As filed with the Securities and Exchange Commission on May 1, 1997
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. 2
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:
(345) 945-1824
SUSAN JAKUBOSKI, ELIZABETHAN SQUARE, GEORGE TOWN,
GRAND CAYMAN, CAYMAN ISLANDS, BWI
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM, DANA & GOULD LLP,
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:
Each Portfolio is a total return portfolio that allocates its investments
among three primary classes of assets - equity, fixed income and money market
securities. Each Portfolio's asset mix is designed to offer a different level
of potential return within a corresponding level of risk. The investment
objective of each Portfolio is as follows:
The investment objective of PORTFOLIO 200 is as high a total return over
time as is consistent with a primary emphasis on a combination of fixed income
and money market securities, and a secondary emphasis on equity securities.
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The investment objective of PORTFOLIO 300 is as high a total return over
time as is consistent with a balanced emphasis on equity and fixed income
securities.
The investment objective of PORTFOLIO 400 is as high a total return over
time as is consistent with a primary emphasis on equity securities, and a
secondary emphasis on fixed income securities.
The investment objective of PORTFOLIO 500 is as high a total return over
time as is consistent with a dominant emphasis on equity securities and a small
allocation to fixed income securities.
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 the investor who is seeking relatively lower risk provided
by substantial investments in fixed income and money market securities, but who
also seeks some capital growth. Portfolio 300 is designed for the investor
seeking a balanced approach by emphasizing stocks for their higher capital
appreciation potential but retaining a significant fixed income component to
temper volatility. Portfolio 400 and Portfolio 500 are designed for the
investor 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 the investor who can withstand greater
market swings to seek potential long-term rewards. Portfolio 400 is designed
for the investor 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. As the Portfolios'
investment manager, Citibank allocates each Portfolio's assets among these
three classes of investments to seek to achieve certain risk and return
objectives. In making asset allocations, Citibank considers 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 an optimal combination of stocks, bonds and money
market instruments that reduces risk and maximizes potential return for each
Portfolio's distinct investment objective.
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The Portfolios' asset 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
typically 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.
Citibank expects that, in general, each Portfolio's assets will be
allocated among the equity, fixed income and money market asset classes as
provided in the following chart. However, cash flows of a Portfolio or changes
in market valuations could produce different results. Citibank will review each
Portfolio's asset allocation quarterly and expects, in general, to rebalance
the Portfolio's investments, if necessary, at that time. Rebalancing may be
accomplished over a period of time and may be limited by tax and regulatory
requirements.
Portfolio Portfolio Portfolio Portfolio
200 300 400 500
Asset Class Range Range Range Range
Equity 25-45% 40-60% 55-85% 70-95%
Fixed 35-55 35-55 15-35 5-20
Income
Money 10-30 1-10 1-10 1-10
Market
Each asset class includes other investments described under "Certain
Additional Investment Policies" or elsewhere in this Part A that are deemed
related to the management of that asset class. Percentage ranges shown for the
equity and fixed income classes include investment positions that seek
equivalent asset class exposure or to enhance income for that asset class. When
money market instruments are used in connection with these positions they will
be counted towards the assets of the applicable asset class and not towards the
money market class.
Citibank will diversify the equity class of each Portfolio by allocating
the Portfolio's portfolio of equity securities among large capitalization
securities, 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 a Portfolio with the potential for higher returns with lower
overall volatility.
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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 complementary basis in an
effort to maximize the consistency of returns over longer time periods, and to
reduce volatility.
In supervising the Subadvisers, Citibank will also be taking into account
the expertise they have demonstrated in particular areas and the historical
results they have achieved within selected asset classes or investment styles.
By combining these attributes with selected asset classes and styles, Citibank
will seek to increase returns.
Citibank has delegated the responsibility for the daily management of the
following kinds of securities to the following Subadvisers: large
capitalization value securities, Miller Anderson & Sherrerd, LLP; small
capitalization value securities, Franklin Advisory Services, Inc.;
international equity securities, Hotchkis and 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,
including large capitalization growth securities, small capitalization growth
securities, fixed income securities and money market securities.
ASSET ALLOCATIONS
Initially one or more of the Portfolios may be of such a size that it is
not practicable for the Portfolio to invest in all of the above-mentioned asset
classes and types of securities. 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. There may also be a delay in investing in
asset classes or types of securities due to market conditions and availability
of suitable investments.
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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, the equity class of Portfolio 400 will emphasize securities of
small cap issuers. The equity class of 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. Small cap companies are generally represented in new or
rapidly changing industries. They may offer more profit opportunity in growing
industries and during certain economic conditions than do large and medium
sized companies. However, small cap companies also involve special risks.
Often, liquidity and overall business stability of a small cap company may be
less than that associated with larger capitalized companies. Small cap stocks
frequently involve smaller, rapidly growing companies with high growth rates,
negligible dividend yields and extremely high levels of volatility.
International Issuers. International issuers are those based outside the
United States. In 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
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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
Services 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 securities of comparable quality may have speculative
characteristics.
The mix of fixed income securities may vary from Portfolio to Portfolio.
There is no requirement that any Portfolio invest in each type of fixed income
security. The Portfolios may invest in securities with all maturities,
including long bonds (10+ years), intermediate notes (3 to 10 years) and
short-term notes (1 to 3 years).
Government Securities. U.S. Government securities may provide
opportunities for income with minimal credit risk. U.S. Treasury securities are
considered the safest of all government securities. U.S. Government securities
are high quality instruments issued or guaranteed as to principal and interest
by the U.S. Government or by an agency or instrumentality of the U.S.
Government. Securities issued or guaranteed as to principal and interest by
foreign governments or agencies or instrumentalities of foreign governments
(which include securities of supranational agencies) 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 changing interest rates.
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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.
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 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 enhance potential gain. Futures
contracts provide for the future sale by one party and purchase by another
party of a specified amount of a security at a specified future time and price,
or for making payment of a cash settlement based on changes in the value of a
security, an index of securities or other assets. In many cases, the futures
contracts that may be purchased 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.
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OTHER PERMITTED INVESTMENTS. For more information regarding the
Portfolios' permitted investments and investment practices, see "Permitted
Investments and Investment Practices." The Portfolios will not necessarily
invest or engage in each of the investments and investment practices described
in "Permitted Investments and Investment Practices" but reserve the right to do
so.
INVESTMENT RESTRICTIONS. Part B of this Registration Statement contains a
list of specific investment restrictions which govern the investment policies
of the Portfolios, including a limitation that each Portfolio may borrow money
from banks in an amount not to exceed 1/3 of the Portfolio's net assets for
extraordinary or emergency purposes (e.g., to meet redemption requests). Except
as otherwise indicated, the Portfolios' investment objectives and policies may
be changed without investor approval. If a percentage or rating restriction
(other than a restriction as to borrowing) is adhered to at the time an
investment is made, a later change in percentage or rating resulting from
changes in a Portfolio's securities will not be a violation of policy.
PORTFOLIO TURNOVER. Securities of each Portfolio will be sold whenever
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. For the period June 17, 1996 (September 3, 1996
for Portfolio 500) (commencement of operations) to December 31, 1996, the
turnover rates for Portfolio 200, Portfolio 300, Portfolio 400 and Portfolio
500 were 147%, 132%, 130% and 27%, respectively.
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.
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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
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
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controls on currency exchanges or governmental intervention in currency
markets.
The Portfolios may invest in issuers located in developing countries,
which are generally defined as countries in the initial stages of their
industrialization cycles with low per capita income. All of the risks of
investing in non-U.S. securities are heightened by investing in developing
countries. Investors should be aware that investing in the equity and fixed
income markets of developing countries involves exposure to economic structures
that are generally less diverse and mature, and to political systems which can
be expected to have less stability, than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of developed countries with more mature
economies; such markets often have provided higher rates of return, and greater
risks, to investors. These heightened risks include (i) greater risks of
expropriation, confiscatory taxation and nationalization, and less social,
political and economic stability; (ii) the small current size of markets for
securities of issuers based in developing countries and the currently low or
non-existent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict a Portfolio's
investment opportunities including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) the
absence of developed legal structures. Such characteristics can be expected to
continue in the future.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those 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 a fund with more of its investments in
securities of larger, more established companies.
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INVESTMENT PRACTICES. Certain of the investment practices employed for
the Portfolios may entail certain risks. These risks are in addition to the
risks described above and are described in "Permitted Investments and
Investment Practices" below.
PERMITTED INVESTMENTS AND INVESTMENT PRACTICES:
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements in order to earn a return on temporarily available cash. Repurchase
agreements are transactions in which an institution sells the Portfolio a
security at one price, subject to the Portfolio's obligation to resell and the
selling institution's obligation to repurchase that security at a higher price
normally within a seven day period. There may be delays and risks of loss if
the seller is unable to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Portfolio and the agreement by the Portfolio to
repurchase the securities at an agreed-upon price, date and interest payment.
When a Portfolio enters into reverse repurchase transactions, securities of a
dollar amount equal in value to the securities subject to the agreement will be
maintained in a segregated account with the Portfolio's custodian. The
segregation of assets could impair the Portfolio's ability to meet its current
obligations or impede investment management if a large portion of the
Portfolio's assets are involved. Reverse repurchase agreements are considered
to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, each Portfolio may
lend its portfolio securities to broker-dealers and other institutional
borrowers. Such loans must be callable at any time and continuously secured by
collateral (cash or U.S. Government securities) in an amount not less than the
market value, determined daily, of the securities loaned. It is intended that
the value of securities loaned by a Portfolio would not exceed 30% of the
Portfolio's total assets.
In the event of the bankruptcy of the other party to a securities loan,
repurchase agreement or a reverse repurchase agreement, a Portfolio could
experience delays in recovering either the securities or cash. To the extent
that, in the meantime, the value of the securities loaned or sold has increased
or the value of the securities purchased has decreased, the Portfolio could
experience a loss.
RULE 144A SECURITIES. Each Portfolio may purchase restricted securities
that are not registered for sale to the general public. If it is determined
that there is a dealer or institutional market in the securities, the
securities will not be treated as illiquid for purposes of the Portfolio's
investment limitations. The Trustees will review these determinations. These
securities are known as "Rule 144A securities," because they are traded under
SEC Rule 144A among qualified institutional buyers. Institutional trading in
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Rule 144A securities is relatively new, and the liquidity of these investments
could be impaired if trading in Rule 144A securities does not develop or if
qualified institutional buyers become, for a time, uninterested in purchasing
Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. Each Portfolio may invest up
to 10% of its net assets in securities for which there is no readily available
market. These illiquid securities may include privately placed restricted
securities for which no institutional market exists. The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a
Portfolio to sell them promptly at an acceptable price.
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, each Portfolio may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Portfolio at a future date beyond customary settlement time. Under normal
circumstances, the Portfolio takes delivery of the securities. In general, the
Portfolio does not pay for the securities until received and does not start
earning interest until the contractual settlement date. While awaiting delivery
of the securities, the Portfolio establishes a segregated account consisting of
cash, cash equivalents or high quality debt securities equal to the amount of
the Portfolio's commitments to purchase "when-issued" securities. An increase
in the percentage of the Portfolio's assets committed to the purchase of
securities on a "when-issued" basis may increase the volatility of its net
asset value.
COMMERCIAL PAPER. Each Portfolio may invest in commercial paper, which is
unsecured debt of corporations usually maturing in 270 days or less from its
date of issuance.
DEPOSITARY RECEIPTS FOR SECURITIES. American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") and other forms of depositary receipts for securities of non-U.S.
issuers provide an alternative method for a Portfolio to make non-U.S.
investments. These securities are not usually 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.
<PAGE>
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 objective. A currency exchange contract allows a definite price in
dollars to be fixed for securities of non-U.S. issuers that have been purchased
or sold (but not settled) for the Portfolio. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange rates.
In addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.
SECURITIES RATED Baa or BBB. Each Portfolio may purchase securities rated
Baa by Moody's or BBB by S&P and securities of comparable quality, which may
have poor protection of payment of principal and interest. These securities are
often considered to be speculative and involve greater risk of default or price
changes than securities assigned a higher quality rating due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than higher-rated securities and may decline significantly in periods of
general economic difficulty which may follow periods of rising interest rates.
ASSET-BACKED SECURITIES. Each Portfolio may invest in corporate
asset-backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or automobile
loan receivables, representing the obligations of a number of different
parties. Corporate asset-backed securities present certain risks. For instance,
in the case of credit card receivables, these securities may not have the
benefit of any security interest in the related collateral.
Each Portfolio also may purchase mortgage-backed securities issued or
guaranteed as to payment of principal and interest by the U.S. Government or
one of its agencies and backed by the full faith and credit of the U.S.
Government, including direct pass-through certificates of GNMA, as well as
mortgage-backed securities for which principal and interest payments are backed
by the credit of particular agencies of the U.S. Government. Mortgage-backed
securities are generally backed or collateralized by a pool of mortgages. These
securities are sometimes called collateralized mortgage obligations or CMOs.
Even if the U.S. Government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment, because the underlying mortgages are refinanced to
take advantage of the lower rates. Thus the prices of mortgage-backed
securities may not increase as much as prices of other debt obligations when
interest rates decline, and mortgage-backed securities may not be an effective
<PAGE>
means of locking in a particular interest rate. In addition, any premium paid
for a mortgage-backed security may be lost when it is prepaid. When interest
rates go up, mortgage-backed securities experience lower rates of prepayment.
This has the effect of lengthening the expected maturity of a mortgage-backed
security. As a result, prices of mortgage-backed securities may decrease more
than prices of other debt obligations when interest rates go up.
Additionally mortgage-backed securities are also subject to maturity
extension risk, that is, the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively convert a security that was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, a rising interest rate would not
only likely decrease the value of the Portfolio's securities, but would also
increase the inherent volatility of the Portfolio by effectively converting
short term debt instruments into long term debt instruments.
DOLLAR ROLLS. The Portfolios also may enter into "dollar rolls." A dollar
roll is a transaction pursuant to which a Portfolio sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period, the Portfolio foregoes
principal and interest paid on the mortgage-backed securities. The Portfolio is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale. A "covered
roll" is a specific type of dollar roll for which a Portfolio establishes a
segregated account with liquid high grade debt securities equal in value to the
securities subject to repurchase by the Portfolio. The Portfolios will invest
only in covered rolls.
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
<PAGE>
contracts so that the value of the securities covered by its futures contracts
would not generally exceed 50% of the Portfolio's other assets and to segregate
sufficient assets to meet its obligations under outstanding futures contracts.
The ability of a Portfolio to utilize futures contracts successfully will
depend on Citibank's or a Subadviser's ability to predict interest rate, stock
price or currency movements, which cannot be assured. In addition to general
risks associated with any investment, the use of futures contracts entails the
risk that, to the extent Citibank's or the Subadviser's view as to interest
rate, stock price or currency movements is incorrect, the use of futures
contracts, even for hedging purposes, could result in losses greater than if
they had not been used. This could happen, for example, if there is a poor
correlation between price movements of futures contracts and price movements in
a Portfolio's related portfolio position. Also, the futures markets may not be
liquid in all circumstances. As a result, in certain markets, a Portfolio might
not be able to close out a transaction without incurring substantial losses, if
at all. When futures contracts are used for hedging, even if they are
successful in minimizing the risk of loss due to a decline in the value of the
hedged position, at the same time they limit any potential gain which might
result from an increase in value of such position. As noted, each Portfolio may
also enter into transactions in futures contracts for other than hedging
purposes (subject to applicable law), including speculative transactions, which
involve greater risk. In particular, in entering into such transactions, a
Portfolio may experience losses which are not offset by gains on other
portfolio positions, thereby reducing its gross income. In addition, the
markets for such instruments may be extremely volatile from time to time, which
could increase the risks incurred by the Portfolio in entering into such
transactions.
The use of futures contracts potentially exposes a Portfolio to the
effects of "leveraging," which occurs when futures are used so that the
Portfolio's exposure to the 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.
<PAGE>
By writing a call option on a security, a Portfolio limits its
opportunity to profit from any increase in the market value of the underlying
security, since the holder will usually exercise the call option when the
market value of the underlying security exceeds the exercise price of the call.
However, the Portfolio retains the risk of depreciation in value of securities
on which it has written call options.
Each of the Portfolios also may purchase options on a non-U.S. currency in
order to protect against currency rate fluctuations. If a Portfolio purchases a
put option on a non-U.S. currency and the value of the U.S. currency declines,
the Portfolio will have the right to sell the non-U.S. currency for a fixed
amount in U.S. dollars and will thereby offset, in whole or in part, the
adverse effect on the Portfolio which otherwise would have resulted.
Conversely, where a rise in the U.S. dollar value of another currency is
projected, and where the Portfolio anticipates investing in securities traded
in such currency, the Portfolio may purchase call options on the non-U.S.
currency. Each Portfolio also may buy and write options on stock indices.
Each Portfolio may purchase and write options to buy or sell interest
rate futures contracts and options on stock index futures contracts. Such
investment strategies will be used for hedging and non-hedging purposes,
subject to applicable law. Put and call options on futures contracts may be
traded by a Portfolio in order to protect against declines in values of
portfolio securities or against increases in the cost of securities to be
acquired. Purchase of options on futures contracts may present less risk in
hedging the investment portfolio of a Portfolio than the purchase or sale of
the underlying futures contracts since the potential loss is limited to the
amount of the premium plus related transaction costs. The writing of such
options, however, does not present less risk than the trading of futures
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
<PAGE>
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein.
Transactions in options may be entered into on U.S. exchanges regulated
by the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the Commodity Futures Trading Commission and on foreign
exchanges. The securities underlying options and futures contracts traded by a
Portfolio may include domestic as well as foreign securities. Investors should
recognize that transactions involving foreign securities or foreign currencies,
and transactions entered into in foreign countries, may involve considerations
and risks not typically associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, a Portfolio may sell futures contracts on an
index of securities in order to profit from any anticipated decline in the
value of the securities comprising the underlying index. In such instances, any
losses on the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
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 $81 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
<PAGE>
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's investment experience is discussed below.
The following individuals at Citibank are responsible for daily
management of the following kinds of securities of the Portfolios (and related
investments).
<TABLE>
<CAPTION>
<S> <C>
Large capitalization growth securities Lawrence P. Keblusek, U.S. Chief
Investment Officer, has been
responsible for the daily management
of large cap growth securities since
the Portfolios' inception. Prior to
joining Citibank in 1995, Mr.
Keblusek, who has 25 years
experience in the investment
management industry, was 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
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.
<PAGE>
Small capitalization growth securities Linda J. Intini, Vice President, has
been responsible for the daily
management of small cap growth
securities since February 1997. Ms.
Intini has over nine years of
experience specializing in the
management of small cap equities,
including over $300 million of
Citibank's small cap portfolios for
trusts and individuals. Prior to
joining Citibank in 1992, she was a
Portfolio Manager and Research
Analyst with Manufacturers Hanover
in the Special Equity area. She also
specialized in equity research at
Eberstadt Fleming.
Domestic fixed income securities Mark Lindbloom, Vice President, has
been responsible for the daily
management of domestic fixed
income securities since the Portfolios'
inception. Mr. Lindbloom has more
than 12 years of investment
management experience. Prior to
joining Citibank in 1986, Mr.
Lindbloom was a Fixed Income
Portfolio Manager with 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.
</TABLE>
Citibank has delegated the daily management of the following kinds of
securities of the Portfolios (and related investments) to the following
Subadvisers. Citibank pays all Subadviser compensation.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
Morgan Stanley Asset Management
Holdings, Inc., an indirect wholly-
owned subsidiary of Morgan Stanley
Group Inc., owns 95% of the interests
in Miller Anderson. On February 5,
1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co.
announced that they had entered into
an Agreement and Plan of Merger to
form Morgan Stanley, Dean Witter,
Discover & Co. Dean Witter,
Discover & Co. is a financial services
company with three major businesses:
full service brokerage, credit services
and asset management. Subject to
certain conditions being met, it is
currently anticipated that the
transaction will close in mid-1997.
Thereafter, Miller Anderson will be a
subsidiary of Morgan Stanley, Dean
Witter, Discover & Co.
Robert Marcin, CFA, Partner, has
been responsible for the daily
management of large cap value
securities since the Funds' inception.
Mr. Marcin has been with Miller
Anderson since 1988.
<PAGE>
Small capitalization value securities Franklin Advisory Services, Inc., One
Parker Plaza, 16th Floor, Fort Lee,
New Jersey 07024. Franklin
Advisory Services, a wholly-owned
subsidiary of Franklin Resources, Inc.,
is a registered investment adviser.
William P. Lippman, senior vice
president of Franklin Advisory
Services or its predecessor since June,
1988, has been responsible for the
daily management of small
capitalization value securities since
the Portfolios' inception. Prior to
joining Franklin Advisory Services,
Mr. Lippman was president of L.F.
Rothschild Fund Management, Inc.
<PAGE>
International equity securities Hotchkis and Wiley, 800 West Sixth
Street, Fifth Floor, Los Angeles,
California 90017. Hotchkis and
Wiley, a division of Merrill Lynch
Asset Management, L.P., is a
registered investment adviser. Harry
W. Hartford and Sarah H. Ketterer
have been responsible for the daily
management of international equity
securities since the Portfolios'
inception. Mr. Hartford and Ms.
Ketterer manage international equity
accounts and are also responsible for
international investment research.
Each serves on the Investment Policy
Committee at Hotchkis and Wiley.
Prior to joining the predecessor of
Hotchkis and Wiley in 1994, Mr.
Hartford was with The Investment
Bank of Ireland, where he gained 10
years of experience in both
international and global equity
management. Prior to joining the
predecessor of Hotchkis and Wiley in
1990, Ms. Ketterer was an associate
with Bankers Trust and an analyst at
Dean Witter.
<PAGE>
Foreign government securities Pacific Investment Management
Company ("PIMCO"), 840 Newport
Center Drive, Suite 360, P.O. Box
6430, Newport Beach, California
92658-9030. PIMCO is a registered
investment adviser and is a subsidiary
partnership of PIMCO Advisors L.P.
A majority interest of PIMCO
Advisors L.P. is held by PIMCO
Partners, G.P., a general partnership
between Pacific Investment
Management Company, a California
corporation and indirect wholly-
owned subsidiary of Pacific Mutual
Life Insurance Company, and PIMCO
Partners, LLC, a limited liability
company controlled by the Managing
Directors of PIMCO. Lee R. Thomas,
III, 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.
</TABLE>
Management Fees. For its services under the Management Agreements,
Citibank receives a fee, which is accrued daily and paid monthly, of 0.75% of
the average daily net assets on an annualized basis of each Portfolio 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 (out
of its management fee) 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 Advisory Services, Inc. 0.55% on first $250 million
0.50% on remaining assets
Hotchkis and 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
For the period from June 17, 1996, commencement of operations of
Portfolio 400, through December 31, 1996, the management fee paid to Citibank
by Portfolio 400 was 0.18% of the Portfolio's average daily net assets for that
period. Citibank voluntarily waived all management fees payable by Portfolio
200, Portfolio 300 and Portfolio 500 during the period from commencement of
their operations through December 31, 1996.
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
<PAGE>
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 State Street Bank
and Trust Company ("State Street") pursuant to which State Street acts as
custodian for each Portfolio. Securities may be held by a sub-custodian bank
approved by the Trustees. State Street Cayman Trust Company, Ltd. ("State
Street Cayman") provides fund accounting services for each Portfolio. 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 State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, Cayman Islands. 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. For the period from June 17, 1996 (September 3, 1996 for Portfolio
500) (commencement of operations) to December 31, 1996, the Portfolios' total
expenses, expressed as a percentage of each Portfolio's average daily net
assets for that period, were as follows: Portfolio 200, 0.85%; Portfolio 300,
0.85%; Portfolio 400, 0.90%; and Portfolio 500, 0.90%.
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.
<PAGE>
The Trust is organized as a trust under the laws of the State of New York.
Under the Declaration of Trust, the Trustees are authorized to issue beneficial
interests in the Portfolios. Each investor in a Portfolio is entitled to a vote
in proportion to the amount of its beneficial interest in that Portfolio.
Investments in a Portfolio may not be transferred, but an investor may withdraw
all or any portion of its investment at any time. The Declaration of Trust of
the Trust provides that entities investing in a Portfolio are each liable for
all obligations of the Portfolio in which they invest. It is not expected that
the liabilities of any Portfolio would ever exceed its assets.
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 Portfolio 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, expenses, capital gains or losses, credits
and other items in determining its income tax liability. The determination of
such share is made in accordance with the governing instruments of the Trust
and the U.S. Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder.
<PAGE>
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.
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
<PAGE>
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.
Item 9. Pending Legal Proceedings.
Not applicable.
<PAGE>
PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents.
Page
General Information and History................................ B-1
Investment Objectives and Policies............................. B-1
Management of the Trust........................................ B-25
Control Persons and Principal Holders of Securities............ B-28
Investment Advisory and Other Services......................... B-28
Brokerage Allocation and Other Practices....................... B-31
Capital Stock and Other Securities............................. B-32
Purchase, Redemption and Pricing of Securities................. B-34
Tax Status..................................................... B-36
Underwriters................................................... B-38
Calculations of Performance Data............................... B-38
Financial Statements........................................... B-39
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains additional information about the investment objectives
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.
Each Portfolio is a total return portfolio that allocates its investments
among three primary classes of assets equity, fixed income and money market
securities. Each Portfolio's asset mix is designed to offer a different level
of potential return within a corresponding level of risk. The investment
objective of each Portfolio is as follows:
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The investment objective of PORTFOLIO 200 is as high a total return over
time as is consistent with a primary emphasis on a combination of fixed income
and money market securities, and a secondary emphasis on equity securities.
The investment objective of PORTFOLIO 300 is as high a total return over
time as is consistent with a balanced emphasis on equity and fixed income
securities.
The investment objective of PORTFOLIO 400 is as high a total return over
time as is consistent with a primary emphasis on equity securities, and a
secondary emphasis on fixed income securities.
The investment objective of PORTFOLIO 500 is as high a total return over
time as is consistent with a dominant emphasis on equity securities and a small
allocation to fixed income securities.
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. Citibank, N.A.
("Citibank" or the "Manager"), the investment adviser to each Portfolio,
allocates each Portfolio's assets among the equity class of investments, the
fixed income class of investments and the money market class of investments. In
making asset allocations, Citibank considers 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 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'
<PAGE>
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
Each of the Portfolios may invest in mortgage-backed securities, which
are securities representing interests in pools of mortgage loans. Interests in
pools of mortgage-related securities differ from other forms of debt securities
which normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment 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.
<PAGE>
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.
Even if the U.S. government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment because the underlying mortgages are refinanced to
take advantage of the lower rates. The price of mortgage-backed securities may
not increase as much as prices of other debt obligations when interest rates
decline, and mortgage-backed securities may not be an effective means of
locking in a particular interest rate. In addition, any premium paid for a
mortgage-backed security may be lost when it is prepaid. When interest rates go
up, mortgage-backed securities experience lower rates of prepayment. This has
the effect of lengthening the expected maturity of a mortgage-backed security.
As a result, prices of mortgage-backed securities may decrease more than prices
of other debt obligations when interest rates go up.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Portfolios may enter into mortgage "dollar roll" transactions
pursuant to which they sell mortgage-backed securities for delivery in the
future and simultaneously contract to repurchase substantially similar
securities on a specified future date. During the roll period, a Portfolio
foregoes principal and interest paid on the mortgage-backed securities. The
Portfolio is compensated for the lost principal and interest by the difference
between the current sales price and the lower price for the future purchase
<PAGE>
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Portfolio may also be compensated by receipt
of a commitment fee.
CORPORATE ASSET-BACKED SECURITIES
Each of the Portfolios may invest in corporate asset-backed securities.
These securities, issued by trusts and special purpose corporations, are backed
by a pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the 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.
<PAGE>
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.
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
<PAGE>
prior to receipt of payments, may expose the Portfolio to increased risk in the
event of a failed trade or the insolvency of a non-U.S. broker-dealer. In
addition, foreign brokerage commissions are generally higher than commissions
on securities traded in the U.S. and may be non-negotiable. In general, there
is less overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Portfolios to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
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
<PAGE>
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. Either
party has the right to terminate a loan at any time on customary industry
settlement notice (which will not usually exceed three business days). During
the existence of a loan, a Portfolio would continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned and
with respect to cash collateral would also receive compensation based on
investment of cash collateral (subject to a rebate payable to the borrower) or
a fee from the borrower in the event the collateral consists of securities.
Where the borrower provides the Portfolio with collateral consisting of U.S.
Treasury obligations, the borrower is also obligated to pay the Portfolio a fee
for use of the borrowed securities. . The Portfolio, would not, however, have
the right to vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially. However, the loans would be
made only to entities deemed by the 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. In addition, the Portfolio could suffer loss if the
borrower terminates the loan and the Portfolio is forced to liquidate
investments in order to return the cash collateral to the buyer. 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
<PAGE>
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
expects always to have cash, cash equivalents, or high quality debt securities
sufficient to cover any commitments or to limit any potential risk. However,
even though the Portfolios do not intend to make such purchases for speculative
purposes and intend to adhere to the provisions of Securities and Exchange
Commission policies, purchases of securities on such bases may involve more
risk than other types of purchases. For example, a Portfolio may have to sell
assets which have been set aside in order to meet redemptions. Also, if the
Manager or a Subadviser determines it is advisable as a matter of investment
strategy to sell the "when-issued" or "forward delivery" securities, the
Portfolio would be required to meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Portfolio's payment
obligation).
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Portfolios may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Portfolios may enter
into foreign currency exchange transactions to convert United States currency
to foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A Portfolio either enters
into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or 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.
<PAGE>
When a Portfolio enters into a contract for the purchase or sale of a
security denominated in a non-U.S. currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of non-U.S.
currency involved in the underlying security transaction, the Portfolio will be
able to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Manager or a Subadviser believes that the currency of a
particular country may suffer a substantial decline against the U.S. dollar, a
Portfolio may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of non-U.S. currency approximating the value of some or all
of the Portfolio's securities denominated in such non-U.S. currency. The
precise matching of the forward contract amounts and the value of the
securities involved is not generally possible since the future value of such
securities in non-U.S. currencies changes as a consequence of market movements
in the value of those securities between the date the forward contract is
entered into and the date it matures. The projection of a short-term hedging
strategy is highly uncertain. The Portfolios do not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation
of the contracts obligates a Portfolio to deliver an amount of non-U.S.
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parties 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.
<PAGE>
It is impossible to forecast with precision the market value of Portfolio
securities at the expiration of the contract. Accordingly, it may be necessary
for a Portfolio to purchase additional non-U.S. currency on the spot market if
the market value of the security is less than the amount of non-U.S. currency
the Portfolio is obligated to deliver and if a decision is made to sell the
security and make delivery of such currency. Conversely, it may be necessary to
sell on the spot market some of the non-U.S. currency received upon the sale of
the security if its market value exceeds the amount of such currency the
Portfolio is obligated to deliver.
Each of the Portfolios may also purchase put options on a non-U.S.
currency in order to protect against currency rate fluctuations. If a Portfolio
purchases a put option on a non-U.S. currency and the value of the U.S.
currency declines, the Portfolio will have the right to sell the non-U.S.
currency for a fixed amount in U.S. dollars and will thereby offset, in whole
or in part, the adverse effect on the Portfolio which otherwise would have
resulted. Conversely, where a rise in the U.S. dollar value of another currency
is projected, and where the Portfolio anticipates investing in securities
traded in such currency, the Portfolio may purchase call options on the
non-U.S. currency.
The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. However, the benefit to the
Portfolio from purchases of 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
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underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on currencies, a Portfolio also may be
required to forgo all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
Put and call options on non-U.S. currencies written by a Portfolio will
be covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount
sufficient to discharge the Portfolio's obligations with respect to the option,
by acquisition of the non-U.S. currency or of a right to acquire such currency
(in the case of a call option) or the acquisition of a right to dispose of the
currency (in the case of a put option), or in such other manner as may be in
accordance with the requirements of any exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
denominated in currencies other than the U.S. dollar. Because the securities
underlying these receipts are traded primarily in non-U.S. currencies, changes
in currency exchange rates will affect the value of these receipts. For
example, decline in the U.S. dollar value of another currency in which
securities are primarily traded will reduce the U.S. dollar value of such
securities, even if their value in the other non-U.S. currency remains
constant, and thus will reduce the value of the receipts covering such
securities. A Portfolio may employ any of the above described foreign currency
hedging techniques to protect the value of its assets invested in depositary
receipts.
Of course, 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.
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A call option written by a Portfolio is "covered" if the Portfolio owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio. A call option
is also covered if a Portfolio holds a call on the same security and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or (b)
is greater than the exercise price of the call written if the difference is
maintained by a Portfolio in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. A put
option written by a Portfolio is "covered" if the Portfolio maintains cash,
short term money market instruments or high quality debt securities with a
value equal to the exercise price in a segregated account with its custodian,
or else holds a put on the same security and in the same principal amount as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written or where the exercise price of the
put held is less than the exercise price of the put written if the difference
is maintained by the Portfolio in cash, short-term money market instruments or
high quality debt securities in a segregated account with its custodian. Put
and call options written by a 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
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not the obligation, to make or receive a cash settlement upon exercise of the
option, rather than the right to purchase or sell a security. The amount of
this settlement is equal to (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of
a put) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier."
Each of the Portfolios may cover call options on stock indices by owning
securities whose price changes, in the opinion of the Manager or a Subadviser,
are expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where a Portfolio covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Portfolio will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. A Portfolio may also cover call options on stock indices by holding a
call on the same index and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than 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
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changes in the value of the index, writing covered put options on indices will
increase the Portfolio's losses in the event of a market decline, although such
losses will be offset in part by the premium received for writing the option.
Each of the Portfolios may also purchase put options on stock indices to
hedge the Portfolio's investments against a decline in value. By purchasing a
put option on a stock index, a Portfolio will seek to offset a decline in the
value of securities it owns through appreciation of the put option. If the
value of the Portfolio's investments does not decline as anticipated, or if the
value of the option does not increase, the Portfolio's loss will be limited to
the premium paid for the option plus related transaction costs. The success of
this strategy will largely depend on the accuracy of the correlation between
the changes in value of the index and the changes in value of the Portfolio's
security holdings.
The purchase of call options on stock indices may be used by a Portfolio
to attempt to reduce the risk of missing a broad market advance, or an advance
in an industry or market segment, at a time when the Portfolio holds uninvested
cash or short-term debt securities awaiting investment. When purchasing call
options for this purpose, a Portfolio will also bear the risk of losing all or
a portion of the premium paid if the value of the index does not rise. The
purchase of call options on stock indices when a Portfolio is substantially
fully 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
<PAGE>
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Portfolio
purchases or sells a futures contract. At the same time such a purchase or sale
is made, the Portfolio must provide cash or securities as a deposit ("initial
deposit") known as "margin." The initial deposit required will vary, but may be
as low as 1% or less of a contract's face value. Daily thereafter, the futures
contract is valued through a process known as "marking to market," and the
Portfolio may receive or be required to pay additional "variation margin" as
the futures contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
contract. In some (but not many) 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 enter into stock index futures contracts to
gain stock market exposure while holding cash available for investments and
redemptions.
Each of the Portfolios may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended investments from
<PAGE>
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be acquired, even if the
value of such securities in the currencies in which they are denominated
remains constant. A Portfolio may sell futures contracts on a foreign currency,
for example, where it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on the value of
foreign-denominated securities may be offset, in whole or in part, by gains on
the futures contracts.
Conversely, the Portfolio could protect against a rise in the dollar cost
of foreign-denominated securities to be acquired by purchasing futures
contracts on the relevant currency, which could offset, in whole or in part,
the increased cost of such securities resulting from a rise in the dollar value
of the underlying currencies. Where the Portfolio purchases futures contracts
under such circumstances, however, and the prices of securities to be acquired
instead decline, the Portfolio will sustain losses on its futures position
which could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
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 contract limits
any potential gain which might result from an increase in value of a hedged
position.
In addition, the ability effectively to hedge all or a portion of a
Portfolio's investments through transactions in futures contracts depends on
the degree to which movements in the value of the 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.
<PAGE>
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.
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 or stock prices is incorrect, the Portfolio's overall
performance may be poorer than if any such contract had not been entered into.
For example, if 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.
<PAGE>
The Manager does not believe that these trading and position limits would have
an adverse impact on a Portfolio's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Portfolio is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Portfolio from
purchasing or selling futures contracts (other than for bona fide hedging
transactions) if, immediately thereafter, the sum of the amount of initial
margin required to establish that Portfolio's non-hedging futures positions
would exceed 5% of that Portfolio's net assets.
Each Portfolio will comply with this CFTC requirement, and each Portfolio
currently intends to adhere to the additional policies described below. First,
an amount of cash or cash equivalents will be maintained by each Portfolio in a
segregated account with the Portfolio's custodian so that the amount so
segregated, plus the initial margin held on deposit, will be approximately
equal to the amount necessary to satisfy the Portfolio's obligations under the
futures contract. The second is that a Portfolio will not enter into a futures
contract if 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
<PAGE>
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series, (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by 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
<PAGE>
by a Portfolio is exercised, the Portfolio will be required to purchase the
underlying futures contract which, if the Portfolio has covered its obligation
through the sale of such contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A Portfolio will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Portfolio will retain the full amount of
this option premium, which provides a partial hedge against any decline that
may have occurred in the Portfolio's security holdings. Similarly, the writing
of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities deliverable upon exercise of the futures
contract. If a Portfolio writes an option on a futures contract and that option
is exercised, the Portfolio may incur a loss, which loss will be reduced by the
amount of the option premium received, less related transaction costs. A
Portfolio's ability to hedge effectively through transactions in options on
futures contracts depends on, among other factors, the degree of correlation
between changes in the value of securities held by the Portfolio and changes in
the value of its futures positions. This 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
<PAGE>
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.
None of the Portfolios may:
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the current
value of its net assets, including the amount borrowed (nor purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Portfolio, taken at market value). It is intended that a Portfolio would borrow
money only from banks and only to accommodate requests for the repurchase of
beneficial interests in the Portfolio while effecting an orderly liquidation of
portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Portfolio's total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing all or a portion of an issue of debt securities of 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
<PAGE>
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, provided 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.
NON-FUNDAMENTAL RESTRICTIONS
Each Portfolio does not as a matter of operating policy:
(i) borrow money for any purpose in excess of 10% of the net assets of
the Portfolio (taken at cost) (moreover, the Portfolio will not purchase any
securities for the 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),
<PAGE>
(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,
(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.
<PAGE>
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 54) -- Chairman and Director, Catalyst, Inc.
(Management Consultants) (since June, 1992); President, Chief Operating Officer
and Director, Deven International, Inc. (International Consultants) (June, 1991
to June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 45) -- President of the Trust; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. and The
Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
MARK T. FINN (aged 53) -- President and Director, Delta Financial, Inc.
(since June, 1983); Chairman of the Board and Chief Executive Officer, FX 500
Ltd. (Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
WALTER E. ROBB, III (aged 70) -- 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 45) -- President of the Trust; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. and The
Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
SAMANTHA M. BURGESS* (aged 27) -- Assistant Secretary and Assistant
Treasurer of the Trust; Assistant Vice President, Signature Financial Group,
Inc. (since November, 1995); Graduate Student, Loyola University (prior to
August, 1995).
<PAGE>
CHRISTINE A. DRAPEAU* (aged 26) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
JOHN R. ELDER* (aged 48) -- 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 31) -- Secretary of the Trust; Vice President,
Signature Financial Group, Inc. (since May, 1992); Assistant Secretary, The
Landmark Funds Broker-Dealer Services, Inc. (since October, 1992); Law Student,
Boston University School of Law (September, 1989 to May, 1992).
JOAN R. GULINELLO* (aged 41) -- Assistant Secretary and Assistant
Treasurer of the Trust; Vice President, Signature Financial Group, Inc. (since
October, 1993); Secretary, The Landmark Funds Broker-Dealer Services, Inc.
(since October, 1995); Vice President and Assistant General Counsel,
Massachusetts Financial Services Company (prior to October, 1993).
JAMES E. HOOLAHAN* (aged 50) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc. His address is 437 Madison Avenue, 39th Floor, New York, New York.
SUSAN JAKUBOSKI* (aged 33) -- Assistant Secretary and Assistant Treasurer
of the Trust; Vice President, 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). Her address is Elizabethan Square,
George Town, Grand Cayman, Cayman Islands, BWI.
MOLLY S. MUGLER* (aged 45) -- Assistant Secretary and Assistant Treasurer
of the Trust; Vice President, Signature Financial Group, Inc.; Assistant
Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since December,
1988).
KARYN A. NOKE* (aged 26) - Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group
(Cayman) Ltd. (since September, 1996); Assistant Vice President, Signature
Financial Group, Inc. (May, 1993 to August, 1996); Student, University of
Massachusetts (prior to May, 1993).
SHARON M. WHITSON* (aged 48) -- Assistant Secretary and Assistant
Treasurer of the Trust; Assistant Vice President, Signature Financial Group,
Inc. (since November, 1992); Associate Trader, Massachusetts Financial Services
Company (prior to November, 1992).
<PAGE>
JULIE J. WYETZNER* (aged 37) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group,
Inc. Her address is 437 Madison Avenue, 39th Floor, New York, New York.
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.
The Trustees of the Trust (with the exception of Mr. Coolidge, who
received no remuneration from the Trust) received or will receive the following
remuneration for the periods indicated:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON, FROM AS PART OF FUND BENEFITS UPON COMPLEX PAID
POSITION REGISTRANT(1) EXPENSES RETIREMENT TO TRUSTEES (2)
<S> <C> <C> <C> <C>
Elliott J. Berv $ 1,001.66 NONE NONE $42,250
Mark T. Finn $ 1,003.06 NONE NONE $43,000
Walter E. Robb, III $ 1,006.98 NONE NONE $45,375
</TABLE>
(1) Information relates to the period from commencement of operations on
June 17, 1996 to December 31, 1996.
(2) Information relates to the Trust's fiscal year ended December 31, 1996.
Messrs. Coolidge, Berv, Finn and Robb are trustees of 46, 24, 26 and 24 funds,
respectively, of the Landmark Family of Funds.
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.
<PAGE>
Item 15. Control Persons and Principal Holders of Securities.
On February 27, 1996, Signature Financial Group (Cayman) Ltd. invested
$100,000 in Portfolio 200. On June 17, 1996 CitiSelectSM Folio 200,
CitiSelectSM Folio 300 and CitiSelectSM Folio 400 and on September 3, 1996
CitiSelectSM Folio 500 invested all of their investable assets in Portfolio
200, Portfolio 300, Portfolio 400 and Portfolio 500, respectively. CitiSelectSM
Folio 200, CitiSelectSM Folio 300, CitiSelectSM Folio 400 and CitiSelectSM
Folio 500 control the respective Portfolios by virtue of owning a majority of
the value of the outstanding interests in the Portfolios. Because CitiSelectSM
Folio 200, CitiSelectSM Folio 300, CitiSelectSM Folio 400 and CitiSelectSM
Folio 500 (collectively, the "Funds") control or 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
<PAGE>
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
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. For the period
June 17, 1996 (September 3, 1996 for Portfolio 500) (commencement of
operations) to December 31, 1996, the investment advisory fees payable to
Citibank under the Management Agreements with respect to Portfolio 200,
Portfolio 300, Portfolio 400 and Portfolio 500 were $197,989 (all of which was
voluntarily waived), $385,745 (all of which was voluntarily waived), $495,484
(of which $361,792 was voluntarily waived) and $103,638 (all of which was
voluntarily waived), respectively.
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 Advisory Services, Inc.
International equity securities Hotchkis and Wiley
Foreign government securities Pacific Investment Management Company
<PAGE>
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
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.
For the period from June 17, 1996 (September 3, 1996 for Portfolio 500)
(commencement of operations) to December 31, 1996, the fees paid to the
Subadvisers were as follows: Miller Anderson & Sherrerd, LLP - $90,990;
Franklin Advisory Services, Inc. - $123,189; Hotchkis and Wiley - $160,913; and
Pacific Investment Management Company - $123,950.
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.
<PAGE>
The Trust, on behalf of the Portfolios, has entered into Custodian
Agreements with State Street Bank and Trust Company ("State Street") pursuant
to which State Street acts as custodian for each Portfolio. The Trust, on
behalf of the Portfolios, also has entered into a Fund Accounting Agreement
with State Street Cayman Trust Company, Ltd. ("State Street Cayman") pursuant
to which State Street Cayman provides fund accounting services for each
Portfolio. 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 State Street is 225 Franklin Street,
Boston, Massachusetts 02110. The principal business address of State Street
Cayman is P.O. Box 2508 GT, Grand Cayman, Cayman Islands. 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.
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. 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
<PAGE>
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 or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for a Portfolio as well as for one or more of 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
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.
For the period from June 17, 1996 (September 3, 1996 for Portfolio 500)
(commencement of operations) to December 31, 1996, the Trust paid brokerage
commissions in the following amounts: Portfolio 200, $89,479; Portfolio 300,
$241,111; Portfolio 400, $453,048; and Portfolio 500, $185,397.
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
<PAGE>
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
present intention of holding, annual meetings of investors but the Trust will
hold special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by a vote of a majority, as
defined in the 1940 Act, of the holders of the Trust's outstanding voting
securities voting as a single class, or of the affected series of the Trust, as
the case may be, or if authorized by an instrument in writing without a
meeting, consented to by holders of not less than a majority of the interests
of the affected series. However, if the Trust or the affected series is the
surviving entity of the merger, consolidation or sale of assets, no vote of
interest holders is required. Any series of the Trust may be dissolved (i) by
the affirmative vote of not less than two-thirds of the outstanding beneficial
interests in such series at any meeting of holders of beneficial interests or
by an instrument in writing signed by a majority of the Trustees and consented
to by not less than two-thirds of the outstanding beneficial interests, (ii) by
the Trustees by written notice to holders of the beneficial interests in the
series or (iii) upon the bankruptcy or expulsion of a holder of a beneficial
interest in the series, unless the remaining holders of beneficial interests,
by majority vote, agree to continue the series. The Trust may be dissolved by
action of the Trustees upon the dissolution of the last remaining series.
Each Portfolio is a series of the Trust, organized as a trust under the
laws of the State of New York. The 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 (e.g., 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 or she would
<PAGE>
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
Item 19. Purchase, Redemption and Pricing of Securities.
Beneficial interests in each Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in each Portfolio may only
be made by investment companies, common or commingled trust funds or similar
organizations or entities which are "accredited investors" within the meaning
of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The net asset value of each Portfolio (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued)
is determined each day during which the New York Stock Exchange (the
"Exchange") is open for trading ("Business Day"). As of the date of this
Registration Statement, the Exchange is open for trading every weekday except
for the following holidays (or the days on which they are observed): New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. This determination of net asset value of
each Portfolio is made once each day as of the close of regular trading on the
Exchange. As set forth in more detail below, purchases and withdrawals will be
effected at the time of determination of net asset value next following the
receipt of any purchase or withdrawal order.
For the purpose of calculating a Portfolio's net asset value, all assets
and liabilities initially expressed in non-U.S. currencies will be converted
into U.S. dollars at the prevailing market rates at the time of valuation.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Bonds and
other fixed income securities (other than short-term obligations) are valued on
the basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees of the Trust. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
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
<PAGE>
as determined by the Board of Trustees. Futures contracts are normally valued
at the settlement price on the exchange on which they are traded. Securities
for which there are no such valuations are valued at fair value as determined
in good faith by or at the direction of the Board of Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when a
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 withdraw from its investment
in the applicable 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, that
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, that are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then re-computed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of the close of regular trading on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the 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.
<PAGE>
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 separate partnership
for U.S. federal and New York State income tax purposes. Accordingly, under
those tax laws, the Portfolios are not subject to any income tax, but each
investor in a Portfolio must take into account its share of that Portfolio's
ordinary income 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 Portfolios' taxable years end December 31. Although, as described
above, the Portfolios are not subject to U.S. federal income tax, they file
appropriate U.S. federal income tax returns.
The Trust believes that, in the case of an investor in a Portfolio that
seeks to qualify as a regulated investment company ("RIC") under the Code, the
investor should be treated for U.S. federal income tax purposes as an owner of
an undivided interest in the assets and operations of the Portfolio, and
accordingly should be deemed to own a proportionate share of each of the assets
of the Portfolio and be entitled to treat as earned by it the portion of the
Portfolio's gross income attributable to that share. The Trust also believes
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 a 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
<PAGE>
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. This discussion does not address
any distributions by the Portfolios in kind (i.e., any distributions of readily
marketable securities or other non-cash property), which will be subject to
special tax rules and may have consequences different from those described in
this paragraph.
Each Portfolio may be subject to foreign withholding and other taxes with
respect to income on certain securities of non-U.S. issuers. These taxes may be
reduced or eliminated under the terms of an applicable U.S. income tax treaty.
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 futures contracts will
be subject to special tax rules that may affect the amount, timing, and
character of Portfolio income. For example, certain positions held for a
Portfolio on the last business day of each taxable year will be marked to
market (i.e., treated as if sold) on that day, and any gain or loss associated
with the positions will be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held for a Portfolio that substantially
diminish its risk of loss with respect to other positions in its portfolio may
constitute "straddles," and may be subject to special tax rules that would
cause deferral of Portfolio losses and adjustments in the holding periods of
Portfolio securities. Certain tax elections exist for straddles that may alter
the effects of these rules.
<PAGE>
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 foreign tax laws that may
be applicable to certain investors. Investors should consult their own tax
advisers with respect to the special tax rules that may apply in their
particular situations, as well as the state, local, or foreign tax consequences
to them of investing in a Portfolio.
Item 21. Underwriters.
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.
<PAGE>
Item 23. Financial Statements.
The financial statements contained in the Annual Report of the Portfolios
for the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission, via the EDGAR system, on March 3, 1997 (Accession Number
0001005109-97-000002), are incorporated by reference into this Part B.
A copy of the Annual Report of the Portfolio accompanies this Part B.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Portfolio of Investments at December 31, 1996*
Statement of Assets and Liabilities at December 31, 1996*
Statement of Operations for the year ended December 31, 1996*
Statement of Changes in Net Assets for the period from June 17, 1996
(September 3, 1996 for Asset Allocation Portfolio 500)
(commencement of operations) to December 31, 1996*
Financial Highlights for the period from June 17, 1996 (September 3,
1996 for Asset Allocation Portfolio 500) (commencement of
operations) to December 31, 1996*
Notes to Financial Statements - December 31, 1996*
Independent Auditors' Report - February 4, 1997*
- -----------------------
*Incorporated herein by reference to the Annual Report of the Registrant for
the fiscal year ended December 31, 1996 (Accession Number
0001005109-97-000002).
(b) Exhibits
* 1(a) Copy of the Declaration of Trust of the Trust
** 1(b) Amended and Restated Designation of Series of
and filed Beneficial Interests of the Trust
herewith
** 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
<PAGE>
8 Custodian Contract between the Registrant and
State Street Bank and Trust Company ("State
Street"), as custodian
9(a) Fund Accounting Agreement between the
Registrant and State Street Cayman Trust
Company, Ltd. ("State Street Cayman")
** 9(b) Form of Transfer Agency Agreement between
the Registrant and Signature Financial Services,
Inc. ("SFSI"), as transfer agent
11 Consent of Price Waterhouse
27 Financial Data Schedule
-------------------------
* 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.
**Incorporated herein by reference to Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 811-7459) as filed with
the Securities and Exchange Commission on February 28, 1996.
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 April 29, 1997)
Asset Allocation Portfolio 200 2
Asset Allocation Portfolio 300 2
Asset Allocation Portfolio 400 2
Asset Allocation Portfolio 500 2
Item 27. Indemnification.
Reference is hereby made to Article V of the Declaration of Trust of the
Registrant, as incorporated herein by reference.
<PAGE>
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 New York Tax Free Income Fund and Landmark National Tax Free Income
Fund), Landmark VIP Funds (Landmark VIP U.S. Government Portfolio, Landmark VIP
Balanced Portfolio, Landmark VIP Equity Portfolio and Landmark VIP
International Equity Portfolio) and Variable Annuity Portfolios (CitiSelectSM
VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400,
CitiSelectSM VIP Folio 500 and Landmark Small Cap Equity VIP Fund). Citibank
and its affiliates manage assets in excess of $81 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, William R. Rhodes and H. Onno Ruding. Other Directors of Citibank are
D. Wayne Calloway, former Chairman and Chief Executive Officer, PepsiCo, Inc.,
Purchase, New York; Kenneth T. Derr, Chairman and Chief Executive Officer,
Chevron Corporation; John M. Deutch, Director, CMS Energy; Reuben Marks,
Chairman and Chief Executive Officer, Colgate-Palmolive Company; Richard D.
Parsons, Member, Board of Representatives; 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; 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:
<PAGE>
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Company
Director, PepsiCo., Inc.
Paul J. Collins Director, Kimberly-Clark Corporation
Kenneth T. Derr Director, American Telephone and Telegraph, Co.
Director, Chevron Corporation
Director, Potlatch Corporation
John M. Deutch Director, CMS Energy
Director, Palomar Medical Technologies, Inc.
Reuben Marks Director, Colgate-Palmolive Company
Director, New York Stock Exchange
Director, Time Warner, Inc.
Non-Executive Director, Pearson, PLC
Richard D. Parsons Director, Federal National Mortgage Association
Director, Philip Morris Companies Incorporated
Member, Board of Representatives, Time Warner
Entertainment Company, L.P.
Director and President, Time Warner, Inc.
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies, Incorporated
Stockholder, Tampa Tank & Welding, Inc.
William R. Rhodes Director, Private Export Funding Corporation
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporation
Director, The 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
Board Member, Corning Incorporated
<PAGE>
Advisor, Intercena (C&A) (Netherlands)
Member, Board of Advisers, Pechiney S.A.
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, Silicon Graphics
Director, Monsanto Company
Director, The Nutrasweet Company
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, Inc.
Director, The Boeing Company
Director, Boise Cascade Corp.
Director, Chevron Corporation
Franklin A. Thomas Director, Aluminum Company of America
Director, Cummins Engine Company, Inc.
Director, Lucent Technologies
Director, Pepsico, Inc.
Edgar S. Woolard, Jr. Director, E.I. DuPont De Nemours & Company
Director, Apple Computer, Inc.
Director, Zurich Holding Company of America, Inc.
Advisory Director, Zurich Insurance Corporation
Franklin Advisory Services, Inc. ("Franklin"), a sub-adviser of the
Registrant, maintains its principal office at 777 Mariners Island Blvd., San
Mateo, California 94404. Franklin, a California corporation incorporated in
1985, is a registered investment adviser under the Investment Company Act of
1940 and is a wholly-owned subsidiary of Franklin Resources, Inc., a publicly
owned holding company. Franklin is an investment adviser to various open-end
and closed-end investment companies.
William P. Lippman has been senior vice president of Franklin since June,
1988. Prior to joining Franklin, Mr. Lippman was president of L.F. Rothschild
Fund Management, Inc. He is president and director of Franklin Managed Trust,
which includes Franklin Rising Dividends Fund, Franklin Corporate Qualified
Dividend Fund, Franklin Investment Grade Income Fund and Franklin MicroCap
Value Fund. Mr. Lippman also manages Franklin Balance Sheet Investment Fund and
the Franklin Valuemark Rising Dividends Fund.
Each of the individuals named below is an officer and/or Director of
Franklin and has the affiliations indicated:
<PAGE>
Name: Affiliations:
Charles Bartlett Johnson President and Director, Franklin Resources, Inc.
Chairman of the Board Director, Templeton Worldwide, Inc.
Chairman of Board, Franklin/Templeton Distributors,
Inc.
Director, Franklin Management, Inc.
Director, Franklin Institutional Services
Corporation
Director, Franklin Templeton Trust Company
Director, Franklin/Templeton Investor Services, Inc.
Director, Property Resources, Inc.
Director, Franklin Bank
Director, Franklin Capital Corporation
Director, FCC Receivables Corporation
President and Chairman of Board, Franklin/
Templeton Travel, Inc.
Director, F.S. Capital Group
Director, F.S. Properties
Director, Franklin Agency, Inc.
Director, Templeton Global Investors, Inc.
President and Chairman of Board, T.G.H. Holdings,
Ltd.
Director, Templeton, Galbraith & Hansberger Ltd.
Chairman of Board, Franklin Asset Management
Systems (1982-95)
President & Director, Franklin Energy Corporation
(1983-95)
Rupert Harris Johnson, Jr. Executive Vice President and Director, Franklin
President and Director Resources, Inc.
Director, Templeton Worldwide, Inc.
Executive Vice President and Director,
Franklin/Templeton Distributors, Inc.
Chairman of Board, Franklin Management, Inc.
Chairman of Board, Franklin Institutional Services
Corporation
Executive Vice President, Senior Investment Officer
and Director, Franklin Templeton Trust Company
Director, Franklin/Templeton Investor Services, Inc.
Director, Property Resources, Inc.
Director, Franklin Properties, Inc.
Director, Franklin Real Estate Management, Inc.
<PAGE>
Director, Franklin Bank
Director, Franklin Capital Corporation
Director, FCC Receivables Corporation
Executive Vice President and Director,
Franklin/Templeton Travel, Inc.
Director, Franklin Agency, Inc.
Director, Templeton Global Investors
President, Templeton International, Inc.
Vice President and Director, Franklin Asset
Management Systems (1982-95)
Director, Franklin Energy Corporation (1983-95)
Harmon Evan Burns Executive Vice President - Legal and Secretary,
Executive Vice President Franklin Resources, Inc.
Director, Templeton Worldwide, Inc.
Executive Vice President and Director, Franklin/
Templeton Distributors, Inc.
Secretary, Franklin Management, Inc. (1980-93)
Director, Franklin/Templeton Investor Services, Inc.
Director, Franklin Institutional Services
Corporation
Director, Franklin Templeton Trust Company
Director, Franklin Properties, Inc.
Director, Franklin Real Estate Management, Inc.
Director, Franklin Bank
Director, Franklin Capital Corporation
Director, FCC Receivables Corporation
Executive Vice President and Director, Franklin/
Templeton Travel, Inc.
Director, F.S. Capital Group
Director, F.S. Properties
Secretary, Franklin Agency, Inc.
Director, Templeton Global Investors, Inc.
Executive Vice President and Director, Templeton/
Franklin Investment Services, Inc.
Secretary and Treasurer, Franklin Asset Management
Systems (1982-95)
Executive Vice President, Franklin Energy
Corporation (1983-95)
Kenneth Vernon Domingues Senior Vice President, Franklin Resources, Inc.
Senior Vice President Senior Vice President, Franklin/Templeton
Distributors, Inc.
Director, F.S. Capital Group
<PAGE>
Director, F.S. Properties
Treasurer, Franklin Asset Management Systems
(1989-95)
Treasurer, Franklin Management, Inc. (1987-93)
Treasurer, Franklin Institutional Services
Corporation (1991-93)
Treasurer, Franklin Trust Company (1989-93)
Martin Lawrence Flanagan Senior Vice President, Chief Financial Officer and
Senior Vice President Treasurer, Franklin Resources, Inc.
and Treasurer Executive Vice President and Director, Templeton
Worldwide, Inc.
Treasurer, Franklin Management, Inc.
Senior Vice President and Treasurer, Franklin
Institutional Services Corporation
Treasurer, Franklin Templeton Trust Company
Senior Vice President, Franklin/Templeton Investor
Services, Inc.
Vice President and Chief Financial Officer, Property
Resources, Inc.
Vice President and Chief Financial Officer, Franklin
Properties, Inc.
Vice President and Chief Financial Officer, Franklin
Real Estate Management, Inc.
Treasurer, Franklin Capital Corporation
President, FCC Receivables Corporation
Vice President and Treasurer, Franklin/Templeton
Travel, Inc.
Senior Vice President, Franklin
Agency, Inc.
President, Chief Executive Officer and Chairman of
Board, Templeton Global Investors, Inc.
Executive Vice President, Chief Operating Officer
and Director, Templeton International, Inc.
Director, Templeton Quantitative Advisors, Inc.
Director, Templeton/Franklin Investment Services,
Inc.
Director, Templeton Funds Trust Company
Director and Treasurer, Templeton Funds Annuity
Company
Executive Vice President, Chief Operating Officer
and Director, Templeton Investment Counsel, Inc.
Director, Templeton Management Ltd.
Director, Templeton Investment Management (Hong
<PAGE>
Kong), Ltd.
Director, Templeton Investment Management
(Singapore) Plc. Ltd.
Managing Director, Templeton Global Investors, Ltd.
Chairman of Board, Templeton Global Strategic
Services, S.A.
Director, Templeton Management (Lux) S.A.
Executive Vice President, Chief Operating Officer
and Director, T.G.H. Holdings, Ltd.
Director, Templeton Heritage, LTD.
Director, Templeton Investment Management, Ltd.
Director, Templeton Unit Trust Managers, Ltd.
Director, Templeton Holdings Ltd.
Director, Templeton/National Bank of Greece
Management (Lux) S.A.
Executive Vice President and Director, Templeton,
Galbraith and Hansberger Ltd. (Bahamian Corp.)
Senior Vice President and Treasurer, Franklin/
Templeton Distributors, Inc. (1993-95)
Treasurer, Franklin Energy Corporation (1994-95)
Director, Templeton Life Assurance Ltd. (1990-94)
Director, Templeton Funds Management, Inc. (1992-94)
Director, Templeton Funds Distributor, Inc. (1992-
93)
Director, The DAIS Group, Inc. (1990-93)
Vice-Chairman of Board, Templeton Global Bond
Managers, Inc. (1990-93)
Edward Burton Jamieson Portfolio Manager, Franklin Institutional Services
Senior Vice President Corporation
Thomas Joseph Kenny None
Senior Vice President and
Director of Municipal
Development
Leslie Michael Kratter Vice President and Assistant Secretary, Franklin
Secretary Resources, Inc.
Secretary, Templeton Worldwide, Inc.
Secretary, Franklin/Templeton Distributors, Inc.
Secretary, Franklin Management, Inc.
Vice President and Secretary, Franklin Institutional
<PAGE>
Services Corporation
Secretary, Franklin/Templeton Investor Services,
Inc.
Secretary, FCC Receivables Corporation
President and Director, Franklin/Templeton Travel,
Inc.
Secretary, Franklin Agency, Inc.
Secretary, Templeton Global Investors
Secretary, Templeton International, Inc.
Secretary, Templeton/Franklin Investment Services,
Inc.
Secretary, Franklin Energy Corporation (1994-95)
Executive Vice President, International Air Service
Co. Ltd. (1979-92)
Jack Henry Lemein Employee, Franklin Resources, Inc.
Senior Vice President Vice President, Franklin/Templeton Distributors,
Inc.
Vice President, Franklin Management, Inc.
Portfolio Manager, Franklin Institutional Services
Corporation
William Jennings Lippman Senior Vice President, Franklin Resources, Inc.
Senior Vice President Senior Vice President, Franklin/Templeton
Distributors, Inc.
Senior Vice President, Franklin Management, Inc.
Portfolio Manager, Franklin Institutional Services
Corporation
Rico Martin Wiskemann Employee, Franklin/Templeton Distributors, Inc.
Senior Vice President Senior Vice President, Franklin Management, Inc.
and Director Vice President, Treasurer and Director, ILA
Financial Services, Inc.
Vice President and Director, Arizona Life Insurance
Company of America
Pacific Investment Management Company ("PIMCO"), a sub-adviser of the
Registrant, maintains its principal office at 840 Newport Center Drive, Suite
360, P.O. Box 6480, Newport Beach, California 92658-9030. PIMCO is a registered
investment adviser under the Investment Company Act of 1940.
Lee R. Thomas, III joined PIMCO in 1995 and is the Senior International
Portfolio Manager at PIMCO. Previously he was a member of Investcorp's
<PAGE>
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 their
London office.
Each of the individuals named below is a Managing Director of PIMCO and
has the affiliations indicated:
Name and Position: Other Affiliations:
William H. Gross, CFA None
Senior Fixed Income
Portfolio
Manager
David H. Edington None
Senior Fixed Income
Portfolio
Manager
John L. Hague None
Senior Fixed Income
Portfolio
Manager
Brent R. Harris, CFA None
Director of Marketing
Dean S. Meiling, CFA None
Account Manager
James F. Muzzy, CFA None
Account Manager
William F. Podlich, III None
William C. Powers None
Senior Fixed Income
Portfolio Manager
Frank B. Rabinovitch None
Senior Fixed Income
Portfolio Manager
William S. Thompson Director, Spieker Properties Inc.
Chief Executive
Officer
<PAGE>
Hotchkis and Wiley, a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. ("Hotchkis"), a sub-adviser of the Registrant,
maintains its principal office at 800 West Sixth Street, Fifth Floor, Los
Angeles, California 90017. Harry Hartford and Sarah Ketterer will be
responsible for the daily management of international equity securities of the
Registrant. Mr. Hartford and Ms. Ketterer manage international equity accounts
and are also responsible for international investment research. Each serves on
the Investment Policy Committee at Hotchkis. Prior to joining Hotchkis, Mr.
Hartford was with the Investment Bank of Ireland, where he gained 10 years of
experience in both international and global equity management. Prior to joining
Hotchkis, Ms. Ketterer was an associate with Bankers Trust and an analyst at
Dean Witter.
Hotchkis became a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P. upon the completion of the sale by Hotchkis and
Wiley, a Delaware Limited Liability Company and the general partner of Hotchkis
& Wiley, a California limited partnership, of all of the partnership interests
in Hotchkis & Wiley to Merrill Lynch & Co., Inc., a Delaware corporation, in
November of 1996.
Following are the managing personnel of Hotchkis:
Name and Position: Other Affiliations:
Gail L. Bardin None
Portfolio Manager
Michael F. Baxter None
Portfolio Manager
George H. Davis, Jr. None
Portfolio Manager
Dr. Roger DeBard Executive Vice President, Hotchkis and Wiley Funds
Portfolio Manager
<PAGE>
John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Governor, The Music Center
Chairman Director and Treasurer, The Music Center Foundation
Director, Los Angeles World Affairs Council
Director, Los Angeles Philharmonic Orchestra
Director, Big Brothers of Greater Los Angeles
Director, Executive Service Corps of Southern
California
Director, KCET
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson School
Director, Fountainhead Water Company, Inc.
Michael L. Quinn Head of Merrill Lynch Capital Management Group
Chief Executive Officer
George Wiley None
Special Advisor to
Merrill Lynch Capital
Management Group
Miller Anderson & Sherrerd, LLP ("MAS"), a sub-adviser of the Registrant,
maintains its principal office at One Tower Bridge, West Conshohocken,
Pennsylvania 19428. MAS has been a registered investment adviser under the
Investment Company Act of 1940 since 1974. MAS serves as the Investment Adviser
and Fund Administrator for the MAS Funds and is also the parent company of MAS
Fund Distribution, Inc. ("MASDI"), a registered limited purpose broker-dealer
that was formed in 1992 solely to distribute shares of the MAS Funds. All
registered representatives of MASDI are also employees of MAS. MAS Fixed Income
Partnership I, L.P. ("MAS I") and MAS Fixed Income Partnership II, L.P. ("MAS
II") are investment partnerships established by MAS. MAS has established MAS
Fixed Income I, L.L.C., MAS Fixed Income II, L.L.C., MAS Management, Inc., and
MAS Investors I, LLP to administer and manage the investment partnerships. MAS
also participates in a joint venture with LTCB Capital Markets, Inc. that owns
LTCB-MAS Investment Management, Inc., a registered investment company.
MAS is a Pennsylvania limited liability partnership and became an
indirect wholly-owned subsidiary of Morgan Stanley Group Inc., the global
financial services firm, upon the completion of Morgan Stanley Asset
Management's acquisition of MAS in January of 1996. MAS's general partner and
the owner of 95% of the MAS partnership interests is Morgan Stanley Asset
Management Holdings, Inc. ("MSAMH"), a direct wholly-owned subsidiary of Morgan
Stanley Asset Management Inc. MSAMH is also one of MAS's three limited
partners. The other two limited partners of MAS are MSL Incorporated and MS
Holdings Incorporated, which are both holding companies within Morgan Stanley's
<PAGE>
corporate structure and own the remaining 3% and 2% of MAS's partnership
interests, respectively.
Following are the officers and directors of Morgan Stanley
Asset Management Holdings, Inc.
Name and Position: Affiliations:
James M. Allwin Director and Managing Director of Morgan
President and Director Stanley Asset Management Inc. since 1993
and President since 1995;
Employee of Morgan Stanley & Co.
Incorporated since 1976 and Managing
Director since 1985;
President of Morgan Stanley Realty, Inc.
since 1988;
Member of the Board of Overseers,
Dartmouth College;
Member of the Executive Board, The National
Realty Committee;
Trustee, The Urban Land Institute;
Chairman, Cities in Schools, Inc.
Barton M. Biggs Chairman and Director of Morgan Stanley
Chairman of the Board Asset Management Inc. since 1980;
and Director Chairman and Director of Morgan Stanley
Asset Management Limited;
Managing Director of Morgan Stanley & Co.
Incorporated since 1973;
Director of Morgan Stanley Group Inc. since
1991;
Member of the Investment Advisory Council
of The Thailand Fund;
Director, The Rand McNally Company;
Member, Yale Development Board;
Director and officer of various investment
companies managed by Morgan Stanley
Asset Management Inc.
<PAGE>
Harold J. Schaaff, Jr. Principal of Morgan Stanley & Co.
Secretary and Director Incorporated;
General Counsel and Secretary of Morgan
Stanley Asset Management Inc. since 1989;
Officer of various investment companies
managed by Morgan Stanley Asset
Management Inc.
Debra M. Aaron Employee of Morgan Stanley & Co.
Vice President Incorporated since 1984, Vice President
since 1986 and a Principal since 1989
Bruce R. Sandberg Employee of Morgan Stanley & Co.
Vice President Incorporated since 1981, Vice President
since 1988 and a Principal since 1992
Eileen Murray Employee of Morgan Stanley & Co.
Treasurer Incorporated since 1984;
Treasurer and Managing Director of Morgan
Stanley Asset Management Inc. and Morgan
Stanley & Co. Incorporated since June of
1996
Madeline D. Barkhorn Employee of Morgan Stanley & Co.
Assistant Secretary Incorporated since 1994 and of Morgan
Stanley Asset Management Inc. since 1988
Charlene R. Herzer Employee of Morgan Stanley & Co.
Assistant Secretary Incorporated since 1990 and Vice President
since 1995
The primary portfolio managers for MAS's Value Portfolio are A. Morris
Williams, Jr., CFA and Robert J. Marcin, CFA. Richard M. Behler is the most
recent addition to the value team. All other members of the MAS equity
investment management department serve as analyst resources for the value team
in the management of the portfolio while maintaining responsibility for other
MAS equity related portfolios.
<PAGE>
Each of the individuals named below is a former partner of MAS and has
the affiliations indicated:
Name: Other Affiliations:
A. Morris Williams, Jr., CFA C.A.R.E. Council of Trustees
Duke University, Trustee
The Salvation Army Advisory Board of Greater
Philadelphia
Philadelphia Scholars Fund Advisory Committee,
Chairman
Philadelphia Schools Collaborative, Board of
Directors
Richard B. Worley University of Pennsylvania, Trustee
Medical Center of the University of
Pennsylvania, Trustee
Pennsylvania Academy of Fine Arts, Trustee
Thomas L. Bennett, CFA MAS Funds, Chairman
Robert L. Hagin Society of Quantitative Analysts, Advisory
Board
T. Dean Williams International Society of Financial Analysts,
Board of Governors
Shanghai Dazhong Co., Director
John D. Connolly, CFA Financial Analysts of Philadelphia, President,
1994-95
Kenneth B. Dunn Journal of Fixed Income, Associate Editor
Institute for the Study of Security Markets,
Board of Directors
Ellen D. Harvey, CFA St. Timothy's School, Trustee, 1985-94
Investment Chairman, 1994-present
Bryn Mawr Rehabilitation Hospital, Trustee
Main Line Health System, Trustee
Owosso Corporation, Director
Gary G. Schlarbaum, CFA Coe College, Trustee
<PAGE>
James D. Schmid MAS Funds, President
Head of Mutual Funds MAS Fund Distribution, Inc., Director
The Minerva Fund, Inc., Chairman of the Board
of Directors
Arden C. Armstrong, CFA American Friends Service Committee, Investment
Committee
Wharton Fellow's Fund, Board of Overseers
Stephen F. Esser, CFA None
J. David Germany None
Nicholas J. Kovich None
Robert J. Marcin, CFA None
Mary Ann Milias California Pacific Medical Center Foundation,
Trustee
Schools of the Sacred Heart, Trustee
Sisters of the Presentation - Investment
Advisory Committee
Marin Community Foundation - Investment
Advisory Committee
Scott F. Richard Journal of Fixed Income, Associate Editor
Horacio A. Valeiras, None
CFA
Glenn E. Becker Germantown Academy, Education Committee
The Salvation Army Advisory Board of Greater
Philadelphia
Philadelphia Leadership Foundation, Director
Steven K. Kreider, CFA Lehigh University, Investment Committee
Marna C. Whittington Rohm & Haas Company, Director
Tower Hill School, Trustee
Upland Country Day School, Trustee
The Philadelphia Contributionship, Director
Federated Department Stores, Inc., Director
Berwind Group, Director
<PAGE>
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, Landmark VIP Funds (Landmark VIP
U.S. Government Portfolio, Landmark VIP Balanced Portfolio, Landmark VIP Equity
Portfolio and Landmark VIP International Equity Portfolio) and Variable Annuity
Portfolios (CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400, CitiSelectSM VIP Folio 500 and Landmark Small Cap
Equity VIP Fund).
(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
State Street Bank and Trust Company 225 Franklin Street
(custodian) Boston, MA 02110
Citibank, N.A. 153 East 53rd Street
(investment adviser) New York, NY 10043
<PAGE>
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 30th day of April,
1997.
ASSET ALLOCATION PORTFOLIOS
By: Susan Jakuboski
Susan Jakuboski
Assistant Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
No.: Description:
1(b) Amended and Restated Designation of Series of Beneficial
Interests of the Trust
8 Custodian Contract between the Registrant and State Street Bank
and Trust Company ("State Street"), as custodian
9(a) Fund Accounting Agreement between the Registrant and State
Street Cayman Trust Company, Ltd. ("State Street Cayman")
11 Consent of Price Waterhouse
27 Financial Data Schedule
Exhibit 1(b)
ASSET ALLOCATION PORTFOLIOS
FORM OF 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 five 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 100
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.
<PAGE>
5. Subject to the provisions of Section 6.2 and Article X of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to 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 at Tucker's Town, Bermuda, on separate counterparts
this ______ day of ______________, 1997.
_________________________________
Elliott J. Berv
As Trustee and not individually
_________________________________
Philip W. Coolidge
As Trustee and not individually
_________________________________
Mark T. Finn
As Trustee and not individually
_________________________________
Walter E. Robb, III
As Trustee and not individually
Exhibit 8
CUSTODIAN CONTRACT
Between
ASSET ALLOCATION PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property
to be Held By It...................................................... 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States................ 2
2.1 Holding Securities............................................. 2
2.2 Delivery of Securities.......................................... 2
2.3 Registration of Securities...................................... 4
2.4 Bank Accounts................................................... 4
2.5 Availability of Federal Funds................................... 5
2.6 Collection of Income............................................ 5
2.7 Payment of Fund Monies.......................................... 6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased............................................ 7
2.9 Appointment of Agents........................................... 7
2.10 Deposit of Fund Assets in U.S. Securities System................ 7
2.11 Fund Assets Held in the Custodian's Direct
Paper System.................................................... 8
2.12 Segregated Account.............................................. 9
2.13 Ownership Certificates for Tax Purposes.........................10
2.14 Proxies.........................................................10
2.15 Communications Relating to Portfolio
Securities......................................................10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States............................10
3.1 Appointment of Foreign Sub-Custodians...........................10
3.2 Assets to be Held...............................................11
3.3 Foreign Securities Systems......................................11
3.4 Holding Securities..............................................11
3.5 Agreements with Foreign Banking Institutions....................11
3.6 Access of Independent Accountants of the Fund...................11
3.7 Reports by Custodian............................................12
3.8 Transactions in Foreign Custody Account.........................12
3.9 Liability of Foreign Sub-Custodians.............................12
3.10 Liability of Custodian..........................................12
3.11 Reimbursement for Advances......................................13
3.12 Monitoring Responsibilities.....................................13
<PAGE>
3.13 Branches of U.S. Banks..........................................13
3.14 Tax Law.........................................................14
4. Payments for Sales or Repurchases or Redemptions
of Beneficial Interests of the Fund...................................14
5. Proper Instructions...................................................14
6. Actions Permitted Without Express Authority...........................15
7. Evidence of Authority.................................................15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income.....................16
9. Records .............................................................16
10. Opinion of Fund's Independent Accountants.............................16
11. Reports to Fund by Independent Public Accountants.....................16
12. Compensation of Custodian.............................................17
13. Responsibility of Custodian...........................................17
14. Effective Period, Termination and Amendment...........................18
15. Successor Custodian...................................................19
16. Interpretive and Additional Provisions................................19
17. Additional Funds......................................................20
18. Massachusetts Law to Apply............................................20
19. Prior Contracts.......................................................20
20. No Liability of Other Series..........................................20
21. Beneficial Interestholder Communications Election.....................20
<PAGE>
CUSTODIAN CONTRACT
This Contract between Asset Allocation Portfolios, a trust organized
and existing under the laws of New York, having its principal place of business
at Elizabethan Square, Georgetown, Grand Cayman, Cayman Islands, British West
Indies hereinafter called the "Fund", and State Street Bank and Trust Company,
a Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue beneficial interests in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Fund initially intends to offer beneficial interests in
four series, the 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 Fund and made
subject to this Contract in accordance with paragraph 17, being herein referred
to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such beneficial interests of the Fund
representing interests in the Portfolios ("Beneficial Interests") as may be
issued or sold from time to time. The Custodian shall not be responsible for any
<PAGE>
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held
By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies (each, a "U.S. Securities
System") and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System
of the Custodian (the "Direct Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
<PAGE>
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or
other similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, 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;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
<PAGE>
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, 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 Portfolio of the Fund;
<PAGE>
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of Beneficial Interests in connection
with distributions in kind, as may be described from time to
time in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Beneficial Interests for repurchase or redemption; and
15) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
<PAGE>
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Beneficial
Interests of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
<PAGE>
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
<PAGE>
3) For payment of the amount of dividends received in respect of
securities sold short;
4) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
In connection with the following type of expenses, the Custodian shall
make payments upon Proper Instructions for the Fund from an account of
the Fund controlled from outside of the United States:
5) For the redemption or repurchase of Beneficial Interests
issued by the Portfolio as set forth in Article 4 hereof;
6) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
7) For the payment of any dividends on Beneficial Interests
of the Portfolio declared pursuant to the governing documents
of the Fund;
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
<PAGE>
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of
the Portfolio which are maintained in a U.S. Securities
System shall identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
<PAGE>
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S.
Securities System's accounting system, internal accounting
control and procedures for safeguarding securities
deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial certificate required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
<PAGE>
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of
the Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
<PAGE>
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian 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 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
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio 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 and (iv) for
other proper purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees 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 purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
<PAGE>
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
<PAGE>
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
<PAGE>
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer. (c) Securities maintained in the custody of a
foreign sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee harmless from
any liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
<PAGE>
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
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.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
<PAGE>
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
<PAGE>
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Beneficial
Interests of the Fund
The Custodian shall receive from the distributor for the Beneficial
Interests or from the Transfer Agent of the Fund and deposit into the account of
the appropriate Portfolio such payments as are received for beneficial interests
of that Portfolio issued or sold from time to time by the Fund. The Custodian
will provide timely notification to the Fund on behalf of each such Portfolio
and the Transfer Agent of any receipt by it of payments for Beneficial Interests
of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available to the Fund at an
account of the Fund controlled from outside of the United States for payment to
holders of Beneficial Interests who have delivered to the Transfer Agent a
request for redemption or repurchase of their Beneficial Interests. In
connection with the redemption or repurchase of Beneficial Interests of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming Beneficial Interestholders. In connection with the redemption or
repurchase of Beneficial Interests of the Fund, the Custodian shall honor checks
drawn on the Custodian by a holder of Beneficial Interests, which checks have
been furnished by the Fund to the holder of Beneficial Interests, when presented
to the Custodian in accordance with such procedures and controls as are mutually
agreed upon from time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
<PAGE>
will be considered Proper Instructions if the Custodian 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
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties
under this Contract, provided that all such
payments shall be accounted for to the Fund on behalf of the
Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
<PAGE>
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
interest of the outstanding beneficial interests of each Portfolio or, if
directed in writing to do so by the Fund on behalf of the Portfolio, shall
itself keep such books of account and/or compute such net asset value per
beneficial interest. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the Transfer
Agent daily of the total amounts of such net income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per beneficial interest and the daily
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
<PAGE>
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio 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.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios 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, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; 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.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
<PAGE>
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by
a Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge or
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or benefits;
(vi) delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of the Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
<PAGE>
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
or in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated with respect to any Portfolio by either party by an instrument in
writing delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than thirty (30) days after the date of
such delivery or mailing; provided, however that the Custodian shall not with
respect to a Portfolio act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio, as required by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not with
respect to a Portfolio act under Section 2.11 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has approved the initial use of the Direct Paper System by
such Portfolio ; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further provided,
<PAGE>
that the Fund on behalf of one or more of the Portfolios may at any time by
action of its Board of Trustees (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
<PAGE>
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Beneficial
Interests in addition to Asset Allocation Portfolio 200, Asset Allocation
Portfolio 300, Asset Allocation Portfolio 400 and Asset Allocation Portfolio 500
with respect to which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the Custodian in writing,
and if the Custodian agrees in writing to provide such services, such series of
Beneficial Interests shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
<PAGE>
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. No Liability of Other Series
Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Portfolio are separate and
distinct from the assets and liabilities of each other Portfolio and that no
Portfolio shall be charged for any debt, obligation or liability of any other
Portfolio, whether arising under this Agreement or otherwise.
21. Beneficial Interestholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 17th day of June, 1996.
ATTEST ASSET ALLOCATION PORTFOLIOS
Tami Ebanks By Susan Jakuboski
ATTEST STATE STREET BANK AND TRUST
COMPANY
Francine Hayes By Ronald E. Logue
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Asset Allocation
Portfolios for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
Exhibit 9(a)
ACCOUNTING SERVICES AGREEMENT
This Agreement is made as of the 17th day of June, 1996 by and between
State Street Cayman Trust Company, Ltd., a trust company duly organized under
the laws of the Cayman Islands (the "ACCOUNTING AGENT") and Asset Allocation
Portfolios, a trust organized under the laws of the State of
New York (the "FUND").
W I T N E S S E T H:
WHEREAS, the Fund is authorized to issue beneficial interests in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer 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 Fund and made
subject to this Agreement in accordance with Section 7.1 below, each a
"PORTFOLIO" and collectively, the "PORTFOLIOS"); and
WHEREAS, the Fund desires to retain the Accounting Agent to perform
certain accounting and recordkeeping duties on behalf of each Portfolio and the
Accounting Agent is willing to perform such services upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein (the adequacy of which consideration with respect to each
party is hereby mutually admitted), the parties hereto hereby agree as follows:
Section 1. DUTIES OF THE ACCOUNTING AGENT.
Section 11 BOOKS OF ACCOUNT.
The Accounting Agent shall maintain the books of account of each
Portfolio and shall perform the following duties, using information provided to
the Accounting Agent by the Fund and others, in the manner prescribed by each
Portfolio's currently effective Registration Statement and the Declaration of
Trust of the Fund, certified copies of which have been supplied to the
Accounting Agent (with respect to each Portfolio, the "CONSTITUTIVE DOCUMENTS")
<PAGE>
and in accordance with such written procedures as may be agreed upon by the
Fund and the Accounting Agent from time to time:
(a) Record general ledger entries;
(b) Calculate daily net income;
(c) Reconcile activity to the trial balance;
(d) Calculate book capital account balances;
(e) Prepare capital allocation reports in accordance
with Regulation 1.704-3(e)(3) ("Special
aggregation rule for securities partnerships")
under the U.S. Internal Revenue Code, based upon
tax adjustments supplied by the Fund;
(f) Calculate and publish daily net asset value; and
(g) Prepare account balances.
In performing the foregoing services the Accounting Agent will provide to
the Fund on a daily basis the information requested by the Fund in order that
the Fund may calculate each Portfolio's percentage allocations of its
investment activities to be applied to the Portfolio's feeder funds, and the
Accounting Agent will use and rely on the Fund's allocations as so calculated.
The Fund shall provide timely prior notice to the Accounting Agent of any
modification in the manner in which such calculations are to be performed
pursuant to any revision to the Constitutive Documents of a Portfolio and shall
supply the Accounting Agent with certified copies of all amendments and/or
supplements to each Portfolio's Constitutive Documents in a timely manner. For
purposes of calculating the net asset value of each Portfolio, the Accounting
Agent shall value such Portfolio's portfolio securities utilizing prices
obtained from sources designated by the Fund on a Price Source Authorization
substantially in the form attached hereto as Exhibit A, as the same may be
amended by the Fund and the Accounting Agent from time to time, or otherwise
designated by means of Proper Instructions (as such term is defined in Section
2.2 below) (collectively, the "AUTHORIZED PRICE SOURCES"). The Accounting Agent
shall not be responsible for any revisions to the methods of calculation
prescribed by the Constitutive Documents of any Portfolio unless and until such
revisions are communicated in writing to the Accounting Agent. The Accounting
Agent represents and warrants to the Fund that it has all consents, approvals,
licenses, rights and authority necessary to perform the services to be provided
hereunder.
<PAGE>
Section 1.2. RECORDS.
The Accounting Agent shall create and maintain all records relating to
its activities and obligations under this Agreement with respect to each
Portfolio in a manner which shall meet the obligations of such Portfolio under
its Constitutive Documents. All such records shall be the property of the
relevant Portfolio and shall at all times during the regular business hours of
the Accounting Agent be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the regulatory
agencies having jurisdiction over the Portfolio. Subject to Section 3 below,
the Accounting Agent shall preserve the records required to be maintained
thereunder for the period required by law. The Accounting Agent agrees that all
services to be performed by it hereunder shall be performed outside the United
States.
Section 1.3. APPOINTMENT OF AGENTS.
The Accounting Agent may at is own expense employ agents in the
performance of its duties and the exercise of its rights under this Agreement,
provided that the employment of such agents shall not reduce the Accounting
Agent's obligations or liabilities hereunder.
Section 2. DUTIES OF THE FUND.
Section 2.1 PROVISION OF INFORMATION.
The Fund shall provide to the Accounting Agent, or shall cause a third
party to so provide, certain data with respect to each Portfolio as a condition
to the Accounting Agent's obligations under Section 1 above. The data required
to be provided with respect to each Portfolio pursuant to this Section is set
forth on Schedule A hereto, which schedule may be separately amended or
supplemented by the Fund and the Accounting Agent from time to time.
The Accounting Agent is authorized and instructed to rely upon the
information it receives from the Fund or any third party authorized by the Fund
(a "THIRD PARTY AGENT") to provide such information to the Accounting Agent.
The Accounting Agent shall have no responsibility to review, confirm or
otherwise assume any duty with respect to the accuracy or completeness of any
information supplied to it by the Fund or any Third Party Agent.
<PAGE>
Section 2.2 PROPER INSTRUCTIONS.
The term "PROPER INSTRUCTIONS" shall mean instructions received by the
Accounting Agent from the Fund, the investment advisor of the Portfolios
appointed by the Fund from time to time (the "INVESTMENT ADVISOR") or any
person duly authorized by them. Such instructions may be in writing signed by
the authorized person or may be in a tested communication or in a communication
utilizing access codes effected between electro-mechanical or electronic
devices or may be by such other means as may be agreed upon from time to time
by the Accounting Agent and the party giving such instructions (including,
without limitation, oral instructions). All oral instructions shall be promptly
confirmed in writing. The Fund and the Investment Advisor shall each cause its
duly authorized representative to certify to the Accounting Agent in writing
the names and specimen signatures of persons authorized to give Proper
Instructions. The Accounting Agent shall be entitled to rely upon the identity
and authority of such persons until it receives written notice from the Fund or
the Investment Advisor, as the case may be, to the contrary. The Accounting
Agent may rely upon any Proper Instruction reasonably believed by it to be
genuine and to have been properly issued by or on behalf of the Fund or the
Investment Advisor, as the case may be. The Fund shall give timely Proper
Instructions to the Accounting Agent in regard to matters affecting accounting
practices and the Accounting Agent's performance pursuant to this Agreement.
Section 3 SUCCESSOR AGENT.
If a successor accounting agent for the Portfolios shall be appointed by
the Fund, the Accounting Agent shall upon termination of this Agreement deliver
to such successor agent at the office of the Accounting Agent all books and
records of account of each Portfolio maintained by the Accounting Agent
hereunder. In the event this Agreement is terminated by either party without
the appointment of a successor agent, the Accounting Agent shall, upon receipt
of Proper Instructions, deliver such properties at its office in accordance
with such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Accounting Agent on or
before the effective date of such termination, then the Accounting Agent shall
have the right to deliver to a bank or trust company of its own selection,
having aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than $2,000,000, all property of the Portfolios
<PAGE>
held by the Accounting Agent hereunder. Thereafter, such bank or trust company
shall be the successor of the Accounting Agent under this Agreement.
Section 4. STANDARD OF CARE; LIMITATION ON LIABILITY.
The Accounting Agent shall at all times exercise reasonable care and
diligence and act in good faith in the performance of its duties hereunder,
provided, however, that the Accounting Agent shall assume no responsibility and
shall be without liability for any loss, damage or expense suffered or incurred
by the Fund or any Portfolio unless caused by its own fraud, willful default,
negligence or wrongful act or that of its agents or employees.
Without in any way limiting the generality of the foregoing, the
Accounting Agent shall in no event be liable for any loss or damage arising
from causes beyond its reasonable control, including, without limitation, delay
or cessation of services hereunder or any damages to the Fund or any Portfolio
resulting therefrom as a consequence of any work stoppage, power or other
mechanical failure, natural disaster, governmental action, communications
disruption or other impossibility of performance. The Accounting Agent shall
not be liable for any special, indirect, incidental, or consequential damages
of any kind whatsoever (including, without limitation, attorneys' fees) in any
way due to any Portfolio's use of the accounting services or the performance of
or failure to perform the Accounting Agent's obligations under this Agreement.
The Fund and any Third Party Agents or Authorized Price Sources from
which the Accounting Agent shall receive or obtain certain records, reports and
other data included in the accounting services provided hereunder are solely
responsible for the contents of such information, including, without
limitation, the accuracy thereof. The Accounting Agent shall have no
responsibility to review, confirm or otherwise assume any duty with respect to
the accuracy or completeness of any such information and shall be without
liability for any loss or damage suffered by the Fund or any Portfolio as a
result of the Accounting Agent's reasonable reliance on and utilization of such
information, except as otherwise required by the terms of the Price Source
Authorization form attached hereto as Exhibit A with respect to the use of data
obtained from Authorized Price Sources. The Accounting Agent shall have no
responsibility and shall be without liability for any loss or damage caused by
the failure of the Fund or any Third Party Agent to provide it with the
information required by Section 2.1 hereof.
<PAGE>
Section 5. INDEMNIFICATION.
The Fund hereby agrees to indemnify and hold harmless the Accounting
Agent from and against any loss, liability, claim or expense (including
reasonable attorney's fees and disbursements) suffered or incurred by the
Accounting Agent in connection with the performance of its duties hereunder,
including, without limitation, any liability or expense suffered or incurred as
a result of the acts or omissions of the Fund or any Third Party Agent or
Authorized Price Source whose data or services, including records, reports and
other information, the Accounting Agent must rely upon in performing accounting
services hereunder. Notwithstanding the immediately preceding sentence, the
Fund in no event shall indemnify or hold harmless the Accounting Agent from any
loss, liability, claim or expenses involving any breach or alleged breach or
violation of U.S. Patent No. 5,193,056, entitled Data Processing System for Hub
and Spoke Financial Services Configuration.
Section 6. DATA ACCESS AND PROPRIETARY INFORMATION.
The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals which may be furnished to it by the Accounting Agent as part of the
Fund's ability to access certain Portfolios-related data ("CUSTOMER DATA")
maintained by the Accounting Agent on data bases under the control and
ownership of the Accounting Agent ("DATA ACCESS SERVICES") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"PROPRIETARY INFORMATION") of substantial value to the Accounting Agent. The
Fund agrees to treat all Proprietary Information as proprietary to the
Accounting Agent and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Fund agrees for itself and its employees
and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Accounting Agent and solely in accordance with the
Accounting Agent's applicable user documentation;
(b) to refrain from copying or duplicating in any way
the Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform the Accounting Agent in a timely manner of such
<PAGE>
fact and dispose of such information in accordance with the
Accounting Agent's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the
Accounting Agent;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties; and
(f) to honor all reasonable written requests made by the Accounting
Agent to protect at the Accounting Agent's expense and risk the
rights of the Accounting Agent in Proprietary Information at common
law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees and agents of
their obligations pursuant to this Section 6. The obligations of this Section
shall survive for a period of five (5) years any earlier termination of this
Agreement.
The Fund hereby acknowledges that the data and information it may access
from the Accounting Agent utilizing the Data Access Services will be unaudited
and may not be accurate due to inaccurate pricing of securities, delays of a
day in updating a Portfolio's account and other causes for which Accounting
Agent will not be liable to the Fund or any Portfolio.
If the Fund notifies the Accounting Agent that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Accounting Agent shall use its best
efforts to correct such failure as promptly as possible. Data access services
and all computer programs and software specifications used in connection
therewith are provided on an as is, as available basis. The Accounting Agent
expressly disclaims all warranties except those expressly stated herein
including, but not limited to, the implied warranties of merchantability and
fitness for a particular purpose.
If the transactions available to the Fund include the ability to
originate electronic instructions to the Accounting Agent in order to (i)
effect the transfer or movement of cash or beneficial interests or (ii)
transmit interestholder information or other information (such transactions
<PAGE>
constituting a "COEFI"), then in such event the Accounting Agent shall be
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with mutually acceptable security procedures established by the
Accounting Agent and the Fund from time to time.
Notwithstanding anything to the contrary in this Section 6, the Fund and
its employees and agents may copy and duplicate Proprietary Information for its
own internal use in a manner consistent with this Agreement.
The Fund and its employees and agents may disclose any Proprietary
Information (i) if and to the extent the Fund and its employees and agents are
required to do so by applicable law or an order of a court of competent
jurisdiction or other government agency having appropriate authority, in which
case the Fund shall provide the Accounting Agent with timely notice prior to
such disclosure and (ii) to the extent any of such documents, materials and
information are made public by means other than a breach by the Fund or its
respective employees and agents of the obligations hereunder.
Notwithstanding anything in this Section 6 to the contrary, the Fund and
its employees and agents shall have the right to independently develop
products, provided they do so without any misappropriation of the Proprietary
Information or violation of the Accounting Agent's copyright or patent rights
or interests.
Section 7. GENERAL.
Section 7.1 ADDITIONAL PORTFOLIOS
In the event that the Fund establishes one or more series of beneficial
interests in addition to Asset Allocation Portfolio 200, Asset Allocation
Portfolio 300, Asset Allocation Portfolio 400 and Asset Allocation Portfolio
500, with respect to which it desires to have the Accounting Agent render
services under the terms of this Agreement, it shall so notify the Accounting
Agent in writing, and if the Accounting Agent agrees in writing to provide such
services, such series shall become a Portfolio hereunder.
<PAGE>
Section 7.2 TERM OF AGREEMENT.
This Agreement shall be effective from the date first stated above and
shall remain in full force and effect until terminated as hereinafter provided.
Either party may, in its discretion, terminate this Agreement with respect to
any Portfolio for any reason by giving the other party at least sixty (60) days
prior written notice of termination.
Section 7.3 FEES AND EXPENSES.
The Fund agrees to pay the Accounting Agent such reasonable compensation
for its services and expenses as may be agreed upon from time to time in a
written fee schedule approved by the Fund and the Accounting Agent.
Section 7.4 CONFIDENTIALITY.
The Accounting Agent agrees on behalf of itself and its employees to
treat confidentially all records and other information relating to the Fund and
each Portfolio, except where required to be disclosed by law or where the
Accounting Agent has determined that such disclosure is necessary for the
protection of its interests or has received the prior written consent of the
Fund, which consent shall not be unreasonably withheld.
Section 7.5 NOTICES.
All notices shall be in writing and shall be deemed given when delivered
in person, by facsimile, by overnight delivery through a commercial courier
service, or by registered or certified mail, return receipt requested. Notices
shall be addressed to each party at its address set forth below, or such other
address as the recipient may have specified by earlier notice to the sender.
If to the Accounting Agent: State Street Cayman Trust Company, Ltd.
P.O. Box 2508 GT
Grand Cayman, Cayman Islands
Attention: Jacqueline Henning
Telephone: 809-949-6644
Telecopy: 809-949-3181
<PAGE>
With a copy to: State Street Fund Services Toronto Inc.
100 King Street, West
Suite 3600
Toronto, Ontario
Canada M5X 1A9
Attention: Mike Larkin
Telephone: (416) 956-2987
Telecopy: (416) 956-2874
If to the Fund: Asset Allocation Portfolios
Elizabethan Square
Grand Cayman, Cayman Islands
Attention: Susan Jakuboski
Telephone: 809-945-1824
Telecopy: 809-945-1823
With a copy to: Citibank Global Asset Management
153 East 53rd Street
New York, NY 10043
Attention: Andrew Shoup
Telephone: 212-559-1177
Telecopy: 212-793-1812
Section 7.6 ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign its
rights and obligations hereunder to a party controlling, controlled by, or
under common control with such party.
Section 7.7 ENTIRE AGREEMENT.
This Agreement (including all schedules and attachments hereto)
constitutes the entire Agreement between the parties with respect to its
subject matter.
Section 7.8 AMENDMENTS.
No amendment to this Agreement shall be effective unless it is in writing
and signed by a duly authorized representative of each party. The term
"Agreement", as used herein, includes all schedules and attachments hereto and
any future written amendments, modifications, or supplements made in accordance
herewith.
<PAGE>
Section 7.9 HEADINGS NOT CONTROLLING.
Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.
Section 7.10 SURVIVAL.
All provisions regarding indemnification, warranty, liability and limits
thereon shall survive following the expiration or termination of this
Agreement.
Section 7.11 SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
Section 7.12 COUNTERPARTS.
This Agreement may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same Agreement.
Section 7.13 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Cayman Islands.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first written above.
STATE STREET CAYMAN TRUST
COMPANY, LTD.
By: Jacquelyn Henning
Its: Managing Director
ASSET ALLOCATION PORTFOLIOS
By: Susan Jakuboski
Its: Assistant Treasurer
<PAGE>
SCHEDULE A
REQUIRED INFORMATION RESPONSIBLE PARTY
Portfolio Trade Authorizations Investment Adviser
Currency Transactions Investment Adviser
Cash Transaction Report Custodian
Portfolio Prices Third Party Vendors/
Investment Adviser
Exchange Rates Third Party Vendors/
Investment Adviser
Capital Stock Activity Report Transfer Agent
Dividend/Distribution Schedule Fund
Dividend/Distribution Declaration Fund
Dividend Reconciliation/Confirmation Transfer Agent
Corporate Actions Third Party Vendors/
Custodian
Service Provider Fee Schedules Fund
Expense Budget Fund
Expense Payments and other
Cash Disbursements Fund
Amortization Policy Fund
Accounting Policy/Complex Investments Fund
Audit Management Letter Auditor
Annual Interestholder Letter Fund
Annual/Semi-Annual Reports Fund
Master/Feeder Allocation Methodology Fund
Tax Adjustments to Book Capital
Account Fund
<PAGE>
EXHIBIT A
ACCOUNTING SERVICES AGREEMENT
dated
June 17, 1996
by and between
ASSET ALLOCATION PORTFOLIOS
and
STATE STREET CAYMAN TRUST COMPANY, LTD.
(the "ACCOUNTING AGENT")
Pursuant to the terms of the Accounting Services Agreement, the Fund has
directed the Accounting Agent to calculate the net asset value of each
Portfolio and to perform certain other accounting services in accordance with
the Constitutive Documents (as such term is defined therein) of each Portfolio.
The Fund hereby authorizes and instructs the Accounting Agent to utilize the
pricing sources specified on the attached forms as sources for securities
prices in calculating the net asset value of each Portfolio and acknowledges
and agrees that the Accounting Agent shall have no liability for any incorrect
data provided by pricing sources selected by the Fund or otherwise authorized
by Proper Instructions (as such term is defined in the Accounting Services
Agreement), except as may arise from the Accounting Agent's lack of reasonable
care in performing the agreed-upon tolerance checks as to the data furnished
and calculating the net asset value of a Portfolio in accordance with the data
furnished and the Accounting Agent's performance of the agreed-upon tolerance
checks.
ASSET ALLOCATION PORTFOLIOS
By: Susan Jakuboski
Title: Assistant Treasurer
Date: 6/10/96
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Part B constituting
part of this Post-Effective Amendment No. 2 to the registration statement on
Form N-1A (the "Registration Statement") of Asset Allocation Portfolios of our
report dated February 4, 1997, relating to the financial statements and
financial highlights of Asset Allocation Portfolio 200, Asset Allocation
Portfolio 300, Asset Allocation Portfolio 400 and Asset Allocation Portfolio
500 appearing in the December 31, 1996 Annual Report of CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500, which are
also incorporated by reference into the 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
April 28, 1997
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