As filed with the Securities and Exchange Commission on February 28, 1996
File No. 811-7459
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
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 200 ("Portfolio 200"), Asset Allocation
Portfolio 300 ("Portfolio 300"), Asset Allocation Portfolio 400 ("Portfolio
400") and Asset Allocation Portfolio 500 ("Portfolio 500") (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 200 Is high total return over time
consistent with a primary emphasis on income and a secondary emphasis on
capital appreciation.
The investment objective of PORTFOLIO 300 is high total return over time
consistent with a balanced emphasis on income and capital appreciation.
The investment objective of PORTFOLIO 400 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 500 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 Portfolios are asset allocation funds. Asset allocation funds are a
basic tool of investment professionals and are differentiated by the use of
investment management strategies and techniques that range from the least
aggressive to the most aggressive. The Portfolios offer diversified
professionally managed portfolios tailored to specific investment goals and
expectations of risk and return. While time horizon is a factor, it is not
necessarily the determinative factor in choosing to invest in one of the
Portfolios. Investment goals determine the appropriate asset allocation and
amount of risk sought.
Portfolio 200 is expected to be the least volatile of the four Portfolios
and is designed for investors seeking lower risk provided by substantial
investments in income-producing securities, but also seeking some capital
growth. Portfolio 300 offers a blend of capital appreciation and income for
investors seeking a balanced approach by emphasizing stocks for their higher
capital appreciation potential but retaining a significant income component to
temper volatility. Portfolio 400 and Portfolio 500 are designed for investors
willing and able to take higher risks in the pursuit of long-term capital
appreciation. Portfolio 500 is expected to be the most volatile of the four
Portfolios and is designed for investors who can withstand greater market
swings to seek potential long-term rewards. Portfolio 400 is designed for
investors seeking long-term rewards, but with less volatility.
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
sometimes move in the opposite direction of equity securities and may provide
investment balance to a Portfolio. The risks of each asset class will vary.
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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 200 Portfolio 300 Portfolio 400 Portfolio 500
Normal Normal Normal Normal
Asset Class Allocation Range Allocation Range Allocation Range Allocation Range
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity 35 25-45 50 40-60 70 55-85 85 70-95
Fixed Income 45 35-55 45 35-55 25 15-35 10 5-20
Money Market 20 10-30 5 1-10 5 1-10 5 1-10
</TABLE>
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.
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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 value securities, Miller Anderson & Sherrerd LLP; small
capitalization value securities, Franklin Advisers, Inc.; international equity
securities, Hotchkis & Wiley; and foreign government securities, Pacific
Investment Management Company. Citibank is responsible for the daily management
of all other kinds of securities of the Portfolios.
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 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 500 will emphasize securities of small cap and
international issuers. Portfolio 300 will emphasize securities of large cap and
small cap 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 the selection of equity securities of large
cap issuers, securities issued by established companies with stable operating
histories are emphasized.
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 the selection of equity securities of small cap
issuers, securities of issuers which have an outlook for growth in earnings and
the potential for significant capital appreciation are emphasized. In addition,
issuers that are believed to be emerging relative to their potential markets
may be selected. Small cap companies are generally represented in new or
rapidly changing industries. They may offer more profit opportunity in growing
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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 the selection of equity securities of international issuers,
securities included in the Morgan Stanley Capital International Europe,
Australia and Far East Index (called the EAFE Index) are emphasized. 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, securities of issuers
located in emerging markets may be selected. 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 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 securities which are not rated by these rating agencies, but which
Citibank or a Subadviser believes to be of comparable quality. Securities rated
Baa or BBB and unrated securities of comparable quality may have speculative
characteristics.
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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
(which include securities of supranational entities) 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 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 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 may 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.
<PAGE>
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 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
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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,
the Subadvisers or their affiliates exercise investment discretion. Citibank
and the Subadvisers are 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 or the applicable Subadviser determines in good faith that such amount
of commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer.
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 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
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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 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.
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The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those involved in U.S. investing. As a result, the operating expense
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.
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
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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 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.
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DEPOSITARY RECEIPTS FOR SECURITIES. American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
other forms of depositary receipts for securities of non-U.S. issuers provide
an alternative method for a Portfolio to make non-U.S. investments. These
securities are not usually traded in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are designed
for use in U.S. securities markets and EDRs and GDRs, in bearer form, are
designed for use in European and global securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. EDRs and GDRs are European and global receipts,
respectively, evidencing a similar arrangement.
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.
CURRENCY EXCHANGE CONTRACTS. Forward currency exchange contracts may be
entered into for each Portfolio for the purchase or sale of non-U.S. currency
to hedge 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.
SECURITIES RATED Baa or BBB. Each Portfolio may purchase securities 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.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, a Portfolio may sell futures contracts on an
index of securities in order to profit from any anticipated decline in the
value of the securities comprising the underlying index. In such instances, any
losses on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
Item 5. Management of the 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.
Lawrence P. Keblusek, U.S. Chief Investment Officer of Citibank, has been
the overall portfolio manager of the Portfolios since their inception and is
responsible for determining asset allocations, supervising and monitoring the
performance of the Citibank personnel described below who are responsible for
the Portfolios' securities, and supervising and monitoring the performance of
the Subadvisers. Mr. Keblusek, who has 25 years experience in the investment
management industry, was most recently Senior Vice President and Director of
Portfolio Management for The Northern Trust Company with responsibility for
investment performance in the organization's High Net Worth, Corporate and
<PAGE>
Institutional and Mutual Fund Group. Earlier in his career, Mr. Keblusek held
senior investment positions with Maryland National Bank and the National Bank
of Washington. Mr. Keblusek also is responsible for daily management of large
capitalization growth securities of the Portfolios.
The following individuals at Citibank are responsible for daily management
of the following kinds of securities of each Portfolio.
Small capitalization growth securities David N. Pearl, Vice President,
has been responsible for the
daily management of small cap
growth securities since the
Portfolios' inception. Mr.
Pearl is a portfolio manager of
U.S. equity assets for
institutional clients, and
joined Citibank in 1994. Prior
to joining Citibank he worked
as a portfolio manager at both
Fleming Capital Management and
Bankers Trust Company.
Fixed income securities Mark Lindbloom, Vice President,
has been responsible for the
daily management of fixed
income securities since the
Portfolios' inception. Mr.
Lindbloom came to Citibank in
1986 from Brown Brothers
Harriman & Co., where he
managed fixed income
assets for discretionary
corporate portfolios.
<PAGE>
Money market securities Kevin Kennedy, Vice President,
has been responsible for the
daily management of money
market securities since the
Portfolios' inception. Mr.
Kennedy is responsible for
managing the Liquidity
Management Unit of the U.S.
Fixed Income Department of
Citibank Global Asset
Management. Prior to joining
Citibank in March 1993, Mr.
Kennedy was with the
Metropolitan Life Insurance
Company as the Managing Trader
of the Treasurer's Division.
He was responsible for the
management of more than $9
billion in short duration fixed
income assets. Mr. Kennedy has
more than 15 years of fixed
income management experience.
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 value securities Miller Anderson & Sherrerd LLP,
One Tower Bridge, West
Conshohocken, Pennsylvania
19428. Miller Anderson has
been a registered investment
adviser since 1974. Robert
Marcin, CFA, Partner, has been
responsible for the daily
management of large cap value
securities since the
Portfolios' inception. Mr.
Marcin has been with Miller
Anderson since 1988.
<PAGE>
Small capitalization value securities Franklin Advisers, Inc., 777
Mariners Island Blvd., San
Mateo, California 94404.
Franklin Advisers, a
wholly-owned subsidiary of
Franklin Resources, Inc., is a
registered investment adviser.
William P. Lippman has been
senior vice president of
Franklin Advisers since June,
1988. Prior to joining
Franklin Advisers, Mr. Lippman
was president of L.F.
Rothschild Fund Management,
Inc. Bruce C. Baughman is
co-portfolio manager for a
number of Franklin Funds.
Prior to joining Franklin
Advisers in 1988, he served as
a portfolio manager with L.F.
Rothschild. Margaret McGee is
a securities analyst and is
responsible for research and
compliance for a number of
Franklin Funds. Prior to
joining Franklin Advisers in
1988, Ms. McGee worked as
an assistant to the CFO and
operations supervisor for the
Pilgrim Group, Inc.
International equity securities Hotchkis & Wiley, 800 West
Sixth Street, Fifth Floor, Los
Angeles, California 90017.
Hotchkis is a registered
investment adviser founded in
1980. Susan Ketterer, Vice
President, has been responsible
for the daily management of
international equity securities
since the Portfolios'
inception. Ms. Ketterer
manages international equity
accounts and is also
responsible for international
investment research. She
serves on the Investment Policy
Committee at Hotchkis. Prior
to joining Hotchkis, Ms.
Ketterer was an associate with
Bankers Trust and an analyst at
Dean Witter.
<PAGE>
Foreign government securities Pacific Investment Management
Company, 840 Newport Center
Drive, Suite 360, P.O. Box
6430, Newport Beach, California
92658-9030. PIMCO is a
registered investment III,
adviser. Lee R. Thomas, Senior
International Portfolio
Manager, has been responsible
for the daily management of
foreign government securities
since the Portfolios'
inception. He joined PIMCO in
1995. Previously he was a
member of Investcorp's
Management Committee, where he
was responsible for global
securities and foreign exchange
trading. Prior to Investcorp,
he was associated with Goldman
Sachs, where he was an
Executive Director in the
fixed income division of the
London office.
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, with the exception of certain subadviser fee
information.
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. This fee is higher than the management
fee paid by most mutual funds. Citibank may voluntarily agree to waive a
portion of its management fee from any Portfolio.
For their services to the Portfolios, Citibank pays the Subadvisers the
following fees, which are accrued daily and payable monthly and are at the
annual rates equal to the percentages specified below of the average aggregate
assets of the Portfolios allocated to the particular Subadviser:
<PAGE>
Miller Anderson & Sherrerd LLP 0.625% on first $25 million
0.375% on next $75 million
0.250% on next $400 million
0.20% on assets in excess of $500 million
Franklin Advisers, Inc. 0.58% on first $250 million
0.50% on remaining assets
Hotchkis & Wiley 0.60% on first $10 million
0.55% on next $40 million
0.45% on next $100 million
0.35% on next $150 million
0.30% on remaining assets
PIMCO 0.35% on first $200 million
0.30% on remaining assets
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 &
<PAGE>
Trust Company ("IBT") pursuant to which IBT acts as custodian for each
Portfolio. Securities may be held by a sub-custodian bank approved by the
Trustees. IBT, through its subsidiary IBT Fund Services (Canada), Inc.,
provides fund accounting services for each Portfolio. Pursuant to separate
Transfer Agency and Service Agreements with the Trust, on behalf of the
Portfolios, Signature Financial Services, Inc. ("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
<PAGE>
all obligations of the Portfolio in which they invest. It is not expected that
the liabilities of any Portfolio would ever exceed its assets.
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
<PAGE>
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.
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-30
Capital Stock and Other Securities....................B-31
Purchase, Redemption and Pricing of Securities........B-32
Tax Status............................................B-34
Underwriters..........................................B-37
Calculations of Performance Data......................B-37
Financial Statements..................................B-37
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 200 ("Portfolio 200"), Asset
Allocation Portfolio 300 ("Portfolio 300"), Asset Allocation Portfolio 400
("Portfolio 400") and Asset Allocation Portfolio 500 ("Portfolio 500")
(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 200 is high total return over time
consistent with a primary emphasis on income and a secondary emphasis on
capital appreciation.
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The investment objective of PORTFOLIO 300 is high total return over time
consistent with a balanced emphasis on income and capital appreciation.
The investment objective of PORTFOLIO 400 is high 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 500 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 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.
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The policies described above and those described below are not
fundamental and may be changed without investor approval.
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
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securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price
of a GNMA certificate originally purchased at a premium to decline in price to
its par value, which may result in a loss.
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
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these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. 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 10% 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
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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.
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
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the securities loaned and would also receive compensation based on investment
of the collateral. The Portfolio, would not, however, have the right to vote
any securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower fail financially. However, the loans would be made only to entities
deemed by the 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
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prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or sell foreign currencies. The Portfolios may also enter into
foreign currency hedging transactions in an attempt to protect the value of the
assets of the respective Portfolio as measured in U.S. dollars from unfavorable
changes in currency exchange rates and control regulations. (Although each
Portfolio's assets are valued daily in terms of U.S. dollars, the Trust does
not intend to convert a Portfolio's holdings of other currencies into U.S.
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.
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currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated in the investment decisions
made with regard to overall diversification strategies. However, the Manager
believes that it is important to have the flexibility to enter into such
forward 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.
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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 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
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another currency in which securities are primarily traded will reduce the U.S.
dollar value of such securities, even if their value in the other non-U.S.
currency remains constant, and thus will reduce the value of the 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
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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 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
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call on the same index and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Portfolio in cash,
short-term money market instruments or high quality debt securities in a
segregated account with its custodian. 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
<PAGE>
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 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
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interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was entered into.
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
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which could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a
Portfolio sells a futures contract to protect against losses in the 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.
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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
<PAGE>
futures contract. The second is that a Portfolio will not enter into a futures
contract if immediately thereafter the amount of initial margin deposits on all
the futures contracts held by the Portfolio would exceed approximately 5% of
the net assets of the Portfolio. The third is that the aggregate market value
of the futures contracts held by a Portfolio not exceed approximately 50% of
the market value of the Portfolio's total assets other than its futures
contracts. For purposes of this third policy, "market value" of a futures
contract is deemed to be the amount obtained by multiplying the number of units
covered by the futures contract times the per unit price of the securities
covered by that contract.
The 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.
<PAGE>
Options on futures contracts that are written or purchased by a Portfolio
on U.S. exchanges are traded on the same contract market as the underlying
futures contract, and, like futures contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.
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
<PAGE>
futures contracts depends on, among other factors, the degree of correlation
between changes in the value of securities held by the Portfolio and changes in
the value of its futures positions. This correlation cannot be expected to be
exact, and 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
<PAGE>
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 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:
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(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 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 (provided that this
limitation shall not prevent the Portfolio from entering into futures contracts
or options thereon),
(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 15% 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,
<PAGE>
(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 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 52) -- 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 52) -- President and Director, Delta Financial, Inc.
(since June, 1983); Chairman of the Board and Chief Executive Officer, FX 500
<PAGE>
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.
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 30) -- 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 47) -- 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 30) -- 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 31) -- 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.
THOMAS M. LENZ* (aged 37) -- 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 44) -- 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 36) -- 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 33) -- 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 33) -- 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.
On February 27, 1996, Signature Financial Group (Cayman) Ltd. invested
$100,000 in Portfolio 200. It is expected that shortly after the date hereof
CitiSelectSM Folio 200, CitiSelectSM Folio 300, CitiSelectSM Folio 400 and
CitiSelectSM Folio 500 (collectively, the "Funds") will invest all of their
<PAGE>
investable assets in Portfolio 200, Portfolio 300, Portfolio 400 and Portfolio
500, respectively. 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 will control the Portfolios, the Funds could take actions without the
approval of any other investor. The Funds have informed the Portfolios that
whenever they are 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.
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
<PAGE>
of the applicable Portfolio or by a vote of a majority of the Board of Trustees
of the Trust, or by Citibank on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. Each Management Agreement with the Trust provides that neither
Citibank nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the applicable Portfolio, except
for willful misfeasance, bad faith or gross negligence or reckless disregard of
its or their obligations and duties under a Management Agreement.
Part A to this Registration Statement contains a description of the fees
payable to Citibank for services under each of the Management Agreements.
Citibank, if required by state law, will reimburse the Portfolios or waive all
or a portion of its management fees to the extent that the expenses of a
Portfolio exceed the expense limitation prescribed by any state in which a Fund
that invests in that Portfolio is qualified for offer or sale.
Citibank has entered into separate Submanagement Agreements with the
Subadvisers listed below for the kinds of assets of each Portfolio noted
opposite the Subadvisers' names. Each Subadviser's compensation is described in
Part A to this Registration Statement and is payable by Citibank.
Large cap value securities Miller Anderson & Sherrerd LLP
Small cap value securities Franklin Advisers, Inc.
International equity securities Hotchkis & Wiley
Foreign government securities Pacific Investment Management Company
It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Portfolios, and to place
the purchase and sales orders for securities transactions concerning those
assets, subject in all cases to the general supervision of Citibank. Each
Subadviser furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the assets of the Portfolios allocated to
it and effecting securities transactions concerning those assets.
Each Submanagement Agreement will continue in effect as to each
applicable Portfolio 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 as to that Portfolio or by a vote of a majority of the outstanding
voting securities of that Portfolio, and, in either case, by a majority of the
Trustees of the Trust who are not parties to the Submanagement Agreement or
<PAGE>
interested persons of any such party, at a meeting called for the purpose of
voting on the Submanagement Agreement.
Each Submanagement Agreement provides that the applicable Subadviser may
render services to others. Each Submanagement Agreement is terminable as to any
Portfolio 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 Submanagement Agreement may be
terminated by the applicable Subadviser on not less than 90 days' written
notice. Each Submanagement Agreement provides that neither the Subadviser nor
its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
execution of security transactions for any Portfolio, except for willful
misfeasance, bad faith or gross negligence or reckless disregard of its or
their obligations and duties under the Submanagement Agreement.
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 IBT's subsidiary, IBT Fund
Services (Canada), Inc., pursuant to which fund accounting services are
provided for each Portfolio. Pursuant to separate Transfer Agency and Service
Agreements with the Trust, on behalf of the Portfolios, Signature Financial
Services, Inc. ("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 3300, 1 First Canadian Place, Toronto,
Ontario M5X 1H7, Canada.
<PAGE>
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 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. 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, the Subadvisers or their affiliates exercise
investment discretion. The Manager and the Subadvisers are 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 or the applicable Subadviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities which the Manager, the
Subadvisers and their 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 or a
Subadviser's other clients. Investment decisions for each Portfolio and for
Citibank's and the Subadviser's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. Some simultaneous transactions are inevitable when several clients
<PAGE>
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could adversely affect the price of or the size of the position
obtainable in a security for a Portfolio. When purchases or sales of the same
security for a Portfolio and for other portfolios managed by Citibank or a
Subadviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large volume
purchases or sales.
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
<PAGE>
interests in such series at any meeting of holders of beneficial interests or
by an instrument in writing signed by a majority of the Trustees and consented
to by not less than two-thirds of the outstanding beneficial interests, (ii) by
the Trustees by written notice to holders of the beneficial interests in the
series or (iii) upon the bankruptcy or expulsion of a holder of a beneficial
interest in the series, unless the remaining holders of beneficial interests,
by majority vote, agree to continue the series. The Trust may be dissolved by
action of the Trustees upon the dissolution of the last remaining series.
Each Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. The 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.
<PAGE>
For the purpose of calculating a Portfolio's net asset value, all assets
and liabilities initially expressed in non-U.S. currencies will be converted
into U.S. dollars at the prevailing market rates at the time of valuation.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. Securities listed on a 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
<PAGE>
additions or withdrawals, which are to be effected on that day, are then
effected. Thereafter, the investor's percentage of the aggregate beneficial
interests in the Portfolio is re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the same time on such day plus or minus, as the case may be, the amount of the
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined is then applied
to determine the value of the investor's interest in the Portfolio as of the
close of regular trading on the following Business Day of the Portfolio.
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.
<PAGE>
The Trust believes that, in the case of an investor in a Portfolio that
seeks to qualify as a regulated investment company ("RIC") under the Code, the
investor should be treated for U.S. federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. The Trust also believes
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.
<PAGE>
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 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
<PAGE>
advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or foreign tax consequences
to them of investing in a Portfolio.
Item 21. Underwriters.
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.
See below.
<PAGE>
REPORT OF CHARTERED ACCOUNTANTS
To the Investors and Board of Trustees of Asset Allocation Portfolios, with
respect to its Series: Asset Allocation Portfolio 200
We have audited the accompanying statement of assets and liabilities of Asset
Allocation Portfolio 200 (the "Portfolio"), a series of Asset Allocation
Portfolios, as at February 28, 1996. This financial statement is the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, this financial statement presents fairly, in all material
respects, the financial position of the Portfolio as at February 28, 1996 in
accordance with U.S. generally accepted accounting principles.
Price Waterhouse
Chartered Accountants
Toronto, Ontario
February 28, 1996
<PAGE>
Asset Allocation Portfolios
Statement of Assets and Liabilities
As of February 28, 1996
Assets:
Asset Allocation
Assets Portfolio 200
- ---------------------------------------------------------------
Cash............................. $100,000
--------
Liabilities...................... 0
--------
Net Assets....................... $100,000
========
Net Assets consist of:
Paid in Capital.................. $100,000
--------
Total Net Assets................. $100,000
========
Notes to Statement of Assets and Liabilities:
Asset Allocation Portfolio 200 (the "Portfolio") is a separate series of Asset
Allocation Portfolios (the "Portfolio Trust "). The Portfolio Trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Manager of the Portfolio is Citibank, N.A. Signature Financial Group (Grand
Cayman), Ltd. acts as the Portfolio's Sub-Administrator.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Statement of Assets and Liabilities as of February 28, 1996
Report of Chartered Accountants - February 28, 1996
(b) Exhibits
*1(a) Copy of the Declaration of Trust of the Trust
1(b) Amended and Restated Designation of Series of Beneficial
Interests of the Trust
2 By-laws of the Trust
*5(a) Form of Management Agreement between the Registrant and
Citibank, N.A., as investment adviser
5(b) Forms of Sub-Management Agreements
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
IBT Fund Services (Canada), Inc.
9(b) Form of Transfer Agency Agreement between the Registrant and
Signature Financial Services, Inc. ("SFSI"), as transfer
agent
11 Consent of Independent Accountants
27 Financial Data Schedule
<PAGE>
*Incorporated herein by reference to Registrant's Registration
Statement on Form N-1A (File No. 811-7459) as filed with the
Securities and Exchange Commission on December 20, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
(1) (2)
Title of Class Number of Record Holders
Beneficial Interests (as of February 27, 1996)
Asset Allocation Portfolio 200 1
Asset Allocation Portfolio 300 0
Asset Allocation Portfolio 400 0
Asset Allocation Portfolio 500 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
<PAGE>
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, 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
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director, Boeing Company
Director, Boise Cascade Corp.
<PAGE>
Mario Henrique Simonsen Director, Companhia Bozano 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 Free
Income Fund, Landmark Balanced Fund, CitiSelectSM Folio 200, CitiSelectSM Folio
300, CitiSelectSM Folio 400, CitiSelectSM Folio 500, 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
<PAGE>
VIP U.S. Government Portfolio, Landmark VIP Balanced Portfolio, Landmark VIP
Equity Portfolio and Landmark VIP International Equity Portfolio).
(b) The information required by this Item 29 with respect to each director
and officer of LFBDS is incorporated by reference to Schedule A of Form BD
filed by LFBDS pursuant to the Securities and Exchange Act of 1934 (File No.
8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
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
(transfer agent) Suite 5850, P.O. Box 231
Toronto, Ontario
M5X lC8 CANADA
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
The Registrant undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Amendment to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereunto duly authorized,
in George Town, Grand Cayman, Cayman Islands, BWI on the 28th day of February,
1996.
ASSET ALLOCATION PORTFOLIOS
By: Susan Jakuboski
Susan Jakuboski
Assistant Secretary
<PAGE>
EXHIBIT INDEX
1(b) Amended and Restated Designation of Series of Beneficial Interests of
the Trust
2 By-laws of the Trust
5(b) Forms of Sub-Management Agreements
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 IBT Fund
Services (Canada), Inc.
9(b) Form of Transfer Agency Agreement between the Registrant and Signature
Financial Services, Inc., as transfer agent
11 Consent of Independent Accountants
27 Financial Data Schedule
Exhibit 1(b)
ASSET ALLOCATION PORTFOLIOS
AMENDED AND RESTATED
ESTABLISHMENT AND DESIGNATION OF SERIES OF
BENEFICIAL INTERESTS (WITHOUT PAR VALUE)
Pursuant to Section 6.2 of the Declaration of Trust, dated December 14,
1995 (the "Declaration of Trust"), of Asset Allocation Portfolios (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust, do
hereby establish and designate four series of Interests (as defined in the
Declaration of Trust), such series to have the following special and relative
rights:
1. The series shall be designated as follows:
ASSET ALLOCATION PORTFOLIO 200
ASSET ALLOCATION PORTFOLIO 300
ASSET ALLOCATION PORTFOLIO 400
ASSET ALLOCATION PORTFOLIO 500
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Investment Company
Act of 1940 to the extent pertaining to the offering of Interests of each
series. Each Interest in each series shall be redeemable, shall be entitled to
one vote or fraction thereof in respect of a fractional Interest on matters on
which Interests of that series shall be entitled to vote, shall represent a pro
rata beneficial interest in the assets allocated or belonging to such series,
and shall be entitled to receive its pro rata share of the net assets of such
series upon liquidation of the series, all as provided in Section 6.2 of the
Declaration of Trust.
3. Investors in each series shall vote separately as a class on any matter
to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to each series as provided in, Rule 18f-2,
as from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.2 of the Declaration of Trust.
5. Subject to the provisions of Section 6.2 and Article X of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
<PAGE>
have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter created or
otherwise to change the special and relative rights of any such series.
IN WITNESS WHEREOF, the undersigned have executed this Establishment and
Designation of Series on separate counterparts this 9th day of February, 1996.
Elliott J. Berv
Elliott J. Berv
As Trustee and not individually
Philip W. Coolidge
Philip W. Coolidge
As Trustee and not individually
Mark T. Finn
Mark T. Finn
As Trustee and not individually
Walter E. Robb, III
Walter E. Robb, III
As Trustee and not individually
Exhibit 2
BY-LAWS
OF
ASSET ALLOCATION PORTFOLIOS
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing ASSET ALLOCATION PORTFOLIOS (the "Trust"),
dated as of December 14, 1995, as from time to time amended (the
"Declaration"). All words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1. Fixing Record Dates. If the Trustees do not, prior to
any meeting of the Holders, fix a record date, then the date of mailing notice
of the meeting shall be the record date.
Section 1.2. Records at Holder Meetings. At each meeting of the
Holders there shall be open for inspection the minutes of the last previous
meeting of Holders of the Trust and a list of the Holders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting. Such list of Holders shall contain
the name of each Holder in alphabetical order and the address and Interest
owned by such Holder on such record date.
Section 1.3. Inspectors of Election. In advance of any meeting of
the Holders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman, if any, of any meeting of the Holders may, and on the
request of any Holder or his or her proxy shall, appoint Inspectors of
Election. The number of Inspectors of Election shall be either one or three. If
appointed at the meeting on the request of one or more Holders or proxies, a
Majority Interests Vote shall determine whether one or three Inspectors of
Election are to be appointed, but failure to allow such determination by the
Holders shall not affect the validity of the appointment of Inspectors of
Election. In case any individual appointed as an Inspector of Election fails to
appear or fails or refuses to so act, the vacancy may be filled by appointment
made by the Trustees in advance of the convening of the meeting or at the
meeting by the individual acting as chairman of the meeting. The Inspectors of
Election shall determine the Interest owned by each Holder, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
<PAGE>
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising in
connection with the right to vote, shall count and tabulate all votes or
consents, shall determine the results, and shall do such other acts as may be
proper to conduct the election or vote with fairness to all Holders. If there
are three Inspectors of Election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. On request of the chairman, if any, of the meeting, or of any Holder or
his or her proxy, the Inspectors of Election shall make a report in writing of
any challenge or question or matter determined by them and shall execute a
certificate of any facts found by them.
Section 1.4. Proxies; Voting. No proxy shall be valid after one year
from the date of its execution, unless a longer period is expressly stated in
such proxy.
Section 1.5 Series Holders Meetings. Whenever a matter is required
to be voted by Holders of the Trust in the aggregate under Section 9.1 and 9.2
of the Declaration, the Trust may either hold a meeting of Holders of all
series to vote on such matter, or hold separate meetings of Holders of each of
the individual series to vote on such matter, provided that (i) such separate
meetings shall be held within one year of each other, (ii) a quorum of the
individual series entitled to vote in person or by proxy shall be present at
each such separate meeting, and (iii) a quorum shall be present in the
aggregate at such separate meetings, and the votes of Holders at all such
separate meetings shall be aggregated in order to determine if sufficient votes
have been cast for such matter to be voted.
When separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by Holders of the
Trust in the aggregate, the record date of each such separate meeting shall be
determined in the manner described above in Section 1.1.
ARTICLE II
Meetings of Trustees
Section 2.1. Annual and Regular Meetings. The Trustees shall hold an
annual meeting for the election of officers and the transaction of other
business which may come before such meeting.
Section 2.2. Notice. Notice of a meeting shall be given by mail, by
telegram (which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). Neither the business to be
transacted at, nor the purpose of, any meeting of the Trustees need be stated
<PAGE>
in the notice or waiver of notice of such meeting, and no notice need be given
of action proposed to be taken by written consent.
Section 2.3. Chairman. The Trustees may, by a majority vote of all
Trustees, elect from their own number a Chairman, to hold office until his or
her successor shall have been duly elected and qualified. The Chairman shall
preside at all meetings of the Trustees and shall have such other duties as may
be assigned to him or her from time to time by the Trustees.
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust shall
consist of a President, a Secretary, a Treasurer and such other officers or
assistant officers, including Vice Presidents, as may be elected by the
Trustees. Any two or more of the offices may be held by the same person. The
Trustees may designate a Vice President as an Executive Vice President and may
designate the order in which the other Vice Presidents may act. No officer of
the Trust, including the President, need be a Trustee.
Section 3.2. Election and Tenure. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the President, the Secretary, the Treasurer and such other officers
as the Trustees shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold office until the next annual
meeting of the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any additional
officer at any time.
Section 3.3. Removal of Officers. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of
action which any officer may have as a result of removal in breach of a
contract of employment. Any officer may resign at any time by notice in writing
signed by such officer and delivered or mailed to the Chairman, if any, the
President or the Secretary, and such resignation shall take effect immediately,
or at a later date according to the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his or her duties in such
amount and with such sureties as the Trustees may determine.
<PAGE>
Section 3.5. President and Vice Presidents. The President shall be
the chief executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the business
of the Trust and of its employees and shall exercise such general powers of
management as are usually vested in the office of President of a corporation.
The President shall preside at all meetings of the Holders and, in the absence
of the Chairman, if any, the President shall preside at all meetings of the
Trustees. Subject to the direction of the Trustees, the President shall have
the power, in the name and on behalf of the Trust, to execute any and all loan
documents, contracts, agreements, deeds, mortgages and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the President shall have full authority and
power to attend, to act and to vote, on behalf of the Trust, at any meeting of
any business organization in which the Trust holds an interest, or to confer
such powers upon any other person, by executing any proxies duly authorizing
such person. The President shall have such further authorities and duties as
the Trustees shall from time to time determine. In the absence or disability of
the President, the Vice Presidents in order of their rank or the Vice President
designated by the Trustees, shall perform all of the duties of the President,
and when so acting shall have all the powers of and be subject to all of the
restrictions upon the President. Subject to the direction of the President,
each Vice President shall have the power in the name and on behalf of the Trust
to execute any and all loan documents, contracts, agreements, deeds, mortgages
and other instruments in writing, and, in addition, shall have such other
duties and powers as shall be designated from time to time by the Trustees or
by the President.
Section 3.6. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Holders, Trustees and any committee or
committees of the Trustees. The results of all actions taken at a meeting of
the Trustees, or by written consent of the Trustees, shall be recorded by the
Secretary. The Secretary shall be custodian of the seal of the Trust, if any,
and (and any other person so authorized by the Trustees) shall affix the seal
or, if permitted, a facsimile thereof, to any instrument executed by the Trust
which would be sealed by a New York corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a New York corporation, and shall have such other authorities and duties as
the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Trust, and shall have and exercise under the supervision of the Trustees
and of the President all powers and duties normally incident to his or her
office. The Treasurer may endorse for deposit or collection all notes, checks
<PAGE>
and other instruments payable to the Trust or to its order and shall deposit
all funds of the Trust as may be ordered by the Trustees or the President. The
Treasurer shall keep accurate account of the books of the Trust's transactions
which shall be the property of the Trust, and which together with all other
property of the Trust in his or her possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust. The
Treasurer shall have such other duties and authorities as the Trustees shall
from time to time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize the Investment Adviser and Administrator
to maintain bank accounts and deposit and disburse funds on behalf of the
Trust.
Section 3.8. Other Officers and Duties. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his or her office. Each
officer, employee and agent of the Trust shall have such other duties and
authorities as may be conferred upon him or her by the Trustees or delegated to
him or her by the President.
ARTICLE IV
Miscellaneous
Section 4.1. Depositories. The funds of the Trust shall be deposited
in such depositories as the Trustees shall designate and shall be drawn out on
checks, drafts or other orders signed by such officer, officers, agent or
agents (including the Investment Adviser and Administrator) as the Trustees may
from time to time authorize.
Section 4.2. Signatures. All contracts and other instruments shall
be executed on behalf of the Trust by such officer, officers, agent or agents
as provided in these By-Laws or as the Trustees may from time to time by
resolution provide.
Section 4.3. Seal. The seal of the Trust, if any, may be affixed to
any document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same
effect as if done by a New York corporation.
Section 4.4. Indemnification. Insofar as the conditional advancing
of indemnification monies under Section 5.4 of the Declaration for actions
based upon the 1940 Act may be concerned, such payments will be made only on
the following conditions: (i) the advances must be limited to amounts used, or
<PAGE>
to be used, for the preparation or presentation of a defense to the action,
including costs connected with the preparation of a settlement; (ii) advances
may be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay the amount of the advance which exceeds the amount to which
it is ultimately determined that he or she is entitled to receive from the
Trust by reason of indemnification; and (iii) (a) such promise must be secured
by a surety bond, other suitable insurance or an equivalent form of security
which assures that any repayment may be obtained by the Trust without delay or
litigation, which bond, insurance or other form of security must be provided by
the recipient of the advance, or (b) a majority of a quorum of the Trust's
disinterested, non-party Trustees, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.
Section 4.5. Distribution Disbursing Agents and the Like. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE V
Regulations; Amendment of By-Laws
Section 5.1. Regulations. The Trustees may make such additional
rules and regulations, not inconsistent with these By-Laws, as they may deem
expedient concerning the sale and purchase of Interests of the Trust.
Section 5.2. Amendment and Repeal of By-Laws. In accordance with
Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. Action by the
Trustees with respect to the By-Laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-Laws which
are in conflict with the Declaration.
The Declaration refers to the Trustees as Trustees, but not as
individuals or personally; and no Trustee, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust.
Exhibit 5(b)
FORM OF SUB-MANAGEMENT AGREEMENT
ASSET ALLOCATION PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of February __, 1996, by and between
Citibank, N.A., a national banking association (the "Adviser"), and Miller
Anderson & Sherrerd LLP, a limited liability partnership (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Adviser has been retained by Asset Allocation Portfolios, a
New York trust (the "Trust"), to act as investment adviser to the Trust with
respect to the series of the Trust designated as Asset Allocation Portfolio
200, Asset Allocation Portfolio 300, Asset Allocation Portfolio 400 and Asset
Allocation Portfolio 500 (each individually a "Portfolio" and collectively the
"Portfolios"), and
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 Adviser wishes to engage the Subadviser to provide certain
investment advisory services for the Portfolios, and the Subadviser is willing
to provide such investment advisory services for the Portfolios 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. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Adviser (the "Management
Agreement"), the Adviser hereby appoints the Subadviser to act as subadviser
with respect to each of the Portfolios for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
provide an investment program with respect to the Portfolios for the
compensation provided by this Agreement.
<PAGE>
2. Duties of the Subadviser. The Subadviser shall provide the Adviser with
such investment advice and supervision as the Adviser may from time to time
consider necessary for the proper supervision of such portion of each
Portfolio's investment assets as the Adviser may designate from time to time.
Notwithstanding any provision of this Agreement, the Adviser shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
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 a Portfolio allocated by the Adviser to the Subadviser 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, the then-current Registration Statement of the
Trust with respect to that Portfolio, and subject, further, to the Subadviser
notifying the Adviser in advance of the Subadviser's intention to purchase any
securities except insofar as the requirement for such notification may be
waived or limited by the Adviser, it being understood that the Subadviser shall
be responsible for compliance with any restrictions imposed in writing by the
Adviser from time to time in order to facilitate compliance with the
above-mentioned restrictions and such other restrictions as the Adviser may
determine. Further, the Adviser or the Trustees of the Trust may at any time,
upon written notice to the Subadviser, suspend or restrict the right of the
Subadviser to determine what securities shall be purchased or sold on behalf of
a Portfolio and what portion, if any, of the assets of a Portfolio allocated by
the Adviser to the Subadviser shall be held uninvested. The Subadviser shall
also, as requested, make recommendations to the Adviser as to the manner in
which proxies, voting rights, rights to consent to corporate action and any
other rights pertaining to a Portfolio's portfolio securities shall be
exercised. Should the Board of Trustees of the Trust or the Adviser at any
time, however, make any definite determination as to investment policy
applicable to a Portfolio and notify the Subadviser thereof in writing, the
Subadviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The Subadviser shall take, on behalf of each 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 each Portfolio's account with the brokers or dealers selected by
it, and to that end the Subadviser is authorized as the agent of the Trust to
give instructions to the custodian and any subcustodian of a Portfolio as to
<PAGE>
deliveries of securities and payments of cash for the account of that
Portfolio. The Subadviser will advise the Adviser on the same day it gives any
such instructions. 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 a Portfolio and/or the other
accounts over which the Subadviser or its affiliates exercise investment
discretion. The Subadviser is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for a Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
the Subadviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Subadviser 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 each 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 a Portfolio, the Subadviser 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. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such
brokers and/or dealers is in the best interest of the Trust.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each
Portfolio all of its own expenses allocable to that 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
<PAGE>
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 and the legal obligation which the Trust
may have to indemnify its Trustees and officers with respect thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Adviser shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, an
investment subadvisory fee, accrued daily and paid monthly, at an annual rate
equal to the percentages specified below of the aggregate assets of all
Portfolios allocated to the Subadviser:
0.625% on the first $25 million;
0.375% on the next $75 million;
0.250% on the next $400 million; and
0.20% on assets in excess of $500 million.
If the Subadviser serves as investment subadviser for less than the whole of
any period specified in this Section 4, the compensation to the Subadviser
shall be prorated. Neither the Trust nor the Portfolios shall be liable to the
Subadviser for the compensation of the Subadviser.
If in any fiscal year the aggregate expenses of a Portfolio and any fund
investing its assets therein (including fees pursuant to the Management
Agreement, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over that
Portfolio and any fund investing its assets therein, the Adviser may deduct
from the fees to be paid hereunder, or the Subadviser will bear such excess
expense on a pro-rata basis with the Adviser, in the proportion that the
subadvisory fee payable pursuant to this Agreement bears to the fee payable to
the Adviser pursuant to the Management Agreement, to the extent required by
state law. The Subadviser's obligation pursuant hereto will be limited to the
<PAGE>
amount of its fees hereunder. Such deduction or payment, if any, will be
estimated daily, and reconciled and effected or paid, as the case may be, on a
monthly basis.
5. Covenants of the Subadviser. The Subadviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of a 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 each Portfolio relative to
the Subadviser and its partners, directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser 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 a 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 6,
the term "Subadviser" shall include directors, officers, partners and employees
of the Subadviser as well as the Subadviser itself. The Trust, on behalf of the
Portfolios, is expressly made a third party beneficiary of this Agreement, and
may enforce any obligations of the Subadviser under this Agreement and recover
directly from the Subadviser for any liability the Subadviser may have
hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Portfolios are not to be deemed to be exclusive, the Subadviser being free to
render investment advisory and/or other services to others, including accounts
or investment management companies with similar or identical investment
objectives to the Portfolios. It is understood that Trustees, officers, and
investors of the Trust or the Adviser are or may be or may become interested in
the Subadviser, as directors, officers, partners, employees, or otherwise and
that directors, officers, partners and employees of the Subadviser are or may
become similarly interested in the Trust or the Adviser and that the Subadviser
may be or may become interested in the Trust as an investor or otherwise.
8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until February __, 1998, on which date it will terminate unless its
continuance after February __, 1998 is "specifically approved at least
<PAGE>
annually" (a) by the vote of a majority of the Trustees of the Trust who are
not "interested persons" of the Trust or of the Adviser or of the Subadviser 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 each Portfolio.
This Agreement may be terminated as to any Portfolio at any time without
the payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of
the outstanding voting securities" of that Portfolio, or (iii) the Adviser, in
each case on not more than 60 days' nor less than 30 days' written notice to
the other party. This Agreement may be terminated as to any Portfolio at any
time without the payment of any penalty by the Subadviser on not less than 90
days' written notice to the Adviser. This Agreement shall automatically
terminate in the event of its "assignment." Termination of this Agreement as to
any Portfolio shall not terminate this Agreement as it applies to the remaining
Portfolios.
This Agreement constitutes the entire agreement between the parties and
may be amended as to any Portfolio only if such amendment is approved by the
Subadviser and the "vote of a majority of the outstanding voting securities" of
that Portfolio (except for any such amendment as may be effected in the absence
of such approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Portfolio shall not, without more, amend
such term with respect to any other Portfolio.
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.
9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<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.
CITIBANK, N.A. MILLER ANDERSON &
SHERRERD LLP
By: By:
Title: Title:
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Portfolios
or otherwise, any obligation to the Subadviser.
ASSET ALLOCATION PORTFOLIOS
on behalf of Asset Allocation Portfolio 200,
Asset Allocation Portfolio 300,
Asset Allocation Portfolio 400 and
Asset Allocation Portfolio 500
By:
Title:
<PAGE>
FORM OF SUB-MANAGEMENT AGREEMENT
ASSET ALLOCATION PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of February __, 1996, by and between
Citibank, N.A., a national banking association (the "Adviser"), and Pacific
Investment Management Company, a __________ limited partnership (the
"Subadviser").
W I T N E S S E T H:
WHEREAS, the Adviser has been retained by Asset Allocation Portfolios, a
New York trust (the "Trust"), to act as investment adviser to the Trust with
respect to the series of the Trust designated as Asset Allocation Portfolio
200, Asset Allocation Portfolio 300, Asset Allocation Portfolio 400 and Asset
Allocation Portfolio 500 (each individually a "Portfolio" and collectively the
"Portfolios"), and
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 Adviser wishes to engage the Subadviser to provide certain
investment advisory services for the Portfolios, and the Subadviser is willing
to provide such investment advisory services for the Portfolios 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. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Adviser (the "Management
Agreement"), the Adviser hereby appoints the Subadviser to act as subadviser
with respect to each of the Portfolios for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
provide an investment program with respect to the Portfolios for the
compensation provided by this Agreement.
<PAGE>
2. Duties of the Subadviser. The Subadviser shall provide the Adviser with
such investment advice and supervision as the Adviser may from time to time
consider necessary for the proper supervision of such portion of each
Portfolio's investment assets as the Adviser may designate from time to time.
Notwithstanding any provision of this Agreement, the Adviser shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
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 a Portfolio allocated by the Adviser to the Subadviser 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, the then-current Registration Statement of the
Trust with respect to that Portfolio, and subject, further, to the Subadviser
notifying the Adviser in advance of the Subadviser's intention to purchase any
securities except insofar as the requirement for such notification may be
waived or limited by the Adviser, it being understood that the Subadviser shall
be responsible for compliance with any restrictions imposed in writing by the
Adviser from time to time in order to facilitate compliance with the
above-mentioned restrictions and such other restrictions as the Adviser may
determine. Further, the Adviser or the Trustees of the Trust may at any time,
upon written notice to the Subadviser, suspend or restrict the right of the
Subadviser to determine what securities shall be purchased or sold on behalf of
a Portfolio and what portion, if any, of the assets of a Portfolio allocated by
the Adviser to the Subadviser shall be held uninvested. The Subadviser shall
also, as requested, make recommendations to the Adviser as to the manner in
which proxies, voting rights, rights to consent to corporate action and any
other rights pertaining to a Portfolio's portfolio securities shall be
exercised. Should the Board of Trustees of the Trust or the Adviser at any
time, however, make any definite determination as to investment policy
applicable to a Portfolio and notify the Subadviser thereof in writing, the
Subadviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The Subadviser shall take, on behalf of each 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 each Portfolio's account with the brokers or dealers selected by
it, and to that end the Subadviser is authorized as the agent of the Trust to
<PAGE>
give instructions to the custodian and any subcustodian of a Portfolio as to
deliveries of securities and payments of cash for the account of that
Portfolio. The Subadviser will advise the Adviser on the same day it gives any
such instructions. 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 a Portfolio and/or the other
accounts over which the Subadviser or its affiliates exercise investment
discretion. The Subadviser is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for a Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
the Subadviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Subadviser 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 each 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 a Portfolio, the Subadviser 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. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such
brokers and/or dealers is in the best interest of the Trust.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each
Portfolio all of its own expenses allocable to that 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,
<PAGE>
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 and the legal obligation which the Trust
may have to indemnify its Trustees and officers with respect thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Adviser shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, an
investment subadvisory fee, accrued daily and paid monthly, at an annual rate
equal to the percentages specified below of the aggregate assets of all
Portfolios allocated to the Subadviser:
0.35% on the first $25 million;
0.25% on the next $25 million;
and 0.20% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of
any period specified in this Section 4, the compensation to the Subadviser
shall be prorated. Neither the Trust nor the Portfolios shall be liable to the
Subadviser for the compensation of the Subadviser.
If in any fiscal year the aggregate expenses of a Portfolio and any fund
investing its assets therein (including fees pursuant to the Management
Agreement, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over that
Portfolio and any fund investing its assets therein, the Adviser may deduct
from the fees to be paid hereunder, or the Subadviser will bear such excess
expense on a pro-rata basis with the Adviser, in the proportion that the
subadvisory fee payable pursuant to this Agreement bears to the fee payable to
the Adviser pursuant to the Management Agreement, to the extent required by
state law. The Subadviser's obligation pursuant hereto will be limited to the
amount of its fees hereunder. Such deduction or payment, if any, will be
<PAGE>
estimated daily, and reconciled and effected or paid, as the case may be, on a
monthly basis.
5. Covenants of the Subadviser. The Subadviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of a 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 each Portfolio relative to
the Subadviser and its partners, directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser 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 a 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 6,
the term "Subadviser" shall include directors, officers, partners and employees
of the Subadviser as well as the Subadviser itself. The Trust, on behalf of the
Portfolios, is expressly made a third party beneficiary of this Agreement, and
may enforce any obligations of the Subadviser under this Agreement and recover
directly from the Subadviser for any liability the Subadviser may have
hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Portfolios are not to be deemed to be exclusive, the Subadviser being free to
render investment advisory and/or other services to others, including accounts
or investment management companies with similar or identical investment
objectives to the Portfolios. It is understood that Trustees, officers, and
investors of the Trust or the Adviser are or may be or may become interested in
the Subadviser, as directors, officers, partners, employees, or otherwise and
that directors, officers, partners and employees of the Subadviser are or may
become similarly interested in the Trust or the Adviser and that the Subadviser
may be or may become interested in the Trust as an investor or otherwise.
8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until February __, 1998, on which date it will 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
<PAGE>
not "interested persons" of the Trust or of the Adviser or of the Subadviser 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 each Portfolio.
This Agreement may be terminated as to any Portfolio at any time without
the payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of
the outstanding voting securities" of that Portfolio, or (iii) the Adviser, in
each case on not more than 60 days' nor less than 30 days' written notice to
the other party. This Agreement may be terminated as to any Portfolio at any
time without the payment of any penalty by the Subadviser on not less than 90
days' written notice to the Adviser. This Agreement shall automatically
terminate in the event of its "assignment." Termination of this Agreement as to
any Portfolio shall not terminate this Agreement as it applies to the remaining
Portfolios.
This Agreement constitutes the entire agreement between the parties and
may be amended as to any Portfolio only if such amendment is approved by the
Subadviser and the "vote of a majority of the outstanding voting securities" of
that Portfolio (except for any such amendment as may be effected in the absence
of such approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Portfolio shall not, without more, amend
such term with respect to any other Portfolio.
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.
9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<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.
CITIBANK, N.A. PACIFIC INVESTMENT
MANAGEMENT COMPANY
By: By:
Title: Title:
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Portfolios
or otherwise, any obligation to the Subadviser.
ASSET ALLOCATION PORTFOLIOS
on behalf of Asset Allocation Portfolio 200,
Asset Allocation Portfolio 300,
Asset Allocation Portfolio 400 and
Asset Allocation Portfolio 500
By:
Title:
<PAGE>
FORM OF SUB-MANAGEMENT AGREEMENT
ASSET ALLOCATION PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of February __, 1996, by and between
Citibank, N.A., a national banking association (the "Adviser"), and Franklin
Advisers, Inc., a California corporation (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Adviser has been retained by Asset Allocation Portfolios, a
New York trust (the "Trust"), to act as investment adviser to the Trust with
respect to the series of the Trust designated as Asset Allocation Portfolio
200, Asset Allocation Portfolio 300, Asset Allocation Portfolio 400 and Asset
Allocation Portfolio 500 (each individually a "Portfolio" and collectively the
"Portfolios"), and
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 Adviser wishes to engage the Subadviser to provide certain
investment advisory services for the Portfolios, and the Subadviser is willing
to provide such investment advisory services for the Portfolios 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. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Adviser (the "Management
Agreement"), the Adviser hereby appoints the Subadviser to act as subadviser
with respect to each of the Portfolios for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
provide an investment program with respect to the Portfolios for the
compensation provided by this Agreement.
<PAGE>
2. Duties of the Subadviser. The Subadviser shall provide the Adviser with
such investment advice and supervision as the Adviser may from time to time
consider necessary for the proper supervision of such portion of each
Portfolio's investment assets as the Adviser may designate from time to time.
Notwithstanding any provision of this Agreement, the Adviser shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
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 a Portfolio allocated by the Adviser to the Subadviser 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, the then-current Registration Statement of the
Trust with respect to that Portfolio, and subject, further, to the Subadviser
notifying the Adviser in advance of the Subadviser's intention to purchase any
securities except insofar as the requirement for such notification may be
waived or limited by the Adviser, it being understood that the Subadviser shall
be responsible for compliance with any restrictions imposed in writing by the
Adviser from time to time in order to facilitate compliance with the
above-mentioned restrictions and such other restrictions as the Adviser may
determine. Further, the Adviser or the Trustees of the Trust may at any time,
upon written notice to the Subadviser, suspend or restrict the right of the
Subadviser to determine what securities shall be purchased or sold on behalf of
a Portfolio and what portion, if any, of the assets of a Portfolio allocated by
the Adviser to the Subadviser shall be held uninvested. The Subadviser shall
also, as requested, make recommendations to the Adviser as to the manner in
which proxies, voting rights, rights to consent to corporate action and any
other rights pertaining to a Portfolio's portfolio securities shall be
exercised. Should the Board of Trustees of the Trust or the Adviser at any
time, however, make any definite determination as to investment policy
applicable to a Portfolio and notify the Subadviser thereof in writing, the
Subadviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The Subadviser shall take, on behalf of each 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 each Portfolio's account with the brokers or dealers selected by
it, and to that end the Subadviser is authorized as the agent of the Trust to
<PAGE>
give instructions to the custodian and any subcustodian of a Portfolio as to
deliveries of securities and payments of cash for the account of that
Portfolio. The Subadviser will advise the Adviser on the same day it gives any
such instructions. 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 a Portfolio and/or the other
accounts over which the Subadviser or its affiliates exercise investment
discretion. The Subadviser is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for a Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
the Subadviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Subadviser 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 each 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 a Portfolio, the Subadviser 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. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such
brokers and/or dealers is in the best interest of the Trust.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each
Portfolio all of its own expenses allocable to that 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
<PAGE>
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 and the legal obligation which the Trust
may have to indemnify its Trustees and officers with respect thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Adviser shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, an
investment subadvisory fee, accrued daily and paid monthly, at an annual rate
equal to the percentages specified below of the aggregate assets of all
Portfolios allocated to the Subadviser:
0.58% on the first $250 million; and
0.50% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of
any period specified in this Section 4, the compensation to the Subadviser
shall be prorated. Neither the Trust nor the Portfolios shall be liable to the
Subadviser for the compensation of the Subadviser.
If in any fiscal year the aggregate expenses of a Portfolio and any fund
investing its assets therein (including fees pursuant to the Management
Agreement, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over that
Portfolio and any fund investing its assets therein, the Adviser may deduct
from the fees to be paid hereunder, or the Subadviser will bear such excess
expense on a pro-rata basis with the Adviser, in the proportion that the
subadvisory fee payable pursuant to this Agreement bears to the fee payable to
the Adviser pursuant to the Management Agreement, to the extent required by
state law. The Subadviser's obligation pursuant hereto will be limited to the
amount of its fees hereunder. Such deduction or payment, if any, will be
<PAGE>
estimated daily, and reconciled and effected or paid, as the case may be, on a
monthly basis.
5. Covenants of the Subadviser. The Subadviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of a 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 each Portfolio relative to
the Subadviser and its directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser 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 a 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 6,
the term "Subadviser" shall include directors, officers and employees of the
Subadviser as well as the Subadviser itself. The Trust, on behalf of the
Portfolios, is expressly made a third party beneficiary of this Agreement, and
may enforce any obligations of the Subadviser under this Agreement and recover
directly from the Subadviser for any liability the Subadviser may have
hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Portfolios are not to be deemed to be exclusive, the Subadviser being free to
render investment advisory and/or other services to others, including accounts
or investment management companies with similar or identical investment
objectives to the Portfolios. It is understood that Trustees, officers, and
investors of the Trust or the Adviser are or may be or may become interested in
the Subadviser, as directors, officers, employees, or otherwise and that
directors, officers, and employees of the Subadviser are or may become
similarly interested in the Trust or the Adviser and that the Subadviser may be
or may become interested in the Trust as an investor or otherwise.
8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until February __, 1998, on which date it will 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
<PAGE>
not "interested persons" of the Trust or of the Adviser or of the Subadviser 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 each Portfolio.
This Agreement may be terminated as to any Portfolio at any time without
the payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of
the outstanding voting securities" of that Portfolio, or (iii) the Adviser, in
each case on not more than 60 days' nor less than 30 days' written notice to
the other party. This Agreement may be terminated as to any Portfolio at any
time without the payment of any penalty by the Subadviser on not less than 90
days' written notice to the Adviser. This Agreement shall automatically
terminate in the event of its "assignment." Termination of this Agreement as to
any Portfolio shall not terminate this Agreement as it applies to the remaining
Portfolios.
This Agreement constitutes the entire agreement between the parties and
may be amended as to any Portfolio only if such amendment is approved by the
Subadviser and the "vote of a majority of the outstanding voting securities" of
that Portfolio (except for any such amendment as may be effected in the absence
of such approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Portfolio shall not, without more, amend
such term with respect to any other Portfolio.
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.
9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<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.
CITIBANK, N.A. FRANKLIN ADVISERS, INC.
By: By:
Title: Title:
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Portfolios
or otherwise, any obligation to the Subadviser.
ASSET ALLOCATION PORTFOLIOS
on behalf of Asset Allocation Portfolio 200,
Asset Allocation Portfolio 300,
Asset Allocation Portfolio 400 and
Asset Allocation Portfolio 500
By:
Title:
<PAGE>
FORM OF SUB-MANAGEMENT AGREEMENT
ASSET ALLOCATION PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of February __, 1996, by and between
Citibank, N.A., a national banking association (the "Adviser"), and Hotchkis &
Wiley, a __________ general partnership (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Adviser has been retained by Asset Allocation Portfolios, a
New York trust (the "Trust"), to act as investment adviser to the Trust with
respect to the series of the Trust designated as Asset Allocation Portfolio
200, Asset Allocation Portfolio 300, Asset Allocation Portfolio 400 and Asset
Allocation Portfolio 500 (each individually a "Portfolio" and collectively the
"Portfolios"), and
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 Adviser wishes to engage the Subadviser to provide certain
investment advisory services for the Portfolios, and the Subadviser is willing
to provide such investment advisory services for the Portfolios 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. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Adviser (the "Management
Agreement"), the Adviser hereby appoints the Subadviser to act as subadviser
with respect to each of the Portfolios for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
provide an investment program with respect to the Portfolios for the
compensation provided by this Agreement.
<PAGE>
2. Duties of the Subadviser. The Subadviser shall provide the Adviser with
such investment advice and supervision as the Adviser may from time to time
consider necessary for the proper supervision of such portion of each
Portfolio's investment assets as the Adviser may designate from time to time.
Notwithstanding any provision of this Agreement, the Adviser shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
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 a Portfolio allocated by the Adviser to the Subadviser 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, the then-current Registration Statement of the
Trust with respect to that Portfolio, and subject, further, to the Subadviser
notifying the Adviser in advance of the Subadviser's intention to purchase any
securities except insofar as the requirement for such notification may be
waived or limited by the Adviser, it being understood that the Subadviser shall
be responsible for compliance with any restrictions imposed in writing by the
Adviser from time to time in order to facilitate compliance with the
above-mentioned restrictions and such other restrictions as the Adviser may
determine. Further, the Adviser or the Trustees of the Trust may at any time,
upon written notice to the Subadviser, suspend or restrict the right of the
Subadviser to determine what securities shall be purchased or sold on behalf of
a Portfolio and what portion, if any, of the assets of a Portfolio allocated by
the Adviser to the Subadviser shall be held uninvested. The Subadviser shall
also, as requested, make recommendations to the Adviser as to the manner in
which proxies, voting rights, rights to consent to corporate action and any
other rights pertaining to a Portfolio's portfolio securities shall be
exercised. Should the Board of Trustees of the Trust or the Adviser at any
time, however, make any definite determination as to investment policy
applicable to a Portfolio and notify the Subadviser thereof in writing, the
Subadviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The Subadviser shall take, on behalf of each 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 each Portfolio's account with the brokers or dealers selected by
it, and to that end the Subadviser is authorized as the agent of the Trust to
<PAGE>
give instructions to the custodian and any subcustodian of a Portfolio as to
deliveries of securities and payments of cash for the account of that
Portfolio. The Subadviser will advise the Adviser on the same day it gives any
such instructions. 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 a Portfolio and/or the other
accounts over which the Subadviser or its affiliates exercise investment
discretion. The Subadviser is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for a Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
the Subadviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities which the
Subadviser 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 each 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 a Portfolio, the Subadviser 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. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such
brokers and/or dealers is in the best interest of the Trust.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each
Portfolio all of its own expenses allocable to that 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,
<PAGE>
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 and the legal obligation which the Trust
may have to indemnify its Trustees and officers with respect thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Adviser shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, an
investment subadvisory fee, accrued daily and paid monthly, at an annual rate
equal to the percentages specified below of the aggregate assets of all
Portfolios allocated to the Subadviser:
0.60% on the first $10 million;
0.55% on the next $40 million;
0.45% on the next $100 million;
0.35% on the next $150 million; and
0.30% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of
any period specified in this Section 4, the compensation to the Subadviser
shall be prorated. Neither the Trust nor the Portfolios shall be liable to the
Subadviser for the compensation of the Subadviser.
If in any fiscal year the aggregate expenses of a Portfolio and any fund
investing its assets therein (including fees pursuant to the Management
Agreement, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over that
Portfolio and any fund investing its assets therein, the Adviser may deduct
from the fees to be paid hereunder, or the Subadviser will bear such excess
expense on a pro-rata basis with the Adviser, in the proportion that the
subadvisory fee payable pursuant to this Agreement bears to the fee payable to
the Adviser pursuant to the Management Agreement, to the extent required by
<PAGE>
state law. The Subadviser's obligation pursuant hereto will be limited to the
amount of its fees hereunder. Such deduction or payment, if any, will be
estimated daily, and reconciled and effected or paid, as the case may be, on a
monthly basis.
5. Covenants of the Subadviser. The Subadviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Portfolio, except as
permitted by the 1940 Act, will not take a long or short position in beneficial
interests of a 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 each Portfolio relative to
the Subadviser and its directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser 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 a 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 6,
the term "Subadviser" shall include directors, officers and employees of the
Subadviser as well as the Subadviser itself. The Trust, on behalf of the
Portfolios, is expressly made a third party beneficiary of this Agreement, and
may enforce any obligations of the Subadviser under this Agreement and recover
directly from the Subadviser for any liability the Subadviser may have
hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Portfolios are not to be deemed to be exclusive, the Subadviser being free to
render investment advisory and/or other services to others, including accounts
or investment management companies with similar or identical investment
objectives to the Portfolios. It is understood that Trustees, officers, and
investors of the Trust or the Adviser are or may be or may become interested in
the Subadviser, as directors, officers, employees, or otherwise and that
directors, officers, and employees of the Subadviser are or may become
similarly interested in the Trust or the Adviser and that the Subadviser may be
or may become interested in the Trust as an investor or otherwise.
8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until February __, 1998, on which date it will terminate unless its
<PAGE>
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 the Adviser or of the Subadviser 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 each Portfolio.
This Agreement may be terminated as to any Portfolio at any time without
the payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of
the outstanding voting securities" of that Portfolio, or (iii) the Adviser, in
each case on not more than 60 days' nor less than 30 days' written notice to
the other party. This Agreement may be terminated as to any Portfolio at any
time without the payment of any penalty by the Subadviser on not less than 90
days' written notice to the Adviser. This Agreement shall automatically
terminate in the event of its "assignment." Termination of this Agreement as to
any Portfolio shall not terminate this Agreement as it applies to the remaining
Portfolios.
This Agreement constitutes the entire agreement between the parties and
may be amended as to any Portfolio only if such amendment is approved by the
Subadviser and the vote of a majority of the outstanding voting securities" of
that Portfolio (except for any such amendment as may be effected in the absence
of such approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Portfolio shall not, without more, amend
such term with respect to any other Portfolio.
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.
9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<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.
CITIBANK, N.A. HOTCHKIS & WILEY
By: By:
Title: Title:
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Portfolios
or otherwise, any obligation to the Subadviser.
ASSET ALLOCATION PORTFOLIOS
on behalf of Asset Allocation Portfolio 200,
Asset Allocation Portfolio 300,
Asset Allocation Portfolio 400 and
Asset Allocation Portfolio 500
By:
Title:
Exhibit 6
PLACEMENT AGENCY AGREEMENT
__________ ___, 199___
The Landmark Funds Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, ASSET ALLOCATION PORTFOLIOS (the "Portfolio"), an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), organized as a New
York trust, has agreed that The Landmark Funds Broker-Dealer Services, Inc.
("LFBDS") shall be the exclusive placement agent (the "Placement Agent") of
beneficial interests of the Portfolio ("Portfolio Interests").
1. SERVICES AS PLACEMENT AGENT
1.1 LFBDS will act as exclusive Placement Agent of the Portfolio Interests
covered by the registration statement then in effect under the 1940 Act.
In acting as Placement Agent under this Placement Agent Agreement,
neither LFBDS nor its employees nor any agents thereof shall make any
offer or sale of Portfolio Interests in a manner which would require the
Interests to be registered under the Securities Act of 1933, as amended
(the "1933 Act").
1.2 All activities by LFBDS and its agents and employees as Placement Agent
of Portfolio Interests shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations
adopted pursuant to the 1940 Act by the Securities and Exchange
Commission (the "Commission").
1.3 LFBDS shall perform such specified activities and conduct all of its
activities as Placement Agent of Portfolio Interests, including any
activities described herein, as set forth in the Operating Policies and
Procedures (the "Operating Procedures") of the Portfolio (in such form as
may be approved from time to time by the Portfolio's Board of Trustees).
To the extent that any provision of this Agreement shall conflict with
any provision of the Operating Procedures, the applicable provision of
the Operating Procedures shall be deemed to govern.
1.4 Nothing herein shall be construed to require the Portfolio to accept any
offer to purchase any Portfolio Interests, all of which shall be subject
to approval by the Portfolio's Board of Trustees.
1.5 The Portfolio shall furnish from time to time for use in connection with
the sale of Portfolio Interests such information with respect to the
Portfolio and Portfolio Interests as LFBDS may reasonably request. The
Portfolio shall also furnish LFBDS upon request with: (a) unaudited
semiannual statements of the Portfolio's books and accounts prepared by
<PAGE>
the Portfolio, and (b) from time to time such additional information
regarding the Portfolio's financial or regulatory condition as LFBDS may
reasonably request.
1.6 The Portfolio represents to LFBDS that all registration statements filed
by the Portfolio with the Commission under the 1940 Act with respect to
Portfolio Interests have been prepared in conformity with the
requirements of such statute and the rules and regulations of the
Commission thereunder. As used in this Agreement the term "registration
statement" shall mean any registration statement filed with the
Commission as modified by any amendments thereto that at any time shall
have been filed with the Commission by or on behalf of the Portfolio. The
Portfolio represents and warrants to LFBDS that any registration
statement will contain all statements required to be stated therein in
conformity with both such statute and the rules and regulations of the
Commission; that all statements of fact contained in any registration
statement will be true and correct in all material respects at the time
of filing of such registration statements or amendments thereto; and that
no registration statement will include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
Portfolio Interests. The Portfolio may but shall not be obligated to
propose from time to time such amendment to any registration statement as
in the light of future developments may, in the opinion of the
Portfolio's counsel, be necessary or advisable. If the Portfolio shall
not propose such amendment and/or supplement within fifteen days after
receipt by the Portfolio of a written request from LFBDS to do so, LFBDS
may, at its option, terminate this Agreement. The Portfolio shall not
file any amendment to any registration statement without giving LFBDS
reasonable notice thereof in advance; provided, however, that nothing
contained in this Agreement shall in any way limit the Portfolio's right
to file at any time such amendment to any registration statement as the
Portfolio may deem advisable, such right being in all respects absolute
and unconditional.
1.7 The Portfolio agrees to indemnify, defend and hold LFBDS, its several
officers and directors, and any person who controls LFBDS within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph
1.7, collectively, "Covered Persons") free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost
of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Portfolio's
agreement to indemnify Covered Persons shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any financial and
other statements as are furnished in writing to the Portfolio by LFBDS in
its capacity as Placement Agent for use in the answers to any items of
any registration statement or in any statements made in any Offering
Material, or arising out of or based on any omission or alleged omission
to state a material fact in connection with the giving of such
information required to be stated in such answers or necessary to make
the answers not misleading; and further provided that the Portfolio's
<PAGE>
agreement to indemnify LFBDS and the Portfolio's representations and
warranties herein before set forth in paragraph 1.6 shall not be deemed
to cover any liability to the Portfolio or its investors to which a
Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of a Covered Person's reckless disregard of its
obligations and duties under this Agreement. The Portfolio shall be
notified of any action brought against a Covered Person, such
notification to be given by letter or by telegram addressed to the
Portfolio, c/o Roger P. Joseph, Esq., Bingham, Dana & Gould, 150 Federal
Street, Boston, Massachusetts 02110, with a copy to Philip W. Coolidge, 6
St. James Avenue, 9th floor, Boston, Massachusetts 02116 promptly after
the summons or other first legal process shall have been duly and
completely served upon such Covered Person. The failure to so notify the
Portfolio of any such action shall not relieve the Portfolio from any
liability except to the extent that the Portfolio shall have been
prejudiced by such failure, or from any liability that the Portfolio may
have to the Covered Person against whom such action is brought by reason
of any such untrue statement or omission, otherwise than on account of
the Portfolio's indemnity agreement contained in this paragraph. The
Portfolio will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but in such case such
defense shall be conducted by counsel of good standing chosen by the
Portfolio and approved by LFBDS, which approval shall not be unreasonably
withheld. In the event the Portfolio elects to assume the defense of any
such suit and retain counsel of good standing approved by LFBDS, the
defendant or defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them; but in case the Portfolio
does not elect to assume the defense of any such suit, or in case LFBDS
reasonably does not approve of counsel chosen by the Portfolio, the
Portfolio will reimburse the Covered Person named as defendant in such
suit, for the fees and expenses of any counsel retained by LFBDS or such
Covered Person. The Portfolio's indemnification agreement contained in
this paragraph and the Portfolio's representations and warranties in this
Agreement shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of Covered Persons, and shall
survive the delivery of any Portfolio Interests. This agreement of
indemnity will inure exclusively to Covered Persons and their successors.
The Portfolio agrees to notify LFBDS promptly of the commencement of any
litigation or proceedings against the Portfolio or any of its officers or
Trustees in connection with the issue and sale of any Portfolio
Interests.
1.8 LFBDS agrees to indemnify, defend and hold the Portfolio, its several
officers and trustees, and any person who controls the Portfolio within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
(for purposes of this paragraph 1.8, collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees incurred
in connection therewith) that Covered Persons may incur under the 1933
Act, the 1934 Act, or common law or otherwise, but only to the extent
that such liability or expense incurred by a Covered Person resulting
from such claims or demands shall arise out of or be based on any untrue
statement of a material fact contained in information furnished in
writing by LFBDS in its capacity as Placement Agent to the Portfolio for
use in the answers to any of the items of any registration statement or
in any statements in any Offering Material or shall arise out of or be
based on any omission to state a material fact in connection with such
information furnished in writing by LFBDS to the Portfolio required to be
<PAGE>
stated in such answers or necessary to make such information not
misleading. LFBDS shall be notified of any action brought against a
Covered Person, such notification to be given by letter or telegram
addressed to LFBDS at 6 St. James Avenue, Boston, Massachusetts 02116,
Attention: Philip W. Coolidge, promptly after the summons or other first
legal process shall have been duly and completely served upon such
Covered Person. LFBDS shall have the right of first control of the
defense of the action with counsel of its own choosing satisfactory to
the Portfolio if such action is based solely on such alleged misstatement
or omission on LFBDS's part, and in any other event each Covered Person
shall have the right to participate in the defense or preparation of the
defense of any such action. The failure to so notify LFBDS of any such
action shall not relieve LFBDS from any liability except to the extent
that LFBDS shall have been prejudiced by such failure, or from any
liability that LFBDS may have to Covered Persons by reason of any such
untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of LFBDS's indemnity agreement contained in
this paragraph.
1.9 No Portfolio Interests shall be offered by either LFBDS or the Portfolio
under any of the provisions of this Agreement and no orders for the
purchase or sale of Portfolio Interests hereunder shall be accepted by
the Portfolio if and so long as the effectiveness of the registration
statement or any necessary amendments thereto shall be suspended under
any of the provisions of the 1940 Act; provided, however, that nothing
contained in this paragraph shall in any way restrict or have an
application to or bearing on the Portfolio's obligation to redeem
Portfolio Interests from any investor in accordance with the provisions
of the Portfolio's registration statement or Declaration of Trust, as
amended from time to time.
1.10 The Portfolio agrees to advise LFBDS as soon as reasonably practical by a
notice in writing delivered to LFBDS or its counsel:
(a) of any request by the Commission for amendments to the registration
statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement then in effect
or the initiation by service of process on the Portfolio of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement then in effect or that
requires the making of a change in such registration statement in order
to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any amendment to any
registration statement that may from time to time be filed with the
Commission.
For purposes of this paragraph 1.10, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.11 LFBDS agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Portfolio all
records and other information not otherwise publicly available relative
to the Portfolio and its prior, present or potential investors and not to
use such records and information for any purpose other than performance
of its responsibilities and duties hereunder, except after prior
<PAGE>
notification to and approval in writing by the Portfolio, which approval
shall not be unreasonably withheld and may not be withheld where LFBDS
may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Portfolio.
1.12 In addition to LFBDS's duties as Placement Agent, the Portfolio
understands that LFBDS may, in its discretion, perform additional
functions in connection with transactions in Portfolio Interests.
The processing of Portfolio Interest transactions may include, but is not
limited to, compilation of all transactions from LFBDS's various offices;
creation of a transaction tape and timely delivery of it to the Portfolio's
transfer agent for processing; reconciliation of all transactions delivered to
the Portfolio's transfer agent; and the recording and reporting of these
transactions executed by the Portfolio's transfer agent in customer statements;
rendering of periodic customer statements; and the reporting of IRS Form 1099
information at year end if required.
LFBDS may also provide other investor services, such as communicating with
Portfolio investors and other functions in administering customer accounts for
Portfolio investors.
LFBDS understands that these services may result in cost savings to the
Portfolio or to the Portfolio's investment manager and neither the Portfolio
nor the Portfolio's investment manager will compensate LFBDS for all or a
portion of the costs incurred in performing functions in connection with
transactions in Portfolio Interests. Nothing herein is intended, nor shall be
construed, as requiring LFBDS to perform any of the foregoing functions.
2. TERM.
This Agreement shall become effective on the date first above written and,
unless sooner terminated as provided herein, shall continue until _________
___, 19___ and thereafter shall continue automatically for successive annual
periods, provided such continuance is specifically approved at least annually
by (i) the Portfolio's Board of Trustees or (ii) by a vote of a majority (as
defined in the 1940 Act) of the Portfolio's outstanding voting securities,
provided that in either event the continuance is also approved by the majority
of the Portfolio's Trustees who are not interested persons (as defined in the
1940 Act) of the Portfolio and who have no direct or indirect financial
interest in this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable without
penalty, on not less than 60 days' notice, by the Board, by vote of a majority
(as defined in the 1940 Act) of the Portfolio's outstanding voting securities,
or by LFBDS. This Agreement will also terminate automatically in the event of
its assignment (as defined in the 1940 Act and the rules thereunder).
3. REPRESENTATIONS AND WARRANTIES.
LFBDS and the Portfolio each hereby represents and warrants to the other that
it has all requisite authority to enter into, execute, deliver and perform its
obligations under this Agreement and that, with respect to it, this Agreement
is legal, valid and binding, and enforceable in accordance with its terms.
<PAGE>
4. CONCERNING APPLICABLE PROVISIONS OF LAW, ETC.
This Agreement shall be subject to all applicable provisions of law, including
the applicable provisions of the 1940 Act and to the extent that any provisions
herein contained conflict with any such applicable provisions of law, the
latter shall control.
This Agreement is executed and delivered at a location or locations outside the
United States, and the laws of the Commonwealth of Massachusetts shall, except
to the extent that any applicable provisions of Federal Law shall be
controlling, govern the construction, validity and effect of this Agreement,
without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so indicate by
executing the enclosed copy of this Agreement and returning the same to the
undersigned, whereupon this Agreement shall constitute a binding contract
between the parties hereto effective at the closing of business on the date
hereof.
Yours very truly,
ASSET ALLOCATION PORTFOLIOS
By:
Title:
Accepted:
THE LANDMARK FUNDS BROKER-DEALER SERVICES, INC.
By:
Title:
Exhibit 8
CUSTODIAN AGREEMENT
BETWEEN
ASSET ALLOCATION PORTFOLIOS
AND
INVESTORS BANK AND TRUST
<PAGE>
TABLE OF CONTENTS
PAGE
1. Bank Appointed Custodian..............................
2. Definitions...........................................
2.1 Authorized Person...............................
2.2 Security........................................
2.3 Portfolio Security..............................
2.4 Officers' Certificate...........................
2.5 Book Entry System...............................
2.6 Depository......................................
2.7 Proper Instructions.............................
3. Separate Accounts.....................................
4. Certification as to Authorized Persons................
5. Custody of Cash.......................................
5.1 Purchase of Securities..........................
5.2 Redemptions.....................................
5.3 Distributions and Expenses of Fund..............
5.4 Payment in Respect of Securities................
5.5 Repayment of Loans..............................
5.6 Repayment of Cash...............................
5.7 Foreign Exchange Transactions...................
5.8 Other Authorized Payments.......................
5.9 Termination.....................................
6. Securities............................................
6.1 Segregation and Registration....................
6.2 Voting and Proxies..............................
6.3 Book-Entry System...............................
6.4 Use of a Depository.............................
6.5 Use of a Book-Entry System for
Commercial Paper................................
6.6 Use of Immobilization Programs..................
<PAGE>
6.7 Eurodollar CDs..................................
6.8 Options and Futures Transactions................
(a) Puts and Calls Traded on
Securities Exchanges, NASDAQ
or Over-the-Counter.........................
(b) Puts, Calls and Futures Traded
on Commodities Exchanges....................
6.9 Segregated Account..............................
6.10 Interest Bearing Call or Time Deposits..........
6.11 Transfer of Securities..........................
7. Redemptions...........................................
8. Merger, Dissolution, etc. of Fund.....................
9. Actions of Bank Without Prior Authorization...........
10. Collection; Defaults..................................
11. Maintenance of Records................................
12. Opinion of Fund's Independent Accountant..............
13. Reports to Fund by Independent Public Accountants.....
14. RESERVED..............................................
15. Concerning the Bank...................................
15.1 Performance of Duties; Standard of Care..........
15.2 Agents and Subcustodians.........................
15.3 Insurance........................................
15.4 Fees and Expenses of Bank........................
15.5 Advances by Bank.................................
16. Termination...........................................
17. Notices...............................................
18. Amendments............................................
<PAGE>
19. Parties...............................................
20. Governing Law.........................................
21. Limitations of Liability..............................
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this day of , 199 between Asset Allocation
Portfolios, a New York trust, on behalf of [Asset Allocation Portfolio 200]
[Asset Allocation Portfolio 300] [Asset Allocation Portfolio 400] [Asset
Allocation Portfolio 500] (the "Fund") and INVESTORS BANK & TRUST COMPANY, (the
"Bank").
The Fund, an open-end management investment company desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1)
of the Investment Company Act of 1940 (the "Act") to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on
behalf of the Fund by appropriate resolution of its Board of Trustees
(the "Board"), and set forth in a certificate as required by Section 4
hereof.
2.2 Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933 as
amended, including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities
<PAGE>
(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relating to a foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate
of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to, or option
contract to purchase or sell any of the foregoing and futures, forward
contracts and options thereon.
2.3 Portfolio Security. Portfolio Security will mean any
Security owned by the Fund.
2.4 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or
certification in writing signed by any two Authorized Persons of the
Fund.
2.5 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States
government, instrumentality and agency securities operated by the Federal
Reserve Bank, its successor or successors and its nominee or nominees.
2.6 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934, its
successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized
to act as a depository under the Act, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a
resolution of the Board.
2.7 Proper Instructions. Proper Instructions shall mean (i)
instructions (which may be continuing instructions) regarding the
purchase or sale of Portfolio Securities, and payments and deliveries in
connection therewith, given by an Authorized Person as shall have been
designated in an Officers' Certificate, such instructions to be given in
such form and manner as the Bank and the Fund shall agree upon from time
to time, and (ii) instructions (which may be continuing instructions)
regarding other matters signed or initialed by such one or more persons
from time to time designated in an Officers' Certificate as having been
<PAGE>
authorized by the Board. Oral instructions will be considered Proper
Instructions if the Bank reasonably believes them to have been given by a
person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
promptly confirmed in writing. The Bank shall act upon and comply with
any subsequent Proper Instruction which modifies a prior instruction and
the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect
any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be
responsible, at the Fund's expense, for taking any action, including any
reprocessing, necessary to correct any such discrepancy or error, and to
the extent such action requires the Bank to act the Fund shall give the
Bank specific Proper Instructions as to the action required. Upon receipt
of an Officers' Certificate as to the authorization by the Board
accompanied by a detailed description of procedures approved by the Fund,
Proper Instructions may include communication effected directly between
electromechanical or electronic devices provided that the Board and the
Bank are satisfied that such procedures afford adequate safeguards for
the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon).
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of
the members of the Board, it being understood that upon the occurrence of any
change in the information set forth in the most recent certification on file
(including without limitation any person named in the most recent certification
who is no longer an Authorized Person as designated therein), the Secretary or
Assistant Secretary of the Fund will sign a new or amended certification
setting forth the change and the new, additional or omitted names or
signatures. The Bank will be entitled to rely and act upon any Officers'
Certificate given to it by the Fund which has been signed by Authorized Persons
named in the most recent certification.
<PAGE>
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 13.2 hereof, including borrowed funds, delivered
to the Bank, subject only to draft or order by the Bank acting pursuant to the
terms of this Agreement. Upon receipt by the Bank of Proper Instructions (which
may be continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding interests in the Fund, notification from the Fund's
transfer agent as provided in Section 7, requesting such payment, designating
the payee or the account or accounts to which the Bank will release funds for
deposit, and stating that it is for a purpose permitted under the terms of this
Section 5, specifying the applicable subsection, or describing such purpose
with sufficient particularity to permit the Bank to ascertain the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1 - 5.9 below.
5.1 Purchase of Securities: upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or,
for transactions outside the U.S., against delivery of such securities to
the Bank in accordance with generally accepted settlement practices and
customs in the jurisdiction or market in which the transaction occurs,
registered in the name of the Fund or in the name of, or properly
endorsed and in form for transfer to, the Bank, or a nominee of the Bank,
or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry
Paper) of purchase of the securities received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the
Bank before such payment is made. In any and every case where payment for
purchases of securities for the account of the Fund is made by the Bank
in advance of receipt of the securities purchased in the absence of
Proper Instructions to so pay in advance, except as expressly permitted
by the first sentence of this paragraph, the Bank shall be absolutely
liable to the Fund for such securities to the same extent as if the
securities had been received by the Bank except that in the case of
repurchase agreements entered into by the Fund with a bank which is a
member of the Federal Reserve System, the Bank may transfer funds to the
account of such bank prior to the receipt of written evidence that the
securities subject to such repurchase agreement have been transferred by
<PAGE>
book-entry into a segregated non-proprietary account of the Bank
maintained with the Federal Reserve Bank of Boston or of the safekeeping
receipt, provided that such securities have in fact been so transferred
by book entry;
5.2 Redemptions: in such amount as may be necessary for the
repurchase or redemption of common interests in the Fund offered for
repurchase or redemption in accordance with Section 7 of this Agreement;
5.3 Distributions and Expenses of Fund: for the payment on the
account of the Fund of dividends or other distributions to investors as
may from time to time be declared by the Board, interest, taxes,
management or supervisory fees, distribution fees, fees of the Bank for
its services hereunder and reimbursement of the expenses and liabilities
of the Bank as provided hereunder, fees of any transfer agent, fees for
legal, accounting, and auditing services, or other operating expenses of
the Fund;
5.4 Payment in Respect of Securities: for payments in connection
with the conversion, exchange or surrender of Portfolio Securities or
securities subscribed to by the Fund held by or to be delivered to the
Bank;
5.5 Repayment of Loans: to repay loans of money made to the Fund,
but, in the case of final payment, only upon redelivery to the Bank of
any Portfolio Securities pledged or hypothecated therefor and upon
surrender of documents evidencing the loan;
5.6 Repayment of Cash: to repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund
certificates borrowed from the Fund representing Portfolio Securities,
but only upon redelivery to the Bank of such borrowed certificates;
5.7 Foreign Exchange Transactions: for payments in connection with
foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such
Proper Instructions to specify the currency broker or banking institution
(which may be the Bank, or any other subcustodian or agent hereunder,
acting as principal) with which the contract or option is made, and the
Bank shall have no duty with respect to the selection of such currency
<PAGE>
brokers or banking institutions with which the Fund deals or for their
failure to comply with the terms of any contract or option;
5.8 Other Authorized Payments: for other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund
purposes; provided that before making any such payment the Bank will also
receive a certified copy of a resolution of the Board signed by an
Authorized Person (other than the Person certifying such resolution) and
certified by its Secretary or Assistant Secretary, naming the person or
persons to whom such payment is to be made, and either describing the
transaction for which payment is to be made and declaring it to be an
authorized transaction of the Fund, or specifying the amount of the
obligation for which payment is to be made, setting forth the purpose for
which such obligation was incurred and declaring such purpose to be a
proper corporate purpose; and
5.9 Termination: upon the termination of this Agreement as
hereinafter set forth pursuant to Section 8 and Section 14 of this
Agreement.
6. Securities
6.1 Segregation and Registration. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian
appointed pursuant to Section 13.2 hereof, the Bank as custodian, will
receive and hold pursuant to the provisions hereof, in a separate account
or accounts and physically segregated at all times from those of other
persons, any and all Portfolio Securities which may now or hereafter be
delivered to it by or for the account of the Fund. All such Portfolio
Securities will be held or disposed of by the Bank for, and subject at
all times to, the instructions of the Fund pursuant to the terms of this
Agreement. Subject to the specific provisions herein relating to
Portfolio Securities that are not physically held by the Bank, the Bank
will register all Portfolio Securities (unless otherwise directed by
Proper Instructions or an Officers' Certificate), in the name of a
registered nominee of the Bank as defined in the Internal Revenue Code
and any Regulations of the Treasury Department issued thereunder, and
will execute and deliver all such certificates in connection therewith as
may be required by such laws or regulations or under the laws of any
State. The Bank will use its best efforts to the end that the specific
Portfolio Securities held by it hereunder will be at all times
identifiable.
<PAGE>
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any Portfolio
Securities which may from time to time be registered in the name of the
Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in
accordance with Proper Instructions or an Officers' Certificate. The Bank
will promptly execute and deliver, or cause to be executed and delivered,
to the Fund all notices, proxies and proxy soliciting materials with
respect to such Securities, such proxies to be executed by the registered
holder of such Securities, (if registered otherwise than in the name of
the Fund), but without indicating the manner in which such proxies are to
be voted.
6.3 Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving
deposits of Fund assets in the Book-Entry System, and (ii) for each year
following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officers' Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not
include any assets of the Bank (or such agent) other than assets held
as a fiduciary, custodian, or otherwise for customers.
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book Entry System through the Bank (or any
such agent) will identify by book entry Portfolio Securities which are
included with other securities deposited in the Account and shall at
all times during the regular business hours of the Bank (or such agent)
be open for inspection by duly authorized officers, employees or agents
of the Fund's account. Where securities are transferred to the Fund's
account, the Bank shall also, by book entry or otherwise, identify as
belonging to the Fund a quantity of securities in fungible bulk of
securities (i) registered in the name of the Bank or its nominee, or
(ii) shown on the Bank's account on the books of the Federal Reserve
Bank.
<PAGE>
(c) The Bank (or its agent) shall pay for Portfolio Securities
purchased for the account of the Fund or shall pay cash collateral
against the return of securities loaned by the Fund upon (i) receipt of
advice from the Book-Entry System that such Securities have been
transferred to the Account, and (ii) the making of an entry on the
records of the Bank (or its agent) to reflect such payment and transfer
for the account of the Fund. The Bank (or its agent) shall transfer
securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral
against the delivery of securities loaned by the Fund has been
transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the
Fund. Copies of all advises from the Book-Entry System of
transfers of Securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Bank and shall be
provided to the Fund at its request. The Bank shall send the Fund
a confirmation, as defined by Rule 17f-4 under the Act, of any
transfers to or from the account of the Fund.
(d) The Bank will promptly provide the Fund with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Book-Entry System.
(e) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any
negligence, misfeasance or misconduct of the Bank or any of its agents
or of any of its or their employees or from failure of the Bank or any
such agent to enforce effectively such rights as it may have against
the Book-Entry System; at the election of the Fund, it shall be
entitled to be subrogated to the Bank in any claim against the
Book-Entry System or any other person which the Bank or its agent may
have as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any loss or damage.
<PAGE>
6.4 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving
deposits in DTC or other such Depository and (ii) for each year following
such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officers' Certificate to the Bank indicating that
the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with the Portfolio Securities
including stock dividends, rights and other items of like nature, and
to receive and remit to the Bank on behalf of the Fund all income and
other payments thereon and to take all steps necessary and proper in
connection with the collection thereof.
(b) Registration of the Portfolio Securities may be made in the
name of any nominee or nominees used by such Depository.
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of Portfolio
Securities, payment will be made only upon delivery of the securities
to or for the account of the Fund and the Fund shall pay cash
collateral against the return of Securities loaned by the Fund only
upon delivery of the Portfolio Securities to or for the account of the
Fund; and upon any sale of Portfolio Securities, delivery of the
Portfolio Securities will be made only against payment therefor or, in
the event Securities are loaned, delivery of Securities will be made
only against receipt of the initial cash collateral to or for the
account of the Fund.
(d) The Bank shall be liable to the Fund resulting from use of a
Depository by reason of any negligence, misfeasance or misconduct of
the Bank or its employees or from failure of the Bank to enforce
effectively such rights as it may have against a Depository. In this
connection, the Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is
<PAGE>
lost, destroyed, wrongfully taken or otherwise not available to be
returned to the Bank upon its request;
(ii) Any proxy materials received by a Depository with respect
to Portfolio Securities deposited with such Depository are
forwarded immediately to the Bank for prompt transmittal to the
Fund;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and
of the appropriate book entry made by such Depository to the
Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations
and duties hereunder as may be necessary for the Fund to comply
with the record keeping requirements of Section 31(a) of the Act
and Rule 31a-1 thereunder; and
(v) Such Depository delivers to the Bank and the Fund all
internal accounting control reports, whether or not audited by an
independent public accountant, as well as such other reports as
the Fund may reasonably request in order to verify the Portfolio
Securities held by such Depository.
6.5 Use of Book-Entry System for Commercial Paper. Provided (i) the
Bank has received a certified copy of a resolution of the Board
specifically approving participation in a system maintained by the Bank
for the holding of commercial paper in book-entry form ("Book Entry
Paper") and (ii) for each year following such approval the Board has
received and approved the arrangements upon receipt of Proper
Instructions and upon receipt of confirmation from an Issuer (as defined
below) that the Fund has purchased such Issuer's Book Entry Paper, the
Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining its Book Entry Paper
System, the Bank agrees that:
(a) The Bank will maintain all Book Entry Paper held by the Fund in
an account of the Bank that includes only assets held by it for
customers;
<PAGE>
(b) The records of the Bank with respect to the Fund's purchase to
Book Entry Paper through the Bank will identify, by book entry,
Commercial Paper belonging to the Fund which is included in the Book
Entry Paper System and shall at all times during the regular business
hours of the Bank be open for inspection by duly authorized officers,
employees or agents of the Fund;
(c) The Bank shall pay for Book Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the
Issuer that such sale of Book Entry Paper has been effected, and (ii)
the making of an entry on the records of the Bank to reflect such
payment and transfer for the account of the Fund;
(d) The Bank shall cancel such Book Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that
payment for such Book Entry Paper has been transferred to the Fund, and
(ii) the making of an entry on the records of the Bank to reflect such
payment for the account of the Fund;
(e) The Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book Entry Paper for the account of the
Fund on the next business day following the transactions; and
(f) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book Entry Paper System
as the Fund may reasonably request from time to time.
6.6 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically
approving the maintenance of Portfolio Securities in an immobilization
program operated by a bank which meets the requirements of Section
26(a)(1) of the Act, and (ii) for each year following such approval the
Board has reviewed and approved the arrangement and has not delivered an
Officers' Certificate to the Bank indicating that the Board has withdrawn
its approval, the Bank shall enter into such immobilization program with
such bank acting as a subcustodian hereunder.
<PAGE>
6.7 Eurodollar CDs. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European
Branch"), provided that such Securities are identified on the books of
the Bank as belonging to the Fund and that the books of the Bank identify
the European Branch holding such Securities. Notwithstanding any other
provision of this Agreement to the contrary, except as stated in the
first sentence of this subsection 6.7, the Bank shall be under no other
duty with respect to such Eurodollar CDs belonging to the Fund, and shall
have no liability to the Fund or its investors with respect to the
actions, inactions, whether negligent or otherwise of such European
Branch in connection with such Eurodollar CDs, except for any loss of
damage to the Fund resulting from the Bank's own negligence, willful
misfeasance or misconduct in the performance of its duties hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and call
options ("calls") purchased or sold (written) by the Fund regarding
escrow or other arrangements (i) in accordance with the provisions of
any agreement entered into upon receipt of Proper Instructions between
the Bank, any broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (the "NASD"), and, if necessary, the Fund relating to the
compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations.
2. Unless another agreement requires it to do so, the Bank shall be
under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to
present such option to the broker for exercise unless it receives
Proper Instructions from the Fund. The Bank shall have no
responsibility for the legality of any put or call purchased or sold on
behalf of the Fund, the propriety of any such purchase or sale, or the
adequacy of any collateral delivered to a broker in connection with an
<PAGE>
option or deposited to or withdrawn from a Segregated Account (as
defined in subsection 6.9 below). The Bank specifically, but not by way
of limitation, shall not be under any duty or obligation to: (i)
periodically check or notify the Fund that the amount of such
collateral held by a broker or held in a Segregated Account is
sufficient to protect such broker of the Fund against any loss; (ii)
effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire.
Such duties or obligations shall be the sole responsibility of the
Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement among the Fund, the Bank and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to Futures,
puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set
forth in subparagraph (a) (2) of this Section 6.8 as if such
subparagraph referred to Futures Commission Merchants rather than
brokers, and Futures and puts and calls thereon instead of options.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for
and on behalf of the Fund, into which Account or Accounts may be
transferred upon receipt of Proper Instructions cash and/or Portfolio
Securities:
(a) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the rules
of the Options Clearing Corporation and of any registered national
<PAGE>
securities exchange or the Commodity Futures Trading Commission or any
registered Contract Market, or of any similar organization or
organizations regarding escrow or other arrangements in connection with
transactions by the Fund;
(b) for the purpose of segregating cash or securities in connection
with options purchased, or written by the Fund or commodity futures
purchased or written by the Fund;
(c) for the deposit of liquid assets, such as cash, U.S. Government
securities or other high grade debt obligations, having a market value
(marked to the market on a daily basis) at all times equal to not less
than the aggregate purchase price due on the settlement dates of all
the Fund's then outstanding forward commitment or "when-issued"
agreements relating to the purchase of Portfolio Securities and all the
Fund's then outstanding commitments under reverse repurchase agreements
entered into with broker-dealer firms;
(d) for the deposit of any Portfolio Securities which the Fund has
agreed to sell on a forward commitment basis, all in accordance with
Investment Company Act Release No. 10666;
(e) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating
to the maintenance of Segregated Accounts by registered investment
companies;
(f) for other proper corporate purposes, but only, in the case of
the clause (f), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such Segregated Account and declaring such purposes to be
proper corporate purposes.
(g) Assets may be withdrawn from the Segregated Account pursuant to
Proper Instructions only:
(i) in accordance with the provisions of any agreements
referenced in (a) or (b) above;
<PAGE>
(ii) for sale or delivery to meet the Fund's obligations under
outstanding firm commitment or when-issued agreements for the
purchase of Portfolio Securities and under reverse repurchase
agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio
securities or reverse repurchase agreements are sold to other
parties or the Fund's obligations thereunder are met from assets
of the Fund other than those in the Segregated Account; or
(v) for delivery upon settlement of a forward commitment
agreement for the sale of Portfolio Securities.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest bearing fixed term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be
indicated in such Proper Instructions. The Bank shall include in its
records with respect to the assets of the Fund appropriate notation as to
the amount of each such deposit, the banking institution with which such
deposit is made (the "Deposit Bank"), and shall retain such forms of
advice or receipt evidencing the deposit, if any, as may be forwarded to
the Bank by the Deposit Bank. Such deposits shall be deemed Portfolio
Securities of the Fund and the responsibility of the Bank therefore shall
be the same as and no greater than the Bank's responsibility in respect
of other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange,
deliver or release Portfolio Securities held by it hereunder, insofar as
such Securities are available for such purpose, provided that before
making any transfer, exchange, delivery or release under this Section the
Bank will receive Proper Instructions requesting such transfer, exchange
or delivery stating that it is for a purpose permitted under the terms of
this Section 6.11, specifying the applicable subsection, or describing
the purpose of the transaction with sufficient particularity to permit
the Bank to ascertain the applicable subsection, only:
<PAGE>
(a) upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full
or, for transactions outside the U.S., against payment to the Bank in
accordance with generally accepted settlement practices and customs in
the jurisdiction or market in which the transaction occurs, each such
payment to be in the amount of the sale price shown in a broker's
confirmation of sale of the Portfolio Securities received by the Bank
before such transfer is made, as confirmed in the Proper Instructions
received by the Bank before such transfer is made;
(b) in exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of
subscription, purchase or sale or other similar rights represented by
such Portfolio Securities, or for the purpose of tendering shares in
the event of a tender offer therefor, provided however that in the
event of an offer of exchange, tender offer, or other exercise of
rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender
in a timely manner unless such Proper Instructions are received by the
Bank at least two business days prior to the date required for tender,
and unless the Bank (or its agent or subcustodian hereunder) has actual
possession of such Security at least two business days prior to the
date of tender;
(c) upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) for the purpose of redeeming in kind interests in the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker,
(f) when such Portfolio Securities are called,redeemed or retired or
otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the
Fund by any bank, including the Bank; provided, however, that such
Portfolio Securities will be released only upon payment to the Bank for
the account of the Fund of the moneys borrowed, except that in cases
<PAGE>
where additional collateral is required to secure a borrowing already
made, and such fact is made to appear in the Proper Instructions,
further Portfolio Securities may be released for that purpose without
any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account
of the lender, and after notice to the Fund from the lender in
accordance with the normal procedures of the lender, that an event of
deficiency or default on the loan has occurred, the Bank may deliver
such pledged Portfolio Securities to or for the account of the lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in Proper Instructions
received by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with
street delivery custom except as otherwise provided herein, of adequate
collateral as agreed upon from time to time by the Fund and the Bank,
and upon receipt of payment in connection with any repurchase agreement
relating to such securities entered into by the Fund;
(j) upon sales of Portfolio Securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
(k) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer,
the Bank will also receive a certified copy of resolutions of the
Board, signed by an authorized officer of the Fund (other than the
officer certifying such resolution) and certified by its Secretary or
Assistant Secretary, specifying the Portfolio Securities to be
delivered, setting forth the transaction in or purpose for which such
delivery is to be made, declaring such transaction to be an authorized
transaction of the Fund or such purpose to be a proper corporate
<PAGE>
purpose, and naming the person or persons to whom delivery of such
securities shall be made; and
(l) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
interests, the Bank will rely on notification by the Fund's transfer agent of
receipt of a request for redemption and certificates, if issued, in proper form
for redemption before such payment is made. Payment shall be made in accordance
with the Articles and By-laws of the Fund, from assets available for said
purpose.
8. Merger, Dissolution, etc., of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund
set forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for
the account of the Fund and hold for the account of the Fund all income,
dividends, interest and other payments or distribution of cash with
respect to the Portfolio Securities held thereunder;
<PAGE>
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation
and hold the cash received by it upon such payment for the account of the
Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, mergers,
consolidation, readjustment, distribution of rights and similar
securities issued with respect to any Portfolio Securities held by it
hereunder;
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue
Code or the regulations of the Treasury Department issued thereunder, or
by the laws of any state, now or hereafter in effect, inserting the
Fund's name on such certificates as the owner of the securities covered
thereby, to the extent it may lawfully do so and as may be required to
obtain payment in respect thereof. The Bank will execute and deliver such
certificates in connection with Portfolio Securities delivered to it or
by it under this Agreement as may be required under the provisions of the
Internal Revenue Code and any Regulations of the Treasury Department
issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for
definitive securities.
10. Collection; Defaults. The Bank will use all reasonable effort to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit promptly to the Fund notice actually received by it of any call for
redemption, offer of exchange, right of subscription, reorganization or other
proceedings affecting such Securities.
If Portfolio Securities upon which such income is payable are in default
or payment is refused after due demand or presentation, the Bank will notify
the Fund in writing of any default or refusal to pay within two business days
from the day on which it receives knowledge of such default or refusal. In
<PAGE>
addition, the Bank will send the Fund a written report once each month showing
any income on any Portfolio Security held by it which is more than ten days
overdue on the date of such report and which has not previously been reported.
11. Maintenance of Records. The Bank will maintain records with respect
to transactions for which the Bank is responsible pursuant to the terms and
conditions of this Agreement, and in compliance with the applicable rules and
regulations of the Act and applicable federal and state tax laws, and will
furnish the Fund daily with a statement of condition of the Fund. The Bank will
furnish to the Fund at the end of every month, and at the close of each quarter
of the Fund's fiscal year, a list of the Portfolio Securities and the aggregate
amount of cash held by it for the Fund. The books and records of the Bank
pertaining to its actions under this Agreement and reports by the Bank or its
independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the Act.
12. Opinion of Fund's Independent Accountant. The Bank shall take all
reasonable action, as the Fund may from time to time request, to obtain from
year to year favorable opinions from the Fund's independent accountants with
respect to its activities hereunder in connection with the preparation of the
Fund's Form N-1A, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
13. Reports to Fund by Independent Accountants. The Bank shall provide
the Fund, at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding Securities, including Securities
deposited and/or maintained in the Book-Entry System or the Depository,
relating to the services provided by the Bank under this Agreement; such
reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
14. [RESERVED]
<PAGE>
15. Concerning the Bank.
15.1 Performance of Duties: Standard of Care. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if
any, the Bank will be entitled to receive and act upon the advice of
independent counsel of its own selection, which may be counsel for the
Fund, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in
conformity with such advice. In the performance of its duties hereunder,
the Bank will be protected and not be liable, and will be indemnified and
saved harmless for any action taken or omitted to be taken by it in good
faith reliance upon the terms of this Agreement, any Officers'
Certificate, Proper Instructions, resolution of the Board, telegram,
notice, request, certificate or other instrument reasonably believed by
the Bank to be genuine and for any other loss to the Fund except such as
may arise from its or its nominee's own negligent action, negligent
failure to act, or willful misconduct.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof
or the propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are
sold;
(c) the legality of an issue or sale of any interests in
the Fund or the sufficiency of the amount to be received
therefor;
(d) the legality of the repurchase of any interests in
the Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any Portfolio Securities
as payment in kind of such dividend; or
<PAGE>
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered or paid by
it pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio Securities at any time delivered to or
held by it for the account of the Fund are such as may properly be held
by the Fund under the provisions of its Articles, By-laws, any federal or
state statutes or any rule or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank be liable hereunder or to any third party for any
losses or damages of any kind resulting from acts of God, earthquakes,
fires, floods, storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation, currency restrictions,
acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computers
facilities, the unavailability of energy sources and other similar
happenings or events except as results from the Bank's own negligence.
15.2 Agents and Subcustodians. The Bank may employ agents in the
performance of its duties hereunder and shall be responsible for the acts
and omissions of such agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ
subcustodians, provided that any such subcustodian meets at least the
minimum qualifications required by Section 17(f) of the Act to act as a
custodian of the Fund's assets, and provided further that the Bank shall
have no more or less responsibility to the Fund on account of any actions
or omissions of any subcustodian so employed than any such subcustodian
has to the Bank. Each agreement pursuant to which the Bank employs a
subcustodian shall require, unless otherwise agreed by the Fund, the
subcustodian to exercise reasonable care in the performance of its duties
and to indemnify, and hold harmless, the Bank and the Fund from and
against any loss, damage, cost, expense, liability or claim arising out
of or in connection with the subcustodian's performance of such
obligations. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Bank with respect to any claims against a
subcustodian as a consequence of any such loss, damage, cost, expense,
<PAGE>
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
The Fund shall pay all fees and expenses of any subcustodian.
15.3 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it
uses in respect of its own similar property but it need not maintain any
special insurance for the benefit of the Fund.
15.4 Fees and Expenses of Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of
Portfolio Securities made hereunder, and for all necessary proper
disbursements, expenses and charges made or incurred by the Bank in the
performance of this Agreement (including any duties listed on any
Schedule hereto, if any) including any indemnities for any loss,
liabilities or expense to the Bank as provided above. For the services
rendered by the Bank hereunder, the Fund will pay to the Bank such
compensation or fees at such rate and at such times as shall be agreed
upon in writing by the parties from time to time. The Bank will also be
entitled to reimbursement by the Fund for all reasonable expenses
incurred in conjunction with termination of this Agreement by the Fund.
15.5 Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this
Agreement for such payments by the Fund. Should such a payment or
payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any other
reason) this Agreement deems any such overdraft or related indebtedness,
a loan made by the Bank to the Fund payable on demand and bearing
interest at the current rate charged by the Bank for such loans unless
the Fund shall provide the Bank with agreed upon compensating balances.
The Fund agrees that the Bank shall have a continuing lien and security
interest to the extent of any overdraft or indebtedness, in and to any
property at any time held by it for the Fund's benefit or in which the
Fund has an interest and which is then in the Bank's possession or
control (or in the possession or control of any third party acting on the
Bank's behalf), in an amount not to exceed 5% of the Fund's gross assets.
The Fund authorizes the Bank, in its sole discretion, at any time to
<PAGE>
charge any overdraft of indebtedness, together with interest due thereon
against any balance of account standing to the credit of the Fund on the
Bank's books.
16. Termination.
16.1 This Agreement may be terminated at any time without penalty
upon thirty days written notice delivered by either party to the other by
means of registered mail, and upon the expiration of such thirty days
this Agreement will terminate; provided, however, that the Fund may
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of
competent jurisdiction. The effective date of such termination may be
postponed upon mutual agreement. At any time after the termination of
this Agreement, the Fund will, at its request, have access to the records
of the Bank relating to the performance of its duties as custodian.
16.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of
notice of termination, commence and prosecute diligently to completion
the transfer of all cash and the delivery of all Portfolio Securities
duly endorsed and all records maintained under Section 11 to the
successor custodian when appointed by the Fund. The obligation of the
Bank to deliver and transfer over the assets of the Fund held by it
directly to such successor custodian will commence as soon as such
successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days
from the date of delivery of notice of termination the Bank may, subject
to the provisions of subsection 14.3, deliver the Portfolio Securities
and cash of the Fund held by the Bank to a bank or trust company of its
own selection which meets the requirements of Section 17(f)(1) of the Act
and has a reported capital, surplus and undivided profits aggregating not
less than $2,000,000, to be held as the property of the Fund under terms
similar to those on which they were held by the Bank, whereupon such bank
or trust company so selected by the Bank will become the successor
custodian of such assets of the Fund with the same effect as though
selected by the Board.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order
<PAGE>
of the Fund advising that a successor custodian cannot be found willing
and able to act upon reasonable and customary terms and that there has
been submitted to the investors in the Fund the question of whether the
Fund will be liquidated or will function without a custodian for the
assets of the Fund held by the Bank. In that event the Bank will deliver
the Portfolio Securities and cash of the Fund held by it, subject as
aforesaid, in accordance with one of such alternatives which may be
approved by the requisite vote of investors, upon receipt by the Bank of
a copy of the minutes of the meeting of investors at which action was
taken, certified by the Fund's Secretary and an opinion of counsel to the
Fund in form and content satisfactory to the Bank.
17. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Asset Allocation Portfolios
c/o Signature Financial Group (Cayman), Ltd.
Elizabethan Square, George Town
Grand Cayman, Cayman Islands, BWI
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
One Lincoln Plaza
P.O. Box 1537
Boston, Massachusetts 02205-1537
or at such other place as such party may from time to time designate
in writing.
18. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
19. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
<PAGE>
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed
to be an assignment within the meaning of this provision.
20. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of -----------------------------------.
21. Limitations of Liability. Notice is hereby given that this instrument
is executed on behalf of the Trustees of Asset Allocation Portfolios as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or officers of Asset Allocation Portfolios
or investors in the Fund individually or upon any series of Asset Allocation
Portfolios other than its series designated as [Asset Allocation Portfolio 200]
[Asset Allocation Portfolio 300] [Asset Allocation Portfolio 400] [Asset
Allocation Portfolio 500], but are binding only upon the assets and property of
[Asset Allocation Portfolio 200] [Asset Allocation Portfolio 300] [Asset
Allocation Portfolio 400] [Asset Allocation Portfolio 500].
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate and their respective corporate seals to be affixed hereto
as of the date first above written by their respective officers thereto duly
authorized,
ASSET ALLOCATION PORTFOLIOS on
behalf of [Asset Allocation
Portfolio 200][Asset Allocation
Portfolio 300][Asset Allocation
Portfolio 400][Asset Allocation
Portfolio 500]
By:
Title:
ATTEST:
<PAGE>
INVESTORS BANK & TRUST COMPANY
By:
Title:
ATTEST:
Exhibit 9(a)
FUND ACCOUNTING AGREEMENT
FUND ACCOUNTING AGREEMENT, dated as of _______ __, 199_, by and between
Asset Allocation Portfolios, a New York trust (the "Trust"), and IBT Fund
Services (Canada), Inc. ("IBT").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(collectively with the rules and regulations promulgated thereunder as amended
from time to time, the "1940 Act");
WHEREAS, the Trust wishes to engage IBT, subject to the direction and
control of the Board of Trustees of the Trust (the "Board"), to provide certain
fund accounting services with respect to its series Asset Allocation Portfolio
200, Asset Allocation Portfolio 300, Asset Allocation Portfolio 400 and Asset
Allocation Portfolio 500, and any future series of the Trust added to this
Agreement by mutual written consent (each a "Portfolio"), and IBT is willing to
provide such services to the Trust, 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. Maintenance of Records. IBT shall maintain records with respect to
transactions for which IBT is responsible pursuant to the terms and conditions
of this Agreement or which the Trust is required to maintain pursuant to
Section 31(a) of the 1940 Act and will furnish the Trust daily with a statement
of condition of each Portfolio. The books and records of IBT pertaining to its
actions under this Agreement and reports by IBT or its independent accountants
concerning its accounting system and internal accounting controls will be open
to inspection and audit at reasonable times by officers or auditors employed by
the Trust and will be preserved by IBT in the manner and in accordance with the
1940 Act.
IBT shall keep the books of account and render statements or copies from
time to time as reasonably requested by the Treasurer or any other executive
officer of the Trust. IBT shall also assist generally in the preparation of
reports to investors and others, audits of accounts and other ministerial
matters of like nature.
<PAGE>
IBT shall at all times act in accordance with the Onshore/Offshore
Operating Policies and Procedures approved by the Board and in effect from time
to time with respect to the Trust, to the extent they apply to IBT and its
services hereunder.
2. Portfolio Valuation. IBT shall compute and, unless otherwise directed
by the Board, determine as of the close of regular trading on the New York
Stock Exchange on each day on which said exchange is open for unrestricted
trading and/or on such other days and/or as of such other hours, if any, as may
be authorized by the Board, the net asset value and, if applicable, the yield
of each Portfolio, such determination to be made in accordance with the
provisions of the Declaration of Trust and By-Laws of the Trust and the Trust's
registration statement(s) on Form N-1A, as they may from time to time be
amended, and any applicable resolutions of the Board at the time in force. IBT
shall notify the Trust, or such other persons as the Trust may request,
promptly of the results of such computation and determination. In computing the
net asset value of each Portfolio hereunder, IBT may rely in good faith upon
information furnished to it by an Authorized Person (as defined below) in
respect of (i) the manner of accrual of the liabilities of each Portfolio and
in respect of liabilities of each Portfolio not appearing on its books of
account kept by IBT, (ii) reserves, if any, authorized by the Board or that no
such reserves have been authorized, (iii) the source of the portfolio security
quotations approved by the Board for use in computing the net asset value, (iv)
the value to be assigned to any security for which price quotations are not
readily available, and (v) the method of computation of the net asset value.
IBT shall not be responsible for any loss occasioned by such reliance or for
any good faith reliance on any quotations received from a source referred to in
(iii) above. If the Trust notifies IBT that any of its accounting books,
records, reports or statements are erroneous in any respect, IBT shall endeavor
in a timely manner to correct such error.
In addition, IBT shall determine daily the net asset value of each
investor's beneficial interest (each an "Interest") in each Portfolio and shall
allocate daily among the investors in each Portfolio on a pro rata basis all
incremental investment activity.
As used herein, the term "Authorized Person" means any of the persons duly
authorized to give Proper Instructions (as defined below) or otherwise act on
behalf of the Trust or a Portfolio by appropriate resolution of the Board.
As used herein, the term "Proper Instructions" means (i) instructions
given by an Authorized Person as shall have been designated in a certificate by
an officer of the Trust, such instructions to be given in such form and manner
<PAGE>
as IBT and the Trust shall agree upon from time to time and (ii) instructions
(which may be continuing instructions) regarding other matters signed or
initialed by such one or more persons from time to time designated in a
certificate by an officer of the Trust as having been authorized by the Board.
Oral instructions will be considered Proper Instructions if IBT reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Trust shall cause
all oral instructions to be promptly confirmed in writing. IBT shall act upon
and comply with any subsequent Proper Instruction which modifies a prior
instruction, and the sole obligation of IBT with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to
report such discrepancy to the Trust. The Trust shall be responsible, at the
Trust's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or errors, and to the extent such action
requires IBT to act, the Trust shall give IBT specific Proper Instructions as
to the action required. Upon receipt of a certificate by an officer of the
Trust as to the authorization by the Board accompanied by a detailed
description of procedures approved by the Trust, Proper Instructions may
include communication effected directly between electromechanical or electronic
devices provided that the Board and IBT are satisfied that such procedures
afford adequate safeguards for the Portfolios.
The Secretary or Assistant Secretary of the Trust will at all times
maintain on file with IBT his or her certification to IBT, in such form as may
be acceptable to IBT, of (i) the names and signatures of the Authorized Persons
and (ii) the names of the members of the Board of Trustees, it being understood
that upon the occurrence of any change in the information set forth in the most
recent certification on file (including without limitation any person named in
the most recent certification who is no longer an Authorized Person), the
Secretary or Assistant Secretary of the Trust, will sign a new or amended
certification setting forth the change and the new, additional or omitted names
or signatures. IBT will be entitled to rely and act upon any certificate given
to it by an officer of the Trust which has been signed by Authorized Persons
named in the most recent certification.
3. Allocation of Charges and Expenses. IBT shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under this agreement. It is understood that the Trust will pay
from assets of the Portfolios its own expenses allocable to the Portfolios
including, without limitation, organization costs of the Portfolios;
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
<PAGE>
independent auditors, legal counsel and any transfer agent, distributor,
registrar or dividend disbursing agent of the Trust; expenses of issuing and
redeeming Interests and servicing investor accounts; expenses of preparing,
typesetting, printing and mailing registration statements, reports to
investors, notices, and reports to governmental officers and commissions;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the custodian for all
services to the Portfolios, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of the Portfolios (including but not limited to the fees of independent
pricing services); expenses relating to the issuance and registration of
Interests; 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 any Portfolio may be a party and the legal obligation which the Trust
may have to indemnify its Trustees and officers with respect thereto.
4. Compensation of IBT. For the services to be rendered and the facilities
to be provided by IBT hereunder, the Trust shall pay to IBT a fund accounting
fee from the assets of each Portfolio, computed and paid monthly, in accordance
with the schedule attached as Exhibit A.
5. Limitation of Liability of IBT. IBT shall not be liable for any error
of judgment or mistake of law or for any act or omission in the performance of
its duties hereunder, provided IBT acted in good faith and without negligence
in the performance of its duties. As used in this Section 5, the term "IBT"
shall include IBT and/or any of its affiliates and the Directors, officers and
employees of IBT and/or any of its affiliates.
IBT will be entitled to receive and act upon the advice of independent
counsel of its own selection, which may be counsel for the Trust, and will be
without liability for any action taken or thing done or omitted to be done in
accordance with this Agreement in good faith in conformity with such advice. In
the performance of its duties hereunder, IBT will be protected and not be
liable, and will be indemnified and held harmless by the Trust, for any action
taken or omitted to be taken by it in good faith reliance upon the terms of
this Agreement, any certificate by an officer of the Trust, Proper
Instructions, resolution of the Board, telegram, notice, request, certificate
or other instrument reasonably believed by IBT to be genuine and for any other
loss to the Trust or a Portfolio except in the case of IBT's bad faith or
negligence in the performance of its duties hereunder.
IBT will be under no duty or obligation to inquire into and will not be
liable for:
<PAGE>
(a) the validity of the issue of any portfolio securities purchased by or
for a Portfolio, the legality of the purchases thereof or the propriety of
the price incurred therefore;
(b) the legality of any sale of any portfolio securities by or for a
Portfolio or the propriety of the amount for which the same are sold;
(c) the legality of any issue or sale of any Interest in a Portfolio or
the sufficiency of the amount to be received therefor; and
(d) the legality of any withdrawal or redemption by an investor of a
portion of its Interest in a Portfolio or the legality of the distribution
of any portfolio securities as payment in kind to make such withdrawal or
redemption.
Moreover, IBT will not be under any duty or obligation to ascertain
whether any portfolio securities at any time delivered to or held by it for the
account of a Portfolio are such as may properly be held by a Portfolio under
the provisions of the Trust's Declaration of Trust, By-Laws, the Portfolio's
registration statement on Form N-1A, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event
shall IBT be liable hereunder or to any third party for any losses or damages
of any kind resulting from acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation, or computers (hardware or software)
and computer facilities, the unavailability of energy sources and other similar
happenings or events except as results from IBT's own negligence.
6. Activities of IBT. The services of IBT to the Trust are not to be
deemed to be exclusive, IBT being free to render fund accounting and/or other
services to other parties. It is understood that Trustees, officers, and
investors in a Portfolio are or may become interested in IBT and/or any of its
affiliates, as Directors, officers, employees, or otherwise, and that
Directors, officers and employees of IBT and/or any of its affiliates are or
may become similarly interested in the Trust and that IBT and/or any of its
affiliates may be or become interested in the Trust as an investor or
otherwise.
<PAGE>
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written and shall
govern the relations between the parties hereto thereafter, unless terminated
as set forth in this Section 7.
This Agreement may be terminated at any time without the payment of any
penalty, with respect to any Portfolio or the Trust, by the Board or by the
vote of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the applicable Portfolio or the Trust, or by IBT, in each case on
not more than 60 days' nor less than 30 days' written notice to the other
party.
8. Subcontracting by IBT. IBT may subcontract for the performance of IBT's
obligations hereunder with any one or more persons; provided, however, that
unless the Trust otherwise expressly agrees in writing, IBT shall be fully
responsible to the Trust for the acts and omissions of any subcontractor as it
would be for its own acts or omissions. IBT shall give the Trust timely notice
prior to the consummation of any initial or substituted subcontract of its
intention to subcontract its obligations hereunder and of the identity of the
proposed initial or substituted subcontractor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned has executed this Agreement not individually, but as an officer
under the Trust's Declaration of Trust, and the obligations of this Agreement
are not binding upon the Trust's Trustees or its officers individually. The
obligations of the Trust with respect to each Portfolio are binding only upon
that Portfolio and may be satisfied only from the assets of that particular
Portfolio.
<PAGE>
ASSET ALLOCATION PORTFOLIOS
By:
Name:
Title:
IBT FUND SERVICES (CANADA), INC.
By:
Name:
Title:
<PAGE>
Exhibit A
[To be provided.]
Exhibit 9(b)
FORM OF
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT effective as of the __ day of ______, 199_ by and between Asset
Allocation Portfolios, a New York trust (the "Trust"), and SIGNATURE FINANCIAL
SERVICES, INC., a Delaware corporation ("SFSI").
WITNESSETH:
WHEREAS, the Trust desires to appoint SFSI as its transfer agent, and
SFSI desires to accept such appointment;
WHEREAS, SFSI is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended (the "1934
Act");
WHEREAS, the Trust is authorized to issue beneficial interests in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets;
WHEREAS, the Trust offers beneficial interests in four series, Asset
Allocation Portfolio 200, Asset Allocation Portfolio 300, Asset Allocation
Portfolio 400 and Asset Allocation Portfolio 500 (such series, together with
all other series subsequently established by the Trust and made subject to this
Agreement in accordance with Article 17, being herein referred to as the
"Portfolio(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Trust and SFSI agree as follows:
ARTICLE 1. Terms of Appointment; Duties of SFSI
1.01 Subject to the terms and conditions set forth in this Agreement, the
Trust on behalf of the Portfolios hereby employs and appoints SFSI to act as,
and SFSI agrees to act as, transfer agent for each of the Portfolios'
authorized and issued beneficial interests ("Interests").
1.02 SFSI agrees that it will perform the following
services:
(a) In connection with procedures established from time to time by
agreement between the Trust and SFSI, SFSI shall:
(i) Receive for acceptance orders for the purchase of Interests and for
additional investments by existing holders of Interests, and promptly
deliver payment and appropriate documentation therefor to the custodian
of the Trust appointed by the Board of Trustees of the Trust (the
"Custodian");
<PAGE>
(ii) Pursuant to purchase orders, issue Interests and hold such Interests
in the appropriate accounts of holders of Interests ("Holders");
(iii) Receive for acceptance redemption requests and redemption
directions, and withdrawal requests and withdrawal directions, and
deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption or withdrawal, pay over or
cause to be paid over in the appropriate manner such monies as instructed
by the redeeming Holders;
(v) Prepare and transmit payments in respect of distributions, if any,
paid by the Trust on behalf of a Portfolio;
(vi) Create and maintain all necessary records, including those specified
in Article 10 hereof, in accordance with all applicable laws, rules and
regulations, including but not limited to records required by Section
31(a) of the Investment Company Act of 1940, as amended (the "1940 Act"),
and those records pertaining to the various functions performed by it
hereunder. All records shall be available for inspection and use by the
Trust. Where applicable, such records shall be maintained by SFSI for the
periods and in the places required by Rule 31a-2 under the 1940 Act;
(vii) Make available during regular business hours all records and other
data created and maintained pursuant to this Agreement for reasonable
audit and inspection by the Trust, or any person retained by the Trust.
Upon reasonable notice by the Trust, SFSI shall make available during
regular business hours its facilities and premises employed in connection
with its performance of this Agreement for reasonable visitation by the
Trust, or any person retained by the Trust;
(viii) Record the issuance of Interests of the Trust, maintain, pursuant
to Rule 17Ad-10(e) under the 1934 Act, a record of the total amount of
Interests of the Trust which are authorized, based upon data provided to
it by the Trust, and issued and outstanding, and maintain a record of the
Account Balance (as defined below) of each Holder. SFSI shall also
provide the Trust on a regular basis with the total number of Interests
which are authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Interests, to monitor the
issuance of such Interests or to take cognizance of any laws relating to
the issue or sale of such Interests, which functions shall be the sole
responsibility of the Trust. For the purposes of this Agreement, the term
Account Balance for any Holder shall mean that amount as shall be
determined by SFSI based upon allocations performed and data received by
it, as adjusted by SFSI for any additional investments or withdrawals by
such Holder in accordance with paragraphs (i) and (iii) above.
<PAGE>
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a) or in any Schedule hereto, SFSI shall perform all of the
customary services of a transfer agent, including but not limited to:
maintaining all Holder accounts, preparing Holder meeting lists, mailing
proxies, receiving and tabulating proxies, mailing Holder reports to current
Holders, withholding taxes, if any, on accounts, including nonresident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to distributions by federal authorities
for all Holders, preparing and mailing confirmation forms and statements of
account to Holders for all purchases and redemptions of Interests and other
confirmable transactions in Holder accounts, responding to Holder telephone
calls and Holder correspondence, preparing and mailing activity statements for
Holders, and providing Holder account information.
ARTICLE 2. Sale of Interests
2.01 Whenever the Trust shall sell or cause to be sold any Interests of a
Portfolio or accept additional investments from an existing Holder, the Trust
shall deliver or cause to be delivered to SFSI a document duly specifying: (i)
the name of the Portfolio whose Interests were sold or in which additional
amounts were invested; (ii) the amount of Interests sold or the additional
amount invested, purchase date, and price; (iii) the amount of money to be
delivered to the Custodian for the sale of such Interests and specifically
allocated to such Portfolio; and (iv) in the case of a new account, a new
account application or sufficient information to establish an account.
2.02 SFSI will, upon receipt by it of a check or other payment identified
by it as an investment in Interests of one of the Portfolios and drawn or
endorsed to SFSI as agent for, or identified as being for the account of, one
of the Portfolios, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment. SFSI will
notify the Trust, or its designee, and the Custodian of all purchases and
related account adjustments.
2.03 Under procedures as established by mutual agreement between the
Trust and SFSI, SFSI shall issue to the purchaser or its authorized agent
Interests in such amount as it is entitled to receive, based on the appropriate
net asset value of the Portfolio, determined in accordance with the Trust's
then currently effective Registration Statement under the 1940 Act with respect
to the Portfolio (the "Registration Statement") and applicable Federal law or
regulation.
2.04 SFSI shall not be required to issue any Interests of the Trust or
accept additional investments from an existing Holder where it has received a
written instruction from the Trust or written notification from any appropriate
governmental authority that the sale of the Interests of the Portfolio(s) in
question has been suspended or discontinued, and SFSI shall be entitled to rely
upon such written instructions or written notification.
<PAGE>
2.05 Upon the issuance of any Interests of any Portfolio(s) or the
acceptance of additional investments from existing Holders in accordance with
foregoing provisions of this Section, SFSI shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by
the Trust in connection with such issuance or acceptance.
ARTICLE 3. Returned Checks
3.01 In the event that any check or other order for the transfer of money
is returned unpaid for any reason, SFSI will take such steps as SFSI may, in
its discretion, deem appropriate to protect the Trust from financial loss or as
the Trust or its designee may instruct. Provided that the standard procedures,
as agreed upon from time to time, between the Trust and SFSI, regarding
purchases, additional investments, withdrawals and redemptions of Interests,
are adhered to by SFSI, SFSI shall not be liable for any loss suffered by a
Portfolio as a result of returned or unpaid purchase, investment, withdrawal or
redemption transactions. Legal or other expenses incurred to collect amounts
owed to a Portfolio as a consequence of returned or unpaid purchase,
investment, withdrawal or redemption transactions shall be an expense of that
Portfolio.
ARTICLE 4. Redemptions
4.01 Interests of any Portfolio may be withdrawn and redeemed in
accordance with the procedures set forth in the Registration Statement of the
Trust and SFSI will duly process all withdrawal and redemption requests.
ARTICLE 5. Transfers
5.01 Interests of each Portfolio are not transferable unless otherwise
provided in the Registration Statement.
ARTICLE 6. Right to Seek Assurances
6.01 SFSI reserves the right to refuse to redeem Interests or permit
withdrawals of Interests until it is satisfied that the requested redemption or
withdrawal is legally authorized, and it shall incur no liability for the
refusal, in good faith, to make redemptions or withdrawals which SFSI, in its
judgment, deems improper or unauthorized, or until it is satisfied that there
is no basis for any claims adverse to such redemption or withdrawal. SFSI may,
in effecting redemptions and withdrawals, rely upon the provisions of the
Uniform Commercial Code, as the same may be amended from time to time and as if
the same were applicable, which in the opinion of legal counsel for the Trust
or of its own legal counsel protect it in not requiring certain documents in
connection with the redemption or withdrawal of Interests of any Portfolio, and
the Trust shall indemnify SFSI for any act done or omitted by it in reliance
upon such law or opinions of counsel of the Trust or of its own counsel.
<PAGE>
ARTICLE 7. Allocations
7.01 As provided in the Registration Statement, the Trust will allocate
at least annually among each Portfolio's Holders each Holder's share of the
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 Internal Revenue Code and applicable U.S. Treasury regulations. SFSI
shall adjust each Holder's Account Balance in accordance with such allocations.
ARTICLE 8. Other Duties
8.01 In addition to the duties expressly provided for herein, SFSI shall
perform such other duties and functions and shall be paid such amounts therefor
as may from time to time be agreed to in writing.
ARTICLE 9. Taxes
9.01 It is understood that SFSI shall file such appropriate information
returns concerning income and capital gain distributions and tax withholding
with the proper Federal, State and local authorities as are required by law to
be filed by the Trust and shall withhold such sums, if any, as are required to
be withheld by applicable law.
ARTICLE 10. Books and Records
10.01 SFSI shall maintain confidential records showing for each Holder's
account the following: (i) names, addresses and tax identification numbers;
(ii) Account Balances; (iii) historical information (as available from prior
transfer agents) regarding the account of each Holder, including date and price
of all transactions on a Holder's account; (iv) any stop or restraining order
placed against a Holder's account; (v) information with respect to
withholdings; (vi) any capital gain or reinvestment order, plan application,
address and correspondence relating to the current maintenance of a Holder's
account; (vii) any information required in order for SFSI to perform the
calculations contemplated or required by this Agreement; and (viii) such other
information and data as may be required by applicable law.
10.02 Any records required to be maintained by Rule 31a-l under the 1940
Act will be preserved for the periods prescribed in Rule 31a-2 under the 1940
Act. Such records may be inspected by the Trust at reasonable times. SFSI may,
at its option at any time, and shall forthwith upon the Trust's demand, turn
over to the Trust and cease to retain in SFSI's files, records and documents
created and maintained by SFSI in performance of its service or for its
protection. At the end of the six-year retention period, such periods and
documents will either be turned over to the Trust, or destroyed in accordance
with the Trust's authorization.
<PAGE>
10.03 Procedures applicable to the services to be performed hereunder
may be established from time to time by agreement between the Trust on behalf
of the Portfolio(s) and SFSI. SFSI shall have the right to utilize any
accounting and recordkeeping systems which, in its opinion, qualifies to
perform any services to be performed hereunder. SFSI shall keep records
relating to the services performed hereunder, in the form and manner as it may
deem advisable.
ARTICLE 11. Fees and Expenses.
11.01 For performance by SFSI pursuant to this Agreement, the Trust on
behalf of the Portfolios agrees to pay SFSI an annual maintenance fee for each
Holder account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section 11.02
below may be changed from time to time subject to mutual written agreement
between the Trust and SFSI.
11.02 In addition to the fee paid under Section 11.01 above, the Trust
on behalf of the Portfolios agrees to reimburse SFSI for out-of-pocket expenses
or advances incurred by SFSI for the items set out in the fee schedule attached
hereto. In addition, any other expenses incurred by SFSI at the request or with
the consent of the Trust on behalf of the Portfolios including, without
limitation, any equipment or supplies specifically ordered by the Trust or
required to be purchased by the Trust, will be reimbursed by the Trust.
11.03 The Trust on behalf of the Portfolios agrees to pay all fees and
reimbursable expenses within thirty days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Portfolio
reports and other mailings to all holder accounts shall be advanced to SFSI by
the Trust at least seven (7) days prior to the mailing date of such material.
ARTICLE 12. Representations and Warranties of SFSI
SFSI represents and warrants to the Trust that:
12.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
12.02 It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
12.03 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
12.04 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
<PAGE>
ARTICLE 13. Representations and Warranties of the Trust
The Trust represents and warrants to SFSI that:
13.01 It is a trust duly organized and existing and in good standing
under the laws of the State of New York.
13.02 It is empowered under applicable laws and by its charter documents
and by-laws to enter into and perform this Agreement.
13.03 All proceedings required by said charter documents and by-laws
have been taken to authorize it to enter into and perform this Agreement.
13.04 It is an open-end investment company registered under the 1940
Act.
13.05 A registration statement on Form N-1A under the 1940 Act is
currently effective and will remain effective for so long as Interests of the
Trust are offered for sale.
ARTICLE 14. Indemnification
14.01 Except as set forth in subparagraph (f) hereof, SFSI shall not be
responsible for, and the Trust shall indemnify and hold SFSI harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions taken or omitted to be taken by SFSI or its agent or
subcontractors in good faith in reliance on or use by SFSI or its agents or
subcontractors of information, records and documents which (i) are received by
SFSI or its agents or subcontractors and furnished to it by or on behalf of the
Trust, (ii) have been prepared and/or maintained by the Trust or any other
person or firm on behalf of the Trust, and (iii) were received by SFSI or its
agents or subcontractors from a prior transfer agent.
(b) Any action taken or omitted to be taken by SFSI in connection with
its appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed.
(c) The Trust's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Trust's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Trust hereunder.
(d) The reliance on, or the carrying out by SFSI or its agents or
subcontractors of any instructions or requests, whether written or oral, of the
Trust.
<PAGE>
(e) The offer or sale of Interests by the Trust in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any State or in violation of any stop order or other
determination or ruling by any federal agency or any State with respect to the
offer or sale of such Interests in such state.
(f) In addition to any other limitation provided herein, or by law,
indemnification under this Agreement shall not apply to actions or omissions of
SFSI or its directors, officers, employees, agents or subcontractors in cases
of its own gross negligence, willful misconduct, bad faith, reckless disregard
of its duties or their own duties hereunder, knowing violation of law or fraud.
14.02 SFSI shall indemnify and hold the Trust harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributed to any action or failure or omission
to act by SFSI as a result of SFSI's lack of good faith, negligence, willful
misconduct, knowing violation of law or fraud.
14.03 At any time SFSI may apply to any officer of the Trust for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by SFSI under this
Agreement, and SFSI and its agents or subcontractors shall not be liable and
shall be indemnified by the Trust for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel except for
a knowing violation of law. SFSI, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Trust, reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction, information,
data, records or documents provided SFSI or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Trust, and shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Trust.
14.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, interruption
of electrical power or other utilities, equipment or transmission failure or
damage reasonably beyond its control, or other causes reasonably beyond its
control, such party shall not be liable to the other for any damages resulting
from such failure to perform or otherwise from such causes.
14.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder as contemplated by this Agreement.
14.06 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking the indemnification
shall promptly notify the other party of such assertion, and shall keep the
<PAGE>
other party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The party
seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
ARTICLE 15. Covenants of the Trust and SFSI
15.01 The Trust shall promptly furnish to SFSI the following:
(a) A certified copy of the resolution of the Trustees of the Trust
authorizing the appointment of SFSI and the execution and delivery of this
Agreement.
(b) A copy of the charter documents and by-laws of the
Trust and all amendments thereto.
(c) Copies of each vote of the Trustees designating authorized persons to
give instructions to SFSI, and a Certificate providing specimen signatures for
such authorized persons.
(d) Certificates as to any change in any officer or
Trustee of the Trust.
(e) A list of all Holders of the Portfolio(s) with the name, address and
tax identification number of each Holder, and the Account Balance of each
Holder, lists of any account against which stops have been placed, together
with the reasons for said stops, and the amount of Interests redeemed or
withdrawn.
(f) Copies of the Trust's registration statement with respect to the
Portfolios on Form N-1A and all amendments thereto.
(g) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for SFSI in the proper performance of its
duties.
15.02 SFSI shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act and the Rules thereunder, SFSI agrees
that all such records prepared or maintained by SFSI relating to the services
to be performed by SFSI hereunder are the confidential property of the Trust
and will be preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered to the Trust on and in accordance
with its request.
15.03 SFSI and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
<PAGE>
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
15.04 In case of any requests or demands for the inspection of the
Holder records of the Trust, SFSI will endeavor to notify the Trust and to
secure instructions from an authorized officer of the Trust as to such
instruction. SFSI reserves the right, however, to exhibit the Holder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Holder records to such person.
ARTICLE 16. Term of Agreement
16.01 This Agreement shall become effective on the date hereof (the
"Effective Date") and shall continue in effect for twelve months from the
Effective Date (the "Initial Term") and from year to year thereafter with
respect to each Portfolio, provided that subsequent to the Initial Term, this
Agreement may be terminated by either party at any time without payment of any
penalty upon ninety (90) days written notice to the other. In the event such
notice is given by the Trust, it shall be accompanied by a resolution of the
Board of Trustees, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent.
16.02 Should the Trust exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material
will be borne by the Trust. Additionally, SFSI reserves the right to charge for
any other reasonable expenses associated with such termination.
ARTICLE 17. Additional Portfolios
l7.01 In the event that the Trust establishes one or more series of
Interests in addition to the series with respect to which it desires to have
SFSI render services as transfer agent under the terms hereto, it shall so
notify SFSI in writing, and if SFSI agrees in writing to provide such services,
such series of Interests shall become a Portfolio hereunder.
ARTICLE 18. Assignment
18.01 Except as provided in Section 18.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party
18.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
18.03 SFSI, may without further consent on the part of the Trust,
subcontract for the performance of any of the services to be provided hereunder
<PAGE>
to third parties, including any affiliate of SFSI, provided that SFSI shall
remain liable hereunder for any acts or omissions of any subcontractor as if
performed by SFSI.
ARTICLE 19. Amendment
19.01 This Agreement may be amended or modified by a written agreement
executed by both parties.
ARTICLE 20. Massachusetts Law to Apply
20.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
ARTICLE 21. Merger of Agreement and Severability
21.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
21.02 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.03 This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original; but such counterparts shall
together, constitute only one instrument.
ARTICLE 22. Notices
22.01 Any notice or other instrument in writing authorized or required
by this Agreement to be given to either party hereto will be sufficiently given
if addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Portfolio(s): Asset Allocation Portfolios
c/o Signature Financial Group (Cayman), Ltd.
Elizabethan Square
George Town, Grand Cayman
Cayman Islands, BWI
Attention: Assistant Secretary
For SFSI: Signature Financial Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Attention: President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
The undersigned Trustee or officer of the Trust has executed this Agreement not
individually, but as Trustee or officer under the Trust's Declaration of Trust,
dated December 14, 1995, and the obligations of this Agreement are not binding
upon any of the Trustees, officers or holders of the Trust individually, but
bind only the Trust estate. The obligations hereunder allocable to any
Portfolio bind only that portion of the Trust estate allocable to such
Portfolio.
ASSET ALLOCATION PORTFOLIOS
Name:
Title:
ATTEST:
SIGNATURE FINANCIAL SERVICES, INC.
Name:
Title:
ATTEST:
DATE:
Exhibit 11
CONSENT OF CHARTERED ACCOUNTANTS
We hereby consent to the use in Part B constituting part of this
Post-Effective Amendment No. 1 to the registration statement on Form N-1A (the
"Registration Statement") of Asset Allocation Portfolios of our report dated
February 28, 1996, relating to the financial statement of Asset Allocation
Portfolio 200, which appears in such Registration Statement. We also consent
to the reference to us under the heading "Investment Advisory and Other
Services" in Part B.
Price Waterhouse
Chartered Accountants
Toronto, Ontario
February 28, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> ASSET ALLOCATION PORTFOLIOS
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 100,000
<TOTAL-ASSETS> 100,000
<PAYABLE-FOR-SECURITIES> 0
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<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
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<DISTRIBUTIONS-OF-INCOME> 0
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<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.00
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<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
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<RETURNS-OF-CAPITAL> 0.00
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<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
