As filed with the Securities and Exchange Commission on December 20, 1995
File No. 811-
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Asset Allocation 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:
(809) 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 & Gould,
150 Federal Street, Boston, MA 02110
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EXPLANATORY NOTE
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.
Asset Allocation Portfolio V ("Portfolio V"), Asset Allocation Portfolio
IV ("Portfolio IV"), Asset Allocation Portfolio III ("Portfolio III") and Asset
Allocation Portfolio II ("Portfolio II") (collectively, the "Portfolios") are
separate series of Asset Allocation Portfolios (the "Trust"). Citibank, N.A.
("Citibank" or the "Manager") is the investment adviser of 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 December 14,
1995. 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 OBJECTIVES AND POLICIES:
The investment objective of Portfolio V is highest total return over time
consistent with a primary emphasis on capital appreciation and a secondary
emphasis on income for risk reduction purposes.
The investment objective of Portfolio IV is high total return over time
consistent with a primary emphasis on capital appreciation and a secondary
emphasis on income for risk reduction purposes.
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The investment objective of Portfolio III is high total return over time
consistent with a balanced emphasis on income and capital appreciation.
The investment objective of Portfolio II is high total return over time
consistent with a primary emphasis on income and a secondary emphasis on capital
appreciation.
Each Portfolio is a carefully selected and professionally managed
diversified mix of equity, fixed income and money market investments that are
structured to achieve certain risk and return objectives. There is a normal
percentage of each Portfolio that is allocated to the equity class of
investments, the fixed income class of investments and the money market class of
investments. See the chart below. In determining the normal asset allocations,
Citibank has looked at long-term performance and valuation measures within and
between asset classes and the effects of market and economic variables on those
relationships. It uses this information to determine the overall mix of the
Portfolios' assets among the three general asset classes. A Portfolio's
allocation or asset mix is determined by Citibank to be the optimal combination
of stocks, bonds and money market instruments that reduces risk and maximizes
potential return for each Portfolio's distinct investment objective.
The Portfolios' normal allocations generally correlate to different levels
of investment risk and return. Equity securities have the potential to
outperform fixed income securities over the long term. Equity securities have
the greatest potential for growth of capital, yet are generally the most
volatile of the three asset types. Fixed income and money market securities
sometime move in the opposite direction of equity securities and may provide
investment balance to a Portfolio. The risks of each asset class will vary.
The normal asset allocation represents the way a Portfolio's investments
will generally be allocated over the long term. As market and economic
conditions change, however, Citibank may adjust the asset mix among the equity,
fixed income and money market classes within a normal asset allocation range as
long as the relative risk and return characteristics of the four Portfolios
remain distinct and each Portfolio's investment objective is preserved. Citibank
will review normal allocations quarterly and will rebalance, if necessary, at
that time. Additional adjustments may be made more often if Citibank believes
that market conditions warrant. Each Portfolio's normal allocation is shown in
the chart below. All percentage limitations are applied at the time of purchase.
<TABLE>
<CAPTION>
Portfolio V Portfolio IV Portfolio III Portfolio II
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Normal Normal Normal Normal
Asset Class Allocation Range Allocation Range Allocation Range Allocation Range
Equity 80 70-90 65 55-75 50 40-60 35 25-45
Fixed Income 15 5-25 30 20-40 45 35-55 50 40-60
Money Market 5 0-10 5 0-10 5 0-10 15 5-25
</TABLE>
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Citibank will diversify the equity class of each Portfolio by allocating the
Portfolio's portfolio of equity securities among large capitalization
securities, small capitalization securities and international securities.
Citibank will diversify the fixed income class of each Portfolio by allocating
the Portfolio's portfolio of fixed income securities among U.S. and foreign
government and corporate bonds. There is no requirement that Citibank allocate a
Portfolio's assets among all of the foregoing types of equity and fixed income
securities at all times. These types of securities have been selected because
Citibank believes that this additional level of asset diversification will
provide each Portfolio with the potential for higher returns with lower overall
volatility.
From time to time Citibank may employ Subadvisers to perform the daily
management of a particular asset class for the Portfolios or of specific types
of securities within a particular asset class. Citibank will monitor and
supervise the activities of the Subadvisers and may terminate the services of
any Subadviser at any time. See "Management of the Portfolios." In allocating
each Portfolio's investments among various asset classes and in supervising the
Subadvisers, Citibank employs a multi-style and multi-manager diversification
strategy. Citibank believes that there are periods when securities with
particular characteristics, or an investment style, outperform other types of
securities in the same asset class. For example, at certain times, equity
securities with growth characteristics outperform equities with income
characteristics, and vice versa. Citibank will seek to take advantage of this by
blending asset classes and investment styles on a complimentary basis in an
effort to maximize the consistency of returns over longer time periods, and to
reduce volatility.
In supervising the Subadvisers, Citibank will also be taking into account
the expertise they have demonstrated in particular areas and the historical
results they have achieved within selected asset classes or investment styles.
By combining these attributes with selected asset classes and styles, Citibank
will seek to increase returns.
Citibank has delegated the responsibility for the daily management of the
following kinds of securities to the following Subadvisers: large capitalization
growth securities, __________; large capitalization value securities,
___________________; small capitalization growth securities, ________________;
small capitalization value securities, ____________; and international equity
and fixed income securities, ______________.
The Equity Class
Equity securities include common stocks, securities convertible into common
stocks, preferred stocks, warrants for the purchase of stock and depositary
receipts (receipts which represent the right to receive the securities of
non-U.S. issuers deposited in a U.S. or correspondent bank). While equity
securities historically have experienced a higher level of volatility risk than
fixed income securities, they also historically have produced higher levels of
total return. Longer term, investors with diversified equity portfolios have a
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higher probability of achieving their investment goals with lower levels of
volatility than those who have not diversified.
Each Portfolio will diversify its equity portfolio by investing those assets
which are allocated to the equity class among equity securities issued by large
capitalization issuers, small capitalization issuers and international issuers.
The mix of equity securities will vary from Portfolio to Portfolio. For example,
Portfolio V will emphasize securities of small cap and international issuers.
Portfolio IV and Portfolio III will emphasize securities of large cap and
international issuers. There is no requirement that any Portfolio invest in each
type of equity security.
Large Cap Issuers. Large cap issuers are those with market capitalizations
typically of $1 billion or more. In selecting equity securities of large cap
issuers, Citibank emphasizes securities issued by established companies with
stable operating histories.
Small Cap Issuers. Small cap issuers are those with market capitalizations
below the top 1,000 stocks that comprise the large and midrange capitalization
sector of the equity market. These stocks are comparable to, but not limited to,
the stocks comprising the Russell 2000 Index, an index of small capitalization
stocks. In selecting equity securities of small cap issuers, Citibank emphasizes
securities of issuers which have an outlook for strong growth in earnings and
the potential for significant capital appreciation, particularly in industry
segments that are experiencing rapid growth. In addition, Citibank may select
issuers that it believes to be emerging relative to their potential markets.
Small cap companies are generally represented in new or rapidly changing
industries. They may offer more profit opportunity in growing industries and
during certain economic conditions than do large and medium sized companies.
However, small cap companies also involve special risks. Often, liquidity and
overall business stability of a small cap company may be less than that
associated with larger capitalized companies. Small cap stocks frequently
involve smaller, rapidly growing companies with high growth rates, negligible
dividend yields and extremely high levels of volatility.
International Issuers. International issuers are those based outside the
United States. In selecting equity securities of international issuers, Citibank
emphasizes securities included in the Morgan Stanley Capital International
Europe, Australia and Far East Index (called the EAFE Index.) The EAFE Index
contains approximately 1,100 equity securities of companies located in
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, The Netherlands, Norway, Singapore, Spain,
Sweden, Switzerland and the United Kingdom. In addition, Citibank may select
securities of issuers located in emerging markets. The U.S. investor may benefit
from exposure to international equity securities and foreign economies, which
may be influenced by distinctly different factors impacting a country's rate of
economic growth, interest rate structure, currency, industry and local stock
market environment. In addition, investments in the non-U.S. equity markets
allow for further diversification as many countries and
<PAGE>
regions have risk/reward characteristics and market performance that are not
highly correlated to each other or to the U.S. market. International
investments, however, particularly in emerging countries, are subject to special
risks not generally present in domestic equity investments.
The Fixed Income Class
Fixed income securities include bonds and short-term obligations. Fixed
income securities, in general, offer a fixed stream of cash flow and may provide
good to moderate relative total return benefits over time. Most bond investments
focus on generating income, while the potential for capital appreciation is a
secondary objective. The bond markets provide diversification benefits to a
holder of equity securities depending upon the characteristics of the bonds
comprising the fixed income class of each Portfolio. The value of fixed income
securities generally fluctuates inversely with changes in interest rates, and
also fluctuates based on other market and credit factors as well.
Each Portfolio will diversify its fixed income portfolio by investing those
assets which are allocated to the fixed income class among investment grade
corporate debt obligations of foreign and U.S. issuers and securities issued by
the U.S. Government and its agencies and instrumentalities and by foreign
governments. Investment grade securities are those rated Baa or better by
Moody's Investors Service, Inc. or BBB or better by Standard & Poor's Rating
Group or unrated securities which Citibank believes to be of comparable quality.
Securities rated Baa or BBB and unrated securities of comparable quality may
have speculative characteristics.
The mix of fixed income securities may vary from Portfolio to Portfolio.
There is no requirement that any Portfolio invest in each type of fixed income
security. The Portfolios may invest in securities with all maturities, including
long bonds (10+ years), intermediate notes (3 to 10 years) and short-term notes
(1 to 3 years).
Government Securities. U.S. Government securities may provide opportunities
for income with minimal credit risk. U.S. Treasury securities are considered the
safest of all government securities. U.S. Government securities are high quality
instruments issued or guaranteed as to principal and interest by the U.S.
Government or by an agency or instrumentality of the U.S. Government. Securities
issued or guaranteed as to principal and interest by foreign governments or
agencies or instrumentalities of foreign governments also may provide
opportunities for income with minimal credit risk. Government securities are,
however, not immune from the market risk of principal fluctuation associated
with rising interest rates.
Corporate Bonds. Investment in corporate bonds of U.S. and foreign
corporate issuers may provide relatively higher levels of current income.
These bonds are used by U.S. and foreign corporate issuers to borrow money
from investors, and may have varying
<PAGE>
maturities. Corporate bonds have varying degrees of quality and varying degrees
of sensitivity to changes in interest rates. The value of these investments
fluctuates based on changes in interest rates and in the underlying credit
quality of the bond issuers represented in the portfolio.
The Money Market Class
Each Portfolio will invest those assets which are allocated to the money
market class in cash and in U.S. dollar-denominated high quality money market
and short-term instruments. These instruments include short-term obligations of
the U.S. Government and repurchase agreements covering these obligations,
commercial paper of U.S. and foreign issuers, bank obligations (such as
certificates of deposit, bankers' acceptances and fixed time deposits) of U.S.
and non-U.S. banks and obligations issued or guaranteed by the governments of
Western Europe, Scandinavia, Australia, Japan and Canada. These investments
provide opportunities for income with low credit risk, and may result in a lower
yield than would be available from investments with a lower quality or a longer
term.
Initial Asset Allocations
Until in Citibank's judgment a Portfolio has sufficient assets to fully
employ an investment strategy, Citibank will allocate assets across fewer of the
asset classes and fewer of the types of securities identified above than it
otherwise would. As a Portfolio's asset size increases, Citibank will add asset
classes and types of securities until the desired asset allocation is reached.
CERTAIN ADDITIONAL INVESTMENT POLICIES:
FUTURES. Each of the Portfolios may use financial futures in order to
protect the Portfolio from fluctuations in interest rates (sometimes called
"hedging") without actually buying or selling debt 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. The Portfolios also may purchase stock index and foreign
currency futures 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 increase the Portfolios' gross income.
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 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
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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 33 1/3% of the Portfolio's net assets for
extraordinary or emergency purposes (e.g., to meet redemption requests). Certain
of these specific restrictions may not be changed without investor approval.
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
Citibank 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. The turnover rate for each Portfolio is not expected to
exceed 100% annually. 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 Citibank or
its affiliates exercise investment discretion. Citibank is authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for a Portfolio which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if Citibank determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer.
<PAGE>
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 shares may be worth more or less at redemption than at
the time of purchase. Equity securities fluctuate in response to general market
and economic conditions and other factors, including actual and anticipated
earnings, changes in management, political developments and the potential for
takeovers and acquisitions. During periods of rising interest rates the value of
debt securities generally declines, and during periods of falling rates the
value of these securities generally increases. Changes by recognized rating
agencies in the rating of any debt security, and actual or perceived changes in
an issuer's ability to make principal or interest payments, also affect the
value of these investments.
CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent unrated securities
may have speculative characteristics. Adverse economic or changing circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade obligations.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks
relating to political, social and economic developments abroad, as well as risks
resulting from the differences between the regulations to which U.S. and
non-U.S. issuers and markets are subject. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of portfolio assets and political or social instability.
Enforcing legal rights may be difficult, costly and slow in non-U.S. countries,
and there may be special problems enforcing claims against non-U.S. governments.
In addition, non-U.S. companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be less
public information about their operations. Non-U.S. markets may be less liquid
and more volatile than U.S. markets, and may offer less protection to investors
such as the Portfolios. Prices at which a Portfolio may acquire securities may
be affected by trading by persons with material non-public information and by
securities transactions by brokers in anticipation of transactions by the
Portfolio.
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
<PAGE>
governmental controls on currency exchanges or governmental intervention in
currency markets.
The Portfolios may invest in issuers located in developing countries, which
are generally defined as countries in the initial stages of their
industrialization cycles with low per capita income. All of the risks of
investing in non-U.S. securities are heightened by investing in developing
countries. Investors should be aware that investing in the equity and fixed
income markets of developing countries involves exposure to economic structures
that are generally less diverse and mature, and to political systems which can
be expected to have less stability, than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of developed countries with more mature
economies; such markets often have provided higher rates of return, and greater
risks, to investors. These heightened risks include (i) greater risks of
expropriation, confiscatory taxation and nationalization, and less social,
political and economic stability; (ii) the small current size of markets for
securities of issuers based in developing countries and the currently low or
non-existent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict a 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.
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.
SMALL CAP COMPANIES. Investors in the Portfolios 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. Shares of the Portfolios, therefore, may be subject to greater
fluctuation in value than shares of an equity fund with more of its investments
in securities of larger, more established companies.
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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
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,
repurchase agreement or a reverse repurchase agreement, a Portfolio could
experience delays in recovering either the securities lent or cash. To the
extent that, in the meantime, the value of the securities lent has increased or
the value of the securities purchased has decreased, the Portfolio could
experience a loss.
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. In that case, 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
SEC Rule 144A among qualified institutional buyers. Institutional trading
<PAGE>
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
10% 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.
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 denominated in the same currency as the securities
into which they may be converted. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets and EDRs and GDRs, in bearer form,
are designed for use in European and global securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs and GDRs are European and global receipts,
respectively, evidencing a similar arrangement.
OTHER INVESTMENT COMPANIES. Subject to applicable statutory and regulatory
limitations, assets of each Portfolio may be invested in shares of other
investment companies. Each Portfolio may invest up to 5% of its assets in
closed-end investment companies which primarily hold securities of non-U.S.
issuers.
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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 objectives. 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 by Moody's or BBB 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.
ASSET-BACKED SECURITIES. Each 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.
Each 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
<PAGE>
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid.
FUTURES. Because the value of a futures contract changes based on the price
of the underlying security or other asset, futures contracts are commonly
referred to as "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. None of the Portfolios currently intends to enter into a futures
contract if, as a result, the initial margin deposits on all of that Portfolio's
futures contracts would exceed approximately 5% of the 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 the 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 Citibank's or a Subadviser's ability to predict interest rate, stock
price or currency 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 Citibank's or the Subadviser's view as to interest
rate, stock price or currency 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, each 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 the 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
Portfolio's exposure to the
<PAGE>
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 of the Portfolios 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.
OPTIONS. Each Portfolio may write (sell) covered call and put options and
purchase call and put options on securities. A 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, a 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.
Each of the Portfolios also may purchase 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 the
Portfolio anticipates investing in securities traded in such currency, the
Portfolio may purchase call options on the non-U.S. currency. Each Portfolio
also may buy and write options on stock indices.
Each Portfolio may purchase and write options to buy or sell interest rate
futures contracts and 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
<PAGE>
contracts and will constitute only a partial hedge, up to the amount of the
premium received. In addition, if an option is exercised, the 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. A Portfolio 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 (the "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 a Portfolio
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 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.
<PAGE>
Item 5. Management of the Portfolios.
TRUSTEES AND OFFICERS: Each Portfolio is supervised by the Board of Trustees
of the Trust. A majority of the Trustees are not affiliated with Citibank. More
information on the Trustees and officers of the Portfolios appears under
"Management of the Trust" in Part B to this Registration Statement.
INVESTMENT MANAGER: Each Portfolio draws on the strength and experience of
Citibank. Citibank offers a wide range of banking and investment services to
customers across the United States and throughout the world, and has been
managing money since 1822. Its portfolio managers are responsible for investing
in money market, equity and fixed income securities. Citibank and its affiliates
manage more than $73 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, The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") performs
such sub-administrative duties for the Portfolios as from time to time are
agreed upon by Citibank and LFBDS. LFBDS's compensation as sub-administrator is
paid by Citibank.
Citibank has delegated the daily management of the following kinds of
securities of each Portfolio to the following Subadvisers. Citibank pays all
Subadviser compensation.
Large capitalization growth securities [Subadviser and portfolio manager
information]
Large capitalization value securities [Subadviser and portfolio manager
information]
Small capitalization growth securities [Subadviser and portfolio manager
information]
Small capitalization value securities [Subadviser and portfolio manager
information]
International equity and fixed income [Subadviser and portfolio manager
securities information]
The following individuals at Citibank are responsible for supervising and
monitoring the performance of the Subadvisers:
<PAGE>
[Citibank portfolio manager information.]
From time to time in the future upon receipt of appropriate exemptive relief
from the SEC, Citibank may employ other or additional Subadvisers without
investor approval, whose fees will also be paid by Citibank. Promptly after
hiring a Subadviser without investor approval, Citibank will provide
shareholders of the affected investment companies investing in the Portfolios
with an information statement that will include all of the information about the
new Subadviser that would otherwise appear in a proxy statement concerning
approval of the Subadviser.
Management Fees. For its services under the Management Agreements, Citibank
receives a fee, which is accrued daily and paid monthly, of 0.75% of each
Portfolio's average daily net assets on an annualized basis for that Portfolio's
then-current fiscal year. Citibank may voluntarily agree to waive a portion of
its management fees from any Portfolio.
Banking Relationships. 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.
Bank Regulatory Matters. The Glass-Steagall Act prohibits certain financial
institutions, such as Citibank, from underwriting securities of open-end
investment companies, such as the Trust. Citibank believes that its services
under the Management Agreements and the activities performed by it or its
affiliates as Service Agents (which are securities dealers or other industry
professionals that have entered into service agreements with LFBDS) 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 or its affiliates from continuing to perform these services. If
Citibank or its affiliates were to be prevented from acting as the investment
manager or a Service Agent, the Trust would seek alternative means for obtaining
these services. The Trust does not expect that investors would suffer any
adverse financial consequences as a result of any such occurrence.
CUSTODIAN, FUND ACCOUNTING AGENT AND TRANSFER AGENT: The Trust, on behalf of
the Portfolios, has entered into Custodian Agreements with Investors Bank &
Trust Company ("IBT") pursuant to which IBT acts as custodian for each
Portfolio.
<PAGE>
Securities may be held by a sub-custodian bank approved by the Trustees. The
Trust, on behalf of the Portfolios, has entered into Fund Accounting Agreements
with Signature Financial Services, Inc. ("SFSI") pursuant to which SFSI provides
fund accounting services for each Portfolio. Pursuant to separate Transfer
Agency and Service Agreements with the Trust, on behalf of the Portfolios, SFSI
provides transfer agency services to each Portfolio.
The principal business address of IBT is One Lincoln Plaza, Boston,
Massachusetts 02111. The principal business address of SFSI is 6 St. James
Avenue, Boston, Massachusetts 02116.
EXPENSES: In addition to amounts payable under the Management Agreements,
each Portfolio is responsible for its own expenses, including, among other
things, the costs of securities transactions, the compensation of Trustees that
are not affiliated with Citibank, government fees, taxes, accounting and legal
fees, expenses of communicating with investors, interest expense, and insurance
premiums.
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 Declaration of Trust of
the Trust provides that entities investing in a Portfolio are each liable for
all obligations of the Portfolio in which they invest. It is not expected that
the liabilities of any Portfolio would ever exceed its assets.
<PAGE>
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 1940 Act). This determination is made once during each day as of the close
of regular trading on such Exchange. Values of the 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 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 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.
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, the Trust is not 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 the Portfolio's ordinary income and capital gains 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 LFBDS. The address of
LFBDS is c/o Signature Financial Group (Cayman), Ltd., Elizabethan Square,
George Town, Grand Cayman, Cayman Islands, BWI. LFBDS 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 Objective and Policies.........................B-1
Management of the Trust...................................B-24
Control Persons and Principal Holders of Securities.......B-26
Investment Advisory and Other Services....................B-27
Brokerage Allocation and Other Practices..................B-28
Capital Stock and Other Securities........................B-30
Purchase, Redemption and Pricing of Securities............B-31
Tax Status................................................B-33
Underwriters..............................................B-36
Calculations of Performance Data..........................B-36
Financial Statements......................................B-36
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objective and Policies.
Part A contains additional information about the investment objective and
policies of Asset Allocation Portfolio V ("Portfolio V"), Asset Allocation
Portfolio IV ("Portfolio IV"), Asset Allocation Portfolio III ("Portfolio III")
and Asset Allocation Portfolio II ("Portfolio II") (collectively, the
"Portfolios"), each a series of Asset Allocation Portfolios (the "Trust"). This
Part B should be read in conjunction with Part A.
The investment objective of Portfolio V is highest total return over time
consistent with a primary emphasis on capital appreciation and a secondary
emphasis on income for risk reduction purposes.
The investment objective of Portfolio IV is high total return over time
consistent with a primary emphasis on capital appreciation and a secondary
emphasis on income for risk reduction purposes.
<PAGE>
The investment objective of Portfolio III is high total return over time
consistent with a balanced emphasis on income and capital appreciation.
The investment objective of Portfolio II is high total return over time
consistent with a primary emphasis on income and a secondary emphasis on capital
appreciation.
The investment objective of each Portfolio may be changed without approval
by the Portfolio's investors. Of course, there can be no assurance that a
Portfolio will achieve its investment objective.
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.
Each Portfolio is a carefully selected and professionally managed
diversified mix of equity, fixed income and money market investments that are
structured to achieve certain risk and return objectives. There is a normal
percentage of each Portfolio that is allocated to the equity class of
investments, the fixed income class of investments and the money market class of
investments. In determining the normal asset allocations, Citibank, N.A.
("Citibank" or the "Manager"), the investment adviser to each Portfolio, has
looked at long-term performance and valuation measures within and between asset
classes and the effects of market and economic variables on those relationships.
It uses this information to determine the overall mix of the Portfolios' assets
among the three general asset classes. A Portfolio's allocation or asset mix is
determined by Citibank to be the optimal combination of stocks, bonds and money
market instruments that reduces risk and maximizes potential return for each
Portfolio's distinct investment objective.
The Trust has also adopted the following policies with respect to each
Portfolio's investments in (i) warrants and (ii) securities of issuers with less
than three years' continuous operation. The Trust's purchases of warrants for
each Portfolio 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 a
Portfolio will be deemed to be without value for the purpose of this
restriction. The Trust will not invest more than 5% of each Portfolio's assets
in companies which, including their respective predecessors, have a record of
less than three years' continuous operation.
The policies described above and those described below are not fundamental
and may be changed without investor approval.
<PAGE>
Bank Obligations
Each of the Portfolios may invest in bank obligations, i.e., certificates of
deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates of
deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market prior to
maturity. A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
Mortgage-Backed Securities
Each of the Portfolios 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 United States 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
<PAGE>
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.
Each 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 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.
Corporate Asset-Backed Securities
Each of the Portfolios 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
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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. A
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.
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 "Securities Act"), but can be offered and sold
to "qualified institutional buyers" under Rule 144A under the Securities Act.
However, none of the Portfolios invests more than 15% of its net assets in
illiquid investments, which include securities for which there is no readily
available market, securities subject to contractual restrictions on resale and
restricted securities, unless the Board of Trustees of the Trust determine,
based on the trading markets for the specific restricted security, that it is
liquid. The Trustees may adopt guidelines and delegate to the Manager or to a
Subadviser the daily function of determining and monitoring liquidity of
restricted securities. The Trustees, however, retain sufficient oversight and
are ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market
for restricted securities sold and offered under Rule 144A will develop, the
Trust's Trustees will carefully monitor each Portfolio's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information.
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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 on the U.S. dollar. In addition, there
is generally less publicly available information about foreign issuers,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Non-U.S. issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to domestic issuers. Investments in securities of non-U.S. issuers
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on the
removal of funds or other assets of the Portfolio, political or financial
instability or diplomatic and other developments which would affect such
investments. Further, economies of other countries or areas of the world may
differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. stock markets, while growing in volume
and sophistication, are generally not as developed as those in the U.S., and
securities of some non-U.S. issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of comparable
U.S. companies. Non-U.S. security trading practices, including those involving
securities settlement where the Portfolio's assets may be released prior to
receipt of payments, may expose the Portfolio to increased risk in the event of
a failed trade or the insolvency of a non-U.S. broker-dealer. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the U.S. and may be non-negotiable. In general, there is
less overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.
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.
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EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
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.
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 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 that
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.
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. A Portfolio would have the right to call a
loan and obtain the securities loaned at any time on customary industry
settlement notice (which will not usually exceed five 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 would also
receive compensation based on investment of the collateral. The Portfolio,
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would not, however, have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower fail financially. However,
the loans would be made only to entities deemed by the Manager or a Subadviser
to be of good standing, and when, in the judgment of the Manager or a
Subadviser, the consideration which can be earned currently from loans of this
type justifies the attendant risk. If the Manager or a Subadviser 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 Securities and Exchange Commission
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, the respective Portfolio will always 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 Securities and Exchange Commission 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 or a Subadviser
determines it is advisable as a matter of investment strategy to sell the
"when-issued" or "forward delivery" securities, the Portfolio would be required
to meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the "when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than the Portfolio's payment obligation).
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
foreign 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
<PAGE>
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. dollars on a daily
basis.)
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 will 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 or a Subadviser 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
<PAGE>
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 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 the
Portfolio anticipates investing in securities traded in such currency, the
Portfolio may purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the effects
of the adverse movements in exchange rates. However, the benefit to the
Portfolio from purchases of
<PAGE>
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Portfolio could sustain
losses on transactions in foreign currency options which would require it to
forgo a portion or all of the benefits of advantageous changes in such rates.
The Portfolios may write options on non-U.S. currencies for hedging
purposes or otherwise to achieve their investment objectives. For example, where
a Portfolio anticipates a decline in the value of the U.S. dollar value of a
foreign security due to adverse fluctuations in exchange rates it could, instead
of purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Portfolio 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 foreign security to be acquired because of
an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, 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 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 ADRs are traded
primarily in non-U.S. currencies, changes in currency exchange rates will affect
the value of ADRs. For example, decline in the U.S. dollar value of another
currency in which securities are primarily traded will reduce the U.S. dollar
value of such securities, even if their value in the other non-U.S. currency
remains
<PAGE>
constant, and thus will reduce the value of the ADRs covering such securities. A
Portfolio may employ any of the above described foreign currency hedging
techniques to protect the value of its assets invested in ADRs.
Of course, a Portfolio is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Manager or a
Subadviser. It should also be realized that this method of protecting the value
of a Portfolio's securities against a decline in the value of a currency does
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 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 to always have cash, cash equivalents or high
quality debt securities available sufficient to cover any commitments under
these contracts or to limit any potential risk.
Options
Each of the Portfolios may write covered call and put options and purchase
call and put options on securities. Call and put options written by a Portfolio
may be covered in the manner set forth below.
A call option written by a 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 a 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 a 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 a 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 a
<PAGE>
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
value of the underlying security from the time the option is written until
exercise.
Each of the Portfolios may purchase options for hedging purposes or to
increase the Portfolio's 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 a 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.
Each of the Portfolios 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.
Each of the Portfolios 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."
Each of the Portfolios may cover call options on stock indices by owning
securities whose price changes, in the opinion of the Manager or a Subadviser,
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 a 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. A 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
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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 Portfolio may cover put options on
stock indices by maintaining cash, short-term money market instruments or high
quality debt securities with a value equal to the exercise price in a segregated
account with its custodian, or by holding a put on the same stock index and in
the same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written or where
the exercise price of the put held is less than the exercise price of the put
written if the difference is maintained by the 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.
A 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 a
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, a Portfolio assumes the risk of a decline in the index. To the extent
that the price changes of securities owned by a 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.
Each of the Portfolios 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, a 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 a 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 investment. When purchasing call
options for this purpose, a 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 a Portfolio is substantially
fully
<PAGE>
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.
Each of the Portfolios may purchase and write options on foreign currencies
in a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized.
Futures Contracts
Each of the Portfolios may enter into interest rate futures contracts,
stock index futures contracts and/or foreign currency futures contracts. Such
investment strategies will be used for hedging purposes and for nonhedging
purposes, subject to applicable law.
A futures contract is an agreement between two parties for the purchase or
sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an index
of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at a
specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts 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 debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when 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
interest rate than the specific security that provides the standard for the
contract. In some (but not many)
<PAGE>
cases, securities called for by a futures contract may not have been issued when
the contract was entered into.
A 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 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 Portfolio
avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, a 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 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, the Portfolio could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. Where the 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.
<PAGE>
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 debt securities held
by the Portfolio), at the same time the futures contracts limit any potential
gain which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of a
Portfolio's investments through transactions in futures contracts depends on the
degree to which movements in the value of the debt securities underlying such
contracts correlate with movements in the value of the 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 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.
<PAGE>
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
or a Subadviser's investment judgment about the general direction of interest
rates is incorrect, the Portfolio's overall performance may be poorer than if
any such contract had not been entered into. For example, if a 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 a 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 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
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 each Portfolio
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
<PAGE>
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 ability of a Portfolio to engage in futures transactions may be limited
by the current federal income tax requirement that less than 30% of a
Portfolio's gross income be derived from the sale or other disposition of stock
or securities held for less than three months. In addition, 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
Each of the Portfolios 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.
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
<PAGE>
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.
Each of the Portfolios 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 a 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
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
<PAGE>
correlation cannot be expected to be exact, and the 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.
Each of the Portfolios 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.
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 (nor 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 the purchase of short-term obligations or (c) by
purchasing all or a portion of an issue of debt securities of
<PAGE>
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.
(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).
(5) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Portfolio's investment objectives,
up to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry.
(6) Underwrite securities issued by other persons, except in so far 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 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, except that collateral arrangements with
respect to options, futures contracts, and options on futures contracts,
including deposits of initial and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction and except as
appropriate to evidence a debt incurred without violating Investment Restriction
(1) above.
State and Federal Restrictions
In order to comply with certain state and federal statutes and policies
each Portfolio does not as a matter of operating policy:
(i) borrow money for any purpose in excess of 10% of the net assets of the
Portfolio (taken at cost) (moreover, the Portfolio will not purchase any
securities for the
<PAGE>
Portfolio at any time at which borrowings exceed 5% of the total assets of the
Portfolio (taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the net assets of the Portfolio (taken at market value),
(iii)sell any security which the Portfolio does not own unless by virtue of
the ownership of other securities there is at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions,
(iv) invest for the purpose of exercising control or management,
(v) purchase securities issued by any registered investment company, except
by purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's commission,
or except when such purchase, though not made in the open market, is part of a
plan of merger or consolidation; provided, however, that the Portfolio will not
purchase the securities of any registered investment company if such purchase at
the time thereof would cause more than 10% of the total assets of the Portfolio
(taken in each case at the greater of cost or market value) to be invested in
the securities of such issuers or would cause more than 3% of the outstanding
voting securities of any such issuer to be held for the Portfolio (for purposes
of this clause (v) securities of non-U.S. banks shall be treated as investment
company securities, except that debt securities and non-voting preferred stock
of non-U.S. banks are not subject to the 10% limitation described herein),
(vi) invest more than 10% of the net assets of the Portfolio in securities
that are not readily marketable, including debt securities for which there is no
established market and fixed time deposits and repurchase agreements maturing in
more than seven days,
(vii) purchase or retain any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust, or is an officer or director of the Manager, if after the purchase of
the securities of such issuer by the Portfolio, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value,
(viii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more
<PAGE>
than 10% of the net assets of the Portfolio (taken at market value) is held as
collateral for such sales at any one time (the Portfolios do not presently
intend to make such short sales for investment purposes).
These policies are not fundamental and may be changed by each Portfolio
without the approval of its holders of 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 this Registration Statement is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Portfolio will not be
considered a violation of policy.
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, British West Indies.
Trustees of the Trust
ELLIOTT J. BERV (aged __) -- 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 44) -- President of the Trust; Chief Executive
Officer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer
Services, Inc. (since December, 1988).
MARK T. FINN (aged __) -- President and Director, Delta Financial, Inc.
(since June, 1983); Chairman of the Board and Chief Executive Officer,
FX 500 Ltd. (Commodity Trading Advisory Firm)(since April, 1990); Director,
Vantage Consulting Group, Inc. (since October, 1988). His address is
3500 Pacific Avenue, P.O. Box 539, Virginia Beach, Virginia.
<PAGE>
WALTER E. ROBB, III (aged 69) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (corporate financial advisers) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)(since
1989); Trustee of certain registered investment companies in the MFS Family of
Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
Officers of the Trust
PHILIP W. COOLIDGE* (aged 44) -- President of the Trust; Chief Executive
Officer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer
Services, Inc. (since December, 1988).
DAVID G. DANIELSON* (aged __) -- Assistant Treasurer of the Trust; Assistant
Manager, Signature Financial Group, Inc. (since May, 1991); Graduate Student,
Northeastern University (April, 1990 to March, 1991).
JOHN R. ELDER* (aged __) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (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 __) -- Assistant Secretary of the Trust; Legal Counsel,
Signature Financial Group, Inc. (since June, 1991); Law Student, Boston
University School of Law (September, 1989 to May, 1992); Product Manager,
Signature Financial Group, Inc. (January, 1989 to September, 1989).
SUSAN JAKUBOSKI* (aged __) -- Vice President, Assistant Treasurer and Assistant
Secretary of the Trust; Manager, Signature Financial Group (Cayman) Ltd. (since
August, 1994); Senior Fund Administrator, Signature Financial Group, Inc.
(since August, 1994); Assistant Treasurer, Signature Broker-Dealer Services,
Inc. (since September, 1994); Fund Compliance Administrator, Concord Financial
Group (November, 1990 to August, 1994); Senior Fund Accountant, Neuberger &
Berman Management, Inc. (from February, 1988 to November, 1990); Customer
Service Representative, I.B.J. Schroder (prior to 1988). Her address is
Elizabethan Square, George Town, Grand Cayman, Cayman Islands, BWI.
JAMES S. LELKO, JR.* (aged __) -- Assistant Treasurer of the Trust; Assistant
Manager, Signature Financial Group, Inc. (since January, 1993); Senior Tax
Compliance Accountant, the Putnam Companies (September, 1988 to December, 1992).
THOMAS M. LENZ* (aged __) -- Secretary of the Trust; Vice President and
Associate General Counsel, Signature Financial Group, Inc. (since November,
1989); Assistant Secretary, Signature Broker-Dealer Services, Inc. (since
February, 1991); Attorney, Ropes & Gray (September, 1984 to November, 1989).
<PAGE>
MOLLY S. MUGLER* (aged ___) -- Assistant Secretary of the Trust; Legal Counsel
and Assistant Secretary, Signature Financial Group, Inc. (since December,
1988); Assistant Secretary, The Landmark Funds Broker-Dealer Services, Inc.
(since December, 1988).
BARBARA M. O'DETTE* (aged ___) -- Assistant Treasurer of the Trust; Assistant
Treasurer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer
Services, Inc. (since December, 1988).
ANDRES E. SALDANA* (aged __) -- Assistant Secretary of the Trust; Legal Counsel
and Assistant Secretary, Signature Financial Group, Inc. (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992).
DANIEL E. SHEA* (aged __) -- Assistant Treasurer of the Trust; Assistant
Manager of Fund Administration, Signature Financial Group, Inc. (since
November, 1993); Supervisor and Senior Technical Advisor, Putnam Investments
(prior to 1990).
The Trustees and officers of the Trust also hold comparable positions with
certain other funds for which The Landmark Funds Broker-Dealer Services, Inc.,
Signature Financial Group, Inc. or their affiliates serve as the distributor or
administrator.
It is estimated that Trustees of the Trust will receive no compensation
during the fiscal year of the Portfolios ending December 31, 1995.
The Declaration of Trust of the Trust provide 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 of the Trust, or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
Item 15. Control Persons and Principal Holders of Securities.
As of December 15, 1995, there were no holders of beneficial interests in
any Portfolio. It is anticipated that on or about March 1, 1996, Packaged
Solutions Aggressive
<PAGE>
Growth Fund, Packaged Solutions Growth Fund, Packaged Solutions Moderate Growth
Fund and Packaged Solutions Income and Growth Fund (the "Funds") will invest all
of their investable assets in Portfolio V, Portfolio IV, Portfolio III and
Portfolio II, respectively. Upon such investment, it is expected that the Funds
will control the Portfolios by virtue of owning a majority of the value of the
outstanding interests in the Portfolios. Because the Funds would control the
Portfolios, the Funds could take actions without the approval of any other
investor. The Funds have informed the Portfolios that whenever it is requested
to vote on matters pertaining to the fundamental policies of a Portfolio, the
relevant Fund 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 the
Portfolios which is an investment company registered under the 1940 Act would
follow the same or a similar practice. The Funds are series of Landmark Funds I,
a Massachusetts business trust organized on April 13, 1984 and registered under
the 1940 Act as an investment company.
Item 16. Investment Advisory and Other Services.
Citibank manages the assets of each Portfolio and provides certain
administrative services to the Trust pursuant to separate management agreements
relating to each Portfolio ("Management Agreements"). Subject to such policies
as the Board of Trustees of the Trust 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 until February 9, 1998 and thereafter 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.
Pursuant to a sub-administrative services agreement with Citibank, The
Landmark Funds Broker-Dealer Services, Inc. ("LFBDS") performs such
sub-administrative duties for the Trust as from time to time are agreed upon by
Citibank and LFBDS. For performing such sub-administrative services, LFBDS
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.
The Trust, on behalf of the Portfolios, has entered into Custodian
Agreements with Investors Bank & Trust Company ("IBT") pursuant to which IBT
acts as custodian for each Portfolio. The Trust, on behalf of the Portfolios,
has entered into Fund Accounting Agreements with Signature Financial Services,
Inc. ("SFSI") pursuant to which SFSI provides fund accounting services for each
Portfolio. Pursuant to separate Transfer Agency and Service Agreements with the
Trust, on behalf of the Portfolios, SFSI provides transfer agency services to
each Portfolio.
The principal business address of IBT is One Lincoln Plaza, Boston,
Massachusetts 02111. The principal business address of SFSI is 6 St. James
Avenue, Boston, Massachusetts 02116.
Price Waterhouse are the chartered accountants for the Portfolio Trust. The
address of Price Waterhouse is Suite 3000, 1 First Canadian Place, Toronto,
Ontario M5X 1H7, Canada.
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 objective. Changes
<PAGE>
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. The turnover rate for the each Portfolio is not
expected to exceed 100% annually. The turnover rate for the common stock portion
of Portfolio III is not expected to exceed 80% annually. Specific decisions to
purchase or sell securities for each Portfolio are made by a portfolio manager
who is an employee of Citibank and who is appointed and supervised by its senior
officers or by a Subadviser. The portfolio manager may serve other clients of
Citibank in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the 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. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the commissions
paid over representative periods of time were reasonable in relation to the
benefits to the Portfolio.
The investment advisory 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.
In certain instances there may be securities that are suitable as an
investment for a Portfolio as well as for one or more of Citibank's other
clients. Investment decisions for each Portfolio and for Citibank's other
clients are made with a view to achieving their respective investment objective.
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
<PAGE>
are allocated among clients in a manner believed to be equitable to each. It is
recognized that in some cases this system could adversely affect the price of or
the size of the position obtainable in a security for a Portfolio. When
purchases or sales of the same security for a Portfolio and for other portfolios
managed by Citibank occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large volume
purchases or sales.
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 a 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
<PAGE>
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 Trust's Declaration of Trust provides that
investors in a Portfolio are each liable for all obligations of that Portfolio.
The Declaration of Trust also provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its investors, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of an
investor incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations. It is not expected that the liabilities of
the Portfolio would ever exceed its assets.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he 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 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,
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. 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
<PAGE>
market rates at the time of valuation. Equity securities are valued at the last
sale price on the exchange on which they are primarily traded or on the NASDAQ
system for unlisted national market issues, or at the last quoted bid price for
securities in which there were no sales during the day or for unlisted
securities not reported on the NASDAQ system. Securities listed on a non-U.S.
exchange are valued at the last quoted sale price available before the time when
net assets are valued. Bonds and other fixed income securities (other than
short-term obligations) are valued on the basis of valuations furnished by a
pricing service, use of which has been approved by the Board of Trustees of the
Trust. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques that take
into account appropriate factors such as institutional- size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations (maturing in 60 days or less) are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
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 non-U.S. exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of non-U.S. securities occur between the
time when the exchange on which they are traded closes and the time when a
Fund's net asset value is calculated, such securities will 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
<PAGE>
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 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 Trust is not subject to any income tax, but each investor in a
Portfolio must take into account its share of that Portfolio's ordinary income
and capital gains 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's taxable year-end ends December 31. Although, as described
above, the Trust is not subject to U.S. federal income tax, it files 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
<PAGE>
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 that each such investor should be deemed
to hold its proportionate share of the 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 the Portfolio should be treated, as to it, as a
separate entity as to which the investor has no direct interest in Portfolio
assets or operations.
In order to enable an investor in 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) and holding period of a Portfolio's assets as if those
requirements were directly applicable to such Portfolio and to allocate and
permit withdrawals of its net investment income and any net realized capital
gains in a manner that will enable an investor that is a RIC to comply with the
qualification requirements imposed by Subchapter M of the Code.
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 in that Portfolio 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.
Each Portfolio may be subject to foreign withholding 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. Foreign
exchange gains and losses realized by a Portfolio will generally be treated as
ordinary income and losses for federal income tax
<PAGE>
purposes. Certain uses of foreign currency and foreign currency forward
contracts and investment by a Portfolio in certain "passive foreign investment
companies" may be limited, or a tax election may be made, if available, in order
to enable an investor that is a RIC to preserve its qualification as a RIC and
to avoid imposition of a tax on such an investor.
Each Portfolio's transactions in forward currency 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 a Portfolio on the
last business day of each taxable year will be marked to market (i.e., treated
as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held 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, adjustments in the holding periods of Portfolio securities,
and conversion of short-term into long-term capital losses. Certain tax
elections exist for straddles that may alter the effects of these rules.
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
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.
<PAGE>
Item 21. Underwriters.
LFBDS, 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.
Item 23. Financial Statements.
To be filed by amendment.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
To be filed by amendment.
(b) Exhibits
1 Copy of the Declaration of Trust of the Trust
*2 By-laws of the Trust
5 Form of Management Agreement between the
Registrant and Citibank, N.A., as investment adviser
*6 Form of Placement Agency Agreement between the
Registrant and The Landmark Funds Broker-Dealer
Services, Inc., as exclusive placement agent
*8 Form of Custodian Agreement between the
Registrant and Investors Bank & Trust Company,
as custodian
*9(a)Form of Fund Accounting Agreement between
the Registrant and Signature Financial
Services, Inc. ("SFSI")
*9(b)Form of Transfer Agency Agreement between
the Registrant and SFSI, as transfer agent
*11 Consent of Independent Accountants
*To be filed by amendment.
<PAGE>
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
(as of December 15, 1995)
Beneficial Interests 0
Item 27. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust of the
Registrant (Exhibit 1 to this Registration Statement).
The Trustees and officers of the Trust 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): The Premium Portfolios
(Balanced Portfolio, Equity Portfolio, Government Income Portfolio,
International Equity Portfolio, Emerging Asian Markets Equity Portfolio and
Small Cap Equity Portfolio), Tax Free Reserves Portfolio, U.S. Treasury Reserves
Portfolio, Cash Reserves Portfolio, Landmark Multi-State Tax Free Funds
(Landmark New York Tax Free Reserves, Landmark Connecticut Tax Free Reserves and
Landmark California Tax Free Reserves), Landmark Fixed Income Funds (Landmark
Intermediate Income Fund), Landmark Tax Free Income Funds (Landmark National Tax
Free Income Fund and Landmark New York Tax Free Income Fund) and Landmark VIP
Funds (Landmark VIP U.S. Government Portfolio, Landmark VIP Balanced Portfolio,
Landmark VIP Equity Portfolio and Landmark VIP International Equity Portfolio).
As of December 31,
<PAGE>
1994, Citibank and its affiliates managed assets in excess of $73 billion
worldwide. The principal place of business of Citibank is located at 399 Park
Avenue, New York, New York 10043.
The Chairman of the Board and a Director of Citibank is John S. Reed. The
following are Vice Chairmen of the Board and Directors of Citibank: Paul J.
Collins, Pei-yuan Chia, William R. Rhodes and H. Onno Ruding. Other Directors of
Citibank are D. Wayne Calloway, Chairman and Chief Executive Officer, PepsiCo,
Inc., Purchase, New York; Colby H. Chandler, Former Chairman and Chief Executive
Officer, Eastman Kodak Company; Kenneth T. Derr, Chairman and Chief Executive
Officer, Chevron Corporation; H.J. Haynes, Senior Counselor, Bechtel Group,
Inc., San Francisco, California; Rozanne L. Ridgway, President, The Atlantic
Council of the United States; Robert B. Shapiro, President and Chief Operating
Officer, Monsanto Company; Frank A. Shrontz, Chairman and Chief Executive
Officer, The Boeing Company, Seattle, Washington; Mario Henrique Simonsen, Vice
Chairman, Brazilian Institute of Economics, The Getulio Vargas Foundation; Roger
B. Smith, Former Chairman and Chief Executive Officer, General Motors
Corporation; Franklin A. Thomas, President, The Ford Foundation, New York, New
York; and Edgar S. Woolard, Jr., Chairman and Chief Executive Officer, E.I.
DuPont De Nemours & Company.
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
Director, Pepsico, Inc.
Colby H. Chandler Director, Digital Equipment
Corporation
Director, Ford Motor Company
Director, J.C. Penney Company, Inc.
Pei-yuan Chia None
Paul J. Collins Director, Kimberly-Clark
Corporation
Kenneth T. Derr Director, Chevron Corporation
Director, Potlatch Corporation
<PAGE>
H.J. Haynes Director, Bechtel Group, Inc.
Director, Boeing Company
Director, Fremont Group, Inc.
Director, Hewlett-Packard Company
Director, Paccar Inc.
Director, Saudi Arabian Oil Company
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Incorporated
Stockholder, Tampa Tank & Welding,Inc.
William R. Rhodes Director, Private Export Funding
Corporation
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
H. Onno Ruding Member, Board of Supervisory Directors,
Amsterdam Trustee's Kantoor
Advisor, Intercena (C&A)(Netherlands)
Member, Board of Supervisory Directors,
Pechiney Nederland N.V.
Member, Board of Advisers, Robeco N.V.
Advisory Director, Unilever N.V.
Advisory Director, Unilever PLC
Robert B. Shapiro Director, G.D. Searle & Co.
Director, Liposome Technology, Inc.
Director, Monsanto Company
Director, The Nutrasweet Company
<PAGE>
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director, Boeing Company
Director, Boise Cascade Corp.
Mario Henrique Director, Companhia Bozano Simonsen
Simonsen Comercioe E Industria
Director, Companhia Monteia & Aranha
President, Simposium Consultoria E
Servicos Tecnicos LTDA
Roger B. Smith Director, International Paper Company
Director, Johnson & Johnson
Director, Pepsico, Inc.
Director, Rubatex Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, American Telephone & Telegraph,
Co.
Director, CBS, Inc.
Director, Cummins Engine Company, Inc.
Director, Pepsico, Inc.
Edgar S. Woolard, Jr. Director, E.I. DuPont De Nemours &
Company
Director, International Business Machines
Corp.
Director, Seagram Company, Ltd.
Item 29. Principal Underwriters.
(a) The Landmark Funds Broker-Dealer Services, Inc. ("LFBDS"), the
Portfolios' Placement Agent, is also the placement agent for Cash Reserves
Portfolio, U.S. Treasury Reserves Portfolio, Tax Free Reserves Portfolio,
Balanced Portfolio, Equity Portfolio, Small Cap Equity Portfolio, International
Equity Portfolio, Emerging Asian Markets Equity Portfolio and Government Income
Portfolio. LFBDS is also the distributor for Landmark International Equity Fund,
Landmark Emerging Asian Markets Equity Fund, Landmark Cash Reserves, Premium
Liquid Reserves, Premium U.S. Treasury Reserves, Landmark Tax Free Reserves,
Landmark New York Tax Free Reserves, Landmark California Tax Free Reserves,
Landmark Connecticut Tax Free Reserves, Landmark New York Tax
<PAGE>
Free Income Fund,Landmark Balanced Fund, Packaged Solutions Aggressive Growth
Fund, Packaged Solutions Growth Fund, Packaged Solutions Moderate Growth Fund,
Packaged Solutions Income and Growth Fund, Landmark Equity Fund, Landmark Small
Cap Equity Fund, Landmark National Tax Free Income Fund, Landmark U.S.
Government Income Fund, Landmark Intermediate Income Fund, Landmark U.S.
Treasury Reserves, Landmark Institutional Liquid Reserves, Landmark
Institutional U.S. Treasury Reserves and Landmark VIP Funds (Landmark VIP U.S.
Government Portfolio, Landmark VIP Balanced Portfolio, Landmark VIP Equity
Portfolio and Landmark VIP International Equity Portfolio).
(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
Investors Bank & Trust Company One Lincoln Plaza
(custodian) Boston, MA 02111
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
The Landmark Funds Broker-Dealer c/o Signature Financial Group
Services, Inc. (Cayman) Ltd.
(placement agent) Elizabethan Square
George Town, Grand Cayman
Cayman Islands BWI
Signature Financial Services, Inc. First Canadian Place
(accounting services agent) Suite 5850, P.O. Box 231
Toronto, Ontario
M5X lC8 CANADA
<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 Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston and Commonwealth of Massachusetts on the 18th day of December 1995.
ASSET ALLOCATION PORTFOLIOS
By: Thomas M. Lenz
Thomas M. Lenz, Secretary
<PAGE>
EXHIBIT INDEX
1 Copy of the Declaration of Trust of the Trust
*2 By-laws of the Trust
5 Form of Management Agreement between the Registrant and Citibank, N.A.,
as investment adviser
*6 Form of Placement Agency Agreement between the Registrant and The
Landmark Funds Broker-Dealer Services, Inc., as exclusive placement
agent
*8 Form of Custodian Agreement between the Registrant and Investors Bank
& Trust Company, as custodian
*9(a) Form of Fund Accounting Agreement between the Registrant and Signature
Financial Services, Inc. ("SFSI")
*9(b) Form of Transfer Agency Agreement between the Registrant and SFSI, as
transfer agent
*11 Consent of Independent Accountants
*To be filed by amendment.
Exhibit 1
ASSET ALLOCATION PORTFOLIOS
DECLARATION OF TRUST
Dated as of December 14, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust.................................... 1
Section 1.1 Name................................. 1
Section 1.2 Definitions ......................... 1
ARTICLE II--Trustees ................................... 4
Section 2.1 Number and Qualification............. 4
Section 2.2 Term and Election.................... 4
Section 2.3 Resignation, Removal and Retirement.. 5
Section 2.4 Vacancies............................ 5
Section 2.5 Meetings............................. 6
Section 2.6 Officers; Chairman of the Board...... 7
Section 2.7 By-Laws.............................. 7
ARTICLE III--Powers of Trustees ........................ 7
Section 3.1 General.............................. 7
Section 3.2 Investments.......................... 8
Section 3.3 Legal Title.......................... 8
Section 3.4 Sale and Increases of Interests...... 9
Section 3.5 Decreases and Redemptions of Interests 9
Section 3.6 Borrow Money......................... 9
Section 3.7 Delegation; Committees............... 9
Section 3.8 Collection and Payment............... 10
Section 3.9 Expenses............................. 10
Section 3.10 Miscellaneous Powers................ 11
Section 3.11 Further Powers...................... 11
Section 3.12 Limitation on Powers................ 12
ARTICLE IV--Investment Advisory, Administration and
Placement Agent Arrangements; Custodian .... 12
Section 4.1 Investment Advisory and Other
Arrangements......................... 12
Section 4.2 Parties to Contract.................. 12
Section 4.3 Custodian............................ 13
Section 4.4 1940 Act Governance.................. 13
<PAGE>
ARTICLE V--Liability of Holders; Limitations of Liability
of Trustees, Officers, etc................... 13
Section 5.1 Liability of Holders; Indemnification 13
Section 5.2 Limitations of Liability of Trustees,
Officers, Employees, Agents,
Independent Contractors to Third
Parties.............................. 14
Section 5.3 Limitations of Liability of Trustees,
Officers, Employees, Agents,
Independent Contractors to Trust,
Holders, etc......................... 14
Section 5.4 Mandatory Indemnification............ 14
Section 5.5 No Bond Required of Trustees......... 15
Section 5.6 No Duty of Investigation; Notice in
Trust Instruments, etc............... 15
Section 5.7 Reliance on Experts, etc............. 16
Section 5.8 No Repeal or Modification............ 16
ARTICLE VI--Interests................................... 17
Section 6.1 Interests............................ 17
Section 6.2 Establishment and Designation of
Series ........................... 17
Section 6.3 Non-Transferability.................. 19
Section 6.4 Register of Interests................ 19
ARTICLE VII--Increases, Decreases And Redemptions of .. 19
Interests
ARTICLE VIII--Determination of Book Capital Account
Balances, and Distributions............... 19
Section 8.1 Book Capital Account Balances........ 19
Section 8.2 Allocations and Distributions to
Holders.............................. 20
Section 8.3 Power to Modify Foregoing Procedures. 20
ARTICLE IX--Holders..................................... 20
Section 9.1 Rights of Holders.................... 20
Section 9.2 Meetings of Holders.................. 21
Section 9.3 Notice of Meetings................... 21
Section 9.4 Record Date for Meetings,
Distributions, etc. ................. 22
Section 9.5 Proxies, etc......................... 22
Section 9.6 Reports.............................. 22
Section 9.7 Inspection of Records................ 23
Section 9.8 Holder Action by Written Consent..... 23
Section 9.9 Notices.............................. 23
<PAGE>
ARTICLE X--Duration; Termination; Dissolution; Amendment;
Mergers; Etc................................. 23
Section 10.1 Duration............................ 23
Section 10.2 Dissolution......................... 24
Section 10.3 Termination......................... 24
Section 10.4 Amendment Procedure................. 25
Section 10.5 Merger, Consolidation and Sale of
Assets ............................ 27
Section 10.6 Incorporation....................... 27
ARTICLE XI--Miscellaneous............................... 27
Section 11.1 Certificate of Designation; Agent
for Service of Process.............. 27
Section 11.2 Governing Law....................... 28
Section 11.3. Counterparts........................ 28
Section 11.4 Reliance by Third Parties........... 28
Section 11.5 Provisions in Conflict with Law or
Regulations......................... 28
<PAGE>
DECLARATION OF TRUST
OF
ASSET ALLOCATION PORTFOLIOS
This DECLARATION OF TRUST of Asset Allocation Portfolios is made as of the
14th day of December, 1995 by the parties signatory hereto, as Trustees (as
defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a master trust fund or "Trust" (as
defined in Section 1.2 hereof) under the law of the State of New York consisting
of one or more subtrusts or "Series" (as defined in Section 1.2 hereof) for the
investment and reinvestment of assets contributed thereto; and
WHEREAS, it is proposed that the trust assets be composed of money and other
property contributed to the Series, such assets to be held and managed in trust
for the benefit of the holders of beneficial interests in such Series;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust all
money and other property contributed to the Trust and will manage and dispose of
the same for the benefit of such holders of beneficial interests and subject to
the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the Trust shall be Asset Allocation Portfolios and so
far as may be practicable the Trustees shall conduct the Trust's activities,
execute all documents and sue or be sued under that name, which name (and the
term "Trust" wherever hereinafter used) shall refer to the Trustees as Trustees,
and not individually, and shall not refer to the officers, employees, agents or
independent contractors of the Trust or its holders of beneficial interests.
1.2. Definitions. As used in this Declaration, the following terms shall
have the following meanings:
<PAGE>
"Administrator" shall mean any party furnishing services to one or more
Series pursuant to any administration contract described in Section 4.1 hereof.
"Book Capital Account" shall mean, for any Holder (as hereinafter
defined) at any time, the Book Capital Account of the Holder at such time with
respect to the Holder's beneficial interest in the Trust Property (as
hereinafter defined) of any Series, determined in accordance with the method
established by the Trustees pursuant to Section 8.1 hereof. The Trust shall
maintain separate records of Book Capital Accounts for each such Series.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"Commission" shall mean the United States Securities and Exchange
Commission.
"Declaration" shall mean this Declaration of Trust as amended from time
to time. References in this Declaration to "Declaration", "hereof", "herein" and
"hereunder" shall be deemed to refer to this Declaration rather than the article
or section in which any such word appears.
"Emergency Meeting" shall mean a meeting of the Trustees or of a
committee of the Trustees (a) called by the Chairman, if any, the President, the
Secretary, an Assistant Secretary or any two Trustees, (b) the notice of which
is given or confirmed in writing and specifies that the meeting is an "Emergency
Meeting" and (c) except as provided in clauses (a) and (b) of this definition,
held in accordance with the provisions set forth in Section 2.5 hereof.
"Fiscal Year" shall mean an annual period determined by the Trustees
which ends on December 31 of each year or on such other day as is permitted or
required by the Code.
"Governing Jurisdiction" shall mean the State of New York.
"Holder" shall mean the record holder of any Interest.
"Institutional Investor(s)" shall mean any regulated investment
company, segregated asset account, foreign investment company, common trust
fund, group trust or other investment arrangement, whether organized within or
without the United States of America, other than an individual, S corporation,
<PAGE>
partnership or grantor trust beneficially owned by any individual, S corporation
or partnership.
"Interested Person" shall have the meaning given it in the 1940 Act (as
hereinafter defined).
"Interest" shall mean the beneficial interest of a Holder in the Trust
Property of any Series, including all rights, powers and privileges accorded to
Holders by this Declaration, which interest may be expressed as a percentage,
determined by calculating for a particular Series, at such times and on such
basis as the Trustees shall from time to time determine, the ratio of each
Holder's Book Capital Account balance to the total of all Holders' Book Capital
Account balances. Reference herein to a specified percentage of, or fraction of,
Interests, means Holders whose combined Book Capital Account balances represent
such specified percentage or fraction of the combined Book Capital Account
balances of all, or a specified group of, Holders.
"Investment Adviser" shall mean any party furnishing services to one or
more Series of the Trust pursuant to any investment advisory contract described
in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a meeting of Holders
of one or more Series as the context may require, of (A) 67% or more of the
Interests present or represented at such meeting, if Holders of more than 50% of
all Interests in such one or more Series are present or represented by proxy, or
(B) more than 50% of all Interests in such one or more Series, whichever is
less.
"1940 Act" shall mean the United States Investment Company Act of 1940,
as amended from time to time, and the rules and regulations thereunder.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Redemption" shall mean the complete withdrawal of an Interest of a
Holder the result of which is to reduce the Book Capital Account balance of that
Holder to zero, and the term "redeem" shall mean to effect a Redemption.
"Series" shall mean the subtrusts of the Trust as the same are
established and designated pursuant to Article VI hereof, each of which shall be
a separate subtrust.
<PAGE>
"Trust" shall mean the master trust fund established hereby and shall
include each Series hereof.
"Trust Property" shall mean as of any particular time any and all
assets or other property, real or personal, tangible or intangible, which at
such time is owned or held by or for the account of any Series or for the
account of the Trustees, each component of which shall be allocated and belong
to a specific Series to the exclusion of all other Series.
"Trustees" shall mean each signatory to this Declaration, so long as
such signatory shall continue in office in accordance with the terms hereof, and
all other individuals who at the time in question have been duly elected or
appointed and have qualified as Trustees in accordance with the provisions
hereof and are then in office, and reference in this Declaration to a Trustee or
Trustees shall refer to such individual or individuals in their capacity as
Trustees hereunder.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall be fixed from
time to time by action of the Trustees taken as provided in Section 2.5 hereof;
provided, however, that the number of Trustees so fixed shall in no event be
less than three. Any vacancy created by an increase in the number of Trustees
may be filled by the appointment of an individual having the qualifications
described in this Section 2.1 made by action of the Trustees taken as provided
in Section 2.5 hereof. Any such appointment shall not become effective, however,
until the individual named in the written instrument of appointment shall have
accepted in writing such appointment and agreed in writing to be bound by the
terms of this Declaration. No reduction in the number of Trustees shall have the
effect of removing any Trustee from office. Whenever a vacancy occurs, until
such vacancy is filled as provided in Section 2.4 hereof, the Trustees
continuing in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration. A Trustee shall be an individual at least 21 years
of age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or elected or appointed
prior to the first meeting of Holders, shall (except in the event of
resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected
<PAGE>
at such meeting and has qualified to serve as Trustee, as required under the
1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and except
as provided in Section 2.3 hereof, each Trustee shall hold office during the
lifetime of the Trust and until its termination as hereinafter provided.
2.3. Resignation, Removal and Retirement. Any Trustee may resign his or her
trust (without need for prior or subsequent accounting) by an instrument in
writing executed by such Trustee and delivered or mailed to the Chairman, if
any, the President or the Secretary of the Trust and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any Trustee may be removed with or without cause by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate number
of Trustees, after such removal and after giving effect to any appointment made
to fill the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause by the action of two-thirds of the
remaining Trustees. Removal with cause includes, but is not limited to, the
removal of a Trustee for failure to comply with such written policies as may
from time to time be adopted by at least two-thirds of the Trustees with respect
to the conduct of the Trustees and attendance at meetings. Any Trustee who has
attained a mandatory retirement age, if any, established pursuant to any written
policy adopted from time to time by a majority of the Trustees shall,
automatically and without action by such Trustee or the remaining Trustees, be
deemed to have retired in accordance with the terms of such policy, effective as
of the date determined in accordance with such policy. Any Trustee who has
become physically or mentally incapacitated as determined by a majority of the
other Trustees, may be retired by written instrument executed by a majority of
the other Trustees, specifying the date of such Trustee's retirement. Upon the
resignation, retirement or removal of a Trustee, or a Trustee otherwise ceasing
to be a Trustee, such resigning, retired, removed or former Trustee shall
execute and deliver such documents as the remaining Trustees shall require for
the purpose of conveying to the Trust or the remaining Trustees any Trust
Property held in the name of such resigning, retired, removed or former Trustee.
Upon the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of such
deceased, removed, retired or resigning Trustee shall execute and deliver on
behalf of such deceased, removed, retired or resigning Trustee such documents as
the remaining Trustees shall require for the purpose set forth in the preceding
sentence.
2.4. Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, retirement or
removal of a Trustee. No such vacancy shall operate to annul this Declaration or
to revoke any existing agency created pursuant to the terms of this Declaration.
In the case of a vacancy, Holders of at least a majority of the Interests
entitled to
<PAGE>
vote, acting at any meeting of Holders held in accordance with Section 9.2
hereof, or, to the extent permitted by the 1940 Act, a majority vote of the
Trustees continuing in office acting by written instrument or instruments, may
fill such vacancy, and any Trustee so elected by the Trustees or the Holders
shall hold office as provided in this Declaration. The Trustees may appoint a
new Trustee as provided above in anticipation of a vacancy expected to occur
because of the retirement, resignation or removal of a Trustee, or an increase
in number of Trustees, provided that such appointment shall become effective
only when or after the expected vacancy occurs. Subject to the foregoing
sentence, as soon as any Trustee has accepted such appointment in writing, the
Trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance, and he or she shall be deemed a
Trustee hereunder. The power of appointment is subject to Section 16(a) of the
1940 Act.
2.5. Meetings. Meetings of the Trustees shall be held from time to time upon
the call of the Chairman, if any, the President, the Secretary, an Assistant
Secretary or any two Trustees. Regular meetings of the Trustees may be held
without call or notice at a time and place fixed by the By-Laws or by resolution
of the Trustees. Notice of any other meeting shall be mailed or otherwise given
not less than 24 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except in the
situation in which a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened. The Trustees may act with or without a meeting.
A quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration, any action of the Trustees may be
taken at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if any, may
act with or without a meeting. A quorum for all meetings of any such committee
shall be a majority of the members thereof. Unless provided otherwise in this
Declaration, any action of any such committee may be taken at a meeting by vote
of a majority of the members present (a quorum being present) or without a
meeting by written consent of a majority of the members.
Any notice, waiver or written consent hereunder may be provided and
delivered to the Trust or a Trustee by facsimile or other similar electronic
mechanism.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust or otherwise interested in any
<PAGE>
action to be taken may be counted for quorum purposes under this Section 2.5 and
shall be entitled to vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the Trustees
or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all individuals participating in the
meeting can hear each other and participation in a meeting by means of such
communications equipment shall constitute presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees shall, from time to time,
elect a President, a Secretary and a Treasurer. The Trustees may elect or
appoint, from time to time, a Chairman of the Board who shall preside at all
meetings of the Trustees and carry out such other duties as the Trustees may
designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each officer may, but need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time to
time, amend or repeal By-Laws for the conduct of the business of
the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust and each Series to the
same extent as if the Trustees were the sole owners of the Trust Property and
such business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust and
any Series. The enumeration of or failure to mention any specific power herein
shall not be construed as limiting such exclusive and absolute control. The
powers of the Trustees may be exercised without order of or resort to any court.
The Trustees shall have full power and authority to do any and all acts and
to make and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall have full authority and power to make any and all investments
which they, in their uncontrolled discretion, shall deem proper to accomplish
the purposes of this Trust.
<PAGE>
3.2. Investments. The Trustees shall have the power with respect to
the Trust and each Series to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank, savings institution, corporation
or other business entity organized under the laws of the United States or any
state or under any foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of any kind and description, including, without limitation, the right to consent
and otherwise act with respect thereto, with power to designate one or more
Persons to exercise any of such rights, powers and privileges in respect of any
of such investments; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional instruments in which the Trustees may
determine to invest;
(c) definitively interpret the investment objectives, policies and
limitations of any Series.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property shall be vested in the
Trustees as joint tenants except that the Trustees shall have the power to cause
legal title to any Trust Property to be held by or in the name of one or more of
the Trustees, or in the name of the Trust or any Series, or in the name or
nominee name of any other Person on behalf of the Trust or any Series, on such
terms as the Trustees may determine.
<PAGE>
The right, title and interest of the Trustees in the Trust Property shall
vest automatically in each individual who may hereafter become a Trustee upon
his due election and qualification. Upon the resignation, removal or death of a
Trustee, such resigning, removed or deceased Trustee shall automatically cease
to have any right, title or interest in any Trust Property, and the right, title
and interest of such resigning, removed or deceased Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
3.4. Sale and Increases of Interests. The Trustees, in their discretion,
may, from time to time, without a vote of the Holders, permit any Institutional
Investor to purchase an Interest in a Series, or increase such Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals, S corporations, partnerships and
grantor trusts that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. The Trustees, in their discretion, may
refuse to sell an Interest in a Series to any person without any cause or reason
therefor. A Holder which has redeemed its Interest in a Series may not be
permitted to purchase an Interest in such Series until the later of 60 calendar
days after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 Decreases and Redemptions of Interests. Subject to Article VII hereof,
the Trustees, in their discretion, may, from time to time, without a vote of the
Holders, permit a Holder to redeem its Interest in a Series, or decrease such
Interest, for either cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem best.
3.6. Borrow Money. The Trustees shall have power on behalf of any Series to
borrow money or otherwise obtain credit and to secure the same by mortgaging,
pledging or otherwise subjecting as security the assets belonging to such
Series, as appropriate, including the lending of portfolio securities, and to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person.
3.7. Delegation; Committees. The Trustees shall have power, consistent
with their continuing exclusive and absolute control over the Trust Property and
over the business of the Trust and any Series, to delegate from time to time to
<PAGE>
such of their number or to officers, employees, agents or independent
contractors of the Trust or any Series the doing of such things and the
execution of such instruments in either the name of the Trust or any Series or
the names of the Trustees or otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have power to collect all
property due to the Trust; and to pay all claims, including taxes, against the
Trust Property on behalf of any Series; to prosecute, defend, compromise or
abandon any claims relating to the Trust or the Trust Property on behalf of any
Series; to foreclose any security interest securing any obligation, by virtue of
which any property is owed to the Trust; and to enter into releases, agreements
and other instruments.
3.9. Expenses. The Trustees shall have power to incur and pay any expenses
from the Trust Property which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the Trust Property to themselves as Trustees.
Permitted expenses of the Trust include, but are not limited to, interest
charges, taxes, brokerage fees and commissions; expenses of sales, increases,
decreases or redemptions of Interests; certain insurance premiums; applicable
fees, interest charges and expenses of third parties, including the Trust's
investment advisers, managers, administrators, placement agents, custodians
transfer agents and fund accountants; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; costs of forming the Trust and its Series and
maintaining its and their existence; costs of preparing and printing the
registration statements and Holder reports of the Trust and each Series and
delivering them to Holders; expenses of meetings of Holders; costs of
maintaining books and accounts; costs of reproduction, stationery and supplies;
fees and expenses of the Trustees; compensation of the Trust's officers and
employees and costs of other personnel performing services for the Trust or any
Series; costs of Trustee meetings; Commission registration fees and related
expenses; state or foreign securities laws registration fees and related
expenses; and for such non-recurring items as may arise, including litigation to
which the Trust or a Series (or a Trustee or officer of the Trust acting as
such) is a party, and for all losses and liabilities by them incurred in
administering the Trust. The Trustees shall have a lien on the assets belonging
to the appropriate Series, or in the case of an expense allocable to more than
one Series, on the assets of each such Series, prior to any rights or interests
of the Holders thereto, for the reimbursement to them of such expenses,
disbursements, losses and liabilities. The Trustees shall fix the compensation
of all officers, employees and Trustees. The Trustees may pay themselves such
compensation for special services, including legal and brokerage services, as
they in good faith may deem
<PAGE>
reasonable, and reimbursement for expenses reasonably incurred by themselves
on behalf of the Trust or any Series.
3.10. Miscellaneous Powers. The Trustees shall have power to: (a) employ or
contract with such Persons as the Trustees may deem appropriate for the
transaction of the business of the Trust or any Series and terminate such
employees or contractual relationships as they consider appropriate; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) purchase, and pay for out of Trust Property insurance policies insuring the
Investment Adviser, Administrator, placement agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
the Trustees, officers, employees or agents of the Trust or any Series; (e)
prosecute, defend and settle lawsuits in the name of the Trust or any Series and
pay settlements and judgments out of the Trust Property; (f) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, placement agent, Holders,
Trustees, officers, employees, agents or independent contractors of the Trust,
to such extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the Fiscal Year of
the Trust or any Series and the method by which its accounts shall be kept; and
(i) adopt a seal for the Trust or any Series, but the absence of such a seal
shall not impair the validity of any instrument executed on behalf of the Trust
or such Series.
3.11. Further Powers. The Trustees shall have power to conduct the business
of the Trust or any Series and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of New York,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in order to
promote the interests of the Trust or any Series although such things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust or any Series which is made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration, the presumption
shall be in favor of a grant of power to the Trustees. The Trustees shall not be
required to obtain any court order in order to deal with Trust Property.
<PAGE>
3.12. Limitation on Powers. Anything in this Declaration of Trust to the
contrary notwithstanding, effective January 1, 1996 (a) no Trustee shall be
authorized or empowered by the terms of this Declaration of Trust or otherwise
to take any action on behalf of the Trust in his or her capacity as Trustee
while physically present in the United States of America or any of its
territories or possessions or areas subject to its jurisdiction unless such
action is taken at an Emergency Meeting by the Trustees or by a committee of the
Trustees thereunto duly authorized, and (b) unless such action is taken at an
Emergency Meeting by the Trustees or by a committee of the Trustees thereunto
duly authorized, no action taken on behalf of the Trust by a Trustee or by the
Trustees or any committee thereof while physically present in the United States
of America or any of its territories or possessions or areas subject to its
jurisdiction shall be a valid exercise of such Trustee's or Trustees' authority
and any such action shall be considered null and void.
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements; Custodian
4.1. Investment Advisory and Other Arrangements. The Trustees may in their
discretion, from time to time, enter into investment advisory contracts,
administration contracts, placement agent agreements or other service agreements
whereby the other party to such contract or agreement shall undertake to furnish
with respect to one or more particular Series such investment advisory,
administration, placement agent and/or other services as the Trustees shall,
from time to time, consider appropriate or desirable and all upon such terms and
conditions as the Trustees may in their sole discretion determine.
Notwithstanding any provision of this Declaration, the Trustees may authorize
any Investment Adviser (subject to such general or specific instructions as the
Trustees may, from time to time, adopt) to employ one or more subadvisers and to
effect purchases, sales, loans or exchanges of Trust Property on behalf of any
Series or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of any such
Investment Adviser (all without any further action by the Trustees).
4.2. Parties to Contract. Any contract of the character described in Section
4.1 or Section 4.3 hereof or in the By-Laws of the Trust may be entered into
with any corporation, firm, trust or association, although one or more of the
Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely
<PAGE>
by reason of such relationship for any loss or expense to the Trust or any
Series under or by reason of any such contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was reasonable and fair and not inconsistent with the provisions of
this Article IV or the By-Laws. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 or Section 4.3 hereof or the
By-Laws, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts mentioned
in this Section 4.2 or in the By-Laws.
4.3. Custodian. The Trustees shall at all times place and maintain the
securities and similar investments of the Trust on behalf of each Series in
custody meeting the requirements of Section 17(f) of the 1940 Act and the rules
thereunder. The Trustees, on behalf of the Trust or any Series, may enter into
an agreement with a custodian on terms and conditions acceptable to the
Trustees, providing for the custodian, among other things, (a) to hold the
securities owned by the Trust on behalf of any Series and deliver the same upon
written order or oral order confirmed in writing, (b) to receive and receipt for
any moneys due to the Trust on behalf of any Series and deposit the same in its
own banking department or elsewhere, (c) to disburse such funds upon orders or
vouchers, and (d) to employ one or more subcustodians.
4.4. 1940 Act Governance. Any contract referred to in Section 4.1 hereof
shall be consistent with and subject to the applicable requirements of Section
15 of the 1940 Act and the rules and orders thereunder with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal. No amendment to a contract referred to in
Section 4.1 hereof shall be effective unless assented to in a manner consistent
with the requirements of Section 15 of the 1940 Act, and the rules and orders
thereunder.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
5.1. Liability of Holders; Indemnification. Each Holder of an Interest in a
Series shall be jointly and severally liable with every other Holder of an
Interest in that Series (with rights of contribution inter se in proportion to
their respective Interests in the Series) for the liabilities and obligations of
that Series (and of no other Series) in the event that the Trust fails to
satisfy such liabilities and obligations from the assets of that Series;
provided, however, that, to the extent assets of that Series are available in
the Trust, the Trust shall indemnify and hold each Holder harmless from and
against any claim or
<PAGE>
liability to which such Holder may become subject by reason of being or having
been a Holder of an Interest in that Series to the extent that such claim or
liability imposes on the Holder an obligation or liability which, when compared
to the obligations and liabilities imposed on other Holders of Interests in that
Series, is greater than such Holder's Interest (proportionate share), and shall
reimburse such Holder for all legal and other expenses reasonably incurred by
such Holder in connection with any such claim or liability. The rights accruing
to a Holder under this Section 5.1 shall not exclude any other right to which
such Holder may be lawfully entitled, nor shall anything contained herein
restrict the right of the Trust to indemnify or reimburse a Holder in any
appropriate situation even though not specifically provided herein.
Notwithstanding the indemnification procedure described above, it is intended
that each Holder of an Interest in a Series shall remain jointly and severally
liable to the creditors of that Series as a legal matter. The liabilities of a
particular Series and the right to indemnification granted hereunder to Holders
of Interests in such Series shall not be enforceable against any other Series or
Holders of Interests in any other Series.
5.2. Limitations of Liability of Trustees, Officers, Employees, Agents,
Independent Contractors to Third Parties. No Trustee, officer, employee, agent
or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust or
any Series shall be subject to any personal liability whatsoever to any Person,
other than the Trust or the Holders, in connection with Trust Property or the
affairs of the Trust; and all such Persons shall look solely to the Trust
Property for satisfaction of claims of any nature against a Trustee, officer,
employee, agent or independent contractor (except in the case of an agent or
independent contractor to the extent expressly provided by written contract) of
the Trust arising in connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers or Employees to Trust,
Holders, etc. No Trustee, officer or employee of the Trust shall be liable to
the Trust or the Holders for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for such Person's own bad faith, willful
misfeasance, gross negligence or reckless disregard of such Person's duties.
5.4. Mandatory Indemnification. The Trust shall indemnify, to the fullest
extent permitted by law (including the 1940 Act), each Trustee, officer or
employee of the Trust (including any Person who serves at the Trust's request as
a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person
<PAGE>
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such Person may be involved or
with which such Person may be threatened, while in office or thereafter, by
reason of such Person being or having been such a Trustee, officer, employee,
agent or independent contractor, except with respect to any matter as to which
such Person shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of such Person's duties,
such liabilities and expenses being liabilities only of the Series out of which
such claim for indemnification arises; provided, however, that as to any matter
disposed of by a compromise payment by such Person, pursuant to a consent decree
or otherwise, no indemnification either for such payment or for any other
expenses shall be provided unless there has been a determination that such
Person did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Person's office
(i) by the court or other body approving the settlement or other disposition; or
(ii) based upon a review of readily available facts (as opposed to a full
trial-type inquiry), by written opinion from independent legal counsel approved
by the Trustees; or (iii) by a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, based upon a review
of readily available facts (as opposed to a full trial-type inquiry). The rights
accruing to any Person under these provisions shall not exclude any other right
to which such Person may be lawfully entitled; provided that no Person may
satisfy any right of indemnity or reimbursement granted in this Section 5.4 or
in Section 5.2 hereof or to which such Person may be otherwise entitled except
out of the Trust Property. The rights of indemnification provided herein may be
insured against by policies maintained by the Trust. The Trustees may make
advance payments in connection with indemnification under this Section 5.4,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that such Person
is not entitled to such indemnification, and provided further that either (i)
such Person shall have provided appropriate security for such undertaking, or
(ii) the Trust is insured against losses arising out of any such advance
payments, or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Person will not be disqualified from
indemnification under this Section 5.4.
5.5. No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance
of any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender or other Person dealing with any Trustee, officer, employee,
<PAGE>
agent or independent contractor of the Trust or any Series shall be bound to
make any inquiry concerning the validity of any transaction purporting to be
made by such Trustee, officer, employee, agent or independent contractor or be
liable for the application of money or property paid, loaned or delivered to or
on the order of such Trustee, officer, employee, agent or independent
contractor. Every obligation, contract, instrument, certificate or other
interest or undertaking of the Trust or any Series, and every other act or thing
whatsoever executed in connection with the Trust or any Series shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees, officers, employees, agents or independent
contractors of the Trust or any Series. Every written obligation, contract,
instrument, certificate or other interest or undertaking of the Trust or any
Series made or sold by any Trustee, officer or employee of the Trust or any
Series, in such capacity, shall contain an appropriate recital to the effect
that the Trustee, officer or employee of the Trust or any Series shall not
personally be bound by or liable thereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder, and
appropriate references shall be made therein to the Declaration, and may contain
any further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee, officer
or employee of the Trust or any Series. Subject to the provisions of the 1940
Act, the Trust may maintain insurance for the protection of the Trust Property,
the Holders, and the Trustees, officers or employees of the Trust and any Series
in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer or employee of the
Trust and any Series shall, in the performance of such Person's duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust or any Series (whether or not the Trust or any Series would
have the power to indemnify such Persons against such liability), upon an
opinion of counsel, or upon reports made to the Trust or any Series by any of
its officers or employees or by any Investment Adviser or Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust or any Series,
regardless of whether such counsel or expert may also be a Trustee.
5.8. No Repeal or Modification. Any repeal or modification of this Article V
by the Holders, or adoption or modification of any other provision of this
Declaration or the By-Laws inconsistent with this Article V, shall be
prospective only, to the extent that such repeal or modification would, if
applied retrospectively, adversely affect any limitation on the liability of any
Person or
<PAGE>
indemnification available to any indemnified Person with respect to any act or
omission which occurred prior to such repeal, modification or adoption.
ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property shall consist
of non-transferable Interests. Interests may be sold only to Institutional
Investors, as may be approved by the Trustees, for cash or other consideration
acceptable to the Trustees, subject to the requirements of the 1940 Act. The
Interests shall be personal property giving only the rights in this Declaration
specifically set forth. The value of an Interest shall be equal to the Book
Capital Account balance of the Holder of the Interest.
The Trustees shall have authority, from time to time, to establish Series,
each of which shall be a separate subtrust and the Interests in which shall be
separate and distinct from the Interests in any other Series. The Series shall
include, without limitation, those Series specifically established and
designated pursuant to Section 6.2 hereof, and such other Series as the Trustees
may deem necessary or desirable. The Trustees shall have exclusive power without
the requirement of Holder approval to establish and designate such separate and
distinct Series, and, subject to the provisions of this Declaration and the 1940
Act, to fix and determine the rights of Holders of Interests in such Series,
including with respect to the price, terms and manner of purchase and
redemption, dividends and other distributions, rights on liquidation, sinking or
purchase fund provisions, conversion rights and conditions under which the
Holders of the several Series shall have separate voting rights or no voting
rights.
6.2. Establishment and Designation of Series. The establishment and
designation of any Series shall be effective upon the execution by the Secretary
or an Assistant Secretary of the Trust, pursuant to authorization by a majority
of the Trustees, of an instrument setting forth such establishment and
designation and the relative rights and preferences of the Interests in such
Series, or as otherwise provided in such instrument. At any time that there are
no Interests outstanding of any particular Series previously established and
designated, the Trustees may by resolution adopted by a majority of their
number, and evidenced by an instrument executed by the Secretary or an Assistant
Secretary of the Trust, abolish that Series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration of Trust.
<PAGE>
Without limiting the authority of the Trustees set forth above to establish
and designate further Series, the Trustees hereby establish and designate the
Series set forth on Schedule A hereto. The Interests in each of these Series and
any Interests in any further Series that may from time to time be established
and designated by the Trustees shall (unless the Trustees otherwise determine
with respect to some further Series at the time of establishing and designating
the same) have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by the Trust
for the issue or sale of Interests in a particular Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
be held by the Trustees in a separate trust for the benefit of the Holders of
Interests in that Series and shall irrevocably belong to that Series for all
purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. No Series shall have any right to or interest in the
assets belonging to any other Series, and no Holder shall have any right or
interest with respect to the assets belonging to any Series in which it does not
hold an Interest.
(b) Liabilities Belonging to Series. The assets belonging to each
particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves attributable to that
Series. The liabilities, expenses, costs, charges and reserves so charged to a
Series are herein referred to as "liabilities belonging to" that Series. No
Series shall be liable for or charged with the liabilities belonging to any
other Series, and no Holder shall be subject to any liabilities belonging to any
Series in which it does not hold an Interest.
(c) Voting. On each matter submitted to a vote of the Holders, each
Holder shall be entitled to a vote proportionate to its Interest as recorded on
the books of the Trust. Each Series shall vote as a separate class except as to
voting for Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of all Series, only the Holders in the one or more
affected Series shall be entitled to vote. On each matter submitted to a vote of
the Holders, a Holder may apportion its vote with respect to a proposal in the
same proportion as its own shareholders voted with respect to that proposal.
<PAGE>
6.3. Non-Transferability. A Holder may not transfer its Interest.
6.4. Register of Interests. A register shall be kept at the Trust under the
direction of the Trustees which shall contain the name, address and Book Capital
Account balance of each Holder in each Series. Such register shall be conclusive
as to the identity of the Holders. No Holder shall be entitled to receive
payment of any distribution, nor to have notice given to it as herein provided,
until it has given its address to such officer or agent of the Trust as is
keeping such register for entry thereon.
ARTICLE VII
Increases, Decreases And Redemptions of Interests
Subject to applicable law, to the provisions of this Declaration and to such
restrictions as may from time to time be adopted by the Trustees, each Holder
may vary its Interest in any Series at any time by increasing (through a capital
contribution) or decreasing (through a capital withdrawal) or by a Redemption of
its Interest. An increase in the Interest of a Holder in a Series shall be
reflected as an increase in the Book Capital Account balance of that Holder in
that Series and a decrease in the Interest of a Holder in a Series or the
Redemption of the Interest of that Holder shall be reflected as a decrease in
the Book Capital Account balance of that Holder in that Series. The Trust shall,
upon appropriate and adequate notice from any Holder, increase, decrease or
redeem such Holder's Interest for an amount determined by the application of a
formula adopted for such purpose by resolution of the Trustees; provided that
(a) the amount received by the Holder upon any such decrease or Redemption shall
not exceed the decrease in the Holder's Book Capital Account balance effected by
such decrease or Redemption of its Interest, and (b) if so authorized by the
Trustees, the Trust may, at any time and from time to time, charge fees for
effecting any such decrease or Redemption, at such rates as the Trustees may
establish, and may, at any time and from time to time, suspend such right of
decrease or Redemption. The procedures for effecting decreases or Redemptions
shall be as determined by the Trustees from time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
8.1. Book Capital Account Balances. The Book Capital Account balance of
Holders with respect to a particular Series shall be determined on such days and
at such time or times as the Trustees may determine. The Trustees shall adopt
resolutions setting forth the method of determining the Book Capital
<PAGE>
Account balance of each Holder. The power and duty to make calculations pursuant
to such resolutions may be delegated by the Trustees to the Investment Adviser
or Administrator, custodian, or such other Person as the Trustees may determine.
Upon the Redemption of an Interest, the Holder of that Interest shall be
entitled to receive the balance of its Book Capital Account. A Holder may not
transfer its Book Capital Account balance.
8.2. Allocations and Distributions to Holders. The Trustees shall, in
compliance with the Code, the 1940 Act and generally accepted accounting
principles, establish the procedures by which the Trust shall make with respect
to each Series (i) the allocation of unrealized gains and losses, taxable income
and tax loss, and profit and loss, or any item or items thereof, to each Holder,
(ii) the payment of distributions, if any, to Holders, and (iii) upon
liquidation, the final distribution of items of taxable income and expense. Such
procedures shall be set forth in writing and be furnished to the Trust's
accountants. The Trustees may amend the procedures adopted pursuant to this
Section 8.2 from time to time. The Trustees may retain from the net profits of
each Series such amount as they may deem necessary to pay the liabilities and
expenses of that Series.
8.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the net income
and net assets of the Trust and of each Series, the allocation of income of the
Trust and of each Series, the Book Capital Account balance of each Holder, or
the payment of distributions to the Holders as they may deem necessary or
desirable to enable the Trust or a Series to comply with any provision of the
1940 Act or any order of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
9.1. Rights of Holders. The ownership of the Trust Property and the right to
conduct any business described herein are vested exclusively in the Trustees,
and the Holders shall have no right or title therein other than the beneficial
interest conferred by their Interests and they shall have no power or right to
call for any partition or division of any Trust Property.
The Trust shall be entitled to treat a Holder of record as the holder in
fact and shall not be bound to recognize any equitable or other claim of
interest in such Holder's Interest on the part of any other entity except as may
be otherwise expressly provided by law.
<PAGE>
In addition, the Holders shall have power to vote only with respect to (a)
the election of Trustees as provided in Article II, Section 2.4; (b) the removal
of Trustees as provided in Article II, Section 2.3; (c) any investment advisory
contract as provided in Article IV, Section 4.1; (d) any dissolution of a Series
as provided in Article X, Section 10.2; (e) the amendment of this Declaration to
the extent and as provided in Article X, Section 10.4; (f) any merger,
consolidation or sale of assets as provided in Article X, Section 10.5; and (g)
such additional matters relating to the Trust as may be required or authorized
by law, by this Declaration or the By-Laws or any registration statement of the
Trust filed with the Commission, or as the Trustees may consider desirable.
9.2. Meetings of Holders. Meetings of Holders may be called at any time by a
majority of the Trustees and shall be called by any Trustee upon written request
of Holders holding, in the aggregate, not less than 10% of the Interests in one
or more Series (if the meeting relates solely to such Series), or not less than
10% of the Interests in the Trust (if the meeting relates to the Trust and not
solely to one or more particular Series), such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without the State of New York and within or without the United States
of America on such day and at such time as the Trustees shall designate. Holders
of at least one-third of the Interests in one or more Series (if the meeting
relates solely to such one or more Series) or Holders of at least one-third of
the Interests in the Trust (if the meeting relates to the Trust and not solely
to one or more particular Series), present in person or by proxy, shall
constitute a quorum for the transaction of any business, except as may otherwise
be required by the 1940 Act, other applicable law, this Declaration or the
By-Laws. If a quorum is present at a meeting, an affirmative vote of the Holders
present, in person or by proxy, holding more than 50% of the total Interests of
the Holders present in a Series or the Trust, as applicable, either in person or
by proxy, at such meeting constitutes the action of the Holders in such Series
or the Trust, as applicable, unless a greater number of affirmative votes is
required by the 1940 Act, other applicable law, this Declaration or the By-Laws,
and except that a plurality of the total Interests of the Holders present shall
elect a Trustee. All or any one of more Holders may participate in a meeting of
Holders by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
and participation in a meeting by means of such communications equipment shall
constitute presence in person at such meeting.
9.3. Notice of Meetings. Notice of each meeting of Holders, stating the
time, place and purposes of the meeting, shall be given by the Trustees by mail
to each Holder of the Series or the Trust, as the case may be, at its registered
address, mailed at least 10 days and not more than 60 days before the meeting.
Notice of any meeting may be waived in writing by any Holder either before or
<PAGE>
after such meeting. The attendance of a Holder at a meeting shall constitute a
waiver of notice of such meeting except in the situation in which a Holder
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting was not lawfully called or convened. At
any meeting, any business properly before the meeting may be considered whether
or not stated in the notice of the meeting. Any adjourned meeting may be held as
adjourned without further notice.
9.4. Record Date for Meetings, Distributions, etc. For the purpose of
determining the Holders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90 days
prior to the date of any meeting of Holders or the payment of any distribution
or the taking of any other action, as the case may be, as a record date for the
determination of the Persons to be treated as Holders of the Series or the
Trust, as the case may be, for such purpose.
9.5. Proxies, etc. At any meeting of Holders, any Holder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Secretary, or with such other
officer or agent of the Trust as the Secretary may direct, for verification
prior to the time at which such vote is to be taken. A proxy may be revoked by a
Holder at any time before it has been exercised by placing on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, a later dated proxy or written revocation. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of the Trust or
of one or more Trustees or of one or more officers of the Trust. Only Holders on
the record date shall be entitled to vote. Each such Holder shall be entitled to
a vote proportionate to its Interest in the Series or the Trust, as the case may
be. When an Interest is held jointly by several Persons, any one of them may
vote at any meeting in person or by proxy in respect of such Interest, but if
more than one of them is present at such meeting in person or by proxy, and such
joint owners or their proxies so present disagree as to any vote to be cast,
such vote shall not be received in respect of such Interest. A proxy purporting
to be executed by or on behalf of a Holder, including proxies received via
telecopy, shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger.
9.6. Reports. As to each Series, the Trustees shall cause to be prepared and
furnished to each Holder thereof, at least annually as of the end of each Fiscal
Year, a report of operations containing a balance sheet and a statement of
income of such Series prepared in conformity with generally accepted accounting
principles and an opinion of an independent public accountant on such financial
statements. The Trustees shall, in addition, with respect to each Series furnish
<PAGE>
to each Holder of such Series at least semi-annually interim reports of
operations containing an unaudited balance sheet as of the end of such period
and an unaudited statement of income for the period from the beginning of the
then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The records of the Trust shall
be open to inspection by Holders during normal business hours for
any purpose not harmful to the Trust.
9.8. Holder Action by Written Consent. Any action which may be taken on
behalf of the Trust or any Series by Holders and which has been approved by vote
at a meeting or by written consent of two-thirds of the Trustees then in office
may be taken without a meeting if Holders holding more than 50% of all Interests
entitled to vote (or such larger proportion thereof as shall be required by any
express provision of this Declaration or of applicable law) consent to the
action in writing and the written consents are filed with the records of the
meetings of Holders. Any action which may be taken on behalf of the Trust or any
Series by Holders and which has not been so approved by Trustees may be taken
without a meeting if Holders holding 100% of all Interests entitled to vote
consent to the action in writing and the written consents are filed with the
records of the meetings of Holders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Holders. Each such written consent
shall be executed by or on behalf of the Holder delivering such consent and
shall bear the date of such execution. No such written consent shall be
effective to take the action referred to therein unless, within one year of the
earliest dated consent, written consents executed by a sufficient number of
Holders to take such action are filed with the records of the meetings of
Holders.
9.9. Notices. Any and all communications, including any and all notices to
which any Holder may be entitled, shall be deemed duly served or given if
mailed, postage prepaid, addressed to a Holder at its last known address as
recorded on the register of the Trust or if delivered to a Holder by courier or
by facsimile or other similar electronic mechanism.
ARTICLE X
Duration; Termination; Dissolution;
Amendment; Mergers; Etc.
10.1.Duration. Subject to possible dissolution or termination in accordance
with the provisions of Section 10.2 and Section 10.3 hereof, respectively, the
Trust created hereby shall continue until the expiration of 20 years after the
death of the last survivor of the initial Trustees named herein and the
following named persons:
<PAGE>
Date of
Name Address Birth
Michelle Muriel Rumery 18 Rio Vista Street 07/11/93
North Billerica, MA 01862
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 483 Pleasant Street, No. 9 08/16/89
Belmont, MA 02178
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Adriana L. Saldana 58 Newell Road 3/22/88
Newton, MA 02166
10.2.Dissolution. Any Series shall be dissolved (i) by the affirmative vote
of the Holders of not less than two-thirds of the Interests in the Series at any
meeting of the Holders or by an instrument in writing, without a meeting, signed
by a majority of the Trustees and consented to by the Holders of not less than
two-thirds of such Interests, (ii) by the Trustees by written notice of
dissolution to the Holders of the Interests in the Series, or (iii) upon the
bankruptcy or expulsion of a Holder of an Interest in the Series, unless the
remaining Holders of Interests in such Series, 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.
10.3.Termination.
(a) Upon an event of dissolution of the Trust or a Series, unless the
Trust or Series is continued in accordance with the proviso to Section 10.2
above, the Trust or Series, as applicable, shall be terminated in accordance
with the following provisions:
(i) the Trust or Series, as applicable, shall carry on
no business except for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the
Trust or Series, as applicable, and all of the powers of the Trustees
<PAGE>
under this Declaration shall continue until the affairs of the Trust or
Series have been wound up, including the power to fulfill or discharge
the contracts of the Trust or Series, collect the assets of the Trust
of Series, sell, convey, assign, exchange or otherwise dispose of all
or any part of the Trust Property affected to one or more Persons at
public or private sale for consideration which may consist in whole or
in part of cash, securities or other property of any kind, discharge or
pay the liabilities of the Trust or Series, and do all other acts
appropriate to liquidate the business of the Trust or Series; provided
that any sale, conveyance, assignment, exchange or other disposition of
all or substantially all the Trust Property or substantially all of the
assets belonging to a particular Series, other than for cash, shall
require approval of the principal terms of the transaction and the
nature and amount of the consideration by the vote of Holders holding
more than 50% of the total Interests in the Trust or Series, as
applicable; and
(iii) after paying or adequately providing for the payment of all
liabilities of the Trust or of the Series being terminated, and upon
receipt of such releases, indemnities and refunding agreements as they
deem necessary for their protection, the Trustees shall distribute the
remaining Trust Property of the Trust or Series, as applicable, in cash
or in kind or partly each, among the Holders according to their
respective rights as set forth in the procedures established pursuant
to Section 8.2 hereof.
(b) Upon termination of the Trust or Series and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and file
with the records of the Trust an instrument in writing setting forth the fact of
such termination and distribution. Upon termination of the Trust, the Trustees
shall thereupon be discharged from all further liabilities and duties hereunder,
and the rights and interests of all Holders shall thereupon cease.
10.4.Amendment Procedure.
(a) The Trustees may, without any vote of Holders, amend or otherwise
supplement this Declaration by an instrument in writing executed by a majority
of the Trustees, provided that Holders shall have the right to vote on any
amendment (a) required to be approved by Holders by law or by the Trust's
registration statement filed with the Commission, or (b) submitted to them by
the Trustees. Any amendment submitted to Holders which the Trustees determine
would affect the Holders of certain but not all Series shall be authorized by
vote of the Holders of such Series affected and no vote shall be required of
Holders of a Series not affected. Without limiting the authority of
<PAGE>
the Trustees to amend or otherwise supplement this Declaration as above
provided, the Trustees may, without any vote of Holders, notwithstanding any
other provision of this Declaration, amend this Declaration by instrument in
writing executed by a majority of the Trustees to change the Governing
Jurisdiction or to permit the filing of this Declaration or any other instrument
or instruments, including, without limitation, any certificate of trust,
permitted or required to be filed pursuant to the laws of the new Governing
Jurisdiction, and in conjunction with any such amendment to make any and all
such further changes or modifications to this Declaration as the Trustees deem
necessary or appropriate; no amendment effected by the Trustees pursuant to this
sentence, nor any other action taken or authorized by the Trustees in
conjunction thereof, notwithstanding that the same might otherwise be deemed to
constitute a merger or consolidation of the Trust or a sale, conveyance or
transfer of assets by the Trust, shall be subject to the provisions of Section
10.5 or Section 10.6 hereof. The Trust shall give notice to each Holder at least
5 days prior to the effectiveness of any amendment or supplement to this
Declaration adopted by the Trustees pursuant to this paragraph (a) without any
vote of Holders.
(b) No amendment may be made under Section 10.4(a) hereof which would
change any rights with respect to any Interest by reducing the amount payable
thereon upon liquidation of the Trust or any Series or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests which would be so affected by
such amendment.
(c) A certification in recordable form executed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by the
Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when filed with the records of the
Trust.
Notwithstanding any other provision hereof, until such time as Interests are
first sold, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees at any meeting of Trustees or by
an instrument executed by a majority of the Trustees.
<PAGE>
10.5. Merger, Consolidation and Sale of Assets. The Trust or any Series may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, or assets belonging to such Series, as applicable, including
good will, upon such terms and conditions and for such consideration when and as
authorized at any meeting of Holders called for such purpose by Majority
Interests Vote of Interests in the Series affected by such action, or by an
instrument in writing without a meeting, consented to by Holders of not less
than a majority of the Interests in the Series affected by such action, and any
such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the law of the State of
New York, provided however that no such vote shall be required where by
reorganization, purchase of assets or otherwise, the Trust or any affected
Series is the surviving entity.
10.6. Incorporation. Upon a Majority Interests Vote, the Trustees may cause
to be organized or assist in organizing a corporation or corporations under the
law of any jurisdiction or a trust, partnership, association or other
organization to take over the Trust Property or to carry on any business in
which the Trust directly or indirectly has any interest, and to sell, convey and
transfer the Trust Property to any such corporation, trust, partnership,
association or other organization in exchange for the equity interests thereof
or otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contract with any such corporation, trust, partnership,
association or other organization, or any corporation, trust, partnership,
association or other organization in which the Trust holds or is about to
acquire equity interests. The Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted by
law. Nothing contained herein shall be construed as requiring approval of the
Holders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to one or
more of such organizations or entities.
ARTICLE XI
Miscellaneous
11.1. Certificate of Designation; Agent for Service of Process. If required
by New York law, the Trust shall file, with the Department of State of the State
of New York, a certificate, in the name of the Trust and executed by an officer
of the Trust, designating the Secretary of State of the State of New York as an
<PAGE>
agent upon whom process in any action or proceeding against the Trust or any
Series may be served.
11.2. Governing Law. The rights of all parties under this Declaration and
the validity and construction of every provision hereof shall be subject to and
construed in accordance with the law of the Governing Jurisdiction and reference
shall be specifically made to the trust law of the Governing Jurisdiction as to
the construction of matters not specifically covered herein or as to which an
ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any one such original counterpart.
11.4. Reliance by Third Parties. Any certificate executed by an individual
who, according to the records of the Trust or of any recording office in which
this Declaration may be recorded, appears to be a Trustee hereunder, certifying
to: (a) the number or identity of Trustees or Holders, (b) the due authorization
of the execution of any instrument or writing, (c) the form of any vote passed
at a meeting of Trustees or Holders, (d) the fact that the number of Trustees or
Holders present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any officer elected by the Trustees, or (f) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any Person
dealing with the Trustees.
11.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, or with other applicable law and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Declaration of
Trust of Asset Allocation Portfolios as of the day and year first above written.
Thomas M. Lenz
Thomas M. Lenz
As Trustee and not individually
Suzan M. Barron
Suzan M. Barron
As Trustee and not individually
Andres E. Saldana
Andres E. Saldana
As Trustee and not individually
<PAGE>
SCHEDULE A
ASSET ALLOCATION PORTFOLIOS
Initial Series
Asset Allocation Portfolio V
Asset Allocation Portfolio IV
Asset Allocation Portfolio III
Asset Allocation Portfolio II
Exhibit 5
FORM OF MANAGEMENT AGREEMENT
ASSET ALLOCATION PORTFOLIOS
[Name of Portfolio]
MANAGEMENT AGREEMENT, dated as of February __, 1996, by and between Asset
Allocation Portfolios, a New York trust (the "Trust"), and Citibank, N.A., a
national banking association ("Citibank" or the "Adviser").
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
[Name of Series] (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 Adviser 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 December 14, 1995, 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 Adviser 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 and
notify the Adviser thereof in writing, the Adviser shall be bound by such
determination for the period, if any, specified in such notice or until
<PAGE>
similarly notified that such determination has been revoked. The Adviser 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 Adviser 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 Adviser or its
affiliates exercise investment discretion. The Adviser 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 Adviser 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 Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Trustees of the
Trust shall periodically review the commissions paid by the Portfolio to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio. In making purchases or
sales of securities or other property for the account of the Portfolio, the
Adviser 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 Adviser may, at its own expense, employ one or more subadvisers; provided
that the Adviser shall supervise the activities of each subadviser. Any
agreement between the Adviser and a subadviser shall be subject to the renewal,
termination and amendment provisions applicable to this Agreement.
(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: (a) 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; (b) supervising the
overall administration of the Trust, including negotiation of contracts and fees
<PAGE>
with and the monitoring of performance and billings of the Trust's transfer
agent, custodian and other independent contractors or agents; (c) 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; (d)
preparation of agendas and supporting documents for and minutes of meetings of
Trustees, committees of Trustees and investors; and (e) 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 "interested persons" of the Trust; 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; insurance
premiums; fees and expenses of the custodian for all services to the Portfolio,
including safekeeping of Portfolios 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
<PAGE>
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 ___% 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 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 February __, 1998, on which date it will
<PAGE>
terminate unless its continuance after February __, 1998 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.
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
ASSET ALLOCATION PORTFOLIOS CITIBANK, N.A.
By: By:
Title: Title:
