As filed with the Securities and Exchange Commission on March 2, 1998
File No. 811-8436
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 5*
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
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* This Amendment also serves as Amendment No. 4 to the Registration Statement
on Form N-1A for The Premium Portfolios as it relates to the Small Cap Growth
Portfolio, File No. 811-07269.
** Relates only to Large Cap Growth Portfolio (formerly known as Equity
Portfolio), Small Cap Growth Portfolio (formerly known as Small Cap Equity
Portfolio) and Growth & Income Portfolio.
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940. Beneficial interests in the
Registrant are not registered under the Securities Act of 1933, as amended (the
"1933 Act"), because such interests are issued solely in private placement
transactions which do not involve any "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Registrant may be made only 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 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any beneficial interests in the
Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
Large Cap Growth Portfolio (formerly Equity Portfolio), Small Cap Growth
Portfolio (formerly Small Cap Value Portfolio) and Growth & Income Portfolio
(each, a "Portfolio" and collectively, the "Portfolios") are separate series of
The Premium Portfolios (the "Trust"). Citibank, N.A. ("Citibank" or the
"Manager") is the investment adviser for each of the Portfolios. The Trust is
an open-end management investment company which was organized as a trust under
the laws of the State of New York on September 13, 1993. Beneficial interests
in the Portfolios are issued solely in private placement transactions which do
not involve any "public offering" within the meaning of Section 4(2) of the
U.S. Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolios may be made only 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 1933 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 1933 Act.
BENEFICIAL INTERESTS IN THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY
AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
INVESTMENT OBJECTIVE AND POLICIES:
The investment objective of LARGE CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of SMALL CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of GROWTH & INCOME PORTFOLIO is long-term
capital growth and current income.
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LARGE CAP GROWTH PORTFOLIO seeks its objective by investing in a broadly
diversified portfolio of equity securities consisting mainly of common stocks
of U.S. issuers. Under normal circumstances, at least 65% of the Large Cap
Growth Portfolio's total assets is invested in equity securities issued by
established companies with medium to large capitalizations (i.e., those issuers
with market capitalizations within the top 1,000 stocks of the equity market)
and seasoned management teams ("Established Companies").
In selecting equity securities for the Large Cap Growth Portfolio, the
Manager emphasizes securities issued by Established Companies which the Manager
believes possess above-average prospects for growth. The Manager may also
select other securities which it believes provide an opportunity for
appreciation, such as fixed income securities and convertible and
non-convertible bonds, preferred stocks and warrants. All of the Portfolio's
long-term non-convertible debt investments are investment grade securities
(rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by Standard & Poor's Ratings Group ("S&P")) or securities which the
Manager believes to be of comparable quality. Less than 5% of the Portfolio's
investments consist of securities rated Baa by Moody's or BBB by S&P.
SMALL CAP GROWTH PORTFOLIO seeks its objective by investing in a
diversified portfolio consisting primarily of equity securities of U.S.
companies that have small market capitalizations. Under normal circumstances,
at least 65% of the Small Cap Growth Portfolio's total assets is invested in
equity securities of these companies. Equity securities include common stocks,
preferred stocks and warrants for the purchase of stock. Small market
capitalization companies are those with market capitalizations below the top
1,000 stocks of the equity market. In addition, the Portfolio may invest in
companies that are believed to be emerging companies relative to their
potential markets. In selecting equity securities for the Portfolio, the
Manager emphasizes securities of small cap companies with strong management
teams.
The Manager may also select other securities for the Small Cap Growth
Portfolio that it believes provide an opportunity for appreciation, such as
fixed income securities and convertible and non-convertible bonds. Most of the
Portfolio's long-term non-convertible debt investments are investment grade
securities (securities rated Baa or better by Moody's or BBB or better by S&P),
and less than 5% of the Portfolio's investments consist of securities rated Baa
by Moody's or BBB by S&P.
The Small Cap Growth Portfolio will not sell the equity securities of an
issuer solely due to the fact that the issuer's market capitalization has grown
above the small cap level. Rather, the Small Cap Growth Portfolio will evaluate
the continued appropriateness of such securities within its investment
criteria.
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The GROWTH & INCOME PORTFOLIO invests primarily in common stocks which in
the opinion of the Manager offer potential for capital growth, current income,
or both. The Growth & Income Portfolio may also purchase corporate bonds, notes
and debentures, preferred stocks, convertible securities (both debt securities
and preferred stocks) and U.S. government securities and may invest a portion
of its assets in cash or money market instruments. The Growth & Income
Portfolio currently intends to invest primarily in securities of U.S. issuers,
but may also invest up to 25% of its total assets in securities of foreign
issuers.
The Growth & Income Portfolio is managed using a value oriented approach,
investing primarily in the securities of large, established companies (those
with market capitalizations within the top 1,000 stocks of the equity market)
that, in the opinion of the Manager, are temporarily out of favor but have good
longer term business prospects.
The Manager evaluates securities using fundamental analysis and seeks to
purchase securities that are believed to be undervalued relative to a company's
cash flow, earnings prospects, growth rate and/or dividend paying ability. The
Manager believes that securities of companies which are temporarily out of
favor due to earnings declines, cyclical business downturns or other adverse
factors may provide a higher total return over time than securities of
companies whose positive attributes are more accurately reflected in the
security's current price.
The Growth & Income Portfolio seeks to invest primarily in companies with
a record of earnings and dividend payments but may, from time to time, invest
in securities that pay no dividends or interest.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
NON-U.S. SECURITIES. While each Portfolio emphasizes U.S. securities,
each Portfolio may invest a portion of its assets in non-U.S. equity and debt
securities, including depositary receipts. No Portfolio intends to invest more
than 25% of its assets in non-U.S. securities, including sponsored American
Depositary Receipts, which represent the right to receive securities of
non-U.S. issuers deposited in a U.S. or correspondent bank. Each Portfolio may
invest up to 5% of its assets in closed-end investment companies which
primarily hold non-U.S. securities.
FUTURES. Each of the Portfolios may purchase or sell stock index futures
and foreign currency futures in each case in order to protect against declines
in the value of portfolio securities or increases in the cost of securities or
other assets to be acquired and, subject to applicable law, to enhance
potential gain. The Growth & Income Portfolio also may use financial futures in
order to protect itself from fluctuations in interest rates (sometimes called
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"hedging") without actually buying or selling securities, or to manage the
effective maturity or duration of fixed income securities in the Portfolio's
investment portfolio in an effort to reduce potential losses or enhance
potential gain. Futures contracts provide for the future sale by one party and
purchase by another party of a specified amount of a security at a specified
future time and price, or for making payment of a cash settlement based on
changes in the value of a security, an index of securities or other assets. In
many cases, the futures contracts that may be purchased or sold by the
Portfolios are standardized contracts traded on commodities exchanges or boards
of trade.
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, each 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 with a lower quality or longer
term.
OTHER PERMITTED INVESTMENTS. For more information regarding the
Portfolios' permitted investments and investment practices, see "Permitted
Investments and Investment Practices." The Portfolios will not necessarily
invest or engage in each of the investments and investment practices described
in "Permitted Investments and Investment Practices" but reserve the right to do
so.
INVESTMENT RESTRICTIONS. Part B of this Registration Statement contains a
list of specific investment restrictions which govern the investment policies
of the Portfolios, including a limitation that each Portfolio may borrow money
from banks in an amount not to exceed 1/3 of the Portfolio's net assets for
extraordinary or emergency purposes (e.g., to meet redemption requests). Except
as otherwise indicated, the Portfolios' investment objectives and policies may
be changed without investor approval. If a percentage or rating restriction
(other than a restriction as to borrowing) is adhered to at the time an
investment is made, a later change in percentage or rating resulting from
changes in a Portfolio's securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of each Portfolio will be sold whenever
the Manager believes it is appropriate to do so in light of the Portfolio's
investment objective, without regard to the length of time a particular
security may have been held. For the fiscal years ended December 31, 1995 and
1996 and for the period from January 1, 1997 to October 31, 1997, the turnover
rates for the Large Cap Growth Portfolio were 67%, 90% and 103%, respectively.
For the period June 21, 1995 (commencement of operations) to December 31, 1995,
for the fiscal year ended December 31, 1996, and for the period from January 1,
1997 to October 31, 1997, the turnover rates for the Small Cap Growth Portfolio
were 41%, 89% and 108%, respectively. The Growth & Income Portfolio was not in
operation during the fiscal year ending October 31, 1997. The turnover rate for
the Growth & Income Portfolio is not expected to exceed 100% for its fiscal
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year ending October 31, 1998. The amount of brokerage commissions and
realization of taxable capital gains will tend to increase as the level of
portfolio activity increases.
BROKERAGE TRANSACTIONS. In connection with the selection of brokers or
dealers for securities transactions for the Portfolios and the placing of such
orders, brokers or dealers may be selected who also provide brokerage and
research services to the Portfolios or the other accounts over which the
Manager or its affiliates exercise investment discretion. The Manager is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for a Portfolio
which is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Manager determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer.
RISK CONSIDERATIONS:
The risks of investing in each Portfolio vary depending upon the nature
of the securities held, and the investment practices employed, on its behalf.
Certain of these risks are described below.
CHANGES IN NET ASSET VALUE. Each Portfolio's net asset value will
fluctuate based on changes in the values of the underlying portfolio
securities. This means that an investor's interest may be worth more or less at
redemption than at the time of purchase. Equity securities fluctuate in
response to general market and economic conditions and other factors, including
actual and anticipated earnings, changes in management, political developments
and the potential for takeovers and acquisitions. During periods of rising
interest rates the value of debt securities generally declines, and during
periods of falling rates the value of these securities generally increases.
Changes by recognized rating agencies in the rating of any debt security, and
actual or perceived changes in an issuer's ability to make principal or
interest payments, also affect the value of these investments.
CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may
have speculative characteristics. Adverse economic or changing circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade obligations. The Growth & Income
Portfolio may invest in securities rated below Baa or BBB (commonly known as
"junk bonds"). These securities are speculative. All of the risks of investing
in lower rated investment grade securities are heightened by investing in these
securities.
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SMALL CAP COMPANIES. Investors should be aware that the securities of
companies with small market capitalizations may have more risks than the
securities of other companies. Small cap companies may be more susceptible to
market downturns or setbacks because they may have limited product lines,
markets, distribution channels, and financial and management resources.
Further, there is often less publicly available information about small cap
companies than about more established companies. As a result of these and other
factors, the prices of securities issued by small cap companies may be
volatile. Since under normal circumstances, at least 65% of the Small Cap
Growth Portfolio's total assets will be invested in equity securities of
companies with small market capitalizations, an investment in the Small Cap
Growth Portfolio may be subject to greater fluctuation in value than an
investment in an equity fund investing primarily in securities of larger, more
established companies.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS. The Growth & Income Portfolio also
may invest in "zero-coupon" and "payment-in-kind" bonds. Zero-coupon bonds are
issued at a significant discount from their principal amount and pay interest
only at maturity rather than at intervals during the life of the security.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Both zero-coupon
bonds and payment-in-kind bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, these bonds may involve
greater credit risks than bonds paying interest in cash currently. The values
of zero-coupon bonds and payment-in-kind bonds are also subject to greater
fluctuation in response to changes in market interest rates than bonds that pay
interest in cash currently. Even though such bonds do not pay current interest
in cash, the Portfolio nonetheless is required to accrue interest income on
these investments and to distribute the interest income on a current basis
Thus, the Portfolio could be required at times to liquidate other investments
in order to satisfy its distribution requirements.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
non-U.S issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of portfolio assets and political or social instability.
Enforcing legal rights may be difficult, costly and slow in non-U.S. countries,
and there may be special problems enforcing claims against non-U.S.
governments. In addition, non-U.S. companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies, and there
may be less public information about their operations. Non-U.S. markets may be
less liquid and more volatile than U.S. markets, and may offer less protection
to investors such as the Portfolios. Prices at which a Portfolio may acquire
securities may be affected by trading by persons with material non-public
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information and by securities transactions by brokers in anticipation of
transactions by the Portfolio.
Because non-U.S. securities often are denominated in currencies other
than the U.S. dollar, changes in currency exchange rates will affect a
Portfolio's net asset value, the value of dividends and interest earned and
gains and losses realized on the sale of securities. In addition, some non-U.S.
currency values may be volatile and there is the possibility of governmental
controls on currency exchanges or governmental intervention in currency
markets.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those attributable to U.S. investing. As a result, the operating expense
ratios of the Portfolios may be higher than those of investment companies
investing exclusively in U.S. securities.
Each Portfolio may invest in securities of issuers in developing
countries, and all of these risks are increased for investments in issuers in
developing countries.
INVESTMENT PRACTICES. Certain of the investment practices employed for
the Portfolios may entail certain risks. These risks are in addition to the
risks described above and are described in "Permitted Investments and
Investment Practices" below.
PERMITTED INVESTMENTS AND INVESTMENT PRACTICES:
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements in order to earn a return on temporarily available cash. Repurchase
agreements are transactions in which an institution sells the Portfolio a
security at one price, subject to the Portfolio's obligation to resell and the
selling institution's obligation to repurchase that security at a higher price
normally within a seven day period. There may be delays and risks of loss if
the seller is unable to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements. 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 a Portfolio enters into reverse repurchase transactions, securities of a
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dollar amount equal in value to the securities subject to the agreement will be
maintained in a segregated account with the Portfolio's custodian. 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.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, each Portfolio may
lend its portfolio securities to broker-dealers and other institutional
borrowers. Such loans must be callable at any time and continuously secured by
collateral (cash or U.S. Government securities) in an amount not less than the
market value, determined daily, of the securities loaned. It is intended that
the value of securities loaned by a Portfolio would not exceed 30% of the
Portfolio's total assets.
In the event of the bankruptcy of the other party to a securities loan, a
repurchase agreement or a reverse repurchase agreement, a Portfolio could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has increased
or the value of the securities purchased has decreased, the Portfolio could
experience a loss.
CONVERTIBLE SECURITIES. Each 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.
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RULE 144A SECURITIES. Each Portfolio may purchase restricted securities
that are not registered for sale to the general public. If it is determined
that there is a dealer or institutional market in the securities, the
securities will not be treated as illiquid for purposes of the Portfolio's
investment limitations. The Trustees will review these determinations. These
securities are known as "Rule 144A securities," because they are traded under
Rule 144A among qualified institutional buyers. Institutional trading in Rule
144A securities is relatively new, and the liquidity of these investments could
be impaired if trading in Rule 144A securities does not develop or if qualified
institutional buyers become, for a time, uninterested in purchasing Rule 144A
securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. Each 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 a
Portfolio to sell them promptly at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, each Portfolio may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Portfolio at a future date beyond customary settlement time. Under normal
circumstances, the Portfolio takes delivery of the securities. In general, the
Portfolio does not pay for the securities until received and does not start
earning interest until the contractual settlement date. While awaiting delivery
of the securities, the Portfolio establishes a segregated account consisting of
cash, cash equivalents or high quality debt securities equal to the amount of
the Portfolio's commitments to purchase "when-issued" securities. 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.
FUTURES CONTRACTS. Each Portfolio may enter into stock index futures
contracts and foreign currency futures contracts. The Growth & Income Portfolio
may also use financial futures in order to protect itself from fluctuations in
interest rates without actually buying or selling securities, or to manage the
effective maturity in duration of fixed income securities in the Portfolio's
investment portfolio in an effort to reduce potential losses or enhance
potential gain. Such investment strategies will be used for hedging purposes
and for nonhedging purposes, subject to applicable law. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a security at a specified future time and price, or for
making payment of a cash settlement based on changes in the value of a
security, an index of securities or other assets. In many cases, the futures
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contracts that may be purchased by a Portfolio are standardized contracts
traded on commodities exchanges or boards of trade.
Because the value of a futures contract changes based on the price of the
underlying security or other asset, futures contracts are considered to be
"derivatives." Futures contracts are a generally accepted part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. When a Portfolio purchases or sells a futures
contract, it is required to make an initial margin deposit. Although the amount
may vary, initial margin can be as low as 1% or less of the face amount of the
contract. Additional margin may be required as the contract fluctuates in
value. Since the amount of margin is relatively small compared to the value of
the securities covered by a futures contract, the potential for gain or loss on
a futures contract is much greater than the amount of a Portfolio's initial
margin deposit. No Portfolio currently intends to enter into a futures contract
if, as a result, the initial margin deposits on all of its futures contracts
would exceed approximately 5% of that Portfolio's net assets. Also, each
Portfolio intends to limit its futures contracts so that the value of the
securities covered by its futures contracts would not generally exceed 50% of
that Portfolio's other assets and to segregate sufficient assets to meet its
obligations under outstanding futures contracts.
The ability of a Portfolio to utilize futures contracts successfully will
depend on the Manager's ability to predict stock price movements, which cannot
be assured. In addition to general risks associated with any investment, the
use of futures contracts entails the risk that, to the extent the Manager's
view as to stock price movements is incorrect, the use of futures contracts,
even for hedging purposes, could result in losses greater than if they had not
been used. This could happen, for example, if there is a poor correlation
between price movements of futures contracts and price movements in a
Portfolio's related portfolio position. Also, the futures markets may not be
liquid in all circumstances. As a result, in certain markets, a Portfolio might
not be able to close out a transaction without incurring substantial losses, if
at all. When futures contracts are used for hedging, even if they are
successful in minimizing the risk of loss due to a decline in the value of the
hedged position, at the same time they limit any potential gain which might
result from an increase in value of such position. As noted, a Portfolio may
also enter into transactions in futures contracts for other than hedging
purposes (subject to applicable law), including speculative transactions, which
involve greater risk. In particular, in entering into such transactions, a
Portfolio may experience losses which are not offset by gains on other
portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be extremely volatile from time to time, which
could increase the risks incurred by a Portfolio in entering into such
transactions.
The use of futures contracts potentially exposes a Portfolio to the
effects of "leveraging," which occurs when futures are used so that the
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Portfolio's exposure to the market is greater than it would have been if the
Portfolio had invested directly in the underlying securities. "Leveraging"
increases a Portfolio's potential for both gain and loss. As noted above, each
Portfolio intends to adhere to certain policies relating to the use of futures
contracts, which should have the effect of limiting the amount of leverage by
the Portfolio.
SECURITIES OF 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. 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.
CURRENCY EXCHANGE CONTRACTS. Forward currency exchange contracts may be
entered into for each Portfolio for the purchase or sale of non-U.S. currency
for hedging purposes against adverse rate changes or otherwise to achieve the
Portfolio's investment objective. A currency exchange contract allows a
definite price in dollars to be fixed for securities of non-U.S. issuers that
have been purchased or sold (but not settled) for the Portfolio. Entering into
such exchange contracts may result in the loss of all or a portion of the
benefits which otherwise could have been obtained from favorable movements in
exchange rates. In addition, entering into such contracts means incurring
certain transaction costs and bearing the risk of incurring losses if rates do
not move in the direction anticipated.
LOWER RATED DEBT SECURITIES. Each Portfolio may purchase lower rated
securities (those rated Baa or better by Moody's or BBB or better by S&P) which
may have poor protection of payment of principal and interest. These securities
are often considered to be speculative and involve greater risk of default or
price changes than securities assigned a higher quality rating due to changes
in the issuer's creditworthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates.
The Growth & Income Portfolio also may purchase securities rated lower
than Baa by Moody's or BBB by S&P or comparable securities (commonly known as
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"junk bonds"). These lower rated high yielding fixed income securities
generally tend to reflect economic changes (and the outlook for economic
growth), short-term corporate and industry developments and the market's
perception of their credit quality (especially during times of adverse
publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although
these lower rated fixed income securities are also affected by changes in
interest rates). In the past, economic downturns or an increase in interest
rates have under certain circumstances caused a higher incidence of default by
the issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. During certain periods, the higher yields on
the Portfolio's lower rated fixed income securities are paid primarily because
of the increased risk of loss of principal and income arising from such factors
as the heightened possibility of default or bankruptcy of the issuers of such
securities. Due to the fixed income payments of these securities, the Portfolio
may continue to earn the same level of interest income while its net asset
value declines due to portfolio losses. The prices for these securities may be
affected by legislative and regulatory developments. Changes in the value of
securities subsequent to their acquisition will not affect cash income to the
Portfolio but will be reflected in the net asset value of shares of the
Portfolio. The market for these lower rated fixed income securities may be less
liquid than the market for investment grade fixed income securities.
Furthermore, the liquidity of these lower rated securities may be affected by
the market's perception of their credit quality. Therefore, the Manager's
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult during times of certain adverse market conditions to sell these lower
rated securities at their fair value to meet redemption requests or to respond
to changes in the market.
COMMERCIAL PAPER. Each Portfolio may invest in commercial paper, which is
unsecured debt of corporations usually maturing in 270 days or less from its
date of issuance.
DEPOSITARY RECEIPTS FOR SECURITIES. 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 a Portfolio to make non-U.S.
investments. These securities are not usually traded 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.
<PAGE>
OTHER INVESTMENT COMPANIES. Subject to applicable statutory and
regulatory limitations, assets of each Portfolio may be invested in shares of
other investment companies. A Portfolio may invest up to 5% of its assets in
closed-end investment companies which primarily hold securities of non-U.S.
issuers.
ASSET-BACKED SECURITIES. The Growth & Income Portfolio may invest in
corporate asset-backed securities. These securities, issued by trusts and
special purpose corporations, are backed by a pool of assets, such as credit
card or automobile loan receivables, representing the obligations of a number
of different parties. Corporate asset-backed securities present certain risks.
For instance, in the case of credit card receivables, these securities may not
have the benefit of any security interest in the related collateral.
The Growth & Income Portfolio also may purchase mortgage-backed
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government or one of its agencies and backed by the full faith and credit
of the U.S. Government, including direct pass-through certificates of GNMA, as
well as mortgage-backed securities for which principal and interest payments
are backed by the credit of particular agencies of the U.S. Government.
Mortgage-backed securities are generally backed or collateralized by a pool of
mortgages. These securities are sometimes called collateralized mortgage
obligations or CMOs.
Even if the U.S. Government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment, because the underlying mortgages are refinanced to
take advantage of the lower rates. Thus the prices of mortgage-backed
securities may not increase as much as prices of other debt obligations when
interest rates decline, and mortgage-backed securities may not be an effective
means of locking in a particular interest rate. In addition, any premium paid
for a mortgage-backed security may be lost when it is prepaid. When interest
rates go up, mortgage-backed securities experience lower rates of prepayment.
This has the effect of lengthening the expected maturity of a mortgage-backed
security. As a result, prices of mortgage-backed securities may decrease more
than prices of other debt obligations when interest rates go up.
Additionally mortgage-backed securities are also subject to maturity
extension risk, that is, the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively convert a security that was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
<PAGE>
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, a rising interest rate would not
only likely decrease the value of the Portfolio's securities, but would also
increase the inherent volatility of the Portfolio by effectively converting
short term debt instruments into long term debt instruments.
DOLLAR ROLLS. The Growth & Income Portfolio may enter into "dollar
rolls." A dollar roll is a transaction pursuant to which the Portfolio sells
mortgage-backed securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Portfolio
foregoes principal and interest paid on the mortgage-backed securities. The
Portfolio is compensated by the difference between the current sales price and
the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which the
Portfolio establishes a segregated account with liquid high grade debt
securities equal in value to the securities subject to repurchase by the
Portfolio. The Growth & Income Portfolio will invest only in covered rolls.
OPTIONS. The Growth & Income Portfolio may write (sell) covered call and
put options and purchase call and put options on securities. The Growth &
Income Portfolio will write options on securities for the purpose of increasing
its return on such securities and/or to protect the values of its portfolio. In
particular, where the Portfolio writes an option which expires unexercised or
is closed out by the Portfolio at a profit, it will retain the premium paid for
the option which will increase its gross income and will offset in part the
reduced value of the portfolio security underlying the option, or the increased
cost of portfolio securities to be acquired. If the price of the underlying
security moves adversely to the Portfolio's position, the option may be
exercised and the Portfolio will be required to purchase or sell the underlying
security at a disadvantageous price, which may only be partially offset by the
amount of the premium.
By writing a call option on a security, the Portfolio limits its
opportunity to profit from any increase in the market value of the underlying
security, since the holder will usually exercise the call option when the
market value of the underlying security exceeds the exercise price of the call.
However, the Portfolio retains the risk of depreciation in value of securities
on which it has written call options.
The Growth & Income Portfolio also may purchase options on a non-U.S.
currency in order to protect against currency rate fluctuations. If the
Portfolio purchases a put option on a non-U.S. currency and the value of the
U.S. currency declines, the Portfolio will have the right to sell the non-U.S.
currency for a fixed amount in U.S. dollars and will thereby offset, in whole
<PAGE>
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 Growth & Income Portfolio also may buy and write options
on stock indices.
The Growth & Income Portfolio may purchase and write options to buy or
sell interest rate futures contracts and each Portfolio may purchase and write
options on stock index futures contracts. Such investment strategies will be
used for hedging and non-hedging purposes, subject to applicable law. Put and
call options on futures contracts may be traded by a Portfolio in order to
protect against declines in values of portfolio securities or against increases
in the cost of securities to be acquired. Purchase of options on futures
contracts may present less risk in hedging the investment portfolio of a
Portfolio than the purchase or sale of the underlying futures contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs. The writing of such options, however, does not present less
risk than the trading of futures contracts and will constitute only a partial
hedge, up to the amount of the premium received. In addition, if an option is
exercised, a Portfolio may suffer a loss on the transaction.
Each Portfolio may enter into forward foreign currency contracts for the
purchase or sale of a fixed quantity of a foreign currency at a future date at
a price set at the time of the contract. The Portfolios may enter into forward
contracts for hedging and non-hedging purposes including transactions entered
into for the purpose of profiting from anticipated changes in foreign currency
exchange rates. Each Portfolio has established procedures consistent with
statements of the Securities and Exchange Commission ("SEC") and its staff
regarding the use of forward contracts by registered investment companies,
which requires use of segregated assets or "cover" in connection with the
purchase and sale of such contracts.
Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein.
Transactions in options may be entered into on U.S. exchanges regulated
by the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the Commodity Futures Trading Commission and on foreign
exchanges. The securities underlying options and futures contracts traded by
the Portfolios may include domestic as well as foreign securities. Investors
should recognize that transactions involving foreign securities or foreign
currencies, and transactions entered into in foreign countries, may involve
<PAGE>
considerations and risks not typically associated with investing in U.S.
markets.
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, a Portfolio may sell futures contracts on an
index of securities in order to profit from any anticipated decline in the
value of the securities comprising the underlying index. In such instances, any
losses on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
Item 5. Management of the Portfolio.
TRUSTEES AND OFFICERS: Each Portfolio is supervised by the Board of
Trustees of the Trust. A majority of the Trustees are not affiliated with the
Manager. More information on the Trustees and officers of the Portfolios
appears under "Management of the Trust" in Part B.
INVESTMENT MANAGER: Citibank offers a wide range of banking and
investment services to customers across the United States and throughout the
world, and has been managing money since 1822. Its portfolio managers are
responsible for investing in money market, equity and fixed income securities.
Citibank and its affiliates manage more than $88 billion in assets worldwide.
Citibank is a wholly-owned subsidiary of Citicorp. Citibank also serves as
investment adviser to other registered investment companies. Citibank's address
is 153 East 53rd Street, New York, New York 10043.
Subject to policies set by the Trustees, Citibank is responsible for
overall management of the Portfolios' business affairs, and has a separate
management agreement ("Management Agreement") with respect to each Portfolio.
Citibank also provides certain administrative services to the Portfolios. These
administrative services include providing general office facilities and
supervising the overall administration of the Portfolios. Pursuant to
sub-administrative services agreements with Citibank, Signature Financial Group
(Cayman) Ltd. ("SFG") performs such sub-administrative duties for the
Portfolios as from time to time are agreed upon by Citibank and SFG. SFG's
compensation as sub-administrator is paid by Citibank.
Grant D. Hobson and Richard Goldman have managed the Large Cap Growth
Portfolio since January 1996. Mr. Hobson is responsible for managing U.S.
equity portfolios for mutual funds, trust and pension accounts of Citibank
Global Asset Management and currently manages or co-manages more than $4
<PAGE>
billion of total assets at Citibank. Prior to joining Citibank in 1993, Mr.
Hobson was a securities analyst and sector manager for pension accounts and
mutual funds for Axe Houghton, formerly a division of USF&G. Mr. Goldman is
responsible for managing U.S. equity portfolios for mutual funds and
institutional accounts, and for quantitative equity research for the U.S.
institutional business of Citibank Global Asset Management. He currently
manages, or co-manages, approximately $4 billion of total assets at Citibank.
He joined Citicorp's Investment Management Division in 1985 and from 1988 to
1994 was responsible for running Citicorp's Institutional Investor Relations
Department.
Linda J. Intini has managed the Small Cap Growth Portfolio since February
1997. Ms. Intini has over nine years of experience specializing in the
management of small cap equities, including over $300 million of Citibank's
small cap portfolios for trusts and individuals. Ms. Intini has managed small
cap equities since joining Citibank in 1992. Prior to joining Citibank, she was
a Portfolio Manager and Research Analyst with Manufacturers Hanover in the
Special Equity area. She also specialized in equity research at Eberstadt
Fleming.
Barbara G. Marcin has managed the Growth & Income Portfolio since its
inception. Ms. Marcin is a Senior Portfolio Manager responsible for managing
over $600 million in U.S. equity and balanced accounts for individuals. She is
a member of Citibank's Global Investment Committee. Ms. Marcin has over 10
years of investment management experience. Prior to joining Citibank in 1993,
she was a Vice President and portfolio manager at Fiduciary Trust Company
International. Prior to joining Fiduciary Trust Company International, she was
with E.F. Hutton for three years in the Personal Financial Management Group.
For its services under the Management Agreements, Citibank receives a
fee, which is accrued daily and paid monthly, at the annual rate specified
below with respect to each Portfolio of the average daily net assets on an
annualized basis of that Portfolio for that Portfolio's then-current fiscal
year: Large Cap Growth Portfolio: 0.60%; Small Cap Growth Portfolio: 0.75%; and
Growth & Income Portfolio: 0.70%.
Citibank may voluntarily agree to waive a portion of its investment
advisory fees.
For the fiscal year ended December 31, 1996 the investment advisory fees
paid to Citibank for the Large Cap Growth Portfolio and the Small Cap Growth
Portfolio under prior investment advisory agreements (after waivers) were 0.50%
and 0.24%, respectively, of the Portfolio's average daily net assets for that
fiscal year. On August 8, 1997 the Trustees of the Trust voted to change the
fiscal year end of the Large Cap Growth and Small Cap Growth Portfolios to
October 31, 1997. For the period from January 1, 1997 to October 31, 1997, the
<PAGE>
management fees paid to Citibank under its investment advisory agreements for
the Large Cap Growth Portfolio and the Small Cap Growth Portfolio (after
waivers) were 0.50% and 0.60%, respectively, of the Portfolio's average daily
net assets for that period. The Growth & Income Portfolio is newly organized
and had no operations during the fiscal year ending October 31, 1997.
Citibank and its affiliates may have deposit, loan and other
relationships with the issuers of securities purchased on behalf of the
Portfolios, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Citibank has
informed the Trust that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Citibank or in the possession of any affiliate of Citibank.
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank, from underwriting securities of open-end investment companies, such
as the Trust. Citibank believes that its services under the Management
Agreements and the activities performed by it or by its affiliates as Service
Agents (which are securities dealers or other industry professionals that have
entered into service agreements with CFBDS, Inc.) are not underwriting and are
consistent with the Glass-Steagall Act and other relevant federal and state
laws. However, there is no controlling precedent regarding the performance of
the combination of investment advisory, shareholder servicing and
administrative activities by banks. State laws on this issue may differ from
applicable federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. Changes in either
federal or state statutes or regulations, or in their interpretations, could
prevent Citibank from continuing to perform these services. If Citibank were to
be prevented from acting as the Manager or a Service Agent, the Trust would
seek alternative means for obtaining these services. The Trust does not expect
that shareholders would suffer any adverse financial consequences as a result
of any such occurrence.
The Trust, on behalf of the Portfolios, has entered into Custodian
Agreements with State Street Bank and Trust Company ("State Street") pursuant
to which State Street acts as custodian for each Portfolio. Securities may be
held by a sub-custodian bank approved by the Trustees. State Street Cayman
Trust Company, Ltd. ("State Street Cayman") provides fund accounting services
for each Portfolio. State Street Cayman also provides transfer agency services
to each 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, Cayman Islands.
In addition to amounts payable under the Management Agreements, each
Portfolio is responsible for its own expenses, including, among other things,
<PAGE>
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, 1996, and the period from
January 1, 1997 to October 31, 1997, the Portfolios' total expenses, expressed
as a percentage of each Portfolio's average daily net assets, were as follows:
Large Cap Growth Portfolio: 0.60% and 0.60%, respectively; and Small Cap Growth
Portfolio: 0.85% and 0.85%, respectively. The Growth & Income Portfolio is
newly organized and had no operations during its fiscal year ended October 31,
1997.
All fee waivers are voluntary and may be reduced or terminated at any
time.
Item 6. Capital Stock and Other Securities.
Investments in the Portfolios have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth below. 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 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 a Portfolio, investors in that
Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to its investors.
The Trust reserves the right to create and issue a number of series, in
which case investors in each series would participate equally in the earnings,
dividends and assets of the particular series.
The Trust 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 Portfolios. Each investor in a Portfolio is
entitled to a vote in proportion to the amount of its beneficial interest in
that Portfolio. Investments in a Portfolio may not be transferred, but an
investor may withdraw all or any portion of its investment at any time.
The net asset value of each Portfolio (i.e., the value of its securities
and other assets less its liabilities) is determined each day on which the New
York Stock Exchange (the "Exchange") is open for trading ("Business Day") (and
on such other days as are deemed necessary in order to comply with Rule 22c-1
under the U.S. Investment Company Act of 1940, as amended (the "1940 Act")).
<PAGE>
This determination is made once during each day as of the close of regular
trading on the Exchange. Values of a Portfolio's assets are determined on the
basis of their market or other fair value, as described in Item 19 of Part B.
Each investor in a Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each investor's beneficial
interest in a Portfolio 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 a 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 then re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the 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.
Subject to an investor's right to make withdrawals as provided above, the
Portfolios do not make distributions to their investors.
The Trust has determined that each Portfolio is properly treated as a
partnership for U.S. federal and New York state income tax purposes.
Accordingly, no Portfolio is subject to any U.S. federal or New York state
income taxes, but each investor in a Portfolio must take into account its share
of that Portfolio's ordinary income, expense, capital gains and 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.
The Trust intends to conduct its activities and those of the Portfolios
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 a 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 a 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 a
Portfolio.
<PAGE>
Item 7. Purchase of Securities.
Beneficial interests in the Portfolios are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolios 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 1933 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 1933 Act.
An investment in each Portfolio is made without a sales load. All
investments are made at net asset value next determined after an order is
received by a Portfolio. There is no minimum initial or subsequent investment
in a Portfolio. However, since each 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 a Portfolio's custodian bank by a U.S. Federal Reserve Bank).
The Trust reserves the right to cease accepting investments for any
Portfolio at any time or to reject any investment order.
The exclusive placement agent for the Portfolios is CFBDS, Inc.
("CFBDS"). The address of CFBDS is c/o SFG, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, BWI. CFBDS receives no compensation for serving
as the exclusive placement agent for the Portfolios.
Item 8. Redemption or Repurchase.
An investor in a 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. See "Purchase, Redemption and
Pricing of Securities" in Part B of this Registration Statement regarding the
Trust's right to pay the redemption price in kind with readily marketable
securities (instead of cash). Investments in a Portfolio may not be
transferred.
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 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.
<PAGE>
Item 9. Pending Legal Proceedings.
Not applicable.
<PAGE>
PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents. Page
General Information and History B-1
Investment Objectives and Policies B-1
Management of the Trust B-29
Control Persons and Principal Holders of Securities B-32
Investment Advisory and Other Services B-33
Brokerage Allocation and Other Practices B-35
Capital Stock and Other Securities B-37
Purchase, Redemption and Pricing of Securities B-38
Tax Status B-40
Underwriters B-43
Calculations of Performance Data B-43
Financial Statements B-44
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains information about the investment objectives and policies
of the following separate series (each a "Portfolio" and collectively, the
"Portfolios") of The Premium Portfolios (the "Trust"): Large Cap Growth
Portfolio (formerly Equity Portfolio), Small Cap Growth Portfolio (formerly
Small Cap Equity Portfolio) and Growth & Income Portfolio. This Part B should
be read in conjunction with Part A.
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of LARGE CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of SMALL CAP GROWTH PORTFOLIO is long-term
capital growth. Dividend income, if any, is incidental to this investment
objective.
The investment objective of GROWTH & INCOME PORTFOLIO is long-term
capital growth and current income.
The investment objective of each Portfolio may be changed without
approval by the Portfolio's investors. Of course, there can be no assurance
that any Portfolio will achieve its investment objective.
INVESTMENT POLICIES
Part A contains a discussion of the various types of securities in which
the Portfolios may invest and the risks involved in such investments. The
following supplements the information contained in Part A concerning the
investment objective, policies and techniques of each Portfolio.
While it is the policy of each of the Large Cap Growth Portfolio and the
Small Cap Growth Portfolio to invest its assets in a broadly diversified
portfolio of equity securities consisting mainly of common stocks of U.S.
issuers, each Portfolio may also invest in other types of securities such as
fixed income securities and convertible and non-convertible bonds.
The Trust has also adopted the following policies with respect to
investments by each of the Large Cap Growth Portfolio and the Small Cap Growth
Portfolio in (i) warrants and (ii) securities of issuers with less than three
years' continuous operation. The Trust's purchases of warrants for each of
these Portfolios will not exceed 5% of the Portfolio's net assets. Included
within that amount, but not exceeding 2% of its net assets, may be warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange. Any such warrants will be valued at their market value except that
warrants which are attached to securities at the time such securities are
acquired for the Portfolio will be deemed to be without value for the purpose
of this restriction. The Trust will not invest more than 5% of the assets of
any in companies which, including their respective predecessors, have a record
of less than three years' continuous operation.
<PAGE>
The policies described above and those described below are not
fundamental and may be changed without investor approval.
REPURCHASE AGREEMENTS
Each of the Portfolios may invest in repurchase agreements collateralized
by securities in which that Portfolio may otherwise invest. Repurchase
agreements are agreements by which a Portfolio purchases a security and
simultaneously commits to resell that security to the seller (which is usually
a member bank of the U.S. Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of
the underlying security, usually U.S. Government or Government agency issues.
Under the Investment Company Act of 1940, as amended (the "1940 Act"),
repurchase agreements may be considered to be loans by the buyer. A 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 Portfolios are fully collateralized, with such collateral being marked
to market daily.
SECURITIES OF NON-U.S. ISSUERS
Each of the Portfolios 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. Foreign issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to domestic issuers. Investments in securities of foreign issuers
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on the
removal of funds or other assets of a 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.
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It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. securities markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Non-U.S. securities trading practices, including
those involving securities settlement where a Portfolio's assets may be
released prior to receipt of payments, may expose a Portfolio to increased risk
in the event of a failed trade or the insolvency of a non-U.S. broker-dealer.
In addition, non-U.S. brokerage commissions are generally higher than
commissions on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
non-U.S. securities exchanges, brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Portfolios 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.
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The Portfolios may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the same
class that are not subject to such restrictions.
The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that a Portfolio
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries
may lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies.
In addition, unanticipated political or social developments may affect
the value of a Portfolio's investments in these countries and the availability
to a Portfolio of additional investments in these countries. The small size,
limited trading volume and relative inexperience of the securities markets in
these countries may make a Portfolio's investment in such countries illiquid
and more volatile than investments in more developed countries, and a
Portfolio's may be required to establish special custodial or other
arrangements before making investments in these countries. There may be little
financial or accounting information available with respect to issuers located
on these countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Portfolios 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 Portfolios may enter
into currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A 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 Portfolios may also enter into
foreign currency hedging transactions in an attempt to protect the value of the
assets of the respective Portfolio as measured in U.S. dollars from unfavorable
changes in currency exchange rates and control regulations. (Although each
Portfolio's assets are valued daily in terms of U.S. dollars, the Trust does
not intend to convert a Portfolio's holdings of other currencies into U.S.
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dollars on a daily basis.) The Portfolios do not currently intend to speculate
in currency exchange rates or forward contracts.
The Portfolios may convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When a Portfolio enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Portfolio may be
able to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Manager believes that the currency of a particular country may
suffer a substantial decline against the U.S. dollar, a Portfolio may enter
into a forward contract to sell, for a fixed amount of U.S. dollars, the amount
of non-U.S. currency approximating the value of some or all of the Portfolio's
securities denominated in such non-U.S. currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in non-U.S.
currencies changes as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of a short-term hedging strategy is highly
uncertain. The Portfolios do not enter into such forward contracts or maintain
a net exposure to such contracts where the consummation of the contracts
obligates a Portfolio to deliver an amount of non-U.S. currency in excess of
the value of the Portfolio's securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated in the investment decisions made with
regard to overall diversification strategies. However, the Manager believes
that it is important to have the flexibility to enter into such forward
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contracts when it determines that the best interests of the Portfolio will be
served.
The Portfolios generally would not enter into a forward contract with a
term greater than one year. At the maturity of a forward contract, a 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 a 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 a 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 a 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 a 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.
Each of the Portfolios may also purchase put options on a non-U.S.
currency in order to protect against currency rate fluctuations. If a Portfolio
purchases a put option on a non-U.S. currency and the value of the U.S.
currency declines, the Portfolio will have the right to sell the non-U.S.
currency for a fixed amount in U.S. dollars and will thereby offset, in whole
or in part, the adverse effect on the Portfolio which otherwise would have
resulted. Conversely, where a rise in the U.S. dollar value of another currency
is projected, and where a Portfolio anticipates investing in securities traded
in such currency, such 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 a
Portfolio from purchases of non-U.S. currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where
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currency exchange rates do not move in the direction or to the extent
anticipated, a Portfolio could sustain losses on transactions in non-U.S.
currency options which would require it to forgo a portion or all of the
benefits of advantageous changes in such rates.
Each of the Portfolios may write options on non-U.S. currencies for
hedging purposes or otherwise to achieve its investment objectives. For
example, where a Portfolio anticipates a decline in the value of the U.S.
dollar value of a non-U.S. security due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of the security held by the
Portfolio will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a non-U.S. security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected, will expire
unexercised and allow the Portfolio to hedge such increased cost up to the
amount of the premium. However, the writing of a currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on currencies, a Portfolio also may be
required to forgo all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
Put and call options on non-U.S. currencies written by a Portfolio will
be covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount
sufficient to discharge the Portfolio's obligations with respect to the option,
by acquisition of the non-U.S. currency or of a right to acquire such currency
(in the case of a call option) or the acquisition of a right to dispose of the
currency (in the case of a put option), or in such other manner as may be in
accordance with the requirements of any exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, a decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other currency remains constant, and
<PAGE>
thus will reduce the value of the receipts covering such securities. A
Portfolio may employ any of the above described non-U.S. currency hedging
techniques to protect the value of its assets invested in depositary receipts.
Of course, no Portfolio is required to enter into such transactions and
will not do so unless deemed appropriate by the Manager. It should also be
realized that these methods of protecting the value of a Portfolio's securities
against a decline in the value of a currency do not eliminate fluctuations in
the underlying prices of the securities. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result should
the value of such currency increase.
Each Portfolio has established procedures consistent with policies of the
Securities and Exchange Commission (the "SEC") concerning forward contracts.
Since those policies currently recommend that an amount of a Portfolio's assets
equal to the amount of the purchase be held aside or segregated to be used to
pay for the commitment, each Portfolio expects always to have cash, cash
equivalents or high quality debt securities available sufficient to cover any
commitments under these contracts or to limit any potential risk.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Portfolios 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, a Portfolio would continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned and
with respect to cash collateral would also receive compensation based on
investment of the collateral (subject to a rebate payable to the borrower).
Where the borrower provides a 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. A 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
<PAGE>
made only to entities deemed by the Manager to be of good standing, and when,
in the judgment of the Manager, the consideration which can be earned currently
from loans of this type justifies the attendant risk. In addition, a Portfolio
could suffer loss if the borrower terminates the loan and the Portfolio is
forced to liquidate investments in order to return the cash collateral to the
buyer. If the Manager determines to make loans, it is not intended that the
value of the securities loaned would exceed 30% of the value of the respective
Portfolio's total assets.
WHEN-ISSUED SECURITIES
Each of the Portfolios may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Portfolio would take delivery of such securities. When a 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 a Portfolio's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
each of the Portfolios expects always to have cash, cash equivalents or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. However, even though the Portfolios do not intend to make such
purchases for speculative purposes and intend to adhere to the provisions of
SEC policies, purchases of securities on such bases may involve more risk than
other types of purchases. For example, a Portfolio may have to sell assets
which have been set aside in order to meet redemptions. Also, if the Manager
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, a Portfolio would be required
to meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale
of the "when-issued" or "forward delivery" securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the
Portfolios may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 (the "1933 Act"), but can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
1933 Act. However, none of the Portfolios will invest more than 15% of its net
assets in illiquid investments, which includes securities for which there is no
readily available market, securities subject to contractual restrictions on
resale and restricted securities, unless the Board of Trustees of the Trust
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Trustees have adopted guidelines and delegated to the
Manager the daily function of determining and monitoring liquidity of
<PAGE>
restricted securities. The Trustees, however, retain oversight and are
ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market
for restricted securities will develop, the Trustees will carefully monitor
each Portfolio's investments in these securities, focusing on such factors,
among others, as valuation, liquidity and availability of information.
FUTURES CONTRACTS
Each of the Portfolios may enter into stock index futures contracts
and/or foreign currency futures contracts. The Growth & Income Portfolio may
also enter into interest rate futures contracts. Such investment strategies
will be used for hedging purposes and for nonhedging purposes, subject to
applicable law.
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts have been
designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are very seldom
made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Portfolio
purchases or sells a futures contract. At the same time such a purchase or sale
is made, the Portfolio must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may be
as low as 1% or less of a contract's face value. Daily thereafter, the futures
contract is valued through a process known as "marking to market," and the
Portfolio may receive or be required to pay additional "variation margin" as
the futures contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
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interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was entered into.
The Growth & Income Portfolio may purchase or sell futures contracts to
attempt to protect the Portfolio from fluctuations in interest rates, or to
manage the effective maturity or duration of the Portfolio's investment
portfolio in an effort to reduce potential losses or enhance potential gain,
without actually buying or selling debt securities. For example, if interest
rates were expected to increase, the Growth & Income Portfolio might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as if the Portfolio sold bonds that it owned, or as if the
Portfolio sold longer-term bonds and purchased shorter-term bonds. If interest
rates did increase, the value of the Portfolio's debt securities would decline,
but the value of the futures contracts would increase, thereby keeping the net
asset value of the Portfolio from declining as much as it otherwise would have.
Similar results could be accomplished by selling bonds, or by selling bonds
with longer maturities and investing in bonds with shorter maturities. However,
by using futures contracts, the Growth & Income Portfolio avoids having to sell
its securities.
Similarly, when it is expected that interest rates may decline, the
Growth & Income Portfolio might enter into futures contracts for the purchase
of debt securities. Such a purchase would be intended to have much the same
effect as if the Portfolio purchased bonds, or as if the Portfolio sold
shorter-term bonds and purchased longer-term bonds. If interest rates did
decline, the value of the futures contracts would increase.
Each of the Portfolios may enter into stock index futures contracts to
gain stock market exposure while holding cash available for investments and
redemptions.
Each of the Portfolios may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be acquired, even if the
value of such securities in the currencies in which they are denominated
remains constant. A Portfolio may sell futures contracts on a foreign currency,
for example, where it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on the value of
foreign-denominated securities may be offset, in whole or in part, by gains on
the futures contracts.
Conversely, a Portfolio could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing futures
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contracts on the relevant currency, which could offset, in whole or in part,
the increased cost of such securities resulting from a rise in the dollar value
of the underlying currencies. Where a Portfolio purchases futures contracts
under such circumstances, however, and the prices of securities to be acquired
instead decline, the Portfolio will sustain losses on its futures position
which could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a
Portfolio sells a futures contract to protect against losses in the securities
held by the Portfolio), at the same time the futures contract limits any
potential gain which might result from an increase in value of a hedged
position.
In addition, the ability effectively to hedge all or a portion of a
Portfolio's investments through transactions in futures contracts depends on
the degree to which movements in the value of the securities underlying such
contracts correlate with movements in the value of the Portfolio's securities.
If the security underlying a futures contract is different than the security
being hedged, they may not move to the same extent or in the same direction. In
that event, the Portfolio's hedging strategy might not be successful and the
Portfolio could sustain losses on these hedging transactions which would not be
offset by gains on the Portfolio's other investments or, alternatively, the
gains on the hedging transaction might not be sufficient to offset losses on
the Portfolio's other investments. It is also possible that there may be a
negative correlation between the security underlying a futures contract and the
securities being hedged, which could result in losses both on the hedging
transaction and the securities. In these and other instances, the Portfolio's
overall return could be less than if the hedging transactions had not been
undertaken. Similarly, even where a Portfolio enters into futures transactions
other than for hedging purposes, the effectiveness of its strategy may be
affected by lack of correlation between changes in the value of the futures
contracts and changes in value of the securities which the Portfolio would
otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. While a Portfolio will establish a
futures position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
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particular futures contract at any specific time. In that event, it may not be
possible to close out a position held by the Portfolio, which could require the
Portfolio to purchase or sell the instrument underlying the futures contract or
to meet ongoing variation margin requirements. The inability to close out
futures positions also could have an adverse impact on the ability effectively
to use futures transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject
to the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times
make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Investments in futures contracts also entail the risk that if the
Manager's investment judgment about the general direction of interest rates or
stock prices is incorrect, the Portfolio's overall performance may be poorer
than if any such contract had not been entered into. For example, if the Growth
& Income Portfolio hedged against the possibility of an increase in interest
rates which would adversely affect the price of the Portfolio's bonds and
interest rates decrease instead, part or all of the benefit of the increased
value of the Portfolio's bonds which were hedged will be lost because the
Portfolio will have offsetting losses in its futures positions. Similarly, if
the Growth & Income Portfolio purchases futures contracts expecting a decrease
in interest rates and interest rates instead increased, the Portfolio will have
losses in its futures positions which will increase the amount of the losses on
the securities in its portfolio which will also decline in value because of the
increase in interest rates. In addition, in such situations, if the Growth &
Income Portfolio has insufficient cash, the Portfolio may have to sell bonds
from its investments to meet daily variation margin requirements, possibly at a
time when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Manager does not believe that these trading and position limits would have
an adverse impact on a Portfolio's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Portfolio is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Portfolio from
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purchasing or selling futures contracts (other than for bona fide hedging
transactions) if, immediately thereafter, the sum of the amount of initial
margin required to establish that Portfolio's non-hedging futures positions
would exceed 5% of that Portfolio's net assets.
Each Portfolio will comply with this CFTC requirement and currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by each Portfolio in a
segregated account with the Portfolio's custodian so that the amount so
segregated, plus the initial margin held on deposit, will be approximately
equal to the amount necessary to satisfy the Portfolio's obligations under the
futures contract. The second is that a Portfolio will not enter into a futures
contract if immediately thereafter the amount of initial margin deposits on all
the futures contracts held by the Portfolio would exceed approximately 5% of
the net assets of the Portfolio. The third is that the aggregate market value
of the futures contracts held by a Portfolio not exceed approximately 50% of
the market value of the Portfolio's total assets other than its futures
contracts. For purposes of this third policy, "market value" of a futures
contract is deemed to be the amount obtained by multiplying the number of units
covered by the futures contract times the per unit price of the securities
covered by that contract.
The use of futures contracts may increase the amount of taxable income of
a Portfolio and may affect the amount, timing and character of a Portfolio's
income for tax purposes, as more fully discussed herein in the section entitled
"Tax Status."
OPTIONS ON FUTURES CONTRACTS
A Portfolio may purchase and write options to buy or sell futures
contracts in which the Portfolio may invest. Such investment strategies will be
used for hedging purposes and for non-hedging purposes, subject to applicable
law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
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A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series, (i.e., the same exercise
price and expiration date), as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by a Portfolio
on U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.
A Portfolio may cover the writing of call options on futures contracts
(a) through purchases of the underlying futures contract, (b) through ownership
of the instrument, or instruments included in the index underlying the futures
contract, or (c) through the holding of a call on the same futures contract and
in the same principal amount as the call written where the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash or securities in a segregated
account with its custodian. A Portfolio may cover the writing of put options on
futures contracts (a) through sales of the underlying futures contract, (b)
through segregation of cash, short-term money market instruments or high
quality debt securities in an amount equal to the value of the security or
index underlying the futures contract, (c) through the holding of a put on the
same futures contract and in the same principal amount as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written or where the exercise price of the put held is less
than the exercise price of the put written if the difference is maintained by
the Portfolio in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. Put and call options on
futures contracts may also be covered in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Upon the exercise of a call option on a
futures contract written by a Portfolio, the Portfolio will be required to sell
the underlying futures contract which, if the Portfolio has covered its
obligation through the purchase of such contract, will serve to liquidate its
futures position. Similarly, where a put option on a futures contract written
by a Portfolio is exercised, the Portfolio will be required to purchase the
underlying futures contract which, if the Portfolio has covered its obligation
through the sale of such contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
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futures contract. A Portfolio will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Portfolio will retain the full amount of
this option premium, which provides a partial hedge against any decline that
may have occurred in the Portfolio's security holdings. Similarly, the writing
of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities deliverable upon exercise of the futures
contract. If a Portfolio writes an option on a futures contract and that option
is exercised, the Portfolio may incur a loss, which loss will be reduced by the
amount of the option premium received, less related transaction costs. A
Portfolio's ability to hedge effectively through transactions in options on
futures contracts depends on, among other factors, the degree of correlation
between changes in the value of securities held by the Portfolio and changes in
the value of its futures positions. This correlation cannot be expected to be
exact, and a Portfolio bears a risk that the value of the futures contract
being hedged will not move in the same amount, or even in the same direction,
as the hedging instrument. Thus it may be possible for a Portfolio to incur a
loss on both the hedging instrument and the futures contract being hedged.
A Portfolio may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, a Portfolio could, in lieu of selling futures contracts,
purchase put options thereon. In the event that such decrease occurs, it may be
offset, in whole or part, by a profit on the option. Conversely, where it is
projected that the value of securities to be acquired by a Portfolio will
increase prior to acquisition, due to a market advance or changes in interest
or exchange rates, the Portfolio could purchase call options on futures
contracts, rather than purchasing the underlying futures contracts.
BANK OBLIGATIONS
The Growth & Income Portfolio may invest in bank obligations, i.e.,
certificates of deposit, time deposits (including Eurodollar time deposits) and
bankers' acceptances and other short-term debt obligations issued by domestic
banks, foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
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in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
The Growth & Income Portfolio may invest in mortgage-backed securities,
which are securities representing interests in pools of mortgage loans.
Interests in pools of mortgage-related securities differ from other forms of
debt securities which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the U.S. Government while obligations of FNMA and FHLMC are supported
by the respective agency only. Although GNMA certificates may offer yields
higher than those available from other types of U.S. Government securities,
GNMA certificates may be less effective than other types of securities as a
means of "locking in" attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, the value of a GNMA
certificate likely will not rise as much as comparable debt securities due to
the prepayment feature. In addition, these prepayments can cause the price of a
GNMA certificate originally purchased at a premium to decline in price to its
par value, which may result in a loss.
The Growth & Income Portfolio may also invest a portion of its assets in
collateralized mortgage obligations or "CMOs," a type of mortgage-backed
security. CMOs are securities collateralized by mortgages, mortgage
pass-through certificates, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and mortgage-backed bonds
(general obligations of the issuers payable out of the issuers' general funds
and additionally secured by a first lien on a pool of single family detached
<PAGE>
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The price of mortgage-backed securities may
not increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates go
up, mortgage-backed securities experience lower rates of prepayment. This has
the effect of lengthening the expected maturity of a mortgage-backed security.
As a result, prices of mortgage-backed securities may decrease more than prices
of other debt obligations when interest rates go up.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Growth & Income Portfolio may enter into mortgage "dollar roll"
transactions pursuant to which it sells mortgage-backed securities for delivery
in the future and simultaneously contracts to repurchase substantially similar
securities on a specified future date. During the roll period, the Portfolio
foregoes principal and interest paid on the mortgage-backed securities. The
Growth & Income Portfolio is compensated for the lost principal and interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Growth & Income Portfolio
may also be compensated by receipt of a commitment fee.
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CORPORATE ASSET-BACKED SECURITIES
The Growth & Income Portfolio may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
Growth & Income Portfolio will not pay any additional or separate fees for
credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
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LOWER RATED DEBT SECURITIES
The Growth & Income Portfolio may invest in lower rated fixed income
securities (commonly known as "junk bonds"), to the extent described in Part A.
The lower ratings of certain securities held by the Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of such
securities held by the Portfolio more volatile and could limit the Portfolio's
ability to sell its securities at prices approximating the values the Portfolio
had placed on such securities. In the absence of a liquid trading market for
securities held by it, the Portfolio at times may be unable to establish the
fair value of such securities.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better
or worse than the rating would indicate. In addition, the rating assigned to a
security by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or by any other nationally recognized securities rating organization) does not
reflect an assessment of the volatility of the security's market value or the
liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower rated
securities fluctuate in response to changes in interest rates. A decrease in
interest rates will generally result in an increase in the value of fixed
income securities. Conversely, during periods of rising interest rates, the
value of the Portfolio's fixed-income securities will generally decline. The
values of lower rated securities may often be affected to a greater extent by
changes in general economic conditions and business conditions affecting the
issuers of such securities and their industries. Negative publicity or investor
perceptions may also adversely affect the values of lower rated securities.
Changes by recognized rating services in their ratings of any fixed-income
security and changes in the ability of an issuer to make payments of interest
and principal may also affect the value of these investments. Changes in the
value of portfolio securities generally will not affect income derived from
these securities, but will affect the Portfolio's net asset value. The
Portfolio will not necessarily dispose of a security when its rating is reduced
below its rating at the time of purchase. However, the Manager will monitor the
investment to determine whether its retention will assist in meeting the
Portfolio's investment objective.
Issuers of lower rated securities are often highly leveraged, so that
their ability to service their debt obligations during an economic downturn or
<PAGE>
during sustained periods of rising interest rates may be impaired. Such issuers
may not have more traditional methods of financing available to them and may be
unable to repay outstanding obligations at maturity by refinancing. The risk of
loss due to default in payment of interest or repayment of principal by such
issuers is significantly greater because such securities frequently are
unsecured and subordinated to the prior payment of senior indebtedness.
At times, a substantial portion of the Growth & Income Portfolio's assets
may be invested in securities as to which the Portfolio, by itself or together
with other funds and accounts managed by Citibank and its affiliates, holds all
or a major portion. Although Citibank generally considers such securities to be
liquid because of the availability of an institutional market for such
securities, it is possible that, under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the issuer, the
Portfolio could find it more difficult to sell these securities when Citibank
believes it advisable to do so or may be able to sell the securities only at
prices lower than if they were more widely held. Under these circumstances, it
may also be more difficult to determine the fair value of such securities for
purposes of computing the Portfolio's net asset value. In order to enforce its
rights in the event of a default under such securities, the Portfolio may be
required to participate in various legal proceedings or take possession of and
manage assets securing the issuer's obligations on such securities. This could
increase the Portfolio's operating expenses and adversely affect the
Portfolio's net asset value. In addition, the Portfolio's intention to qualify
as a "regulated investment company" under the Internal Revenue Code may limit
the extent to which the Portfolio may exercise its rights by taking possession
of such assets.
Certain securities held by the Growth & Income Portfolio may permit the
issuer at its option to "call," or redeem, its securities. If an issuer were to
redeem securities held by the Portfolio during a time of declining interest
rates, the Portfolio may not be able to reinvest the proceeds in securities
providing the same investment return as the securities redeemed.
The Growth & Income Portfolio may invest without limit in "zero-coupon"
bonds and "payment-in-kind" bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its option, to make
current interest payments on the bonds either in cash or in additional bonds.
Because zero-coupon and payment-in kind bonds do not pay current interest in
cash, their value is subject to greater fluctuation in response to changes in
market interest rates than bonds that pay interest currently. Both zero-coupon
and payment-in-kind bonds allow an issuer to avoid the need to generate cash to
meet current interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently in cash. The Portfolio is
<PAGE>
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders even though such bonds do not pay
current interest in cash. Thus, it may be necessary at times for the Portfolio
to liquidate investments in order to satisfy its dividend requirements.
To the extent the Growth & Income Portfolio invests in securities in the
lower rating categories, the achievement of the Portfolio's objective is more
dependent on the Manager's investment analysis than would be the case if the
Portfolio were investing in securities in the higher rating categories. This
may be particularly true with respect to tax-exempt securities, as the amount
of information about the financial condition of an issuer of tax-exempt
securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded.
OPTIONS
The Growth & Income Portfolio may write covered call and put options and
purchase call and put options on securities. Call and put options written by
the Portfolio may be covered in the manner set forth below.
A call option written by the Growth & Income Portfolio is "covered" if
the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds a call on the
same security and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash, short-term
money market instruments or high quality debt securities in a segregated
account with its custodian. A put option written by the Portfolio is "covered"
if the Portfolio maintains cash, short term money market instruments or high
quality debt securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written
or where the exercise price of the put held is less than the exercise price of
the put written if the difference is maintained by the Portfolio in cash,
short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options written by the
Portfolio may also be covered in such other manner as may be in accordance with
the requirements of the exchange on which, or the counter party with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
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value of the underlying security from the time the option is written until
exercise.
The Growth & Income Portfolio may purchase options for hedging purposes
or to increase its return. Put options may be purchased to hedge against a
decline in the value of portfolio securities. If such decline occurs, the put
options will permit the Portfolio to sell the securities at the exercise price,
or to close out the options at a profit. By using put options in this way, the
Portfolio will reduce any profit it might otherwise have realized in the
underlying security by the amount of the premium paid for the put option and by
transaction costs.
The Growth & Income Portfolio may purchase call options to hedge against
an increase in the price of securities that the Portfolio anticipates
purchasing in the future. If such increase occurs, the call option will permit
the Portfolio to purchase the securities at the exercise price, or to close out
the options at a profit. The premium paid for the call option plus any
transaction costs will reduce the benefit, if any, realized by the Portfolio
upon exercise of the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Portfolio.
The Growth & Income Portfolio may write (sell) covered call and put
options and purchase call and put options on stock indices. In contrast to an
option on a security, an option on a stock index provides the holder with the
right, but not the obligation, to make or receive a cash settlement upon
exercise of the option, rather than the right to purchase or sell a security.
The amount of this settlement is equal to (i) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a call) or is below
(in the case of a put) the closing value of the underlying index on the date of
exercise, multiplied by (ii) a fixed "index multiplier."
The Growth & Income Portfolio may cover call options on stock indices by
owning securities whose price changes, in the opinion of the Manager, are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where the Portfolio covers a call option on a stock index
through ownership of securities, such securities may not match the composition
of the index and, in that event, the Portfolio will not be fully covered and
could be subject to risk of loss in the event of adverse changes in the value
of the index. The Portfolio may also cover call options on stock indices by
holding a call on the same index and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Portfolio in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. The Portfolio may cover put options on
<PAGE>
stock indices by maintaining cash, short-term money market instruments or high
quality debt securities with a value equal to the exercise price in a
segregated account with its custodian, or by holding a put on the same stock
index and in the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written or where the exercise price of the put held is less than the exercise
price of the put written if the difference is maintained by the Portfolio in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. Put and call options on stock indices
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which, or the counterparty with which, the option is traded
and applicable laws and regulations.
The Growth & Income Portfolio will receive a premium from writing a put
or call option, which increases the Portfolio's gross income in the event the
option expires unexercised or is closed out at a profit. If the value of an
index on which the Portfolio has written a call option falls or remains the
same, the Portfolio will realize a profit in the form of the premium received
(less transaction costs) that could offset all or a portion of any decline in
the value of the securities it owns. If the value of the index rises, however,
the Portfolio will realize a loss in its call option position, which will
reduce the benefit of any unrealized appreciation in the Portfolio's stock
investments. By writing a put option, the Portfolio assumes the risk of a
decline in the index. To the extent that the price changes of securities owned
by the Portfolio correlate with changes in the value of the index, writing
covered put options on indices will increase the Portfolio's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the option.
The Growth & Income Portfolio may also purchase put options on stock
indices to hedge the Portfolio's investments against a decline in value. By
purchasing a put option on a stock index, the Portfolio will seek to offset a
decline in the value of securities it owns through appreciation of the put
option. If the value of the Portfolio's investments does not decline as
anticipated, or if the value of the option does not increase, the Portfolio's
loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Portfolio's security holdings.
The purchase of call options on stock indices may be used by the Growth &
Income Portfolio to attempt to reduce the risk of missing a broad market
advance, or an advance in an industry or market segment, at a time when the
Portfolio holds uninvested cash or short-term debt securities awaiting
<PAGE>
investment. When purchasing call options for this purpose, the Portfolio will
also bear the risk of losing all or a portion of the premium paid if the value
of the index does not rise. The purchase of call options on stock indices when
the Portfolio is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves risks of loss
and of increased volatility similar to those involved in purchasing calls on
securities the Portfolio owns.
The Growth & Income Portfolio may purchase and write options on foreign
currencies in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized.
CONVERTIBLE SECURITIES
Each 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.
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INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The Trust, on behalf of the Portfolios, has adopted the following
policies which may not be changed with respect to any Portfolio without
approval by holders of a majority of the outstanding voting securities of that
Portfolio, which as used in this Part B means the vote of the lesser of (i) 67%
or more of the outstanding voting 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.
None of the Portfolios may :
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the current
value of its net assets, including the amount borrowed; or purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Portfolio, taken at market value. It is intended that a 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) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Portfolio's total assets (taken at market value), (b) through the use of
repurchase agreements or fixed time deposits or the purchase of short-term
obligations or (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial institutions.
The purchase of short-term commercial paper or a portion of an issue of debt
securities which is part of an issue to the public shall not be considered the
making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Portfolio
more than 10% of the voting securities of such issuer to be held by the
Portfolio; provided that, for purposes of this restriction, the issuer of an
option or futures contract shall not be deemed to be the issuer of the security
or securities underlying such contract; and provided further that the Portfolio
may invest all or any portion of its assets in one or more investment companies
to the extent not prohibited by the 1940 Act, the rules and regulations
thereunder, and exemptive orders granted under such Act.
<PAGE>
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Portfolio's total assets 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, any state or political subdivision thereof, or any political
subdivision of any such state, or any agency or instrumentality of the United
States or of any state or of any political subdivision of any state); provided
that, for purposes of this restriction, the issuer of an option or futures
contract shall not be deemed to be the issuer of the security or securities
underlying such contract; and provided further that the Portfolio may invest
all or any portion of its assets in or more investment companies, to the extent
not prohibited by the 1940 Act, the rules and regulations thereunder, and
exemptive orders granted under such Act.
(5) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Portfolio's investment objective,
up to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry, except that positions in futures contracts shall
not be subject to this restriction.
(6) Underwrite securities issued by other persons, except that all or any
portion of the assets of the Portfolio may be invested in one or more
investment companies, to the extent not prohibited by the 1940 Act, the rules
and regulations thereunder, and exemptive orders granted under such Act, and
except insofar as the Portfolio may technically be deemed an underwriter under
the Securities Act in selling a security.
(7) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the foregoing shall not be deemed to preclude
the Portfolio from purchasing or selling futures contracts or options thereon,
and 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).
(8) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder.
NON-FUNDAMENTAL RESTRICTIONS
Each of Large Cap Growth Portfolio and Small Cap Growth Portfolio does
not as a matter of operating policy:
(i) purchase any securities for the Portfolio at any time at which
borrowings exceed 5% of the total assets of the Portfolio (taken at market
value), or
<PAGE>
(ii) purchase securities issued by any registered investment company in
reliance on the provisions of Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940
Act and the rules and regulations thereunder except to the extent not
prohibited by the 1940 Act, rules and regulations thereunder and exemptive
orders granted thereunder.
These policies are not fundamental and may be changed by each Portfolio
without the approval of its holders of the beneficial interests.
PERCENTAGE AND RATING RESTRICTIONS
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 a Portfolio will not be considered a
violation of policy.
Item 14. Management of the Trust.
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated below, the address of each Trustee and officer is 6 St.
James Avenue, Boston, Massachusetts. The address of the Trust is Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, British West Indies.
TRUSTEES
ELLIOTT J. BERV (aged 54) -- Chairman and Director, Catalyst, Inc. (Management
Consultants) (since June, 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June, 1991 to
June, 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive
Officer and President, Signature Financial Group, Inc. and CFBDS, Inc.
("CFBDS").
MARK T. FINN (aged 54) -- President and Director, Delta Financial, Inc. (since
June, 1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd.
(Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
<PAGE>
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
C. OSCAR MORONG, JR. (aged 62) -- Chairman of the Board of Trustees of the
Trust; Managing Director, Morong Capital Management (since February, 1993);
Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired, January, 1993); Director, Indonesia
Fund; Trustee, MAS Funds (since 1993). His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III (aged 71) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (Corporate Financial Advisors) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
OFFICERS
PHILIP W. COOLIDGE* (aged 46) -- President of the Trust; Chief Executive
Officer and President, Signature Financial Group, Inc. and CFBDS.
CHRISTINE A. DRAPEAU* (aged 27) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
TAMIE EBANKS-CUNNINGHAM* (aged 25) -- Assistant Secretary of the Trust; Office
Manager, Signature Financial Group (Cayman) Ltd. (since April 1995);
Administrator, Cayman Islands Primary School (prior to April 1995). Her address
is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.
JOHN R. ELDER* (aged 49) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer, CFBDS (since April,
1995); Treasurer of the Phoenix Family of Mutual Funds, Phoenix Home Life
Mutual Insurance Company (1983 to March, 1995).
LINDA T. GIBSON* (aged 32) -- Secretary of the Trust; Vice President, Signature
Financial Group, Inc. (since May, 1992); Assistant Secretary, CFBDS (since
October, 1992).
JOAN R. GULINELLO* (aged 42) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc. (since October,
<PAGE>
1993); Secretary, CFBDS (since October, 1995); Vice President and Assistant
General Counsel, Massachusetts Financial Services Company (prior to October,
1993).
JAMES E. HOOLAHAN* (aged 51) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc.
SUSAN JAKUBOSKI* (aged 33) -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust; Vice President, Signature Financial Group (Cayman) Ltd.
(since August, 1994); Fund Compliance Administrator, Concord Financial Group
(November, 1990 to August, 1994). Her address is Suite 193, 12 Church Street,
Hamilton HM11, Bermuda.
MOLLY S. MUGLER* (aged 46) -- Assistant Secretary and Assistant Treasurer of
the Trust; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, CFBDS.
CLAIR TOMALIN* (aged 29) -- Assistant Secretary of the Trust; Office Manager,
Signature Financial Group (Europe) Limited (since 1993). Her address is 117
Charterhouse Street, London ECIM 6AA.
SHARON M. WHITSON* (aged 49) -- Assistant Secretary and Assistant Treasurer of
the Trust; Assistant Vice President, Signature Financial Group, Inc.
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which Signature Financial Group (Cayman) Ltd. or
an affiliate serves as the administrator.
The Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust 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 Trust. 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.
<PAGE>
The Trustees of the Trust received the following remuneration from the
Portfolio during its fiscal year ended October 31, 1997.
TRUSTEE COMPENSATION TABLE
Aggregate Aggregate
Compensation Compensation
from the Aggregate from the
Large Cap Compensation Growth & Total
Growth from the Small Income Compensation
Portfolio Cap Growth Portfolio from Trust and
Trustee (1)(2) Portfolio(1)(2) (2)(3) Complex(2)(4)
Elliott J. Berv $2,184 $1,450 $1,400 $57,000
Philip W. $0 $0 $0 $0
Coolidge
Mark T. Finn $1,973 $1,422 $1,422 $54,000
C. Oscar
Morong, Jr. $0 $0 $1,400 $70,000
(5)
Walter E. $1,397 $1,456 $1,499 $56,000
Robb, III
(1) Information relates to the fiscal year ended October 31, 1997.
(2)Messrs. Berv, Coolidge, Finn, Morong and Robb serve as Trustees of 31, 55,
26, 28, and 24 funds or portfolios, respectively, in the family of open-end
registered investment companies advised or managed by Citibank.
(3) Information is estimated for the fiscal year ending October 31, 1998.
(4)Information relates to the fiscal year ended October 31, 1997, other than
for Mr. Morong for whom information is estimated for the fiscal year ending
October 31, 1998.
(5) Mr. Morong became a Trustee of the Trust on November 14, 1997.
Item 15. Control Persons and Principal Holders of Securities.
As of February, 24, 1998, CitiFundsSM Large Cap Growth Portfolio and Citi
U.S. Equity Fund, Ltd. owned 76.0% and 24.0%, respectively, of the outstanding
beneficial interests in Large Cap Growth Portfolio; and CitiFundsSM Small Cap
Growth Portfolio and Citi Small Cap Equity Fund, Ltd. owned 53.0% and 47.0%,
respectively, of the outstanding beneficial interests in the Small Cap Growth
Portfolio. Because CitiFundsSM Large Cap Growth Portfolio and CitiFundsSM Small
<PAGE>
Cap Growth Portfolio control the Large Cap Growth Portfolio and the Small Cap
Growth Portfolio, respectively, each such Fund could take actions without the
approval of any other investor. Each of CitiFundsSM Large Cap Growth Portfolio
and CitiFundsSM Small Cap Growth Portfolio has informed the Trust that whenever
it is requested to vote on matters pertaining to the fundamental policies of a
Portfolio, it will hold a meeting of its shareholders and will cast its vote as
instructed by its shareholders. It is anticipated that any other investor in
any Portfolio which is an investment company registered under the 1940 Act
would follow the same or a similar practice. Each of CitiFundsSM Large Cap
Growth Portfolio and CitiFundsSM Small Cap Growth Portfolio is a series of
CitiFunds Trust II, a Massachusetts business trust organized on April 13, 1984
and registered under the 1940 Act as an investment company. Prior to January 7,
1998, CitiFunds Trust II was called Landmark Funds II.
Item 16. Investment Advisory and Other Services.
Citibank manages the assets of each Portfolio pursuant to separate
management agreements relating to each Portfolio ("Management Agreements").
Subject to such policies as the Board of Trustees may determine, Citibank
manages the securities of each Portfolio and makes investment decisions for
each Portfolio. Citibank furnishes at its own expense all services, facilities
and personnel necessary in connection with managing each Portfolio's
investments and effecting securities transactions for each Portfolio. Each
Management Agreement with the Trust provides that Citibank may delegate the
daily management of the securities of each Portfolio to one or more
subadvisers. Each Management 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 of the Trust or by a vote of a majority of the
outstanding voting securities of the applicable Portfolio, and, in either case,
by a majority of the Trustees of the Trust who are not parties to a Management
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on a Management Agreement.
Citibank 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 for the
maintenance of books and records of the Trust. Trustees, officers, and
investors in the Trust are or may be or may become interested in Citibank, as
directors, officers, employees, or otherwise and directors, officers and
employees of Citibank are or may become similarly interested in the Trust.
<PAGE>
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Trust when
authorized either by a vote of a majority of the outstanding voting securities
of the applicable Portfolio or by a vote of a majority of the Board of Trustees
of the Trust, or by Citibank on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. Each Management Agreement with the Trust provides that neither
Citibank nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the applicable Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under a Management Agreement.
Part A to this Registration Statement contains a description of the fees
payable to Citibank for services under each of the Management Agreements.
Citibank may reimburse any Portfolio or waive all or any portion of its
management fee.
For the period from May 1, 1994 to December 31, 1994 and for the fiscal
years ended December 31, 1995 and 1996 the fees paid to Citibank under a prior
investment advisory agreement with respect to Large Cap Growth Portfolio were
$639,933, $1,049,008 and $1,387,227, respectively. For the period from January
1, 1997 to October 31, 1997 the fees paid to Citibank under its investment
advisory agreement with respect to Large Cap Growth Portfolio were $1,312,700.
For the period from June 21, 1995 (commencement of operations) to
December 31, 1995 and for the fiscal year ended December 31, 1996 the fees
payable to Citibank under a prior investment advisory agreement with respect to
Small Cap Growth Portfolio were $10,222 (all of which was voluntarily waived)
and $147,259 (of which $100,088 was voluntarily waived). For the period from
January 1, 1997 to October 31, 1997, the fees paid to Citibank under its
investment advisory agreement with respect to Small Cap Growth Portfolio were
$284,285 (of which $57,125 was voluntarily waived).
The Growth & Income Portfolio was not in operation during the fiscal year
ending October 31, 1997.
Pursuant to a sub-administrative services agreement with Citibank,
Signature Financial Group (Cayman) Ltd. ("SFG") performs such
sub-administrative duties for the Trust as from time to time are agreed upon by
Citibank and SFG. For performing such sub-administrative services, SFG receives
compensation as from time to time is agreed upon by Citibank, not in excess of
the amount paid to Citibank for its services under the Management Agreements
with the Trust. All such compensation is paid by Citibank.
<PAGE>
The Trust, on behalf of the Portfolios, has entered into a Custodian
Agreement with State Street Bank and Trust Company ("State Street") pursuant to
which State Street acts as custodian for each Portfolio. The Trust, on behalf
of the Portfolios, also has entered into a Fund Accounting Agreement with State
Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant to which
State Street Cayman provides fund accounting services for each Portfolio. State
Street Cayman also provides transfer agency services to each 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.
Price Waterhouse 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 Price Waterhouse 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.
Item 17. Brokerage Allocation and Other Practices.
The Trust trades securities for a 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 a Portfolio are made by a
portfolio manager who is an employee of the Manager and who is appointed and
supervised by its senior officers. The portfolio manager may serve other
clients of the Manager 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 the Manager or its affiliates exercise investment
discretion. The Manager is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for the Portfolio which is in excess of the amount of commission
<PAGE>
another broker or dealer would have charged for effecting that transaction if
the Manager determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which
Citibank and its affiliates have with respect to accounts over which they
exercise investment discretion.
The management fee that each Portfolio pays to Citibank will not be
reduced as a consequence of Citibank's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of
Citibank, Citibank 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 a Portfolio as well as for one or more of the Manager's other
clients. Investment decisions for each Portfolio and for the Manager'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 a
Portfolio. When purchases or sales of the same security for a Portfolio and for
other portfolios managed by the Manager occur contemporaneously, the purchase
or sale orders may be aggregated in order to obtain any price advantages
available to large volume purchases or sales.
For the period May 1, 1994 (commencement of operations) to December 31,
1994, for the fiscal years ended December 31, 1995 and 1996, and for the period
from January 1, 1997 to October 31, 1997, the Large Cap Growth Portfolio paid
brokerage commissions of $342,356, $418,145, $586,248 and $643,728,
respectively. For the period from June 21, 1995 (commencement of operations) to
December 31, 1995, for the fiscal year ended December 31, 1996, and for the
period from January 1, 1997 to October 31, 1997, the Small Cap Growth Portfolio
paid brokerage commissions of $6,544, $84,320 and $77,226, respectively. The
Growth & Income Portfolio is newly organized and had no operations during that
period.
<PAGE>
Item 18. 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. Each Portfolio is a series
of the Trust. Investors in each Portfolio are entitled to participate pro rata
in distributions of taxable income, loss, gain and credit of that Portfolio.
Upon liquidation or dissolution of a Portfolio, investors in that 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 a Portfolio may not be
transferred.
Each investor is entitled to a vote in proportion to its percentage of
the aggregate beneficial interests in a Portfolio. Investors in a 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
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 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.
Each Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. The Declaration of Trust provides that
obligations of the Trust are not binding upon the Trustees individually and
<PAGE>
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.
Item 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in each Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in each 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 1933 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 1933 Act.
The net asset value of each 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 (the
"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 each 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 a 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
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
<PAGE>
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. Futures contracts are normally valued
at the settlement price on the exchange on which they are traded. Securities
for which there are no such valuations are valued at fair value as determined
in good faith by or at the direction of the Board of Trustees.
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 a
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 a 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.
Each investor in a Portfolio may add to or reduce its investment in that
Portfolio on each Business Day. As of the close of regular trading on the
Exchange, on each Business Day, the value of each investor's beneficial
interest in a Portfolio 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.
<PAGE>
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption price of beneficial interests in a 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 a 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 Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC has by
order permitted such suspension.
Item 20. Tax Status.
The Trust is organized as a trust under New York law. The Trust has
determined that each Portfolio is properly treated as a partnership for U.S.
federal and New York State income tax purposes. Accordingly, under those tax
laws, the Portfolios are not subject to any income tax, but each investor in a
Portfolio must take into account its share of that Portfolio's ordinary income,
expense, capital gains and 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.
Each Portfolio's taxable year ends October 31 (on August 8, 1997 the
Board of Trustees of the Trust voted to change the fiscal and, subject to
receipt of IRS approval, taxable year ends of the Large Cap Growth Portfolio
and Small Cap Growth Portfolio to October 31). Although, as described above,
the Portfolios are not subject to U.S. federal income tax, they file
appropriate U.S. federal income tax returns.
The Trust believes that, in the case of an investor in a 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
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. The Trust also believes
<PAGE>
that each such investor should be deemed to hold its proportionate share of a
Portfolio's assets for the period the Portfolio has held the assets or for the
period the investor has been a partner in the Portfolio, whichever is shorter.
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 a 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 a Portfolio that is otherwise eligible
to qualify as a RIC under the Code to so qualify, the Trust intends that each
Portfolio will satisfy the requirements of Subchapter M of the Code relating to
the nature of each Portfolio's gross income and the composition
(diversification) of each Portfolio's assets as if those requirements were
directly applicable to such Portfolio and will 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.
The Trust will allocate at least annually among each Portfolio's
investors each investor's distributive share of the respective Portfolio's net
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction, or credit in a manner intended to comply with the Code
and applicable U.S. Treasury regulations.
To the extent the cash proceeds of any withdrawal or distribution exceed
an investor's adjusted tax basis in its partnership interest in a 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 Portfolios 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.
Each 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 Trust does not anticipate that investors qualifying as RICs and investing
substantially all of their assets in a Portfolio will be able to pass through
<PAGE>
to their shareholders any foreign tax credit for federal income tax purposes
with respect to the foreign withholding taxes paid by the Portfolio, if any.
Foreign exchange gains and losses realized by a 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
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. A 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 distribute this income and avoid a tax on any RICs
investing in the Portfolio, the Portfolio may be required to liquidate
portfolio securities that it might otherwise have continued to hold.
The Growth & Income Portfolio's investment in zero-coupon bonds and
payment-in-kind bonds will cause the Portfolio to recognize income prior to the
receipt of cash payments with respect to those securities. In order to enable
any investor which is a RIC to distribute this income and avoid a tax, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss. Each Portfolio's transactions in options, foreign currency
forward contracts, and futures contracts 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 a
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. Each Portfolio intends to
limit its activities in options, foreign currency forward contracts, and
futures contracts to the extent necessary to enable any investor which 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 a Portfolio. It is intended
that such segregated asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of 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 a
Portfolio.
The Trust intends to conduct its activities and those of the Portfolios
so that they will not be deemed to be engaged in the conduct of a U.S. trade or
<PAGE>
business for U.S. federal income tax purposes. Therefore, it is not anticipated
that an investor in a 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 a 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 a
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 foreign tax consequences
to them of investing in a Portfolio.
Item 21. Underwriters.
CFBDS, exclusive placement agent for each of the Portfolios, 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 each Portfolio.
Item 22. Calculations of Performance Data.
Not applicable.
<PAGE>
Item 23. Financial Statements.
The financial statements contained in the Annual Report of the Large Cap
Growth Portfolio and the Small Cap Growth Portfolio for the fiscal year ended
October 31, 1997, as filed with the Securities and Exchange Commission, via the
EDGAR system, on January 9, 1998 (Accession Number 0000950156-98-000061 for the
Large Cap Growth Portfolio and 0000950156-98-000062 for the Small Cap Growth
Portfolio), are incorporated by reference into this Part B. The Growth & Income
Portfolio is newly organized and had no other actions during that period.
Copies of the Annual Reports of the Large Cap Growth Portfolio and the
Small Cap Growth Portfolio accompany this Part B.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Large Cap Growth Portfolio:
Portfolio of Investments at October 31, 1997*
Statement of Assets and Liabilities at October 31, 1997*
Statement of Operations for the year ended December 31, 1996 and
for the ten months ended October 31, 1997*
Statement of Changes in Net Assets for each of the years in the
two-year period ended December 31, 1996 and for the ten months
ended October 31, 1997*
Financial Highlights for the period from May 1, 1994 (commencement
of operations) to December 31, 1994, for the years ended
December 31, 1995 and 1996, and for the ten months ended October
31, 1997*
Notes to Financial Statements - October 31, 1997*
Independent Auditors' Report - December 10, 1997*
Small Cap Growth Portfolio:
Portfolio of Investments at October 31, 1997**
Statement of Assets and Liabilities at October 31, 1997**
Statement of Operations for the year ended October 31, 1997**
Statement of Changes in Net Assets for the period June 21, 1995
(commencement of operations) to December 31, 1995, the year
ended December 31, 1996 and for the ten months ended October 31,
1997**
Financial Highlights for the period from June 21, 1995
(commencement of operations) to December 31, 1995, year ended
December 31, 1996, and for the ten months ended October 31,
1997**
Notes to Financial Statements - October 31, 1997**
Independent Auditors' Report - December 10, 1997**
- --------------------
*Incorporated herein by reference to the Annual Report of the Registrant
relating to Large Cap Growth Portfolio (formerly known as "Equity Portfolio")
for the fiscal year ended October 31, 1997 (Accession Number
0000950156-98-000061).
<PAGE>
**Incorporated herein by reference to the Annual Report of the Registrant
relating to Small Cap Growth Portfolio (formerly known as "Small Cap Equity
Portfolio") for the fiscal year ended October 31, 1997 (Accession Number
0000950156-98-000062).
(b) Exhibits
* 1(a) Declaration of Trust of The Premium Portfolios
* 1(b) Forms of Amendments to Declaration of Trust
** and *** 1(c) Amendments to Declaration of Trust
1(d) Amendment to Declaration of Trust
* 2 By-laws of The Premium Portfolios
*** 5(a) Management Agreement between Large Cap Growth
Portfolio and Citibank, N.A., as investment manager
and administrator
*** 5(b) Management Agreement between Small Cap Growth
Portfolio and Citibank, N.A., as investment manager
and administrator
5(c) Management Agreement between Growth & Income
Portfolio and Citibank, N.A., as investment manager
and administrator
* 6(a) Form of Placement Agency Agreement between the
Registrant and CFBDS, Inc. (formerly known as The
Landmark Funds Broker-Dealer Services, Inc.), as
exclusive placement agent
6(b) Letter Agreement adding Growth & Income
Portfolio to the Placement Agency Agreement
*** 8(a) Custodian Contract between the Registrant and State
Street Bank and Trust Company, as custodian
8(b) Letter Agreement adding Growth & Income Portfolio to
the Custodian Contract
<PAGE>
9(a) Sub-Administrative Services Agreement between
Citibank, N.A. and Signature Financial Group (Cayman)
Ltd., as sub-administrator
*** 9(b) Accounting Services Agreement between The Premium
Portfolios and State Street Cayman Trust Company, Ltd.
27 Financial Data Schedules
- -----------------------
* Incorporated herein by reference to the Registration Statement on
Form N-1A of the Registrant relating to its series Government Income
Portfolio File No. 811-3438, filed March 21, 1994.
** Incorporated herein by reference to Amendment No. 2 to the
Registration Statement on Form N-1A of the Registrant relating to
Large Cap Growth Portfolio, filed April 29, 1996.
*** Incorporated herein by reference to Amendment No. 4 to the
Registration Statement on Form N-1A of the Registrant relating to its
series Large Cap Growth Portfolio File No. 811-8436 and Growth &
Income Portfolio File No. 811-8436, filed October 31, 1997. (This
Amendment also serves as Amendment No. 3 to the Registration
Statement on Form N-1A for The Premium Portfolios as it relates to
the Small Cap Growth Portfolio, File No. 811-07269.)
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
(1) (2)
Title of Class Number of Record Holders
Beneficial Interests (as of February 20, 1998)
Large Cap Growth Portfolio 3
Small Cap Growth Portfolio 3
<PAGE>
Growth & Income Portfolio 1
Item 27. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust,
incorporated herein by reference.
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 28. 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, a
registered bank holding company. Citibank also serves as investment adviser to
the following registered investment companies (or series thereof): Asset
Allocation Portfolios (Large Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio
and Short-Term Portfolio), The Premium Portfolios (Balanced Portfolio,
International Equity Portfolio, Government Income Portfolio, and Emerging Asian
Markets Equity 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 and CitiFundsSM
New York Tax Free Income Portfolio), CitiFundsSM Institutional Trust
(CitiFundsSM Institutional Cash Reserves), CitiFundsSM Fixed Income Trust
(CitiFundsSM Intermediate Income Portfolio) and Variable Annuity Portfolios
(CitiSelect(R) VIP Folio 200, CitiSelect(R) VIP Folio 300, CitiSelect(R) VIP
Folio 400, CitiSelect(R) VIP Folio 500 and CitiFundsSM Small Cap Growth VIP
Portfolio). Citibank and its affiliates manage assets in excess of $88 billion
worldwide. The principal place of business of Citibank is located at 399 Park
Avenue, New York, New York 10043.
John S. Reed is the Chairman of the Board and a Director of Citibank. The
following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins and William R. Rhodes. Other Directors of Citibank are D. Wayne
Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.; John M.
Deutch, Institute Professor, Massachusetts Institute of Technology; Reuben
<PAGE>
Mark, Chairman and Chief Executive Officer, Colgate-Palmolive Company; Richard
D. Parsons, President, Time Warner, Inc.; Rozanne L. Ridgway, Former Assistant
Secretary of State for Europe and Canada; Robert B. Shapiro, Chairman,
President and Chief Executive Officer, Monsanto Company; Frank A. Shrontz,
Chairman Emeritus, The Boeing Company; and Franklin A. Thomas, former
President, The Ford Foundation.
Each of the individuals named above is also a Director of Citicorp. In
addition, the following persons have the affiliations indicated:
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Retired Chairman and Chief
Executive Officer and Director, PepsiCo, Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
John M. Deutch Director, Ariad Pharmaceuticals, Inc.
Director, CMS Energy
Director, Palomar Medical
Technologies, Inc.
Director, Cummins Engine Company, Inc.
Director, Schlumberger, Ltd.
Reuben Mark Director, Chairman and Chief Executive Officer
Colgate-Palmolive Company
Director, New York Stock Exchange
Director, Time Warner, Inc.
Non-Executive Director, Pearson, PLC
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding
Corporation
<PAGE>
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, Boeing Company
Director, Emerson Electric Company
Member-International Advisory Board,
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporation
Robert B. Shapiro Director, Chairman and Chief Executive
Officer, Monsanto Company
Director, Silicon Graphics
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director and Chairman Emeritus, Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, PepsiCo, Inc.
Item 29. Principal Underwriters.
(a) CFBDS, Inc., the placement agent for the Registrant's series, is also
the distributor for CitiFundsSM International Growth & Income Portfolio,
CitiFundsSM International Equity Portfolio, CitiFundsSM Emerging Asian Markets
Equity 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 U.S. Government
Income Portfolio, CitiFundsSM Balanced Portfolio, CitiFundsSM Intermediate
Income Portfolio, CitiFundsSM Small Cap Value Portfolio, CitiFundsSM Growth &
Income Portfolio, CitiFundsSM Large Cap Growth Portfolio, CitiFundsSM Small Cap
<PAGE>
Growth Portfolio, CitiFundsSM National Tax Free Income Portfolio, CitiFundsSM
New York Tax Free Income Portfolio, CitiSelect(R) VIP Folio 200, CitiSelect(R)
VIP Folio 300, CitiSelect(R) VIP Folio 400, CitiSelect(R) VIP Folio 500,
CitiFundsSM Small Cap Growth VIP Portfolio, CitiSelect(R) Folio 200,
CitiSelect(R) Folio 300, CitiSelect(R) Folio 400, and CitiSelect(R) Folio 500.
CFBDS is also the placement agent for Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign Bond Portfolio, Intermediate
Income Portfolio, Short-Term Portfolio, International Equity Portfolio,
Government Income Portfolio, Balanced Portfolio, Emerging Asian Markets Equity
Portfolio, Tax Free Reserves Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
(b) The information required by this Item 29 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 30. 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
State Street Bank and Trust Company 225 Franklin Street
(custodian) Boston, MA 02110
State Street Cayman Trust Company, Ltd. P.O. Box 25086T
(accounting services agent) Grand Cayman, Cayman Islands
Citibank, N.A. 153 East 53rd Street
(investment manager and administrator) 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 31. Management Services.
Not applicable.
Item 32. Undertakings.
The Registrant undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940.
<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 Southampton, Bermuda, on the 27th day of February, 1998.
THE PREMIUM PORTFOLIOS
on behalf of:
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Growth & Income Portfolio
By: Philip W. Coolidge
-----------------------
Philip W. Coolidge
President of
The Premium Portfolios
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
1(d) Amendment to the Declaration of Trust
5(c) Management Agreement between Growth & Income Portfolio
and Citibank, N.A., as investment manager and administrator
6(b) Letter Agreement adding Growth & Income Portfolio to the
Placement Agency Agreement
8(b) Letter Agreement adding Growth & Income Portfolio to the
Custodian Contract
9(a) Sub-Administrative Services Agreement between Citibank, N.A.
and Signature Financial Group (Cayman) Ltd., as
sub-administrator
27 Financial Data Schedules
Exhibit 1(d)
THE PREMIUM PORTFOLIOS
AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
BENEFICIAL INTERESTS (WITHOUT PAR VALUE)
Pursuant to Section 6.2 of the Declaration of Trust, dated September 13,
1993, as amended (the "Declaration of Trust"), of The Premium Portfolios (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust, do
hereby amend and restate the Trust's existing Establishment and Designation of
Series of Beneficial Interests (without par value) in order to establish one
series of Interests (as defined in the Declaration of Trust). No other changes
to the special and relative rights of the existing series are intended by this
amendment and restatement. This amendment and restatement shall become
effective on such date as any officer of the Trust may select by written notice
to the Trust.
1. The series shall be as follows:
The new series shall be designated as:
"Growth & Income Portfolio"
The remaining series are as follows:
Large Cap Growth Portfolio;
Small Cap Growth Portfolio;
Balanced Portfolio;
Government Income Portfolio;
International Equity Portfolio; and
Emerging Asian Markets Equity Portfolio.
2. Each series shall be authorized to hold cash, invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Investment Company Act of 1940, as amended, to the extent pertaining
to the offering of Interests of such series. Each Interest of each series shall
have such redemption, voting and liquidation rights and shall represent such
proportionate ownership in the series as provided generally in the Declaration
of Trust. The proceeds of sales of Interests of each series, together with any
income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to such series, unless otherwise required by law.
<PAGE>
3. Investors in each series shall vote separately as a class on any matter
to the extent required by, and any matter shall have been deemed effectively
acted upon with respect to such series as provided in, Rule 18f-2, as from time
to time in effect, under the Investment Company Act of 1940, as amended, or any
successor rule, and the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.2 of the Declaration of Trust.
5. Subject to the provisions of Section 6.2 and Article X of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to change the designation of
any series now or hereafter created, or to otherwise change the special and
relative rights of any series.
IN WITNESS WHEREOF, the undersigned have executed this instrument at Paget,
Bermuda as of the 14th day of November, 1997.
Elliott J. Berv Mark T. Finn
ELLIOTT J. BERV MARK T. FINN
As Trustee and Not Individually As Trustee and Not Individually
Philip W. Coolidge C. Oscar Morong, Jr.
PHILIP W. COOLIDGE C. OSCAR MORONG, JR.
As Trustee and Not Individually As Trustee and Not Individually
Walter E. Robb, III
WALTER E. ROBB, III
As Trustee and Not Individually
Exhibit 5(c)
MANAGEMENT AGREEMENT
THE PREMIUM PORTFOLIOS
Growth & Income Portfolio
MANAGEMENT AGREEMENT, dated as of November 14, 1997, by and between The
Premium Portfolios, a New York trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain investment
advisory and administrative services for the series of the Trust designated as
Growth & Income Portfolio (the "Portfolio"), and Citibank is willing to provide
such investment advisory and administrative services for the Portfolio on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the manager for the
Portfolio and as such shall furnish continuously an investment program and
shall determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Portfolio shall be held
uninvested, subject always to the restrictions of the Trust's Declaration of
Trust, dated September 13, 1993, and By-laws, as each may be amended from time
to time (respectively, the "Declaration" and the "By-Laws"), the provisions of
the 1940 Act, and the then-current Registration Statement of the Trust with
respect to the Portfolio. The Manager shall also make recommendations as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Portfolio's portfolio securities shall be
exercised. Should the Board of Trustees of the Trust at any time, however, make
any definite determination as to investment policy applicable to the Portfolio
<PAGE>
and notify the Manager thereof in writing, the Manager shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Manager shall
take, on behalf of the Portfolio, all actions which it deems necessary to
implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of securities for the
Portfolio's account with the brokers or dealers selected by it, and to that end
the Manager is authorized as the agent of the Trust to give instructions to the
custodian or any subcustodian of the Portfolio as to deliveries of securities
and payments of cash for the account of the Portfolio. In connection with the
selection of such brokers or dealers and the placing of such orders, brokers or
dealers may be selected who also provide brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Portfolio and/or the other accounts over which the Manager or its
affiliates exercise investment discretion. The Manager is authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Manager determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer. This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Manager and its affiliates have with respect to
accounts over which they exercise investment discretion. In making purchases or
sales of securities or other property for the account of the Portfolio, the
Manager may deal with itself or with the Trustees of the Trust or the Trust's
underwriter or distributor, to the extent such actions are permitted by the
1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may employ at its own expense, or may request that the
Trust employ at the Portfolio's expense, one or more subadvisers; provided that
in each case the Manager shall supervise the activities of each subadviser. Any
agreement between the Manager and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement. Any
agreement by the Trust on behalf of the Portfolio and a subadviser may be
terminated by the Manager at any time on not more than 60 days' nor less than
30 days' written notice to the Trust and the subadviser.
<PAGE>
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (i) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
performing the administrative and management functions herein set forth; (ii)
supervising the overall administration of the Trust, including negotiation of
contracts and fees with and the monitoring of performance and billings of the
Trust's transfer agent, custodian and other independent contractors or agents;
(iii) preparing and, if applicable, filing all documents required for
compliance by the Trust with applicable laws and regulations, including
registration statements, semi-annual and annual reports to investors, proxy
statements and tax returns; (iv) preparation of agendas and supporting
documents for and minutes of meetings of Trustees, committees of Trustees and
investors; and (v) arranging for maintenance of books and records of the Trust.
Notwithstanding the foregoing, Citibank shall not be deemed to have assumed any
duties with respect to, and shall not be responsible for, the distribution of
beneficial interests in the Portfolio, nor shall Citibank be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent, fund accounting agent or custodian of the Trust
or the Portfolio. In providing administrative and management services as set
forth herein, Citibank may, at its own expense, employ one or more
subadministrators; provided that Citibank shall remain fully responsible for
the performance of all administrative and management duties set forth herein
and shall supervise the activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the
Portfolio all of its own expenses allocable to the Portfolio including, without
limitation, organization costs of the Portfolio; compensation of Trustees who
are not "affiliated persons" of Citibank; governmental fees; interest charges;
loan commitment fees; taxes; membership dues in industry associations allocable
to the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming beneficial interests and servicing
investor accounts; expenses of preparing, typesetting, printing and mailing
investor reports, notices, proxy statements and reports to governmental
officers and commissions and to investors in the Portfolio; expenses connected
with the execution, recording and settlement of security transactions;
<PAGE>
insurance premiums; fees and expenses of the custodian for all services to the
Portfolio, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of the
Portfolio (including but not limited to the fees of independent pricing
services); expenses of meetings of the Portfolio's investors; expenses relating
to the issuance of beneficial interests in the Portfolio; and such
non-recurring or extraordinary expenses as may arise, including those relating
to actions, suits or proceedings to which the Trust on behalf of the Portfolio
may be a party and the legal obligation which the Trust may have to indemnify
its Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Portfolio a management fee computed daily and
paid monthly at an annual rate equal to 0.70% of the Portfolio's average daily
net assets for the Portfolio's then-current fiscal year. If Citibank provides
services hereunder for less than the whole of any period specified in this
Section 3, the compensation to Citibank shall be accordingly adjusted and
prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, if any, as principals in making purchases or sales of
securities or other property for the account of the Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of the Portfolio except as permitted by the Declaration, and will
comply with all other provisions of the Declaration and By-Laws and the
then-current Registration Statement applicable to the Portfolio relative to
Citibank and its directors and officers.
5. Limitation of Liability of Citibank. Citibank shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of securities
transactions for the Portfolio, except for willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder. As used in this Section 5,
the term "Citibank" shall include directors, officers and employees of Citibank
as well as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Portfolio are
not to be deemed to be exclusive, Citibank being free to render investment
advisory, administrative and/or other services to others. It is understood that
Trustees, officers, and shareholders of the Trust are or may be or may become
<PAGE>
interested in Citibank, as directors, officers, employees, or otherwise and
that directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as an investor or otherwise.
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until November 14, 1999, on which date it will terminate unless its continuance
after November 14, 1999 is "specifically approved at least annually" (a) by the
vote of a majority of the Trustees of the Trust who are not "interested
persons" of the Trust or of Citibank at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust or by "vote of a majority of the outstanding voting securities" of the
Portfolio.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, or by Citibank, in each case on not more than 60
days' nor less than 30 days' written notice to the other party. This Agreement
shall automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Portfolio
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust under
this Agreement are binding only with respect to the Portfolio; that any
liability of the Trust under this Agreement, or in connection with the
transactions contemplated herein, shall be discharged only out of the assets of
the Portfolio; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.
<PAGE>
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or holders of
beneficial interests in the Trust individually.
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
THE PREMIUM PORTFOLIOS CITIBANK, N.A.
By: Philip Coolidge By: Lawrence P. Keblusek
Title: President Title: U.S. CIO
Exhibit 6(b)
The Premium Portfolios
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
December 31, 1997
The Landmark Funds Broker-Dealer Services, Inc.
c/o Signature Financial Group (Cayman), Ltd.
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
Re: The Premium Portfolios - Placement
Agency Agreement
Ladies and Gentlemen:
This letter serves as notice that Growth & Income Portfolio (the "Fund")
is added to the list of series of The Premium Portfolios (the "Trust") to which
The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") renders services as
placement agent pursuant to the terms of the Placement Agency Agreement dated
as of September 13, 1993 (the "Agreement") between the Trust and LFBDS.
Please sign below to acknowledge your receipt of this notice adding the
Fund as beneficiary under the Agreement.
THE PREMIUM PORTFOLIOS
By: Philip Coolidge
Title: President
Acknowledgment:
THE LANDMARK FUNDS BROKER-DEALER SERVICES, INC.
By: Philip Coolidge
Title: CEO
Exhibit 8(b)
The Premium Portfolios
Elizabethan Square, 2nd Floor
George Town, Grand Cayman, BWI
November 14, 1997
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: The Premium Portfolios - Custodian Contract
Ladies and Gentlemen:
Pursuant to Section 17 of the Custodian Contract dated as of September 1,
1997 (the "Contract"), between The Premium Portfolios (the "Trust") and State
Street Bank and Trust Company ("the Custodian"), we hereby request that Growth
& Income Portfolio (the "Fund") be added to the list of series of the Trust to
which the Custodian renders services as custodian under the terms of the
Contract.
Please sign below to evidence your agreement to provide such services to
the Fund and to add the Fund as beneficiary under the Contract.
THE PREMIUM PORTFOLIOS
By: Philip Coolidge
Title: President
Agreed:
STATE STREET BANK AND TRUST COMPANY
By: Ronald E. Logue
Title: Executive Vice President
Exhibit 9(a)
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT, dated as of December 31, 1997, by
and between SIGNATURE FINANCIAL GROUP (CAYMAN) LTD., a Cayman corporation (the
"Sub-Administrator"), and CITIBANK, N.A., a national banking association
("Citibank").
W I T N E S S E T H :
WHEREAS, Citibank has been retained by certain registered open-end
management investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), as listed on Schedule A hereto (each individually a
"Trust" and collectively the "Trusts"), to provide administrative services to
its investment portfolios, as listed on Schedule A hereto (each individually a
"Fund" and collectively the "Funds"), pursuant to separate Management
Agreements (each a "Management Agreement"), and
WHEREAS, as permitted by Section 1 of each Management Agreement, Citibank
desires to subcontract some or all of the performance of its obligations
thereunder to Sub-Administrator, and Sub-Administrator desires to accept such
obligations; and
WHEREAS, Citibank wishes to engage Sub-Administrator to provided certain
administrative services on the terms and conditions hereinafter set forth, so
long as Citibank shall have found Sub-Administrator to be qualified to perform
the obligations sought to be subcontracted.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties as Sub-Administrator. Subject to the supervision and direction
of Citibank, Sub-Administrator will assist in supervising various aspects of
each Trust's administrative operations and undertakes to perform the following
specific services, from and after the effective date of this Agreement:
(a) To the extent requested by Citibank, furnish Trust secretarial
services;
<PAGE>
(b) To the extent requested by Citibank, furnish Trust treasury
services, including the review of financial data, tax and other
regulatory filings and audit requests;
(c) To the extent requested by Citibank, provide the services of certain
persons who may be appointed as officers or Trustees of the Trust by
the Trust's Board;
(d) To the extent requested by Citibank, participate in the preparation
of documents required for compliance by the Trust with applicable
laws and regulations, including registration statements,
prospectuses, semi-annual and annual reports to shareholders and
proxy statements;
(e) To the extent requested by Citibank, prepare agendas and supporting
documents for and minutes of meetings of the Trustees, Committees of
Trustees and shareholders;
(f) Maintain books and records of the Trust;
(g) To the extent requested by Citibank, provide advice and counsel to
the Trust with respect to regulatory matters, including monitoring
regulatory and legislative developments which may affect the Trust
and assisting the Trust in routine regulatory examinations or
investigations of the Trust, and working closely with outside
counsel to the Trust in connection with litigation in which the
Trust is involved;
(h) To the extent requested by Citibank, generally assist in all aspects
of the Trust's operations and provide general consulting services on
a day to day, as needed basis;
(i) In connection with the foregoing activities, maintain office
facilities (which may be in the offices of Sub-Administrator or its
corporate affiliate); and
(j) In connection with the foregoing activities, furnishing clerical
services, and internal executive and administrative services,
stationery and office supplies.
Notwithstanding the foregoing, Sub-Administrator under this Agreement
shall not be deemed to have assumed any duties with respect to, and shall not
be responsible for, the management of a Trust, or the distribution of
beneficial interests in a Trust, nor shall Sub-Administrator be deemed to have
<PAGE>
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent or custodian of a Trust.
In performing all services under this Agreement, Sub-Administrator shall
(a) act in conformity with the Trust's charter documents and bylaws, the 1940
Act and other applicable laws, as the same may be amended from time to time,
(b) consult and coordinate with legal counsel for the Trust, as necessary or
appropriate, and (c) advise and report to the Trust and its legal counsel, as
necessary or appropriate, with respect to any material compliance or other
matters that come to its attention.
In performing its services under this Agreement, Sub-Administrator shall
cooperate and coordinate with Citibank as necessary and appropriate and shall
provide such information as is reasonably necessary or appropriate for Citibank
to perform its obligations to the Trust. Sub-Administrator shall perform its
obligations under this Agreement in a conscientious and diligent manner
consistent with prevailing industry standards.
2. Compensation of Sub-Administrator. For the services to be rendered and
the facilities to be provided by Sub-Administrator hereunder, Sub-Administrator
shall be paid an administrative fee as may from time to time be agreed to
between Citibank and Sub-Administrator.
3. Additional Terms and Conditions. The parties may amend this agreement
and include such other terms and conditions as may from time to time be agreed
to by both Citibank and Sub-Administrator.
4. Termination. This Agreement may be terminated by Citibank at any time,
in its entirety or as to one or more Funds, with or without cause. This
Agreement may be terminated by the Sub-Administrator, in its entirety or as to
one or more Funds, with or without cause, provided that Sub-Administrator has
notified Citibank of such termination in writing at least 90 days prior to the
effective date thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunder duly authorized, all as of the day and year first above written.
SIGNATURE FINANCIAL
GROUP (CAYMAN) LTD. CITIBANK, N.A.
By: Philip Coolidge By: Andrew B. Shoup
Title: CEO Title: Vice President
<PAGE>
Schedule A
to Sub-Administrative Services Agreement
Between
Signature Financial Group (Cayman) Ltd.
and
Citibank, N.A.
Trust Series
The Premium Portfolios Growth & Income Portfolio
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000942918
<NAME> SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 41,521,533
<INVESTMENTS-AT-VALUE> 49,964,937
<RECEIVABLES> 89,464
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 624
<TOTAL-ASSETS> 50,055,025
<PAYABLE-FOR-SECURITIES> 394,160
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<TOTAL-LIABILITIES> 394,160
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<NET-ASSETS> 49,598,017
<DIVIDEND-INCOME> 118,059
<INTEREST-INCOME> 64,937
<OTHER-INCOME> 0
<EXPENSES-NET> 322,255
<NET-INVESTMENT-INCOME> (139,259)
<REALIZED-GAINS-CURRENT> 785,204
<APPREC-INCREASE-CURRENT> 6,200,702
<NET-CHANGE-FROM-OPS> 6,846,647
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,404,723
<NUMBER-OF-SHARES-REDEEMED> (22,795,675)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,455,695
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 284,285
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 392,388
<AVERAGE-NET-ASSETS> 45,510,520
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000927086
<NAME> EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 274,681,317
<INVESTMENTS-AT-VALUE> 327,177,550
<RECEIVABLES> 4,284,708
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 745
<TOTAL-ASSETS> 331,463,003
<PAYABLE-FOR-SECURITIES> 6,380,045
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 6,380,045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 324,912,736
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 324,912,736
<DIVIDEND-INCOME> 2,759,579
<INTEREST-INCOME> 455,623
<OTHER-INCOME> 0
<EXPENSES-NET> 1,575,207
<NET-INVESTMENT-INCOME> 1,639,995
<REALIZED-GAINS-CURRENT> 60,297,277
<APPREC-INCREASE-CURRENT> 1,141,934
<NET-CHANGE-FROM-OPS> 63,079,206
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,002,991
<NUMBER-OF-SHARES-REDEEMED> (64,731,733)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 36,350,464
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,312,700
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,575,207
<AVERAGE-NET-ASSETS> 315,220,735
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