As filed with the Securities and Exchange Commission on April 28, 2000
File No. 811-8434
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6
THE PREMIUM PORTFOLIOS*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ELIZABETHAN SQUARE, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS, BWI
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(345) 945-1824
SUSAN JAKUBOSKI, ELIZABETHAN SQUARE, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM DANA LLP,
150 FEDERAL STREET, BOSTON, MA 02110
- -------------------------------------------------------------------------------
* Relates only to International Equity Portfolio.
<PAGE>
EXPLANATORY NOTE
The Premium Portfolios has filed this Registration Statement pursuant to
Section 8(b) of the Investment Company Act of 1940. However, beneficial
interests in International Equity Portfolio are not being registered under the
Securities Act of 1933, since such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Only investment companies, insurance
company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act may make investments in the Portfolio. This
Registration Statement is not an offer to sell, or the solicitation of an offer
to buy, any beneficial interests in the Portfolio.
<PAGE>
PART A
Responses to Items 1, 2, 3, 5 and 9 have been omitted pursuant to General
Instruction B.2(b) of Form N-1A.
Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks.
PORTFOLIO GOAL
The goal of International Equity Portfolio is long-term capital growth.
Dividend income, if any, is incidental to this goal.
The goal of the Portfolio may be changed without approval by the Portfolio's
investors but not without written notice thereof to the Portfolio's investors
at least 30 days prior to implementing the change. Of course, there can be no
assurance that the Portfolio will achieve its goal.
MAIN INVESTMENT STRATEGIES
The Portfolio's principal investment strategies are described below. The
Portfolio may use other strategies and invest in other securities that are
described in Part B to this Registration Statement. However, the Portfolio may
not use all of the strategies and techniques or invest in all of the types of
securities described in this Part A or in Part B to this Registration
Statement. The Portfolio's goal may be changed without investor approval. Of
course, there can be no assurance that the Portfolio will achieve its goal.
The Portfolio invests primarily in the common stocks of foreign companies that
the Portfolio's portfolio managers believe have above-average prospects for
growth, including companies in developing countries. In managing the Portfolio,
Citibank looks for well-established companies with medium to large
capitalizations (typically $750 million or more), superior management teams and
histories of above-average revenues and earnings growth. Citibank seeks
opportunities to invest in foreign economies that are growing faster than the
U.S. economy.
In addition to common stocks, the Portfolio may invest in other equity
securities including rights to purchase common stocks as well as securities
with common stock characteristics, such as securities convertible into common
stock, trust or limited partnership interests, 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).
Generally, the Portfolio invests in a number of different countries and under
normal circumstances, the Portfolio invests at least 65% of its assets in
equity securities of companies in at least three foreign markets. The Portfolio
<PAGE>
may invest in preferred stock or warrants, and also, to a limited extent,
purchase shares in other investment companies, including closed end investment
companies that invest in foreign securities.
The Portfolio may, but is not required to, buy debt securities of foreign
issuers. Long-term debt securities must be investment grade at the time of
purchase, meaning they are rated at least Baa by Moody's or BBB by Standard &
Poor's or, if unrated, of comparable quality in the portfolio managers'
opinion. After the Portfolio buys a bond, it may be given a lower rating or
stop being rated. This would not require the Portfolio to sell the security,
but the portfolio managers will consider the change in rating in deciding
whether to keep the security.
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 foreign issuers deposited in a U.S. bank or a
local branch of a foreign bank). While equity securities historically have been
more volatile than fixed income securities, they historically have produced
higher levels of total return.
The Portfolio generally invests in securities that are sold on securities
exchanges, although it may also purchase securities which are not registered
for sale to the general public, or, to a limited extent, securities that are
not readily marketable.
The Portfolio may hold cash pending investment, and may invest in money market
instruments, repurchase agreements and reverse repurchase agreements for cash
management purposes. The Portfolio may also lend its portfolio securities or
sell its securities short, as long as, in the case of a short sale, the
Portfolio owns, or has the right to obtain, the securities being sold short.
The Portfolio may, but is not required to, enter into forward currency exchange
contracts for the purchase or sale of foreign currency for hedging purposes. A
currency exchange contract allows the Portfolio to fix a definite price in
dollars for securities of non-U.S. issuers that the Portfolio buys and sells.
DEFENSIVE STRATEGIES. The Portfolio may, from time to time, take temporary
defensive positions that are inconsistent with the Portfolio's principal
investment strategies in attempting to respond to adverse market, political or
other conditions. When doing so, the Portfolio may invest without limit in high
quality U.S. money market and other short-term instruments, and may not be
pursuing its investment goal.
MANAGEMENT STYLE. Managers of mutual funds use different styles when selecting
securities to purchase and to sell. Citibank's portfolio managers seek to add
value primarily through selection of companies believed to be reasonably valued
compared to their long-term earnings potential. The Portfolio's managers use
fundamental analysis to find companies that they believe have growth potential,
<PAGE>
and look first at a particular company and then at the country in which the
company is located and the industry in which the company participates. The
managers eliminate stocks that they believe are overpriced relative to a
company's financial statements and projections. The managers then analyze each
company to find those believed to have good management, solid product lines,
strong competitive positioning and attractive cash flows. The portfolio
managers use this same approach when deciding which securities to sell.
Securities are sold when the Portfolio needs cash to meet redemptions, or when
the managers believe that better opportunities exist or that the security no
longer fits within the managers' overall strategies for achieving the
Portfolio's goal.
The Portfolio is actively managed. Although the portfolio manager attempts to
minimize portfolio turnover, from time to time the Portfolio'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 Portfolio pays to
brokers or dealers when it buys and sells securities. For the fiscal years
ended December 31, 1998 and 1999, the Portfolio's portfolio turnover rates were
118% and 68%, respectively.
Citibank may use brokers or dealers for Portfolio transactions who also provide
brokerage and research services to the Portfolio or other accounts over which
Citibank or its affiliates exercise investment discretion. The Portfolio 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 Portfolio will "pay up" only
if Citibank determines in good faith that the higher commission is reasonable
in relation to the brokerage and research services provided, viewed in terms of
either the particular transaction or all of the accounts over which Citibank
exercises investment discretion.
MAIN RISKS
The principal risks of investing in the Portfolio are described below. Please
note that there are many other factors that could adversely affect an
investment and that could prevent the Portfolio from achieving its goal, which
are not described here. More information about risks appears in Part B to this
Registration Statement.
The Portfolio's net asset value will change daily as the value of its
underlying securities change. This means that your interest in the Portfolio
may be worth more or less when you sell it than when you bought it.
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. Some securities held by the Portfolio may be quite
volatile, meaning that their prices can change significantly in a short time.
<PAGE>
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
Portfolio investments, currency exchange controls and other
limitations on the use or transfer of Portfolio 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
Portfolio'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 Portfolio. 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 Portfolio from realizing value in U.S.
dollars from its investment in foreign securities.
o The Portfolio 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.
<PAGE>
o The markets of developing countries have been more volatile than
the markets of developed countries with more mature economies.
PORTFOLIO SELECTION. The success of the Portfolio's investment strategy depends
largely on Citibank's skill in assessing the growth potential of companies in
which the Portfolio invests. The portfolio managers may fail to pick stocks
that outperform the market or that do as well as the market. In that case, you
may lose money, or your investment may not do as well as an investment in
another international equity fund.
GROWTH SECURITIES. Growth securities typically are quite sensitive to market
movements because their market prices tend to reflect future expectations. When
it appears those expectations will not be met, the prices of growth securities
typically fall. The Portfolio may underperform certain other international
stock funds (those emphasizing value stocks, for example) during periods when
growth 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.
CREDIT RISK. The Portfolio may invest in investment grade debt securities. It
is possible that some issuers will not make payments on debt securities held by
the Portfolio, 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 the net asset value
of the Portfolio. If the credit quality of a security deteriorates below
investment grade, the Portfolio may continue to hold this security, commonly
known as a junk bond. The prices of lower rated securities, especially junk
bonds, often are more volatile than those of higher rated securities. 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 Portfolio to sell. The
lower quality debt securities in which the Portfolio may invest are more
susceptible to these problems than higher quality obligations.
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.
CURRENCY EXCHANGE CONTRACTS. The Portfolio may use forward foreign currency
exchange contracts to hedge against adverse rate changes. The Portfolio's use
of forward foreign currency exchange contracts may prevent the Portfolio from
realizing profits on favorable movements in exchange rates. The Portfolio's
ability to use currency exchange contracts successfully depends on a number of
factors, including the contracts being available at prices that are not too
costly, the availability of liquid markets, and the ability of the Portfolio's
<PAGE>
portfolio managers to accurately predict the direction of changes in currency
exchange rates. If these predictions are wrong, the Portfolio could suffer
greater losses than if the Portfolio had not entered into the foreign currency
exchange contracts. In addition, the Portfolio could suffer losses if a
counterparty to a contract does not perform its obligations.
EURO CONVERSION. The Portfolio 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
Portfolio are presently unclear. European financial markets, and, therefore,
the Portfolio, could be adversely affected if the euro conversion does not
continue as planned or if a participating country chooses to withdraw from the
EMU.
PLEASE NOTE THAT AN INVESTMENT IN THE PORTFOLIO Is NOT A DEPOSIT OF CITIBANK
AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
Item 6. Management, Organization and Capital Structure.
INVESTMENT MANAGERS
The Portfolio draws on the strength and experience of Citibank. Citibank is the
investment manager of the Portfolio, and subject to policies set by the
Portfolio's Trustees, Citibank makes investment decisions. Citibank has been
managing money since 1822. With its affiliates, it currently manages more than
$351 billion in assets worldwide.
Citibank, with headquarters at 153 East 53rd Street, New York, New York, is a
wholly-owned subsidiary of Citigroup Inc.
Citibank and its affiliates, including their directors, officers or employees,
may have banking and investment banking relationships with the issuers of
securities that are held in the Portfolio. They may also own the securities of
these issuers. However, in making investment decisions for the Portfolio
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 Portfolio.
Matthew Bowyer, a Vice President of Citibank, has managed the Portfolio since
February 1999. Mr. Bowyer is a Senior Portfolio Manager and Cross Border Equity
Strategist who has been responsible for managing global equity and balanced
portfolios at Citibank since mid 1996. Prior to that he ran a quantitative
research group, providing portfolio and market analysis to Citibank's equity
<PAGE>
and fixed income teams in London. Mr. Bowyer has 14 years of investment
management experience at Citibank.
ADVISORY FEES
For the advisory services Citibank provided to the Portfolio during the fiscal
year ended December 31, 1999, Citibank received a total of 1.00% of the
Portfolio's average daily net assets, after waivers.
CAPITAL STOCK
Investments in the Portfolio have no preference, pre-emptive or conversion
rights and are fully paid and non-assessable, except as set forth below. The
Portfolio is not required and have no current intention to hold annual meetings
of investors, but the Portfolio holds special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Investors have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified number of
investors. Upon liquidation or dissolution of the Portfolio, investors in the
Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to investors.
The Portfolio is a series of The Premium Portfolios (known as the "Trust"),
which is organized as a trust under the laws of the State of New York. Under
the Declaration of Trust, the Trustees are authorized to issue beneficial
interests in the Portfolio. Each investor is entitled to a vote in proportion
to the value of its investment in the Portfolio. Investments in the Portfolio
may not be transferred, but an investor may withdraw all or any portion of its
investment at any time at net asset value. Investors in the Portfolio (e.g.,
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, it is not expected that the liabilities of the Portfolio would ever
exceed its assets.
Item 7. Investor Information.
HOW NET INCOME IS CALCULATED
The Portfolio calculates its net asset value (NAV) every day the New York Stock
Exchange is open for trading (Business Day). This calculation is made at the
close of regular trading on the New York Stock Exchange, normally 4:00 p.m.
Eastern time. On days when the financial markets in which the Portfolio invests
close early, NAV will be calculated as of the close of those markets.
<PAGE>
The Portfolio's securities are valued primarily on the basis of market
quotations. When market quotations are not readily available, the Portfolio may
price securities at fair value. Fair value is determined in accordance with
procedures approved by the Portfolio's Board of Trustees. When the Portfolio
uses the fair value pricing method, a security may be priced higher or lower
than if the Portfolio had used a market quotation to price the same security.
For foreign securities the values are translated from the local currency into
U.S. dollars using current exchange rates. If trading in the currency is
restricted, the Portfolio uses a rate believed to reflect the currency's fair
value in U.S. dollars. Trading may take place in foreign securities held by the
Portfolio on days when the Portfolio is not open for business. As a result, the
Portfolio's NAV may change on days on which it is not possible to purchase or
sell interests in the Portfolio. 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 Portfolio's NAV 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.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, assuming that the investor invested all of its investable assets in
the Portfolio.
THE PURCHASE AND REDEMPTION OF BENEFICIAL INTERESTS IN THE PORTFOLIO
Beneficial interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933. Only investment companies,
insurance company separate accounts, common or commingled trust funds or
similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act may invest in the Portfolio. This
Registration Statement is not an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio is made without a sales load. All investments
are made at net asset value next determined after an order is received by the
Portfolio. There is no minimum initial or subsequent investment in the
Portfolio. However, since the Portfolio intends to be as fully invested at all
times as is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., moneys credited to the account
of the Portfolio's custodian bank by a U.S. Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any time or
to reject any investment order.
<PAGE>
An investor in the Portfolio may withdraw all or any portion of its investment
at any time after a withdrawal request in proper form is received by the
Portfolio from the investor. The proceeds of a withdrawal will be paid by the
Portfolio in federal funds normally on the Business Day the withdrawal is
effected, but in any event within seven days. Investments in the Portfolio may
not be transferred.
Subject to compliance with applicable regulations, the Portfolio may pay the
redemption price of beneficial interests in the Portfolio, either totally or
partially, by a distribution in kind of readily marketable securities (instead
of cash). The securities so distributed would be valued at the same amount as
that assigned to them in calculating the net asset value for the beneficial
interests being redeemed. If a holder of beneficial interests received a
distribution in kind, such holder could incur brokerage or other charges in
converting the securities to cash.
The right of any investor to receive payment with respect to any withdrawal may
be suspended or the payment of the withdrawal proceeds postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the Exchange is restricted, or, to the extent otherwise
permitted by the 1940 Act, if an emergency exists.
TAX MATTERS
The Portfolio expects to be treated as a partnership for U.S. federal and New
York state income tax purposes. As a result, the Portfolio does not expect to
pay any federal income taxes and, generally, investors in the Portfolio should
not have to pay federal income taxes when they invest in or make withdrawals
from the Portfolio. However, each investor in the Portfolio must take into
account its share of the Portfolio's ordinary income, expenses, capital gains
and losses, credits and other items whether or not distributed in determining
its income tax liability.
The Trust also expects that investors in the Portfolio which seek to qualify as
regulated investment companies under the Internal Revenue Code will be able to
look to their proportionate share of the assets and gross income of the
Portfolio for purposes of determining their compliance with the requirements
applicable to such companies.
The Trust intends to conduct its activities and those of the Portfolio so that
they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in the Portfolio, other than an investor which would be deemed
a "U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in the Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in the
Portfolio.
<PAGE>
The foregoing tax discussion is only for an investor's general information, and
does not take account of the special rules applicable to certain investors
(such as tax-exempt investors) or a number of special circumstances. Each
investor should consult its own tax advisers regarding the tax consequences in
its circumstances of an investment in the Portfolio, as well as any state,
local or foreign tax consequences to them of investing in the Portfolio.
Item 8. Distribution Arrangements.
The exclusive placement agent for the Portfolio is CFBDS, Inc. CFBDS receives
no compensation for serving as the Portfolio's exclusive placement agent.
<PAGE>
PART B
Item 10. Cover Page and Table of Contents.
This Part B sets forth information with respect to International Equity
Portfolio, a series of The Premium Portfolios, an investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). The date
of this Part B and Part A to the Registration Statement for the Portfolio is
April 28, 2000.
TABLE OF CONTENTS Page
Portfolio History.......................................................B-2
Description of the Portfolio and Its Investments and Risks..............B-2
Management of the Portfolio.............................................B-14
Control Persons and Principal Holders
of Securities.........................................................B-17
Investment Advisory and Other Services..................................B-18
Brokerage Allocation and Other Practices................................B-21
Capital Stock and Other Securities......................................B-22
Purchase, Redemption and Pricing of
Securities............................................................B-24
Taxation of the Portfolio...............................................B-26
Underwriters............................................................B-28
Calculations of Performance Data........................................B-28
Financial Statements....................................................B-28
<PAGE>
Item 11. Portfolio History.
The Premium Portfolios (the "Trust") was organized as a trust under the
laws of the State of New York and International Equity Portfolio was designated
as a series of the Trust on September 13, 1993.
Item 12. Description of the Portfolio and Its Investments and Risks.
The investment objective of the Portfolio is long-term capital growth.
Dividend income, if any, is incidental to this investment objective.
The policies described above and those described below are not fundamental
and may be changed without investor approval.
The Portfolio may, but need not, invest in any or all of the investments
and utilize all of the investment techniques described below and in Part A to
this Registration Statement. The selection of investments and the utilization
of investment techniques depend on, among other things, the investment
strategies of Citibank, N.A., the Portfolio's investment adviser ("Citibank" or
the "Adviser"), conditions and trends in the economy and financial markets, and
investments being available on terms that, in Citibank's opinion, make economic
sense.
As a non-fundamental policy, at least 65% of the value of the Portfolio's
total assets will be invested in equity securities of issuers organized in at
least three countries other than the United States. While the Portfolio's
policy is to invest primarily in common stocks of companies organized outside
the United States ( "non-U.S. issuers") believed to possess better than average
prospects for growth, appreciation may be sought in other types of securities,
principally of non-U.S. issuers, such as fixed income securities, convertible
and non-convertible bonds, preferred stocks and warrants, when relative values
make such purchases appear attractive either as individual issues or as types
of securities in certain economic environments. There is no formula as to the
percentage of assets that may be invested in any one type of security.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by
securities in which the Portfolio may otherwise invest. Repurchase agreements
are agreements by which the Portfolio purchases a security and simultaneously
commits to resell that security to the seller (which is usually a member bank
of the U.S. Federal Reserve System or a member firm of the New York Stock
Exchange (or a subsidiary thereof)) at an agreed-upon date within a number of
days (frequently overnight and usually not more than seven days) 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
<PAGE>
agency issues. Under the 1940 Act, repurchase agreements may be considered to
be loans by the buyer. The Portfolio's risk is limited to the ability of the
seller to pay the agreed-upon amount on the delivery date. If the seller
defaults, the underlying security constitutes collateral for the seller's
obligation to pay although the Portfolio may incur certain costs in liquidating
this collateral and in certain cases may not be permitted to liquidate this
collateral. All repurchase agreements entered into by the Portfolio are fully
collateralized, with such collateral being marked to market daily. In the event
of the bankruptcy of the other party to a repurchase agreement, the Portfolio
could experience delays in recovering the resale price. To the extent that, in
the meantime, the value of the securities purchased has decreased, the
Portfolio could experience a loss.
REVERSE REPURCHASE AGREEMENTS
The Portfolio may enter into reverse repurchase agreements, subject to the
Portfolio's investment restriction on borrowing. Reverse repurchase agreements
involve the sale of securities held by the Portfolio and the agreement by the
Portfolio to repurchase the securities at an agreed-upon price, date and
interest payment. When the Portfolio 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 Portfolio's ability to meet its current obligations or impede
investment management if a large portion of the Portfolio's assets are
involved. Reverse repurchase agreements are considered to be a form of
borrowing by the Portfolio. In the event of the bankruptcy of the other party
to a reverse repurchase agreement, the Portfolio could experience delays in
recovering the securities sold. To the extent that, in the meantime, the value
of the securities sold has changed, the Portfolio could experience a loss.
RULE 144A SECURITIES
Consistent with applicable investment restrictions, the Portfolio may
purchase securities that are not registered under the Securities Act of 1933
(the "Securities Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act ("Rule 144A securities").
However, the Portfolio does not invest more than 15% of its net assets (taken
at market value) in illiquid investments, which include securities for which
there is no readily available market, securities subject to contractual
restrictions on resale and Rule 144A securities, unless, in the case of Rule
144A securities, the Board of Trustees of the Trust determines, based on the
trading markets for the specific Rule 144A security, that it is liquid. The
Trustees have adopted guidelines and, subject to oversight by the Trustees,
have delegated to the Adviser the daily function of determining and monitoring
liquidity of Rule 144A securities. The Trustees, however, retain oversight and
are ultimately responsible for the determinations.
<PAGE>
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities for
which there is no readily available market. These illiquid securities may
include privately placed restricted securities for which no institutional
market exists. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Portfolio to sell them promptly at an
acceptable price.
CONVERTIBLE SECURITIES
The Portfolio 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.
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
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.
SECURITIES OF NON-U.S. ISSUERS
The Portfolio 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
<PAGE>
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Portfolio, political or financial
instability or diplomatic and other developments which would affect such
investments. Further, economies of other countries or areas of the world may
differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Prices at which the Portfolio 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
Portfolio. Non-U.S. security trading practices, including those involving
securities settlement where the Portfolio's assets may be released prior to
receipt of payments, may expose the Portfolio to increased risk in the event of
a failed trade or the insolvency of a non-U.S. broker-dealer. In addition,
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 Portfolio 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 issuers in
developing countries. Investors should be aware that investing in the equity
and fixed income markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political systems
which can be expected to have less stability, than those of developed
countries. Historical experience indicates that the markets of developing
countries have been more volatile than the markets of developed countries with
more mature economies; such markets often have provided higher rates of return,
and greater risks, to investors. These heightened risks include (i) greater
risks of expropriation, confiscatory taxation and nationalization, and less
social, political and economic stability; (ii) the small current size of
markets for securities of issuers based in developing countries and the
currently low or non-existent volume of trading, resulting in a lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures. 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
<PAGE>
of the Portfolio may be higher than that of investment companies investing
exclusively in U.S. securities.
Subject to applicable statutory and regulatory limitations, assets of the
Portfolio may be invested in shares of other investment companies. The
Portfolio 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.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Portfolio to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement. ADRs, EDRs and GDRs are subject to many of the same risks
that apply to other investments in non-U.S. securities.
ADRs, EDRs, and GDRs may be issued pursuant to sponsored or unsponsored
programs. In sponsored programs, an issuer has made arrangements to have its
securities traded in the form of depositary receipts. In unsponsored programs,
the issuer may not be directly involved in the creation of the program.
Although regulatory requirements with respect to sponsored and unsponsored
programs are generally similar, in some cases it may be easier to obtain
financial information from an issuer that has participated in the creation of a
sponsored program. Accordingly, there may be less information available
regarding issuers of securities underlying unsponsored programs and there may
not be a correlation between such information and the market value of the
depositary receipts.
The Portfolio may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the 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.
EURO CONVERSION
The Portfolio 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 Portfolio are
<PAGE>
presently unclear. European financial markets, and therefore, the Portfolio,
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 Portfolio
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 Portfolio invests as well.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Portfolio may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Portfolio may enter into
currency exchange transactions to convert U.S. currency to foreign currency and
foreign currency to U.S. currency, as well as convert foreign currency to other
foreign currencies. The Portfolio 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 Portfolio also may, but is not obligated to, enter into foreign
currency hedging transactions in an attempt to protect the value of the assets
of the Portfolio as measured in U.S. dollars from unfavorable changes in
currency exchange rates and control regulations. (Although the Portfolio's
assets are valued daily in terms of U.S. dollars, the Trust does not intend to
convert the Portfolio's holdings of other currencies into U.S. dollars on a
daily basis.) The Portfolio does not currently intend to speculate in currency
exchange rates or forward contracts.
The Portfolio may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
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. A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When the Portfolio enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
<PAGE>
currency involved in the underlying security transaction, the Portfolio may be
able to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Adviser believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, the Portfolio may enter
into a forward contract to sell, for a fixed amount of U.S. dollars, the amount
of non-U.S. currency approximating the value of some or all of the Portfolio's
securities denominated in such non-U.S. currency. The projection of a
short-term hedging strategy is highly uncertain. 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 Portfolio 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 Portfolio generally would not enter into a forward contract with a
term greater than one year. At the maturity of a forward contract, the
Portfolio will either sell the security and make delivery of the non-U.S.
currency, or retain the security and terminate its contractual obligation to
deliver the non-U.S. currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the non-U.S. currency. If the Portfolio retains the security and
engages in an offsetting transaction, the Portfolio will incur a gain or a loss
(as described below) to the extent that there has been movement in forward
contract prices. If the Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the non-U.S. currency.
Should forward prices decline during the period between the date the Portfolio
enters into a forward contract for the sale of the non-U.S. currency and the
date it enters into an offsetting contract for the purchase of such currency,
the Portfolio will realize a gain to the extent the selling price of the
currency exceeds the purchase price of the currency. Should forward prices
increase, the Portfolio will suffer a loss to the extent that the purchase
price of the currency exceeds the selling price of the currency.
It is impossible to forecast with precision the market value of Portfolio
securities at the expiration of the contract. Accordingly, it may be necessary
for the Portfolio to purchase additional non-U.S. currency on the spot market
if the market value of the security is less than the amount of non-U.S.
currency the Portfolio is obligated to deliver and if a decision is made to
sell the security and make delivery of such currency. Conversely, it may be
necessary to sell on the spot market some of the non-U.S. currency received
upon the sale of the security if its market value exceeds the amount of such
currency the Portfolio is obligated to deliver.
The Portfolio has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Those policies currently require that an amount of the Portfolio's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
<PAGE>
the commitment or that the Portfolio otherwise covers its position in
accordance with applicable regulations and policies.
The Portfolio may also purchase put options on a non-U.S. currency in
order to protect against currency rate fluctuations. If the Portfolio purchases
a put option on a non-U.S. currency and the value of the non-U.S. currency
declines, the Portfolio will have the right to sell the non-U.S. currency for a
fixed amount in U.S. dollars and will thereby offset, in whole or in part, the
adverse effect on the Portfolio which otherwise would have resulted.
Conversely, where a rise in the U.S. dollar value of another currency is
projected, and where the Portfolio anticipates investing in securities traded
in such currency, the Portfolio may purchase call options on the non-U.S.
currency.
The purchase of such options could offset, at least partially, the effects
of adverse movements in exchange rates. However, the benefit to the Portfolio
from purchases of 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 Portfolio
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 Portfolio may write options on non-U.S. currencies for hedging
purposes or otherwise to achieve its investment objective. For example, where
the Portfolio anticipates a decline in the value of the U.S. dollar value of a
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 Portfolio
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 Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected, will expire
unexercised and allow the Portfolio to hedge such increased cost up to the
amount of the premium.
The writing of put or call options on non-U.S. currencies by the Portfolio
will constitute only a partial hedge up to the amount of the premium, and only
if rates move in the expected direction. If this does not occur, the option may
be exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on currencies, the Portfolio also may
be required to 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 Portfolio will
be covered by segregation of cash and liquid securities in an amount sufficient
<PAGE>
to discharge the Portfolio's obligations with respect to the option, by
acquisition of the non-U.S. currency or of a right to acquire such currency (in
the case of a call option) or the acquisition of a right to dispose of the
currency (in the case of a put option), or in such other manner as may be in
accordance with the requirements of any exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, a decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other non-U.S. currency remains
constant, and thus will reduce the value of the receipts covering such
securities. The Portfolio 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 Portfolio is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Adviser. It
should be realized that under certain circumstances, hedging arrangements to
protect the value of the Portfolio's securities against a decline in currency
values may not be available to the Portfolio 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 Portfolio's securities against a decline in the
value of a currency do not eliminate fluctuations in the underlying prices of
the securities. Additionally, although such contracts, if correctly used, may
minimize the risk of loss due to a decline in the value of the hedged currency,
they do not eliminate the risk of loss and also tend to limit any potential
gain which might result should the value of such currency increase.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio, in accordance with applicable investment restrictions, may engage in
short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position is maintained for the Portfolio by the custodian or qualified
sub-custodian. While the short sale is open, an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities is maintained in a segregated
<PAGE>
account for the Portfolio. These securities constitute the Portfolio's long
position.
The Portfolio does not engage in short sales against the box for
investment purposes. The Portfolio may, however, make a short sale against the
box as a hedge, when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Portfolio (or a
security convertible or exchangeable for such security). In such case, any
future losses in the Portfolio's long position should be reduced by a gain in
the short position. Conversely, any gain in the long position should be reduced
by a loss in the short position. The extent to which such gains or losses are
reduced depends upon the amount of the security sold short relative to the
amount the Portfolio owns. There are certain additional transaction costs
associated with short sales against the box, but the Portfolio endeavors to
offset these costs with the income from the investment of the cash proceeds of
short sales.
The Adviser does not expect that more than 40% of the Portfolio's total
assets would be involved in short sales against the box. The Adviser does not
currently intend to engage in such sales.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, the Portfolio may lend its securities to broker-dealers and
other institutional borrowers. Such loans will usually be made only to member
banks of the U.S. Federal Reserve System and to member firms of the New York
Stock Exchange (and subsidiaries thereof). Loans of securities would be secured
continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. Either party has the right to terminate a
loan at any time on customary industry settlement notice (which will not
usually exceed three business days). During the existence of a loan, the
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and with respect to cash collateral
would also receive compensation based on investment of cash collateral (subject
to a rebate payable to the borrower). Where the borrower provides the Portfolio
with collateral consisting of U.S. Treasury obligations, the borrower is also
obligated to pay the Portfolio a fee for use of the borrowed securities. The
Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but would call the loan in
anticipation of an important vote to be taken among holders of the securities
or of the giving or withholding of their consent on a material matter affecting
the investment. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. However, the loans would be made only to entities deemed by the
Adviser to be of good standing. In addition, the Portfolio could suffer loss if
the borrower terminates the loan and the Portfolio is forced to liquidate
investments in order to return the cash collateral to the buyer. The Adviser
will make loans only when, in the judgment of the Adviser, the consideration
<PAGE>
which can be earned currently from loans of this type justifies the attendant
risk. If the Adviser determines to make loans, it is not intended that the
value of the securities loaned would exceed 33 1/3% of the market value of the
Portfolio's total net assets.
WHEN-ISSUED SECURITIES
The Portfolio 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 Portfolio 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 Portfolio
would take delivery of such securities but the Portfolio may sell them before
the settlement date. When the Portfolio commits to purchase a security on a
"when-issued" or on a "forward delivery" basis, it sets up procedures
consistent with SEC policies. Since those policies currently require that an
amount of the Portfolio's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, the Portfolio expects
always to have cash or liquid securities sufficient to cover any commitments or
to limit any potential risk. However, even though the Portfolio does not intend
to make such purchases for speculative purposes and intends to adhere to the
provisions of SEC policies, purchases of securities on such bases may involve
more risk than other types of purchases. The when-issued securities are subject
to market fluctuation, and no interest accrues on the security to the purchaser
during this period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters into
the commitment. Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields available in the market when
the delivery takes place may actually be higher than those obtained in the
transaction itself. In that case, there could be an unrealized loss at the time
of delivery. An increase in the percentage of the Portfolio's assets committed
to the purchase of securities on a "when-issued basis" may increase the
volatility of its net asset value.
DEFENSIVE STRATEGIES
During periods of unusual economic or market conditions or for temporary
defensive purposes or liquidity, the Portfolio 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.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Portfolio, has adopted the following policies
which may not be changed without approval by holders of a majority of the
outstanding voting securities of the Portfolio, which as used in this Part B
means the vote of the lesser of (i) 67% or more of the outstanding voting
<PAGE>
securities of the Portfolio present at a meeting at which the holders of more
than 50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the Portfolio. The term "voting securities" as used in this
paragraph has the same meaning as in the 1940 Act.
The Portfolio may not:
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow from banks in an amount not to exceed 1/3 of
the current value of its net assets, including the amount borrowed (the
Portfolio may not purchase any securities at any time at which borrowings
exceed 5% of the total assets of the Portfolio, taken at market value). It is
intended that the Portfolio would borrow money only from banks and only to
accommodate requests for the repurchase of beneficial interests in the
Portfolio while effecting an orderly liquidation of portfolio securities.
(2) Purchase any security or evidence of interest therein on margin,
except that such short-term credit may be obtained for the Portfolio as may be
necessary for the clearance of purchases and sales of securities.
(3) Underwrite securities issued by other persons, except insofar as the
Trust acting on behalf of the Portfolio may technically be deemed an
underwriter under the Securities Act of 1933 in selling a security.
(4) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 33-1/3% of the
Portfolio's net assets, (b) through the use of fixed time deposits or
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing 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.
(5) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Portfolio reserves the freedom of action
to hold and to sell real estate acquired as a result of the ownership of
securities by the Portfolio).
(6) With respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof would cause more
than 5% of the Portfolio's assets (taken at market value) to be invested in the
securities of such issuer (other than securities or obligations issued or
guaranteed by the United States or any agency or instrumentality of the United
States); provided that for purposes of this restriction the issuer of an option
or futures contract shall not be deemed to be the issuer of the security or
securities underlying such contract.
<PAGE>
(7) With respect to 75% of the total assets of the Portfolio, purchase
securities of any issuer if such purchase at the time thereof would cause more
than 10% of the voting securities of such issuer to be held by the Portfolio.
(8) Concentrate its investments in any particular industry (including the
securities of foreign governments or multilateral lending institutions), except
that positions in futures or options contracts shall not be subject to this
restriction.
(9) Issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating Investment Restriction (1) above.
For purposes of restriction (1) above, arrangements with respect to
securities lending are not treated as borrowing.
As an operating policy, the Portfolio will not invest more than 15% of its
net assets in securities for which there is no readily available market. This
policy is not fundamental and may be changed by the Trust without the approval
of the holders of the beneficial interests in the Portfolio.
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in Part A 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 Portfolio will not be considered a
violation of policy. If the value of the Portfolio's holdings of illiquid
securities at any time exceeds the percentage limitation applicable at the time
of acquisition due to subsequent fluctuations in value or other reasons, the
Board of Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
Item 13. Management of the Portfolio.
The Trustees and officers of the Portfolio 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 Portfolio. Unless
otherwise indicated below, the address of each Trustee and officer is 21 Milk
Street, Boston, Massachusetts 02109. The address of the Portfolio is
Elizabethan Square, George Town, Grand Cayman, Cayman Islands, British West
Indies.
TRUSTEES
ELLIOTT J. BERV; 56 -- President and Chief Executive Officer, Catalyst, Inc.
(Management Consultants) (since June 1992); President and Director, Elliott J.
<PAGE>
Berv & Associates (Management Consultants) (since May 1984); Chief Executive
Officer, Rocket City Enterprises (Consulting, Publishing, Internet Services)
(since January 2000). His address is 24 Atlantic Drive, Scarborough, Maine.
PHILIP W. COOLIDGE*; 48 -- President of the Portfolio; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.
MARK T. FINN; 56 -- President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and Part Owner, FX 500 Ltd. (Commodity Trading
Advisory Firm) (April 1990 to February 1996); General Partner and Shareholder,
Greenwich Ventures LLC (Investment Partnership) (since January 1996);
President, Secretary and Owner, Phoenix Trading Co. (Commodity Trading Advisory
Firm) (since March 1997); Director, Chairman and Owner, Vantage Consulting
Group, Inc. (since October 1988). His address is 3500 Pacific Avenue, P.O. Box
539, Virginia Beach, Virginia.
C. OSCAR MORONG, JR.; 65 -- Chairman of the Board of Trustees of the Portfolio;
Managing Director, Morong Capital Management (since February 1993); Director,
Indonesia Fund (1990 to 1999); Trustee, MAS Funds (since 1993). His address is
1385 Outlook Drive West, Mountainside, New Jersey.
WALTER E. ROBB, III; 73 -- President, Benchmark Consulting Group, Inc. (since
1991); Principal, Robb Associates (Corporate Financial Advisors) (since 1978);
President and Treasurer, Benchmark Advisors, Inc. (Corporate Financial
Advisors) (since 1989); Trustee of certain registered investment companies in
the MFS Family of Funds (since 1985). His address is 35 Farm Road, Sherborn,
Massachusetts.
E. KIRBY WARREN; 65 -- Professor of Management, Graduate School of Business,
Columbia University (1987 to December 1999). His address is Laurel Road, P.O.
Box 146, Tuxedo Park, New York.
OFFICERS
PHILIP W. COOLIDGE*; 48 -- President of the Portfolio; Chief Executive Officer
and President, Signature Financial Group, Inc. and CFBDS, Inc.
CHRISTINE D. DORSEY*; 29 -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Vice President, Signature Financial Group, Inc. (since January
1996); Paralegal and Compliance Officer, various financial companies (July 1992
to January 1996).
LINWOOD C. DOWNS*; 38 -- Treasurer of the Portfolio; Chief Financial Officer
and Senior Vice President, Signature Financial Group, Inc.; Treasurer, CFBDS,
Inc.
TAMIE EBANKS-CUNNINGHAM*; 27 -- Assistant Secretary of the Portfolio; Office
Manager, Signature Financial Group (Cayman) Ltd. (since April 1995);
<PAGE>
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.
SUSAN JAKUBOSKI*; 36 -- Vice President, Assistant Treasurer and Assistant
Secretary of the Portfolio; Vice President, Signature Financial Group (Cayman)
Ltd.
MOLLY S. MUGLER*; 48 -- Assistant Secretary and Assistant Treasurer of the
Portfolio; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS, Inc.
JULIE J. WYETZNER*; 40 -- Vice President, Assistant Secretary and Assistant
Treasurer of the Portfolio; Vice President, Signature Financial Group, Inc.
The Trustees and officers of the Portfolio also hold comparable positions
with certain other funds for which Signature Financial Group (Cayman) Ltd.
("SFG" or the "Administrator"), the Portfolio's administrator and a
wholly-owned subsidiary of Signature Financial Group, Inc., or an affiliate
serves as the distributor or administrator. Mr. Coolidge is also a Trustee of
CitiFunds International Trust, an open-end investment company, a series of
which is an investor in the Portfolio, and each officer of the Portfolio holds
the same position with CitiFunds International Trust.
The Trustees of the Portfolio received the following remuneration from the
sources indicated during its fiscal year ended December 31, 1999:
TRUSTEE COMPENSATION TABLE
Aggregate
Compensation
from International Total
Equity Portfolio Compensation
(1)(2) from Trust and
Trustee Complex (1)(2)
Elliott J. Berv $1,007 $69,500
Philip W. Coolidge $0 $0
Mark T. Finn $1,140 $63,250
C. Oscar Morong, Jr. $724 $92,000
Walter E. Robb, III $992 $67,500
E. Kirby Warren $651 $62,750
(1) Information relates to the fiscal year ended December 31, 1999.
<PAGE>
(2) Messrs. Berv, Coolidge, Finn, Morong, Robb and Warren are trustees of 25,
48, 24, 39, 28 and 39 funds, respectively, in the family of open-end
registered investment companies advised or managed by Citibank.
The Portfolio's Declaration of Trust provides that the Portfolio 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 Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolio. 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 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.
Item 14. Control Persons and Principal Holders of Securities.
As of April 18, 2000, CitiFundsSM International Growth Portfolio owned
approximately 56.9% and CitiFunds International Growth Portfolio, Ltd. owned
approximately 43.1% of the outstanding interests in the Portfolio. The address
of CitiFunds International Growth Portfolio, Ltd. is c/o Maples and Calder,
P.O. Box 309, Ugland House, George Town, Grand Cayman, Cayman Islands, British
West Indies. The address of CitiFunds International Growth Portfolio (the
"Fund") is 21 Milk Street, Boston, Massachusetts 02109. The Fund is a series of
CitiFunds International Trust. CitiFunds International Trust is a Massachusetts
business trust and is registered under the 1940 Act as an investment company.
The Fund and CitiFunds International Growth Portfolio, Ltd. each control
the Portfolio by virtue of owning more than 25% of the outstanding interests in
the Portfolio, as noted above. The Fund has informed the Portfolio that
whenever requested to vote on matters pertaining to the Portfolio (other than a
vote to continue the Portfolio following the withdrawal of an investor) it will
hold a meeting of shareholders and will cast its vote as instructed by its
shareholders when its Trustees deem it to be necessary or advisable.
Notwithstanding the foregoing, 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 instructions it received for all other shares of which that service agent
is the holder of record.
<PAGE>
Item 15. Investment Advisory and Other Services.
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Trustees may determine, the Adviser manages the Portfolio's securities
and makes investment decisions for the Portfolio. The Adviser furnishes at its
own expense all services, facilities and personnel necessary in connection with
managing the Portfolio's investments and effecting securities transactions for
the Portfolio. Unless otherwise terminated, the Advisory Agreement will
continue in effect from year to year as long as such continuance is
specifically approved at least annually by the Board of Trustees 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 who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the 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, or by the
Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for the Portfolio, except for willful misfeasance, bad faith or gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives an
investment advisory fee, which is accrued daily and paid monthly, at an annual
rate equal to 1.00% of the Portfolio's average daily net assets on an
annualized basis for the Portfolio's then-current fiscal year. The Adviser may
voluntarily agree to waive a portion of its investment advisory fee.
For the fiscal years ended December 31, 1997, 1998 and 1999 the fees paid
to Citibank under the Advisory Agreement with respect to the Portfolio were
$440,517 (of which $2,500 was voluntarily waived), $353,752 and $348,915,
respectively.
Pursuant to an administrative services agreement (the "Administrative
Services Agreement"), SFG (in its capacity under the Administrative Services
Agreement, the "Administrator") provides the Trust with general office
facilities and supervises the overall administration of the Trust, including,
among other responsibilities, the negotiation of contracts and fees with, and
the monitoring of performance and billings of, the Trust's independent
contractors and agents; the preparation and filing of all documents required
for compliance by the Trust with applicable laws and regulations; and arranging
<PAGE>
for the maintenance of books and records of the Trust. The Administrative
Services Agreement with SFG continues in effect if such continuance is
specifically approved at least annually by the Board of Trustees or by a vote
of a majority of the outstanding voting securities of the Trust and, in either
case, by a majority of the Trustees who are not parties to the Administrative
Services Agreement or interested persons of any such party. The Administrator
provides persons satisfactory to the Board of Trustees to serve as Trustees and
officers of the Trust. Such Trustees and officers, as well as certain other
employees and Trustees of the Trust, may be directors, officers or employees of
the Administrator or its affiliates.
For these services, SFG receives fees accrued daily and paid monthly of
0.05% of the assets of the Portfolio, on an annualized basis for the
Portfolio's then-current fiscal year. However, SFG has voluntarily agreed to
waive a portion of the fees payable to it as necessary to maintain the
projected rate of total operating expenses.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Trust
paid the Administrator $22,029 (all of which was voluntarily waived), $17,686
(all of which was voluntarily waived) and $17,449 (all of which was voluntarily
waived), respectively, under the Administrative Services Agreement with respect
to the Portfolio.
The Administrative Services Agreement provides that SFG may render
administrative services to others. The Administrative Services Agreement
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of the outstanding voting securities of the Trust
or by either party on not more than 60 days' nor less than 30 days' written
notice. The Administrative Services Agreement also provides that neither SFG,
as the Administrator, nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administrative
Services Agreement.
SFG is a wholly-owned subsidiary of Signature Financial Group, Inc. SFG is
a company organized under the laws of the Cayman Islands. Its principal place
of business is in George Town, Grand Cayman, British West Indies.
Pursuant to a sub-administrative services agreement, Citibank performs
such sub-administrative duties for the Trust as from time to time are agreed
upon by Citibank and SFG. Citibank performs such sub-administrative duties in a
manner consistent with the Operating Policies and Procedures of the Trust.
Citibank's sub-administrative duties may include providing equipment and
clerical personnel necessary for maintaining the Trust's organization,
participation in the preparation of documents required for compliance by the
Trust with applicable laws and regulations, the preparation of certain
documents in connection with meetings of Trustees and investors, and other
functions which would otherwise be performed by the Administrator. For
performing such sub-administrative services, Citibank receives compensation as
<PAGE>
from time to time is agreed upon by SFG, not in excess of the amount paid to
SFG for its services under the Administrative Services Agreement with the
Trust. All such compensation is paid by SFG.
The Trust has adopted an administrative services plan (the "Administrative
Plan") which provides that the Trust may obtain the services of an
administrator, a transfer agent and a custodian, and may enter into agreements
providing for the payment of fees for such services. Under the Administrative
Plan, the administrative services fee payable to the Administrator from the
Portfolio may not exceed 0.05% of the Portfolio's average daily net assets on
an annualized basis for its then-current fiscal year.
The Administrative Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trustees and a majority of the Trustees who are not "interested persons" of the
Portfolio and who have no direct or indirect financial interest in the
operation of the Administrative Plan or in any agreement related to such Plan
("Qualified Trustees"). The Administrative Plan requires that the Trust provide
to the Board of Trustees and the Board of Trustees review, at least quarterly,
a written report of the amounts expended (and the purposes therefor) under the
Administrative Plan. The Administrative Plan may be terminated at any time by a
vote of a majority of the Qualified Trustees or, with respect to the Portfolio,
by a vote of a majority of the outstanding voting securities of the Portfolio.
The Administrative Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of a majority of the
outstanding voting securities of the Trust and may not be materially amended in
any case without a vote of the majority of both the Trustees and the Qualified
Trustees.
In addition to amounts payable under the Advisory Agreement and the
Administrative Services Plan, the Portfolio 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 SFG,
government fees, taxes, accounting and legal fees, expenses of communicating
with investors, interest expense, and insurance premiums. For the fiscal year
ended December 31, 1999, the Portfolio's total expenses were 1.00% of its
average daily net assets for that fiscal year.
The Trust, on behalf of the Portfolio, has entered into a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street acts as custodian to the Portfolio. The Trust, on behalf of
the Portfolio, has also entered into a Fund Accounting Agreement with State
Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant to which
State Street Cayman performs 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.
<PAGE>
PricewaterhouseCoopers LLP are the chartered 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 Suite 3000, Box 82, Royal Trust Towers, Toronto Dominion Center, Toronto,
Ontario, Canada M5K 1G8.
Bingham Dana LLP, 150 Federal Street, Boston, MA 02110, acts as counsel to
the Trust.
The Portfolio, the Adviser and CFBDS, Inc., the Portfolio's placement
agent each have adopted a code of ethics pursuant to Rule 17j-1 under the 1940
Act. Each code of ethics permits personnel subject to such code to invest in
securities, including securities that may be purchased or held by the
Portfolio. However, the codes of ethics contain provisions and requirements
designed to identify and address certain conflicts of interest between personal
investment activities and the interests of the Portfolio. Of course, there can
be no assurance that the codes of ethics will be effective in identifying and
addressing all conflicts of interest relating to personal securities
transactions.
Item 16. Brokerage Allocation and Other Practices.
The Trust trades securities for the Portfolio if it believes that a
transaction net of costs (including custodian charges) will help achieve the
Portfolio's investment objectives. Changes in the Portfolio's investments are
made without regard to the length of time a security has been held, or whether
a sale would result in the recognition of a profit or loss. Therefore, the rate
of turnover is not a limiting factor when changes are appropriate. Specific
decisions to purchase or sell securities for the Portfolio are made by a
portfolio manager who is an employee of the Adviser and who is appointed and
supervised by its senior officers. The portfolio manager may serve other
clients of the Adviser in a similar capacity.
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 Portfolio and/or the other
accounts over which Citibank or its affiliates exercise investment discretion.
Citibank is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for
the Portfolio which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Citibank determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities which Citibank and its affiliates have with
respect to accounts over which they exercise investment discretion.
<PAGE>
The investment advisory fee that the Portfolio pays to the Adviser will
not be reduced as a consequence of the Adviser's receipt of brokerage and
research services. While such services are not expected to reduce the expenses
of the Adviser, the Adviser would, through the use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff or obtain such services
independently.
In certain instances there may be securities that are suitable as an
investment for the Portfolio as well as for one or more of the Adviser's other
clients. Investment decisions for the Portfolio and for the Adviser's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling the same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more clients
are simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could adversely affect
the price of or the size of the position obtainable for the security for the
Portfolio. When purchases or sales of the same security for the Portfolio and
for other portfolios managed by the Adviser occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large volume purchases or sales.
For the fiscal years ended December 31, 1997, 1998 and 1999, the Portfolio
paid brokerage commissions of $215,467, $167,104 and $137,501, respectively.
Item 17. Capital Stock and Other Securities.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Trust and to establish series, each of which shall
be a subtrust, the beneficial interests in which shall be separate and distinct
from the beneficial interests in any other series. The Portfolio is a series of
the Trust. Investors in the Portfolio are entitled to participate pro rata in
distributions of taxable income, loss, gain and credit of the Portfolio. Upon
liquidation or dissolution of the Portfolio, investors in the Portfolio are
entitled to share pro rata in the Portfolio's net assets available for
distribution to its investors. Interests in the Portfolio have no preference,
pre-emptive, conversion or similar rights and are fully paid and
non-assessable, except as set forth below. Interests in the Portfolio may not
be transferred.
Each investor is entitled to a vote in proportion to its percentage of the
aggregate beneficial interests in the Portfolio. Investors in the Portfolio do
not have cumulative voting rights, and investors holding more than 50% of the
aggregate beneficial interests in the Trust may elect all of the Trustees if
they choose to do so and in such event the other investors in the Trust would
<PAGE>
not be able to elect any Trustee. The Trust is not required to hold, and has no
current intention of holding, annual meetings of investors but the Trust will
hold special meetings of investors when it is required to do so by law, or in
the judgment of the Trustees it is necessary or desirable to submit matters for
an investor vote.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by a vote of a majority, as
defined in the 1940 Act, of the holders of the Trust's outstanding voting
securities voting as a single class, or of the affected series of the Trust, as
the case may be, or if authorized by an instrument in writing without a
meeting, consented to by holders of not less than a majority of the interests
of the affected series. However, if the Trust or the affected series is the
surviving entity of the merger, consolidation or sale of assets, no vote of
interest holders is required. Any series of the Trust may be dissolved (i) by
the affirmative vote of not less than two-thirds of the outstanding beneficial
interests in such series at any meeting of holders of beneficial interests or
by an instrument in writing signed by a majority of the Trustees and consented
to by not less than two-thirds of the outstanding beneficial interests, (ii) by
the Trustees by written notice to holders of the beneficial interests in the
series or (iii) upon the bankruptcy or expulsion of a holder of a beneficial
interest in the series, unless the remaining holders of beneficial interests,
by majority vote, agree to continue the series. The Trust may be dissolved by
action of the Trustees upon the dissolution of the last remaining series.
The Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. Investors in the Portfolio are personally liable
for its obligations and liabilities, subject, however, to indemnification by
the Portfolio in the event that there is imposed upon an investor a greater
portion of the liabilities and obligations of the Portfolio than its
proportionate beneficial interest in the Portfolio. The Declaration of Trust
also provides that the Portfolio shall maintain appropriate insurance (e.g.,
fidelity bonding and errors and omissions insurance) for the protection of the
Portfolio, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of an investor incurring
financial loss on account of investor liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. It is not expected that the liabilities of the Portfolio
would ever exceed its assets.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually 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.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each business day. As of the close of regular trading on the New
York Stock Exchange (the "Exchange"), on days during which the Exchange is open
for trading, the value of each investor's beneficial interest in the Portfolio
<PAGE>
is determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals, which are to be effected on that day, are then effected.
Thereafter, the investor's percentage of the aggregate beneficial interests in
the Portfolio is 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 same time 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 following business day of the Portfolio.
Item 18. Purchase, Redemption and Pricing of Securities.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act. Investments in the Portfolio may
only be made by investment companies, common or commingled trust funds or
similar organizations or entities which are "accredited investors" within the
meaning of Regulation D under the Securities Act. This Registration Statement
does not constitute an offer to sell, or the solicitation of an offer to buy,
any "security" within the meaning of the Securities Act.
The net asset value of the Portfolio (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined each day during which the New York Stock Exchange is open for
trading ("Business Day"). As of the date of this Registration Statement, 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
of the Portfolio is made once each day as of the close of regular trading on
the Exchange (normally 4:00 p.m. Eastern time). As set forth in more detail
below, purchases and withdrawals will be effected at the time of determination
of net asset value next following the receipt of any purchase or withdrawal
order.
For the purpose of calculating the Portfolio's net asset value, all assets
and liabilities initially expressed in non-U.S. currencies will be converted
into U.S. dollars at the prevailing market rates at the time of valuation.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. Securities listed on a foreign exchange are valued at the last quoted
<PAGE>
sale price available before the time when net assets are valued. Bonds and
other fixed income securities (other than short-term obligations) are valued on
the basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees of the Trust. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations (maturing
in 60 days or less) are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees. 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.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when the
Portfolio'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.
Interest income on long-term obligations held for the Portfolio is
determined on the basis of interest accrued plus amortization of "original
issue discount" (generally, the difference between issue price and stated
redemption price at maturity) and premiums (generally, the excess of purchase
price over stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued less amortization of
premium.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of beneficial interests in the Portfolio,
either totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the beneficial interests being sold. If a holder of beneficial interests
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 beneficial interests in the Portfolio more than seven days during
any period when (a) trading in the markets the Portfolio normally utilizes is
restricted, or an emergency, as defined by the rules and regulations of the
SEC, exists making disposal of the Portfolio's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC
has by order permitted such suspension.
<PAGE>
Item 19. Taxation of the Portfolio.
The Trust is organized as a trust under New York law. The Trust has
determined that the Portfolio is properly treated as a separate partnership for
U.S. federal and New York State income tax purposes. Accordingly, under those
tax laws, the Portfolio is not subject to any income tax. The Portfolio's
taxable year ends December 31. Although the Portfolio is not subject to U.S.
federal income tax, it files appropriate U.S. federal income tax returns. The
Portfolio may be subject to foreign withholding and other taxes with respect to
income on certain securities of non-U.S. issuers. These taxes may be reduced or
eliminated under the terms of an applicable U.S. income tax treaty. The
Portfolio intends to qualify for treaty reduced rates where available. It is
not possible, however, to determine the Portfolio effective rates of non-U.S.
tax in advance since the amount of the Portfolio's assets to be invested within
various countries is not known. Investors qualifying as RICs and investing
substantially all of their assets in the Portfolio may elect to pass through to
their shareholders any foreign tax credit or deduction for federal income tax
purposes with respect to the foreign withholding taxes paid by the Portfolio,
if any, if at the close of their respective taxable years the Portfolio holds
more than 50% of its assets in foreign stock and securities.
Each investor in the Portfolio must take into account its share of the
Portfolio's ordinary income, expense, capital gains, capital losses, credits
and other items in determining its income tax liability. The determination of
such share is made in accordance with the governing instruments of the Trust
and the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder. Withdrawals by an investor are generally
not taxable. However, to the extent the cash proceeds of any withdrawal exceed
an investor's adjusted tax basis in its partnership interest in the Portfolio,
the investor will generally realize gain for U.S. federal income tax purposes.
If, upon a complete withdrawal (i.e., a redemption of its entire interest in
the Portfolio), the investor's adjusted tax basis in its partnership interest
in the Portfolio exceeds the proceeds of the withdrawal, the investor will
generally realize a loss for federal income tax purposes. An investor's
adjusted tax basis in its partnership interest in the Portfolio will generally
be the aggregate price paid therefor, increased by the amounts of its
distributive shares of items of realized net income and gain (including income,
if any, exempt from U.S. Federal income tax), and reduced, but not below zero,
by the amounts of its distributive shares of items of net loss and the amounts
of any distributions received by the investor. This discussion does not address
any distributions by the Portfolio in kind (i.e., any distributions of readily
marketable securities or other non-cash property), which will be subject to
special tax rules and may have consequences different from those described in
this paragraph.
The Trust believes that, in the case of an investor in the Portfolio that
seeks to qualify as a regulated investment company ("RIC") under the Code, the
investor should be treated for U.S. federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
<PAGE>
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. Each investor should
consult its tax advisers regarding whether, in light of its particular tax
status and any special tax rules applicable to it, this approach applies to its
investment in the Portfolio, or whether the Portfolio should be treated, as to
it, as a separate entity as to which the investor has no direct interest in
Portfolio assets or operations.
In order to enable an investor in the Portfolio that is otherwise eligible
to qualify as a RIC under the Code to so qualify, the Trust intends that the
Portfolio will satisfy the requirements of Subchapter M of the Code relating to
the nature of the Portfolio's gross income and the composition
(diversification) of the Portfolio's assets as if those requirements were
directly applicable to the Portfolio and to allocate and permit withdrawals of
its net investment income and any net realized capital gains in a manner that
will enable an investor that is a RIC to comply with the qualification
requirements imposed by Subchapter M of the Code.
Foreign exchange gains and losses realized by the Portfolio will generally
be treated as ordinary income and losses for federal income tax purposes.
Certain uses of foreign currency and foreign currency forward contracts and
investments by the Portfolio in certain "passive foreign investment companies"
may be limited in order to enable an investor that is a RIC to avoid imposition
of a tax. The Portfolio may elect to mark to market any investments in "passive
foreign investment companies" on the last day of each year. This election may
cause the Portfolio to recognize income prior to the receipt of cash payments
with respect to those investments; in order to enable an investor that is a RIC
to distribute this income and avoid a tax on the investor, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
The Portfolio's transactions in forward currency and futures contracts,
short sales "against the box," and options will be subject to special tax rules
that may affect the amount, timing, and character of Portfolio income. For
example, certain positions held for the Portfolio on the last business day of
each taxable year will be marked to market (i.e., treated as if sold) 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 for
the Portfolio that substantially diminish its risk of loss with respect to
other positions in its portfolio may constitute "straddles," and may be subject
to special tax rules that would cause deferral of Portfolio losses and
adjustments in the holding periods of Portfolio securities. Certain tax
elections exist for straddles that may alter the effects of these rules. The
Portfolio will limit its activities in forward currency and futures contracts
and options to the extent necessary to enable any investor that is a RIC to
meet the requirements of Subchapter M of the Code.
There are certain tax issues which will be relevant to only certain
investors, specifically, investors which are segregated asset accounts and
investors who contribute assets other than cash to the Portfolio. It is
intended that such segregated asset accounts will be able to satisfy
diversification requirements applicable to them and that such contributions of
<PAGE>
assets will not be taxable provided certain requirements are met. Such
investors are advised to consult their own tax advisers as to the tax
consequences of an investment in the Portfolio.
The Trust intends to conduct its activities and those of the Portfolio so
that they will not be deemed to be engaged in the conduct of a U.S. trade or
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in the Portfolio, other than an investor which would be deemed
a "U.S. person" for U.S. federal income tax purposes, will be subject to U.S.
federal income taxation (other than a 30% withholding tax on dividends and
certain interest income) solely by reason of its investment in the Portfolio.
There can be no assurance that the U.S. Internal Revenue Service may not
challenge the above conclusions or take other positions that, if successful,
might result in the payment of U.S. federal income taxes by investors in the
Portfolio.
The above discussion does not address the special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions, or the state, local, or non-U.S. tax laws that may
be applicable to certain investors. Investors should consult their own tax
advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or non-U.S. tax
consequences to them of investing in the Portfolio.
Item 20. Underwriters.
The exclusive placement agent for the Portfolio is CFBDS, Inc., which
receives no compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
Item 21. Calculation of Performance Data.
Not applicable.
Item 22. Financial Statements.
The financial statements contained in the Annual Report of the Portfolio,
as filed with the Securities and Exchange Commission on March 1, 2000
(Accession Number 0000930413-00-000419), for the fiscal year ended December 31,
1999 are incorporated by reference into this Part B.
A copy of the Annual Report of the Portfolio accompanies this Part B.
<PAGE>
PART C
Item 23. Exhibits.
*** a(1) The Declaration of Trust of the Trust
*, **, *** a(2) Amendments to the Declaration of Trust of the Trust
and
filed
herewith
*** b By-laws of the Trust
*** d Investment Advisory Agreement between the Registrant and
Citibank, N.A., as investment adviser
*** e Placement Agency Agreement between the Registrant and
CFBDS, Inc. (formerly known as The Landmark Funds
Broker-Dealer Services, Inc.), as exclusive placement
agent
** g Custodian Contract between the Registrant and State
Street Bank and Trust Company, as custodian
*** h(1) Administrative Services Agreement between the Registrant
and Signature Financial Group (Cayman) Ltd. ("SFG"), as
administrator
*** h(2) Amended and Restated Administrative Services Plan of the
Registrant
** h(3) Accounting Services Agreement between the Registrant and
State Street Cayman Trust Company, Ltd.
p(1) Code of Ethics for the Registrant
p(2) Code of Ethics for CFBDS, Inc.
- -----------------------
* Incorporated herein by reference to Amendment No. 2 to the Registration
Statement on Form N-1A of the Registrant relating to International
Equity Portfolio File No. 811-8434, filed April 29, 1996.
<PAGE>
** Incorporated herein by reference to Amendment No. 4 to the Registration
Statement on Form N-1A of the Registrant relating to International
Equity Portfolio File No. 811-8434, filed April 30, 1998.
*** Incorporated herein by reference to Amendment No. 5 to the Registration
Statement on Form N-1A of the Registrant relating to International
Equity Portfolio File No. 811-8434, filed April 29, 1999.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust
(incorporated herein by reference as Exhibits a(1) and a(2) to this
Registration Statement).
The Trustees and officers of the Trust 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,
as amended.
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 and Foreign Bond Portfolio), The
Premium Portfolios (Large Cap Growth Portfolio, Small Cap Growth Portfolio,
High Yield Portfolio, U.S. Fixed Income Portfolio and Government Income
Portfolio), Tax Free Reserves Portfolio, U.S. Treasury Reserves Portfolio, Cash
Reserves Portfolio, CitiFundsSM Multi-State Tax Free Trust (CitiFundsSM New
York Tax Free Reserves, CitiFundsSM Connecticut Tax Free Reserves and
CitiFundsSM California Tax Free Reserves), CitiFundsSM Tax Free Income Trust
(CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM New York Tax Free
Income Portfolio and CitiFundsSM California Tax Free Income Portfolio),
CitiFundsSM Institutional Trust (CitiFundsSM Institutional Cash Reserves) and
Variable Annuity Portfolios (CitiSelect VIP Folio 200 Conservative, CitiSelect
VIP Folio 300 Balanced, CitiSelect VIP Folio 400 Growth, CitiSelect VIP Folio
500 Growth Plus and CitiFundsSM Small Cap Growth VIP Portfolio). Citibank and
its affiliates manage assets in excess of $351 billion worldwide. The principal
place of business of Citibank is located at 399 Park Avenue, New York, New York
10043.
<PAGE>
Victor J. Menezes is the Chairman 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.
In addition, the following persons have the affiliations indicated:
Paul J. Collins Director, Kimberly-Clark Corporation
Director, Nokia Corporation
Robert I. Lipp Chairman, Chief Executive Officer and President,
Travelers Property Casualty Corp.
William R. Rhodes Director, Private Export Funding
Corporation
Director, Conoco, Inc.
H. Onno Ruding Supervisory Director, Amsterdamsch
Trustees Cantoor B.V.
Director, Pechiney S.A.
Advisory Director, Unilever NV and Unilever PLC
Director, Corning Incorporated
Item 27. Principal Underwriters.
(a) CFBDS, the Registrant's placement agent, 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
Small Cap Value Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM
Small Cap Growth Portfolio, CitiFundsSM Balanced Portfolio, CitiSelect Folio
100 Income, CitiSelect Folio 200 Conservative, CitiSelect Folio 300 Balanced,
<PAGE>
CitiSelect Folio 400 Growth, CitiSelect Folio 500 Growth Plus, CitiSelect VIP
Folio 200 Conservative, CitiSelect VIP Folio 300 Balanced, CitiSelect VIP Folio
400 Growth, CitiSelect VIP Folio 500 Growth Plus and CitiFundsSM Small Cap
Growth VIP Portfolio. CFBDS is also the placement agent for Large Cap Growth
Portfolio, Small Cap Growth Portfolio, High Yield Portfolio, U.S. Fixed Income
Portfolio, Government Income Portfolio, Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond 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, Small Cap Fund, Government Fund, Growth Fund, Growth and
Income Fund, International Equity Fund, Mid Cap Fund, Municipal Bond Fund,
Select Small Cap Portfolio, Select Government Portfolio, Select Growth
Portfolio, Select Growth and Income Portfolio, Select Mid Cap Portfolio,
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, S&P 500 Index Investments, Small Capitalization
<PAGE>
Growth Investments, Small Capitalization Value Equity Investments, Multi-Sector
Fixed Income Investments, Multi-Strategy Market Neutral 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 Inc., 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 Premier Selections Fund, Smith Barney Small Cap Value
Fund, Smith Barney Small Cap Growth 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 EAFE Index
Fund, Smith Barney US 5000 Index 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, National Portfolio, Massachusetts Money Market
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 Financial Services Fund, Smith Barney Health
Sciences Fund, Smith Barney Technology Fund, 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 Equity Portfolio, Pacific Portfolio,
<PAGE>
AIM Capital Appreciation Portfolio, Smith Aggressive Growth Portfolio, Smith
Mid Cap Portfolio, Alliance Growth Portfolio, INVESCO 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, Travelers Managed Income Portfolio, Van Kampen Enterprise
Portfolio, Centurion U.S. Equity Fund, Centurion International Equity Fund,
Centurion U.S. Contra Fund, Centurion International Contra 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 International Equity
Fund, Salomon Brothers Strategic Bond Fund, Salomon Brothers Large Cap Growth
Fund, Salomon Brothers Balanced Fund, Salomon Brothers Asia Growth Fund,
Salomon Brothers Capital Fund Inc, Salomon Brothers Investors Value 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, Salomon Brothers Variable Asia
Growth Fund, and Salomon Brothers Variable Small Cap Growth Fund.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS, Inc. is incorporated by reference to Schedule A of Form
BD filed by CFBDS, Inc. 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
Signature Financial Group Elizabethan Square, George Town,
(Cayman) Ltd. Grand Cayman, Cayman Islands, BWI
(administrator)
State Street Bank and Trust Company 225 Franklin Street
(custodian) Boston, MA 02110
State Street Cayman Trust P.O. Box 2508 GT
Company, Ltd. Grand Cayman
(accounting services agent) British West Indies
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
CFBDS, Inc. c/o Signature Financial Group
(placement agent) (Cayman) Ltd.
Elizabethan Square
George Town, Grand Cayman
Cayman Islands BWI
<PAGE>
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City and State of New York, on the 27th day of April, 2000.
THE PREMIUM PORTFOLIOS
on behalf of International Equity Portfolio
By: Susan Jakuboski
----------------------------------
Susan Jakuboski
Assistant Secretary of
The Premium Portfolios
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
a(2) Amendments to the Declaration of Trust of the Trust
p(1) Code of Ethics for the Registrant
p(2) Code of Ethics for CFBDS, Inc.
Exhibit a(2)
THE PREMIUM PORTFOLIOS
AMENDMENT TO
DECLARATION OF TRUST
The undersigned, constituting a majority of the Trustees of The Premium
Portfolios (the "Trust"), a trust organized under the laws of the State of New
York, pursuant to the Trust's Declaration of Trust dated as of September 13,
1993, as amended (the "Declaration"), do hereby amend Article III of the
Declaration to provide that Section 3.12 of the Declaration shall not apply
from and after January 1, 1999.
Elliott J. Berv Philip W. Coolidge
- ------------------------------- -----------------------------------
ELLIOTT J. BERV PHILIP W. COOLIDGE
As Trustee and Not Individually As Trustee and Not Individually
Mark T. Finn C. Oscar Morong, Jr.
- ------------------------------- -----------------------------------
MARK T. FINN C. OSCAR MORONG, JR.
As Trustee and Not Individually As Trustee and Not Individually
Walter E. Robb, III E. Kirby Warren
- ------------------------------- -----------------------------------
WALTER E. ROBB, III E. KIRBY WARREN
As Trustee and Not Individually As Trustee and Not Individually
<PAGE>
THE PREMIUM PORTFOLIOS
AMENDMENT TO
DECLARATION OF TRUST
The undersigned, constituting a majority of the Trustees of The Premium
Portfolios (the "Trust"), a trust organized under the laws of the State of New
York, pursuant to a Declaration of Trust dated September 13, 1993, as amended
(the "Declaration"), subject to approval by the investors in Balanced
Portfolio, a series of the Trust, in accordance with the Declaration, do hereby
amend Section 3.2 of the Declaration as follows:
By deleting paragraph (d) of Section 3.2 of the Declaration and replacing
it in its entirety with the following:
(d) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without
any requirement of approval by investors to either invest all or a portion
of the Trust Property of each Series of the Trust (other than the Series
designated as Government Income Portfolio, International Equity Portfolio
and Emerging Asian Markets Equity Portfolio), or sell all or a portion of
such Trust Property and invest the proceeds of such sales, in one or more
investment companies to the extent not prohibited by the 1940 Act and
exemptive orders granted under such Act.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 26th day of May, 1999.
Elliott J. Berv Philip W. Coolidge
- ------------------------------- -----------------------------------
ELLIOTT J. BERV PHILIP W. COOLIDGE
As Trustee and Not Individually As Trustee and Not Individually
Mark T. Finn C. Oscar Morong, Jr.
- ------------------------------- -----------------------------------
MARK T. FINN C. OSCAR MORONG, JR.
As Trustee and Not Individually As Trustee and Not Individually
Walter E. Robb, III E. Kirby Warren
- ------------------------------- -----------------------------------
WALTER E. ROBB, III E. KIRBY WARREN
As Trustee and Not Individually As Trustee and Not Individually
Exhibit p(1)
AMENDED AND RESTATED
CODE OF ETHICS
FEBRUARY 4, 2000
This Amended and Restated Code of Ethics has been duly adopted by the
Board of Trustees, including a majority of the Disinterested Trustees (as
defined below in this Code of Ethics), of each investment company listed in
Appendix I hereto (each, an "Investment Company" and collectively, the
"Investment Companies"), pursuant to Rule 17j-1 under the Investment Company
Act of 1940, as amended (the "1940 Act").
I. RULES APPLICABLE TO ACCESS PERSONS
A. Definitions
1. "Access Person" means
(i) any trustee, officer or Advisory Person (as defined below) of any
Investment Company or investment adviser thereof, or
(ii) any director or officer of a principal underwriter of an Investment
Company who, in the ordinary course of his or her business, makes,
participates in or obtains information regarding the purchase or
sale of securities for the Investment Company for which the
principal underwriter so acts or whose functions or duties as part
of the ordinary course of his or her business relate to the making
of any recommendation to such Investment Company regarding the
purchase or sale of securities, or
(iii) notwithstanding the provisions of clause (i) above, where the
investment adviser is primarily engaged in a business or businesses
other than advising registered investment companies or other
advisory clients (as determined in accordance with Rule 17j-1 under
the 1940 Act), any director, officer or Advisory Person of the
investment adviser who, with respect to any Investment Company,
makes any recommendation, participates in the determination of
which recommendation shall be made, or whose principal function or
duties relate to the determination of which recommendation shall be
made to any Investment Company, or who, in connection with his or
her duties, obtains any information concerning securities
recommendations being made by such investment adviser to any
Investment Company.
2. An "Advisory Person" is any employee of an Investment Company or of the
Investment Company's investment adviser (or of any company in a control
relationship to the Investment Company or its investment adviser) who, in
<PAGE>
connection with his or her regular functions or duties, makes, participates in
or obtains information regarding the purchase or sale of securities by an
Investment Company or whose functions relate to any recommendations with
respect to such purchases or sales, and any natural person in a control
relationship with the Investment Company or adviser who obtains information
regarding the purchase or sale of securities by the Investment Company.
3. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-1(a)(exclusive of Section (a)(1) of such Rule) of the Securities
Exchange Act of 1934, as amended, but without regard to any provision in such
Rule limiting its application only to equity securities.
4. "Control" shall have the meaning set forth in Section 2(a)(9) of the
1940 Act.
5. "Disinterested Trustee" of an Investment Company means a Trustee who is
not an "interested person" of that Investment Company within the meaning of
Section 2(a)(19) of the 1940 Act. An "interested person" of an Investment
Company includes any person who is a trustee, director, officer, employee or
owner of 5% or more of the outstanding stock of the investment adviser or
principal underwriter, if any, of such Investment Company. Affiliates of
brokers or dealers are also "interested persons" of such Investment Company,
except as provided in Rule 2a19-1 under the 1940 Act.
6. "Portfolio Manager" means the person or persons who have or share
direct responsibility and authority to make investment decisions affecting an
Investment Company.
7. "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security or the purchase or sale of
a future or index on a security or option thereon.
8. "Review Officer" means, with respect to an Investment Company, the
Secretary of such Investment Company or such other person as may be designated
by the Board of Trustees of such Investment Company, except that with respect
to Advisory Persons who are employees of the investment adviser of an
Investment Company, Review Officer shall mean such person or persons as such
investment adviser shall designate from time to time.
9. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the 1940 Act, except that it shall not include:
(i) direct obligations of the Government of the United States;
(ii) bankers acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments (meaning instruments
having a maturity at issuance of less than 366 days and that are
rated in one of the two highest rating categories by a Nationally
Recognized Statistical Rating Organization), including repurchase
agreements; and
(iii) shares of registered open-end investment companies.
<PAGE>
10. A security is "being considered for purchase or sale" when, among
other circumstances, the assigned analyst or Portfolio Manager is seriously
considering a change in the rating of the security.
11. Nothwithstanding any other provision hereof, the terms Access Person,
Advisory Person and Portfolio Manager shall not include any person who is
subject to provisions of a code of ethics adopted by an investment adviser or
principal underwriter of an Investment Company in compliance with Rule 17j-1
under the 1940 Act and approved by the Board of Trustees of each Investment
Company, so long as the investment adviser or principal underwriter complies
with Section V of this Code.
B. Statement of General Principles on Personal Investment Activities
Personal investment activities engaged in by an Access Person shall be
subject to the following general principles:
1. No personal investment activities shall conflict with the duty to place
the interests of the Investment Company before any personal interests;
2. All personal investment activities shall be conducted consistent with
the requirements and standards set forth in this Code and in such a manner as
to avoid any actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility; and
3. No Access Person shall, directly or indirectly, otherwise take
inappropriate advantage of his or her position with the Investment Company.
C. Avoiding Conflicts of Interest
Without limiting the foregoing Section I-B, no Access Person shall enter
into or engage in a security transaction or business activity or relationship
which may result in any financial or other conflict of interest between such
person and an Investment Company and each such person shall at all times and in
all matters endeavor to place the interests of the Investment Company before
his or her personal interests.
D. Prohibited Activities
1. Blackout Periods: No Access Person shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect Beneficial Ownership:
a. and which to his or her knowledge at the time of such purchase or
sale is being considered for purchase or sale, or is to be purchased
or sold, by the Investment Company; or
<PAGE>
b. on a day during which, to his or her knowledge, the Investment
Company has a pending "buy" or "sell" order in that same security
until that order is executed or withdrawn.
No Portfolio Manager of an Investment Company shall purchase or sell,
directly or indirectly, any security in which he or she has, or by reason of
such transaction acquires, any direct or indirect Beneficial Ownership within
seven (7) calendar days before or after that Investment Company trades in that
security.
2. Interested Transactions: No Access Person shall recommend any
securities transactions by the Investment Company without having disclosed his
or her interest, if any, in such securities or the issuer thereof, including
without limitation:
a. any direct or indirect Beneficial Ownership of any securities of such
issuer;
b. any contemplated transaction by such person in such securities;
c. any position with such issuer or its affiliates; and
d. any present or proposed business relationship between such issuer or
its affiliates and such person or any party in which such person has
a significant interest.
3. Initial Public Offerings: No Advisory Person shall acquire any
securities in an initial public offering for his or her personal account.
4. Private Placements: No Advisory Person shall acquire, directly or
indirectly, Beneficial Ownership of any securities in a private placement
without the prior approval of the Review Officer, who has been provided by such
Advisory Person with full details of the proposed transaction (including
written certification that the investment opportunity did not arise by virtue
of the Advisory Person's activities on behalf of the Investment Company) and
has concluded after consultation with other investment advisory personnel of
the Investment Company that the Investment Company has no foreseeable interest
in purchasing such securities.
5. Short-Term Trading Profits: No Advisory Person shall profit from the
purchase and sale, or sale and purchase, of the same (or equivalent) securities
of which such Advisory Person has Beneficial Ownership within sixty (60)
calendar days. Any profit so realized shall, unless the Investment Company's
Board approves otherwise, be paid over to the Investment Company or to a
charitable organization of the Advisory Person's choosing.
6. Gifts: No Advisory Person shall receive any gift or other things of
more than de minimis value from any person or entity that does business with or
on behalf of the Investment Company; provided, however, that the foregoing
shall not prohibit receipt of:
<PAGE>
a. an occasional breakfast, luncheon, dinner or reception, ticket to a
sporting event or the theater, or comparable entertainment, attended
in the company of the giver of the entertainment in question, that is
not so frequent, costly or extensive as to raise any question of
impropriety;
b. a breakfast, luncheon, dinner, reception or cocktail party in
conjunction with a bona fide business meeting;
c. a promotional item, such as a mug, pen or other article bearing the
logo or advertising of any such person or entity, having a value not
in excess of $100; or
d. a gift approved in writing by the Review Officer.
7. Service as a Director: No Advisory Person shall serve on the board of
directors of any publicly traded company without prior authorization from the
Review Officer based upon a determination that such board service would be
consistent with the interests of the Investment Company and its shareholders.
E. Exempted Transactions
The prohibitions of Sections I-D(1) and I-D(5) above shall not apply to:
1. purchases or sales effected in any account over which such person has
no direct or indirect influence or control;
2. purchases or sales which are nonvolitional on the part of the person or
an Investment Company;
3. purchases which are part of an automatic dividend reinvestment plan;
4. purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
5. purchases and sales previously approved in writing by the Review
Officer (a) as only remotely potentially harmful to an Investment Company
because they would be very unlikely to affect a highly institutional market or
because they clearly are not economically related to the securities to be
purchased or sold or held by an Investment Company or client or (b) as not
representing any danger of the abuses proscribed by Rule 17j-1 under the 1940
Act;
6. purchases or sales of securities which are not eligible for purchase or
sale by an Investment Company.
II. COMPLIANCE PROCEDURES
<PAGE>
A. Preclearance
An Advisory Person may directly or indirectly, acquire or dispose of
Beneficial Ownership of a security only if (1) such purchase or sale has been
approved by the Review Officer, (2) the approved transaction is completed
within two (2) business days of the day approval is received and (3) the Review
Officer has not rescinded such approval prior to execution of the transaction.
The requirements of this Section II-A shall not apply to transactions described
in Sections I-E(1), (2) and (3). THE FACT THAT PRECLEARANCE OF A TRANSACTION IS
OBTAINED PURSUANT TO THIS SECTION II-A DOES NOT RENDER THE OTHER PROHIBITIONS,
RESTRICTIONS AND PROVISIONS OF THIS CODE INAPPLICABLE TO THE TRANSACTION.
B. Reporting
1. Except as otherwise provided in paragraph 2 of this Section II-B, each
Access Person of an Investment Company must report to the Review Officer as
follows:
a. Initial Holdings Reports. Not later than 10 days after the person
becomes an Access Person, the following information:
o the title, number of shares and principal amount of each security
in which the Access Person had any direct or indirect beneficial
ownership when the person became an Access Person;
o the name of any broker, dealer or bank with whom the Access Person
maintained an account in which any securities were held for the
direct or indirect benefit of the Access Person as of the date the
person became an Access Person; and
o the date that the report is submitted by the Access Person.
b. Quarterly Transaction Reports. Not later than 10 days after the end of
each calendar quarter, the following information:
(i) With respect to any transaction during the quarter in a security
in which the Access Person had any direct or indirect beneficial
ownership:
o the date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each security involved;
o the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
o the price of the security at which the transaction was effected;
<PAGE>
o the name of the broker, dealer or bank with or through which the
transaction was effected; and
o the date that the report is submitted by the Access Person.
(ii) With respect to any account established by the Access Person in
which any securities were held during the quarter for the direct
or indirect benefit of the Access Person:
o the name of the broker, dealer or bank with whom the Access Person
established the account;
o the date that the account was established; and
o the date that the report is submitted by the Access Person.
In the event that no reportable transactions occurred during the quarter,
the report should so state, and should be returned signed and dated.
c. Annual Holdings Reports. Not later than January 31 of each year, the
following information (which information must be current as of the
immediately preceding December 31):
o the title, number of shares and principal amount of each security
in which the Access Person had any dirtect or indirect beneficial
ownership;
o the name of any broker, dealer or bank with whom the Access Person
maintains an account in which any securities are held for the
direct or indirect benefit of the Access Person; and
o the date on which the report is submitted by the Access Person.
d. Brokerage Statements. Copies of all of such person's brokerage
statements shall be furnished to the Review Officer on a quarterly basis.
2. The following are exceptions to the reporting requirements outlined in
Section II-B(1):
a. An Access Person need not make any report required under Section II-B
(1)(a)-(c) with respect to transactions effected for, and securities
held in, any account over which the person has no direct influence or
control, including such an account in which the person has any
beneficial ownership.
b. A Disinterested Trustee who would be required to make the reports
required under Section II-B(1) solely by reason of being a trustee of
an Investment Company need not file with or deliver to the Review
Officer:
<PAGE>
(i) an initial holdings report or an annual holdings report; or
(ii) a quarterly transaction report unless the Disinterested Trustee
knew or, in the ordinary course of fulfilling his or her official
duties as a Trustee of the Investment Company, should have known,
that during the 15-day period immediately before or after the
Trustee's transaction in a security, the Investment Company
purchased or sold the security or the security was being
considered for purchase or sale by the Investment Company or a
series thereof; or
(iii) copies of his or her brokerage statements.
c. An Access Person need not make a quarterly transaction report under
Section II-B(1) if the report would duplicate information contained in
broker trade confirmations or account statements received by the Review
Officer with respect to the person in the time period required under
Section II-B(1), if all of the information required under Section
II-B(1) is contained in the broker trade confirmations or account
statements or in the records of the Investment Company.
3. Any report delivered pursuant to Section II-B may contain a statement
that the report shall not be construed as an admission by the person making
such report that he or she has any direct or indirect beneficial ownership in
the securities to which the report relates.
4. Each Access Person must certify annually (no later than January 31 of
each year) that he or she has read and understands this Code of Ethics and has
complied with its provisions. Such certificates and reports are to be given to
the Review Officer.
C. Review
The Review Officer shall review all of the reports delivered under Section
II-B to determine whether a violation of this Code of Ethics may have occurred.
In reviewing transactions, the Review Officer shall take into account the
exemptions allowed under Section I-E above. Before making a determination that
a violation has been committed by a Trustee, the Review Officer shall give such
person an opportunity to supply additional information regarding the
transaction in question.
III. REVIEW BY THE BOARD OF TRUSTEES
The Review Officer of each Investment Company, each Investment Company's
investment adviser or advisers and each Investment Company's principal
underwriter shall furnish a written report to the Board of Trustees of each
Investment Company, at least annually, that:
<PAGE>
A. describes any issues arising under the Code of Ethics or
procedures of such entity since the last report to the Board of
Trustees, including, but not limited to, information about
material violations of its Code of Ethics or procedures and
sanctions imposed in response to the material violations;
B. describes any recommended changes to the Code or procedures; and
C. certifies that the Investment Company, investment adviser or
principal underwriter, as applicable, has adopted procedures
reasonably necessary to prevent its Access Persons from
violating its Code of Ethics.
The first such report pursuant to this Code shall be delivered to the
Board of Trustees not later than September, 1, 2000.
IV. SANCTIONS
A. Sanctions for Violations by Access Persons
If the Review Officer determines that an Access Person (other than a
Disinterested Trustee) has violated this Code, he or she shall so advise the
respective Board of Trustees and such persons may be subject to sanctions,
including, inter alia, a letter of censure or suspension or termination of the
employment of the violator. As provided in Section I-D(5) above, any financial
profits realized by an Advisory Person through the prohibited personal trading
activities described in such Section may be required to be disgorged. All
violations of the Code and any sanctions imposed as a result thereof shall be
reported to the respective Board of Trustees at least quarterly.
B. Sanctions for Violations by Disinterested Trustees
If the Review Officer determines that any Disinterested Trustee has
violated this Code, he or she shall so advise the President of an Investment
Company and also the Disinterested Trustees (other than the person whose
transaction is at issue) and shall provide such persons with the report, the
record of pertinent actual or contemplated portfolio transactions of an
Investment Company and any additional information supplied by such person. The
Disinterested Trustees, at their option, shall either impose such sanctions as
they deem appropriate or refer the matter to the full Board of Trustees of an
Investment Company, which shall impose such sanctions as it deems appropriate.
V. Other Codes of Ethics
Each investment adviser and principal underwriter of an Investment Company
shall:
1. submit to the Board of Trustees of each Investment Company a copy of
the Code of Ethics adopted by such person pursuant to Rule 17j-1, which Code of
Ethics shall comply with the recommendations of the Investment Company
<PAGE>
Institute's Advisory Group on Personal Investing or be accompanied by a
statement explaining any difference and supplying the rationale therefor;
2. promptly report to the Board of Trustees of each Investment Company in
writing any material amendments to such Code of Ethics;
3. promptly furnish to the Board of Trustees of each Investment Company,
upon request, copies of any reports made pursuant to such Code of Ethics by any
person who would be an Access Person or Portfolio Manager hereunder if such
person were not subject to such other Code of Ethics; and
4. immediately furnish to the Board of Trustees of each Investment Company
all material information regarding any violation of such Code of Ethics by any
person who would be an Access Person or Portfolio Manager hereunder if such
person were not subject to such other Code of Ethics.
VI. MISCELLANEOUS
A. Access Persons
The Review Officer of each Investment Company will identify all Access
Persons who are under a duty to make reports to the Investment Company and will
inform such persons of such duty. Any failure by the Review Officer to notify
any person of his or her duties under this Code shall not relieve such person
of his or her obligations hereunder.
B. Records
The administrator or any sub-administrator of an Investment Company shall
maintain records in the manner and to the extent set forth below, which records
may be maintained on microfilm under the conditions described in Rule 31a-2(f)
under the 1940 Act, and shall be available for examination by representatives
of the Securities and Exchange Commission:
1. a copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved in an easily
accessible place;
2. a record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible place for a
period of not less than five years following the end of the fiscal year in
which the violation occurs;
3. a copy of each report made pursuant to this Code shall be preserved for
a period of not less than five years from the end of the fiscal year in which
it is made, the first two years in an easily accessible place;
4. a list of all persons who are required, or within the past five years
have been required, to make reports pursuant to this Code shall be maintained
in an easily accessible place;
<PAGE>
5. copy of each report required under Section II shall be preserved for a
period of not less than five years from the end of the fiscal year in which it
is made, the first two years in an early accessible place; and
6. record of any decision, and the reasons supporting the decision, to
approve the acquisition by Advisory Persons of securities under Section I-D(3)
or (4) shall be preserved for a period of not less than five years from the end
of the fiscal year in which the approval is granted.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except that the same
may be disclosed to the Board of Trustees of the Investment Companies, to any
regulatory or self-regulatory authority or agency upon its request, or as
required by law or court or administrative order.
D. Interpretation of Provisions
The Board of Trustees of an Investment Company may from time to time adopt
such interpretations of this Code as it deems appropriate.
<PAGE>
APPENDIX I
CITIFUNDS TRUST I
CITIFUNDS TRUST II
CITIFUNDS TRUST III
CITIFUNDS FIXED INCOME TRUST
CITIFUNDS PREMIUM TRUST
CITIFUNDS MULTI-STATE TAX FREE TRUST
CITIFUNDS INSTITUTIONAL TRUST
CITIFUNDS TAX FREE INCOME TRUST
CITIFUNDS TAX FREE RESERVES
CITIFUNDS INTERNATIONAL TRUST
CASH RESERVES PORTFOLIO
TAX FREE RESERVES PORTFOLIO
U.S. TREASURY RESERVES PORTFOLIO
THE PREMIUM PORTFOLIOS
ASSET ALLOCATION PORTFOLIOS
VARIABLE ANNUITY PORTFOLIOS
VAP MASTER PORTFOLIOS
Exhibit p(2)
CODE OF ETHICS FOR
SIGNATURE BROKER-DEALER SERVICES, INC.
Signature Broker-Dealer Services, Inc. and its affiliates (collectively
"SBDS"), have each adopted this Code of Ethics (the "Code") to specify and
prohibit certain types of personal securities transactions deemed to create a
conflict of interest and to establish reporting requirements and preventive
procedures pursuant to the provisions of Rule 17j1(c)(1) under the Investment
Company Act of 1940 (the "1940 Act").
I. DEFINITIONS
A. An "Access Person" means any employee, Director or officer of SBDS
who, in the ordinary course of his or her business, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities for a Fund for which SBDS acts as distributor or
whose functions or duties as a part of the ordinary course of his or
her business relate to the making of any recommendation to such Fund
regarding the purchase or sale of securities or who serves as an
officer or Trustee/Director for any such Fund All Access Persons of
SBDS shall be advised they are considered such by the Review Officer.
B. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934, a copy of which is attached hereto.
C. "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the 1940 Act.
D. "Covered Security" means a security as defined in section 2(a)(36) of
the Act, except that it does not include:
1. Direct obligations of the Government of the United States;
2. Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
3. Shares issued by open-end Funds.
E. A "Covered Security Held or to be Acquired by a Fund" means:
1. Any Covered Security which, within the most recent 15 days:
(a) Is or has been held by the Fund; or
<PAGE>
(b) Is being or has been considered by the Fund or its investment
adviser for purchase by the Fund; and
2. Any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in (i) of this
section.
F. "Fund" means an investment company registered under the 1940 Act.
G. "Holdings Reports" are reports filed by Access Persons and contain the
following information:
1. the title, number of shares and principal amount of each Covered
Security in which the Access Person has any direct or indirect
beneficial ownership; and
2. the name of any broker, dealer or bank with whom the Access Person
maintained an account in which any securities were held for the
direct or indirect benefit of the Access Person; and
3. the date the report is submitted by the Access Person.
H. The "Review Officer" is the person designated by SBDS' Board of
Directors to monitor the overall compliance with this Code. Included
in the duties of the Review Officer is the review of all initial and
annual Holdings Reports and quarterly transaction reports and the
maintenance of the list of Access Persons. In the absence of any such
designation, the Review Officer shall be the General Counsel of SBDS
or Molly S. Mugler.
I. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall:
A. at all times, place the interests of Funds SBDS distributes before his
or her personal interests;
<PAGE>
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his or her position with SBDS
with respect to any Fund SBDS distributes.
It is unlawful for any affiliated person of or principal underwriter for a
Fund, or any affiliated person of a principal underwriter for a Fund, in
connection with the purchase or sale, directly or indirectly, by the
person of a Covered Security Held or to be Acquired by the Fund: (1) To
employ any device, scheme or artifice to defraud the Fund; (2) To make any
untrue statement of a material fact to the Fund or omit to state a
material fact necessary in order to make the statements made to the Fund,
in light of the circumstances under which they are made, not misleading;
(3) To engage in any act, practice or course of business that operates or
would operate as a fraud or deceit on the Fund; or (4) To engage in any
manipulative practice with respect to the Fund.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.
A. BLACKOUT PERIODS
No Access Person shall purchase or sell, directly or indirectly, any
Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership on a
day during which he or she knows or should have known a Fund has a
pending "buy" and "sell" order in that same security until that order
is executed or withdrawn.
B. EXEMPTED TRANSACTIONS
The prohibitions of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person, including mergers, recapitalizations or similar
transactions;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales of
such rights so acquired; and
<PAGE>
5. purchases and sales that receive prior approval in writing by the
Review Officer as (a) only remotely potentially harmful to a Fund
because they would be very unlikely to affect a highly
institutional market, (b) clearly not economically related to the
securities to be purchased or sold or held by a Fund or client,
and (c) not representing any danger of the abuses proscribed by
Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is
aware which are potentially relevant to a conflict of interest
analysis, including the existence of any substantial economic
relationship between his or her transaction and securities held or
to be held by a Fund.
IV. COMPLIANCE PROCEDURES
A. REPORTING
1. Quarterly Transaction Reports
(a) Coverage of Quarterly Transaction Reports: Each Access Person
shall, unless otherwise exempted, file with the Review Officer
confidential quarterly reports containing the information
required in section (b) below, with respect to all
transactions during the preceding quarter in --- any Covered
Securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership. All such Access Persons shall file reports, even
when no transactions have been effected, representing that no
transactions subject to reporting requirements were effected.
(b) Filing of Quarterly Transaction Reports: Every report shall be
made no later than 10 days after the end of the calendar
quarter in which the transaction to which the report relates
was effected, and shall contain the following information:
(i) the date of the transaction, the title, the interest
rate and maturity (if applicable), the number of shares,
and the principal amount of each Covered Security
involved;
(ii) the nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(iii) the price at which the transaction was effected;
<PAGE>
(iv) the name of the broker, dealer or bank with or through
whom the transaction was effected;
(v) the date that the report is submitted by the Access
Person; and
(vi) with respect to any account established by the Access
Person in which securities were held during the quarter
for the direct or indirect benefit of the Access Person,
the name of the broker, dealer or bank with whom the
Access Person established the account, the date the
account was established and the date the report is
submitted by the Access Person.
(c) Broker Confirmations/Account Statements: An Access Persons may
direct his or her brokers to supply the Review Officer on a
timely basis, duplicate copies of confirmations of all
personal transactions in Covered Securities. An Access Person
need not make a quarterly transaction report if the report
would duplicate information contained in duplicate information
contained in broker trade confirmations or account statements
received by the Review Officer in the time period required if
all the information required is contained in the broker trade
confirmations or account statements or in the records of the
Review Officer.
2. Initial Holdings Reports: All persons who become Access Persons
must file an initial Holdings Report with the Review Officer
within ten days after that person becomes an Access Person. The
information contained in the initial Holdings Report must be
current as of the date the person became and Access Person.
3. Annual Holdings Reports: All Access Persons, unless exempted, must
file an annual Holdings Report by the later of September 1 of each
year or such earlier time as requested by the Review Officer. The
information contained in the annual Holdings Report must be
current as of a date no more than 30 days before the report is
submitted.
4. Exceptions from Reporting Requirements: No Access Person shall be
required to report transactions effected for any account over
which such Access Person has no direct or indirect influence or
control (except that such an Access Person must file a written
certification stating that he or she has no direct or indirect
influence or control over the account in question).
<PAGE>
B. REVIEW
The Review Officer shall be responsible for reviewing transactions.
Before making a determination that a violation has been committed by
an Access Person, the Review Officer shall give such person an
opportunity to supply additional information regarding the transaction
in question.
V. REVIEW BY THE PRESIDENT
At least annually, the Review Officer shall report to the President
regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to the Code or procedures; and
C. A summary of any violations which occurred during the past year with
respect to which significant remedial action was taken.
VI. SANCTIONS FOR VIOLATIONS BY ACCESS PERSONS
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the President who may advise the Board
of Directors and the President or the Board may impose such sanctions as
he or she or it deems appropriate, including, inter alia, disgorgement of
profits, censure, suspension or termination of the employment of the
violator. All material violations of the Code and any sanctions imposed as
a result thereto shall be reported periodically to the Board of Directors.
VII. MISCELLANEOUS
A. ACCESS PERSONS
The Review Officer will identify all Access Persons who are under a
duty to make reports to SBDS and will inform such persons of such
duty. Any failure by the Review Officer to notify any person of his or
her duties under this Code shall not relieve such person of his or her
obligations hereunder.
B. RECORDS
<PAGE>
SBDS shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the
conditions described in Rule 31a2(f) under the 1940 Act, and shall be
available for examination by representatives of the Securities and
Exchange Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end of
the fiscal year in which it is made, the first two years in an
easily accessible place; and
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place.
C. CONFIDENTIALITY
All reports of Covered Securities transactions and any other
information filed pursuant to this Code shall be treated as
confidential, except to the extent required by law.
D. INTERPRETATION OF PROVISIONS
The Board of Directors of SBDS may from time to time adopt such
interpretations of this Code as it deems appropriate. SFG293b
<PAGE>
SFG293c
SIGNATURE BROKER-DEALER SERVICES, INC. AND ITS AFFILIATES
TRANSACTIONS REPORT
To: Molly S. Mugler, Senior Legal Counsel
From:
(Your Name)
This Transaction Report (the "Report") is submitted pursuant to the Code
of Ethics (the "Code") of Signature Broker-Dealer Services, Inc. and its
affiliates ("SBDS") and supplies (below) information with respect to
transactions in any security in which I may be deemed to have, or by reason of
such transaction acquire, any direct or indirect beneficial ownership interest
(whether or not such security is a security held or to be acquired by an
investment company administered or distributed by SBDS) for the calendar
quarter ended ____________.
Unless the context otherwise requires, all terms used in the Report shall
have the same meaning as set forth in the Code. For purposes of the Report,
beneficial ownership shall be interpreted subject to the provisions of the Code
and Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities
Exchange Act of 1934.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nature of
Transaction
(Whether Name of the
Purchase, Principal Broker, Dealer
Sale, or Amount of Price at Or Bank with
Other Type of Securities Which the Whom the Nature of
Name of Title of Date of Disposition Acquired or Transaction Transaction Ownership of
Fund Securities Transaction Or Acquisition Disposed of Was Effected Was Effected Securities*
Name of Covered Securities Account Established in Last Quarter Date Account was Established
</TABLE>
I HEREBY CERTIFY THAT I (1) HAVE READ AND UNDERSTAND THE CODE OF SBDS, (2)
RECOGNIZE THAT I AM SUBJECT TO THE CODE, (3) HAVE DISCLOSED ALL SECURITIES
HOLDINGS AS REQUIRED, AND (4) THAT TO THE BEST OF MY KNOWLEDGE THE INFORMATION
FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
NAME (Print) _____________________________ DATE ____________________
SIGNATURE _________________________________________________
* If appropriate, you may disclaim beneficial ownership of any security listed
in this report.
<PAGE>
SIGNATURE BROKER-DEALER SERVICES, INC.
ACCESS PERSONS AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
NAME DATE BECAME REASON DESIGNATED AS ACCESS PERSON
ACCESS PERSON
- -----------------------------------------------------------------------------------------
MOLLY S. MUGLER PRE-2000 OFFICER OF 59 WALL STREET FUNDS, CITIFUNDS
- -----------------------------------------------------------------------------------------
PHILIP W. COOLIDGE PRE-2000 OFFICER OF 59 WALL STREET FUNDS, CITIFUNDS
- -----------------------------------------------------------------------------------------
CHRISTINE D. DORSEY PRE-2000 OFFICER OF 59 WALL STREET FUNDS, CITIFUNDS
- -----------------------------------------------------------------------------------------
JAMES E. HOOLAHAN PRE-2000 OFFICER OF 59 WALL STREET FUNDS, CITIFUNDS
- -----------------------------------------------------------------------------------------
LINWOOD C. DOWNS PRE-2000 OFFICER OF CITIFUNDS
- -----------------------------------------------------------------------------------------
SUSAN JAKUBOSKI PRE-2000 OFFICER OF 59 WALL STREET FUNDS, CITIFUNDS
- -----------------------------------------------------------------------------------------
</TABLE>
