Portfolio. When the Fund is asked to vote on
certain matters concerning the Portfolio, the Fund 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 in the Prospectus and herein.
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 U.S. Government 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
<PAGE>
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.
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. 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.
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) with a value of an investment in the Fund 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. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed-upon price, date and
interest payment. When the Fund enters into reverse repurchase transactions,
securities of a dollar amount equal in value to the securities subject to the
agreement will be segregated. The segregation of assets could impair the Fund's
ability to meet its current obligations or impede investment management if a
large portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing. In the event of the bankruptcy of the
other party to a reverse repurchase agreement, the Fund could experience delays
in recovering the securities sold. To the extent that, in the meantime, the
value of the securities sold has increased, the Fund could experience a loss.
FUTURES CONTRACTS
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
<PAGE>
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when the Fund purchases
or sells a futures contracts. At the same time such a purchase or sale is made,
the Fund must provide cash or securities as a deposit ("initial deposit") known
as "margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant
to such a contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate than the
specific security that provides the standard for the contract. In some (but not
many) cases, securities called for by a futures contract may not have been
issued when the contract was entered into.
The Fund may purchase or sell futures contracts to attempt to protect 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 should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if the Fund
sells a futures contract to protect against losses in the debt securities held
by the Fund), at the same time the futures contracts limit any potential gain
which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the 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
<PAGE>
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 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. 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.
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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
"Certain Additional 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.
<PAGE>
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.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, meaning that delivery of the securities occurs beyond normal
settlement times. In general, the Fund does not pay for the securities until
received and does not start earning interest until the contractual settlement
date. It is expected that, under normal circumstances, the Fund would take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with Securities and Exchange Commission ("SEC") policies. Since
those policies currently require that an amount of the Fund's assets equal to
the amount of the purchase be held aside or segregated to be used to pay for
the commitment, the Fund expects always to have cash or liquid securities
sufficient to cover any commitments or to limit any potential risk. However,
even though the Fund does not intend to make such purchases for speculative
purposes and intends to adhere to the provisions of SEC policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, the Fund may have to sell assets which have been set aside in
order to meet redemptions. Also, if the Adviser determines it is advisable as a
matter of investment strategy to sell the "when-issued" or "forward delivery"
securities, the Fund would be required to meet its obligations from the then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the "when-issued" or "forward
delivery" securities themselves (which may have a value greater or less than
the Fund's payment obligation). An increase in the percentage of the Fund's
assets committed to the purchase of securities on a "when-issued" basis may
increase the volatility of its net asset value.
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. 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
<PAGE>
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuer or guarantor of mortgage-backed
securities the Fund purchases is 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; 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. Typically, CMOs are collateralized by
certificates issued by GNMA, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation but also may be collateralized by whole
loans or private mortgage pass-through securities (such collateral collectively
hereinafter referred to as "Mortgage Assets"). The Fund may also invest a
portion of its assets in multi-class pass-through securities which are
interests in a trust composed of Mortgage Assets; 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 asset-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
<PAGE>
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, and when, in the judgment of the Adviser, the consideration which can
be earned currently from loans of this type justifies the attendant risk. In
addition, the Fund could suffer a loss if the borrower terminates the loan and
the Fund is forced to liquidate investments in order to return the cash
collateral to the buyer. If the 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 ("Rule 144A securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, the Fund will not invest more than 15% of its net assets (taken at
market value) in illiquid investments, which include securities for which there
is no readily available market, securities subject to contractual restrictions
on resale and 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 delegated to the Adviser the daily function of determining and
monitoring liquidity of Rule 144A securities. The Trustees, however, retain
oversight and are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market
for Rule 144A securities will develop, the Trustees will carefully monitor the
Fund's investments in Rule 144A securities, focusing on such factors, among
others, as valuation, liquidity and availability of information. The liquidity
of investments in Rule 144A securities could be impaired if trading in Rule
144A securities does not develop or if qualified institutional buyers become
for a time uninterested in purchasing 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.
FURTHER INFORMATION REGARDING DERIVATIVES
Transactions in financial futures and options 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, as well as
other derivatives, may be used alone or in combinations in order to create
synthetic exposure to securities in which the Fund otherwise invests.
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
<PAGE>
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.
<PAGE>
(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 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.
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.
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 and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period, reflects any change in net asset
value per share and is compounded to include the value of any shares purchased
with any dividends or capital gains declared during such period. Period total
rates of return may be "annualized." An "annualized" total rate of return
assumes that the period total rate of return is generated over a one-year
period.
A total rate of return quotation for the Fund is calculated for any period
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate
of return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting
1 from the result.
The Fund may provide annualized "yield" and "effective yield" quotations.
The "yield" of the Fund refers to the income generated by an investment in the
Fund over a 30-day or one-month period (which period is stated in any such
advertisement or communication). This income is then annualized, that is, the
amount of income generated by the investment over that period is assumed to be
generated each month over a one-year period and is shown as a percentage of the
public offering price on the last day of that period. The "effective yield" is
calculated similarly, but when annualized the income earned by the investment
during that 30-day or one-month period is assumed to be reinvested. The
effective yield is slightly higher than the yield because of the compounding
effect of this assumed reinvestment. A "yield" quotation, unlike a total rate
of return quotation, does not reflect changes in net asset value. Any 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
<PAGE>
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 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>
<S> <C> <C>
REDEEMABLE VALUE
ANNUALIZED OF A HYPOTHETICAL
TOTAL $1,000 INVESTMENT
CITIFUNDS SHORT-TERM U.S. GOVERNMENT INCOME PORTFOLIO RATE OF RETURN AT THE END OF THE PERIOD
Ten years ended December 31, 1998 % $
Five years ended December 31, 1998 % $
One year ended December 31, 1998 % $
</TABLE>
The annualized yield of shares of the Fund for the 30-day period ended
December 31, 1998 was _____%.
Comparative performance information may be used from time to time in
advertising shares of the Fund, including data from Lipper Analytical Services,
Inc. and other industry sources and publications. From time to time the Fund
may compare its performance against inflation with the performance of other
instruments against inflation, such as FDIC-insured bank money market accounts.
In addition, advertising for the Fund may indicate that investors should
consider diversifying their investment portfolios in order to seek protection
of the value of their assets against inflation. From time to time, advertising
materials for the Fund may refer to or discuss current or past economic or
financial conditions, developments and events.
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;
ADDITIONAL REDEMPTION INFORMATION
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
<PAGE>
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.
Subject to compliance with applicable regulations, the Trust and the
Portfolio Trust have each reserved the right to pay the redemption or
repurchase price of shares of the Fund or of 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 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.
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 0.20% which is currently being waived on a voluntary basis, 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:
_________________________________________________________________________
CITIFUNDS SHORT-TERM U.S.
GOVERNMENT INCOME PORTFOLIO
_________________________________________________________________________
Net Asset Value per share $
_________________________________________________________________________
Per Share Sales Charge - 1.50% of $
public offering price (1.52% of net
asset value per share)
_________________________________________________________________________
Per Share Offering Price to the Public $
_________________________________________________________________________
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.
<PAGE>
_______________________________________________________________________________
DEALER
AMOUNT OF SALES CHARGE SALES CHARGE REALLOWANCE AS A
INVESTMENT AS A % OF AS A % OF % OF OFFERING
OFFERING PRICE INVESTMENT 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 ("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, 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, 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
<PAGE>
[] 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 or to
exchange Fund shares for shares of other CitiFunds, without, in many cases, the
payment of a sales charge. These programs may be changed or discontinued at any
time. For more information, please contact your Shareholder Servicing Agent.
<PAGE>
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
<PAGE>
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. 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). 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. However, you may
be required to pay a CDSC when you sell those shares. When determining the
amount of the CDSC, the Fund will use the CDSC schedule of any fund from which
you have exchanged shares that would result in you paying the highest CDSC.
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
<PAGE>
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.
<PAGE>
SUSAN B. KERLEY; 47 - President, Global Research Associates, Inc. (Investment
Research) (since August 1990); Manager, Rockefeller & Co. (March 1988 to July
1990); Trustee, Mainstay Institutional Funds (since December 1990). Her address
is P.O. Box 9572, New Haven, Connecticut.
HEATH B. MCLENDON*; 65 - Chairman, President, and Chief Executive Officer of
Mutual Management Corp. (since _____); Managing Director of Salomon Smith
Barney (since ____). 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 15 Stornoway Drive, Cumberland
Foreside, 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 are
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
<PAGE>
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.
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
<S> <C> <C> <C> <C>
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM THE
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL REGISTRANT AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
TRUSTEE FROM FUND(1) EXPENSES RETIREMENT TRUSTEES(1)(2)
Philip W. Coolidge....... $0 None None $0
Riley C. Gilley.......... $ None None $
Diana R. Harrington...... $ None None $
Susan B. Kelley.......... $ None None $
Heath B. McLendon(3)..... $0 None None $0
C. Oscar Morong, Jr...... $ None None $
E. Kirby Warren.......... $ None None $
William S. Woods, Jr..... $ None None $
</TABLE>
________________________
(1) For the fiscal year ended December 31, 1998.
(2) Information relates to the fiscal year ended December 31, 1998. Messrs.
Coolidge, Gilley, McLendon, Morong, Warren and Woods, and Mses. Harrington
and Kerley are Trustees of 49, 33, 20, 40, 40, 26, 28, and 28 funds 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.
As of _______ __, 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.
<PAGE>
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.
<PAGE>
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 Fund and
the Portfolio, Citibank receives fees, which are computed daily and paid
monthly, at annual rates equal to 0.35% of the Fund's average daily net assets
on an annualized basis for the Fund's then-current fiscal year. Citibank may
reimburse the Fund or 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
$________, of which $________ was voluntarily waived, 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 $______ (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 $______ (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
<PAGE>
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 part. 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
<PAGE>
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 $________ (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
<PAGE>
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 $________, 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. See "Shareholder
Servicing Agents" and "Transfer Agent, Custodian and Fund Accountant" in the
Prospectus for additional information.
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. For the fiscal years
ended December 31, 1997 and December 31, 1998, the turnover rates for the
Portfolio were 126% and ___, respectively. 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.
<PAGE>
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
<PAGE>
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, pre-emptive, 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 re-computed as the percentage equal to the fraction (i) the
<PAGE>
numerator of which is the value of such investor's investment in the Portfolio
as of the close of regular trading on such day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the close of
regular trading on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of the close of regular trading on the next following Business Day.
11. CERTAIN ADDITIONAL TAX MATTERS
The Fund has elected to be treated, and intends to qualify each year, as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition of the Fund's
portfolio assets. Provided all such requirements are met and all of the Fund's
net investment income and net realized capital gains are distributed to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes generally will be required to be paid by the
Fund, although foreign source income earned by the Fund may be subject to
non-U.S. taxes. 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.
Shareholders of the Fund will generally have to pay federal income taxes
and any state or local taxes on the dividends and capital gain distributions
they receive from the Fund. Dividends from ordinary income and any
distributions from net short-term capital gains are taxable to shareholders as
ordinary income for federal income tax purposes, whether the distributions are
made in cash or in additional shares. Because the Fund expects to earn
primarily interest income, it is expected that no Fund dividends will qualify
for the dividends received deduction for corporations. 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. Such capital gains may be
taxable to shareholders that are individuals, estates, or trusts at maximum
rates of 20%, 25% or 28%, depending upon the sources of the gains. Any Fund
dividend that is declared in October, November or December of any calendar
year, that is payable to shareholders of record in such a month, and that is
paid the following January will be treated as if received by the shareholders
on December 31 of the year in which the dividend is declared.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares
of the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual shareholder will be eligible
for reduced tax rates if the shares were held for more than 18 months. However,
any loss realized upon a redemption of shares in the Fund held for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
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 holders of beneficial interests. 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 intends 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.
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.
<PAGE>
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.
Distributions of the Fund that are derived from interest on obligations of
the U.S. Government and certain of its agencies and instrumentalities (but not
generally from capital gains realized upon the dispositions of such
obligations) may be exempt from state and local taxes. Shareholders are urged
to consult their tax advisers regarding the possible exclusion of such portion
of their dividends for state and local income tax purposes.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Fund. Citibank believes that its services under the 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. INDEPENDENT ACCOUNTANTS AND 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 four-year period ended December 31, 1998, for the four-month
period ended December 31, 1993 and the year ended August 31, 1993, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of the Fund, are incorporated by
reference into this Statement of Additional Information and have been so
incorporated in reliance upon the report of PricewaterhouseCoopers LLP, 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
three-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, chartered accountants, on
behalf of the Portfolio.
Copies of the Annual Report to Shareholders of the Fund accompany this
Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
PART C
Item 23. Exhibits.
<S> <C>
* 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
* m Amended and Restated Distribution Plan of the Registrant for shares of
CitiFunds Short-Term U.S. Government Income Portfolio
* p(1) Powers of Attorney for the Registrant
*** p(2) Powers of Attorney for The Premium Portfolios
</TABLE>
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 24
to the Registrant's Registration Statement on Form N-1A (File No.
33-6540) as filed with the Securities and Exchange Commission on
February 20, 1998.
<PAGE>
** Incorporated herein by reference to Post-Effective Amendment No. 25
to the Registrant's Registration Statement on Form N-1A (File No.
33-6540) as filed with the Securities and Exchange Commission on
June 29, 1998.
*** Incorporated herein by reference to Post-Effective Amendment No. 27
to the Registrant's Registration Statement on Form N-1A (File No.
33-6540) as filed with the Securities and Exchange Commission on
December 16, 1998.
**** Incorporated herein by reference to Post-Effective Amendment No. 28
to the Registrant's Registration Statement on Form N-1A (File No.
33-6540) as filed with the Securities and Exchange Commission on
December 21, 1998
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to Post-Effective Amendment No. 24 to its
Registration Statement on Form N-1A; (b) Section 6 of the Distribution
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, Growth & Income Portfolio, Balanced Portfolio, Large Cap
Growth Portfolio, International Equity Portfolio, Government Income Portfolio
and Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury
Reserves Portfolio, Cash Reserves Portfolio, CitiFundsSM Tax Free Income Trust
(CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio and CitiFundsSM California Tax Free Income Portfolio),
CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM California Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves and CitiFundsSM Connecticut
Tax Free Reserves), CitiFundsSM Institutional Trust (CitiFundsSM Institutional
Cash Reserves) and Variable Annuity Portfolios (CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500
and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates
manage assets in excess of $290 billion worldwide. The principal place of
business of Citibank is located at 399 Park Avenue, New York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J. Menezes
is the President and a Director of Citibank. William R. Rhodes and H. Onno
<PAGE>
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
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM New York Tax Free
Income Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
California Tax Free Income Portfolio, CitiFundsSM Intermediate Income
Portfolio, CitiFundsSM Balanced Portfolio, CitiFundsSM Small Cap Value
Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM Large Cap Growth
Portfolio, CitiFundsSM Small Cap Growth Portfolio, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect Folio 200, CitiSelect
Folio 300, CitiSelect Folio 400, and CitiSelect Folio 500. CFBDS is also the
placement agent for Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio, International Equity
Portfolio, Balanced Portfolio, Government Income Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio. CFBDS
also serves as the distributor for the following funds: The Travelers Fund U
<PAGE>
for Variable Annuities, The Travelers Fund VA for Variable Annuities, The
Travelers Fund BD for Variable Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable Annuities, The Travelers Fund
BD IV for Variable Annuities, The Travelers Fund ABD for Variable Annuities,
The Travelers Fund ABD II for Variable Annuities, The Travelers Separate
Account PF for Variable Annuities, The Travelers Separate Account PF II for
Variable Annuities, The Travelers Separate Account QP for Variable Annuities,
The Travelers Separate Account TM for Variable Annuities, The Travelers
Separate Account TM II for Variable Annuities, The Travelers Separate Account
Five for Variable Annuities, The Travelers Separate Account Six for Variable
Annuities, The Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The Travelers Fund UL
for Variable Annuities, The Travelers Fund UL II for Variable Annuities, The
Travelers Variable Life Insurance Separate Account One, The Travelers Variable
Life Insurance Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The Travelers Separate Account MGA
II, The Travelers Growth and Income Stock Account for Variable Annuities, The
Travelers Quality Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive Stock Account
for Variable Annuities, The Travelers Timed Bond Account for Variable
Annuities, Emerging Growth Fund, Government Fund, Growth and Income Fund,
International Equity Fund, Municipal Fund, Balanced Investments, Emerging
Markets Equity Investments, Government Money Investments, High Yield
Investments, Intermediate Fixed Income Investments, International Equity
Investments, International Fixed Income Investments, Large Capitalization
Growth Investments, Large Capitalization Value Equity Investments, Long-Term
Bond Investments, Mortgage Backed Investments, Municipal Bond Investments,
Small Capitalization Growth Investments, Small Capitalization Value Equity
Investments, Appreciation Portfolio, Diversified Strategic Income Portfolio,
Emerging Growth Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Growth & Income Portfolio, Intermediate High Grade Portfolio, International
Equity Portfolio, Money Market Portfolio, Total Return Portfolio, Smith Barney
Adjustable Rate Government Income Fund, Smith Barney Aggressive Growth Fund
Inc., Smith Barney Appreciation Fund, Smith Barney Arizona Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Balanced Portfolio,
Conservative Portfolio, Growth Portfolio, High Growth Portfolio, Income
Portfolio, Global Portfolio, Select Balanced Portfolio, Select Conservative
Portfolio, Select Growth Portfolio, Select High Growth Portfolio, Select Income
Portfolio, Concert Social Awareness Fund, Smith Barney Large Cap Blend Fund,
Smith Barney Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High
Grade Bond Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund,
Smith Barney Convertible Fund, Smith Barney Diversified Strategic Income Fund,
Smith Barney Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney
Municipal High Income Fund, Smith Barney Premium Total Return Fund, Smith
Barney Total Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal
Portfolio, Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith
Barney Government Securities Fund, Smith Barney Hansberger Global Small Cap
Value Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment
Grade Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
NAME ADDRESS
CFBDS, Inc. 21 Milk Street, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(transfer agent, custodian and fund accounting agent) North Quincy, MA 02171
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
<PAGE>
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
</TABLE>
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 16th day of February, 1999.
CITIFUNDS FIXED INCOME TRUST
By:Philip W. Coolidge
----------------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated below on February 16, 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
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 16th day of February, 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 February 16, 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
<TABLE>
<CAPTION>
Exhibit
No.: Description:
<S> <C>
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
</TABLE>
<PAGE>
EXHIBIT h(4)(i)
FORM OF
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, by and between: (i) each of the trusts listed on the
signature page hereof or which may be added to this Agreement by execution of a
counterpart signature page hereto at a subsequent date pursuant to a vote of
such trust's Trustees (individually, the "Trust") and (ii) each national banking
association or subsidiary thereof or state chartered banking association
(individually, the "Financial Institution") listed on the signature page hereof
or which may be added to this Agreement by execution of a counterpart signature
page hereto at a subsequent date pursuant to appropriate authorization by such
Financial Institution's officers and directors, as a shareholder servicing agent
hereunder (the "Agent");
WITNESSETH:
WHEREAS, all transactions in Shares of Beneficial Interest of the Trust
or of any series now existing or later created of the Trust ("Shares") may be
made only by investors who are customers of, and using the services of, a
financial institution as defined in the then-current prospectus of the Trust,
which has entered into a shareholder servicing agreement with the Trust; and
WHEREAS, the Financial Institution wishes to make it possible for its
customers (the "Customers") to purchase Shares and wishes to act as the
Customers' agent in performing certain administrative functions in connection
with purchases, exchanges and redemptions of Shares from time to time upon the
order and for the account of Customers and to provide related services to its
Customers in connection with their investments in the Trust; and
WHEREAS, it is in the interest of the Trust to make the services of the
Agent available to Customers who are or may become shareholders of the Trust;
NOW, THEREFORE, the Trust and the Financial Institution hereby agree as
follows:
1. APPOINTMENT. The Financial Institution, as Agent, hereby agrees
to perform certain services for Customers as hereinafter set forth. The
Agent's appointment hereunder is non-exclusive, and the parties
recognize and agree that, from time to time, the Trust may enter into
other shareholder servicing agreements, in writing, with other
financial institutions.
2. SERVICE TO BE PERFORMED.
2.1 Type of Service. The Agent shall be responsible for
performing shareholder account administrative and servicing functions,
which shall include without limitation: (a) answering Customer
inquiries regarding account status and history, the manner in which
purchases, exchanges and redemptions of the Shares may be effected, and
certain other matters pertaining to the Trust; (b) assisting Customers
in designating and changing dividend options, account designations and
addresses; (c) providing necessary personnel and facilities to
establish and maintain certain shareholder accounts and records, as may
reasonably be requested from time to time by the Trust; (d) assisting
in processing purchases, exchange and redemption transactions; (e)
arranging for the wiring of funds; (f) transmitting and receiving funds
in connection with Customer orders to purchase, exchange or redeem
Shares; (g) verifying and guaranteeing Customer signatures in
connection with redemption orders, transfers among and changes in
Customer-designated accounts; (h) providing periodic statements showing
a Customer's account balances and, to the extent practicable,
integration of such information with information concerning other
client transactions otherwise effected with or through the Financial
Institution; (i) furnishing on behalf of the Trust's distributor
(either separately or on an integrated basis with other reports sent to
a Customer by the Agent) periodic statements and confirmations of all
purchases, exchanges and redemptions of Shares in a Customer's account
required by applicable federal or state law, all such confirmations and
statements to conform to Rule 10b-10 under the Securities Exchange Act
of 1934 and other applicable federal or state law; (j) transmitting
proxy statements, annual reports, updating prospectuses and other
communications from the Trust to Customers; (k) receiving, tabulating
and transmitting to the Trust proxies executed by Customers with
respect to annual and special meetings of shareholders of the Trust;
(l) providing reports (at least monthly, but more frequently if so
requested by the Trust's distributor) containing state-by-state
listings of the principal residences of the beneficial owners of the
Shares; and (m) providing such other related services as the Trust or a
Customer may reasonably request. The Agent shall provide all personnel
and facilities to perform the functions described in this paragraph
with respect to its Customers.
2.2 Standard of Services. All services to be rendered by the Agent
hereunder shall be performed in a professional, competent and timely
manner. The details of the operating standards and procedures to be
followed by the Agent in performance of the services described above
shall be determined from time to time by agreement between the Agent
and the Trust. The Trust acknowledges that the Agent's ability to
perform on a timely basis certain of its obligations under this
Agreement depends upon the Trust's timely delivery of certain materials
and/or information to the Agent. The Trust agrees to use its best
efforts to provide such materials to the Agent in a timely manner.
3. FEES.
3.1 Fees from the Trust. In consideration for the services
described in Section 2 hereof and the incurring of expenses in
connection therewith, the Agent shall receive fees to be paid in
arrears periodically (but in no event less frequently than
semi-annually) determined by agreement between the Trust and the Agent.
For purposes of determining the fees payable to the Agent hereunder,
the value of the Trust's net assets shall be computed in the manner
specified in the Trust's then-current prospectus for computation of the
net asset value of the Trust's Shares. The above fees constitute all
fees to be paid to the Agent by the Trust with respect to the
transactions contemplated hereby.
3.2 Fees from Customers. It is agreed that the Financial
Institution may impose certain conditions on Customers, in addition to
or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging Customers direct fees for the
same or similar services as are provided hereunder by the Financial
Institution as Agent (which fees may either relate specifically to the
Financial Institution's services with respect to the Trust or generally
cover services not limited to those with respect to the Trust). The
Financial Institution shall bill Customers directly for such fees. In
the event the Financial Institution charges Customers such fees, it
shall notify the Trust in advance and make appropriate prior written
disclosure (such disclosure to be in accordance with all applicable
laws) to Customers of any such fees charged to the Customer. To the
extent required by applicable rules and regulations of the Securities
and Exchange Commission, the Trust shall make written disclosure of the
fees paid or to be paid to the Agent pursuant to Section 3.1 of this
Agreement. It is understood, however, that in no event shall the
Financial Institution have recourse or access as Agent or otherwise to
the account of any shareholder of the Trust except to the extent
expressly authorized by law or by such shareholder, or to any assets of
the Trust, for payment of any direct fees referred to in this Section
3.2.
4. INFORMATION PERTAINING TO THE SHARES. The Agent and its
officers, employees and agents are not authorized to make any
representations concerning the Trust or the Shares to Customers or
prospective Customers, excepting only accurate communication of any
information provided by or on behalf of any administrator of the Trust
or any distributor of the Shares or any factual information contained
in the then-current prospectus relating to the Trust or to any series
of the Trust. In furnishing such information regarding the Trust or the
Shares, the Agent shall act as agent for the Customer only and shall
have no authority to act as agent for the Trust. Advance copies or
proofs of all materials which are generally circulated or disseminated
by the Agent to Customers or prospective Customers which identify or
describe the Trust shall be provided to the Trust at least 10 days
prior to such circulation or dissemination (unless the Trust consents
in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any
time after the Trust shall have given written notice within such 10 day
period to the Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the
Trust liable for the use (as opposed to the accuracy) of any
information about the Trust which is disseminated by the Agent.
5. USE OF THE AGENT'S NAME. The Trust shall not use the name of
the Agent, (the Financial Institution or any of its affiliates or
subsidiaries) in any prospectus, sales literature or other material
relating to the Trust in a manner not approved by the Agent prior
thereto in writing; provided, however, that the approval of the Agent
shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such
approval be unreasonably withheld or delayed.
6. USE OF THE TRUST'S NAME. The Agent shall not use the name of
the Trust on any checks, bank drafts, bank statements or forms for
other than internal use in a manner not approved by the Trust prior
thereto in writing; provided, however, that the approval of the Trust
shall not be required for the use of the Trust's name in connection
with communications permitted by Section 4 hereof or (subject to
Section 4, to the extent the same may be applicable) for any use of the
Trust's name which merely refers in accurate and factual terms to the
Trust in connection with the Agent's role hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such
approval be unreasonably withheld or delayed.
7. SECURITY. The Agent represents and warrants that to the best
of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to
fire, theft or any other cause the Trust's records and other data and
the Agent's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its
judgment are required for the secure performance of its obligations
hereunder. The parties shall review such systems and procedures on a
periodic basis, and the Trust shall from time to time specify the types
of records and other data of the Trust to be safeguarded in accordance
with this Section 7.
8. COMPLIANCE WITH LAWS. The Agent shall comply with all
applicable federal and state laws and regulations, including securities
laws. The Agent represents and warrants to the Trust that the
performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its charter
documents and by-laws and all material contractual obligations binding
upon the Agent. The Agent furthermore undertakes that it will promptly,
after the Agent becomes so aware, inform the Trust of any change in
applicable laws or regulations (or interpretations thereof) or in its
charter or by-laws or material contracts which would prevent or impair
full performance of any of its obligations hereunder.
9. REPORTS. To the extent requested by the Trust from time to
time, the Agent agrees that it will provide the Treasurer of the Trust
with a written report of the amounts expended by the Agent pursuant to
this Agreement and the purposes for which such expenditures were made.
Such written reports shall be in a form satisfactory to the Trust and
shall supply all information necessary for the Trust to discharge its
responsibilities under applicable laws and regulations.
10. RECORD KEEPING.
10.1 Section 31(a). The Agent shall maintain records in a form
reasonably acceptable to the Trust and in compliance with applicable
laws and the rules and regulations of the Securities and Exchange
Commission, including but not limited to the record-keeping
requirements of Section 31(a) of the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules thereunder. Such records shall
be deemed to be the property of the Trust and will be made available,
at the Trust's request, for inspection and use by the Trust,
representatives of the Trust and governmental authorities. The Agent
agrees that, for so long as it retains any records of the Trust, it
will meet all reporting requirements pursuant to the 1940 Act and
applicable to the Agent with respect to such records.
10.2 Rules 17a-3 and 17a-4. The Agent shall maintain accurate
and complete records with respect to services performed by the Agent in
connection with the purchase and redemption of Shares. Such records
shall be maintained in form reasonably acceptable to the Trust and in
compliance with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, as amended, pursuant to which any
dealer of the Shares must maintain certain records. All such records
maintained by the Agent shall be the property of such dealer and will
be made available for inspection and use by the Trust or such dealer
upon the request of either. The Agent shall file with the Securities
and Exchange Commission and other appropriate governmental authorities,
and furnish to the Trust and any such dealer copies of, all reports and
undertakings as may be reasonably requested by the Trust or such dealer
in order to comply with the said rules. If so requested by any such
dealer, the Agent shall confirm to such dealer its obligations under
this Section 10.2 by a writing reasonably satisfactory to such dealer.
10.3 Identification, Etc. of Records. The Trust shall from
time to time instruct the Agent in writing as to, and the Trust and the
Agent shall periodically review, the records to be maintained and the
procedures to be followed by the Agent in complying with the foregoing
Sections 10.1 and 10.2 and Section 8 to the extent it relates to
record-keeping required under federal securities laws and regulations.
Notwithstanding the provisions of Section 8, the Agent shall be
entitled to rely on such instructions.
10.4 Transfer of Customer Data. In the event this Agreement is
terminated or a successor to the Agent is appointed, the Agent shall,
at the expense of the Trust, transfer to such designee as the Trust may
direct a certified list of the shareholders of the Trust serviced by
the Agent (with name, address and tax identification or Social Security
number, if any), a complete record of the account of each such
shareholder and the status thereof, and all other relevant books,
records, correspondence, and other data established or maintained by
the Agent under this Agreement. In the event this Agreement is
terminated, the Agent will use its best efforts to cooperate in the
orderly transfer of such duties and responsibilities, including
assistance in the establishment of books, records and other data by the
successor.
10.5 Survival of Record-Keeping Obligations. The
record-keeping obligations imposed in this Section 10 shall survive the
termination of this Agreement for a period of three years.
10.6 Obligations Pursuant to Agreement Only. Nothing in this
Section 10 shall be construed to mean that the Agent would, by virtue
of its role hereunder, be required under applicable law to maintain the
records required to be maintained by it under this Section 10, but it
is understood that the Agent has agreed to do so in order to enable the
Trust and its dealer or dealers to comply with laws and regulations
applicable to them.
10.7 Agent's Rights to Copy Records. Anything in this Section
10 to the contrary notwithstanding, except to the extent otherwise
prohibited by law, the Agent shall have the right to copy, maintain and
use any records maintained by the Agent pursuant to this Section 10,
except as otherwise prohibited by Sections 4 and 6 hereof.
11. FORCE MAJEURE. The Agent shall not be liable or
responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or
military authority, national emergencies, labor difficulties, fire,
mechanical breakdown, flood or catastrophe, Acts of God, insurrection,
war, riots or failure of communication or power supply.
12. INDEMNIFICATION.
12.1 Indemnification of the Agent. The Trust will indemnify
and hold the Agent harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and
expenses) from any claim, demand, action or suit (collectively,
"Claims") (a) arising in connection with misstatements or omissions in
the Trust's Prospectus, actions or inactions by the Trust or any of its
agents or contractors or the performance of the Agent's obligations
hereunder and (b) not resulting from (i) the bad faith or negligence of
the Agent, its officers, employees or agents, (ii) any breach of
applicable law by the Agent, its officers, employees or agents, (iii)
any action of the Agent, its officers, employees or agents which
exceeds the legal authority of the Agent or its authority hereunder, or
(iv) any error or omission of the Agent, its officers, employees or
agents with respect to the purchase, redemption and transfer of
Customers' Shares or the Agent's verification or guarantee of any
Customer signature. Notwithstanding anything herein to the contrary,
the Trust will indemnify and hold the Agent harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any Claim as a result of its
acting in accordance with any written instructions reasonably believed
by the Agent to have been executed by any person duly authorized by the
Trust, or as a result of acting in reliance upon any instrument or
stock certificate reasonably believed by the Agent to have been genuine
and signed, countersigned or executed by a person duly authorized by
the Trust, excepting only the gross negligence or bad faith of the
Agent.
In any case in which the Trust may be asked to indemnify or
hold the Agent harmless, the Trust shall be advised of all pertinent
facts concerning the situation in question and the Agent shall use
reasonable care to identify and notify the Trust promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Trust. The Trust shall have the option to
defend the Agent against any Claim which may be the subject of
indemnification hereunder. In the event that the Trust elects to defend
against such Claim, the defense shall be conducted by counsel chosen by
the Trust and satisfactory to the Agent. The Agent may retain
additional counsel at its expense. Except with the prior written
consent of the Trust, the Agent shall not confess any Claim or make any
compromise in any case in which the Trust will be asked to indemnify
the Agent.
12.2 Indemnification of the Trust. Without limiting the rights
of the Trust under applicable law, the Agent will indemnify and hold
the Trust harmless from all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) from any
Claim (a) resulting from (i) the bad faith or negligence of the Agent,
its officers, employees or agents, (ii) any breach of applicable law by
the Agent, its officers, employees or agents, (iii) any action of the
Agent, its officers, employees or agents which exceeds the legal
authority of the Agent or its authority hereunder, or (iv) any error or
omission of the Agent, its officers, employees or agents with respect
to the purchase, redemption and transfer of Customers' Shares or the
Agent's verification or guarantee of any Customer signature, and (b)
not resulting from the Agent's actions in accordance with written
instructions reasonably believed by the Agent to have been executed by
any person duly authorized by the Trust, or in reliance upon any
instrument or stock certificate reasonably believed by the Agent to
have been genuine and signed, countersigned or executed by a person
duly authorized by the Trust.
In any case in which the Agent may be asked to indemnify or hold
the Trust harmless, the Agent shall be advised of all pertinent facts
concerning the situation in question and the Trust shall use reasonable
care to identify and notify the Agent promptly concerning any situation
which presents or appears likely to present a claim for indemnification
against the Agent. The Agent shall have the option to defend the Trust
against any Claim which may be the subject of indemnification
hereunder. In the event that the Agent elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Agent
and satisfactory to the Trust. The Trust may retain additional counsel
at its expense. Except with the prior written consent of the Agent, the
Trust shall not confess any Claim or make any compromise in any case in
which the Agent will be asked to indemnify the Trust.
12.3 Survival of Indemnities. The indemnities granted by the
parties in this Section 12 shall survive the termination of this
Agreement.
13. NOTICES. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if
mailed to such party at the address of such party set forth in the
preamble of this Agreement or at such other address as such party may
have designated by written notice to the other.
14. FURTHER ASSURANCES. Each party agrees to perform such
further acts and execute such further documents as are necessary to
effectuate the purposes hereof.
15. TERMINATION. This Agreement may be terminated by the
Trust, without the payment of any penalty, at any time upon not more
than 60 days' nor less than 30 days' notice, by a vote of a majority of
the Board of Trustees of the Trust who are not "interested persons" of
the Trust (as defined in the 1940 Act) and have no direct or indirect
financial interest in the operation of the Administrative Services Plan
(the "Plan"), to which this Agreement is related, this Agreement or any
other agreement related to such Plan, or by "a vote of a majority of
the outstanding voting securities" (as defined in the 1940 Act) of the
Trust. The Agent may terminate this Agreement upon not more than 60
days' nor less than 30 days' notice to the Trust. The period of prior
notice of termination shall be reduced to the extent necessary to
comply with the effective date of any change in applicable laws or
regulations (or interpretations thereof) which prevents or impairs full
performance of the obligations set forth herein. Provided, however, in
the event such period of prior notice is reduced, the terminating party
shall give prompt notice of termination. Notwithstanding anything
herein to the contrary, but except as provided in Section 19 of this
Agreement, this Agreement may not be assigned and shall terminate
automatically without notice to either party upon any assignment. Upon
termination hereof, the Trust shall pay such compensation as may be due
the Agent as of the date of such termination.
16. CHANGES; AMENDMENTS. This Agreement may be changed or
amended only by written instrument signed by both parties.
17. LIMITATION OF SHAREHOLDER LIABILITY. The Agent hereby
agrees that obligations assumed by the Trust pursuant to this Agreement
shall be limited in all cases to the Trust and its assets and that the
Agent shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Trust. It is further agreed that
the Agent shall not seek satisfaction of any such obligations from the
Board of Trustees or any individual Trustee of the Trust.
18. DIVIDEND PAYMENT DATES. The Trust hereby agrees, with
respect to any Trust that is a money market fund, that dividends
otherwise payable to any Customer on the last business day of each
month shall, to the extent required by the Agent, be distributed on
such other date in each month as the Agent may designate as the
dividend distribution date with respect to such Customer.
19. SUBCONTRACTING BY AGENT. The Agent may, with the written
approval of the Trust (such approval not to be unreasonably withheld or
delayed), subcontract for the performance of the Agent's obligations
hereunder with any one or more persons, including but not limited to
any one or more persons which is an affiliate of the Agent; provided,
however, that the Agent shall be as fully responsible to the Trust for
the acts and omissions of any subcontractor as it would be for its own
acts or omissions.
20. AUTHORITY TO VOTE. The Trust hereby confirms that,
pursuant to the Declaration of Trust of the Trust, at any meeting of
shareholders of the Trust or of any series of the Trust, the Agent is
authorized to vote any Shares held in accounts serviced by the Agent
and which are otherwise not represented in person or by proxy at the
meeting, proportionately in accordance with the votes cast by holders
of all Shares otherwise represented at the meeting in person or by
proxy and held in accounts serviced by the Agent.
21. COMPLIANCE WITH LAWS AND POLICIES; COOPERATION. The Trust
hereby agrees that it will comply with all laws and regulations
applicable to its operations and the Agent agrees that it will comply
with all laws and regulations applicable to its operations hereunder
and each party agrees from time to time to provide such certificates,
information and access to its books, records and personnel as the other
may reasonably request to confirm the foregoing. Each party understands
that the other may from time to time adopt or modify policies relating
to the subject matter of this Agreement, in which case the party
adopting or modifying such a policy shall notify the other thereof and
the parties shall consider the applicability thereof and endeavor to
comply therewith to the extent not impracticable or unreasonably
burdensome. Each of the parties agrees to cooperate with the other in
connection with the performance of this Agreement and the resolution of
any problems, questions or disagreements in connection herewith.
21.1 Audit. The Trust shall maintain or arrange to be
maintained complete and accurate accounting records, in accordance with
generally accepted accounting principles. The Trust shall retain or
arrange to be retained such records for a period of three years from
the termination of this Agreement. The Agent and its designated
certified public accountants shall have access to such records based on
reasonable cause and professional judgment during normal business hours
upon reasonable notice to the Trust.
21.2 Annual Financial Reports. At least once a year, the Trust
shall send to the owners of its shares and to the Agent the Trust's
audited financial statements.
21.3 Shareholder Updates. The Trust shall give the Agent
advance written notice of any change in the Trust's place of
incorporation, mailing address, management, investment objectives, fees
or redemption rights. The Trust shall give such advance notice to the
owners of its shares to the extent required by federal securities laws
or the rules and regulations of the Securities and Exchange Commission.
21.4. Annual Certification. At least once a year, the parties
shall certify to each other in writing that the certifying party is
conducting its business in accordance with the terms and conditions of
the Agreement and in the case of the Trust, in accordance with the
representations set forth in its then current prospectus.
22. MISCELLANEOUS. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the
Commonwealth of Massachusetts. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the same
instrument. Although this Agreement has been executed by multiple
parties, it shall be construed and enforced as a separate agreement
between each Trust and each Financial Institution acting as Agent for
such Trust. The terms of this Agreement shall become effective with
respect to each Trust and each Financial Institution listed on a
signature page hereof as of the date set forth thereon.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered in their names and on their
behalf by the undersigned, thereunto duly authorized, all as of the day
and year set forth below. The undersigned Trustee of the Trust has
executed this Agreement not individually, but as Trustee under the
Trust's Declaration of Trust, as from time to time amended, and the
obligations of this Agreement are not binding upon any of the Trustees
or shareholders of the Trust individually, but bind only the Trust
estate.
Dated as of:
---------------------------
[NAME OF TRUST] CITIBANK, N.A.
[NAME OF SERIES, IF ANY]
By: By:
------------------------------ ---------------------------
Name: Philip W. Coolidge Name:
---------------------------
Title: President Title:
---------------------------
Principal Place of Business: Principal Place of Business:
6 St. James Avenue ---------------------------
Boston, Massachusetts 02116 ---------------------------
---------------------------
SSA/NA
<PAGE>
EXHIBIT h(4)(ii)
FORM OF
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, by and between: (i) each of the trusts listed on the
signature page hereof or which may be added to this Agreement by execution of a
counterpart signature page hereto at a subsequent date pursuant to a vote of
such trust's Trustees (individually, the "Trust") and (ii) each federal savings
bank (individually, the "Financial Institution") listed on the signature page
hereof or which may be added to this Agreement by execution of a counterpart
signature page hereto at a subsequent date pursuant to appropriate authorization
by such Financial Institution's officers and directors, as a shareholder
servicing agent hereunder (the "Agent");
WITNESSETH:
WHEREAS, all transactions in Shares of Beneficial Interest of the Trust
or of any series now existing or later created of the Trust ("Shares") may be
made only by investors who are customers of, and using the services of, a
financial institution as defined in the then-current prospectus of the Trust,
which has entered into a shareholder servicing agreement with the Trust; and
WHEREAS, the Financial Institution wishes to make it possible for its
customers (the "Customers") to purchase Shares and wishes to act as the
Customers' agent in performing certain administrative functions in connection
with purchases, exchanges and redemptions of Shares from time to time upon the
order and for the account of Customers and to provide related services to its
Customers in connection with their investments in the Trust; and
WHEREAS, it is in the interest of the Trust to make the services of the
Agent available to Customers who are or may become shareholders of the Trust;
NOW, THEREFORE, the Trust and the Financial Institution hereby agree as
follows:
1. APPOINTMENT. The Financial Institution, as Agent, hereby agrees
to perform certain services for Customers as hereinafter set forth. The
Agent's appointment hereunder is non-exclusive, and the parties
recognize and agree that, from time to time, the Trust may enter into
other shareholder servicing agreements, in writing, with other
financial institutions.
2. SERVICE TO BE PERFORMED.
2.1 Type of Service. The Agent shall be responsible for performing
shareholder account administrative and servicing functions, which shall
include without limitation: (a) answering Customer inquiries regarding
account status and history, the manner in which purchases, exchanges
and redemptions of the Shares may be effected, and certain other
matters pertaining to the Trust; (b) assisting Customers in designating
and changing dividend options, account designations and addresses; (c)
providing necessary personnel and facilities to establish and maintain
certain shareholder accounts and records, as may reasonably be
requested from time to time by the Trust; (d) assisting in processing
purchases, exchange and redemption transactions; (e) arranging for the
wiring of funds; (f) verifying and guaranteeing Customer signatures in
connection with redemption orders, transfers among and changes in
Customer-designated accounts; (g) providing periodic statements showing
a Customer's account balances and, to the extent practicable,
integration of such information with information concerning other
client transactions otherwise effected with or through the Financial
Institution; (h) furnishing on behalf of the Trust's distributor
(either separately or on an integrated basis with other reports sent to
a Customer by the Agent) periodic statements and confirmations of all
purchases, exchanges and redemptions of Shares in a Customer's account
required by applicable federal or state law, all such confirmations and
statements to conform to Rule 10b-10 under the Securities Exchange Act
of 1934 and other applicable federal or state law; (i) transmitting
proxy statements, annual reports, updating prospectuses and other
communications from the Trust to Customers; (j) receiving, tabulating
and transmitting to the Trust proxies executed by Customers with
respect to annual and special meetings of shareholders of the Trust;
(k) providing reports (at least monthly, but more frequently if so
requested by the Trust's distributor) containing state-by-state
listings of the principal residences of the beneficial owners of the
Shares; and (l) providing such other related services as the Trust or a
Customer may reasonably request. The Agent shall provide all personnel
and facilities to perform the functions described in this paragraph
with respect to its Customers.
2.2 Standard of Services. All services to be rendered by the Agent
hereunder shall be performed in a professional, competent and timely
manner. The details of the operating standards and procedures to be
followed by the Agent in performance of the services described above
shall be determined from time to time by agreement between the Agent
and the Trust. The Trust acknowledges that the Agent's ability to
perform on a timely basis certain of its obligations under this
Agreement depends upon the Trust's timely delivery of certain materials
and/or information to the Agent. The Trust agrees to use its best
efforts to provide such materials to the Agent in a timely manner.
3. FEES.
3.1 Fees from the Trust. In consideration for the services
described in Section 2 hereof and the incurring of expenses in
connection therewith, the Agent shall receive fees to be paid in
arrears periodically (but in no event less frequently than
semi-annually) determined by agreement between the Trust and the Agent.
For purposes of determining the fees payable to the Agent hereunder,
the value of the Trust's net assets shall be computed in the manner
specified in the Trust's then-current prospectus for computation of the
net asset value of the Trust's Shares. The above fees constitute all
fees to be paid to the Agent by the Trust with respect to the
transactions contemplated hereby.
3.2 Fees from Customers. It is agreed that the Financial
Institution may impose certain conditions on Customers, in addition to
or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging Customers direct fees for the
same or similar services as are provided hereunder by the Financial
Institution as Agent (which fees may either relate specifically to the
Financial Institution's services with respect to the Trust or generally
cover services not limited to those with respect to the Trust). The
Financial Institution shall bill Customers directly for such fees. In
the event the Financial Institution charges Customers such fees, it
shall notify the Trust in advance and make appropriate prior written
disclosure (such disclosure to be in accordance with all applicable
laws) to Customers of any such fees charged to the Customer. To the
extent required by applicable rules and regulations of the Securities
and Exchange Commission, the Trust shall make written disclosure of the
fees paid or to be paid to the Agent pursuant to Section 3.1 of this
Agreement. It is understood, however, that in no event shall the
Financial Institution have recourse or access as Agent or otherwise to
the account of any shareholder of the Trust except to the extent
expressly authorized by law or by such shareholder, or to any assets of
the Trust, for payment of any direct fees referred to in this Section
3.2.
4. INFORMATION PERTAINING TO THE SHARES. The Agent and its
officers, employees and agents are not authorized to make any
representations concerning the Trust or the Shares to Customers or
prospective Customers, excepting only accurate communication of any
information provided by or on behalf of any administrator of the Trust
or any distributor of the Shares or any factual information contained
in the then-current prospectus relating to the Trust or to any series
of the Trust. In furnishing such information regarding the Trust or the
Shares, the Agent shall act as agent for the Customer only and shall
have no authority to act as agent for the Trust. Advance copies or
proofs of all materials which are generally circulated or disseminated
by the Agent to Customers or prospective Customers which identify or
describe the Trust shall be provided to the Trust at least 10 days
prior to such circulation or dissemination (unless the Trust consents
in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any
time after the Trust shall have given written notice within such 10 day
period to the Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the
Trust liable for the use (as opposed to the accuracy) of any
information about the Trust which is disseminated by the Agent.
5. USE OF THE AGENT'S NAME. The Trust shall not use the name of
the Agent, (the Financial Institution or any of its affiliates or
subsidiaries) in any prospectus, sales literature or other material
relating to the Trust in a manner not approved by the Agent prior
thereto in writing; provided, however, that the approval of the Agent
shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such
approval be unreasonably withheld or delayed.
6. USE OF THE TRUST'S NAME. The Agent shall not use the name of
the Trust on any checks, bank drafts, bank statements or forms for
other than internal use in a manner not approved by the Trust prior
thereto in writing; provided, however, that the approval of the Trust
shall not be required for the use of the Trust's name in connection
with communications permitted by Section 4 hereof or (subject to
Section 4, to the extent the same may be applicable) for any use of the
Trust's name which merely refers in accurate and factual terms to the
Trust in connection with the Agent's role hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such
approval be unreasonably withheld or delayed.
7. SECURITY. The Agent represents and warrants that to the best
of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to
fire, theft or any other cause the Trust's records and other data and
the Agent's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its
judgment are required for the secure performance of its obligations
hereunder. The parties shall review such systems and procedures on a
periodic basis, and the Trust shall from time to time specify the types
of records and other data of the Trust to be safeguarded in accordance
with this Section 7.
8. COMPLIANCE WITH LAWS. The Agent shall comply with all
applicable federal and state laws and regulations, including securities
laws. The Agent represents and warrants to the Trust that the
performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its charter
documents and by-laws and all material contractual obligations binding
upon the Agent. The Agent furthermore undertakes that it will promptly,
after the Agent becomes so aware, inform the Trust of any change in
applicable laws or regulations (or interpretations thereof) or in its
charter or by-laws or material contracts which would prevent or impair
full performance of any of its obligations hereunder.
9. REPORTS. To the extent requested by the Trust from time to
time, the Agent agrees that it will provide the Treasurer of the Trust
with a written report of the amounts expended by the Agent pursuant to
this Agreement and the purposes for which such expenditures were made.
Such written reports shall be in a form satisfactory to the Trust and
shall supply all information necessary for the Trust to discharge its
responsibilities under applicable laws and regulations.
10. RECORD KEEPING.
10.1 Section 31(a). The Agent shall maintain records in a form
reasonably acceptable to the Trust and in compliance with applicable
laws and the rules and regulations of the Securities and Exchange
Commission, including but not limited to the record-keeping
requirements of Section 31(a) of the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules thereunder. Such records shall
be deemed to be the property of the Trust and will be made available,
at the Trust's request, for inspection and use by the Trust,
representatives of the Trust and governmental authorities. The Agent
agrees that, for so long as it retains any records of the Trust, it
will meet all reporting requirements pursuant to the 1940 Act and
applicable to the Agent with respect to such records.
10.2 Rules 17a-3 and 17a-4. The Agent shall maintain accurate
and complete records with respect to services performed by the Agent in
connection with the purchase and redemption of Shares. Such records
shall be maintained in form reasonably acceptable to the Trust and in
compliance with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, as amended, pursuant to which any
dealer of the Shares must maintain certain records. All such records
maintained by the Agent shall be the property of such dealer and will
be made available for inspection and use by the Trust or such dealer
upon the request of either. The Agent shall file with the Securities
and Exchange Commission and other appropriate governmental authorities,
and furnish to the Trust and any such dealer copies of, all reports and
undertakings as may be reasonably requested by the Trust or such dealer
in order to comply with the said rules. If so requested by any such
dealer, the Agent shall confirm to such dealer its obligations under
this Section 10.2 by a writing reasonably satisfactory to such dealer.
10.3 Identification, Etc. of Records. The Trust shall from
time to time instruct the Agent in writing as to, and the Trust and the
Agent shall periodically review, the records to be maintained and the
procedures to be followed by the Agent in complying with the foregoing
Sections 10.1 and 10.2 and Section 8 to the extent it relates to
record-keeping required under federal securities laws and regulations.
Notwithstanding the provisions of Section 8, the Agent shall be
entitled to rely on such instructions.
10.4 Transfer of Customer Data. In the event this Agreement is
terminated or a successor to the Agent is appointed, the Agent shall,
at the expense of the Trust, transfer to such designee as the Trust may
direct a certified list of the shareholders of the Trust serviced by
the Agent (with name, address and tax identification or Social Security
number, if any), a complete record of the account of each such
shareholder and the status thereof, and all other relevant books,
records, correspondence, and other data established or maintained by
the Agent under this Agreement. In the event this Agreement is
terminated, the Agent will use its best efforts to cooperate in the
orderly transfer of such duties and responsibilities, including
assistance in the establishment of books, records and other data by the
successor.
10.5 Survival of Record-Keeping Obligations. The
record-keeping obligations imposed in this Section 10 shall survive the
termination of this Agreement for a period of three years.
10.6 Obligations Pursuant to Agreement Only. Nothing in this
Section 10 shall be construed to mean that the Agent would, by virtue
of its role hereunder, be required under applicable law to maintain the
records required to be maintained by it under this Section 10, but it
is understood that the Agent has agreed to do so in order to enable the
Trust and its dealer or dealers to comply with laws and regulations
applicable to them.
10.7 Agent's Rights to Copy Records. Anything in this Section 10
to the contrary notwithstanding, except to the extent otherwise
prohibited by law, the Agent shall have the right to copy, maintain and
use any records maintained by the Agent pursuant to this Section 10,
except as otherwise prohibited by Sections 4 and 6 hereof.
11. FORCE MAJEURE. The Agent shall not be liable or
responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or
military authority, national emergencies, labor difficulties, fire,
mechanical breakdown, flood or catastrophe, Acts of God, insurrection,
war, riots or failure of communication or power supply.
12. INDEMNIFICATION.
12.1 Indemnification of the Agent. The Trust will indemnify and
hold the Agent harmless from all losses, claims, damages, liabilities
or expenses (including reasonable counsel fees and expenses) from any
claim, demand, action or suit (collectively, "Claims") (a) arising in
connection with misstatements or omissions in the Trust's Prospectus,
actions or inactions by the Trust or any of its agents or contractors
or the performance of the Agent's obligations hereunder and (b) not
resulting from (i) the bad faith or negligence of the Agent, its
officers, employees or agents, (ii) any breach of applicable law by the
Agent, its officers, employees or agents, (iii) any action of the
Agent, its officers, employees or agents which exceeds the legal
authority of the Agent or its authority hereunder, or (iv) any error or
omission of the Agent, its officers, employees or agents with respect
to the purchase, redemption and transfer of Customers' Shares or the
Agent's verification or guarantee of any Customer signature.
Notwithstanding anything herein to the contrary, the Trust will
indemnify and hold the Agent harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any Claim as a result of its acting in
accordance with any written instructions reasonably believed by the
Agent to have been executed by any person duly authorized by the Trust,
or as a result of acting in reliance upon any instrument or stock
certificate reasonably believed by the Agent to have been genuine and
signed, countersigned or executed by a person duly authorized by the
Trust, excepting only the gross negligence or bad faith of the Agent.
In any case in which the Trust may be asked to indemnify or
hold the Agent harmless, the Trust shall be advised of all pertinent
facts concerning the situation in question and the Agent shall use
reasonable care to identify and notify the Trust promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Trust. The Trust shall have the option to
defend the Agent against any Claim which may be the subject of
indemnification hereunder. In the event that the Trust elects to defend
against such Claim, the defense shall be conducted by counsel chosen by
the Trust and satisfactory to the Agent. The Agent may retain
additional counsel at its expense. Except with the prior written
consent of the Trust, the Agent shall not confess any Claim or make any
compromise in any case in which the Trust will be asked to indemnify
the Agent.
12.2 Indemnification of the Trust. Without limiting the rights of
the Trust under applicable law, the Agent will indemnify and hold the
Trust harmless from all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) from any
Claim (a) resulting from (i) the bad faith or negligence of the Agent,
its officers, employees or agents, (ii) any breach of applicable law by
the Agent, its officers, employees or agents, (iii) any action of the
Agent, its officers, employees or agents which exceeds the legal
authority of the Agent or its authority hereunder, or (iv) any error or
omission of the Agent, its officers, employees or agents with respect
to the purchase, redemption and transfer of Customers' Shares or the
Agent's verification or guarantee of any Customer signature, and (b)
not resulting from the Agent's actions in accordance with written
instructions reasonably believed by the Agent to have been executed by
any person duly authorized by the Trust, or in reliance upon any
instrument or stock certificate reasonably believed by the Agent to
have been genuine and signed, countersigned or executed by a person
duly authorized by the Trust.
In any case in which the Agent may be asked to indemnify or
hold the Trust harmless, the Agent shall be advised of all pertinent
facts concerning the situation in question and the Trust shall use
reasonable care to identify and notify the Agent promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Agent. The Agent shall have the option to
defend the Trust against any Claim which may be the subject of
indemnification hereunder. In the event that the Agent elects to defend
against such Claim, the defense shall be conducted by counsel chosen by
the Agent and satisfactory to the Trust. The Trust may retain
additional counsel at its expense. Except with the prior written
consent of the Agent, the Trust shall not confess any Claim or make any
compromise in any case in which the Agent will be asked to indemnify
the Trust.
12.3 Survival of Indemnities. The indemnities granted by the
parties in this Section 12 shall survive the termination of this
Agreement.
13. NOTICES. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if
mailed to such party at the address of such party set forth in the
preamble of this Agreement or at such other address as such party may
have designated by written notice to the other.
14. FURTHER ASSURANCES. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate
the purposes hereof.
15. TERMINATION. This Agreement may be terminated by the Trust,
without the payment of any penalty, at any time upon not more than 60
days' nor less than 30 days' notice, by a vote of a majority of the
Board of Trustees of the Trust who are not "interested persons" of the
Trust (as defined in the 1940 Act) and have no direct or indirect
financial interest in the operation of the Administrative Services Plan
(the "Plan"), to which this Agreement is related, this Agreement or any
other agreement related to such Plan, or by "a vote of a majority of
the outstanding voting securities" (as defined in the 1940 Act) of the
Trust. The Agent may terminate this Agreement upon not more than 60
days' nor less than 30 days' notice to the Trust. The period of prior
notice of termination shall be reduced to the extent necessary to
comply with the effective date of any change in applicable laws or
regulations (or interpretations thereof) which prevents or impairs full
performance of the obligations set forth herein. Provided, however, in
the event such period of prior notice is reduced, the terminating party
shall give prompt notice of termination. Notwithstanding anything
herein to the contrary, but except as provided in Section 19 of this
Agreement, this Agreement may not be assigned and shall terminate
automatically without notice to either party upon any assignment. Upon
termination hereof, the Trust shall pay such compensation as may be due
the Agent as of the date of such termination.
16. CHANGES; AMENDMENTS. This Agreement may be changed or
amended only by written instrument signed by both parties.
17. LIMITATION OF SHAREHOLDER LIABILITY. The Agent hereby agrees
that obligations assumed by the Trust pursuant to this Agreement shall
be limited in all cases to the Trust and its assets and that the Agent
shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Trust. It is further agreed that
the Agent shall not seek satisfaction of any such obligations from the
Board of Trustees or any individual Trustee of the Trust.
18. DIVIDEND PAYMENT DATES. The Trust hereby agrees, with respect
to any Trust that is a money market fund, that dividends otherwise
payable to any Customer on the last business day of each month shall,
to the extent required by the Agent, be distributed on such other date
in each month as the Agent may designate as the dividend distribution
date with respect to such Customer.
19. SUBCONTRACTING BY AGENT. The Agent may, with the written
approval of the Trust (such approval not to be unreasonably withheld or
delayed), subcontract for the performance of the Agent's obligations
hereunder with any one or more persons, including but not limited to
any one or more persons which is an affiliate of the Agent; provided,
however, that the Agent shall be as fully responsible to the Trust for
the acts and omissions of any subcontractor as it would be for its own
acts or omissions.
20. AUTHORITY TO VOTE. The Trust hereby confirms that, pursuant to
the Declaration of Trust of the Trust, at any meeting of shareholders
of the Trust or of any series of the Trust, the Agent is authorized to
vote any Shares held in accounts serviced by the Agent and which are
otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all
Shares otherwise represented at the meeting in person or by proxy and
held in accounts serviced by the Agent.
21. COMPLIANCE WITH LAWS AND POLICIES; COOPERATION. The Trust
hereby agrees that it will comply with all laws and regulations
applicable to its operations and the Agent agrees that it will comply
with all laws and regulations applicable to its operations hereunder
and each party agrees from time to time to provide such certificates,
information and access to its books, records and personnel as the other
may reasonably request to confirm the foregoing. Each party understands
that the other may from time to time adopt or modify policies relating
to the subject matter of this Agreement, in which case the party
adopting or modifying such a policy shall notify the other thereof and
the parties shall consider the applicability thereof and endeavor to
comply therewith to the extent not impracticable or unreasonably
burdensome. Each of the parties agrees to cooperate with the other in
connection with the performance of this Agreement and the resolution of
any problems, questions or disagreements in connection herewith.
21.1 Audit. The Trust shall maintain or arrange to be maintained
complete and accurate accounting records, in accordance with generally
accepted accounting principles. The Trust shall retain or arrange to be
retained such records for a period of three years from the termination
of this Agreement. The Agent and its designated certified public
accountants shall have access to such records based on reasonable cause
and professional judgment during normal business hours upon reasonable
notice to the Trust.
21.2 Annual Financial Reports. At least once a year, the Trust
shall send to the owners of its shares and to the Agent the Trust's
audited financial statements.
21.3 Shareholder Updates. The Trust shall give the Agent advance
written notice of any change in the Trust's place of incorporation,
mailing address, management, investment objectives, fees or redemption
rights. The Trust shall give such advance notice to the owners of its
shares to the extent required by federal securities laws or the rules
and regulations of the Securities and Exchange Commission.
21.4. Annual Certification. At least once a year, the parties
shall certify to each other in writing that the certifying party is
conducting its business in accordance with the terms and conditions of
the Agreement and in the case of the Trust, in accordance with the
representations set forth in its then current prospectus.
22. MISCELLANEOUS. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the Commonwealth of
Massachusetts. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Although this Agreement has been executed by multiple parties, it shall
be construed and enforced as a separate agreement between each Trust
and each Financial Institution acting as Agent for such Trust. The
terms of this Agreement shall become effective with respect to each
Trust and each Financial Institution listed on a signature page hereof
as of the date set forth thereon.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year set
forth below. The undersigned Trustee of the Trust has executed this
Agreement not individually, but as Trustee under the Trust's
Declaration of Trust, as from time to time amended, and the obligations
of this Agreement are not binding upon any of the Trustees or
shareholders of the Trust individually, but bind only the Trust estate.
Dated as of:
---------------------------
[NAME OF TRUST] CITIBANK, N.A.
[NAME OF SERIES, IF ANY]
By: By:
------------------------------ ---------------------------
Name: Philip W. Coolidge Name:
---------------------------
Title: President Title:
---------------------------
Principal Place of Business: Principal Place of Business:
6 St. James Avenue ---------------------------
Boston, Massachusetts 02116 ---------------------------
---------------------------
SSA/FSB
<PAGE>
EXHIBIT h(4)(iii)
FORM OF
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, by and between: (i) each of the trusts listed on the
signature page hereof or which may be added to this Agreement by execution of a
counterpart signature page hereto at a subsequent date pursuant to a vote of
such trust's Trustees (individually, the "Trust") and (ii) The Landmark Funds
Broker-Dealer Services, Inc. (the "Financial Institution"), a Massachusetts
corporation, with its principal place of business at 6 St. James Avenue, Boston,
Massachusetts 02116, as a shareholder servicing agent hereunder (the "Agent");
WITNESSETH:
WHEREAS, all transactions in Shares of Beneficial Interest of the Trust
or of any series now existing or later created of the Trust ("Shares") may be
made only by investors who are customers of, and using the services of, a
financial institution as defined in the then-current prospectus of the Trust,
which has entered into a shareholder servicing agreement with the Trust; and
WHEREAS, the Financial Institution wishes to make it possible for its
customers (the "Customers") to purchase Shares and wishes to act as the
Customers' agent in performing certain administrative functions in connection
with purchases, exchanges and redemptions of Shares from time to time upon the
order and for the account of Customers and to provide related services to its
Customers in connection with their investments in the Trust; and
WHEREAS, it is in the interest of the Trust to make the services of the
Agent available to Customers who are or may become shareholders of the Trust;
NOW, THEREFORE, the Trust and the Financial Institution hereby agree as
follows:
1. APPOINTMENT. The Financial Institution, as Agent, hereby agrees
to perform certain services for Customers as hereinafter set forth. The
Agent's appointment hereunder is non-exclusive, and the parties
recognize and agree that, from time to time, the Trust may enter into
other shareholder servicing agreements, in writing, with other
financial institutions.
2. SERVICE TO BE PERFORMED.
2.1 Type of Service. The Agent shall be responsible for performing
shareholder account administrative and servicing functions, which shall
include without limitation: (a) answering Customer inquiries regarding
account status and history, the manner in which purchases, exchanges
and redemptions of the Shares may be effected, and certain other
matters pertaining to the Trust; (b) assisting Customers in designating
and changing dividend options, account designations and addresses; (c)
providing necessary personnel and facilities to establish and maintain
certain shareholder accounts and records, as may reasonably be
requested from time to time by the Trust; (d) assisting in processing
purchases, exchange and redemption transactions; (e) arranging for the
wiring of funds; (f) transmitting and receiving funds in connection
with Customer orders to purchase, exchange or redeem Shares; (g)
verifying and guaranteeing Customer signatures in connection with
redemption orders, transfers among and changes in Customer-designated
accounts; (h) providing periodic statements showing a Customer's
account balances and, to the extent practicable, integration of such
information with information concerning other client transactions
otherwise effected with or through the Financial Institution; (i)
furnishing on behalf of the Trust's distributor (either separately or
on an integrated basis with other reports sent to a Customer by the
Agent) periodic statements and confirmations of all purchases,
exchanges and redemptions of Shares in a Customer's account required by
applicable federal or state law, all such confirmations and statements
to conform to Rule 10b-10 under the Securities Exchange Act of 1934 and
other applicable federal or state law; (j) transmitting proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to Customers; (k) receiving, tabulating
and transmitting to the Trust proxies executed by Customers with
respect to annual and special meetings of shareholders of the Trust;
(l) providing reports (at least monthly, but more frequently if so
requested by the Trust's distributor) containing state-by-state
listings of the principal residences of the beneficial owners of the
Shares; and (m) providing such other related services as the Trust or a
Customer may reasonably request. The Agent shall provide all personnel
and facilities to perform the functions described in this paragraph
with respect to its Customers.
2.2 Standard of Services. All services to be rendered by the Agent
hereunder shall be performed in a professional, competent and timely
manner. The details of the operating standards and procedures to be
followed by the Agent in performance of the services described above
shall be determined from time to time by agreement between the Agent
and the Trust. The Trust acknowledges that the Agent's ability to
perform on a timely basis certain of its obligations under this
Agreement depends upon the Trust's timely delivery of certain materials
and/or information to the Agent. The Trust agrees to use its best
efforts to provide such materials to the Agent in a timely manner.
3. FEES.
3.1 Fees from the Trust. In consideration for the services
described in Section 2 hereof and the incurring of expenses in
connection therewith, the Agent shall receive fees to be paid in
arrears periodically (but in no event less frequently than
semi-annually) determined by agreement between the Trust and the Agent.
For purposes of determining the fees payable to the Agent hereunder,
the value of the Trust's net assets shall be computed in the manner
specified in the Trust's then-current prospectus for computation of the
net asset value of the Trust's Shares. The above fees constitute all
fees to be paid to the Agent by the Trust with respect to the
transactions contemplated hereby.
3.2 Fees from Customers. It is agreed that the Financial
Institution may impose certain conditions on Customers, in addition to
or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging Customers direct fees for the
same or similar services as are provided hereunder by the Financial
Institution as Agent (which fees may either relate specifically to the
Financial Institution's services with respect to the Trust or generally
cover services not limited to those with respect to the Trust). The
Financial Institution shall bill Customers directly for such fees. In
the event the Financial Institution charges Customers such fees, it
shall notify the Trust in advance and make appropriate prior written
disclosure (such disclosure to be in accordance with all applicable
laws) to Customers of any such fees charged to the Customer. To the
extent required by applicable rules and regulations of the Securities
and Exchange Commission, the Trust shall make written disclosure of the
fees paid or to be paid to the Agent pursuant to Section 3.1 of this
Agreement. It is understood, however, that in no event shall the
Financial Institution have recourse or access as Agent or otherwise to
the account of any shareholder of the Trust except to the extent
expressly authorized by law or by such shareholder, or to any assets of
the Trust, for payment of any direct fees referred to in this Section
3.2.
4. INFORMATION PERTAINING TO THE SHARES. The Agent and its
officers, employees and agents are not authorized to make any
representations concerning the Trust or the Shares to Customers or
prospective Customers, excepting only accurate communication of any
information provided by or on behalf of any administrator of the Trust
or any distributor of the Shares or any factual information contained
in the then-current prospectus relating to the Trust or to any series
of the Trust. In furnishing such information regarding the Trust or the
Shares, the Agent shall act as agent for the Customer only and shall
have no authority to act as agent for the Trust. Advance copies or
proofs of all materials which are generally circulated or disseminated
by the Agent to Customers or prospective Customers which identify or
describe the Trust shall be provided to the Trust at least 10 days
prior to such circulation or dissemination (unless the Trust consents
in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any
time after the Trust shall have given written notice within such 10 day
period to the Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the Trust
liable for the use (as opposed to the accuracy) of any information
about the Trust which is disseminated by the Agent.
5. USE OF THE AGENT'S NAME. The Trust shall not use the name of
the Agent, (the Financial Institution or any of its affiliates or
subsidiaries) in any prospectus, sales literature or other material
relating to the Trust in a manner not approved by the Agent prior
thereto in writing; provided, however, that the approval of the Agent
shall not be required for any use of its name which merely refers in
accurate and factual terms to its appointment hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such
approval be unreasonably withheld or delayed.
6. USE OF THE TRUST'S NAME. The Agent shall not use the name of
the Trust on any checks, bank drafts, bank statements or forms for
other than internal use in a manner not approved by the Trust prior
thereto in writing; provided, however, that the approval of the Trust
shall not be required for the use of the Trust's name in connection
with communications permitted by Section 4 hereof or (subject to
Section 4, to the extent the same may be applicable) for any use of the
Trust's name which merely refers in accurate and factual terms to the
Trust in connection with the Agent's role hereunder or which is
required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such
approval be unreasonably withheld or delayed.
7. SECURITY. The Agent represents and warrants that to the best
of its knowledge, the various procedures and systems which it has
implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to
fire, theft or any other cause the Trust's records and other data and
the Agent's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as in its
judgment are required for the secure performance of its obligations
hereunder. The parties shall review such systems and procedures on a
periodic basis, and the Trust shall from time to time specify the types
of records and other data of the Trust to be safeguarded in accordance
with this Section 7.
8. COMPLIANCE WITH LAWS. The Agent shall comply with all
applicable federal and state laws and regulations, including securities
laws. The Agent represents and warrants to the Trust that the
performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its charter
documents and by-laws and all material contractual obligations binding
upon the Agent. The Agent furthermore undertakes that it will promptly,
after the Agent becomes so aware, inform the Trust of any change in
applicable laws or regulations (or interpretations thereof) or in its
charter or by-laws or material contracts which would prevent or impair
full performance of any of its obligations hereunder.
9. REPORTS. To the extent requested by the Trust from time to
time, the Agent agrees that it will provide the Treasurer of the Trust
with a written report of the amounts expended by the Agent pursuant to
this Agreement and the purposes for which such expenditures were made.
Such written reports shall be in a form satisfactory to the Trust and
shall supply all information necessary for the Trust to discharge its
responsibilities under applicable laws and regulations.
10. RECORD KEEPING.
10.1 Section 31(a). The Agent shall maintain records in a form
reasonably acceptable to the Trust and in compliance with applicable
laws and the rules and regulations of the Securities and Exchange
Commission, including but not limited to the record-keeping
requirements of Section 31(a) of the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules thereunder. Such records shall
be deemed to be the property of the Trust and will be made available,
at the Trust's request, for inspection and use by the Trust,
representatives of the Trust and governmental authorities. The Agent
agrees that, for so long as it retains any records of the Trust, it
will meet all reporting requirements pursuant to the 1940 Act and
applicable to the Agent with respect to such records.
10.2 Rules 17a-3 and 17a-4. The Agent shall maintain accurate
and complete records with respect to services performed by the Agent in
connection with the purchase and redemption of Shares. Such records
shall be maintained in form reasonably acceptable to the Trust and in
compliance with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, as amended, pursuant to which any
dealer of the Shares must maintain certain records. All such records
maintained by the Agent shall be the property of such dealer and will
be made available for inspection and use by the Trust or such dealer
upon the request of either. The Agent shall file with the Securities
and Exchange Commission and other appropriate governmental authorities,
and furnish to the Trust and any such dealer copies of, all reports and
undertakings as may be reasonably requested by the Trust or such dealer
in order to comply with the said rules. If so requested by any such
dealer, the Agent shall confirm to such dealer its obligations under
this Section 10.2 by a writing reasonably satisfactory to such dealer.
10.3 Identification, Etc. of Records. The Trust shall from
time to time instruct the Agent in writing as to, and the Trust and the
Agent shall periodically review, the records to be maintained and the
procedures to be followed by the Agent in complying with the foregoing
Sections 10.1 and 10.2 and Section 8 to the extent it relates to
record-keeping required under federal securities laws and regulations.
Notwithstanding the provisions of Section 8, the Agent shall be
entitled to rely on such instructions.
10.4 Transfer of Customer Data. In the event this Agreement is
terminated or a successor to the Agent is appointed, the Agent shall,
at the expense of the Trust, transfer to such designee as the Trust may
direct a certified list of the shareholders of the Trust serviced by
the Agent (with name, address and tax identification or Social Security
number, if any), a complete record of the account of each such
shareholder and the status thereof, and all other relevant books,
records, correspondence, and other data established or maintained by
the Agent under this Agreement. In the event this Agreement is
terminated, the Agent will use its best efforts to cooperate in the
orderly transfer of such duties and responsibilities, including
assistance in the establishment of books, records and other data by the
successor.
10.5 Survival of Record-Keeping Obligations. The record-keeping
obligations imposed in this Section 10 shall survive the termination of
this Agreement for a period of three years.
10.6 Obligations Pursuant to Agreement Only. Nothing in this
Section 10 shall be construed to mean that the Agent would, by virtue
of its role hereunder, be required under applicable law to maintain the
records required to be maintained by it under this Section 10, but it
is understood that the Agent has agreed to do so in order to enable the
Trust and its dealer or dealers to comply with laws and regulations
applicable to them.
10.7 Agent's Rights to Copy Records. Anything in this Section 10
to the contrary notwithstanding, except to the extent otherwise
prohibited by law, the Agent shall have the right to copy, maintain and
use any records maintained by the Agent pursuant to this Section 10,
except as otherwise prohibited by Sections 4 and 6 hereof.
11. FORCE MAJEURE. The Agent shall not be liable or
responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or
military authority, national emergencies, labor difficulties, fire,
mechanical breakdown, flood or catastrophe, Acts of God, insurrection,
war, riots or failure of communication or power supply.
12. INDEMNIFICATION.
12.1 Indemnification of the Agent. The Trust will indemnify
and hold the Agent harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and
expenses) from any claim, demand, action or suit (collectively,
"Claims") (a) arising in connection with misstatements or omissions in
the Trust's Prospectus, actions or inactions by the Trust or any of its
agents or contractors or the performance of the Agent's obligations
hereunder and (b) not resulting from (i) the bad faith or negligence of
the Agent, its officers, employees or agents, (ii) any breach of
applicable law by the Agent, its officers, employees or agents, (iii)
any action of the Agent, its officers, employees or agents which
exceeds the legal authority of the Agent or its authority hereunder, or
(iv) any error or omission of the Agent, its officers, employees or
agents with respect to the purchase, redemption and transfer of
Customers' Shares or the Agent's verification or guarantee of any
Customer signature. Notwithstanding anything herein to the contrary,
the Trust will indemnify and hold the Agent harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any Claim as a result of its
acting in accordance with any written instructions reasonably believed
by the Agent to have been executed by any person duly authorized by the
Trust, or as a result of acting in reliance upon any instrument or
stock certificate reasonably believed by the Agent to have been genuine
and signed, countersigned or executed by a person duly authorized by
the Trust, excepting only the gross negligence or bad faith of the
Agent.
In any case in which the Trust may be asked to indemnify or hold
the Agent harmless, the Trust shall be advised of all pertinent facts
concerning the situation in question and the Agent shall use reasonable
care to identify and notify the Trust promptly concerning any situation
which presents or appears likely to present a claim for indemnification
against the Trust. The Trust shall have the option to defend the Agent
against any Claim which may be the subject of indemnification
hereunder. In the event that the Trust elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Trust
and satisfactory to the Agent. The Agent may retain additional counsel
at its expense. Except with the prior written consent of the Trust, the
Agent shall not confess any Claim or make any compromise in any case in
which the Trust will be asked to indemnify the Agent.
12.2 Indemnification of the Trust. Without limiting the rights
of the Trust under applicable law, the Agent will indemnify and hold
the Trust harmless from all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) from any
Claim (a) resulting from (i) the bad faith or negligence of the Agent,
its officers, employees or agents, (ii) any breach of applicable law by
the Agent, its officers, employees or agents, (iii) any action of the
Agent, its officers, employees or agents which exceeds the legal
authority of the Agent or its authority hereunder, or (iv) any error or
omission of the Agent, its officers, employees or agents with respect
to the purchase, redemption and transfer of Customers' Shares or the
Agent's verification or guarantee of any Customer signature, and (b)
not resulting from the Agent's actions in accordance with written
instructions reasonably believed by the Agent to have been executed by
any person duly authorized by the Trust, or in reliance upon any
instrument or stock certificate reasonably believed by the Agent to
have been genuine and signed, countersigned or executed by a person
duly authorized by the Trust.
In any case in which the Agent may be asked to indemnify or hold
the Trust harmless, the Agent shall be advised of all pertinent facts
concerning the situation in question and the Trust shall use reasonable
care to identify and notify the Agent promptly concerning any situation
which presents or appears likely to present a claim for indemnification
against the Agent. The Agent shall have the option to defend the Trust
against any Claim which may be the subject of indemnification
hereunder. In the event that the Agent elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Agent
and satisfactory to the Trust. The Trust may retain additional counsel
at its expense. Except with the prior written consent of the Agent, the
Trust shall not confess any Claim or make any compromise in any case in
which the Agent will be asked to indemnify the Trust.
12.3 Survival of Indemnities. The indemnities granted by the
parties in this Section 12 shall survive the termination of this
Agreement.
13. NOTICES. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if
mailed to such party at the address of such party set forth in the
preamble of this Agreement or at such other address as such party may
have designated by written notice to the other.
14. FURTHER ASSURANCES. Each party agrees to perform such
further acts and execute such further documents as are necessary to
effectuate the purposes hereof.
15. TERMINATION. This Agreement may be terminated by the
Trust, without the payment of any penalty, at any time upon not more
than 60 days' nor less than 30 days' notice, by a vote of a majority of
the Board of Trustees of the Trust who are not "interested persons" of
the Trust (as defined in the 1940 Act) and have no direct or indirect
financial interest in the operation of the Administrative Services Plan
(the "Plan"), to which this Agreement is related, this Agreement or any
other agreement related to such Plan, or by "a vote of a majority of
the outstanding voting securities" (as defined in the 1940 Act) of the
Trust. The Agent may terminate this Agreement upon not more than 60
days' nor less than 30 days' notice to the Trust. The period of prior
notice of termination shall be reduced to the extent necessary to
comply with the effective date of any change in applicable laws or
regulations (or interpretations thereof) which prevents or impairs full
performance of the obligations set forth herein. Provided, however, in
the event such period of prior notice is reduced, the terminating party
shall give prompt notice of termination. Notwithstanding anything
herein to the contrary, but except as provided in Section 19 of this
Agreement, this Agreement may not be assigned and shall terminate
automatically without notice to either party upon any assignment. Upon
termination hereof, the Trust shall pay such compensation as may be due
the Agent as of the date of such termination.
16. CHANGES; AMENDMENTS. This Agreement may be changed or
amended only by written instrument signed by both parties.
17. LIMITATION OF SHAREHOLDER LIABILITY. The Agent hereby
agrees that obligations assumed by the Trust pursuant to this Agreement
shall be limited in all cases to the Trust and its assets and that the
Agent shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Trust. It is further agreed that
the Agent shall not seek satisfaction of any such obligations from the
Board of Trustees or any individual Trustee of the Trust.
18. DIVIDEND PAYMENT DATES. The Trust hereby agrees, with
respect to any Trust that is a money market fund, that dividends
otherwise payable to any Customer on the last business day of each
month shall, to the extent required by the Agent, be distributed on
such other date in each month as the Agent may designate as the
dividend distribution date with respect to such Customer.
19. SUBCONTRACTING BY AGENT. The Agent may, with the written
approval of the Trust (such approval not to be unreasonably withheld or
delayed), subcontract for the performance of the Agent's obligations
hereunder with any one or more persons, including but not limited to
any one or more persons which is an affiliate of the Agent; provided,
however, that the Agent shall be as fully responsible to the Trust for
the acts and omissions of any subcontractor as it would be for its own
acts or omissions. The Trust hereby approves the use of Boston Data
Financial Services, Inc. as a subcontractor of the Agent hereunder.
20. AUTHORITY TO VOTE. The Trust hereby confirms that,
pursuant to the Declaration of Trust of the Trust, at any meeting of
shareholders of the Trust or of any series of the Trust, the Agent is
authorized to vote any Shares held in accounts serviced by the Agent
and which are otherwise not represented in person or by proxy at the
meeting, proportionately in accordance with the votes cast by holders
of all Shares otherwise represented at the meeting in person or by
proxy and held in accounts serviced by the Agent.
21. COMPLIANCE WITH LAWS AND POLICIES; COOPERATION. The Trust
hereby agrees that it will comply with all laws and regulations
applicable to its operations and the Agent agrees that it will comply
with all laws and regulations applicable to its operations hereunder
and each party agrees from time to time to provide such certificates,
information and access to its books, records and personnel as the other
may reasonably request to confirm the foregoing. Each party understands
that the other may from time to time adopt or modify policies relating
to the subject matter of this Agreement, in which case the party
adopting or modifying such a policy shall notify the other thereof and
the parties shall consider the applicability thereof and endeavor to
comply therewith to the extent not impracticable or unreasonably
burdensome. Each of the parties agrees to cooperate with the other in
connection with the performance of this Agreement and the resolution of
any problems, questions or disagreements in connection herewith.
21.1 Audit. The Trust shall maintain or arrange to be
maintained complete and accurate accounting records, in accordance with
generally accepted accounting principles. The Trust shall retain or
arrange to be retained such records for a period of three years from
the termination of this Agreement. The Agent and its designated
certified public accountants shall have access to such records based on
reasonable cause and professional judgment during normal business hours
upon reasonable notice to the Trust.
21.2 Annual Financial Reports. At least once a year, the Trust
shall send to the owners of its shares and to the Agent the Trust's
audited financial statements.
21.3 Shareholder Updates. The Trust shall give the Agent
advance written notice of any change in the Trust's place of
incorporation, mailing address, management, investment objectives, fees
or redemption rights. The Trust shall give such advance notice to the
owners of its shares to the extent required by federal securities laws
or the rules and regulations of the Securities and Exchange Commission.
21.4. Annual Certification. At least once a year, the parties
shall certify to each other in writing that the certifying party is
conducting its business in accordance with the terms and conditions of
the Agreement and in the case of the Trust, in accordance with the
representations set forth in its then current prospectus.
22. MISCELLANEOUS. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the
Commonwealth of Massachusetts. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the same
instrument. Although this Agreement has been executed by multiple
parties, it shall be construed and enforced as a separate agreement
between each Trust and the Financial Institution acting as Agent for
such Trust. The terms of this Agreement shall become effective with
respect to each Trust and the Financial Institution listed on a
signature page hereof as of the date set forth thereon.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year set
forth below. The undersigned officer of the Trust has executed this
Agreement not individually, but as an officer of the Trust pursuant to
the Trust's Declaration of Trust, as from time to time amended, and the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Trust individually, but bind only the
Trust estate.
Dated as of:
---------------------------
[NAME OF TRUST] THE LANDMARK FUNDS BROKER-
[NAME OF SERIES, IF ANY] DEALER SERVICES, INC.
By: By:
------------------------------- -------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------- -------------------------------
Principal Place of Business: Principal Place of Business:
6 St. James Avenue 6 St. James Avenue
Boston, Massachusetts 02116 Boston, Massachusetts 02116
SSA/LFBDS
