As filed with the Securities and Exchange Commission on December 22, 1998
File Nos. 33-36556
811-6154
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 19
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25
CITIFUNDS INTERNATIONAL TRUST*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 21 MILK STREET, 5TH FLOOR, BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
It is proposed that this filing will become effective on March 1, 1999
pursuant to paragraph (a)(1) of Rule 485.
Asset Allocation Portfolios, on behalf of International Portfolio, has
also executed this Registration Statement.
________________________________________________
* This filing relates solely to shares of the Trust's series CitiFunds
International Growth & Income Portfolio.
<PAGE>
Prospectus
CITIFUNDS SM INTERNATIONAL GROWTH & INCOME PORTFOLIO
Citibank, N.A., investment manager
CLASS A AND CLASS B SHARES
The Securities and Exchange Commission has
not approved or disapproved these securities or
passed upon the accuracy of this prospectus,
and any representation to the contrary is a
criminal offense.
March 1, 1999
<PAGE>
CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
TABLE OF CONTENTS
The Fund at a Glance
Your CitiFunds Account
Choosing a Share Class
How to Buy Shares
How the Price of Your Shares is Calculated
How to Sell Shares
Reinstating Recently Sold Shares
Exchanges
Dividends
Tax Matters
Management of the Fund
Manager
Management Fees
More About the Fund
Principal Investment Strategies
Risks
Financial Highlights
Appendix
<PAGE>
THE FUND AT A GLANCE
THIS SUMMARY BRIEFLY DESCRIBES INTERNATIONAL GROWTH & INCOME PORTFOLIO AND THE
PRINCIPAL RISKS OF INVESTING IN IT. FOR MORE INFORMATION, SEE "MORE ABOUT THE
FUND" ON PAGE _____.
FUND GOAL
The Fund's goal is to provide current income and long-term growth of income
accompanied by growth of capital. Of course, there is no assurance that the
Fund will achieve its goal.
MAIN INVESTMENT STRATEGIES
International Growth & Income Portfolio invests primarily in securities of
foreign companies that the Fund's portfolio managers believe are undervalued.
Under normal circumstances, at least 65% of the Fund's total assets is invested
in equity securities of companies in at least three non-U.S. markets. In
selecting securities, the Fund's portfolio managers emphasize issuers in
developed international equity markets, including Europe, Australia, New
Zealand, Japan, Hong Kong, Singapore, Canada and South Korea. The Fund may also
purchase securities of issuers in developing countries.
The Fund's equity securities may include common stocks and securities having
characteristics of common stocks such as convertible preferred stocks,
convertible debt securities, warrants and depositary receipts (receipts which
represent the right to receive the securities of foreign issuers deposited in a
U.S. bank or a local branch of a foreign bank). The Fund may also purchase debt
securities. The Fund's foreign debt securities are short term, with maturities
of one year or less.
Under normal circumstances, at least 80% of the Fund's total assets is invested
in income-producing equity securities issued by companies with a record of
earnings and dividends.
The Fund's portfolio managers use a value oriented approach in managing the
Fund. This means that they look for securities that they believe are currently
undervalued, or priced below their true worth, but whose issuers have good
longer term business prospects.
The Fund may use derivatives in order to protect (or "hedge") against changes
in the prices of securities held or to be bought. The Fund may also use
derivatives for non-hedging purposes, to enhance potential gains or generate
income. These derivatives include futures, options (including options on
foreign currency), swap agreements and related transactions such as caps,
floors and collars, and forward foreign currency exchange contracts. The Fund's
ability to use derivatives successfully depends on a number of factors,
including derivatives being available at prices that are not too costly, tax
considerations, and the portfolio managers accurately predicting movements in
stock prices, interest rates and currency exchange rates.
MAIN RISKS
The principal risks of investing in the Fund are described below. See page ___
for more information about risks.
<PAGE>
o MARKET RISK. This is the risk that the prices of securities will rise or
fall due to changing economic, political or market conditions, or due to a
company's individual situation. The value of the Fund's shares will change
daily as the value of its underlying securities change. This means that
your shares of the Fund may be worth more or less when you sell them than
when you bought them.
o FOREIGN SECURITIES. Investments in foreign securities involve risks
relating to adverse political, social and economic developments abroad, as
well as risks resulting from the differences between the regulations to
which U.S. and foreign issuers and markets are subject. These risks may
include expropriation of assets, confiscatory taxation, withholding taxes
on dividends and interest paid on Fund investments, currency exchange
controls and other limitations on the use or transfer of Fund assets and
political or social instability. There may be rapid changes in the value
of foreign currencies or securities, causing the Fund's share price to be
volatile. Also, in certain circumstances, the Fund could realize reduced
or no value in U.S. dollars from its investments in foreign securities,
causing the Fund's share price to go down.
The Fund may invest in issuers located in emerging, or developing,
markets. All of the risks of investing in foreign securities are
heightened by investing in these markets.
o EQUITY SECURITIES. Equity securities are subject to market risk that
historically has resulted in greater price volatility than exhibited by
fixed income securities.
o VALUE INVESTING. The success of the Fund's investment strategy depends
largely on the skill of the Fund's portfolio managers in identifying
securities of companies that are in fact undervalued, but have good longer
term business prospects. A security may not achieve its expected value
because the circumstances causing it to be underpriced worsen (causing the
security's price to decline further) or do not change or because the
portfolio managers are incorrect in their determinations. In addition, the
Fund may underperform certain other stock funds (those emphasizing growth
stocks, for example) during periods when value stocks are out of favor.
o INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term
obligations are usually more sensitive to interest rate changes. A change
in interest rates could cause the Fund's share price to go down.
o CREDIT RISK. Some issuers may not make payments on debt securities held
by the Fund, causing a loss. Or, an issuer's financial condition may
deteriorate, lowering the credit quality of a security and leading to
greater volatility in the price of the security and in shares of the Fund.
The prices of lower rated securities often are more volatile than those of
higher rated securities.
o SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible
securities, which are debt securities or preferred stock that may be
converted into common stock, are subject to the market risk of stocks,
and, like debt securities, are also subject to interest rate risk and the
credit risk of their issuers.
<PAGE>
o DERIVATIVES. The Fund's use of derivatives (such as futures contracts,
options, swap agreements and forward foreign currency exchange contracts),
particularly for non-hedging purposes, may be risky. This practice could
result in losses that are not offset by gains on other portfolio assets.
Losses would cause the Fund's share price to go down. The Fund's ability
to use derivatives successfully depends on a number of factors, including
the ability of the Fund's portfolio managers to accurately predict stock
prices, interest rates and currency exchange rates. If these predictions
are wrong, the Fund could suffer greater losses than if the Fund had not
used derivatives.
PLEASE NOTE THAT AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF CITIBANK AND
IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
WHO MAY WANT TO INVEST
You should keep in mind that an investment in International Growth & Income
Portfolio is not a complete investment program.
You should consider investing in International Growth & Income Portfolio if:
o You want to direct a portion of your overall investment portfolio to
securities of non-U.S. companies.
o Your investment horizon is longer term--typically at least five years.
Don't invest in International Growth & Income Portfolio if:
o You are not prepared to accept the additional risks of international
investing including currency, political, social and economic risks.
o You are not prepared to accept significant fluctuations in dividends or
share price.
o Your investment horizon is shorter term (less than five years).
FUND PERFORMANCE
The Fund began operations in 1998 and does not have a full calendar year of
investment returns at the date of this prospectus. The Fund's total return for
the fiscal year ended October 31, 1998 is provided in the "Financial
Highlights" section of this prospectus.
<PAGE>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
CLASS A CLASS B
CLASS DESCRIPTIONS BEGIN ON PAGE
[___]
SHAREHOLDER FEES (fees paid directly
from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.00% None
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2)
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)(3):
Management Fees 1.05% 1.05%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses (administrative, shareholder servicing
and other expenses) 1.11% 1.11%
TOTAL ANNUAL FUND OPERATING EXPENSES* 2.41% 3.16%
- -------------------------------------------------------------------------------
*Because some of the Fund's expenses were waived or reimbursed, actual
total operating expenses for the prior year were (or, in the case of Class B
shares, would have been): 1.65% [ ]
These fee waivers and reimbursements may be reduced or terminated at any
time.
1 Except for investment of $500,000 or more.
2 Class B shares have a contingent deferred sales charge (CDSC) which is
deducted from your sale proceeds if you sell your Class B shares within five
years of your original purchase of the shares. In the first year after
purchase, the CDSC is 5.00% of the price at which you purchased your shares, or
the price at which you sold your shares, whichever is less, declining to 1.00%
in the fifth year after purchase.
3 The Fund invests in an underlying mutual fund. This table reflects the
expenses of the Fund and the underlying fund in which it invests.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
to the cost of investing in other mutual funds. The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you pay the maximum applicable sales charge;
o you reinvest all dividends; and
o you then sell all your shares at the end of those periods, if you own
Class A shares.
If you own Class B shares, two numbers are given, one showing your expenses if
you sold all your shares at the end of each time period and one if you held
onto your shares. The example also shows the effects of the conversion of Class
B shares to Class A shares after 8 years.
The example also assumes that:
o each investment has a 5% return each year--the assumption of a 5% return
is required by the SEC for the purpose of these examples and is not a
prediction of the Fund's future performance; and
o the Fund's operating expenses shown in the table above remain the same
before taking into consideration any fee waivers or reimbursements.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $_____ $_____ $_____ $_____
Class B
Assuming sale at $_____ $_____ $_____ $_____
end of period
Assuming no sale $_____ $_____ $_____ $_____
<PAGE>
YOUR CITIFUNDS ACCOUNT
CHOOSING A SHARE CLASS
THE FUND OFFERS TWO SHARE CLASSES, CLASS A AND CLASS B.
EACH CLASS HAS ITS OWN SALES CHARGE AND EXPENSE
STRUCTURE. PLEASE READ THE INFORMATION BELOW CAREFULLY
TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU.
<TABLE>
<CAPTION>
<S> <C>
CLASS A AT A GLANCE: CLASS B AT A GLANCE:
o Front-end load--there is an initial sales o No initial sales charge
charge of 5.00% or less
o Lower sales charge rates for larger o The deferred sales charge declines from
investments 5% to 1% over five years, and is
eliminated if you hold your shares for six
years or more
o Annual distribution/service fee of up to o Annual distribution/service fee of up to
0.25% 1.00%
o Lower annual expenses than Class B o Automatic conversion to Class A shares
shares after 8 years
</TABLE>
_______________________________________________________________________________
WHAT ARE DISTRIBUTION/SERVICE FEES?
Both Class A and Class B shares have annual DISTRIBUTION/SERVICE FEES that are
paid under a 12B-1 PLAN. These are fees, also called 12B-1 FEES, that are
deducted from Fund assets and are used to compensate those financial
professionals who sell fund shares and provide ongoing services to shareholders
and to pay other marketing and advertising expenses. Because you pay these fees
during the whole period that you own the shares, over time, you may pay more
than if you had paid other types of sales charges. For this reason, you should
consider the effects of 12b-1 fees as well as sales loads when choosing a share
class.
_______________________________________________________________________________
SALES CHARGES--CLASS A SHARES
o Class A shares are sold at net asset value plus a front-end, or initial,
sales charge. The rate you pay goes down as the amount of your investment
in Class A shares goes up. The chart below shows the rate of sales charge
that you pay, depending on the amount that you purchase.
o The chart below also shows the amount of broker/dealer compensation that
is paid out of the sales charge. This compensation includes commissions
and other fees that financial professionals who sell shares of the Fund
receive. The distributor keeps up to approximately 10% of the sales
charge imposed on Class A shares. Financial professionals that sell Class
A shares will also receive the service fee payable on Class A shares at
an annual rate equal to 0.25% of the average daily net assets represented
by the Class A shares sold by them.
<PAGE>
<TABLE>
SALES CHARGE SALES CHARGE BROKER/DEALER
AMOUNT OF AS A % OF AS A % OF COMMISSION AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR OFFERING PRICE
INVESTMENT
<S> <C> <C> <C>
Less than $25,000 5.00% 5.26% 4.50%
$25,000 to less than $50,000 4.00% 4.17% 3.60%
$50,000 to less than $100,000 3.50% 3.62% 3.15%
$100,000 to less than $250,000 3.00% 3.09% 2.70%
$250,000 to less than $500,000 2.00% 2.04% 1.80%
$500,000 or more none* none* up to 1.00%
</TABLE>
*A contingent deferred sales charge may apply in certain instances. See
below.
o After the initial sales charge is deducted from your investment, the
balance of your investment is invested in the Fund.
o The sales charge may also be waived or reduced in certain circumstances, as
described in "Sales Charge Waivers or Reductions" below. If you qualify to
purchase Class A shares without a sales load, you should purchase Class A
shares rather than Class B shares because Class A shares pay lower fees.
o If you invest at least $500,000 in the Fund, you do not pay any initial
sales charge. However, you may be charged a "contingent deferred sales
charge" (CDSC) of 1% of the purchase price, or the sale price, whichever is
less, if you sell within the first year. Under certain circumstances,
waivers may apply. Other policies regarding the application of the CDSC are
the same as for Class B shares. Please read the discussion below on Class B
shares for more information.
SALES CHARGES -- CLASS B SHARES
o Class B shares are sold without a front-end, or initial, sales charge, but
you are charged a "contingent deferred sales charge" (CDSC) when you sell
shares within five years of purchase. The rate of CDSC goes down the longer
you hold your shares. The table below shows the rates that you pay, as a
percentage of the purchase price (or the sale price, whichever is less),
depending upon when you sell your shares.
SALE DURING CDSC ON SHARES BEING SOLD
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 2%
5th year since purchase 1%
6th year(or later) since purchase none
o Financial professionals selling Class B shares receive a commission of
4.50% of the purchase price of the Class B shares that they sell, except
sales exempt from the CDSC. Financial professionals also receive a service
fee at an annual rate equal to 0.25% of the average daily net assets
represented by the Class B shares that they have sold.
<PAGE>
o When you sell your shares, the CDSC will be based on either your purchase
price, or the sale price, whichever is less.
o You do not pay a CDSC on shares acquired through reinvestment of
dividends, capital gain distributions and shares representing capital
appreciation.
o To ensure that you pay the lowest CDSC possible, the Fund will always use
the Class B shares with the lowest CDSC to fill your sell requests.
o If you acquired your Class B shares through an exchange from another fund
managed or advised by Citibank, the date of your initial investment will
be used as the basis of the CDSC calculations. If the rate of CDSC on the
shares exchanged was higher than the rate of CDSC on your Fund shares, you
will be charged the higher rate when you sell your Fund shares.
From time to time, the distributor or Citibank may provide additional
promotional bonuses, incentives or payments to dealers that sell shares of the
Fund. These may include payments for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and their guests to locations within and outside the United States for meetings
or seminars of a business nature. In some instances, these bonuses, incentives
or payments may be offered only to dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all classes of
shares.
The Fund's distributor may make payments for distribution and/or shareholder
servicing activities out of its past profits and other available sources. The
distributor may also make payments for marketing, promotional or related
expenses to dealers. The amount of these payments are determined by the
distributor and may vary. Citibank may make similar payments under similar
arrangements.
SALES CHARGE WAIVERS OR REDUCTIONS
You may reduce or eliminate your sales charge on shares if you qualify for
certain waivers or elect to participate in certain programs. These include:
Front-End Loads
o Sales charge elimination for certain eligible purchasers, including
certain tax-exempt organizations, certain employee benefit plans, certain
entities or persons with a qualifying affiliation or relationship with
Citibank, and, under certain circumstances, investors using the proceeds
of a redemption from another mutual fund for their purchase of Class A
shares. Further information about eligible purchasers may be found in the
Appendix to this prospectus.
o Reduced sales charge plan for qualified groups.
o Right of Accumulation.
o Letter of Intent.
CDSC
o Redemptions made within one year of the death of the shareholder.
o Lump sum or other distributions from IRAs and certain other retirement
accounts.
<PAGE>
You may learn more about the requirements for waiver or reduction and how the
programs work by requesting a copy of the Fund's Statement of Additional
Information, or by consulting with your financial professional.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares automatically convert to Class A shares approximately eight
years after purchase. If you acquired your shares through an exchange, the date
of your initial investment will be used to determine your conversion date. You
will receive the same dollar amount of Class A shares as the Class B shares
converted. The price of Class A shares may be higher than Class B shares at the
time of conversion, because of the lower expenses of Class A shares. Therefore,
you may receive fewer Class A shares than the number of Class B shares
converted.
HOW TO BUY SHARES
Shares of International Growth & Income Portfolio are offered continuously
and purchases may be made Monday through Friday, except on certain holidays.
Shares may be purchased from the Fund's distributor or a broker-dealer or
financial institution (called a Service Agent) that has entered into a service
agreement with the distributor concerning the Fund. Please specify whether you
are purchasing Class A or Class B shares. If you fail to so specify, Class A
shares will be purchased for your account. The Fund and the distributor have
the right to reject any purchase order or cease offering Fund shares at any
time.
Shares are purchased at net asset value (NAV) the next time it is calculated
after your order is received and accepted by the Fund's transfer agent. NAV is
the value of a single share of the Fund. If you are purchasing Class A shares,
the applicable sales charge will be added to the cost of your shares.
Your Service Agent will not transmit your purchase order for Fund shares until
it receives the purchase price in federal or other immediately available funds.
If you pay by check, the Service Agent transmits the order when the check
clears, usually within two business days.
If you are a customer of a Service Agent, your Service Agent will establish and
maintain your account and be the shareholder of record.
HOW THE PRICE OF YOUR SHARES IS CALCULATED
The Fund calculates its NAV every day the New York Stock Exchange is open for
trading. This calculation is normally made at 4:00 p.m. Eastern time. NAV is
calculated separately for each class of shares. NAV may be higher for Class A
shares because Class A shares bear lower expenses. On days when the financial
markets in which the Fund invests close early, NAV will be calculated as of the
close of those markets.
Portfolio securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. For foreign securities the values are translated
from the local currency into U.S. dollars using current exchange rates. If
trading in the currency is restricted, the Fund uses a rate believed to reflect
the currency's fair value in U.S. dollars. Trading may take place in foreign
<PAGE>
securities held by the Fund on days when the Fund is not open for business. As
a result, the Fund's NAV may change on days on which it is not possible to
purchase or sell shares of the Fund.
HOW TO SELL SHARES
You may sell (redeem) your shares on any business day without a sales charge.
The price will be the NAV the next time it is calculated after your redemption
request in proper form has been received by the Fund's transfer agent. If your
shares are subject to a CDSC, the applicable charge will be deducted from your
sale proceeds.
You may make redemption requests in writing through the Fund's transfer agent
or, if you are a customer of a Service Agent, through your Service Agent.
If your account application permits, you may also make redemption requests by
calling the Fund's transfer agent or, if you are a customer of a Service Agent,
your Service Agent. Each Service Agent is responsible for promptly submitting
redemption requests to the Fund's transfer agent. You are responsible for
making sure your redemption request is in proper form.
If you own both Class A and Class B shares, and want to sell shares, you should
specify which class of shares you wish to sell. If you fail to specify, Class A
shares will be redeemed first.
When you sell your Class B shares, they will be redeemed so as to minimize
your CDSC. Shares on which the CDSC is not payable, i.e.
o shares representing capital appreciation and
o shares representing the reinvestment of dividends and capital gain
distributions
will be sold first followed by
o shares held for the longest period of time.
You will receive your redemption proceeds in federal funds normally on the
business day after you sell your shares but generally within seven days. Your
redemption proceeds may be delayed for up to ten days if your purchase was made
by check. Your redemption proceeds may also be delayed, or your right to
receive redemption proceeds suspended, if the New York Stock Exchange is closed
(other than on weekends or holidays) or trading is restricted, or if an
emergency exists. The Fund has the right to pay your redemption proceeds by
giving you securities instead of cash. In that case, you may incur costs (such
as brokerage commissions) converting the securities into cash. You should be
aware that you may have to pay taxes on your redemption proceeds.
REINSTATING RECENTLY SOLD SHARES
For 90 days after you sell your Class A shares, the Fund permits you to
repurchase Class A shares in the Fund, up to the dollar amount of shares
redeemed, without paying any sales charges. To take advantage of this
reinstatement privilege, you must notify the Fund in writing at the time you
wish to repurchase the shares.
<PAGE>
EXCHANGES
You may exchange Fund shares for shares of the same class of certain other
CitiFunds. You may also be able to exchange your Class A shares for shares of
certain CitiFunds that offer only a single class of shares, unless your Class A
shares are subject to a contingent deferred sales charge. You may not exchange
Class B shares for shares of CitiFunds that offer only a single class of
shares. You may also acquire Fund shares through an exchange from another fund
managed by Citibank. You may place exchange orders through the transfer agent
or, if you are a customer of a Service Agent, through your Service Agent. You
may place exchange orders by telephone if your account application permits.
The transfer agent or your Service Agent can provide you with more information,
including a prospectus for any fund that may be acquired through an exchange.
The exchange will be based on the relative NAVs of both funds when they are
next determined after your order is accepted by the Fund's transfer agent. You
cannot exchange shares until the Fund has received payment in federal funds for
your shares. When you exchange your Class A shares, you will generally be
required to pay the difference, if any, between the sales charge payable on the
shares to be acquired in the exchange and the sales charge paid in connection
with your original purchase of Class A shares. When you exchange your Class B
shares, you will not pay any initial sales charge, and no CDSC is imposed when
your Class B shares are exchanged for Class B shares of certain other CitiFunds
that are made available by your Service Agent. However, you may be required to
pay a contingent deferred sales charge when you sell those shares. The length
of time that you owned Fund shares will be included in the holding period of
your new Class B shares.
The exchange privilege may be changed or terminated at any time. You should be
aware that you may have to pay taxes on your exchange.
DIVIDENDS
The Fund pays substantially all of its net income (if any) from dividends
to its shareholders of record as a dividend semi-annually.
The Fund's net realized short-term and long-term capital gains, if any, will be
distributed to Fund shareholders at least annually. The Fund may also make
additional distributions to shareholders to the extent necessary to avoid the
application of the 4% non-deductible excise tax on certain undistributed income
and net capital gains of mutual funds.
Unless you choose to receive your dividends in cash, you will receive them as
full and fractional additional Fund shares.
<PAGE>
TAX MATTERS
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation, and the status of your
account under state and local laws.
Shareholders are required to pay federal income tax on any dividends or other
distributions received, whether it is in cash or Fund shares. Generally,
distributions from 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 from long-term net capital gains will,
for tax purposes, be treated as long-term capital gains no matter how long you
have held the shares of the Fund. The tax you pay on a given capital gains
distribution generally depends on how long the Fund has held the portfolio
securities it sold, and not on how long you have held your Fund shares.
Fund distributions will reduce the Fund's net asset value per share. As a
result, shareholders who buy shares just before the Fund makes a distribution
may pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
If you sell your shares of the Fund, or exchange them for shares of another
mutual fund, you generally will be subject to tax on any taxable gain. Your
taxable gain is computed by subtracting your tax basis in the shares from the
redemption proceeds (in the case of a sale) or the value of the shares received
(in the case of an exchange).
By law, the Fund must withhold 31% of your distributions and proceeds if you
have not provided complete, correct taxpayer information.
The Fund will withhold U.S. federal income tax payments at the rate of 30% (or
any lower applicable treaty rate) on taxable dividends and other payments
subject to withholding taxes that are made to persons who are not citizens or
residents of the United States. Fund distributions received by non-U.S. persons
also may be subject to tax under the laws of their own jurisdictions.
MANAGEMENT OF THE FUND
MANAGER
International Growth & Income Portfolio draws on the strength and experience of
Citibank. Citibank is the investment manager of the Fund, and subject to
policies set by the Fund's Trustees, Citibank makes investment decisions.
Citibank, with headquarters at 153 East 53rd Street, New York, New York, has
been managing money since 1822. With its affiliates, it currently manages more
than $290 billion in assets worldwide. Citibank is a wholly-owned subsidiary of
Citicorp, which is, in turn, a wholly-owned subsidiary of Citigroup Inc.
Citigroup Inc. was formed as a result of the merger of Citicorp and Travelers
Group, Inc., which was completed on October 8, 1998. "CitiFunds" is a service
mark of Citicorp.
Citibank and its affiliates may have banking (including investment banking)
relationships with the issuers of securities that are held in the Fund.
<PAGE>
However, in making investment decisions for the Fund, Citibank does not
obtain or use material inside information acquired by any division, department
or affiliate of Citibank in the course of those relationships. Citibank and its
affiliates may have loans outstanding that are repaid with proceeds of
securities purchased by the Fund.
Citibank has delegated the daily management of the Fund to a subadviser,
Hotchkis and Wiley, 725 Figueroa Street, Suite 4000, Los Angeles, California
90017-5400. Hotchkis and Wiley is a division of Merrill Lynch Asset Management,
L.P.
Harry w. Hartford and Sarah H. Ketterer have been the portfolio managers of the
Fund since its inception. Mr. Hartford and Ms. Ketterer manage international
equity accounts and are also responsible for international investment research.
Each has served on the Investment Policy Committee at Hotchkis and Wiley since
joining the firm. Prior to joining Hotchkis and Wiley in 1994, Mr. Hartford was
with The Investment Bank of Ireland (now Bank of Ireland Asset Management), as
a senior manager, where he gained 10 years of experience in both international
and global equity management. Prior to joining Hotchkis and Wiley in 1990,
Ms. Ketterer was an associate with Bankers Trust and an analyst at Dean Witter.
MANAGEMENT FEES
For the management services Citibank and the subadviser provided to the Fund
and its underlying mutual fund during the fiscal year ended October 31, 1998,
Citibank and the subadviser received a total of 1.05% of the Fund's average
daily net assets.
MORE ABOUT THE FUND
The Fund's goal, principal investments and risks are summarized in "The Fund at
a Glance" on page ___. More information on investments, investment strategies
and risks appears below.
PRINCIPAL INVESTMENT STRATEGIES
The Fund's principal investment strategies are the strategies that, in the
opinion of Citibank and the subadviser, are most likely to achieve the Fund's
investment goal. Of course, there can be no assurance that the Fund will
achieve its goal. Please note that the Fund may also use strategies and invest
in securities that are not described below but that are described in the
Statement of Additional Information. Of course, the Fund's portfolio managers
may decide, as a matter of investment strategy, not to use the investments and
investment techniques described below and in the Statement of Additional
Information at any particular time. The Fund's goal and strategies may be
changed without shareholder approval.
The Fund invests at least 65% of its total assets in stocks in at least
three foreign markets. Ordinarily, the Fund invests in stocks of companies
located in the developed foreign markets. The Fund may also purchase securities
of issuers in developing countries. Normally the Fund invests at least 80% of
its total assets in stocks that pay dividends. It also may invest in stocks
that don't pay dividends or interest, but have growth potential unrecognized by
the market or changes in business or management that indicate growth potential.
<PAGE>
The Fund invests in equity securities, including common stocks and other
securities with common stock characteristics, like convertible preferred
stocks, convertible bonds or warrants. It may also buy bonds. Convertible
securities and bonds will be rated at least A by a nationally recognized
statistical rating organization (like Moody's Investors Service or Standard &
Poor's) or, if unrated, be of comparable quality in the portfolio manager's
opinion. The Fund's foreign debt securities are short term, with maturities of
one year or less.
After the Fund buys a bond or convertible security, it may be given a lower
rating or stop being rated. This would not require the Fund to sell the
security, but the portfolio managers will consider the change in rating in
deciding whether to keep the security.
_______________________________________________________________________________
WHAT ARE EQUITY SECURITIES?
EQUITY SECURITIES generally represent an ownership interest (or a right to
acquire an ownership interest) in an issuer, and include COMMON STOCKS,
SECURITIES CONVERTIBLE INTO COMMON STOCKS, PREFERRED STOCKS, WARRANTS for the
purchase of stock and DEPOSITARY RECEIPTS (receipts which represent the right
to receive the securities of non-U.S. issuers deposited in a U.S. or
correspondent bank). While equity securities historically have been more
volatile than fixed income securities, they historically have produced higher
levels of total return.
_______________________________________________________________________________
The Fund may hold cash pending investment, and may invest in money market
instruments, repurchase agreements and reverse repurchase agreements for cash
management purposes.
See "Risks" for more information about the risks associated with investing in
equity securities.
The Fund may use derivatives in order to protect (or "hedge") against declines
in the value of securities held by the Fund or increases in cost of securities
to be purchased in the future. The Fund may also use derivatives for non-
hedging purposes, to generate income or enhance potential gains. These
derivatives include financial futures, stock index futures, foreign currency
futures, forwards and exchange contracts, options on securities and foreign
currencies, options on interest rate and stock index futures and swap
agreements and related transactions such as caps, floors and collars. In some
cases, the derivatives purchased by the Fund are standardized contracts traded
on commodities exchanges or boards of trade. This means that the exchange or
board of trade guaranties counterparty risk. In some cases, the derivatives may
be illiquid, and the Fund may bear more counterparty risk. Derivatives may not
be available on terms that make economic sense (they may be too costly). The
Fund's ability to use derivatives may also be limited by tax considerations.
DEFENSIVE STRATEGIES. The Fund may, from time to time, take temporary
defensive positions that are inconsistent with the Fund's principal investment
strategies in attempting to respond to adverse market, political or other
conditions. When doing so, the Fund may invest without limit in high quality
money market and other short-term instruments, and may not be pursuing its
investment goal.
INVESTMENT STRUCTURE. The Fund invests in securities through an underlying
mutual fund having the same investment goal and strategies. The Fund may stop
investing in its underlying mutual fund at any time, and will do so if the
<PAGE>
Fund's Trustees believe that to be in the best interests of the Fund's
shareholders. The Fund could then invest in another mutual fund or pooled
investment vehicle or invest directly in securities.
MANAGEMENT STYLE. In purchasing and selling securities for the Fund, the Fund's
portfolio managers follow a value style. Stocks may be "undervalued" because
they are part of an industry that is out of favor with investors generally.
Even in those industries, though, individual companies may have high rates of
growth of earnings and be financially sound. At the same time, the price of
their common stock may be depressed because investors associate the companies
with their industries. Typical value factors are:
o earnings yield at least 3% greater than the yield on long-term bonds
o dividend yield that exceeds the yield on a benchmark index
o the company's overall financial strength
o low price-to-earnings ratio relative to the company's expected growth
rate
For more information, see "Manager" on page ___.
Citibank or the subadviser may use brokers or dealers for Fund transactions who
also provide brokerage and research services to the Fund or other accounts over
which Citibank, the subadviser, or their affiliates exercise investment
discretion. The Fund may "pay up" for brokerage services, meaning that it is
authorized to pay a broker or dealer who provides these brokerage and research
services a commission for executing a portfolio transaction which is higher
than the commission another broker or dealer would have charged. However, the
Fund will "pay up" only if Citibank or the subadviser determines in good faith
that the higher commission is reasonable in relation to the brokerage and
research services provided, viewed in terms of either the particular
transaction or all of the accounts over which Citibank or the subadviser
exercises investment discretion.
The Fund is actively managed. Although the portfolio managers attempt to
minimize portfolio turnover, from time to time the Fund's annual portfolio
turnover rate may exceed 100%. The sale of securities may produce capital
gains, which, when distributed, are taxable to investors. Active trading may
also increase the amount of commissions or mark-ups the Fund pays to broker or
dealers when it buys and sells securities. The "Financial Highlights" section
of this prospectus shows the Fund's historical portfolio turnover rate.
RISKS
Investing in a mutual fund involves risk. Before investing, you should consider
the risks you will assume. Certain of these risks are described below. More
information about risks appears in the Fund's Statement of Additional
Information. Remember that you may receive little or no return on your
investment in the Fund. You may lose money if you invest in this Fund.
Please remember that an investment in the Fund is not a deposit of Citibank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
MARKET RISK. This is the risk that the prices of securities will rise or fall
due to changing economic, political or market conditions, or due to a company's
<PAGE>
individual situation. The value of the Fund's shares will change daily as the
value of its underlying securities change. This means that your shares of the
Fund may be worth more or less when you sell them than when you bought them.
FOREIGN SECURITIES. Investments in foreign securities involve risks relating to
adverse political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and
foreign issuers and markets are subject.
o These risks may include expropriation of assets, confiscatory
taxation, withholding taxes on dividends and interest paid on Fund
investments, currency exchange controls and other limitations on the
use or transfer of Fund assets and political or social instability.
o Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.
o Foreign markets may be less liquid and more volatile than U.S.
markets. Rapid increases in money supply may result in speculative
investing, contributing to volatility. Also, equity securities may
trade at price-earnings multiples that are higher than those of
comparable U.S. companies, and that may not be sustainable. As a
result, there may be rapid changes in the value of foreign
securities.
o Foreign markets may offer less protection to investors. Enforcing
legal rights may be difficult, costly and slow. There may be special
problems enforcing claims against foreign governments.
o Since foreign securities often trade in currencies other than the
U.S. dollar, changes in currency exchange rates will affect the
Fund's net asset value, the value of dividends and interest earned,
and gains and losses realized on the sale of securities. An increase
in the U.S. dollar relative to these other currencies will adversely
affect the value of the Fund. In addition, some foreign currency
values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in
currency markets. Controls or intervention could limit or prevent the
Fund from realizing value in U.S. dollars from its investment in
foreign securities.
o The Fund may invest in issuers located in emerging, or developing,
markets.
o Emerging or developing countries are generally defined as
countries in the initial stages of their industrialization
cycles with low per capita income.
o All of the risks of investing in foreign securities are
heightened by investing in developing countries.
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
These markets often have provided higher rates of return, and
greater risks, to investors.
<PAGE>
EQUITY SECURITIES. Equity securities are subject to market risk that
historically has resulted in greater price volatility than exhibited by fixed
income securities.
VALUE INVESTING. The success of the Fund's investment strategy depends largely
on the skill of the Fund's portfolio managers in identifying securities of
companies that are in fact undervalued, but have good longer term business
prospects. A security may not achieve its expected value because the
circumstances causing it to be underpriced worsen (causing the security's price
to decline further) or do not change or because the portfolio managers are
incorrect in their determinations. In addition, the Fund may underperform
certain other stock funds (those emphasizing growth stocks, for example) during
periods when value stocks are out of favor.
INTEREST RATE RISK. In general, the prices of debt securities rise when
interest rates fall, and fall when interest rates rise. Longer term obligations
are usually more sensitive to interest rate changes. A change in interest rates
could cause the Fund's share price to go down.
CREDIT RISK. The Fund invests in investment grade debt securities. It is
possible that some issuers will not make payments on debt securities held by
the Fund, causing a loss. Or, an issuer may suffer adverse changes in its
financial condition that could lower the credit quality of a security, leading
to greater volatility in the price of the security and in shares of the Fund. A
change in the quality rating of a bond or other security can also affect the
security's liquidity and make it more difficult for the Fund to sell. The lower
quality debt securities in which the Fund may invest are more susceptible to
these problems than higher quality obligations.
SPECIAL CHARACTERISTICS OF CONVERTIBLE SECURITIES. Convertible securities,
which are debt securities or preferred stock that may be converted into common
stock, are subject to the market risk of stocks, and, like debt securities, are
also subject to interest rate risk and the credit risk of their issuers. Call
provisions may allow the issuer to repay the debt before it matures.
DERIVATIVES. The Fund's use of derivatives (such as futures contracts, options,
swap agreements and related transactions such as caps, floors and collars, and
forward foreign currency exchange contracts), particularly to generate income,
may be risky. This practice could result in losses that are not offset by gains
on other portfolio assets. Losses would cause the Fund's share price to go
down. There is also the risk that the counterparty may fail to honor its
contract terms. This risk becomes more acute when the Fund invests in
derivatives that are not traded on commodities exchanges or boards of trade.
The Fund's ability to use derivatives successfully depends on the portfolio
managers' ability to accurately predict movements in stock prices, interest
rates and currency exchange rates. If the portfolio managers' predictions are
wrong, the Fund could suffer greater losses than if the Fund had not used
derivatives.
YEAR 2000. The Fund could be adversely affected if the computer systems used by
the Fund or its service providers are not programmed to accurately process
information on or after January 1, 2000. The Fund, and its service providers,
are making efforts to resolve any potential Year 2000 problems. While it is
likely these efforts will be successful, the failure to implement any necessary
modifications could have an adverse impact on the Fund. The Fund also could be
<PAGE>
adversely affected if the issuers of securities held by the Fund do not solve
their Year 2000 problems, or if it costs them large amounts of money to solve
these problems.
EURO CONVERSION. The Fund may invest in securities of issuers in European
countries. Certain European countries have joined the European Economic and
Monetary Union (EMU). Each EMU participant's currency began a conversion into a
single European currency, called the euro, on January 1, 1999, to be completed
by July 1, 2002. The consequences of the euro conversion for foreign exchange
rates, interest rates and the value of European securities held by the Fund are
presently unclear. European financial markets, and therefore, the Fund, could
be adversely affected if the euro conversion does not continue as planned or if
a participating country chooses to withdraw from the EMU. The Fund could also
be adversely affected if the computing, accounting and trading systems used by
its service providers are not capable of processing transactions related to the
euro. These issues may negatively affect the operations of the companies in
which the Fund invests as well.
<PAGE>
FINANCIAL HIGHLIGHTS
This table is intended to help you understand the Fund's performance and other
financial information for the fiscal periods indicated. "Total return" shows
how much your investment in the Fund would have increased or decreased during
each period, assuming you had reinvested all dividends and distributions. These
financial statements and notes have been audited by PricewaterhouseCoopers LLP,
independent accountants for the Fund, whose report is included in the Fund's
annual report.
<PAGE>
Appendix
CLASS A SHARES - ELIGIBLE PURCHASERS:
Class A shares may be purchased without a sales charge by the following
eligible purchasers:
[] tax exempt organizations under section 501(c)(3-13) of the Internal
Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or affiliate
of Citibank acts as trustee and exercises discretionary investment
management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees for
acting as custodian
[] directors or trustees (and their immediate families), and retired
directors or trustees (and their immediate families), of any
investment company for which Citibank or any subsidiary or affiliate
of Citibank serves as the investment adviser or as a service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired employees of
Citibank and its affiliates or CFBDS and its affiliates (including
immediate families of any of the foregoing)
[] investors participating in a fee-based arrangement sponsored or
advised by Citibank or its affiliates
[] investors participating in a rewards program that offers fund shares
as an investment option based on an investor's balances in selected
Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the assurance
of the purchaser that the purchase is made for investment purposes
and that the securities will not be resold except through redemption
or repurchase
[] separate accounts used to fund certain unregistered variable annuity
contracts
[] direct rollovers by plan participants from a 401(k) plan offered to
Citigroup employees
[] shareholder accounts established through a reorganization or similar
form of business combination approved by the Fund's Board of Trustees
or by the Board of Trustees of any other CitiFund or mutual fund
managed or advised by Citibank (all of such funds being referred to
herein as CitiFunds) the terms of which entitle those shareholders to
<PAGE>
purchase shares of the Fund or any other CitiFund at net asset value
without a sales charge
[] employee benefit plans qualified under Section 401(k) of the Internal
Revenue Code with accounts outstanding on January 4, 1999
[] employee benefit plans qualified under Section 401 of the Internal
Revenue Code, including salary reduction plans qualified under
Section 401(k) of the Code, subject to minimum requirements as may be
established by CFBDS with respect to the amount of purchase;
currently, the amount invested by the qualified plan in the Fund or
in any combination of CitiFunds must total a minimum of $1 million
[] accounts associated with Copeland Retirement Programs
[] investors purchasing $500,000 or more of Class A shares; however, a
contingent deferred sales charge will be imposed on the investments
in the event of certain share redemptions within 12 months following
the share purchase, at the rate of 1% of the lesser of the value of
the shares redeemed (not including reinvested dividends and capital
gains distributions) or the total cost of the shares; the contingent
deferred sales charge on Class A shares will be waived under the same
circumstances as the contingent deferred sales charge on Class B
shares will be waived; in determining whether a contingent deferred
sales charge on Class A shares is payable, and if so, the amount of
the charge:
o it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by other
shares held for the longest period of time
o all investments made during a calendar month will age one month
on the last day of the month and each subsequent month
o any applicable contingent deferred sales charge will be deferred
upon an exchange of Class A shares for Class A shares of another
CitiFund and deducted from the redemption proceeds when the
exchanged shares are subsequently redeemed (assuming the
contingent deferred sales charge is then payable)
o the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which the
original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund (other
than a CitiFund), if:
o the redeemed shares were subject to an initial sales charge or
a deferred sales charge (whether or not actually imposed), and
o the redemption has occurred no more than 60 days prior to the
purchase of Class A shares of the Fund
<PAGE>
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a broker-
dealer which has a sales agreement with CFBDS from another investment
firm within six months prior to the date of purchase by the investor,
if:
o the investor redeems shares of another mutual fund sold through
the investment firm that previously employed that investment
consultant or other registered representative, and either paid
an initial sales charge or was at some time subject to, but did
not actually pay, a deferred sales charge or redemption fee with
respect to the redemption proceeds
o the redemption is made within 60 days prior to the investment in
the Fund, and
o the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the proceeds of
the redemption
<PAGE>
The Statement of Additional Information (SAI) provides more details about the
Fund and its policies. The SAI is incorporated by reference into this
prospectus and is legally part of it.
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance.
The Annual and Semi-Annual Reports for the Fund list its portfolio holdings and
describe its performance.
To obtain free copies of the SAI and the Annual and Semi-Annual Reports or to
make other inquiries, please call toll-free 1-800-625-4554.
The SAI is also available from the Securities and Exchange Commission. You can
find it on the SEC Internet site at http://www.sec.gov. Information about the
Fund (including the SAI) can also be reviewed and copied at the SEC's Public
Reference Room in Washington, DC. You can get information on the operation of
the public reference room by calling the SEC at 1-800-SEC-0330. You can receive
copies of this information by sending your request and a duplicating fee to the
SEC's Public reference section, Washington, DC 20549-6009.
SEC file number: 811-6154
<PAGE>
Statement of
Additional Information
March 1, 1999
CITIFUNDSSM INTERNATIONAL GROWTH & INCOME PORTFOLIO
(A Member of the CitiFundsSM Family of Funds)
CitiFunds International Trust (the "Trust") is an open-end management
investment company which was organized as a business trust under the laws of
the Commonwealth of Massachusetts on August 7, 1990. The Trust offers shares of
CitiFunds International Growth & Income Portfolio (the "Fund"), to which this
Statement of Additional Information relates, as well as shares of one other
active series. The address and telephone number of the Trust are 21 Milk
Street, Boston, Massachusetts 02109, (617) 423-1679. The Fund is permitted to
invest all or a portion of its assets in one or more other investment
companies. Currently, the Fund invests all of its investable assets in
International Portfolio (the "Portfolio"), which is a series of Asset
Allocation 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 OR ENDORSED
BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
PAGE
1. The Trust................................................................................
2. Investment Objective and Policies; Special Information Concerning Investment Structure...
3. Description of Permitted Investments and Investment Practices............................
4. Investment Restrictions..................................................................
5. Performance Information..................................................................
6. Determination of Net Asset Value; Valuation of Securities................................
7. Additional Information on the Purchase and Sale of Fund Shares and Shareholder Programs..
8. Management...............................................................................
9. Portfolio Transactions...................................................................
10. Description of Shares, Voting Rights and Liabilities.....................................
11. Certain Additional Tax Matters...........................................................
12. Certain Bank Regulatory Matters..........................................................
13. Financial Statements.....................................................................
</TABLE>
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Fund's
Prospectus, dated March 1, 1999. This Statement of Additional Information
should be read in conjunction with the Prospectus, a copy of which may be
obtained by an investor without charge by calling 1-800-625-4554.
This Statement of Additional Information incorporates by reference the
financial statements described on page ___ hereof. These financial statements
can be found in the Fund's Annual Report to Shareholders, a copy of which
accompanies this Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. THE TRUST
CitiFunds International Trust is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on August 7, 1990. Prior to January 7, 1998, the Trust was called
Landmark International Funds. This Statement of Additional Information
describes shares of CitiFunds International Growth & Income Portfolio, which is
one of two active series of the Trust. References in this Statement of
Additional Information to the "Prospectus" are to the Prospectus, dated March
1, 1999, of the Fund.
The Fund is a diversified fund. The Fund is permitted to seek its
investment objective by investing all or a portion of its assets in one or more
investment companies to the extent not prohibited by the Investment Company Act
of 1940, as amended ("the 1940 Act"), the rules and regulations thereunder, and
exemptive orders granted under the 1940 Act. Currently, the Fund invests all of
its investable assets in International Portfolio. The Portfolio is a series of
Asset Allocation Portfolios and is an open-end, diversified management
investment company. The Portfolio has the same investment objective and
policies as the Fund.
Under the 1940 Act, a diversified management investment company must
invest at least 75% of its assets in cash and cash items, U.S. Government
securities, investment company securities and other securities limited as to
any one issuer to not more than 5% of the total assets of the investment
company and not more than 10% of the voting securities of the issuer.
Because the Fund invests through the Portfolio, all references in this
Statement of Additional Information to the Fund include the Portfolio, except
as otherwise noted. In addition, references to the Trust include the Portfolio
Trust, except as otherwise noted.
Citibank, N.A. ("Citibank" or the "Manager") is the Manager of the Fund
and the Portfolio. Citibank has delegated the daily management of the
investments of the Portfolio to Hotchkis and Wiley, a division of Merrill
Lynch Asset Management, L.P. (the "Subadviser"). The Subadviser 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 they are managed, depend on the conditions and trends in
the economy and the financial marketplaces.
The Boards of Trustees of the Trust and the Portfolio Trust provide broad
supervision over the affairs of the Fund and the Portfolio, respectively.
Shares of the Fund are continuously sold by CFBDS, Inc., the Fund's distributor
("CFBDS" or the "Distributor").
2. INVESTMENT OBJECTIVE AND POLICIES;
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
The investment objective of the Fund is current income and long-term
growth of income accompanied by growth of capital. The Fund invests primarily
(i.e., at least 65% of its total assets under normal circumstances) in equity
securities of issuers in at least three non-U.S. markets. The Fund's portfolio
managers use a value oriented approach in managing the Fund. This means that
they look for securities that they believe are undervalued, or priced below
their true worth, but whose issuers have good longer term business prospects.
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.
The Prospectus contains a discussion of the principal investment
strategies of the Fund and the principal risks of investing in the Fund. The
following supplements the information contained in the Prospectus concerning
the investment policies and techniques of the Fund. The policies described
herein and those described below under "Description of Permitted Investments
and Investment Practices" are not fundamental and may be changed without
shareholder approval.
<PAGE>
As noted above, the Fund does not invest directly in securities, but
instead invests all of its investable assets in the Portfolio, which has the
same investment objective and policies as the Fund. The Portfolio, in turn,
buys, holds and sells securities in accordance with this objective and these
policies. Of course, there can be no assurance that the Fund or the Portfolio
will achieve its objective. The Trustees of the Fund believe that the aggregate
per share expenses of the Fund and the Portfolio will be less than or
approximately equal to the expenses that the Fund would incur if the assets of
the Fund were invested directly in the types of securities held by the
Portfolio.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the
best interests of the Fund to do so. Upon any such withdrawal, the Fund's
assets would continue to be invested in accordance with the investment
objective and policies described herein, either directly in securities or in
another mutual fund or pooled investment vehicle having the same investment
objective and policies. If the Fund were to withdraw, the Fund could receive
securities from the Portfolio instead of cash, causing the Fund to incur
brokerage, tax and other charges or leaving it with securities which may or may
not be readily marketable or widely diversified.
The Portfolio may change its investment objective and certain of its
investment policies and restrictions without approval by its investors, but the
Portfolio will notify the Fund (which in turn will notify its shareholders) and
its other investors at least 30 days before implementing any change in its
investment objective. A change in investment objective, policies or
restrictions may cause the Fund to withdraw its investment in the Portfolio.
Certain investment restrictions of the Portfolio described below under
"Investment Restrictions" are fundamental and cannot be changed without
approval by the investors in the Portfolio. When the Fund is asked to vote on
certain matters concerning the Portfolio, the Fund will either hold a
shareholder meeting and vote in accordance with shareholder instructions or
otherwise vote in accordance with applicable rules and regulations. Of course,
the Fund could be outvoted, or otherwise adversely affected by other investors
in the Portfolio.
The Portfolio may sell interests to investors in addition to the Fund.
These investors may be mutual funds which offer shares to their shareholders
with different costs and expenses than the Fund. Therefore, the investment
return for all investors in funds investing in the Portfolio may not be the
same. These differences in returns are also present in other mutual fund
structures. Information about other holders of interests in the Portfolio is
available from the Fund's distributor, CFBDS.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
The Fund may, but need not, invest in all of the investments and utilize
any or all of the investment techniques described in the Prospectus and herein.
The selection of investments and the utilization of investment techniques
depend on, among other things, the Manager's and, as applicable, the
Subadviser's investment strategies for the Fund, conditions and trends in the
economy and financial markets and investments being available on terms that, in
the Manager's or the Subadviser's opinion, make economic sense.
SECURITIES OF NON-U.S. ISSUERS
The Fund may invest in securities of non-U.S. issuers. Investing in
securities of foreign issuers may involve significant risks not present in
domestic 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 foreign 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 domestic issuers. Investments in securities of non-U.S. issuers
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on the
removal of funds or other assets of the Fund, political or financial
instability or diplomatic and other developments which would affect such
investments. Further, economies of other countries or areas of the world may
differ favorably or unfavorably from the economy of the U.S.
<PAGE>
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. stock markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Prices at which the Fund may acquire securities may
be affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the Fund.
Non-U.S. security trading practices, including those involving securities
settlement where the Fund's assets may be released prior to receipt of
payments, may expose the Fund to increased risk in the event of a failed trade
or the insolvency of a non-U.S. broker-dealer. In addition, foreign brokerage
commissions are generally higher than commissions on securities traded in the
U.S. and may be non-negotiable. In general, there is less overall governmental
supervision and regulation of non-U.S. securities exchanges, brokers and listed
companies than in the U.S.
The Fund may invest in issuers located in developing countries, which are
generally defined as countries in the initial stages of their industrialization
cycles with lower per capita income. All of the risks of investing in non-U.S.
securities are heightened by investing in developing countries. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to economic structures that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries with more mature economies;
such markets often have provided higher rates or return, and greater risks, to
investors. These heightened risks include (i) greater risks of expropriation,
confiscatory taxation and nationalization, and less social, political and
economic stability; (ii) the small current size of markets for securities of
issuers based in developing countries and the currently low or non-existent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the Fund's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures. Such characteristics can be expected to continue in
the future.
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 involved in U.S. investing. As a result, the operating expense ratio
of the Fund may be higher than that of investment companies investing
exclusively in U.S. securities.
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. 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.
<PAGE>
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. 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 Fund may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the U.S. or to U.S. 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.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund 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 Fund may enter into foreign
currency exchange transactions to convert U.S. currency to foreign currency and
foreign currency to U.S. currency, as well as convert foreign currency to other
foreign currencies. The Fund either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
Fund may also enter into foreign currency hedging transactions in an attempt to
protect the value of the assets of the Fund as measured in U.S. dollars from
unfavorable changes in currency exchange rates and control regulations.
(Although the Fund's assets are valued daily in terms of U.S. dollars, the
Trust does not intend to convert the Fund's holdings of other currencies into
U.S. dollars on a daily basis.)
The Fund may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Because these contracts are traded in the interbank market and not on organized
commodities or securities exchanges, these contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in the futures and options contracts
described herein. A forward contract generally has no deposit requirement, and
no fees or commissions are charged at any stage for trades.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Fund may be able
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
<PAGE>
When the Subadviser believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, the Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars, the amount of
non-U.S. currency approximating the value of some or all of the Fund'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 Fund generally does not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts obligates the Fund to deliver an amount of non-U.S. currency in
excess of the value of the Fund's securities or other assets denominated in
that currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated in the investment decisions made with
regard to overall diversification strategies. However, the Fund believes that
it is important to have the flexibility to enter into such forward contracts
when it determines that its best interests will be served.
The Fund generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, the Fund will
either sell the security and make delivery of the non-U.S. currency, or retain
the security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If the Fund retains the security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward contract prices.
If the Fund engages in an offsetting transaction, it may subsequently enter
into a new forward contract to sell the non-U.S. currency. Should forward
prices decline during the period between the date the Fund enters into a
forward contract for the sale of the non-U.S. currency and the date it enters
into an offsetting contract for the purchase of such currency, the Fund will
realize a gain to the extent the selling price of the currency exceeds the
purchase price of the currency. Should forward prices increase, the Fund will
suffer a loss to the extent that the purchase price of the currency exceeds the
selling price of the currency.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for the Fund to purchase additional non-U.S. currency on the spot market if the
market value of the security is less than the amount of non-U.S. currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of such currency. Conversely, it may be necessary to sell on the
spot market some of the non-U.S. currency received upon the sale of the
security if its market value exceeds the amount of such currency the Fund is
obligated to deliver.
The Fund may also purchase put options on a non-U.S. currency in order to
protect against currency rate fluctuations. If the Fund purchases a put option
on a non-U.S. currency and the value of the non-U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects
of the adverse movements in exchange rates. However, the benefit to the Fund
from purchases of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction or to the extent anticipated, the Fund could
sustain losses on transactions in foreign currency options which would require
it to forego a portion or all of the benefits of advantageous changes in such
rates.
The Fund may write options on non-U.S. currencies for hedging purposes or
otherwise to achieve its investment objective. For example, where the Fund
anticipates a decline in the value of the U.S. dollar value of a foreign
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund may be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the
premium. However, the writing of a currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on currencies, the Fund also may be required to forego all or a portion
of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
Put and call options on non-U.S. currencies written by the Fund will be
covered by segregation of cash and liquid securities in an account with the
custodian in an amount sufficient to discharge the Fund's obligations with
<PAGE>
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 non-U.S. currency remains
constant, and thus will reduce the value of the receipts covering such
securities. The Fund may employ any of the above described foreign currency
hedging techniques to protect the value of its assets invested in depositary
receipts.
Of course, the Fund is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Subadviser.
It should be realized that under certain circumstances, hedging arrangements to
protect the value of the Fund's securities against a decline in currency values
may not be available to the Fund on terms that make economic sense (they may be
too costly). It should also be realized that these methods of protecting the
value of the Fund's securities against a decline in the value of a currency do
not eliminate fluctuations in the underlying prices of the securities.
Additionally, although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Fund has established procedures consistent with policies of the
Securities and Exchange Commission ("SEC") concerning forward contracts. Those
policies currently require that an amount of the Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment. Therefore, the Fund expects to always have cash or liquid
securities available sufficient to cover any commitments under these contracts.
BANK OBLIGATIONS
The Fund may invest in bank obligations, i.e., certificates of deposit,
time deposits (including Eurodollar time deposits) and bankers' acceptances and
other short-term debt obligations issued by domestic banks, foreign
subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
COMMERCIAL PAPER
The Fund may invest in commercial paper, which is unsecured debt of
corporations usually maturing in 270 days or less from its date of issuance.
SECURITIES RATED BAA OR BBB
The Fund may purchase securities rated Baa by Moody's Investors Service,
Inc. or BBB by Standard & Poor's Ratings Group and securities of comparable
quality, which may have poor protection of payment of principal and interest.
These securities are often considered to be speculative and involve greater
risk of default or price changes than securities assigned a higher quality
rating due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-rated securities and may
decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
fixed-income security (a bond or preferred stock) which may be converted at a
stated price within a specified period of time into a certain quantity of
common stock or other equity securities of the same or a different issuer.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to similar non-convertible securities.
While providing a fixed-income stream (generally higher in yield than the
income derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. Convertible securities will be rated at
least A by a nationally recognized statistical rating organization (like
Moody's Investors Service or Standard & Poor's) or, if unrated, be of
comparable quality in the portfolio manager's opinion.
In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
<PAGE>
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, the Fund may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, the Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restrictions on resale and restricted
securities, unless, in the case of restricted securities, the Board of Trustees
of the Trust determines, based on the trading markets for the specific
restricted security, that it is liquid. The Trustees have adopted guidelines
and, subject to oversight by the Trustees, have delegated to the Manager or to
a subadviser the daily function of determining and monitoring liquidity of
restricted securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets (taken at market value) in
securities for which there is no readily available market. These illiquid
securities may include privately placed restricted securities for which no
institutional market exists. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements collateralized by securities
in which the Fund may otherwise invest. Repurchase agreements are agreements by
which the Fund purchases a security and simultaneously commits to resell that
security to the seller (which is usually a member bank of the U.S. Federal
Reserve System or a member firm of the New York Stock Exchange (or a subsidiary
thereof)) at an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security, usually U.S. Government
or Government agency issues. Under the 1940 Act repurchase agreements may be
considered to be loans by the buyer. The Fund's risk is limited to the ability
of the seller to pay the agreed-upon amount on the delivery date. If the seller
defaults, the underlying security constitutes collateral for the seller's
obligation to pay although the Fund may incur certain costs in liquidating this
collateral and in certain cases may not be permitted to liquidate this
collateral. All repurchase agreements entered into by the Fund are fully
collateralized, with such collateral being marked to market daily. In the event
of the bankruptcy of the other party to a repurchase agreement, the Fund could
experience delays in recovering the resale price. To the extent that, in the
meantime, the value of the securities purchased has decreased, the Fund could
experience a loss.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund and the agreement by
the Fund to repurchase the securities at an agreed-upon price, date and
interest payment. When the Fund enters into reverse repurchase transactions,
securities of a dollar amount equal in value to the securities subject to the
agreement will be segregated. The segregation of assets could impair the Fund's
ability to meet its current obligations or impede investment management if a
large portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing. In the event of the bankruptcy of the
other party to a reverse repurchase agreement, the Fund could experience delays
in recovering the securities sold. To the extent that, in the meantime, the
value of the securities sold has increased, the Fund could experience a loss.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Fund may lend its securities to broker-dealers and other
institutional borrowers. Such loans will usually be made only to member banks
of the U.S. Federal Reserve System and to member firms of the New York Stock
Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to 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 Fund
<PAGE>
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and with respect to cash collateral would
also receive compensation based on investment of cash collateral (subject to a
rebate payable to the borrower) or a fee from the borrower in the event the
collateral consists of securities. Where the borrower provides the Fund with
collateral consisting of U.S. Treasury obligations, the borrower is also
obligated to pay the Fund a fee for use of the borrowed securities. The Fund,
would not, however, have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of its 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 Subadviser to be of good
standing, and when, in the judgment of the Subadviser, the consideration which
can be earned currently from loans of this type justifies the attendant risk.
In addition, the Fund could suffer loss if the borrower terminates the loan and
the Fund is forced to liquidate investments in order to return the cash
collateral to the buyer. If the Subadviser determines to make loans, it is not
intended that the value of the securities loaned would exceed 30% of the value
of the Fund's total assets.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis, meaning that delivery of the securities occurs beyond normal
settlement times. In general, the Fund does not pay for the securities until
received and does not start earning interest until the contractual settlement
date. It is expected that, under normal circumstances, the Fund would take
delivery of such securities. When the Fund commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with SEC policies. Since those policies currently require that an
amount of the Fund's assets equal to the amount of the purchase be held aside
or segregated to be used to pay for the commitment, the Fund expects always to
have cash or liquid securities sufficient to cover any commitments or to limit
any potential risk. However, even though the Fund does not intend to make such
purchases for speculative purposes and intends to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, the Fund may have to sell assets which
have been set aside in order to meet redemptions. Also, if the Subadviser
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, the Fund would be required to
meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale
of the "when-issued" or "forward delivery" securities themselves (which may
have a value greater or less than the Fund's payment obligation). An increase
in the percentage of the Fund's assets committed to the purchase of securities
on a "when-issued basis" may increase the volatility of its net asset value.
OPTIONS
The Fund may write covered call and put options and purchase call and put
options on securities. Call and put options written by the Fund may be covered
in the manner set forth below.
A call option written by the Fund is "covered" if the Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered if the
Fund holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Fund in cash
or liquid securities in a segregated account. A put option written by the Fund
is "covered" if the Fund maintains cash or liquid securities with a value equal
to the exercise price in a segregated account, or else holds a put on the same
security and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written or where the exercise price of the put held is less than the exercise
price of the put written if the difference is maintained by the Fund in cash or
liquid securities in a segregated account. Put and call options written by the
Fund may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counterparty with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
The Fund may purchase options for hedging purposes or to increase its
return. Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit the
Fund to sell the securities at the exercise price, or to close out the options
at a profit. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of
the premium paid for the put option and by transaction costs.
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
The Fund may write (sell) covered call and put options and purchase call
and put options on stock indices. In contrast to an option on a security, an
option on a stock index provides the holder with the right, but not the
obligation, to make or receive a cash settlement upon exercise of the option,
rather than the right to purchase or sell a security. The amount of this
settlement is equal to (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of
a put) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier."
The Fund may cover call options on stock indices by owning securities
whose price changes, in the opinion of the Subadviser, are expected to be
<PAGE>
similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where the Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. The Fund may also cover call options on stock indices by holding a call
on the same index and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, short-term money
market instruments or high quality debt securities in a segregated account with
its custodian. The Fund may cover put options on stock indices by maintaining
cash, short-term money market instruments or high quality debt securities with
a value equal to the exercise price in a segregated account with its custodian,
or by holding a put on the same stock index and in the same principal amount as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written or where the exercise price of the
put held is less than the exercise price of the put written if the difference
is maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. Put and
call options on stock indices may also be covered in such other manner as may
be in accordance with the rules of the exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation
in the Fund's stock investments. By writing a put option, the Fund assumes the
risk of a decline in the index. To the extent that the price changes of
securities owned by the Fund correlate with changes in the value of the index,
writing covered put options on indices will increase the Fund's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the option.
The Fund may also purchase put options on stock indices to hedge the
Fund's investments against a decline in value. By purchasing a put option on a
stock index, the Fund will seek to offset a decline in the value of securities
it owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option does
not increase, the Fund's loss will be limited to the premium paid for the
option plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, the Fund will also bear the risk of losing all or a portion
of the premium paid if the value of the index does not rise. The purchase of
call options on stock indices when the Fund is substantially fully invested is
a form of leverage, up to the amount of the premium and related transaction
costs, and involves risks of loss and of increased volatility similar to those
involved in purchasing calls on securities the Fund owns.
The Fund may purchase and write options on foreign currencies in a manner
similar to that in which futures contracts on foreign currencies, or forward
contracts, will be utilized.
FUTURES CONTRACTS
The Fund may enter into interest rate futures contracts, stock index
futures contracts and foreign currency futures contracts. Such investment
strategies will be used for hedging purposes and for nonhedging purposes,
subject to applicable law.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts in the
United States have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and
must be executed through a futures commission merchant, or brokerage firm,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange. Futures contracts may also be traded on markets outside the
U.S.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
<PAGE>
offsetting transaction. Brokerage fees will be incurred when the Fund purchases
or sells a futures contract. At the same time such a purchase or sale is made,
the Fund must provide cash or securities as a deposit ("initial deposit") known
as "margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant
to such a contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate than the
specific security that provides the standard for the contract. In some (but not
many) cases, securities called for by a futures contract may not have been
issued when the contract was entered into.
The Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective maturity
or duration of the Fund's investment portfolio in an effort to reduce potential
losses or enhance potential gain, without actually buying or selling debt
securities. For example, if interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as if the Fund sold bonds that it owned, or as
if the Fund sold longer-term bonds and purchased shorter-term bonds. If
interest rates did increase, the value of the Fund's debt securities would
decline, but the value of the futures contracts would increase, thereby keeping
the net asset value of the Fund from declining as much as it otherwise would
have. Similar results could be accomplished by selling bonds, or by selling
bonds with longer maturities and investing in bonds with shorter maturities.
However, by using futures contracts, the Fund avoids having to sell its
securities.
Similarly, when it is expected that interest rates may decline, the Fund
might enter into futures contracts for the purchase of debt securities. Such a
purchase would be intended to have much the same effect as if the Fund
purchased bonds, or as if the Fund sold shorter-term bonds and purchased
longer-term bonds. If interest rates did decline, the value of the futures
contracts would increase.
The Fund may enter into stock index futures contracts to gain stock market
exposure while holding cash available for investments and redemptions and may
sell such contracts to protect against a decline in the stock market.
The Fund may purchase and sell foreign currency futures contracts to
attempt to protect its current or intended investments from fluctuations in
currency exchange rates. Such fluctuations could reduce the dollar value of
portfolio securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant.
The Fund may sell futures contracts on a foreign currency, for example, where
it holds securities denominated in such currency and it anticipates a decline
in the value of such currency relative to the dollar. In the event such decline
occurs, the resulting adverse effect on the value of foreign- denominated
securities may be offset, in whole or in part, by gains on the futures
contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. Where the Fund purchases futures contracts under
such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if the Fund
sells a futures contract to protect against losses in the securities held by
the Fund), at the same time the futures contract limits any potential gain
which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of the
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Fund's securities. If
the security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by gains
on the Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where the Fund enters into futures transactions other than for hedging
purposes, the effectiveness of its strategy may be affected by lack of
correlation between changes in the value of the futures contracts and changes
in value of the securities which the Fund would otherwise buy or sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
<PAGE>
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. While the Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing
variation margin requirements. The inability to close out futures positions
also could have an adverse impact on the ability effectively to use futures
transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges,
which limit the amount of fluctuation in the price of a futures contract during
a single trading day and prohibit trading beyond such limits once they have
been reached. The trading of futures contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in futures contracts also entail the risk that if the
Subadviser's investment judgment about the general direction of interest rates,
equity markets, or other economic factors is incorrect, the Fund's overall
performance may be poorer than if any such contract had not been entered into.
For example, if the Fund hedged against the possibility of an increase in
interest rates which would adversely affect the price of the Fund's bonds and
interest rates decrease instead, part or all of the benefit of the increased
value of the Fund's bonds which were hedged will be lost because the Fund will
have offsetting losses in its futures positions. Similarly, if the Fund
purchases futures contracts expecting a decrease in interest rates and interest
rates instead increased, the Fund will have losses in its futures positions
which will increase the amount of the losses on the securities in its portfolio
which will also decline in value because of the increase in interest rates. In
addition, in such situations, if the Fund has insufficient cash, the Fund may
have to sell bonds from its investments to meet daily variation margin
requirements, possibly at a time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has established
a number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Manager
and the Subadviser do not believe that these trading and position limits would
have an adverse impact on the Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that the Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit the Fund from purchasing
or selling futures contracts (other than for bona fide hedging transactions)
if, immediately thereafter, the sum of the amount of initial margin required to
establish the Fund's non-hedging futures positions would exceed 5% of the
Fund's net assets.
The Fund will comply with this CFTC requirement, and the Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by the Fund in a segregated
account so that the amount so segregated, plus the applicable margin held on
deposit, will be approximately equal to the amount necessary to satisfy the
Fund's obligations under the futures contract. The second is that the Fund will
not enter into a futures contract if immediately thereafter the amount of
initial margin deposits on all the futures contracts held by the Fund would
exceed approximately 5% of the net assets of the Fund. The third is that the
aggregate market value of the futures contracts held by the Fund not exceed
approximately 50% of the market value of the Fund's total assets other than its
futures contracts. For purposes of this third policy, "market value" of a
futures contract is deemed to be the amount obtained by multiplying the number
of units covered by the futures contract times the per unit price of the
securities covered by that contract.
The use of futures contracts potentially exposes the Fund to the effects
of "leveraging," which occurs when futures are used so that the Fund's exposure
to the market is greater than it would have been if the Fund had invested
directly in the underlying securities. "Leveraging" increases the Fund's
potential for both gain and loss. As noted above, the Fund intends to adhere to
certain policies relating to the use of futures contracts, which should have
the effect of limiting the amount of leverage by the Fund.
The use of futures contracts may increase the amount of taxable income of
the Fund and may affect the amount, timing and character of the Fund's income
for tax purposes, as more fully discussed herein in the section entitled
"Certain Additional Tax Matters."
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write options to buy or sell futures contracts
in which the Fund may invest. Such investment strategies will be used for
hedging purposes and for non-hedging purposes, subject to applicable law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
<PAGE>
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date), as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by the Fund on
U.S. exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC
and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.
The Fund may cover the writing of call options on futures contracts (a)
through purchases of the underlying futures contract, (b) through ownership of
the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract and
in the same principal amount as the call written where the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or securities in a segregated
account with its custodian. The Fund may cover the writing of put options on
futures contracts (a) through sales of the underlying futures contract, (b)
through segregation of cash, short-term money market instruments or high
quality debt securities in an amount equal to the value of the security or
index underlying the futures contract, (c) through the holding of a put on the
same futures contract and in the same principal amount as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written or where the exercise price of the put held is less
than the exercise price of the put written if the difference is maintained by
the Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. Put and call options on
futures contracts may also be covered in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Upon the exercise of a call option on a
futures contract written by the Fund, the Fund will be required to sell the
underlying futures contract which, if the Fund has covered its obligation
through the purchase of such contract, will serve to liquidate its futures
position. Similarly, where a put option on a futures contract written by the
Fund is exercised, the Fund will be required to purchase the underlying futures
contract which, if the Fund has covered its obligation through the sale of such
contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. The Fund will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may
have occurred in the Fund's security holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If
the Fund writes an option on a futures contract and that option is exercised,
the Fund may incur a loss, which loss will be reduced by the amount of the
option premium received, less related transaction costs. The Fund's ability to
hedge effectively through transactions in options on futures contracts depends
on, among other factors, the degree of correlation between changes in the value
of securities held by the Fund and changes in the value of its futures
positions. This correlation cannot be expected to be exact, and the Fund bears
a risk that the value of the futures contract being hedged will not move in the
same amount, or even in the same direction, as the hedging instrument. Thus it
may be possible for the Fund to incur a loss on both the hedging instrument and
the futures contract being hedged.
The Fund may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For example,
where a decrease in the value of portfolio securities is anticipated as a
result of a projected market-wide decline or changes in interest or exchange
rates, the Fund could, in lieu of selling futures contracts, purchase put
options thereon. In the event that such decrease occurs, it may be offset, in
whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call options on futures contracts, rather than
purchasing the underlying futures contracts.
<PAGE>
SWAPS AND RELATED TRANSACTIONS
The Fund may enter into interest rate swaps, currency swaps, equity swaps
and other types of available swap agreements, such as caps, collars and floors,
for the purpose of attempting to obtain a particular desired return at a lower
cost to the Fund than if the Fund had invested directly in an instrument that
yielded that desired return. In a standard swap agreement, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on a particular predetermined investment or investments. Interest rate swaps
involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest. An equity swap is an agreement to
exchange cash flows on a principal amount based on changes in the values of the
reference index. A currency swap is an agreement to exchange cash flows on a
principal amount based on changes in the values of the currency exchange rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the counterparty selling such interest rate cap. The sale of an interest
rate floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
The Fund will maintain liquid assets with its custodian to cover its
current obligations under swap transactions. If the Fund enters into a swap
agreement on a net basis (i.e., the two payments streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments), the Fund will maintain liquid assets with its custodian with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, it will maintain liquid assets with a
value equal to the full amount of the Fund's accrued obligations under the
agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity, currency or other
factor that determines the amount of payments to be made under the arrangement.
If the Manager or the Subadviser is incorrect in its forecasts of such factors,
the investment performance of the Fund would be less than what it would have
been if these investment techniques had not been used. If a swap agreement
calls for payments by the Fund, the Fund must be prepared to make such payments
when due. The Fund will not enter into any swap unless the Manager or
Subadviser deems the counterparty to be creditworthy. If the counterparty's
creditworthiness declined, the value of the swap agreement would be likely to
decline, potentially resulting in losses. If the counterparty defaults, the
Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. The Fund anticipates that it will be able to
eliminate or reduce its exposure under these arrangements by assignment or
other disposition or by entering into an offsetting agreement with the same or
another counterparty.
Swap agreements are subject to the Fund's overall limit that not more than
15% of its net assets may be invested in illiquid securities, and the Fund will
not enter into a swap agreement with any single party if the net amount owed or
to be received under existing contracts with that party would exceed 5% of the
Fund's assets.
FURTHER INFORMATION REGARDING DERIVATIVES
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, the Fund may sell futures contracts on an index
of securities in order to profit from any anticipated decline in the value of
the securities comprising the underlying index. In such instances, any losses
on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
Options, futures contracts, options on futures contracts, forward
contracts, and swaps may be used alone or in combinations in order to create
synthetic exposure to securities in which the Fund otherwise invests, such as
non-U.S. government securities.
DEFENSIVE STRATEGIES
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, the Fund may invest without limit in cash and
in U.S. dollar-denominated high quality money market and short-term
instruments. These investments may result in a lower yield than would be
available from investments in a lower quality or longer term.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio Trust, on behalf of
the Portfolio, have each adopted the following policies which may not be
changed with respect to the Fund or Portfolio without approval by holders of a
majority of the outstanding voting securities of the Fund or Portfolio, which
as used in this Statement of Additional Information means the vote of the
lesser of (i) 67% or more of the outstanding voting securities of the Fund or
Portfolio present at a meeting at which the holders of more than 50% of the
outstanding voting securities of the Fund or Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Fund or Portfolio. The term "voting securities" as used in
this paragraph has the same meaning as in the 1940 Act.
<PAGE>
Neither the Fund nor the Portfolio may:
(1) Borrow money, except that as a temporary measure for
extraordinary or emergency purposes it may borrow in an amount not to
exceed 1/3 of the current value of its net assets, including the amount
borrowed, or purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Fund or Portfolio, taken at market
value. It is intended that the Fund and Portfolio would borrow money only
from banks and only to accommodate requests for the repurchase of shares
of the Fund or beneficial interests in the Portfolio while effecting an
orderly liquidation of portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of
the Fund's or Portfolio's total assets (taken at market value), (b)
through the use of repurchase agreements or fixed time deposits or the
purchase of short-term obligations or (c) by purchasing all or a portion
of an issue of debt securities of types commonly distributed privately to
financial institutions. The purchase of short-term commercial paper or a
portion of an issue of debt securities which is part of an issue to the
public shall not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund or
Portfolio more than 10% of the voting securities of such issuer to be held
by the Fund or Portfolio; provided that, for purposes of this restriction,
the issuer of an option or futures contract shall not be deemed to be the
issuer of the security or securities underlying such contract; and
provided further that the Fund and Portfolio may invest all or any portion
of their respective assets in one or more investment companies, to the
extent not prohibited by the 1940 Act, the rules and regulations
thereunder, and exemptive orders granted under such Act.
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's or Portfolio's total assets
more than 5% of the Fund's or Portfolio's assets (taken at market value)
to be invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or
political subdivision thereof, or any political subdivision of any such
state, or any agency or instrumentality of the United States or of any
state or of any political subdivision of any state); provided that, for
purposes of this restriction, the issuer of an option or futures contract
shall not be deemed to be the issuer of the security or securities
underlying such contract; and provided further that the Fund and Portfolio
may invest all or any portion of its assets in one or more investment
companies, to the extent not prohibited by the 1940 Act, the rules and
regulations thereunder, and exemptive orders granted under such Act.
(5) Concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of the Fund's or Portfolio's
investment objective, up to 25% of its assets, at market value at the time
of each investment, may be invested in any one industry, except that
positions in futures contracts shall not be subject to this restriction.
(6) Underwrite securities issued by other persons, except that all or
any portion of the assets of the Fund or Portfolio may be invested in one
or more investment companies, to the extent not prohibited by the 1940
Act, the rules and regulations thereunder, and exemptive orders granted
under such Act, and except insofar as the Fund or Portfolio may
technically be deemed an underwriter under the Securities Act in selling a
security.
(7) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts in the ordinary course of business (the foregoing
shall not be deemed to preclude the Fund or Portfolio from purchasing or
selling futures contracts or options thereon, and the Fund and Portfolio
reserve the freedom of action to hold and to sell real estate acquired as
a result of the ownership of securities by the Fund or Portfolio).
(8) Issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder.
If a percentage restriction or rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities or a
later change in the rating of the securities held for the Fund or Portfolio is
not considered a violation of policy.
5. PERFORMANCE INFORMATION
Fund performance may be quoted in advertising, shareholder reports and
other communications in terms of yield, effective yield or total rate of
return. All performance information is historical and is not intended to
indicate future performance. Yield and total rates of return fluctuate in
response to market conditions and other factors, and the value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
<PAGE>
investment in the Fund over a stated period, reflects any change in net asset
value per share and is compounded to include the value of any shares purchased
with any dividends or capital gains declared during such period. Period total
rates of return may be "annualized." An "annualized" total rate of return
assumes that the period total rate of return is generated over a one-year
period.
A total rate of return quotation for the Fund is calculated for any period
by (a) dividing (i) the sum of the net asset value per share on the last day of
the period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price 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.
Total returns calculated for the Fund for any period which includes a
period prior to the commencement of operations of the Fund will reflect the
historical performance of the Portfolio, as adjusted for Fund expenses.
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.
A current yield quotation for the Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the
last day of the period, (b) subtracting 1 from the result, and (c) multiplying
the result by 2.
Set forth below is total rate of return information for the Class A shares
of the Fund for the periods indicated, assuming that dividends and capital
gains distributions, if any, were reinvested. All outstanding shares were
designated Class A shares on January 4, 1999. The return information relates to
periods prior to January 4, 1999, when there were no sales charges on the
purchase or sale of the Fund's shares. The Class A performance for past periods
has therefore been adjusted to reflect the maximum sales charge currently in
effect. The Class B shares are newly offered and have no investment history.
Performance results include any applicable fee waivers or expense subsidies in
place during the time period, which may cause the results to be more favorable
than they would otherwise have been.
<TABLE>
<CAPTION>
REDEEMABLE VALUE
OF A HYPOTHETICAL
$1,000 INVESTMENT
CITIFUNDS INTERNATIONAL ANNUALIZED TOTAL AT THE END OF THE
GROWTH & INCOME PORTFOLIO RATE OF RETURN PERIOD
<S> <C> <C>
_______ __, 1998 (commencement of operations) to
October 31, 1998
</TABLE>
The annualized yield of shares of the Fund for the 30-day period ended
October 31, 1998 was ____%.
The following table sets forth the average annual total returns for the
periods ended December 31, 1998 for the International Fund, a series of the
Hotchkis and Wiley Funds. The International Fund is an existing registered
investment company managed by the Subadviser that began operations on October
1, 1990 and, as of December 31, 1998, had approximately $__________ in assets.
The investment objective, policies and strategies of the International Fund are
substantially similar to those of the Fund and the Portfolio. The International
Fund is managed in a manner that is in all material respects the same as the
Portfolio is managed.
The data in the table is provided to illustrate the past performance of
the Subadviser in managing a substantially similar mutual fund and does not
represent the performance of the Fund or Portfolio. Investors should not
<PAGE>
consider this performance data as an indication of future performance of the
Fund, the Portfolio or the Subadviser. The performance of the Fund may be
greater or less than the performance of the International Fund due to, among
other things, differences in expenses and cash flows. The Fund's expense ratio
is expected to be higher than that of the International Fund, which would make
the performance of the Fund lower than that of the International Fund. The
Subadviser also manages other accounts with substantially similar investment
objectives and returns to the International Fund, performance for which
accounts has been excluded.
1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
International Fund* _____% _____% _____%
*Average annual returns reflect changes in share prices and reinvestment of
dividends and distributions and are net of fund expenses.
Comparative performance information may be used from time to time in
advertising shares of the Fund, including data from Lipper Analytical Services,
Inc. and other industry sources and publications. From time to time the Fund
may compare its performance against inflation with the performance of other
instruments against inflation, such as FDIC-insured bank money market accounts.
In addition, advertising for the Fund may indicate that investors should
consider diversifying their investment portfolios in order to seek protection
of the value of their assets against inflation. From time to time, advertising
materials for the Fund may refer to or discuss current or past economic or
financial conditions, developments and events. The Fund's advertising materials
also may refer to the integration of the world's securities markets, discuss
the investment opportunities available worldwide and mention the increasing
importance of an investment strategy including non-U.S. investments.
For advertising and sales purposes, the Fund will generally use the
performance of Class A shares. All outstanding Fund shares were designated
Class A shares on January 4, 1999. Performance prior to that date will be
adjusted to include the sales charges currently in effect. Class A shares are
sold at net asset value plus a current maximum sales charge of 5.00%.
Performance will typically include this maximum sales charge for the purposes
of calculating performance figures. If the performance of Class B shares is
used for advertising and sales purposes, performance after class inception on
January 4, 1999 will be actual performance, while performance prior to that
date will be Class A performance, adjusted to reflect the differences in sales
charges (but not the differences in fees and expenses) between the classes. For
these purposes, it will be assumed that the maximum contingent deferred sales
charge applicable to the Class B shares is deducted at the times, in the
amount, and under the terms stated in the Prospectus. Class B share performance
generally would have been lower than Class A performance, had the Class B
shares been offered for the entire period, because the expenses attributable to
Class B shares are higher than the expenses attributable to the Class A shares.
Fund performance may also be presented in advertising and sales literature
without the inclusion of sales charges.
6. DETERMINATION OF NET ASSET VALUE;
VALUATION OF SECURITIES
The net asset value per share of the Fund is determined for each class on
each day which the New York Stock Exchange is open for trading ("Business
Day"). As of the date of this Statement of Additional Information, the Exchange
is open for trading every weekday except for the following holidays (or the
days on which they are observed): New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. This determination of net asset value is
made once each day as of the close of regular trading on such Exchange
(normally 4:00 p.m. Eastern time) by adding the market value of all securities
and other assets attributable to the class (including its interest in the
Portfolio), then subtracting the liabilities attributable to that class, and
then dividing the result by the number of outstanding shares of the class. The
net asset value per share is effective for orders received and accepted by the
Transfer Agent prior to its calculation.
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 or if there are no market rates, at
fair value, 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 foreign
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
<PAGE>
pricing service, use of which has been approved by the Board of Trustees of the
Trust. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the- counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Short-term obligations (maturing in 60 days or less) are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees of
the Trust. Futures contracts are normally valued at the settlement price on the
exchange on which they are traded. Securities for which there are no such
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the New
York Stock Exchange and may also take place on days on which the Exchange is
closed. If events materially affecting the value of foreign 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 plus amortization of premiums.
7. ADDITIONAL INFORMATION ON THE PURCHASE AND SALE
OF FUND SHARES AND SHAREHOLDER PROGRAMS
As described in the Prospectus, the Fund provides you with alternative
ways of purchasing shares based upon your individual investment needs.
Each class of shares of the Fund represents an interest in the same
portfolio of investments. Each class is identical in all respects except that
each class bears its own class expenses, including distribution and service
fees, and each class has exclusive voting rights with respect to any
distribution or service plan applicable to its shares. As a result of the
differences in the expenses borne by each class of shares, net income per
share, dividends per share and net asset value per share will vary for each
class of shares. There are no conversion, preemptive or other subscription
rights, except that Class B shares automatically convert to Class A shares in
eight years as more fully described below.
Shareholders of each class will share expenses proportionately for
services that are received equally by all shareholders. A particular class of
shares will bear only those expenses that are directly attributable to that
class, where the type or amount of services received by a class varies from one
class to another. [The expenses that may be borne by specific classes of shares
may include (i) transfer agency fees attributable to a specific class of
shares, (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class of shares, (iii) SEC and
state securities registration fees incurred by a specific class, (iv) the
expense of administrative personnel and services required to support the
shareholders of a specific class of shares, (v) litigation or other legal
expenses relating to a specific class of shares, (vi) accounting expenses
relating to a specific class of shares and (vii) any additional incremental
expenses subsequently identified and determined to be properly allocated to one
or more classes of shares.]
CLASS A SHARES
You may purchase Class A shares at a public offering price equal to the
applicable net asset value per share plus an up-front sales charge imposed at
the time of purchase as set forth in the Prospectus. You may qualify for a
reduced sales charge depending upon the amount of your purchase, or the sales
charge may be waived in its entirety, as described below under "Sales Charge
Waivers." If you qualify to purchase Class A shares without a sales load, you
should purchase Class A shares rather than Class B shares because Class A
shares pay lower fees. Class A shares are also subject to an annual
distribution/service fee of up to .25%. See "Distributor." Set forth below is
an example of the method of computing the offering price of the Class A shares
of the Fund. The example assumes a purchase on October 31, 1998 of Class A
shares from the Fund aggregating less than $25,000 subject to the schedule of
sales charges set forth below.
- --------------------------------------------- -----------------------------
CITIFUNDS INTERNATIONAL
GROWTH & INCOME PORTFOLIO
- --------------------------------------------- -----------------------------
Net Asset Value per share $
- --------------------------------------------- -----------------------------
Per Share Sales Charge - 5.00% of public $
offering price (5.26% of net asset value per
share)
- --------------------------------------------- -----------------------------
Per Share Offering Price to the Public $
- --------------------------------------------- -----------------------------
The Fund receives the entire net asset value of all Class A shares that are
sold. The Distributor retains the full applicable sales charge from which it
pays the uniform reallowances shown in the table below.
The front-end sales charge for Class A shares expressed as a percentage of
offering price and net asset value, and the dealer reallowance expressed as a
<PAGE>
percentage of the offering price is set forth in the table below. The Fund has
established certain shareholder programs that may permit you to take advantage
of the lower rates available for larger purchases, as described under
"Shareholder Programs" below.
- ---------------------------------- ------------- ------------- ----------------
SALES CHARGE SALES CHARGE DEALER
AS A % OF AS A % OF REALLOWANCE AS
AMOUNT OF OFFERING INVESTMENT A % OF
INVESTMENT PRICE OFFERING PRICE
- ---------------------------------- ------------- ------------- ----------------
Less than $25,000 5.00% 5.26% 4.50%
- ---------------------------------- ------------- ------------- ----------------
$25,000 to less than $50,000 4.00% 4.17% 3.60%
- ---------------------------------- ------------- ------------- ----------------
$50,000 to less than $100,000 3.50% 3.62% 3.15%
- ---------------------------------- ------------- ------------- ----------------
$100,000 to less than $250,000 3.00% 3.09% 2.70%
- ---------------------------------- ------------- ------------- ----------------
$250,000 to less than $500,000 2.00% 2.04% 1.80%
- ---------------------------------- ------------- ------------- ----------------
$500,000 or more none* none* up to 1.00%
- ---------------------------------- ------------- ------------- ----------------
*A contingent deferred sales charge may apply in certain instances. See "Sales
Charge Waivers--Class A" below.
CLASS B SHARES
Class B shares are sold without a front-end, or initial, sales charge,
but you are charged a "contingent deferred sales charge" (CDSC) when you sell
shares within five years of purchase. The rate of CDSC goes down the longer you
hold your shares. The table below shows the rates that you pay, as a percentage
of the purchase price (or the sale price, whichever is less), depending upon
when you sell your shares.
- ------------------------------------ --------------------------------------
SALE DURING CDSC ON SHARES BEING SOLD
- ------------------------------------ --------------------------------------
1st year since purchase 5%
- ------------------------------------ --------------------------------------
2nd year since purchase 4%
- ------------------------------------ --------------------------------------
3rd year since purchase 3%
- ------------------------------------ --------------------------------------
4th year since purchase 2%
- ------------------------------------ --------------------------------------
5th year since purchase 1%
- ------------------------------------ --------------------------------------
6th year (or later) since purchase None
- ------------------------------------ --------------------------------------
Class B shares pay distribution/service fees of up to 1.00% of the average
daily net assets of the Fund represented by the Class B shares. The Distributor
pays commissions to brokers, dealers and other institutions of 4.50% of the
offering price of Class B shares sold by these entities. These commissions are
not paid on exchanges from other CitiFunds or on sales of Class B shares to
investors exempt from the CDSC. The Distributor is compensated for these
payments through the receipt of the ongoing distribution fees from the Fund,
and through the CDSC, if any. The Distributor will also advance the first year
service fee to dealers at an annual rate equal to 0.25% of the average daily
net assets represented by Class B shares sold by them. As a result, the total
amount paid to a dealer upon the purchase of Class B shares may be a maximum of
4.75% of the purchase price of the Class B shares.
When you sell your shares, the CDSC will be based on either your purchase
price, or the sale price, whichever is less. You do not pay a CDSC on shares
acquired through reinvestment of dividends, capital gain distributions and
shares representing capital appreciation. The Fund will assume that a
redemption of Class B shares is made:
[] first, of Class B shares representing capital appreciation
[] next, of shares representing the reinvestment of dividends and capital
gains distributions
[] finally, of other shares held by the investor for the longest period
of time.
Under certain circumstances, as set forth below in "Sales Charge Waivers," the
CDSC will be waived.
The holding period of Class B shares of the Fund acquired through an
exchange with another CitiFund will be calculated from the date that the Class
B shares were initially acquired in the other CitiFund, and Class B shares
being redeemed will be considered to represent, as applicable, capital
appreciation or dividend and capital gains distribution reinvestments in the
other fund. When determining the amount of the CDSC, the Fund will use the CDSC
schedule of any fund from which you have exchanged shares that would result in
you paying the highest CDSC.
SALES CHARGE WAIVERS
In certain circumstances, the initial sales charge imposed on purchases of
Class A shares, and the CDSC imposed upon sales of Class A or Class B shares,
are waived. Waivers are generally instituted in order to promote good will with
persons or entities with which Citibank or the Distributor or their affiliates
have business relationships, or because the sales effort, if any, involved in
making such sales is negligible, or, in the case of certain CDSC waivers,
because the circumstances surrounding the sale of Fund shares were not
foreseeable or voluntary. These sales charge waivers may be modified or
discontinued at any time.
<PAGE>
CLASS A--FRONT-END SALES CHARGE
o Reinvestment. The sales charge does not apply to Class A shares
acquired through the reinvestment of dividends and capital gains
distributions.
o Eligible Purchasers. Class A shares may be purchased without a sales
charge by:
[] tax exempt organizations under Section 501(c)(3-13) of the
Internal Revenue Code
[] trust accounts for which Citibank, N.A or any subsidiary or
affiliate of Citibank acts as trustee and exercises
discretionary investment management authority
[] accounts for which Citibank or any subsidiary or affiliate of
Citibank performs investment advisory services or charges fees
for acting as custodian
[] directors or trustees (and their immediate families), and
retired directors or trustees (and their immediate families), of
any investment company for which Citibank or any subsidiary or
affiliate of Citibank serves as the investment adviser or as a
service agent
[] employees of Citibank and its affiliates, CFBDS, Inc. and its
affiliates or any Service Agent and its affiliates (including
immediate families of any of the foregoing), and retired
employees of Citibank and its affiliates or CFBDS, Inc. and its
affiliates (including immediate families of the foregoing)
[] investors participating in a fee-based arrangement sponsored or
advised by Citibank or its affiliates
[] investors participating in a rewards program that offers Fund
shares as an investment option based on an investor's balances
in selected Citigroup Inc. products and services
[] employees of members of the National Association of Securities
Dealers, Inc., provided that such sales are made upon the
assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold
except through redemption or repurchase
[] separate accounts used to fund certain unregistered variable
annuity contracts
[] direct rollovers by plan participants from a 401(k) plan offered
to Citigroup employees
[] shareholder accounts established through a reorganization or
similar form of business combination approved by the Fund's
Board of Trustees or by the Board of Trustees of any other
CitiFund or mutual fund managed or advised by Citibank (all of
such funds being referred to herein as CitiFunds) the terms of
which entitle those shareholders to purchase shares of the Fund
or any other CitiFund at net asset value without a sales charge
[] employee benefit plans qualified under Section 401(k) of the
Internal Revenue Code with accounts outstanding on January 4,
1999
[] employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans
qualified under Section 401(k) of the Code, subject to minimum
requirements as may be established by CFBDS with respect to the
amount of purchase; currently, the amount invested by the
qualified plan in the Fund or in any combination of CitiFunds
must total a minimum of $1 million
[] accounts associated with Copeland Retirement Systems
[] investors purchasing $500,000 or more of Class A shares;
however, a contingent deferred sales charge will be imposed on
the investments in the event of certain share redemptions within
12 months following the share purchase, at the rate of 1% of the
lesser of the value of the shares redeemed (not including
reinvested dividends and capital gains distributions) or the
total cost of the shares; the contingent deferred sales charge
on Class A shares will be waived under the same circumstances as
the contingent deferred sales charge on Class B shares will be
waived; in determining whether a contingent deferred sales
charge on Class A shares is payable, and if so, the amount of
the charge:
+ it is assumed that shares not subject to the contingent
deferred sales charge are the first redeemed followed by
other shares held for the longest period of time
+ all investments made during a calendar month will age one
month on the last day of the month and each subsequent
month
+ any applicable contingent deferred sales charge will be
deferred upon an exchange of Class A shares for Class A
shares of another CitiFund and deducted from the redemption
proceeds when the exchanged shares are subsequently
redeemed (assuming the contingent deferred sales charge is
then payable)
+ the holding period of Class A shares so acquired through an
exchange will be aggregated with the period during which
the original Class A shares were held
[] subject to appropriate documentation, investors where the amount
invested represents redemption proceeds from a mutual fund
(other than a CitiFund), if:
<PAGE>
+ the redeemed shares were subject to an initial sales charge
or a deferred sales charge (whether or not actually
imposed), and
+ the redemption has occurred no more than 60 days prior to
the purchase of Class A shares of the Fund
[] an investor who has a business relationship with an investment
consultant or other registered representative who joined a
broker-dealer which has a sales agreement with CFBDS from
another investment firm within six months prior to the date of
purchase by the investor, if:
+ the investor redeems shares of another mutual fund sold
through the investment firm that previously employed that
investment consultant or other registered representative,
and either paid an initial sales charge or was at some time
subject to, but did not actually pay, a deferred sales
charge or redemption fee with respect to the redemption
proceeds
+ the redemption is made within 60 days prior to the
investment in the Fund, and
+ the net asset value of the shares of the Fund sold to that
investor without a sales charge does not exceed the
proceeds of the redemption
CONTINGENT DEFERRED SALES CHARGE:
o Reinvestment. There is no CDSC on shares representing capital
appreciation or on shares acquired through reinvestment of
dividends or capital gains distributions.
o Waivers. The CDSC will be waived in connection with:
[] exchanges into certain CitiFunds
[] a total or partial redemption made within one year of the death
of the shareholder; this waiver is available where the deceased
shareholder is either the sole shareholder or owns the shares
with his or her spouse as a joint tenant with right of
survivorship, and applies only to redemption of shares held at
the time of death
[] a lump sum or other distribution in the case of an Individual
Retirement Account (IRA), a self-employed individual retirement
plan (Keogh Plan) or a custodian account under Section 403(b) of
the Internal Revenue Code, in each case following attainment of
age 59 1/2
[] a total or partial redemption resulting from any distribution
following retirement in the case of a tax-qualified retirement
plan
[] a redemption resulting from a tax-free return of an excess
contribution to an IRA
AUTOMATIC CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A
shares in the Fund approximately eight years after the date of issuance. At the
same time, a portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares will be converted in accordance
with procedures from time to time approved by the Fund's Trustees. The
conversion will be effected at the relative net asset values per share of the
two classes on the first business day of the month in which the eighth
anniversary of the issuance of the Class B shares occurs. If a shareholder
effects one or more exchanges among Class B shares of the CitiFunds during the
eight-year period, the holding periods for the shares so exchanged will be
counted toward the eight-year period. Because the per share net asset value of
the Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
SHAREHOLDER PROGRAMS
The Fund makes the following programs available to shareholders to enable
them to reduce or eliminate the front-end sales charges on Class A shares or to
exchange Fund shares for shares of other CitiFunds, without, in many cases, the
payment of a sales charge. These programs may be changed or discontinued at any
time. For more information, please contact your Service Agent.
REDUCED SALES CHARGE PLAN
A qualified group may purchase shares as a single purchaser under the
reduced sales charge plan. The purchases by the group are lumped together and
the sales charge is based on the lump sum. A qualified group must:
[] have been in existence for more than six months
[] have a purpose other than acquiring Fund shares at a discount
[] satisfy uniform criteria that enable CFBDS to realize economies of
scale in its costs of distributing shares
[] have more than ten members
[] be available to arrange for group meetings between representatives of
the Fund and the members
[] agree to include sales and other materials related to the Fund in its
publications and mailings to members at reduced or no cost to the
distributor
[] seek to arrange for payroll deduction or other bulk transmission of
investments to the Fund
<PAGE>
LETTER OF INTENT
If an investor anticipates purchasing $25,000 or more of Class A shares of
the Fund alone or in combination with Class B shares of the Fund or any of the
classes of other CitiFunds or of any other mutual fund managed or advised by
Citibank (all of such funds being referred to herein as CitiFunds) within a
13-month period, the investor may obtain the shares at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
a letter of intent on the terms described below. Subject to acceptance by
CFBDS, Inc., the Fund's distributor, and the conditions mentioned below, each
purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the letter of intent.
[] The shareholder or, if the shareholder is a customer of a Service
Agent, his or her Service Agent must inform CFBDS that the letter of
intent is in effect each time shares are purchased.
[] The shareholder makes no commitment to purchase additional shares,
but if his or her purchases within 13 months plus the value of shares
credited toward completion of the letter of intent do not total the
sum specified, an increased sales charge will apply as described
below.
[] A purchase not originally made pursuant to a letter of intent may be
included under a subsequent letter of intent executed within 90 days
of the purchase if CFBDS is informed in writing of this intent within
the 90-day period.
[] The value of shares of the Fund presently held, at cost or maximum
offering price (whichever is higher), on the date of the first
purchase under the letter of intent, may be included as a credit
toward the completion of the letter, but the reduced sales charge
applicable to the amount covered by the letter is applied only to new
purchases.
[] Instructions for issuance of shares in the name of a person other
than the person signing the letter of intent must be accompanied by a
written statement from the Transfer Agent or a Service Agent stating
that the shares were paid for by the person signing the letter.
[] Neither income dividends nor capital gains distributions taken in
additional shares will apply toward the completion of the letter of
intent.
[] The value of any shares redeemed or otherwise disposed of by the
purchaser prior to termination or completion of the letter of intent
are deducted from the total purchases made under the letter of
intent.
If the investment specified in the letter of intent is not completed
(either prior to or by the end of the 13-month period), the Transfer Agent will
redeem, within 20 days of the expiration of the letter of intent, an
appropriate number of the shares in order to realize the difference between the
reduced sales charge that would apply if the investment under the letter of
intent had been completed and the sales charge that would normally apply to the
number of shares actually purchased. By completing and signing the letter of
intent, the shareholder irrevocably grants a power of attorney to the Transfer
Agent to redeem any or all shares purchased under the letter of intent, with
full power of substitution.
RIGHT OF ACCUMULATION
A shareholder qualifies for cumulative quantity discounts on the purchase
of Class A shares when his or her new investment, together with the current
offering price value of all holdings of that shareholder in the CitiFunds,
reaches a discount level. For example, if a Fund shareholder owns shares valued
at $50,000 and purchases an additional $50,000 of Class A shares of the Fund,
the sales charge for the $50,000 purchase would be at the rate of 3.50% (the
rate applicable to single transactions from $50,000 to less than $100,000). A
shareholder must provide the Transfer Agent with information to verify that the
quantity sales charge discount is applicable at the time the investment is
made.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A shares may reinstate their Fund
account without a sales charge up to the dollar amount redeemed (with a credit
for any contingent deferred sales charge paid) by purchasing Class A shares of
the Fund within 90 days after the redemption. To take advantage of this
reinstatement privilege, shareholders must notify their Service Agents in
writing at the time the privilege is exercised.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the same class of
certain other CitiFunds that are made available by a shareholder's Service
Agent, or may be acquired through an exchange of shares of the same class of
those funds. Class A shares also may be exchanged for shares of certain
CitiFunds money market funds that offer only a single class of shares, unless
the Class A shares are subject to a contingent deferred sales charge. Class B
<PAGE>
shares may not be exchanged for shares of CitiFunds money market funds other
than Cash Reserves. No initial sales charge is imposed on shares being acquired
through an exchange unless Class A shares are being acquired and the sales
charge for Class A of the fund being exchanged into is greater than the current
sales charge of the Fund (in which case an initial sales charge will be imposed
at a rate equal to the difference). Investors whose shares are outstanding on
January 4, 1999 will be able to exchange those Class A shares, and any shares
acquired through capital appreciation and the reinvestment of dividends and
capital gains distributions on those shares, into Class A shares of the other
funds without paying any sales charge. No CDSC is imposed on Class B shares
when they are exchanged for Class B shares of certain other CitiFunds that are
made available by the shareholder's Service Agent. If you are exchanging into a
fund that imposes a sales charge, you may qualify for share prices which do not
include the sales charge or which reflect a reduced sales charge, if the Fund
shares you are exchanging were: (a) purchased with a sales charge, (b) acquired
through a previous exchange from shares purchased with a sales charge, (c)
outstanding as of January 4, 1999, or (d) acquired through capital appreciation
or the reinvestment of dividends and capital gains distributions on those
shares. To qualify for this sales charge waiver or reduced sales charge, at the
time of exchange you must notify [your Service Agent] [your Shareholder
Servicing Agent]. Any such qualification may be subject to confirmation,
through a check of appropriate records and documentation, of your existing
share balances and any sales charges paid on prior share purchases. However,
you may be required to pay a CDSC when you sell those shares. When determining
the amount of the CDSC, the Fund will use the CDSC schedule of any fund from
which you have exchanged shares that would result in you paying the highest
CDSC.
ADDITIONAL PURCHASE AND SALE INFORMATION
Each Service Agent has agreed to transmit to its customers who are
shareholders of the Fund appropriate written disclosure of any fees that it may
charge them directly. Each Service Agent is responsible for transmitting
promptly orders of its customers.
Investors may be able to establish new accounts in the Fund under one of
several tax-sheltered plans. Such plans include IRAs, Keogh or Corporate
Profit-Sharing and Money-Purchase Plans, 403(b) Custodian Accounts, and certain
other qualified pension and profit-sharing plans. Investors should consult with
their Service Agent and their tax and retirement advisers.
Shareholders may redeem or exchange Fund shares by telephone, if their
account applications so permit, by calling the transfer agent or, if they are
customers of a Service Agent, their Service Agent. During periods of drastic
economic or market changes or severe weather or other emergencies, shareholders
may experience difficulties implementing a telephone exchange or redemption. In
such an event, another method of instruction, such as a written request sent
via an overnight delivery service, should be considered. The Fund, the transfer
agent and each Service Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may
include recording of the telephone instructions and verification of a caller's
identity by asking for his or her name, address, telephone, Social Security
number, and account number. If these or other reasonable procedures are not
followed, the Fund, the transfer agent or the Service Agent may be liable for
any losses to a shareholder due to unauthorized or fraudulent instructions.
Otherwise, the shareholder will bear all risk of loss relating to a redemption
or exchange by telephone.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of shares of the Fund, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the shares being
sold. If a holder of shares received a distribution in kind, such holder could
incur brokerage or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of the Fund more than seven days during any period when (a)
trading in the markets the Fund normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists making
disposal of the Fund's investments or determination of its net asset value not
reasonably practicable; (b) the New York Stock Exchange is closed (other than
customary weekend and holiday closings); or (c) the SEC has by order permitted
such suspension.
8. MANAGEMENT
The Fund is supervised by the Board of Trustees of the Trust, and the
Portfolio is supervised by the Board of Trustees of the Portfolio Trust. In
each case, a majority of the Trustees are not affiliated with Citibank.
The Trustees and officers of the Trust and the Portfolio Trust, their ages
and their principal occupations during the past five years are set forth below.
Their titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust or the Portfolio Trust. Unless otherwise indicated below, the address
of each Trustee and officer is 21 Milk Street, Boston, Massachusetts. The
address of the Portfolio Trust is Elizabethan Square, George Town, Grand
Cayman, British West Indies.
TRUSTEES OF THE TRUST
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trust; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
RILEY C. GILLEY (aged 72) -- Vice President and General Counsel, Corporate
Property Investors (November 1988 to December 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (retired, December 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
<PAGE>
DIANA R. HARRINGTON (aged 58) -- Professor, Babson College (since September
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September 1992 to September 1993); Professor, Darden Graduate
School of Business, University of Virginia (September 1978 to September 1993);
Trustee, The Highland Family of Funds (March 1997 to March 1998). Her address
is 120 Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY (aged 47) -- President, Global Research Associates, Inc.
(Investment Research) (since August 1990); Manager, Rockefeller & Co. (March
1988 to July 1990); Trustee, Mainstay Institutional Funds (since December
1990). Her address is P.O. Box 9572 New Haven, Connecticut.
C. OSCAR MORONG, JR. (aged 63) -- Managing Director, Morong Capital Management
(since February 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired, January 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive, West, Mountainside, New Jersey.
E. KIRBY WARREN (aged 64) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 78) -- Vice President - Investments, Sun Company,
Inc. (retired, April 1984). His address is 35 Colwick Road, Cherry Hill, New
Jersey.
TRUSTEES OF THE PORTFOLIO TRUST
ELLIOTT J. BERV (aged 55) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 24 Atlantic Drive, Scarborough,
Maine.
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trust; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
MARK T. FINN (aged 55) -- President and Director, Delta Financial, Inc. (since
June 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April 1990); General Partner and
Shareholder, Greenwich Ventures LLC (Investment Partnership) (since January
1996); President and Secretary, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Vantage Consulting Group, Inc. (since
October 1988). His address is 3500 Pacific Avenue, P.O. Box 539, Virginia
Beach, Virginia.
C. OSCAR MORONG, JR. (aged 63) -- Managing Director, Morong Capital Management
(since February 1993); Senior Vice President and Investment Manager, CREF
Investments, Teachers Insurance & Annuity Association (retired, January 1993);
Director, Indonesia Fund; Trustee, MAS Funds (since 1993). His address is 1385
Outlook Drive, West, Mountainside, New Jersey.
WALTER E. ROBB, III (aged 72) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN (aged 64)- Professor of Management, Graduate School of
Business, Columbia University (since 1987). Samuel Bronfman Professor of
Democratic Business Enterprise (1978 to 1987). His address is Columbia
University, Graduate School of Business, 725 Uris Hall, New York, New York.
OFFICERS OF THE TRUST AND THE PORTFOLIO TRUST
PHILIP W. COOLIDGE* (aged 47) -- President of the Trust and the Portfolio
Trust; Chief Executive Officer and President, Signature Financial Group, Inc.
and CFBDS.
CHRISTINE A. DRAPEAU* (aged 28) -- Assistant Secretary and Assistant Treasurer
of the Trust and the Portfolio Trust; Vice President, Signature Financial
Group, Inc. (since January 1996); Paralegal and Compliance Officer, various
financial companies (July 1992 to January 1996).
TAMIE EBANKS-CUNNINGHAM*(aged 26) -- Assistant Secretary of the Trust and the
Portfolio Trust; Office Manager, Signature Financial Group (Cayman) Ltd. (since
April 1995); Administrator, Cayman Islands Primary School (prior to April
1995). Her address is P.O. Box 2494, Elizabethan Square, George Town, Grand
Cayman, Cayman Islands, B.W.I.
<PAGE>
JOHN R. ELDER* (aged 50) -- Treasurer of the Trust and the Portfolio Trust;
Vice President, Signature Financial Group, Inc. (since April 1995); Assistant
Treasurer, CFBDS (since April 1995); Treasurer, Phoenix Family of Mutual Funds
(Phoenix Home Life Mutual Insurance Company) (1983 to March 1995).
LINDA T. GIBSON* (aged 33) -- Secretary of the Trust and the Portfolio Trust;
Senior Vice President, Signature Financial Group, Inc.; Secretary, CFBDS.
JAMES E. HOOLAHAN* (aged 51) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust and the Portfolio Trust; Senior Vice
President, Signature Financial Group, Inc.
SUSAN JAKUBOSKI* (aged 34) -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolio Trust; Vice President, Signature
Financial Group (Cayman) Ltd. (since August 1994); Fund Compliance
Administrator, Concord Financial Group (November 1990 to August 1994). Her
address is Suite 193, 12 Church St., Hamilton HM 11, Bermuda.
MOLLY S. MUGLER* (aged 47) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trust; Vice President, Signature Financial Group,
Inc.; Assistant Secretary, CFBDS.
CLAIR TOMALIN*(aged 30) -- Assistant Secretary of the Trust and the Portfolio
Trust; Office Manager, Signature Financial Group (Europe) Limited. Her address
is 117 Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 50) -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolio Trust; Assistant Vice President, Signature
Financial Group, Inc.
JULIE J. WYETZNER* (aged 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, Signature
Financial Group, Inc., or their affiliates serve as the distributor or
administrator.
The following table shows estimated Trustee compensation for the period
indicated.
TRUSTEES COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM THE
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL REGISTRANT AND
COMPENSATION FROM AS PART OF FUND BENEFITS UPON FUND COMPLEX PAID
TRUSTEE FUND(1) EXPENSES RETIREMENT TO TRUSTEES(1)(2)
- ------- ------- -------- ---------- -------------------
<S> <C> <C> <C> <C>
Philip W. Coolidge.............. q $ None None $
Riley C. Gilley................. $ None None $
Diana R. Harrington............. $ None None $
Susan B. Kerley................. $ None None $
C. Oscar Morong, Jr............. $ None None $
E. Kirby Warren................. $ None None $
William S. Woods, Jr............ $ None None $
</TABLE>
(1) For the fiscal year ended October 31, 1998.
(2) Information relates to the fiscal year ended October 31, 1998. Messrs.
Coolidge, Gilley, Morong, Warren and Woods and Mses. Harrington and Kerley
are trustees of 49, 33, 40, 40, 26, 28 and 28 funds, respectively, in the
family of open-end registered investment companies advised or managed by
Citibank.
As of _________, 1998, all Trustees and officers as a group owned less
than 1% of the outstanding shares of the Fund. As of the same date, more than
95% of the outstanding shares of the Fund were held of record by Citibank or
its affiliates, as Service Agents of the Fund for the accounts of their
respective clients.
The Declaration of Trust of 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 or 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,
<PAGE>
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.
MANAGER
Citibank serves as the manager of the Portfolio and provides certain
administrative services to the Fund and the Portfolio pursuant to separate
management agreements (the "Management Agreements"). Subject to policies as the
Board of Trustees of the Portfolio Trust may determine, Citibank manages the
securities of the Portfolio and makes investment decisions for the Portfolio.
The Management Agreement with the Portfolio Trust provides that Citibank may
delegate the daily management of the securities of the Portfolio to one or more
subadvisers. Citibank furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio. The Management Agreement
with the Portfolio Trust will continue in effect indefinitely as long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Portfolio Trust or by a vote of a majority of the outstanding voting
securities of the Portfolio, and, in either case, by a majority of the Trustees
of the Portfolio Trust who are not parties to the Management Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Management Agreement. The Management Agreement with the Trust
will continue in effect indefinitely as long as such continuance is
specifically approved at least annually by the Board of Trustees of the Trust
or by a vote of a majority of the outstanding voting securities of the Fund,
and, in either case, by a majority of the Trustees of the Trust who are not
parties to the Management Agreement or interested persons of any such party, at
a meeting called for the purpose of voting on the Management Agreement.
Citibank provides the Fund and the Portfolio with general office
facilities and supervises the overall administration of the Fund and the
Portfolio, including, among other responsibilities, the negotiation of
contracts and fees with, and the monitoring of performance and billings of, the
Fund's or the Portfolio's independent contractors and agents; the preparation
and filing of all documents required for compliance by the Fund or the
Portfolio with applicable laws and regulations; and arranging for the
maintenance of books and records of the Fund or the Portfolio. Trustees,
officers, and investors in the Trust and the Portfolio Trust are or may be or
may become interested in Citibank, as directors, officers, employees, or
otherwise and directors, officers and employees of Citibank are or may become
similarly interested in the Trust and the Portfolio Trust.
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Portfolio Trust or
the Trust, as the case may be, when authorized either by a vote of a majority
of the outstanding voting securities of the Portfolio or Fund or by a vote of a
majority of the Board of Trustees of the Portfolio Trust or the Trust, or by
Citibank on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Management
Agreement with the Portfolio Trust provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Management Agreement with the Portfolio
Trust. The Management Agreement with the Trust provides that neither Citibank
nor its personnel shall be liable for any error of judgment or mistake of law
or for any omission in the administration or management of the Trust or the
performance of its duties under the Management Agreement, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Management Agreement with the Trust.
For its services under the Management Agreements with respect to the Fund
and the Portfolio, Citibank receives fees, which are computed daily and paid
monthly, at annual rates equal to 0.25% of the Fund's average net assets, and
0.80% of the Portfolio's average net assets less the aggregate amount (if any)
payable by the Portfolio Trust pursuant to the Submanagement Agreement with the
Subadviser. These combined management fees are higher than the management fees
paid by most mutual funds. Citibank may reimburse the Fund or Portfolio or
waive all or a portion of its management fees.
For the period from __________, 1998 (commencement of operations of the
Fund) to October 31, 1998, the fee payable from the Fund to Citibank under its
Management Agreement was $_________ (of which $__________ was voluntarily
waived). For the period from _________, 1998 (commencement of operations of the
Portfolio) to October 31, 1998, the fee payable from the Portfolio to Citibank
under its Management Agreement was $_________ (of which $__________ was
voluntarily waived).
Pursuant to separate sub-administrative services agreements with Citibank,
CFBDS and Signature Financial Group (Cayman) Ltd. ("SFG") perform such
sub-administrative duties for the Trust and the Portfolio Trust, respectively,
as from time to time are agreed upon by Citibank, CFBDS and SFG, as
appropriate. For performing such sub-administrative services, CFBDS and SFG
receive compensation as from time to time is agreed upon by Citibank, not in
excess of the amount paid to Citibank for its services under the Management
Agreements with the Trust and the Portfolio Trust, respectively. All such
compensation is paid by Citibank.
The Portfolio Trust has entered into a Submanagement Agreement with the
Subadviser. It is the responsibility of the Subadviser to make the day-to-day
<PAGE>
investment decisions for its allocated assets of the Fund, and to place the
purchase and sales orders for securities transactions concerning those assets,
subject in all cases to the general supervision of Citibank. The Subadviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the assets of the Fund allocated to it and
effecting securities transactions concerning those assets.
The Submanagement Agreement will continue in effect indefinitely as long
as such continuance is specifically approved at least annually by the Board of
Trustees of the Portfolio Trust or by a vote of a majority of the outstanding
voting securities of the Portfolio, and, in either case, by a majority of the
Trustees of the Portfolio Trust who are not parties to the Submanagement
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Submanagement Agreement.
The Submanagement Agreement provides that the Subadviser may render
services to others. The Submanagement 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 Citibank on not more than
60 days' nor less than 30 days' written notice, and will automatically
terminate in the event of its assignment. The Submanagement Agreement may be
terminated by the Subadviser on not less than 90 days' written notice. Upon
termination of the Submanagement Agreement, Citibank will maintain
responsibility for managing those assets formerly managed by the Subadviser.
The Submanagement Agreement provides that neither the Subadviser 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 Submanagement Agreement.
<PAGE>
The Subadviser's compensation is payable by the Portfolio Trust from the
assets of the Portfolio. The Portfolio pays the Subadviser the following fees,
which are accrued daily and payable monthly and are at the annual rates equal
to the percentages specified below of the aggregate assets of the Portfolio
allocated to the Subadviser:
0.60% on first $10 million
0.55% on next $40 million
0.45% on next $100 million
0.35% on next $150 million
0.30% on remaining assets
For the period from __________, 1998 (commencement of operations of the
Portfolio) to October 31, 1998, the fee paid from the Portfolio to the
Subadviser under its Submanagement Agreement was $_________.
DISTRIBUTOR
CFBDS, 21 Milk Street, Boston, MA 02109, serves as the Distributor of the
Fund's shares pursuant to a Distribution Agreement with the Trust with respect
to each class of shares of the Fund (each, a "Distribution Agreement"). In
those states where CFBDS is not a registered broker-dealer, shares of the Fund
are sold through Signature Broker-Dealer Services, Inc., as dealer. Under the
Distribution Agreements, CFBDS is obligated to use its best efforts to sell
shares of each class of the Fund.
Either party may terminate a Distribution Agreement on not less than
thirty days' nor more than sixty days' written notice to the other party.
Unless otherwise terminated each Distribution Agreement will continue from year
to year upon annual approval by the Trust's Board of Trustees and by vote of a
majority of the Board of Trustees of the Trust who are not parties to the
Distribution Agreement or interested persons of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. Each Distribution Agreement will terminate in the event of its
assignment, as defined in the 1940 Act.
Each class of the Fund has a Service Plan (each, a "Service Plan") adopted
in accordance with Rule 12b-1 under the 1940 Act. Under the Plans, the Fund may
pay monthly fees at an annual rate not to exceed 0.25% of the average daily net
assets of the Fund attributable to that class in the case of the Plan relating
to Class A shares, and not to exceed 1.00% of the average daily net assets of
the Fund attributable to that class in the case of the Plan relating to Class B
shares. Such fees may be used to make payments to the Distributor for
distribution services, to securities dealers and other industry professionals
(called "Service Agents") that have entered into service agreements with the
Distributor and others in respect of the sale of shares of the Fund, and to
other parties in respect of the sale of shares of the Fund, and to make
payments for advertising, marketing or other promotional activity, and payments
for preparation, printing, and distribution of prospectuses, statements of
additional information and reports for recipients other than regulators and
existing shareholders. The Fund also may make payments to the Distributor,
Service Agents and others for providing personal service or the maintenance of
shareholder accounts. The amounts paid by the Distributor to each recipient may
vary based upon certain factors, including, among other things, the levels of
sales of Fund shares and/or shareholder services provided. Recipients may
receive different compensation for sales for Class A and Class B shares.
The Service Plan with respect to Class A shares also provides that the
Distributor, broker-dealers, banks and other financial intermediaries may
receive the sales charge paid by Class A investors as partial compensation for
their services in connection with the sale of shares. The Service Plan with
respect to Class B shares provides that the Distributor, dealers, and others
may receive all or a portion of the deferred sales charges paid by Class B
investors.
The Service Plans permit the Fund to pay fees to the Distributor, Service
Agents and others as compensation for their services, not as reimbursement for
specific expenses incurred. Thus, even if their expenses exceed the fees
provided for the applicable Plan for the Fund, the Fund will not be obligated
to pay more than those fees and, if their expenses are less than the fees paid
to them, they will realize a profit. The Fund will pay the fees to the
Distributor and others until the applicable Plan or Distribution Agreement is
terminated or not renewed. In that event, the Distributor's or other
recipient's expenses in excess of fees received or accrued through the
termination date will be the Distributor's or other recipient's sole
responsibility and not obligations of the Fund.
Each Service Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Trust's Trustees
and a majority of the Trust's Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Service Plan or in any agreement related to such Plan (for purposes of this
paragraph "Qualified Trustees"). Each Service Plan requires that the Trust and
the Distributor provide to the Board of Trustees and the Board of Trustees
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Service Plan. Each Service Plan further provides
that the selection and nomination of the Qualified Trustees is committed to the
<PAGE>
discretion of such Qualified Trustees then in office. A Service Plan may be
terminated with respect to any class of the Fund at any time by a vote of a
majority of the Trust's Qualified Trustees or by a vote of a majority of the
outstanding voting securities of that class. A Service Plan may not be amended
to increase materially the amount of permitted expenses of the class thereunder
without the approval of a majority of the outstanding voting securities of that
class and may not be materially amended in any case without a vote of the
majority of both the Trustees and Qualified Trustees. The Distributor will
preserve copies of any plan, agreement or report made pursuant to the Service
Plans for a period of not less than six years, and for the first two years the
Distributor will preserve such copies in an easily accessible place.
As contemplated by the Service Plans, CFBDS acts as agent of the Trust in
connection with the offering of shares of the Fund pursuant to the Distribution
Agreements. For the period from __________, 1998 (commencement of operations of
the Fund) to October 31, 1998, the fee payable to CFBDS under a prior
distribution agreement with respect to the Fund was $__________ (of which
$_________ was voluntarily waived).
The Distributor may enter into agreements with Service Agents and may pay
compensation to such Service Agents for accounts for which the Service Agents
are holders of record. Payments may be made to the Service Agents or for other
distribution expenses out of the distribution fees received by the Distributor
and out of the Distributor's past profits or any other source available to it.
EXPENSES
In addition to amounts payable under its Management Agreement and Service
Plans, the Fund is responsible for its own expenses, including, among other
things, the costs of securities transactions, the compensation of Trustees that
are not affiliated with Citibank or the Fund's Distributor, government fees,
taxes, accounting and legal fees, expenses of communication with shareholders,
interest expense, and insurance premiums.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street"), pursuant to which State
Street acts as transfer agent for the Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street, pursuant
to which custodial and fund accounting services, respectively, are provided for
the Fund. Among other things, State Street calculates the daily net asset value
for the Fund. Securities may be held by a sub-custodian bank approved by the
Trustees.
The Portfolio Trust, on behalf of the Portfolio, has entered into a
Custodian Agreement with State Street pursuant to which State Street acts as
custodian for the Portfolio. The Portfolio Trust, on behalf of the Portfolio,
also has entered into a Fund Accounting Agreement with State Street Cayman
Trust Company, Ltd. ("State Street Cayman") pursuant to which State Street
Cayman provides fund accounting services for the Portfolio. State Street Cayman
also provides transfer agency services to the Portfolio.
The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, British West Indies.
AUDITORS
PricewaterhouseCoopers LLP are the independent accountants for the Trust,
providing audit services and assistance and consultation with respect to the
preparation of filings with the SEC. The address of PricewaterhouseCoopers LLP
is 160 Federal Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP
are the chartered accountants for the Portfolio Trust. The address of
PricewaterhouseCoopers LLP is Suite 3000, Box 82, Royal Trust Towers, Toronto
Dominion Center, Toronto, Ontario, Canada M5K 1G8.
COUNSEL
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel
for the Fund.
9. PORTFOLIO TRANSACTIONS
The Trust trades securities for the Fund if it believes that a transaction
net of costs (including custodian charges) will help achieve the Fund's
investment objective. Changes in the Fund's investments are made without regard
to the length of time a security has been held or whether a sale would result
in the recognition of a profit or loss. Therefore, the rate of turnover is not
a limiting factor when changes are appropriate. Specific decisions to purchase
or sell securities for the Fund are made by a portfolio manager who is an
employee of Citibank and who is appointed and supervised by its senior officers
or by the Subadviser. The portfolio manager or Subadviser may serve other
clients of Citibank in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Fund and/or the other
accounts over which Citibank, the Subadviser or their affiliates exercise
investment discretion. Citibank and the Subadviser are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund which is in excess of the
<PAGE>
amount of commission another broker or dealer would have charged for effecting
that transaction if Citibank or the Subadviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which Citibank, the Subadviser and their
affiliates have with respect to accounts over which they exercise investment
discretion. The Trustees of the Trust periodically review the commissions paid
by the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Fund.
The management fee paid Citibank or the Subadviser will not be reduced as
a consequence of Citibank's or the Subadviser's receipt of brokerage and
research services. While such services are not expected to reduce the expenses
of Citibank or the Subadviser, Citibank or the Subadviser 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 making purchases or sales of securities and other property for the
account of the Portfolio, the Subadviser may deal with itself or with the
Trustees of the Trust or the Trust's underwriter or distributor, to the extent
permitted by the 1940 Act.
In certain instances there may be securities that are suitable as an
investment for the Fund as well as for one or more of Citibank's or the
Subadviser's other clients. Investment decisions for the Fund and for
Citibank's and the Subadviser'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 or the size of the position
obtainable in a security for the Fund. When purchases or sales of the same
security for the Fund and for other portfolios managed by Citibank or the
Subadviser 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 period from _______ __, 1998 (commencement of operations) to
October 31, 1998, the Fund paid $______ in brokerage commissions.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trust to issue an unlimited
number of full and fractional shares of beneficial interest (without par value)
of each series and to divide or combine the shares of any series into a greater
or lesser number of shares of that series without thereby changing the
proportionate beneficial interests in that series and to divide such shares
into classes. The Trust has reserved the right to create and issue additional
series and classes of shares. Each share of each class represents an equal
proportionate interest in the Fund with each other share of that class. Shares
of each series of the Trust participate equally in the earnings, dividends and
distribution of net assets of the particular series upon liquidation or
dissolution (except for any differences between classes of shares of a series).
Shares of each series are entitled to vote separately to approve management
agreements or changes in investment policy, and shares of a class are entitled
to vote separately to approve any distribution or service arrangements relating
to that class, but shares of all series may vote together in the election or
selection of Trustees and accountants for the Trust. In matters affecting only
a particular series or class, only shares of that 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 and has no
present intention of holding annual meetings of shareholders but the Trust will
hold special meetings of the Fund's shareholders when in the judgment of the
Trust's Trustees it is necessary or desirable to submit matters for a
shareholder vote. Shareholders have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of each
series affected by the amendment. (See "Investment Restrictions.")
At any meeting of shareholders of the Fund, a Service Agent may vote any
shares of which it is the holder of record and for which it does not receive
voting instructions proportionately in accordance with the instructions it
receives for all other shares of which that Service Agent is the holder of
record.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the 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
<PAGE>
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's or the
affected series' outstanding shares would be sufficient. The Trust or any
series of the Trust, as the case may be, may be terminated (i) by a vote of a
majority of the outstanding voting securities of the Trust or the affected
series or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated, the Trust will continue
indefinitely.
The Fund's transfer agent maintains a share register for shareholders of
record. Share certificates are not issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust 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 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 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, which is organized as a
trust under the laws of the state of New York. Each investor in the Portfolio,
including the Fund, may add to or withdraw from its investment in the Portfolio
on each Business Day. As of the close of regular trading on each Business Day,
the value of each investor's beneficial interest in the Portfolio is determined
by multiplying the net asset value of the Portfolio by the percentage,
effective for that day, that represents that investor's share of the aggregate
beneficial interest in the Portfolio. Any additions or withdrawals that are to
be effected on that day are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then 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.
11. CERTAIN ADDITIONAL TAX MATTERS
The Fund has elected to be treated, and intends to qualify each year, as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition of the Fund's
portfolio assets. Provided all such requirements are met, 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 to 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 shareholder will be eligible
for reduced tax rates if the shares were held for more than eighteen months.
<PAGE>
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.
Any investment by the Fund in zero coupon bonds, deferred interest bonds,
payment-in-kind bonds, certain stripped securities, and certain securities
purchased at a market discount will cause the Fund to recognize income prior to
the receipt of cash payments with respect to those securities. In order to
distribute this income and avoid a tax on the Fund, the Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold
potentially resulting in additional taxable gain or loss to the Fund.
The Fund's transactions in options, futures and forward contracts 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 intends to limit its activities in options, futures and forward
contracts to the extent necessary to meet the requirements of Subchapter M of
the Code.
An investment by the Fund in residual interests of a CMO that has elected
to be treated as a real estate mortgage investment conduit, or "REMIC," can
create complex tax problems, especially if the Fund has state or local
governments or other tax-exempt organizations as shareholders.
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 by the Fund 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 U.S. has entered into tax
treaties with many other countries that may entitle the Fund to a reduced rate
of tax or an exemption from tax on such income. The Fund intends to qualify for
treaty reduced rates where available. It is not possible, however, to determine
the Fund's effective rate of 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 amounts 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 amounts, 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 for such amounts will be permitted to
individuals in computing their alternative minimum tax liability. If the Fund
does not qualify or 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 the foreign taxes paid by the Fund.
The Fund will withhold tax payments at a rate of 30% (or any lower
applicable tax treaty rate) on taxable dividends and other payments subject to
withholding taxes that are made to persons who are not citizens or residents of
the U.S. 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. The Fund may be required to withhold (and pay over to
the IRS for the shareholder's credit) tax at the rate of 31% on certain
distributions and redemption proceeds paid to shareholders who fail to provide
this information or who otherwise violate IRS regulations.
12. CERTAIN BANK REGULATORY MATTERS
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Fund. Citibank believes that its services under the Management
Agreements and the activities performed by it or its affiliates as Service
Agents are not underwriting and are consistent with the Glass-Steagall Act and
other relevant federal and state laws. However, there is no controlling
precedent regarding the performance of the combination of investment advisory,
shareholder servicing and administrative activities by banks. State laws on
<PAGE>
this issue may differ from applicable federal law, and banks and financial
institutions may be required to register as dealers pursuant to state
securities laws. Changes in either federal or state statutes or regulations, or
in their interpretations, could prevent Citibank or its affiliates from
continuing to perform these services. If Citibank or its affiliates were to be
prevented from acting as the Manager or Service Agent, the Fund would seek
alternative means for obtaining these services. The Fund does not expect that
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
13. FINANCIAL STATEMENTS
The audited financial statements of the Fund (Portfolio of Investments at
October 31, 1998, Statement of Assets and Liabilities at October 31, 1998,
Statement of Operations for the period _________, 1998 (commencement of
operations) to October 31, 1998, Statement of Changes in Net Assets for the
period _________, 1998 (commencement of operations) to October 31, 1998,
Financial Highlights for the period _________, 1998 (commencement of
operations) to October 31, 1998, Notes to Financial Statements and Independent
Auditors' Report), each of which is included in the Annual Report to
Shareholders of the Fund, are incorporated by reference into this Statement of
Additional Information and have been so incorporated in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, on behalf of the
Fund.
A copy of the Annual Report to Shareholders of the Fund accompanies this
Statement of Additional Information.
<PAGE>
CITIFUNDS INTERNATIONAL GROWTH & INCOME PORTFOLIO
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, Boston, MA 02109 (617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
PART C
<TABLE>
<CAPTION>
Item 23. Exhibits.
<S> <C>
** a(1) Declaration of Trust of the Registrant
*, ** and a(2) Amendments to the Declaration of Trust of the Registrant
filed herewith
** b(1) Amended and Restated By-Laws of the Registrant
* and ** b(2) Amendments to the Amended and Restated By-Laws of the Registrant
d Management Agreement between the Registrant and Citibank, N.A., as manager
to CitiFunds International Growth & Income Portfolio
*** e(1) Form of Amended and Restated Distribution Agreement between the Registrant
and CFBDS, as distributor with respect to Class A shares of CitiFunds
International Growth & Income Portfolio
*** e(2) Form of Distribution Agreement between the
Registrant and CFBDS, as distributor with respect
to Class B shares of CitiFunds International
Growth & Income Portfolio
* g(1) Custodian Contract between the Registrant and State Street Bank and Trust
Company ("State Street"), as custodian
g(2) Letter Agreement adding CitiFunds International Growth & Income Portfolio
to the Custodian Contract between the Registrant and State Street
** h(1) Transfer Agency and Servicing Agreement between the Registrant and State
Street, as transfer agent
h(2) Letter Agreement adding CitiFunds International Growth & Income Portfolio
to the Transfer Agency and Servicing Agreement between the Registrant and
State Street
* h(3) Fund Accounting Agreement between the Registrant and State Street, as fund
accounting agent
h(4) Letter Agreement adding CitiFunds International Growth & Income Portfolio to
the Fund Accounting Agreement between the Registrant and State Street
*** i Opinion and consent of counsel
*** m(1) Form of Amended and Restated Service Plan of the Registrant for Class A
Shares of CitiFunds International Growth & Income Portfolio
*** m(2) Form of Service Plan of the Registrant for Class B Shares of CitiFunds
International Growth & Income Portfolio
*** o Form of Multiple Class Plan of the Registrant
** p(1) Powers of Attorney for the Registrant
*** p(2) Powers of Attorney for Asset Allocation Portfolios
</TABLE>
- ---------------------
* Incorporated herein by reference to Post-Effective Amendment No. 15
to the Registrant's Registration Statement on Form N-1A (File No.
33-36556) as filed with the Securities and Exchange Commission on
October 24, 1997.
** Incorporated herein by reference to Post-Effective Amendment No. 17
to the Registrant's Registration Statement on Form N-1A (File No.
33-36556) as filed with the Securities and Exchange Commission on
April 30, 1998.
*** Incorporated herein by reference to Post-Effective Amendment No. 18
to the Registrant's Registration Statement on Form N-1A (File No.
33-36556) as filed with the Securities and Exchange Commission on
December 16, 1998.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
<PAGE>
Item 25. Indemnification.
Reference is hereby made to (a) Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to Post-Effective Amendment No. 17 to its
Registration Statement on Form N-1A; (b) Section 6 of the Distribution
Agreements between the Registrant and CFBDS, filed as Exhibits to
Post-Effective Amendment No. 18 to its Registration Statement on Form N-1A; and
(c) the undertaking of the Registrant regarding indemnification set forth in
its Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 26. Business and Other Connections of Investment Adviser.
Citibank, N.A. ("Citibank") is a commercial bank offering a wide range of
banking and investment services to customers across the United States and
around the world. Citibank is a wholly-owned subsidiary of Citicorp, which is,
in turn, a wholly-owned subsidiary of Citigroup Inc. Citibank also serves as
investment adviser to the following registered investment companies (or series
thereof): Asset Allocation Portfolios (Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio and Short-Term Portfolio), The Premium Portfolios (U.S. Fixed
Income Portfolio, Growth & Income Portfolio, Balanced Portfolio, Large Cap
Growth Portfolio, International Equity Portfolio, Government Income Portfolio
and Small Cap Growth Portfolio), Tax Free Reserves Portfolio, U.S. Treasury
Reserves Portfolio, Cash Reserves Portfolio, CitiFundsSM Tax Free Income Trust
(CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio and CitiFundsSM California Tax Free Income Portfolio),
CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM California Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves and CitiFundsSM Connecticut
Tax Free Reserves), CitiFundsSM Institutional Trust (CitiFundsSM Institutional
Cash Reserves) and Variable Annuity Portfolios (CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP Folio 500
and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and its affiliates
manage assets in excess of $290 billion worldwide. The principal place of
business of Citibank is located at 399 Park Avenue, New York, New York 10043.
John S. Reed is the Chairman and a Director of Citibank. Victor J. Menezes
is the President and a Director of Citibank. William R. Rhodes and H. Onno
Ruding are Vice Chairmen and Directors of Citibank. The other Directors of
Citibank are Paul J. Collins, Vice Chairman of Citigroup Inc. and Robert I.
Lipp, Chairman and Chief Executive Officer of The Travelers Insurance Group
Inc. and of Travelers Property Casualty Corp.
Each of the individuals named above is also a Director of Citigroup Inc.
In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President, Travelers
Property Casualty Co.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
<PAGE>
H. Onno Ruding Supervisory Director, Amsterdamsch Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Hotchkis and Wiley, a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. ("Hotchkis"), a sub-adviser to International
Portfolio, a series of Asset Allocation Portfolios, maintains its principal
office at 800 West Sixth Street, Fifth Floor, Los Angeles, California 90017.
Harry Hartford and Sarah Ketterer manage international equity accounts and are
also responsible for international investment research. Each serves on the
Investment Policy Committee at Hotchkis. Prior to joining Hotchkis, Mr.
Hartford was with the Investment Bank of Ireland, where he gained 10 years of
experience in both international and global equity management. Prior to joining
Hotchkis, Ms. Ketterer was an associate with Bankers Trust and an analyst at
Dean Witter.
Hotchkis became a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. upon the completion of the sale by Hotchkis and
Wiley, a Delaware Limited Liability Company and the general partner of Hotchkis
& Wiley, a California limited partnership, of all of the partnership interests
in Hotchkis & Wiley to Merrill Lynch & Co., Inc., a Delaware corporation, in
November of 1996.
Following are the managing personnel of Hotchkis:
Name and Position: Other Affiliations:
John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Board of Governors, The Music Center
Chairman Director, The Music Center Foundation
Director, Los Angeles Philharmonic Orchestra
Director, Big Brothers of Greater Los Angeles
Director, Executive Service Corps of Southern California
Director, KCET
Director, Teach for America
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson School
Director, Fountainhead Water Company, Inc.
Michael L. Quinn Head of Merrill Lynch Capital Management Group
Chief Executive
Officer
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's Distributor, is also the distributor for
CitiFundsSM International Growth & Income Portfolio, CitiFundsSM International
Growth Portfolio, CitiFundsSM U.S. Treasury Reserves, CitiFundsSM Cash
Reserves, CitiFundsSM Premium U.S. Treasury Reserves, CitiFundsSM Premium
Liquid Reserves, CitiFundsSM Institutional U.S. Treasury Reserves, CitiFundsSM
Institutional Liquid Reserves, CitiFundsSM Institutional Cash Reserves,
CitiFundsSM Tax Free Reserves, CitiFundsSM Institutional Tax Free Reserves,
CitiFundsSM California Tax Free Reserves, CitiFundsSM Connecticut Tax Free
Reserves, CitiFundsSM New York Tax Free Reserves, CitiFundsSM Intermediate
Income Portfolio, CitiFundsSM Short-Term U.S. Government Income Portfolio,
CitiFundsSM New York Tax Free Income Portfolio, CitiFundsSM National Tax Free
Income Portfolio, CitiFundsSM California Tax Free Income Portfolio, CitiFundsSM
International Growth Portfolio, CitiFundsSM Balanced Portfolio, CitiFundsSM
Small Cap Value Portfolio, CitiFundsSM Growth & Income Portfolio, CitiFundsSM
Large Cap Growth Portfolio, CitiFundsSM Small Cap Growth Portfolio, CitiSelect
VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect
VIP Folio 500, CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect Folio
200, CitiSelect Folio 300, CitiSelect Folio 400, and CitiSelect Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio, Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed
Income Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Government Income
<PAGE>
Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio. CFBDS also serves as the distributor for the
following funds: The Travelers Fund U for Variable Annuities, The Travelers
Fund VA for Variable Annuities, The Travelers Fund BD for Variable Annuities,
The Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III for
Variable Annuities, The Travelers Fund BD IV for Variable Annuities, The
Travelers Fund ABD for Variable Annuities, The Travelers Fund ABD II for
Variable Annuities, The Travelers Separate Account PF for Variable Annuities,
The Travelers Separate Account PF II for Variable Annuities, The Travelers
Separate Account QP for Variable Annuities, The Travelers Separate Account TM
for Variable Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable Annuities, The
Travelers Separate Account Six for Variable Annuities, The Travelers Separate
Account Seven for Variable Annuities, The Travelers Separate Account Eight for
Variable Annuities, The Travelers Fund UL for Variable Annuities, The Travelers
Fund UL II for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance Separate Account
Two, The Travelers Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account Four, The Travelers Separate
Account MGA, The Travelers Separate Account MGA II, The Travelers Growth and
Income Stock Account for Variable Annuities, The Travelers Quality Bond Account
for Variable Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account for Variable Annuities,
The Travelers Timed Aggressive Stock Account for Variable Annuities, The
Travelers Timed Bond Account for Variable Annuities, Emerging Growth Fund,
Government Fund, Growth and Income Fund, International Equity Fund, Municipal
Fund, Balanced Investments, Emerging Markets Equity Investments, Government
Money Investments, High Yield Investments, Intermediate Fixed Income
Investments, International Equity Investments, International Fixed Income
Investments, Large Capitalization Growth Investments, Large Capitalization
Value Equity Investments, Long-Term Bond Investments, Mortgage Backed
Investments, Municipal Bond Investments, Small Capitalization Growth
Investments, Small Capitalization Value Equity Investments, Appreciation
Portfolio, Diversified Strategic Income Portfolio, Emerging Growth Portfolio,
Equity Income Portfolio, Equity Index Portfolio, Growth & Income Portfolio,
Intermediate High Grade Portfolio, International Equity Portfolio, Money Market
Portfolio, Total Return Portfolio, Smith Barney Adjustable Rate Government
Income Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund, Smith Barney Arizona Municipals Fund Inc., Smith Barney
California Municipals Fund Inc., Balanced Portfolio, Conservative Portfolio,
Growth Portfolio, High Growth Portfolio, Income Portfolio, Global Portfolio,
Select Balanced Portfolio, Select Conservative Portfolio, Select Growth
Portfolio, Select High Growth Portfolio, Select Income Portfolio, Concert
Social Awareness Fund, Smith Barney Large Cap Blend Fund, Smith Barney
Fundamental Value Fund Inc., Large Cap Value Fund, Short-Term High Grade Bond
Fund, U.S. Government Securities Fund, Smith Barney Balanced Fund, Smith Barney
Convertible Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Exchange Reserve Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Premium Total Return Fund, Smith Barney Total
Return Bond Fund, Cash Portfolio, Government Portfolio, Municipal Portfolio,
Concert Peachtree Growth Fund, Smith Barney Contrarian Fund, Smith Barney
Government Securities Fund, Smith Barney Hansberger Global Small Cap Value
Fund, Smith Barney Hansberger Global Value Fund, Smith Barney Investment Grade
Bond Fund, Smith Barney Special Equities Fund, Smith Barney Intermediate
Maturity California Municipals Fund, Smith Barney Intermediate Maturity New
York Municipals Fund, Smith Barney Large Capitalization Growth Fund, Smith
Barney S&P 500 Index Fund, Smith Barney Mid Cap Blend Fund, Smith Barney
Managed Governments Fund Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Cash Portfolio, Government Portfolio,
Retirement Portfolio, California Money Market Portfolio, Florida Portfolio,
Georgia Portfolio, Limited Term Portfolio, New York Money Market Portfolio, New
York Portfolio, Pennsylvania Portfolio, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney Natural Resources Fund Inc., Smith Barney New Jersey
Municipals Fund Inc., Smith Barney Oregon Municipals Fund, Zeros Plus Emerging
Growth Series 2000, Smith Barney Security and Growth Fund, Smith Barney Small
Cap Blend Fund, Inc., Smith Barney Telecommunications Income Fund, Income and
Growth Portfolio, Reserve Account Portfolio, U.S. Government/High Quality
Securities Portfolio, Emerging Markets Portfolio, European Portfolio, Global
Government Bond Portfolio, International Balanced Portfolio, International
<PAGE>
Equity Portfolio, Pacific Portfolio, AIM Capital Appreciation Portfolio,
Alliance Growth Portfolio, GT Global Strategic Income Portfolio, MFS Total
Return Portfolio, Putnam Diversified Income Portfolio, Smith Barney High Income
Portfolio, Smith Barney Large Cap Value Portfolio, Smith Barney International
Equity Portfolio, Smith Barney Large Capitalization Growth Portfolio, Smith
Barney Money Market Portfolio, Smith Barney Pacific Basin Portfolio, TBC
Managed Income Portfolio, Van Kampen American Capital Enterprise Portfolio,
Centurion Tax-Managed U.S. Equity Fund, Centurion Tax-Managed International
Equity Fund, Centurion U.S. Protection Fund, Centurion International Protection
Fund, Global High-Yield Bond Fund, International Equity Fund, Emerging
Opportunities Fund, Core Equity Fund, Long-Term Bond Fund, Global Dimensions
Fund L.P., Citicorp Private Equity L.P., AIM V.I. Capital Appreciation Fund,
AIM V.I. Government Series Fund, AIM V.I. Growth Fund, AIM V.I. International
Equity Fund, AIM V.I. Value Fund, Fidelity VIP Growth Portfolio, Fidelity VIP
High Income Portfolio, Fidelity VIP Equity Income Portfolio, Fidelity VIP
Overseas Portfolio, Fidelity VIP II Contrafund Portfolio, Fidelity VIP II Index
500 Portfolio, MFS World Government Series, MFS Money Market Series, MFS Bond
Series, MFS Total Return Series, MFS Research Series, MFS Emerging Growth
Series, Salomon Brothers Institutional Money Market Fund, Salomon Brothers Cash
Management Fund, Salomon Brothers New York Municipal Money Market Fund, Salomon
Brothers National Intermediate Municipal Fund, Salomon Brothers U.S. Government
Income Fund, Salomon Brothers High Yield Bond Fund, Salomon Brothers Strategic
Bond Fund, Salomon Brothers Total Return Fund, Salomon Brothers Asia Growth
Fund, Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Fund Inc,
Salomon Brothers Opportunity Fund Inc, Salomon Brothers Institutional High
Yield Bond Fund, Salomon Brothers Institutional Emerging Markets Debt Fund,
Salomon Brothers Variable Investors Fund, Salomon Brothers Variable Capital
Fund, Salomon Brothers Variable Total Return Fund, Salomon Brothers Variable
High Yield Bond Fund, Salomon Brothers Variable Strategic Bond Fund, Salomon
Brothers Variable U.S. Government Income Fund, and Salomon Brothers Variable
Asia Growth Fund.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
CFBDS, Inc. 21 Milk Street, 5th Floor
(administrator and distributor) Boston, MA 02109
State Street Bank and Trust Company 1776 Heritage Drive
(custodian and transfer agent) North Quincy, MA 02171
Citibank, N.A. 153 East 53rd Street
(investment manager) New York, NY 10043
Item 29. Management Services.
Not applicable.
<PAGE>
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston and Commonwealth of
Massachusetts on the 22nd day of December, 1998.
CITIFUNDS INTERNATIONAL TRUST
By: Philip W. Coolidge
------------------------
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to this Registration Statement has been signed below
by the following persons in the capacities indicated below on December 22,
1998.
Signature Title
Philip W. Coolidge President, Principal Executive Officer and Trustee
- ---------------------
Philip W. Coolidge
John R. Elder Principal Financial Officer and Principal
- --------------------- Accounting Officer
John R. Elder
Riley C. Gilley* Trustee
- ---------------------
Riley C. Gilley
Diana R. Harrington* Trustee
- ---------------------
Diana R. Harrington
Susan B. Kerley* Trustee
- ---------------------
Susan B. Kerley
C. Oscar Morong, Jr.* Trustee
- ---------------------
C. Oscar Morong, Jr.
E. Kirby Warren* Trustee
- ---------------------
E. Kirby Warren
William S. Woods, Jr.* Trustee
- ---------------------
William S. Woods, Jr.
*By: Philip W. Coolidge
---------------------
Philip W. Coolidge
Executed by Philip W. Coolidge on behalf of those
indicated pursuant to Powers of Attorney.
<PAGE>
SIGNATURES
Asset Allocation Portfolios has duly caused this Post-Effective Amendment
to the Registration Statement on Form N-1A of CitiFunds International Trust to
be signed on its behalf by the undersigned, thereunto duly authorized, in Grand
Cayman, Cayman Islands, on the 22nd day of December, 1998.
ASSET ALLOCATION PORTFOLIOS
on behalf of International Portfolio
By: Tamie Ebanks-Cunningham
----------------------------
Tamie Ebanks-Cunningham,
Assistant Secretary of
Asset Allocation Portfolios
This Post-Effective Amendment to the Registration Statement on Form N-1A
of CitiFunds International Trust has been signed by the following persons in
the capacities indicated on December 22, 1998.
Signature Title
Philip W. Coolidge* President, Principal Executive Officer and Trustee
- -----------------------
Philip W. Coolidge
John R. Elder* Principal Financial Officer and Principal
- ----------------------- Accounting Officer
John R. Elder
Elliott J. Berv* Trustee
- -----------------------
Elliott J. Berv
Mark T. Finn* Trustee
- -----------------------
Mark T. Finn
C. Oscar Morong, Jr.* Trustee
- -----------------------
C. Oscar Morong, Jr.
Walter E. Robb, III* Trustee
- -----------------------
Walter E. Robb, III
E. Kirby Warren* Trustee
- -----------------------
E. Kirby Warren
*By: Tamie Ebanks-Cunningham
------------------------
Tamie Ebanks-Cunningham
Executed by Tamie Ebanks-Cunningham
on behalf of those indicated as attorney in
fact.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.: Description:
<S> <C>
a(2) Amendment to the Declaration of Trust of the Registrant
d Management Agreement between the Registrant and Citibank, N.A., as manager
to CitiFunds International Growth & Income Portfolio
g(2) Letter Agreement adding CitiFunds International Growth & Income Portfolio to
the Custodian Contract between the Registrant and State Street
h(2) Letter Agreement adding CitiFunds International Growth & Income Portfolio to
the Transfer Agency and Servicing Agreement between the Registrant and State
Street
h(4) Letter Agreement adding CitiFunds International Growth & Income Portfolio to
the Fund Accounting Agreement between the Registrant and State Street
</TABLE>
Exhibit a(2)
CITIFUNDS INTERNATIONAL TRUST
Establishment and Designation of Series of
Shares of Beneficial Interest (par value $0.00001 per share)
Pursuant to Section 6.9 of the Declaration of Trust, dated August 7, 1990,
as amended (the "Declaration of Trust"), of CitiFunds International Trust
(formerly, Landmark International Funds) (the "Trust"), the undersigned, being
a majority of the Trustees of the Trust, do hereby amend and restate the
Trust's existing Establishment and Designation of Series of Shares of
Beneficial Interest (par value $0.00001 per share) in order to change the name
of a series of Shares which was previously established and designated. No other
changes to the special and relative rights of the existing series are intended
by this amendment and restatement.
1. The series shall be as follows:
The series previously designated as CitiFunds International Equity
Portfolio shall be redesignated as "CitiFunds International Growth
Portfolio."
The remaining series are as follows: CitiFunds Emerging Asian Markets
Equity Portfolio;
and
CitiFunds International Growth & Income Portfolio.
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Securities Act of
1933 to the extent pertaining to the offering of Shares of each series. Each
Share of each series shall be redeemable, shall be entitled to one vote or
fraction thereof in respect of a fractional share on matters on which shares of
that series shall be entitled to vote, shall represent a pro rata beneficial
interest in the assets allocated or belonging to such series, and shall be
entitled to receive its pro rata share of the net assets of such series upon
liquidation of the series, all as provided in Section 6.9 of the Declaration of
Trust.
3. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
<PAGE>
effectively acted upon with respect to each series as provided in, Rule 18f-2,
as from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter created or
otherwise to change the special and relative rights of any such series.
IN WITNESS WHEREOF, the undersigned have executed this Establishment and
Designation of Series on separate counterparts this 5th day of October, 1998.
Philip W. Coolidge Riley C. Gilley
- ------------------------------- -------------------------------
PHILIP W. COOLIDGE RILEY C. GILLEY
As Trustee and Not Individually As Trustee and not Individually
Diana R. Harrington Susan B. Kerley
- ------------------------------- -------------------------------
DIANA R. HARRINGTON SUSAN B. KERLEY
As Trustee and Not Individually As Trustee and not Individually
C. Oscar Morong, Jr. E. Kirby Warren
- ------------------------------- -------------------------------
C. OSCAR MORONG, JR. E. KRBY WARREN
As Trustee and Not Individually As Trustee and not Individually
William S. Woods, Jr.
- -------------------------------
WILLIAM S. WOODS, JR.
As Trustee and Not Individually
Exhibit d
LANDMARK INTERNATIONAL FUNDS
CitiFunds International Growth & Income Portfolio
MANAGEMENT AGREEMENT, dated as of November 14, 1997, by and between
Landmark International Funds, a Massachusetts trust (the "Trust"), and
Citibank, N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder and any exemptive orders thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain investment
advisory and administrative services for the series of the Trust designated as
CitiFunds International Growth & Income Portfolio (the "Fund"), and Citibank is
willing to provide such investment advisory and administrative services for the
Fund on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the Manager for the Fund
and as such shall furnish continuously an investment program and shall
determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held uninvested,
subject always to the restrictions of the Trust's Declaration of Trust, dated
as of August 7, 1990, and By-Laws, as each may be amended from time to time
(respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940
Act, and the then-current Registration Statement of the Trust with respect to
the Fund. The Manager shall also make recommendations as to the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
<PAGE>
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager shall be bound by such determination
for the period, if any, specified in such notice or until similarly notified
that such determination has been revoked. The Manager shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders
for the purchase or sale of securities for the Fund's account with the brokers
or dealers selected by it, and to that end the Manager is authorized as the
agent of the Trust to give instructions to the custodian or any subcustodian of
the Fund as to deliveries of securities and payments of cash for the account of
the Fund. In connection with the selection of such brokers or dealers and the
placing of such orders, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to the Fund and/or the other accounts over
which the Manager or its affiliates exercise investment discretion. The Manager
is authorized to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for the
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the Manager determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Manager and its affiliates have with
respect to accounts over which they exercise investment discretion. In making
purchases or sales of securities or other property for the account of the Fund,
the Manager may deal with itself or with the Trustees of the Trust or the
Trust's underwriter or distributor, to the extent such actions are permitted by
the 1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ, at its own expense, or may request that the
Trust employ at the Fund's expense, one or more subadvisers; provided that in
each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any
agreement between the Trust on behalf of the Fund and a subadviser may be
terminated by the Manager at any time on not more than 60 days' nor less than
30 days' written notice to the Trust and the subadviser.
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (i) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
<PAGE>
performing the administrative and management functions herein set forth; (ii)
supervising the overall administration of the Trust, including negotiation of
contracts and fees with and the monitoring of performance and billings of the
Trust's transfer agent, shareholder servicing agents, custodian and other
independent contractors or agents; (iii) preparing and, if applicable, filing
all documents required for compliance by the Trust with applicable laws and
regulations, including registration statements, prospectuses and statements of
additional information, semi-annual and annual reports to shareholders, proxy
statements and tax returns; (iv) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
shareholders; and (v) arranging for maintenance of books and records of the
Trust. Notwithstanding the foregoing, Citibank shall not be deemed to have
assumed any duties with respect to, and shall not be responsible for, the
distribution of shares of beneficial interest in the Fund, nor shall Citibank
be deemed to have assumed or have any responsibility with respect to functions
specifically assumed by any transfer agent, fund accounting agent, custodian or
shareholder servicing agent of the Trust or the Fund. In providing
administrative and management services as set forth herein, Citibank may, at
its own expense, employ one or more subadministrators; provided that Citibank
shall remain fully responsible for the performance of all administrative and
management duties set forth herein and shall supervise the activities of each
subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not
"affiliated persons" of Citibank; governmental fees; interest charges; loan
commitment fees; taxes; membership dues in industry associations allocable to
the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, shareholder servicing agent, registrar or dividend
disbursing agent of the Trust; expenses of issuing and redeeming shares of
beneficial interest and servicing shareholder accounts; expenses of preparing,
typesetting, printing and mailing prospectuses, statements of additional
information, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions and to existing shareholders of the Fund;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Fund (including but not limited to the fees of independent pricing
services); expenses of meetings of the Fund's shareholders; expenses relating
<PAGE>
to the registration and qualification of shares of the Fund; and such
nonrecurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Fund may
be a party and the legal obligation which the Trust may have to indemnify its
Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Fund a management fee computed daily and paid
monthly at an annual rate equal to 0.25% of the Fund's average daily net assets
for the Fund's then-current fiscal year. If Citibank provides services
hereunder for less than the whole of any period specified in this Section 3,
the compensation to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the 1940
Act, will not take a long or short position in shares of beneficial interest in
the Fund except as permitted by the Declaration, and will comply with all other
provisions of the Declaration and By-Laws and the then-current Registration
Statement applicable to the Fund relative to Citibank and its directors and
officers.
5. Limitation of Liability of Citibank. Citibank shall not 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 securities
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not to
be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that
directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as a shareholder or otherwise.
<PAGE>
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until November 14, 1999, on which date it will terminate unless its continuance
after November 14, 1999 is "specifically approved at least annually" (a) by the
vote of a majority of the Trustees of the Trust who are not "interested
persons" of the Trust or of Citibank at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust or by "vote of a majority of the outstanding voting securities" of the
Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust under
this Agreement are binding only with respect to the Fund; that any liability of
the Trust under this Agreement, or in connection with the transactions
contemplated herein, shall be discharged only out of the assets of the Fund;
and that no other series of the Trust shall be liable with respect to this
Agreement or in connection with the transactions contemplated herein.
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
<PAGE>
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
9. Use of Name. The Trust hereby acknowledges that any and all rights in
or to the name "Citi" which exist on the date of this Agreement or which may
arise hereafter are, and under any and all circumstances shall continue to be,
the sole property of Citibank; that Citibank may assign any or all of such
rights to another party or parties without the consent of the Trust; and that
Citibank may permit other parties, including other investment companies, to use
the word "Citi" in their names. If Citibank, or its assignee as the case may
be, ceases to serve as the adviser to and administrator of the Trust, the Trust
hereby agrees to take promptly any and all actions which are necessary or
desirable to change its name so as to delete the word "Citi."
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
LANDMARK
INTERNATIONAL FUNDS CITIBANK, N.A.
By: Philip Coolidge By: Lawrence Keblusek
Title: President Title: U.S. C.I.O.
Exhibit g(2)
Landmark International Funds
6 St. James Avenue
Boston, Massachusetts 02116
November 14, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: Landmark International Funds - Custodian Contract
Ladies and Gentlemen:
Pursuant to Section 17 of the Custodian Contract dated as of September 1,
1997 (the "Contract"), between Landmark International Funds (the "Trust") and
State Street Bank and Trust Company (the "Custodian"), we hereby request that
CitiFunds International Growth & Income Portfolio (the "Fund") be added to the
list of series of the Trust to which the Custodian renders services as
custodian under the terms of the Contract.
Please sign below to evidence your agreement to render such services as
custodian on behalf of the Fund and to add the Fund as a beneficiary under the
Contract.
LANDMARK INTERNATIONAL FUNDS
By: Philip Coolidge
Title: President
Agreed:
STATE STREET BANK AND TRUST COMPANY
By: Ronald Logue
Title:_________________________
Exhibit h(2)
Landmark International Funds
6 St. James Avenue
Boston, Massachusetts 02116
November 14, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: Landmark International Funds - Transfer Agency and
Service Agreement
Ladies and Gentlemen:
This letter serves as notice that CitiFunds International Growth & Income
Portfolio (the "Fund") is added to the list of series of Landmark International
Funds (formerly, "Landmark International Equity Fund") (the "Trust") to which
State Street Bank and Trust Company ("State Street") renders services as
transfer agent pursuant to the terms of the Transfer Agency Agreement dated as
of November 1, 1990 (the "Agreement") between the Trust and State Street.
Please sign below to acknowledge your receipt of this notice adding the
Fund as a beneficiary under the Agreement.
LANDMARK INTERNATIONAL FUNDS
By: Philip Coolidge
Title: President
Acknowledgment:
STATE STREET BANK AND TRUST COMPANY
By: Ronald Logue
Title:___________________________
Exhibit h(4)
Landmark International Funds
6 St. James Avenue
Boston, Massachusetts 02116
November 14, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: Landmark International Funds - Accounting
Services Agreement
Ladies and Gentlemen:
Pursuant to Section 7.1 of the Accounting Services Agreement dated as of
September 1, 1997 (the "Agreement"), between Landmark International Funds (the
"Trust") and State Street Bank and Trust Company ("State Street"), we hereby
request that CitiFunds International Growth & Income Portfolio (the "Fund") be
added to the list of series of the Trust to which State Street renders services
as accounting agent pursuant to the terms of the Agreement.
Please sign below to evidence your agreement to provide such services to
the Fund and to add the Fund as a beneficiary under the Agreement.
LANDMARK INTERNATIONAL FUNDS
By: Philip Coolidge
Title: President
Agreed:
STATE STREET BANK AND TRUST COMPANY
By: Ronald Logue
Title:___________________________
