<PAGE>
497(e) File Nos. 33-36556 and 811-6154
Prospectus May 1, 1998
As Supplemented October 5, 1998
CitiFunds(SM) International Growth Portfolio
This Prospectus describes CitiFunds(SM) International Growth Portfolio, a
diversified mutual fund in the CitiFunds Family of Funds. Citibank, N.A. is
the investment adviser.
Unlike other mutual funds which directly acquire and manage their own
portfolios of securities, the Fund seeks its investment objective by investing
all of its investable assets in a portfolio with the same investment objective
and policies. See "Special Information Concerning Investment Structure" on
page 11.
This Prospectus concisely sets forth information about the Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated the date of this Prospectus (and incorporated by reference
in this Prospectus) has been filed with the Securities and Exchange
Commission. Copies of the Statement of Additional Information may be obtained
without charge, and further inquiries about the Fund may be made, by
contacting the investor's Shareholder Servicing Agent or by calling
1-800-625-4554. The Statement of Additional Information and other related
materials are available on the SEC's Internet web site (http://www.sec.gov).
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REMEMBER THAT SHARES OF THE FUND:
o ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
CITIBANK OR ANY OF ITS AFFILIATES;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
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THESE SECURITIES HAVE NOT BEEN APPR0VED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary 3
..............................................................................
Expense Summary 5
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Condensed Financial Information 6
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Investment Information 8
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Risk Considerations 9
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Valuation of Shares 12
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Purchases 12
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Exchanges 13
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Redemptions 13
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Dividends and Distributions 14
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Management 15
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Tax Matters 18
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Performance Information 19
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General Information 20
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Appendix -- Permitted Investments and Investment Practices 22
..............................................................................
<PAGE>
PROSPECTUS SUMMARY
See the body of the Prospectus for more information on the topics discussed in
this summary.
THE FUND: This Prospectus describes CitiFunds International Growth Portfolio.
The Fund is a diversified mutual fund.
INVESTMENT OBJECTIVE AND POLICIES: The Fund's objective is long-term capital
growth; dividend income, if any, is incidental to this investment objective.
Through International Equity Portfolio (the "Portfolio"), the Fund invests
primarily in common stocks of non-U.S. issuers, including issuers in
developing countries, with an emphasis on established companies with medium to
large market capitalizations and seasoned management teams. Because the Fund
invests through the Portfolio, all references in this Prospectus to the Fund
include the Portfolio, except as otherwise noted.
INVESTMENT ADVISER AND DISTRIBUTOR: Citibank, N.A. ("Citibank" or the
"Adviser"), a wholly-owned subsidiary of Citicorp, is the investment adviser.
Citibank and its affiliates manage more than $88 billion in assets worldwide.
CFBDS, Inc. ("CFBDS" or the "Distributor") is the distributor of shares of the
Fund. See "Management."
PURCHASES AND REDEMPTIONS: Customers of Shareholder Servicing Agents may
purchase and redeem shares of the Fund on any day the New York Stock Exchange
is open for trading. See "Purchases" and "Redemptions."
PRICING: Shares of the Fund are purchased and redeemed at net asset value,
without a sales load or redemption fees. Shares are subject to a distribution
fee at the annual rate of 0.10% of the average daily net assets of the Fund.
See "Purchases" and "Management -- Distribution Arrangements."
EXCHANGES: Shares may be exchanged for shares of the CitiSelect(R) Portfolios
and certain other CitiFunds. See "Exchanges."
DIVIDENDS: Dividends, if any, are declared and paid semi-annually. Net capital
gains, if any, are distributed annually. See "Dividends and Distributions."
REINVESTMENT: All dividends and capital gains distributions may be received
either in cash or in Fund shares at net asset value, subject to the policies
of a shareholder's Shareholder Servicing Agent. See "Dividends and
Distributions."
WHO SHOULD INVEST: The Fund is designed for investors seeking long-term
capital growth who are willing to commit a portion of their assets to non-U.S.
investment and for whom current income is not a primary consideration.
RISK FACTORS: There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will fluctuate based on
changes in the values of the underlying portfolio securities. Equity
securities fluctuate in value based on many factors, including actual and
anticipated earnings, changes in management, political and economic
developments and the potential for takeovers and acquisitions. The value of
debt securities generally fluctuates based on changes in the actual and
perceived creditworthiness of issuers. Also, the value of debt securities
generally goes down when interest rates go up, and vice versa. As a result, an
investor's shares may be worth more or less at redemption than at the time of
purchase.
The Fund invests primarily in securities of non-U.S. issuers. The special
risks of investing in non-U.S. securities include possible adverse political,
social and economic developments abroad, differing regulations to which non-
U.S. issuers are subject and different characteristics of non-U.S. economies
and markets. The Fund's non-U.S. securities often will trade in non-U.S.
currencies, which can be volatile and may be subject to governmental controls
or intervention. Changes in non-U.S. currency values will affect the Fund's
earnings and gains and losses realized on sales of securities, as well as the
Fund's net asset value. In addition, securities of non-U.S. issuers may be
less liquid and their prices more volatile than those of comparable U.S.
issuers.
The Fund may invest in securities of issuers in developing countries.
Investors in the Fund should be able to assume the heightened risks and
volatility associated with investment in developing countries, including
greater risks of expropriation, confiscatory taxation and nationalization and
less social, political and economic stability; smaller and, in many cases, new
markets resulting in price volatility and illiquidity; national policies which
may restrict investment opportunities; and the absence of developed legal
structures.
Certain investment practices, such as the use of forward non-U.S. currency
exchange contracts, also may entail special risks. Investors should read "Risk
Considerations" for more information about risk factors.
<PAGE>
EXPENSE SUMMARY
The following table summarizes estimated shareholder transaction and annual
operating expenses for shares of the Fund and the Portfolio.* For more
information on costs and expenses, see "Management" -- page 15 and "General
Information -- Expenses" -- page 21.
<TABLE>
<CAPTION>
CITIFUNDS
INTERNATIONAL
GROWTH
PORTFOLIO
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<S> <C>
SHAREHOLDER TRANSACTION EXPENSES None
ANNUAL FUND OPERATING EXPENSES, AFTER FEE WAIVERS AND
REIMBURSEMENTS (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees 1.00%
12b-1 Fees(1)(2) 0.10%
Other Expenses
Administrative Services Fees(2) 0.33%
Shareholder Servicing Agent Fees 0.25%
Other Operating Expenses(3) 0.07%
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Total Fund Operating Expenses(2) 1.75%
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</TABLE>
* This table is intended to assist investors in understanding the various
costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. The table shows the fees paid to various service
providers after giving effect to expected voluntary partial fee waivers
and reimbursements. There can be no assurance that the fee waivers and
reimbursements reflected in the table will continue at these levels.
(1) 12b-1 distribution fees are asset-based sales charges. Long-term
shareholders in the Fund could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges permitted by
the National Association of Securities Dealers, Inc.
(2) Absent fee waivers and reimbursements, 12b-1 fees would be 0.15%,
administrative services fees would be 0.35% and total fund operating
expenses would be 1.82%. The foregoing 12b-1 fees assume a 0.05% charge
for print or electronic media expenses.
(3) CFBDS has agreed to pay the ordinary operating expenses of the Fund,
subject to certain exceptions. CFBDS receives a fee from the Fund. See
"General Information -- Expenses."
EXAMPLE: A shareholder would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at the end of each
period indicated below.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
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<S> <C> <C> <C> <C>
CITIFUNDS INTERNATIONAL GROWTH PORTFOLIO $18 $55 $95 $206
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</TABLE>
The Example assumes that all dividends are reinvested and reflects certain
voluntary fee waivers. If waivers were not in place, the amounts in the
example would be $18, $57, $99 and $214 for the Fund. Expenses are based on
the Fund's fiscal year ended December 31, 1997. The assumption of a 5% annual
return is required by the Securities and Exchange Commission for all mutual
funds, and is not a prediction of the Fund's future performance. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE
FUND. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following table provides condensed financial information about the Fund
for the periods indicated. The information below should be read in conjunction
with the financial statements appearing in the Fund's Annual Report to
Shareholders, which is incorporated by reference in the Statement of
Additional Information. The financial statements and notes, as well as the
table below, have been audited by PricewaterhouseCoopers LLP, independent
accountants on behalf of CitiFunds International Growth Portfolio (formerly
known as CitiFunds International Equity Portfolio from March 2, 1998 through
October 5, 1998) (prior to March 2, 1998, the Fund was known as Landmark
International Equity Fund). The report of PricewaterhouseCoopers LLP is
included in the Fund's Annual Report. Copies of the Annual Report may be
obtained without charge from an investor's Shareholder Servicing Agent or by
calling 1-800-625-4554.
<TABLE>
CITIFUNDS INTERNATIONAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<CAPTION>
MARCH 1, 1991
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, OPERATIONS) TO
1997 1996 1995 1994# 1993# 1992# DECEMBER 31, 1991#
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<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $11.79 $13.46 $11.44 $12.93 $ 9.96 $10.13 $10.00
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Income from Operations:
Net investment income (loss) 0.004** 0.028** 0.013** 0.001** (0.003)** 0.052 0.098
Net realized and unrealized gain
(loss) on investments 0.592** 0.314** 2.055** (1.483)** 2.973** (0.199) 0.062
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Total from investment operations 0.596 0.342 2.068 (1.482) 2.970 (0.147) 0.160
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Less Distributions:
From net investment income (0.025) (0.021) (0.048) (0.001) -- (0.023) (0.030)
In excess of net investment income -- -- -- (0.007) -- -- --
From net realized gains on
investments (0.941) (1.991) -- -- -- -- --
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Total from distributions (0.966) (2.012) (0.048) (0.008) -- (0.023) (0.030)
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Net Asset Value, end of period $11.42 $11.79 $13.46 $11.44 $12.93 $ 9.96 $10.13
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARCH 1, 1991
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31, OPERATIONS) TO
1997 1996 1995 1994# 1993# 1992# DECEMBER 31, 1991#
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<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted) $18,333 $32,589 $32,159 $28,848 $28,088 $6,711 $4,031
Ratio of expenses to average net
assets 1.75%(A) 1.75%(A) 1.75%(A) 1.75%(A) 1.75% 1.75% 1.75%*
Ratio of net investment income
(loss) to average net assets 0.03% 0.18% 0.10% 0.00% (0.02)% 0.57% 1.03%*
Portfolio turnover(B) -- -- -- 5% 36% 42% 29%
Total return 5.15% 2.59% 18.08% (11.46)% 29.82% (1.45)% 1.61%+
Note: If agents of the Fund for the periods indicated had not voluntarily waived a portion of their fees and expenses had been
limited to that required by certain state securities laws for the periods ended December 31, 1993, 1992 and 1991, the net
investment income (loss) per share and the ratios would have been as follows:
Net investment income (loss) per
share $(0.004)** $(0.002)** $0.013 $(0.018)** $(0.116)** $(0.016) $0.028
RATIOS:
Expenses to average net assets 1.82%(A) 1.94%(A) 1.75%(A) 1.90%(A) 2.50% 2.50% 2.50%*
Net investment income (loss) to
average net assets 0.04% (0.01)% 0.10% (0.15)% (0.77)% (0.18)% 0.29%*
* Annualized.
+ Not annualized.
** The per share amounts were computed using a monthly average number of shares outstanding during the year.
(A)Includes the Fund's share of International Equity Portfolio's allocated expenses for periods subsequent to May 1, 1994.
(B)Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making investments directly in
securities. The portfolio turnover rate for the fiscal years ended December 31, 1996 and 1997 is included under "Investment
Information -- Certain Additional Investment Policies."
# On May 1, 1994, the Fund began investing all of its investable assets in International Equity Portfolio.
</TABLE>
<PAGE>
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE: The investment objective of the Fund is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of the Fund may be changed by its Trustees 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 objective.
INVESTMENT POLICIES: The Fund seeks its objective by investing mainly in
common stocks of companies organized in countries other than the United
States, including developing countries. Under normal circumstances, at least
65% of the Fund's total assets is invested in equity securities of issuers
organized in at least three countries other than the U.S. For purposes of this
policy, equity securities are defined as common stock, securities convertible
into common stock, and trust or limited partnership interests, and include
securities purchased directly or in the form of sponsored American Depositary
Receipts, European Depositary Receipts or other similar securities
representing common stock on non-U.S. issuers. The Adviser seeks opportunities
to invest in non-U.S. economies which are growing faster than that of the U.S.
In selecting common stocks the Adviser emphasizes securities issued by
established companies with medium to large market capitalizations, i.e., $750
million or more, and seasoned management teams which the Adviser believes
possess above average prospects for long-term capital growth. The Adviser may
also select other securities of non-U.S. issuers which it believes provide an
opportunity for appreciation, such as fixed income securities, convertible and
non-convertible bonds, preferred stock and warrants. The Fund's assets usually
consist of issues listed on securities exchanges, and its long-term non-
convertible debt investments carry at least a Baa rating from Moody's
Investors Service, Inc. or a BBB rating from Standard & Poor's Ratings Group
or are determined by the Adviser to be of equivalent quality.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
Temporary Investments. For temporary defensive purposes, the Fund may invest
without limit in cash and in U.S. dollar-denominated high quality money market
and short-term instruments. These investments may result in a lower yield than
would be available from investments with a lower quality or longer term.
Other Permitted Investments. For more information regarding the Fund's
permitted investments and investment practices, see the Appendix -- Permitted
Investments and Investment Practices on page 22. The Fund will not necessarily
invest or engage in each of the investments and investment practices in the
Appendix but reserves the right to do so.
Investment Restrictions. The Statement of Additional Information contains a
list of specific investment restrictions which govern the investment policies
of the Fund, including a limitation that the Fund may borrow from banks in an
amount not to exceed 1/3 of the Fund's net assets for extraordinary or
emergency purposes (i.e., to meet redemption requests). Except as otherwise
indicated, the Fund's investment objective and policies may be changed without
shareholder approval. If a percentage or rating restriction (other than a
restriction as to borrowing) is adhered to at the time an investment is made,
a later change in percentage or rating resulting from changes in the Fund's
securities will not be a violation of policy.
Portfolio Turnover. Securities of the Fund will be sold whenever the Adviser
believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the fiscal years ended December 31, 1996 and 1997, the turnover
rates for the Fund were 109% and 99%, respectively. The amount of brokerage
commissions and realization of taxable capital gains will tend to increase as
the level of portfolio activity increases.
Brokerage Transactions. The primary consideration in placing the Fund's
security 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.
RISK CONSIDERATIONS
The risks of investing in the Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
Changes in Net Asset Value. The Fund's net asset value will fluctuate based on
changes in the values of the underlying portfolio securities. This means that
an investor's shares may be worth more or less at redemption than at the time
of purchase. Equity securities fluctuate in response to general market and
economic conditions and other factors, including actual and anticipated
earnings, changes in management, political developments and the potential for
takeovers and acquisitions. During periods of rising interest rates the value
of debt securities generally declines, and during periods of falling rates the
value of these securities generally increases. Changes by recognized rating
agencies in the rating of any debt security, and actual or perceived changes
in an issuer's ability to make principal or interest payments, also affect the
value of these investments.
Credit Risk of Debt Securities. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may
have speculative characteristics. Adverse economic or changing circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade obligations.
Non-U.S. Securities. Investments in non-U.S. securities involve risks relating
to political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and non-
U.S. issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets and political or social
instability. Enforcing legal rights may be difficult, costly and slow in non-
U.S. countries, and there may be special problems enforcing claims against
non-U.S. governments. In addition, non-U.S. companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and there may be less public information about their operations. Non-U.S.
markets may be less liquid and more volatile than U.S. markets, and may offer
less protection to investors such as the Fund. Prices at which the Fund may
acquire securities may be affected by trading by persons with material non-
public information and by securities transactions by brokers in anticipation
of transactions by the Fund.
Because non-U.S. securities often are denominated in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned and gains and losses
realized on the sale of securities. In addition, some non-U.S. currency values
may be volatile. There is the possibility of governmental controls on or
intervention in securities and currency markets. Controls or intervention
could prevent the Fund from realizing any value in U.S. dollars from its
investments in non-U.S. securities. Intervention could prop up or depress
values and can be suspended at any time.
The Fund may invest its assets in issuers located in developing countries,
which are generally defined as countries in the initial stages of their
industrialization cycles with low per capita income. All of the risks of
investing in non-U.S. securities are heightened by investing in issuers in
developing countries. Shareholders should be aware that investing in the
equity and fixed income markets of developing countries involves exposure to
economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries with more mature economies; such markets often have provided higher
rates of return and greater risks to investors. These heightened risks include
(i) greater risks of expropriation, confiscatory taxation and nationalization,
and less social, political and economic stability; (ii) the small current size
of markets for securities of issuers based in developing countries and the
currently low or non-existent volume of trading, resulting in a lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Fund's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures. Such
characteristics can be expected to continue in the future.
Equity securities traded in certain foreign countries may trade at price-
earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of maintaining
custody of securities in non-U.S. countries, frequently are higher than those
attributable to U.S. investing. As a result, the operating expense ratio of
the Fund is expected to be higher than that of an investment company investing
exclusively in U.S. securities.
Investment Practices. Certain of the investment practices employed for the
Fund may entail additional risks as described in the Appendix. See the
Appendix -Permitted Investments and Investment Practices on page 22.
Special Information Concerning Investment Structure. The Fund does not invest
directly in securities. Instead, the Fund invests all of its investable assets
in the Portfolio, which is a mutual fund having the same investment objective
and policies as the Fund. The Portfolio, in turn, buys, holds and sells
securities in accordance with its objective and 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 Fund may withdraw its
investment in the Portfolio at any time, and will do so if the Fund's Trustees
believe it to be in the best interest of the Fund's shareholders. If the Fund
were to withdraw its investment in the Portfolio the Fund could either invest
directly in securities in accordance with the investment policies described
above or invest 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 cannot be changed without
approval by the investors in the Portfolio. These policies are described in
the Statement of Additional Information. When the Fund is asked to vote on
matters concerning the Portfolio (other than a vote to continue the Portfolio
following the withdrawal of an investor), the Fund will hold a shareholder
meeting and vote in accordance with shareholder instructions. 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 returns
for all investors in funds investing in the Portfolio may not be the same. The
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, at (617) 423-1679.
VALUATION OF SHARES
Net asset value per share of the Fund is determined each day the New York
Stock Exchange is open for trading (a "Business Day"). This determination is
made once each day as of the close of regular trading on the Exchange
(normally 4:00 p.m. Eastern time) by adding the market value of all securities
and other assets of the Fund (including the Fund's interest in the Portfolio),
then subtracting the Fund's liabilities, and then dividing the result by the
number of the Fund's outstanding shares. The net asset value per share is
effective for orders received and accepted by the Distributor prior to its
calculation.
Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. Non-U.S. securities generally are valued based
on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. Given the non-U.S. nature of the Fund's investments, trading may take
place in securities held by the Fund on days that are not Business Days and on
which it will not be possible to purchase or redeem shares of the Fund.
PURCHASES
Shares of the Fund are offered continuously and may be purchased on any
Business Day at the public offering price. The public offering price is the
net asset value next determined after an order is transmitted to and accepted
by the Distributor. The Fund and the Distributor reserve the right to reject
any purchase order and to suspend the offering of Fund shares for a period of
time.
Shares may be purchased either through a securities broker which has a sales
agreement with the Distributor or through a bank or other financial
institution which has an agency agreement with the Distributor. Such a bank or
financial institution will receive transaction fees that are equal to the
commissions paid to securities brokers. Shares of the Fund are being offered
exclusively to customers of a Shareholder Servicing Agent (i.e., 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 concerning the Fund). A securities
broker may receive both commissions and shareholder servicing fees. Each
Shareholder Servicing Agent is required to promptly forward orders for Fund
shares to the Distributor.
Each shareholder's account is established and maintained by his or her
Shareholder Servicing Agent, which will be the shareholder of record of the
Fund. Each Shareholder Servicing Agent may establish 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. The
effect of any such fees will be to reduce the net return on the investment of
customers of that Shareholder Servicing Agent.
Shareholder Servicing Agents will not transmit purchase orders to the
Distributor unless they are in proper form.
EXCHANGES
Shares may be exchanged for shares of the CitiSelect Portfolios and certain
other CitiFunds that are made available by a shareholder's Shareholder
Servicing Agent, or may be acquired through an exchange of shares of those
funds.
Shareholders must place exchange orders through their Shareholder Servicing
Agents, and may do so by telephone if their account applications so permit.
For more information on telephone transactions see "Redemptions." All
exchanges will be effected based on the relative net asset values per share
next determined after the exchange order is received and accepted by the
Distributor. See "Valuation of Shares."
This exchange privilege may be modified or terminated at any time, upon at
least 60 days' notice when such notice is required by Securities and Exchange
Commission rules, and is available only in those jurisdictions where such
exchanges legally may be made. See the Statement of Additional Information for
further details. 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.
REDEMPTIONS
Fund shares may be redeemed at their net asset value next determined after a
redemption request in proper form is received by a shareholder's Shareholder
Servicing Agent. Shareholders may redeem shares of the Fund only by
authorizing their Shareholder Servicing Agents to redeem such shares on their
behalf through the Distributor.
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.
Redemptions by Mail. Shareholders may redeem Fund shares by sending written
instructions in proper form (as determined by a shareholder's Shareholder
Servicing Agent) to their Shareholder Servicing Agents. Shareholders are
responsible for ensuring that a request for redemption is in proper form.
Redemptions by Telephone. Shareholders may redeem or exchange Fund shares by
telephone, if their account applications so permit, by calling their
Shareholder Servicing Agents. 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 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 number, Social
Security number, and account number. If these or other reasonable procedures
are not followed, the Fund 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.
Payment of Redemptions. The proceeds of a redemption are paid in federal
funds normally on the next Business Day, but in any event within seven days.
If a shareholder requests redemption of shares which were purchased recently,
the Fund may delay payment until it is assured that good payment has been
received. In the case of purchases by check, this can take up to ten days. See
"Determination of Net Asset Value; Valuation of Securities; Additional
Redemption Information" in the Statement of Additional Information regarding
the Fund's right to pay the redemption price in kind with securities (instead
of cash).
Questions about redemption requirements should be referred to the
shareholder's Shareholder Servicing Agent. The right of any shareholder to
receive payment with respect to any redemption may be suspended or the payment
of the redemption price postponed during any period in which the New York
Stock Exchange is closed (other than weekends or holidays) or trading on the
Exchange is restricted or if an emergency exists.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the Fund's net income from dividends and interest, if
any, is paid to its shareholders of record as a dividend semiannually on or
about the last day of June and December.
The Fund's net realized short-term and long-term capital gains, if any, will
be distributed to the Fund's shareholders at least annually, in December. The
Fund may also make additional distributions to its 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.
Subject to the policies of the shareholder's Shareholder Servicing Agent, a
shareholder may elect to receive dividends and capital gains distributions in
either cash or additional shares issued at net asset value.
MANAGEMENT
TRUSTEES AND OFFICERS: The Fund is supervised by a Board of Trustees. The
Portfolio is also supervised by a Board of Trustees. In each case, a majority
of the Trustees are not affiliated with the Adviser. In addition, a majority
of the disinterested Trustees of the Fund are different from a majority of the
disinterested Trustees of the Portfolio. More information on the Trustees and
officers of the Fund and the Portfolio appears under "Management" in the
Statement of Additional Information.
INVESTMENT ADVISER: CITIBANK. The Fund draws on the strength and experience of
Citibank. Citibank offers a wide range of banking and investment services to
customers across the United States and throughout the world, and has been
managing money since 1822. Its portfolio managers are responsible for
investing in money market, equity and fixed income securities. Citibank and
its affiliates manage more than $88 billion in assets worldwide. Citibank is a
wholly-owned subsidiary of Citicorp. Citibank's address is 153 East 53rd
Street, New York, New York 10043. Citicorp recently announced its intention to
merge with The Travelers Group. Completion of the merger is subject to the
satisfaction of certain conditions.
Citibank manages the Fund's assets pursuant to an Investment Advisory
Agreement. Subject to policies set by the Trustees, Citibank makes investment
decisions for the Fund.
Trevor Forbes, who is based in Citibank's London office, is the manager of the
Fund. Mr. Forbes, who has been a manager of the Fund since 1995, is Head of
European Equity Investment for Citibank. Prior to joining Citibank in 1991,
Mr. Forbes managed the investment business of Abbey Life, a major UK-based
insurance group. Mr. Forbes calls on the extensive global network of
Citibank's investment business to select securities in the world markets.
Management's discussion of the Fund's performance is included in the Fund's
Annual Report to Shareholders, which investors may obtain without charge by
contacting their Shareholder Servicing Agents.
Advisory Fees. For its services under the Investment Advisory Agreement, the
Adviser receives an investment advisory fee of 1.00%, which is accrued daily
and paid monthly, of the Fund's average daily net assets on an annualized
basis for the Fund's then-current fiscal year. This investment advisory fee is
higher than the investment advisory fees currently being paid by most
investment companies in general. The Trustees of the Fund have determined that
the 1.00% investment advisory fee is reasonable in light of the Fund's
investment policy of investing primarily in non-U.S. securities. For the
fiscal year ended December 31, 1997, the investment advisory fee paid to
Citibank was 1.00% of the Fund's average daily net assets for that fiscal
year.
Banking Relationships. Citibank and its affiliates may have deposit, loan and
other relationships with the issuers of securities purchased on behalf of the
Fund, including outstanding loans to such issuers which may be repaid in whole
or in part with the proceeds of securities so purchased. Citibank has informed
the Fund that, in making its investment decisions, it does not obtain or use
material inside information in the possession of any division or department of
Citibank or in the possession of any affiliate of Citibank.
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 Investment 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 a 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.
ADMINISTRATIVE SERVICES PLANS: The Fund and the Portfolio have Administrative
Services Plans which provide that the Fund and the Portfolio may obtain the
services of an administrator, a transfer agent, a custodian, and, in the case
of the Fund, one or more Shareholder Servicing Agents, and may enter into
agreements providing for the payment of fees for such services. Under the
Administrative Services Plan, the total of the fees paid to the Fund'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. Distribution fees (other than any fee concerning
electronic or media advertising) paid under the Fund's Distribution Plan are
included in this percentage limitation. Within this overall limitation,
individual fees may vary. Under the Portfolio's Administrative Services Plan,
fees paid to the Portfolio's Administrator may not exceed 0.05% of the
Portfolio's average daily net assets on an annualized basis for the
Portfolio's then-current fiscal year. See "Administrators," "Shareholder
Servicing Agents" and "Transfer Agent, Custodian and Fund Accountant."
ADMINISTRATORS: CFBDS and Signature Financial Group (Cayman) Ltd. ("SFG")
provide certain administrative services to the Fund and the Portfolio under
administrative services agreements. These administrative services include
providing general office facilities, supervising the overall administration of
the Fund and the Portfolio, and providing persons satisfactory to the Boards
of Trustees to serve as Trustees and officers of the Fund and Portfolio. These
Trustees and officers may be directors, officers or employees of CFBDS, SFG or
their affiliates.
For these services, the Administrators receive fees accrued daily and paid
monthly of 0.30% of the average daily net assets of the Fund and 0.05% of the
average daily net assets of the Portfolio, in each case on an annualized basis
for the Fund's or the Portfolio's then-current fiscal year. However, each of
the Administrators has voluntarily agreed to waive a portion of the fees
payable to it as necessary to maintain the projected rate of total operating
expenses. CFBDS has agreed to pay certain expenses of the Fund. SFG has agreed
to pay certain expenses of the Portfolio. See "General Information --
Expenses."
CFBDS and SFG are wholly-owned subsidiaries of Signature Financial Group, Inc.
SUB-ADMINISTRATOR: Pursuant to sub-administrative services agreements,
Citibank performs such sub-administrative duties for the Fund and Portfolio as
from time to time are agreed upon by Citibank and CFBDS or SFG. Citibank's
compensation as sub-administrator is paid by CFBDS or SFG.
SHAREHOLDER SERVICING AGENTS: The Fund has entered into separate shareholder
servicing agreements with each Shareholder Servicing Agent pursuant to which
that Shareholder Servicing Agent provides shareholder services, including
answering customer inquiries, assisting in processing purchase, exchange and
redemption transactions and furnishing Fund communications to shareholders.
For these services, each Shareholder Servicing Agent receives a fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund
represented by shares owned by investors for whom such Shareholder Servicing
Agent maintains a servicing relationship.
Some Shareholder Servicing Agents may impose certain conditions on their
customers in addition to or different from those imposed by the Fund, such as
requiring a minimum initial investment or charging their customers a direct
fee for their services. Each Shareholder Servicing Agent has agreed to
transmit to its customers who are shareholders of the Fund appropriate prior
written disclosure of any fees that it may charge them directly and to provide
written notice at least 30 days prior to imposition of any transaction fees.
TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT: State Street Bank and Trust
Company acts as transfer agent, dividend disbursing agent, and custodian for
the Fund. Securities may be held by a sub-custodian bank approved by the
Trustees. State Street also provides fund accounting services and calculates
the daily net asset value for the Fund. The principal business address of
State Street is 225 Franklin Street, Boston, Massachusetts 02110.
DISTRIBUTION ARRANGEMENTS: CFBDS, 21 Milk Street, Boston, MA 02109, (telephone
(617) 423-1679), is the Distributor of the Fund's shares and also serves as a
Shareholder Servicing Agent for certain investors. CFBDS receives distribution
fees from the Fund pursuant to a Distribution Plan adopted in accordance with
Rule 12b-1 under the 1940 Act. The Fund's Distribution Plan provides that the
Fund will pay the Distributor a monthly distribution fee at an annual rate not
to exceed 0.10% of the average daily net assets of the Fund. The Plan also
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 Fund did not pay anything under this
provision during 1997 and does not anticipate doing so during the current
fiscal year.
The Distributor uses the distribution fees under the Plan 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. In addition, the Distributor may use the distribution
fees to pay costs related to distribution activities, including employee
salaries, bonuses and other overhead expenses. The Fund and the Distributor
provide to the Trustees quarterly a written report of amounts expended
pursuant to the Plan and the purposes for which the expenditures were made.
During the period they are in effect, the Plan and related Distribution
Agreement obligate the Fund to pay distribution fees to CFBDS as compensation
for its distribution activities, not as reimbursement for specific expenses
incurred. Thus, even if CFBDS's expenses exceed its distribution fees for the
Fund, the Fund will not be obligated to pay more than those fees and, if
CFBDS's expenses are less than such fees, it will retain its full fees and
realize a profit. The Fund will pay the distribution fees to CFBDS until
either the Plan or Distribution Agreement is terminated or not renewed. In
that event, CFBDS's expenses in excess of distribution fees received or
accrued through the termination date will be CFBDS's sole responsibility and
not obligations of the Fund.
TAX MATTERS
This discussion of taxes is for general information only. Investors should
consult their own tax advisers about their particular situations.
The Fund intends to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies so that it will not be liable for
any federal income or excise taxes.
Fund dividends and capital gains distributions are subject to federal income
tax and may also be subject to state and local taxes. Dividends and
distributions are treated in the same manner for federal tax purposes whether
they are paid in cash or as additional shares. Generally, distributions from
the Fund's net investment income and short-term capital gains will be taxed as
ordinary income. A portion of distributions from net investment income may be
eligible for the dividends-received deduction available to corporations.
Distributions of long-term net capital gains will be taxed as such regardless
of how long shares of the Fund have been held. Such long-term net capital
gains will generally be taxable to shareholders as if the shareholders had
directly realized gains from the same sources from which they were realized by
the Fund.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares just before the Fund makes a 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.
The Fund may pay withholding or other taxes to non-U.S. governments during the
year. These taxes will reduce the Fund's dividends; however, shareholders
generally will receive deemed dividends equal to the amount of such taxes and
then, subject to applicable limitations, may be able to claim a tax credit or
itemized deduction for non-U.S. taxes paid by the Fund.
By January 31 of each year, the Fund will notify its shareholders of the
amount and tax status of distributions paid to shareholders for the preceding
year.
Investors should consult their own tax advisers regarding the status of their
accounts under state and local laws.
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.
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.
Of course, any fees charged by a shareholder's Shareholder Servicing Agent
will reduce that shareholder's net return on his or her investment. See the
Statement of Additional Information for more information concerning the
calculation of yield and total rate of return quotations for the Fund.
GENERAL INFORMATION
ORGANIZATION: The Fund is a series of CitiFunds International Trust, a
Massachusetts business trust organized on August 7, 1990. The Trust is also an
open-end management investment company registered under the 1940 Act. Prior to
October 5, 1998 the Fund was called CitiFunds International Equity Portfolio,
and prior to March 2, 1998, the Fund was called Landmark International Equity
Fund. Prior to January 7, 1998, CitiFunds International Trust was called
Landmark International Funds.
The Fund is a diversified mutual fund. Under the 1940 Act, a diversified
mutual fund 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
mutual fund and not more than 10% of the voting securities of the issuer.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the trust's
obligations. However, 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 Portfolio is a series of The Premium Portfolios, a trust organized under
the laws of the State of New York. The Declaration of Trust of The Premium
Portfolios provides that the Fund and other entities investing in the
Portfolio are each liable for all obligations of the Portfolio. It is not
expected that the liabilities of the Portfolio would ever exceed its assets.
VOTING AND OTHER RIGHTS: CitiFunds International Trust may issue an unlimited
number of shares, may create new series of shares and may divide shares in
each series into classes. Each share of the Fund gives the shareholder one
vote in Trustee elections and other matters submitted to shareholders for
vote. All shares of each series of CitiFunds International Trust have equal
voting rights except that, in matters affecting only a particular series or
class, only shares of that particular series or class are entitled to vote.
At any meeting of shareholders of the Fund, 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.
As a Massachusetts business trust, CitiFunds International Trust is not
required to hold annual shareholder meetings. Shareholder approval will
usually be sought only for changes in the Fund's or Portfolio's fundamental
investment restrictions and for the election of Trustees under certain
circumstances. Trustees may be removed by shareholders under certain
circumstances. Each share of the Fund is entitled to participate equally in
dividends and other distributions and the proceeds of any liquidation of the
Fund.
CERTIFICATES: The Fund's Transfer Agent maintains a share register for
shareholders of record, i.e., Shareholder Servicing Agents. Share certificates
are not issued.
RETIREMENT PLANS: Investors may be able to establish new accounts in the Fund
under one of several tax-sheltered plans. Such plans include IRAs, Keogh or
Corporate Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts,
and certain other qualified pension and profit-sharing plans. Investors should
consult with their Shareholder Servicing Agents and tax and retirement
advisers.
EXPENSES: CFBDS has agreed to pay the Fund's ordinary operating expenses
(excluding interest, taxes, brokerage commissions, litigation costs or other
extraordinary costs and expenses and excluding the fees paid under the Fund's
Investment Advisory Agreement, Administrative Services Agreement, Distribution
Agreement and Shareholder Servicing Agreements). CFBDS receives a fee from the
Fund, in addition to the administrative services and distribution fees,
estimated and accrued daily and paid monthly in an amount such that
immediately after any such payment the aggregate ordinary operating expenses
of the Fund would not on a per annum basis exceed an agreed upon rate,
currently 1.75% of the Fund's average daily net assets. For the fiscal year
ended December 31, 1997, CFBDS paid expenses of the Fund in the amount of
$93,479, and the Fund paid CFBDS under this agreement the amount of $29,404.
For that fiscal year, the total expenses of the Fund were 1.75% of its average
daily net assets.
The agreement of CFBDS to pay the ordinary operating expenses of the Fund, as
well as the obligation of the Fund to pay the corresponding fee to CFBDS, may
be terminated by either CFBDS or the Fund upon not less than 30 days nor more
than 60 days written notice.
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 issues. While it is
likely that these efforts will be successful, the failure to implement any
necessary modifications to computer systems used by the Fund or its service
providers could result in an adverse impact on the Fund.
Counsel and Independent Auditors: Bingham Dana LLP, 150 Federal Street,
Boston, MA 02110, is counsel for the Fund. PricewaterhouseCoopers LLP, located
at 160 Federal Street, Boston, MA 02110, serves as independent auditor for the
Fund.
- --------------------------------------------------------------------------------
The Statement of Additional Information dated the date hereof contains more
detailed information about the Fund and the Portfolio, including information
related to (i) investment policies and restrictions, (ii) the Trustees,
Officers, Adviser and Administrators, (iii) securities transactions, (iv) the
Fund's shares, including rights and liabilities of shareholders, (v) the
method used to calculate performance information, and (vi) the determination
of net asset value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus or the Statement of
Additional Information in connection with the offering made by this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Fund or their distributor. This
Prospectus does not constitute an offering by the Fund or their distributor in
any jurisdiction in which such offering may not lawfully be made.
APPENDIX
PERMITTED INVESTMENTS AND
INVESTMENT PRACTICES
Repurchase Agreements. The Fund may enter into repurchase agreements in order
to earn a return on temporarily available cash. Repurchase agreements are
transactions in which an institution sells the Fund a security at one price,
subject to the Fund's obligation to resell and the selling institution's
obligation to repurchase that security at a higher price normally within a
seven day period. There may be delays and risks of loss if the seller is
unable to meet its obligation to repurchase.
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 maintained in a segregated
account with the Fund's custodian. 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.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements and in order to generate additional income, the Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral
(cash or U.S. Government securities) in an amount not less than the market
value, determined daily, of the securities loaned. It is intended that the
value of securities loaned by the Fund would not exceed 33 1/3 of the Fund's
net assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or reverse repurchase agreement, the Fund could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has
increased or the value of the securities purchased has decreased, the Fund
could experience a loss.
Rule 144A Securities. The Fund may purchase restricted securities that are not
registered for sale to the general public. If the Adviser determines that
there is a dealer or institutional market in the securities, the securities
will not be treated as illiquid for purposes of the Fund's investment
limitations. The Trustees will review these determinations. These securities
are known as "Rule 144A securities," because they are traded under SEC Rule
144A among qualified institutional buyers. Institutional trading in Rule 144A
securities is relatively new, and the liquidity of these investments 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.
"When-Issued" Securities. In order to ensure the availability of suitable
securities, the Fund may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered
to the Fund at a future date beyond customary settlement time. Under normal
circumstances, the Fund takes delivery of the securities. In general, the Fund
does not pay for the securities until received and does not start earning
interest until the contractual settlement date. While awaiting delivery of the
securities, the Fund establishes a segregated account consisting of cash, cash
equivalents or high quality debt securities equal to the amount of the Fund's
commitments to purchase "when-issued" securities. 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.
Currency Exchange Contracts. Forward currency exchange contracts may be
entered into for the Fund for the purchase or sale of non-U.S. currency for
hedging purposes against adverse rate changes or otherwise to achieve the
Fund's investment objective. A currency exchange contract allows a definite
price in dollars to be fixed for securities of non-U.S. issuers that have been
purchased or sold (but not settled) for the Fund. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange rates.
In addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.
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 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." The Fund may make a short sale as a
hedge, when it believes that the value of a security owned by the Fund (or a
security convertible or exchangeable for such security) may decline. Not more
than 40% of the Fund's total assets would be involved in short sales "against
the box."
Depositary Receipts for Securities of Non-U.S. Issuers. American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") and other forms of depositary receipts for securities of
non-U.S. issuers provide an alternative method for the Fund to make non-U.S.
investments. These securities are not usually denominated in the same currency
as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs and
GDRs, in bearer form, are designed for use in European and global securities
markets. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. EDRs and GDRs are European
and global receipts, respectively, evidencing a similar arrangement.
Other Investment Companies. Subject to applicable statutory and regulatory
limitations, assets of the Fund may be invested in shares of other investment
companies. The Fund may invest up to 5% of its assets in closed-end investment
companies which primarily hold securities of non-U.S. issuers.
CFP/IGP-1098 [Recycle Logo] Printed on recycled paper
<PAGE>
497(e) File Nos. 33-36556 and 811-6154
Statement of
Additional Information
May 1, 1998
As Supplemented
October 5, 1998
CITIFUNDS(SM) INTERNATIONAL GROWTH PORTFOLIO
CitiFunds(SM) International Growth Portfolio (the "Fund") is a series of
CitiFunds(SM) International Trust (the "Trust"). The address and telephone
number of the Trust are 21 Milk Street, Boston, MA 02109, (617) 423-1679. The
Trust invests all of the investable assets of the Fund in International Equity
Portfolio (the "Portfolio"), which is a series of The Premium Portfolios (the
"Portfolio Trust"). The address of the Portfolio Trust is Elizabethan Square,
George Town, Grand Cayman, British West Indies.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
TABLE OF CONTENTS PAGE
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1. The Trust ............................................................ 2
2. Investment Objective ................................................. 2
3. Description of Permitted Investments and Investment Practices ........ 2
4. Investment Restrictions .............................................. 8
5. Performance Information .............................................. 9
6. Determination of Net Asset Value; Valuation of Securities; Additional
Redemption Information ............................................... 10
7. Management ........................................................... 11
8. Portfolio Transactions ............................................... 17
9. Description of Shares, Voting Rights and Liabilities ................. 18
10. Certain Additional Tax Matters ....................................... 20
11. Independent Accountants and Financial Statements ..................... 21
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Fund's Prospectus, dated May 1, 1998, as supplemented October 5, 1998. This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Fund's distributor, CFBDS, Inc., at 21 Milk Street, Boston, MA
02109, (617) 423-1679.
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.
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1. THE TRUST
CitiFunds International Trust is an open-end management investment company
that was organized as a business trust under the laws of the Commonwealth of
Massachusetts on August 7, 1990. The Trust was called Landmark International
Equity Fund until its name was changed to Landmark International Funds
effective May 5, 1995. Effective January 7, 1998, the Trust's name was changed
to CitiFunds International Trust. This Statement of Additional Information
describes CitiFunds International Growth Portfolio (the "Fund"), which is a
diversified series of the Trust. Prior to October 5, 1998, the Fund was called
CitiFunds International Equity Portfolio, and prior to March 2, 1998 the Fund
was called Landmark International Equity Fund. References in this Statement of
Additional Information to the "Prospectus" of the Fund are to the Prospectus,
dated May 1, 1998, as supplemented October 5, 1998.
The Trust seeks the investment objective of the Fund by investing all of
its investable assets in the International Equity Portfolio. The Portfolio is
a series of The Premium Portfolios and is an open-end, diversified management
investment company. The Portfolio has the same investment objective and
policies as the Fund. 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 objective 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" or the "Administrator"), 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"). Shares of the Fund are sold at
net asset value. CFBDS may receive distribution fees from the Fund pursuant to
a Distribution Plan adopted in accordance with Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act").
2. INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term capital growth. Dividend
income, if any, is incidental to this investment objective.
The investment objective 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 objective.
3. DESCRIPTION OF PERMITTED INVESTMENTS
AND INVESTMENT PRACTICES
The Fund seeks its investment objective by investing all of its investable
assets in the Portfolio, which has the same investment objective and policies
as the Fund. The Fund's Prospectus contains a discussion of the various types
of securities in which the Fund and the Portfolio may invest and the risks
involved in such investments. The following supplements the information
contained in the Prospectus concerning the investment objective, policies and
techniques of the Fund and the Portfolio. Since the investment characteristics
of the Fund will correspond directly to those of the Portfolio, the following
is a supplementary discussion with respect to the Portfolio.
As a non-fundamental policy, at least 65% of the value of the Portfolio's
total assets will be invested in equity securities of issuers organized in at
least three countries other than the United States. While the Portfolio
Trust's policy is to invest the Portfolio's assets primarily in common stocks
of companies organized outside the United States ("non-U.S. issuers") believed
to possess better than average prospects for growth, appreciation may be
sought in other types of securities, principally of non-U.S. issuers, such as
fixed income securities, convertible and non-convertible bonds, preferred
stocks and warrants, when relative values make such purchases appear
attractive either as individual issues or as types of securities in certain
economic environments. There is no formula as to the percentage of assets that
may be invested in any one type of security.
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 be invested in accordance with the investment policies described
herein with respect to the Portfolio. The policies described above and those
described below are not fundamental and may be changed without shareholder
approval.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by
securities in which the Portfolio may otherwise invest. Repurchase agreements
are agreements by which the Portfolio 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 Portfolio'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 Portfolio 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 Portfolio are fully collateralized,
with such collateral being marked to market daily.
RULE 144A SECURITIES
The Portfolio Trust may purchase securities for the Portfolio that are not
registered ("restricted securities") under the Securities Act of 1933 (the
"Securities Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act. However, the Portfolio Trust
does not invest more than 15% of the Portfolio's net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restrictions on resale and
restricted securities, unless the Trustees determine, based on the trading
markets for the specific restricted security, that it is liquid. The Portfolio
Trust's Trustees have adopted guidelines and delegated to the Adviser the
daily function of determining and monitoring liquidity of restricted
securities. The Portfolio Trust's Trustees, however, retain oversight and are
ultimately responsible for the determinations.
SECURITIES OF NON-U.S. ISSUERS
The Portfolio will invest in securities of non-U.S. issuers. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in U.S.
investments. For example, the value of such securities fluctuates based on the
relative strength of the U.S. dollar. In addition, there is generally less
publicly available information about non-U.S. issuers, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Non-U.S. issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to U.S.
issuers. Investments in securities of non-U.S. issuers also involve the risk
of possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Portfolio, political or financial instability or
diplomatic and other developments which would affect such investments.
Further, economies of other countries or areas of the world may differ
favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the
U.S., and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Non-U.S. security trading practices, including
those involving securities settlement where the Portfolio's assets may be
released prior to receipt of payments, may expose the Portfolio to increased
risk in the event of a failed trade or the insolvency of a non-U.S. broker-
dealer. In addition, non-U.S. brokerage commissions are generally higher than
commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of non-
U.S. securities exchanges, brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Portfolio to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by
a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs and GDRs are European and global receipts, respectively,
evidencing a similar arrangement. ADRs, EDRs and GDRs are subject to many of
the same risks that apply to other investments in non-U.S. securities.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of
a sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs, and there may
not be a correlation between such information and the market value of the
depositary receipts.
The Portfolio may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the
same class that are not subject to such restrictions.
The Portfolio may invest its assets in issuers located in developing
countries, which are generally defined as countries in the initial stages of
their industrialization cycles with low per capita income. All of the risks of
investing in non-U.S. securities are heightened by investing in issuers in
developing countries. Shareholders should be aware that investing in the
equity and fixed income markets of developing countries involves exposure to
economic structures that are generally less diverse and mature, and to
political systems which can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of developed
countries with more mature economies; such markets often have provided higher
rates of return and greater risks. These heightened risks include (i) greater
risks of expropriation, confiscatory taxation and nationalization, and less
social, political and economic stability; (ii) the small current size of
markets for securities of issuers based in developing countries and the
currently low or non-existent volume of trading, resulting in a lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures.
CURRENCY EXCHANGE TRANSACTIONS
Because the Portfolio may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Portfolio may
enter into currency exchange transactions to convert U.S. currency to non-U.S.
currency and non-U.S. currency to U.S. currency, as well as convert one non-
U.S. currency to another non-U.S. currency. The Portfolio either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the currency exchange markets, or uses forward contracts to purchase or sell
non-U.S. currencies. The Portfolio may also enter into currency hedging
transactions in an attempt to protect the value of its assets as measured in
U.S. dollars from unfavorable changes in currency exchange rates and control
regulations. (Although the Portfolio's assets are valued daily in terms of
U.S. dollars, the Portfolio Trust does not intend to convert the Portfolio's
holdings of non-U.S. currencies into U.S. dollars on a daily basis.) The
Portfolio does not currently intend to speculate in currency exchange rates or
forward contracts.
The Portfolio may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize
a profit based on the difference (the "spread") between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a currency at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
fees or commissions are charged at any stage for trades.
When the Portfolio enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-
U.S. currency involved in the underlying security transaction, the Portfolio
may be able to protect against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the non-U.S. currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received.
When the Adviser believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, the Portfolio may enter
into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of non-U.S. currency approximating the value of some or all of the
Portfolio's securities denominated in such non-U.S. currency. The precise
matching of the forward contract amounts and the value of the securities
involved is not generally possible since the future value of such securities
in non-U.S. currencies changes as a consequence of market movements in the
value of those securities between the date the forward contract is entered
into and the date it matures. The projection of a short-term hedging strategy
is highly uncertain. The Portfolio does not enter into such forward contracts
or maintain a net exposure to such contracts where the consummation of the
contracts obligates the Portfolio to deliver an amount of non-U.S. currency in
excess of the value of the Portfolio's securities or other assets denominated
in that currency. Under normal circumstances, consideration of the prospect
for currency parities will be incorporated in the investment decisions made
with regard to overall diversification strategies. However, the Adviser
believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the Portfolio
will be served.
The Portfolio generally would not enter into a forward contract with a
term greater than one year. At the maturity of a forward contract, the
Portfolio will either sell the security and make delivery of the non-U.S.
currency, or retain the security and terminate its contractual obligation to
deliver the non-U.S. currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the non-U.S. currency. If the Portfolio retains the security
and engages in an offsetting transaction, the Portfolio will incur a gain or a
loss (as described below) to the extent that there has been movement in
forward contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
non-U.S. currency. Should forward prices decline during the period between the
date the Portfolio enters into a forward contract for the sale of the non-U.S.
currency and the date it enters into an offsetting contract for the purchase
of such currency, the Portfolio will realize a gain to the extent the selling
price of the currency exceeds the purchase price of the currency. Should
forward prices increase, the Portfolio will suffer a loss to the extent that
the purchase price of the currency exceeds the selling price of the currency.
It is impossible to forecast with precision the market value of the
Portfolio's securities at the expiration of a forward contract. Accordingly,
it may be necessary for the Portfolio to purchase additional non-U.S. currency
on the spot market if the market value of the security is less than the amount
of non-U.S. currency the Portfolio is obligated to deliver and if a decision
is made to sell the security and make delivery of such currency. Conversely,
it may be necessary to sell on the spot market some of the non-U.S. currency
received upon the sale of the security if its market value exceeds the amount
of such currency the Portfolio is obligated to deliver.
The Portfolio may also purchase put options on a non-U.S. currency in
order to protect against currency rate fluctuations. If the Portfolio
purchases a put option on a non-U.S. currency and the value of the U.S.
currency declines, the Portfolio will have the right to sell the non-U.S.
currency for a fixed amount in U.S. dollars and will thereby offset, in whole
or in part, the adverse effect on the Portfolio which otherwise would have
resulted. Conversely, where a rise in the U.S. dollar value of another
currency is projected, and where the Portfolio anticipates investing in
securities traded in such currency, the Portfolio may purchase call options on
the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects
of adverse movements in exchange rates. However, the benefit to the Portfolio
from purchases of non-U.S. currency options will be reduced by the amount of
the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Portfolio could sustain losses on transactions in non-U.S. currency options
which would require it to forgo a portion or all of the benefits of
advantageous changes in such rates.
The Portfolio may write options on non-U.S. currencies for hedging
purposes or otherwise to achieve its investment objective. For example, where
the Portfolio anticipates a decline in the value of the U.S. dollar value of a
non-U.S. security due to adverse fluctuations in exchange rates it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of the security held by the Portfolio
will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the
underlying security is primarily traded, the Portfolio could write a put
option on the relevant currency which, if rates move in the manner projected,
will expire unexercised and allow the Portfolio to hedge such increased cost
up to the amount of the premium. However, the writing of a currency option
will constitute only a partial hedge up to the amount of the premium, and only
if rates move in the expected direction. If this does not occur, the option
may be exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on currencies, the Portfolio also may
be required to forgo all or a portion of the benefits which might otherwise
have been obtained from favorable movements in exchange rates.
Put and call options on non-U.S. currencies written by the Portfolio will
be covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount
sufficient to discharge the Portfolio's obligations with respect to the
option, by acquisition of the non-U.S. currency or of a right to acquire such
currency (in the case of a call option) or the acquisition of a right to
dispose of the currency (in the case of a put option), or in such other manner
as may be in accordance with the requirements of any exchange on which, or the
counterparty with which, the option is traded and applicable laws and
regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, a decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other currency remains constant, and
thus will reduce the value of the receipts covering such securities. The
Portfolio may employ any of the above described non-U.S. currency hedging
techniques to protect the value of its assets invested in depositary receipts.
The Portfolio's dealings in non-U.S. currency contracts are limited to the
transactions described above. Of course, the Portfolio is not required to
enter into such transactions and does not do so unless deemed appropriate by
the Adviser. It should also be realized that these methods of protecting the
value of the Portfolio's securities against a decline in the value of a
currency do not eliminate fluctuations in the underlying prices of the
securities. Additionally, although such contracts tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they also tend to
limit any potential gain which might result should the value of such currency
increase.
The Portfolio has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Since those policies currently recommend that an amount of the Portfolio's
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Portfolio expects always to have cash,
cash equivalents or high quality debt securities available sufficient to cover
any commitments under these contracts or to limit any potential risk.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio, 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 Portfolio engages in a short sale, the collateral for the short
position is maintained for the Portfolio 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 is maintained in a segregated
account for the Portfolio. These securities constitute the Portfolio's long
position.
The Portfolio does not engage in short sales against the box for
investment purposes. The Portfolio 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 Portfolio (or a
security convertible or exchangeable for such security). In such case, any
future losses in the Portfolio'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 Portfolio owns. There are certain additional transaction
costs associated with short sales against the box, but the Portfolio 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 Portfolio's total
assets would be involved in short sales against the box. The Adviser does not
currently intend to engage in such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Portfolio may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be
secured continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested
in high quality short-term instruments. Either party has the right to
terminate a loan at any time on customary industry settlement notice (which
will not usually exceed three business days). During the existence of a loan,
the Portfolio would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and with respect to cash
collateral would also receive compensation based on investment of the
collateral (subject to a rebate payable to the borrower). Where the borrower
provides the Portfolio with collateral consisting of U.S. Treasury
obligations, the borrower is also obligated to pay the Portfolio a fee for use
of the borrowed securities. The Portfolio 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 Portfolio could suffer loss if the borrower terminates the loan and the
Portfolio 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 by the Portfolio would exceed
33 1/3% of the value of its net assets.
WHEN-ISSUED SECURITIES
The Portfolio may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, the
Portfolio would take delivery of such securities. When the Portfolio commits
to purchase a security on a "when-issued" or on a "forward delivery" basis, it
sets up procedures consistent with SEC policies. Since those policies
currently require that an amount of the Portfolio's assets equal to the amount
of the purchase be held aside or segregated to be used to pay for the
commitment, the Portfolio expects always to have cash, cash equivalents or
high quality debt securities sufficient to cover any commitments or to limit
any potential risk. However, even though the Portfolio 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 Portfolio 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 Portfolio
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 Portfolio's payment
obligation).
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trust, on behalf of
the Portfolio, each have adopted the following policies which may not be
changed with respect to the Fund or the Portfolio, as the case may be, without
approval by holders of a majority of the outstanding voting securities of the
Fund or the Portfolio, which as used in this Statement of Additional
Information means the vote of the lesser of (i) 67% or more of the outstanding
voting securities of the Fund or Portfolio present at a meeting at which the
holders of more than 50% of the outstanding voting securities of the Fund or
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Fund or Portfolio. The term "voting
securities" as used in this paragraph has the same meaning as in the 1940 Act.
Neither the Portfolio nor the Fund may:
(1) Borrow money, except that as a temporary measure for extraordinary
or emergency purposes it may borrow from banks in an amount not to exceed
1/3 of the current value of its respective net assets, including the
amount borrowed (and neither the Portfolio nor the Fund may purchase any
securities at any time at which borrowings exceed 5% of the total assets
of the Portfolio or the Fund, taken at market value). It is intended that
the Fund or Portfolio would borrow money only from banks and only to
accommodate requests for the repurchase of shares of the Fund or
beneficial interests in the Portfolio while effecting an orderly
liquidation of portfolio securities.
(2) Purchase any security or evidence of interest therein on margin,
except that the Portfolio may obtain such short term credit as may be
necessary for the clearance of purchases and sales of
securities.
(3) Underwrite securities issued by other persons, except that all the
assets of the Fund may be invested in another registered investment
company having the same investment objectives and policies and
substantially the same investment restrictions as those with respect to
the Fund (a "Qualifying Portfolio") and except insofar as the Portfolio
may technically be deemed an underwriter under the Securities Act in
selling a security.
(4) Make loans to other persons except (a) through the lending of its
portfolio securities, but not in excess of 33 1/3% of the Fund's or
Portfolio's net assets, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing all or a portion of an issue of debt securities of types
commonly distributed privately to financial institutions; for purposes of
this paragraph 4 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.
(5) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business (the foregoing
shall not be deemed to preclude the Fund or Portfolio from investing in
futures contracts, and the Fund and Portfolio reserve the freedom of
action to hold and to sell real estate acquired as a result of the
ownership of securities by the Fund and the Portfolio).
(6) With respect to 75% of the Fund's or Portfolio's total assets,
purchase securities of any issuer if such purchase at the time thereof
would cause more than 5% of the Fund's or the Portfolio's assets (taken at
market value) to be invested in the securities of such issuer (other than
securities or obligations issued or guaranteed by the United States or any
agency or instrumentality of the United States); provided that, for
purposes of this restriction the issuer of an option or futures contract
shall not be deemed to be the issuer of the security or securities
underlying such contract; and further provided that the Fund may invest
all or substantially all of its assets in a Qualifying Portfolio.
(7) With respect to 75% of the total assets of the Fund or Portfolio,
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 by the Fund, except that all the assets of the Fund may be invested
in a Qualifying Portfolio.
(8) Concentrate its investments in any particular industry, but the
Fund may invest all of its assets in a Qualifying Portfolio (except that
positions in futures or options contracts shall not be subject to this
restriction).
(9) 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, except as appropriate to
evidence a debt incurred without violating Investment Restriction (1)
above.
As an operating policy, the Fund will not invest more than 15% of its net
assets in securities for which there is no readily available market. This
policy is not fundamental and may be changed without shareholder approval.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in the Fund's Prospectus is adhered to
at the time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund or Portfolio will not
be considered a violation of policy.
5. PERFORMANCE INFORMATION
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.
Any current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of
the average daily number of shares outstanding during the period that were
entitled to receive dividends and the public offering price per share on the
last day of the period, (b) subtracting 1 from the result, and (c) multiplying
the result by 2.
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.
<TABLE>
<CAPTION>
REDEEMABLE
VALUE OF A
HYPOTHETICAL
ANNUALIZED $1,000 INVESTMENT
TOTAL RATE AT THE END OF
OF RETURN PERIOD
---------- -----------------
<S> <C> <C>
March 1, 1991 (commencement of operations) to December 31, 1997 ............. 5.75% $1,466
Five Years Ended December 31, 1997 .......................................... 7.92% $1,464
One Year Ended December 31, 1997 ............................................ 5.15% $1,052
</TABLE>
Comparative performance information may be used from time to time in
advertising shares of the Fund, including data from Lipper Analytical
Services, Inc. and other industry sources and publications. From time to time
the Fund may compare its performance against inflation with the performance of
other instruments against inflation, such as FDIC-insured bank money market
accounts. In addition, advertising for the Fund may indicate that investors
should consider diversifying their investment portfolios in order to seek
protection of the value of their assets against inflation. From time to time,
advertising materials for the Fund may refer to or discuss current or past
economic or financial conditions, developments and events. The Fund's
advertising materials also may refer to the integration of the world's
securities markets, discuss the investment opportunities available worldwide
and mention the increasing importance of an investment strategy including non-
U.S. investments.
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES;
ADDITIONAL REDEMPTION INFORMATION
The net asset value per 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 is made once each day
as of the close of regular trading on the Exchange (normally 4:00 p.m. Eastern
time) by adding the market value of all securities and other assets of the
Fund (including its interest in the Portfolio), then subtracting the
liabilities of the Fund, and then dividing the result by the number of
outstanding shares of the Fund. A share's net asset value is effective for
orders received by a Shareholder Servicing Agent prior to its calculation and
received by the Distributor prior to the close of the Business Day on which
such net asset value is determined.
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.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues,
or at the last quoted bid price for securities in which there were no sales
during the day or for unlisted securities not reported on the NASDAQ system.
Securities listed on a non-U.S. exchange are valued at the last quoted sale
price available before the time when net assets are valued. Bonds and other
fixed income securities (other than short-term obligations) are valued on the
basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees of the Trust. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Short-term obligations (maturing in 60 days
or less) are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees of the Trust. Futures contracts are
normally valued at the settlement price on the exchange on which they are
traded. Securities for which there are no such valuations are valued at fair
value as determined in good faith by or at the direction of the Board of
Trustees of the Trust.
Trading in securities on most non-U.S. exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of non-U.S. securities occur between the
time when the exchange on which they are traded closes and the time when the
Fund's net asset value is calculated, such securities may be valued at fair
value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for the Fund is determined
on the basis of interest accrued plus amortization of "original issue
discount" (generally, the difference between issue price and stated redemption
price at maturity) and premiums (generally, the excess of purchase price over
stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization
of any premium.
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.
7. MANAGEMENT
The Trustees and officers of the Trust and the Portfolio Trust, their ages
and their principal occupations during at least 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. 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*; 46 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
RILEY C. GILLEY; 71 -- Vice President and General Counsel, Corporate Property
Investors (November 1988 to December 1991); Partner, Breed, Abbott & Morgan
(Attorneys) (retired, December 1987). His address is 4041 Gulf Shore Boulevard
North, Naples, Florida.
DIANA R. HARRINGTON; 58 -- Professor, Babson College (since September 1993);
Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, The Highland Family of Funds (since March 1997). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY; 46 -- President, Global Research Associates, Inc. (Investment
Research) (since August 1990); Manager, Rockefeller & Co. (March 1988 to July
1990); Trustee, Mainstay Institutional Funds (since December 1990). Her
address is P.O. Box 9572, New Haven, Connecticut.
C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the Trust;
Managing Director, Morong Capital Management (since February 1993); Senior
Vice President and Investment Manager, CREF Investments, Teachers Insurance &
Annuity Association (retired, January 1993); Director, Indonesia Fund;
Trustee, MAS Funds (since 1993). His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
E. KIRBY WARREN; 63 -- 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.; 77 -- Vice President-Investments, Sun Company, Inc.
(retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUST
ELLIOTT J. BERV; 55 -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE*; 46 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
MARK T. FINN; 54 -- 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); Director, Vantage
Consulting Group, Inc. (since October 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
C. OSCAR MORONG, JR.; 63 -- Chairman of the Board of Trustees of the Trust;
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; 71 -- 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.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
PHILIP W. COOLIDGE*; 46 -- President of the Trust and the Portfolio Trust;
Chief Executive Officer and President, Signature Financial Group, Inc. and
CFBDS.
CHRISTINE A. DRAPEAU*; 27 -- 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); Graduate Student,
Bentley College (prior to December 1994).
TAMIE EBANKS-CUNNINGHAM*; 25 -- Assistant Secretary of the Trust and the
Portfolio Trust; Office Manager, Signature Financial Group (Cayman) Ltd.
(since April 1995); Administrator, Cayman Islands Primary School (prior to
April 1995). Her address is P.O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, British West Indies.
JOHN R. ELDER*; 49 -- Treasurer of the Trust and the Portfolio Trust; Vice
President, Signature Financial Group, Inc. (since April 1995); Treasurer,
CFBDS (since April 1995); Treasurer, Phoenix Family of Mutual Funds (Phoenix
Home Life Mutual Insurance Company) (1983 to March 1995).
LINDA T. GIBSON*; 32 -- Secretary of the Trust and the Portfolio Trust; Vice
President, Signature Financial Group, Inc. (since May 1992); Assistant
Secretary, CFBDS (since October 1992).
JOAN R. GULINELLO*; 42 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group, Inc.
(since October 1993); Secretary, CFBDS (since October 1995); Vice President
and Assistant General Counsel, Massachusetts Financial Services Company (prior
to October 1993).
JAMES E. HOOLAHAN*; 51 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Senior Vice President,
Signature Financial Group, Inc.
SUSAN JAKUBOSKI*; 34 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994). Her
address is Suite 193, 12 Church St., Hamilton HM 11, Bermuda.
MOLLY S. MUGLER*; 46 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN*; 29 -- Assistant Secretary of the Trust and the Portfolio
Trust; Office Manager, Signature Financial Group (Europe) Limited (since
1993). Her address is 117 Charterhouse Street, London
ECIM 6AA.
SHARON M. WHITSON*; 50 -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolio Trust; Assistant Vice President, Signature Financial
Group, Inc.
JULIE J. WYETZNER*; 39 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group, Inc.
The Trustees and officers of the Trust and the Portfolio Trust also hold
comparable positions with certain other funds for which CFBDS, SFG or their
affiliates serve as the distributor or administrator.
The following table shows Trustee compensation for the periods indicated.
TRUSTEE COMPENSATION TABLE
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM THE FROM TRUST AND
TRUSTEE FUND(1) COMPLEX(2)
- ------- ------------ --------------
H.B. Alvord(3) ................................. $ 842 $32,000
Philip W. Coolidge ............................. $ 0 $ 0
Riley C. Gilley ................................ $1,668 $50,000
Diana R. Harrington ............................ $1,743 $57,000
Susan B. Kerley ................................ $1,753 $59,000
C. Oscar Morong, Jr ............................ $1,805 $70,000
E. Kirby Warren ................................ $1,682 $50,000
William S. Woods, Jr ........................... $3,742 $58,000
- ----------
(1) For the fiscal year ended December 31, 1997.
(2) Information relates to the fiscal year ended December 31, 1997. Messrs.
Coolidge, Gilley, Morong, Warren and Woods, and Mses. Harrington and
Kerley are Trustees of 55, 31, 28, 28, 30, 29, and 29 funds or portfolios,
respectively, in the family of open-end registered investment companies
advised or managed by Citibank.
(3) Mr. Alvord retired as a Trustee on May 31, 1997.
As of April 27, 1998, all Trustees and officers as a group owned less than
1% of the Fund's outstanding shares. As of the same date, more than 95% of the
outstanding shares of the Fund were held of record by Citibank, N.A. or its
affiliates as Shareholder Servicing Agents of the Fund for the accounts of
their respective clients.
The Declaration of Trust of each of the Trust and the Portfolio Trust
provides that the Trust or the Portfolio Trust, as the case may be, will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Trust or the Portfolio Trust, as the case may be, unless, as
to liability to the Trust, the Portfolio Trust or their respective investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their
offices, or unless with respect to any other matter it is finally adjudicated
that they did not act in good faith in the reasonable belief that their
actions were in the best interests of the Trust or the Portfolio Trust, as the
case may be. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon
a review of readily available facts, by vote of a majority of disinterested
Trustees of the Trust or the Portfolio Trust, or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ADVISER
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees of the Portfolio Trust may determine, the Adviser manages
the securities of the Portfolio and makes investment decisions for the
Portfolio. The Adviser furnishes at its own expense all services, facilities
and personnel necessary in connection with managing the Portfolio's
investments and effecting securities transactions for the Portfolio. The
Advisory Agreement will continue in effect as long as such continuance is
specifically approved at least annually by the Board of Trustees of the
Portfolio Trust or by a vote of a majority of the outstanding voting
securities of the Portfolio, and, in either case, by a majority of the
Trustees of the Portfolio Trust who are not parties to the Advisory Agreement
or interested persons of any such party, at a meeting called for the purpose
of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio Trust when
authorized either by a vote of a majority of the outstanding voting securities
of the Portfolio or by a vote of a majority of the Board of Trustees of the
Portfolio Trust, 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 of security transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Advisory Agreement.
The Prospectus for the Fund contains a description of the fees payable to
the Adviser for services under the Advisory Agreement. For the fiscal years
ended December 31, 1995, 1996 and 1997, the fees paid to Citibank under the
Advisory Agreement, after fee waivers, were $345,632, $472,204 and $438,017,
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 and the Portfolio Trust,
respectively, 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 Prospectus for the Fund contains a description of the fees payable to
the Administrator and the Portfolio Administrator under the Administrative
Services Agreements. For fiscal years ended December 31, 1995, 1996 and 1997,
the fees paid by the Fund to CFBDS under the Administrative Services Agreement
and a prior administrative services agreement, after waivers, were $29,605,
$44,502 and $79,045, respectively. For the fiscal years ended December 31,
1995, 1996 and 1997, the fees paid by the Portfolio to SFG under the
Administrative Services Agreement with the Portfolio Trust, after waivers,
were $17,281, $13,247 and $0, respectively.
The Administrative Services Agreement with the Trust provides that CFBDS
may render administrative services to others. The Administrative Services
Agreement with the Trust continues in effect with respect to the Fund if such
continuance is specifically approved at least annually by the Board of
Trustees of the Trust or by a vote of a majority of the outstanding voting
securities of the Trust and, in either case, by a majority of the Trustees who
are not parties to the Administrative Services Agreement or interested persons
of any such party. The Administrative Services Agreement with the Trust
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of the outstanding voting securities of the
Trust or by either party on not more than 60 days' nor less than 30 days'
written notice. The Administrative Services Agreement with the Trust also
provides that neither CFBDS, as the Administrator, nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission
in the administration or management of the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and
duties under the Trust's 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 and SFG.
Citibank's sub-administrative duties may include providing equipment and
clerical personnel necessary for maintaining the Trust's and the Portfolio
Trust's organization, participation in the preparation of documents required
for compliance by the Trust and 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 CFBDS or SFG, not in excess of the amount paid to CFBDS or SFG for its
services under the Administrative Services Agreements with the Trust and the
Portfolio Trust. All such compensation is paid by CFBDS or SFG.
DISTRIBUTOR
CFBDS serves as the Distributor of the Fund's shares pursuant to a
Distribution Agreement with the Trust with respect to the Fund. Unless
otherwise terminated, the Distribution Agreement continues from year to year
upon annual approval by the Trust's Board of Trustees or by the vote of a
majority of the outstanding voting securities of the Fund, and in either case
by the vote of a majority of the Board of Trustees of the Trust who are not
parties to the 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 shall pay a monthly distribution fee to the
Distributor at an annual rate not to exceed 0.10% 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 Fund
shares (exclusive of any advertising expenses incurred by the Distributor in
connection with the sale of shares). 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 and other such distribution-related expenses.
The Distribution Plan also permits the Fund to pay the Distributor an
additional fee (not to exceed 0.05% of the average daily net assets of the
Fund) in anticipation of or as reimbursement for print or electronic media
advertising expenses incurred in connection with the sale of shares.
The Distribution Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trust's Trustees and a majority of the Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Distribution Plan or in any agreement related to the Plan
(for purposes of this paragraph "Qualified Trustees"). The Distribution Plan
requires that the Trust and the Distributor provide to the Board of Trustees,
and the Board of Trustees review, at least quarterly, a written report of the
amounts expended (and the purposes therefor) under the Distribution Plan. The
Distribution Plan further provides that the selection and nomination of the
Qualified Trustees is committed to the discretion of the disinterested
Trustees (as defined in the 1940 Act) then in office. The Distribution Plan
may be terminated with respect to the Fund at any time by a vote of a majority
of the Trust's Qualified Trustees or by a vote of a majority of the
outstanding voting securities of 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. The Prospectus for the Fund contains a description of fees payable
to the Distributor under the Distribution Agreement. For the fiscal years
ended December 31, 1995, 1996 and 1997, the fees paid to CFBDS under the
Distribution Agreement and a prior distribution agreement with respect to the
Fund were $29,605, $33,482 and $27,121, respectively, no portion of which was
applicable to reimbursement for expenses incurred in connection with print or
electronic media advertising. All of the foregoing amounts paid under the
Distribution Plan were spent on printing and mailing expenses.
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, a fund
accountant 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. Distribution fees (other than any fee
concerning electronic or media advertising) paid under the Distribution Plan
are included in this percentage limitation. 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 as to the Fund by a vote of a majority of the
outstanding voting securities of the Fund. The Administrative Services Plan
for 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 "Servicing
Agreement") with each Shareholder Servicing Agent and 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,
on behalf of the Fund, has also 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. See "Shareholder
Servicing Agents" and "Transfer Agent, Custodian and Fund Accountant" in the
Prospectus for additional information, including a description of fees paid to
the Shareholder Servicing Agents under the Servicing Agreements. For the
fiscal years ended December 31, 1995, 1996 and 1997, the aggregate fees paid
to Shareholder Servicing Agents under the Shareholder Servicing Agreements for
the Fund, after waivers, were $74,013, $83,705 and $67,802, respectively.
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, a custodian and a
fund accountant 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.
The Portfolio Trust, on behalf of the Portfolio, has entered into a
Custodian Agreement with State Street pursuant to which custodial services are
provided for the Portfolio. The Portfolio Trust, on behalf of the Portfolio,
has also 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 Fund's 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, Cayman Islands, British West Indies.
AUDITORS
PricewaterhouseCoopers LLP is the independent accountant for the Trust,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of PricewaterhouseCoopers LLP
is 160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers are
the chartered accountants for the Portfolio Trust. The address of
PricewaterhouseCoopers is Suite 3000, Box 82, Royal Trust Towers, Toronto
Dominion Center, Toronto, Ontario, Canada M5K 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the Fund.
8. PORTFOLIO TRANSACTIONS
The Portfolio Trust trades securities for the Portfolio if it believes
that a transaction net of costs (including custodian charges) will help
achieve the Portfolio's investment objective. Changes in the Portfolio's
investments are made without regard to the length of time a security has been
held, or whether a sale would result in the recognition of a profit or loss.
Therefore, the rate of turnover is not a limiting factor when changes are
appropriate. Specific decisions to purchase or sell securities for the
Portfolio are made by a portfolio manager who is an employee of the Adviser
and who is appointed and supervised by its senior officers. The portfolio
manager may serve other clients of the Adviser in a similar capacity.
The primary consideration in placing portfolio securities transactions
with broker-dealers for execution is to obtain and maintain the availability
of execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute transactions on behalf of the Portfolio 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 Portfolio's securities in so-called tender or exchange offers.
Such soliciting dealer fees are in effect recaptured for the Portfolio by the
Adviser. At present no other recapture arrangements are in effect.
Under the Advisory Agreements, in connection with the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed to
seek for the Portfolio in its best judgment, prompt execution in an effective
manner at the most favorable price. Subject to this requirement of seeking the
most favorable price, securities may be bought from or sold to broker-dealers
who have furnished statistical, research and other information or services to
the Adviser or the Portfolio, subject to any applicable laws, rules and
regulations.
The investment advisory fee that the Portfolio 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 Portfolio as well as for one or more of the Adviser's other
clients. Investment decisions for the Portfolio 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 Portfolio. When purchases or sales of the same security for
the Portfolio 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, 1995, 1996 and 1997, the Portfolio
paid brokerage commissions in the amount of $81,000, $236,514 and $215,467,
respectively.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (par
value $0.00001 per share) of each series and to divide or combine the shares
of any series into a greater or lesser number of shares of that series without
thereby changing the proportionate beneficial interests in that series. The
Trust has reserved the right to create and issue additional series and classes
of shares. Each share of the Fund represents an equal proportionate interest
in the Fund with each other share. Shares of each series participate equally
in the earnings, dividends and distribution of net assets of the particular
series upon liquidation or dissolution. 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 particular series or class
are entitled to vote.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust
would not be able to elect any Trustee. The Trust is not required to hold, and
has no present intention of holding, annual meetings of shareholders but the
Trust will hold special meetings of shareholders when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder
vote. Shareholders have, under certain circumstances (e.g., upon the
application and submission of certain specified documents to the Trustees by a
specified number of shareholders), the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of
each series affected by the amendment. (See "Investment Restrictions.") The
Trust's Declaration of Trust provides that, at any meeting of shareholders of
the Trust or of any series of the Trust, 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 received 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 outstanding
shares (or the affected series) 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.
Share certificates will not be 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 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.
10. 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, no U.S. federal
income or excise taxes generally will be required to be paid by the Fund,
although non-U.S. source income earned by the Fund may be subject to non-U.S.
withholding or other 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 income to shareholders. The Portfolio Trust
believes the Portfolio also will not be required to pay any U.S. federal
income or excise taxes on its income.
The portion of the Fund's ordinary income dividends attributable to
dividends received in respect of equity securities of U.S. issuers is normally
eligible for the dividends received deduction for corporations subject to U.S.
federal income taxes. Availability of the deduction for particular
shareholders is subject to certain limitations, and deducted amounts may be
subject to the alternative minimum tax and result in certain basis
adjustments. 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, estate or trust may be
eligible for reduced tax rates if the shares were held for more than 18
months. However, any loss realized upon a disposition 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 transactions in forward contracts, short sales "against the
box," and options will be subject to special tax rules that may affect the
amount, timing and character of Fund income and distributions to shareholders.
For example, certain positions held by the Fund on the last business day of
each taxable year will be marked to market (i.e., treated as if closed out) on
that day, and any gain or loss associated with the positions will be treated
as 60% long-term and 40% short-term capital gain or loss. Certain positions
held by the Fund that substantially diminish its risk of loss with respect to
other positions in its portfolio may constitute "straddles," and may be
subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of
short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. The Fund will limit its
activities in forward contracts and options to the extent necessary to meet
the requirements of Subchapter M of the Code.
Special tax considerations apply with respect to non-U.S. investments of
the Fund. Foreign exchange gains and losses realized by the Fund will
generally be treated as ordinary income and loss. Use of non-U.S. currencies
for non-hedging purposes may be limited in order to avoid a tax on the Fund.
The Fund may elect to mark to market any investments in "passive foreign
investment companies" on the last day of each taxable year. This election may
cause the Fund to recognize ordinary income prior to the receipt of cash
payments with respect to those investments; in order to distribute this income
and avoid a tax on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold. Investment in
certain "passive foreign investment companies" may also be limited in order to
avoid a tax on the Fund. Investment income received by the Fund from non-U.S.
securities may be subject to non-U.S. taxes. The United States has entered
into tax treaties with many other countries that may entitle the Fund to a
reduced rate of tax or an exemption from tax on such income. The Fund intends
to qualify for treaty reduced rates where available. It is not possible,
however, to determine the Fund's effective rates of non-U.S. tax in advance
since the amount of the Fund's assets to be invested within various countries
is not known.
If the Fund holds more than 50% of its assets in foreign stock and
securities at the close of its taxable year, the Fund may elect to "pass
through" to the Fund's shareholders foreign income taxes paid. If the Fund so
elects, shareholders will be required to treat their pro rata portion of the
foreign income taxes paid by the Fund as part of the amount distributed to
them by the Fund and thus includable in their gross income for federal income
tax purposes. Shareholders who itemize deductions would then be allowed to
claim a deduction or credit (but not both) on their federal income tax returns
for such amount, subject to certain limitations. Shareholders who do not
itemize deductions would (subject to such limitations) be able to claim a
credit but not a deduction. No deduction will be permitted to individuals in
computing their alternative minimum tax liability. If the Fund does not
qualify to elect to "pass through" to its shareholders foreign income taxes
paid by it, shareholders will not be able to claim any deduction or credit for
any part of their foreign taxes paid by the Fund.
For purposes of the preceding discussion the Fund believes that it will be
treated as owning a pro rata share of the assets of the Portfolio and as
having paid a pro rata share of the foreign taxes paid by the Portfolio.
The Fund will withhold tax payments at the rate of 30% (or any lower rate
permitted under an applicable treaty) on taxable dividends and other payments
subject to withholding taxes that are made to persons who are not citizens or
residents of the United States. Distributions received from the Fund by non-
U.S. persons also may be subject to tax under the laws of their own
jurisdiction.
The account application asks each new shareholder to certify that the
shareholder's Social Security or taxpayer identification number is correct and
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. Backup withholding will not, however, be applied to
payments that have been subject to 30% withholding.
11. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The audited financial statements of the CitiFunds International Growth
Portfolio (formerly CitiFunds International Equity Portfolio; prior to March
2, 1998, the Fund was known as Landmark International Equity Fund) (Statement
of Assets and Liabilities at December 31, 1997, Statement of Operations for
the year ended December 31, 1997, Statement of Changes in Net Assets for each
of the years in the two-year period ended December 31, 1997, Financial
Highlights for each of the years in the five-year period ended December 31,
1997, 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 reports of
PricewaterhouseCoopers LLP (for the fiscal years ended December 31, 1997,
1996, 1995 and 1994) and Deloitte & Touche LLP (for periods prior to the
fiscal year ended December 31, 1994), independent accountants, on behalf of
the Fund.
The audited financial statements of the International Equity Portfolio
(Portfolio of Investments at December 31, 1997, Statement of Assets and
Liabilities at December 31, 1997, Statement of Operations for the fiscal year
ended December 31, 1997, Statement of Changes in Net Assets for the fiscal
years ended December 31, 1997 and 1996, Financial Highlights for fiscal years
ended December 31, 1997, 1996 and 1995 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 CitiFunds International Growth Portfolio,
are incorporated by reference into this Statement of Additional Information
and have been so incorporated in reliance upon the reports of
PricewaterhouseCoopers, chartered accountants, on behalf of the Portfolio.
A copy of the Annual Report for the Fund accompanies this Statement of
Additional Information.
