As filed with the Securities and Exchange Commission on February 5, 1996
File No. 811-07529
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
ASIAN SMALL COMPANIES PORTFOLIO
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(Exact Name of Registrant as Specified in Charter)
24 Federal Street
Boston, Massachusetts 02110
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 482-8260
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Thomas Otis
24 Federal Street, Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant
pursuant to Section 8(b) of the Investment Company Act of 1940, as
amended. However, interests in the Registrant are not being registered
under the Securities Act of 1933, as amended (the "1933 Act"), because
such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. Investments in the Registrant may be made only by
U.S. and foreign investment companies, common or commingled trust funds,
organizations or trusts described in Section 401(a) or 501(a) of the
Internal Revenue Code of 1986, as amended, or similar organizations or
entities that 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 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
Asian Small Companies Portfolio (the "Portfolio") is a
diversified, open-end management investment company that was organized as
a trust under the laws of the State of New York on January 19, 1996.
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Portfolio may be made only by U.S. and foreign
investment companies, common or commingled trust funds, organizations or
trusts described in Sections 401(a) or 501(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), or similar organizations or entities
that 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.
Investment Opportunities in the Asian Region
Over the past 20 years the performance of the major Asian
securities markets has generally been better than that of the markets in
Europe and the United States. In the past five years, the newly emerging
securities markets of the Asian Region have demonstrated significant
growth in market capitalization, in numbers of listed securities, and in
the volume of transactions. Over the same period, the underlying
economies of the region have grown against a background of the high
savings rates characteristic of many Asian societies and generally
moderate inflation. There is continuing economic integration among the
countries in the Asian Region.
Asian Small Companies are an attractive investment opportunity.
Although Asian securities markets have become progressively more
accessible to U.S. investors either through direct investment or through
Asian (or Pacific Basin) investment companies, obstacles to investing in
smaller companies have remained. Information to research these companies
is not easily obtainable. The Adviser is strategically located in Hong
Kong and has substantial experience with Asian small companies. Also, in
many existing Asian mutual funds, only a small portion of the portfolio is
invested in smaller companies. The Adviser believes that soundly managed
smaller companies in the Asian Region are well positioned to take
advantage of the rapid changes in the underlying economic and social
structures that have been taking place over the past decade. Smaller
companies are generally able to react swiftly to changing trading
conditions and the Adviser believes that such companies offer the
potential for high capital growth rates, particularly in a period of
economic recovery. The Adviser believes that smaller Asian companies
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offering superior returns exist in newly created industries, as well as
more traditional economic sectors in expanding economies.
See the Appendix to Part B for further information about the
economic characteristics of and risks associated with investing in Asian
Region countries.
The Portfolio's Investment Objective
The Portfolio's investment objective is to seek capital growth.
The Portfolio seeks to achieve its objective by investing primarily in
equity securities of smaller companies based in Asia. Most of the
Portfolio's assets will be invested in securities markets in the Asian
region, including Australia, China, Hong Kong, India, Indonesia, Japan,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka,
Taiwan and Thailand (collectively, the "Asian Region").
Additional information about the investment policies of the
Portfolio appears in Part B. The Portfolio is not intended to be a
complete investment program, and a prospective investor should take into
account its objectives and other investments when considering the purchase
of an interest in the Portfolio. The Portfolio cannot assure achievement
of its investment objective. See "How the Portfolio Invests its Assets"
for further information. The Portfolio's investment objective is
nonfundamental. Asian Region investments may offer higher potential for
gains and losses than investments in the United States. See "Special
Investment Methods and Risk Factors" for further information.
How the Portfolio Invests its Assets
The Portfolio seeks to achieve its objective through investing in
a carefully selected and continuously managed portfolio consisting
primarily of equity securities of smaller companies based in Asia. Most
of the Portfolio's assets will be invested in Asian securities markets.
The Adviser will consider companies that it believes have all or most of
the following characteristics: sound and well-established management;
producers of goods or services for which a clear, continuing and long-term
demand can be identified within the context of national, regional and
global development; a history of earnings growth; financial strength; a
consistent or progressive dividend policy; and undervalued securities.
The Portfolio will, under normal market conditions, invest at
least 65% of its total assets in equity securities of Asian small
companies. Such companies will (a) have a market capitalization
equivalent to less than $600 million and (b) be located in or have
securities that are principally traded in an Asian Region country. Such
securities are typically listed on stock exchanges or traded in the over-
the-counter markets in countries in the Asian Region. The principal
offices of these companies, however, may be located outside these
countries. In addition, the Portfolio may invest up to 10% of its total
assets in direct investments. The Portfolio may invest 25% or more of its
total assets in the securities of issuers located in any one country and
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may retain securities of a company with market capitalization that grows
over the $600 million level.
Equity securities, for purposes of the 65% policy, will be
limited to common and preferred stocks; equity interests in trusts,
partnerships, joint ventures and other unincorporated entities or
enterprises; special classes of shares available only to foreign investors
in markets that restrict the ownership by foreign investors to certain
classes of equity securities; convertible preferred stocks; and other
convertible investment grade debt instruments. A debt security is
investment grade if it is rated BBB or above by Standard & Poor's Ratings
Group ("S&P") or Baa or above by Moody's Investors Service, Inc.
("Moody's") or determined to be of comparable quality by the Adviser.
Debt securities rated BBB by S&P or Baa by Moody's have speculative
characteristics and changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and
interest payments than is the case with higher grade debt securities. The
Portfolio will consider disposing of any convertible debt instrument that
is rated or determined by the Adviser to be below investment grade
subsequent to acquisition by the Portfolio.
In addition to its investments in equity securities, the
Portfolio may invest up to 5% of its net assets in options on equity
securities and up to 5% of its net assets in warrants, including options
and warrants traded in over-the-counter markets. The Portfolio will not,
under normal market conditions, invest more than 35% of its total assets
in equity securities other than Asian small company investments, warrants,
options on securities and indices, options on currency, futures contracts
and options on futures, forward foreign currency exchange contracts,
currency swaps, and any other non-equity investments. See "Special
Investment Methods and Risk Factors" below and Part B for a description of
certain active management techniques available to the Portfolio. The
Portfolio will not invest in debt securities, other than investment grade
convertible debt instruments.
The Portfolio may, for temporary defensive purposes, invest some
or all of its total assets in debt securities of foreign and United States
companies, foreign governments and the U.S. Government, and their
respective agencies, instrumentalities, political subdivisions and
authorities, as well as in high quality money market instruments
denominated in U.S. dollars or a foreign currency.
Special Investment Methods And Risk Factors
Investing in Foreign Securities. Investing in securities issued
by foreign companies and governments involves considerations and possible
risks not typically associated with investing in securities issued by the
U.S. Government and domestic corporations. The values of foreign
investments are affected by changes in currency exchange control
regulations, application of foreign tax laws, including withholding taxes,
changes in governmental administration or economic or monetary policy (in
this country or abroad) or changed circumstances in dealings between
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nations. Because investment in Asian companies will usually involve
currencies of foreign countries, the value of assets of the Portfolio as
measured by U.S. dollars may be adversely affected by changes in currency
exchange rates. Such rates may fluctuate significantly over short periods
of time causing the Portfolio's net asset value to fluctuate as well.
Costs are incurred in connection with conversions between various
currencies. In addition, foreign brokerage commissions and other costs of
investing are generally higher than in the United States, and foreign
securities markets may be less liquid, more volatile, and less subject to
governmental supervision than in the United States. Investments in
foreign issuers could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards, and potential difficulties in
enforcing contractual obligations. Transactions in the securities of
foreign issuers could be subject to settlement delays.
More than 25% of the Portfolio's total assets, adjusted to
reflect currency transactions and positions, may be denominated in any
single currency. Concentration in a particular currency will increase the
Portfolio's exposure to adverse developments affecting the value of such
currency. An issuer of securities purchased by the Portfolio may be
domiciled in a country other than the country in whose currency the
securities are denominated.
Because the Portfolio will, under normal market conditions,
invest at least 65% of its total assets in smaller companies based in
Asia, its investment performance will be especially affected by events
affecting Asian Region companies. The value and liquidity of investments
may be affected favorably or unfavorably by political, economic, fiscal,
regulatory or other developments in the Asian Region or neighboring
regions. The extent of economic development, political stability, and
market depth of different countries in the Asian Region varies widely.
Certain countries, including China, Indonesia, Malaysia, the Philippines
and Thailand, are either comparatively underdeveloped or in the process of
becoming developed. Asian investments typically involve greater potential
for gain or loss than investments in securities of issuers in developed
countries. In comparison to the United States and other developed
countries, such as Japan, developing countries may have relatively
unstable governments and economies based on only a few industries. Given
the Portfolio's investments, the Portfolio will likely be particularly
sensitive to changes in the economies of such countries as the result of
any reversals of economic liberalization, political unrest, or changes in
trading status.
Securities Trading Markets. The securities markets in the Asian
Region are substantially smaller, less liquid, and more volatile than the
major securities markets in the United States. A high proportion of the
shares of many issuers may be held by a limited number of persons and
financial institutions, which may limit the number of shares available for
investment by the Portfolio. The prices at which the Portfolio may
acquire investments may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
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anticipation of transactions by the Portfolio in particular securities.
Similarly, volume and liquidity in the bond markets in the Asian Region
are less than in the United States and, at times, price volatility can be
greater than in the United States. The limited liquidity of these
securities markets may also affect the Portfolio's ability to acquire or
dispose of securities at the price and time it wishes to do so. In
addition, Asian Region securities markets are susceptible to being
influenced by large investors trading significant blocks of securities.
All of these risks are heightened when securities of smaller companies are
involved.
The stock markets in the Asian Region are undergoing a period of
growth and change that may result in trading volatility and difficulties
in the settlement and recording of transactions, and in interpreting and
applying the relevant law and regulations. The securities industry in
these countries is comparatively underdeveloped, and stockbrokers and
other intermediaries may not perform as well as their counterparts in the
United States and other more developed securities markets. Securities
settlements in some countries, such as India, are subject to the risk of
loss.
Asian Country Considerations. Political and economic structures
in many Asian countries are undergoing significant evolution and rapid
development, and such countries may lack the social, political, and
economic stability characteristic of the United States. Certain of such
countries have in the past, failed to recognize private property rights
and have at times nationalized or expropriated the assets of private
companies. As a result, the risks described above, including the risks of
nationalization or expropriation of assets, may be heightened. In
addition, unanticipated political or social developments may affect the
values of the Portfolio's investments in those countries and the
availability to the Portfolio of additional investments in those
countries.
The laws of countries in the region relating to the limited
liability of corporate shareholders, the fiduciary duties of officers and
directors, and the bankruptcy of state enterprises are generally less well
developed than or different from such laws in the United States. It may
be more difficult to obtain a judgement in the courts of these countries
than it is in the United States. Monsoons and natural disasters also can
affect the value of Portfolio investments.
Economies of countries in the Asian Region may differ favorably
or unfavorably from the U.S. economy in such respects as rate of growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position. As export-driven
economies, the economies of many countries in the Asian Region are
affected by developments in the economies of their principal trading
partners. For example, revocation by the United States of China's "Most
Favored Nation" trading status, which the U.S. President and Congress
reconsider annually, would adversely affect the trade and economic
development of China and Hong Kong.
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The Portfolio intends to conduct its affairs in such a manner to
avoid taxation. Nevertheless, certain countries may require withholding
on dividends paid on portfolio securities and on realized capital gains.
In the past, these taxes have sometimes been substantial. There can be no
assurance that in the future the Portfolio will be able to repatriate its
income, gains, or initial capital from these countries.
Direct Investments and Smaller Companies. The Portfolio may
invest up to 10% of its total assets in direct investments in smaller
companies based in Asia. Direct investments include (i) the private
purchase from an enterprise of an equity interest in the enterprise in the
form of shares of common stock or equity interests in trusts,
partnerships, joint ventures or similar enterprises, and (ii) the purchase
of such an equity interest in an enterprise from a principal investor in
the enterprise. In each case, the Portfolio will, at the time of making
the investment, enter into a shareholder or similar agreement with the
enterprise and one or more other holders of equity interests in the
enterprise. The Adviser anticipates that these agreements will, in
appropriate circumstances, provide the Portfolio with the ability to
appoint a representative to the board of directors or similar body of the
enterprise and for eventual disposition of the Portfolio's investment in
the enterprise. Such a representative of the Portfolio will be expected
to provide the Portfolio with the ability to monitor its investment and
protect its rights in the investment and will not be appointed for the
purpose of exercising management or control of the enterprise.
The Portfolio's investments will include investments in smaller,
less seasoned companies for which there is less publicly available
information than larger, more established companies. These companies may
have limited product lines, markets or financial resources, or they may be
dependent on a limited management group. Investments in smaller companies
may involve a high degree of business and financial risk that can result
in substantial losses. Because of the absence of any public trading
market for some of these investments, the Portfolio may take longer to
liquidate these positions than would be the case for publicly traded
securities. Although these securities may be resold in privately
negotiated transactions, the prices on these sales could be less than
those originally paid by the Portfolio. Furthermore, issuers whose
securities are not publicly traded may not be subject to investor
protection requirements applicable to publicly traded securities. If such
securities are required to be registered under the securities laws of one
or more jurisdictions before being resold, the Portfolio may be required
to bear the expenses of registration. In addition, in the event the
Portfolio sells unlisted securities, any capital gains realized on such
transactions may be subject to higher rates of taxation than taxes payable
on the sale of listed securities.
Other Investment Practices. The Portfolio may engage in the
following investment practices, some of which may derive their value from
another instrument, security or index. In addition, the Portfolio may
temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
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Derivative Instruments. The Portfolio may purchase or sell
derivative instruments (which are instruments that derive their value from
another instrument, security, index or currency) to enhance return, to
hedge against fluctuations in securities prices, interest rates, or
currency exchange rates, or as a substitute for the purchase or sale of
securities or currencies. The Portfolio's transactions in derivative
instruments may be in the U.S. or abroad and may include the purchase or
sale of futures contracts on securities, securities indices, other
indices, other financial instruments or currencies; options on futures
contracts; exchange-traded and over-the-counter options on securities,
indices or currencies; and forward foreign currency exchange contracts.
The Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in securities
prices, interest rates, the other financial instruments' prices or
currency exchange rates, the inability to close out a position, or default
by the counterparty. The loss on derivative instruments (other than
purchased options) may exceed the Portfolio's initial investment in these
instruments. In addition, the Portfolio may lose the entire premium paid
for purchased options that expire before they can be profitably exercised
by the Portfolio. The Portfolio incurs transaction costs in opening and
closing positions in derivative instruments. There can be no assurance
that the Adviser's use of derivative instruments will be advantageous to
the Portfolio.
The Portfolio may purchase call and put options on any securities
in which the Portfolio may invest or options on any securities index
composed of securities in which the Portfolio may invest. The Portfolio
does not intend to write a covered option on any security if after such
transaction more than 15% of its net assets, as measured by the aggregate
value of the securities underlying all covered calls and puts written by
the Portfolio, would be subject to such options. The Portfolio does not
intend to purchase an option on any security if, after such transaction,
more than 5% of its net assets, as measured by the aggregate of all
premium paid for all such options held by the Portfolio, would be so
invested.
To the extent that the Portfolio enters into futures contract,
options on futures contracts and options on foreign currencies traded on
an exchange regulated by the Commodity Futures Trading Commission
("CFTC"), in each case that are not for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required
to establish these positions (excluding the amount by which options are
"in-the-money") may not exceed 5% of the liquidation value of the
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Portfolio has entered into.
Forward contracts are individually negotiated and privately
traded by currency traders and their customers. A forward contract
involves an obligation to purchase or sell a specific currency (or basket
of currencies) for an agreed price at a future date, which may be any
fixed number of days from the date of the contract. The Portfolio may
engage in cross-hedging by using forward contracts in one currency (or
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basket of currencies) to hedge against fluctuations in the value of
securities denominated in a different currency if the Adviser determines
that there is an established historical pattern of correlation between the
two currencies (or the basket of currencies and the underlying currency).
Use of a different foreign currency magnifies the Portfolio's exposure to
foreign currency exchange rate fluctuations. The Portfolio may also use
forward contracts to shift its exposure to foreign currency exchange rate
changes from one currency to another.
The Portfolio may enter into currency swaps for both hedging and
non-hedging purposes. Currency swaps involve the exchange of rights to
make or receive payments in specified currencies. Because currency swaps
are individually negotiated, the Portfolio expects to achieve an
acceptable degree of correlation between its portfolio investments and its
currency swap positions. Currency swaps usually involve the delivery of
the entire principal value of one designated currency in exchange for the
other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. The use of currency
swaps is a highly specialized activity that involves special investment
techniques and risks. If the Adviser is incorrect in its forecasts of
market values and currency exchange rates, the Portfolio's performance
will be adversely affected.
Lending of Portfolio Securities. The Portfolio may seek to earn
additional income by lending portfolio securities to broker-dealers or
other institutional borrowers. As with other extensions of credit there
are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the
loans will be made only to organizations deemed by the Adviser to be
sufficiently creditworthy and when, in the judgment of the Adviser, the
consideration that can be earned from securities loans of this type
justifies the attendant risk.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements with respect to its permitted investments, but currently
intends to do so only with member banks of the Federal Reserve System or
with primary dealers in U.S. Government securities. In the event of the
bankruptcy of the other party to a repurchase agreement, the Portfolio
might experience delays in recovering its cash. To the extent that, in
the meantime, the value of the securities the Portfolio purchased may have
decreased, the Portfolio could experience a loss.
Other Investment Companies. The Portfolio reserves the right to
invest up to 10% of its total assets, calculated at the time of purchase,
in the securities of other investment companies unaffiliated with the
Adviser or Eaton Vance Management ("Eaton Vance") that have the
characteristics of closed-end investment companies. The Portfolio may not
invest more than 5% of its total assets in the securities of any one
investment company or acquire more than 3% of the voting securities of any
other investment company. The Portfolio will indirectly bear its
proportionate share of any management fees paid by investment companies in
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which it invests in addition to the advisory fee paid by the Portfolio.
The value of closed-end investment company securities, which are usually
traded on an exchange, is affected by the demand for the securities
themselves, independent of the demand for the underlying portfolio assets
and, accordingly, such securities can trade at a discount from their net
asset values.
Portfolio Turnover. While it is the policy of the Portfolio to
seek long-term capital appreciation, and generally not to engage in
trading for short-term gains, the Portfolio will effect portfolio
transactions without regard to its holding period if, in the judgment of
the Adviser, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry, or
in light of general market, economic, or political conditions.
Accordingly, the Portfolio may engage in short-term trading under such
circumstances. Portfolio expenses increase with turnover of securities.
It is anticipated that the annual portfolio turnover rate of the Portfolio
will be not more than 100%.
Certain Investment Policies. The Portfolio has adopted certain
fundamental investment restrictions and policies, which are enumerated in
detail in Part B and which may not be changed unless authorized by an
investor vote. Among these fundamental restrictions, the Portfolio may
not (1) borrow money, except as permitted by the Investment Company Act of
1940 (the "1940 Act"); (2) purchase any securities on margin (but the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities); or (3) with respect to
75% of its total assets, invest more than 5% of its total assets (taken at
current value) in the securities of any one issuer, or invest in more than
10% of the outstanding voting securities of any one issuer, except
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and except securities of other investment companies.
Investment restrictions are considered at the time of acquisition of
assets; the sale of portfolio assets is not required in the event of a
subsequent change in circumstances. As a matter of fundamental policy,
the Portfolio will not invest 25% or more of its total assets in the
securities of issuers in any one industry.
Except for the fundamental investment restrictions and policies
specifically identified above and those enumerated in Part B, the
investment objective and policies of the Portfolio are not fundamental
policies and accordingly may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio. Any
such change of the investment objective will be preceded by thirty days'
advance written notice to the investors. If any changes are made, the
Portfolio might have an investment objective different from the objective
that an investor considered appropriate at the time of its initial
investment.
As a matter of nonfundamental policy, the Portfolio (i) may not
purchase any securities if, at the time of such purchase, permitted
borrowings exceed 5% of the value of its total assets, and (ii) may not
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invest more than 15% of its net assets in over-the-counter options,
repurchase agreements maturing in more than seven days, and other illiquid
securities.
Under the 1940 Act and the rules promulgated thereunder, the
Portfolio's investments in the securities of any company that, in its most
recent fiscal year, derived more than 15% of its gross revenues from
securities-related activities is limited to 5% of any class of the
issuer's equity securities and 10% of the outstanding principal amount of
the issuer's debt securities, provided that the Portfolio's aggregate
investments in the securities of any such issuer do not exceed 5% of the
Portfolio's total assets. Some of the companies available for investment
in the Asian Region, including enterprises being privatized by such
countries, may be financial services businesses that engage in securities-
related activities. The Portfolio's ability to invest in such enterprises
may thus be limited.
Item 5. Management of the Portfolio
The Portfolio is organized as a trust under the laws of the State
of New York. The Portfolio intends to comply with all applicable federal
and state securities laws.
Investment Adviser. The Portfolio has engaged Lloyd George
Investment Management (Bermuda) Limited (the "Adviser") as its investment
adviser. Acting under the general supervision of the Portfolio's Board of
Trustees, the Adviser manages the Portfolio's investments and affairs.
The Portfolio is co-managed by Robert Lloyd George and Scobie Dickinson
Ward. The Adviser's principal business address is 3808 One Exchange
Square, Central, Hong Kong.
The Adviser is registered as an investment adviser with the
Securities and Exchange Commission (the "Commission"). The Adviser is a
subsidiary of Lloyd George Management (B.V.I.) Limited ("LGM"). LGM and
its subsidiaries act as investment adviser to various individual and
institutional clients with total assets under management of more than $1
billion. Eaton Vance's parent, Eaton Vance Corp., owns 24% of the Class A
shares issued by LGM.
LGM was established in 1991 to provide investment management
services with respect to equity securities of companies trading in Asian
securities markets, especially those of emerging markets. LGM currently
manages Pacific Basin and Asian portfolios for both private clients and
institutional investors seeking long-term capital growth. LGM's core
investment team consists of nine experienced investment professionals,
based in Hong Kong, who have worked together over a number of years
successfully managing client portfolios in Pacific Basin and Asian stock
markets. LGM also has offices in Bombay, India and in London, England.
The team has a unique knowledge of, and experience with, Pacific Basin and
Asian emerging markets. LGM is ultimately controlled by the Hon. Robert
J.D. Lloyd George, President of the Portfolio and Chairman and Chief
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Executive Officer of the Adviser. LGM's only activity is portfolio
management.
LGM and the Adviser have adopted a disciplined management style,
providing a blend of Asian and multinational expertise with the most
rigorous international standards of fundamental security analysis.
Although focused primarily in Asia, LGM and the Adviser maintain a network
of international contacts in order to monitor international economic and
stock market trends and offer clients a global management service.
The Honourable Robert Lloyd George. Chairman and Chief Executive
Officer. Born in London in 1952 and educated at Eton College, where he
was a King's Scholar, and at Oxford University. Prior to founding LGM,
Mr. Lloyd George was Managing Director of Indosuez Asia Investment
Services Ltd. Previously, he spent four years with the Fiduciary Trust
Company of New York researching international securities, in the United
States and Europe, for the United Nations Pension Fund. Mr. Lloyd George
is the author of numerous published articles and three books - "A Guide to
Asian Stock Markets" (Longmans, Hong Kong, 1989), "The East West Pendulum"
(Woodhead - Faulkner, Cambridge, 1991) and "North South -- an Emerging
Markets Handbook (Probus, England, 1994).
William Walter Raleigh Kerr. Director. Born in 1950 and
educated at Ampleforth and Oxford. Mr. Kerr qualified as a Chartered
Accountant at Thomson McLintock & Co. before joining The Oldham Estate
Company plc as Financial Controller. Prior to joining LGM, Mr. Kerr was a
Director of Banque Indosuez's corporate finance subsidiary, Financiere
Indosuez Limited, in London. Prior to that, Mr. Kerr worked for First
Chicago Limited.
Scobie Dickinson Ward. Director. Born in 1966 and a cum laude
graduate of both Phillips Academy Andover and Harvard College. Mr. Ward
joined Indosuez Asia Investment Services in 1989, where he managed the
$100 million Himalayan Fund, and the Indosuez Tasman Fund, investing in
Australia and New Zealand. Messrs. Ward and Lloyd George manage Eaton
Vance's Emerging Markets Portfolio and South Asia Portfolio (which invests
in India and the Indian subcontinent).
M. F. Tang. Director. Born in 1946 and educated in Hong Kong.
Mr. Tang is a Fellow of the Chartered Association of Certified
Accountants. Mr. Tang joined LGM having worked for Australian Mutual
Provident Society in Sydney where he was a Portfolio Manager responsible
for Asian Equities. Prior thereto, Mr. Tang worked for Barclays Australia
Investment Services Ltd. From 1978 to 1986, Mr. Tang worked for Barings
International Investment Management, and prior to that, he spent six years
with Peat Marwick Mitchell & Co. Mr. Tang is fluent in the Cantonese and
Mandarin dialects of the Chinese language.
Pamela Chan. Director. Born in Hong Kong in 1957 and graduated
from Mills College in Oakland, California. She was an investment
executive for Jardine Fleming from 1982-1984 before moving to Australia
where she worked as a Fund Manager for Rothschild and Aetna. She joined
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Sun Life Assurance Society PLC in England in 1987 where she was the head
of South East Asian Equities and a Director. She joined LGM in April 1994
where she is a portfolio manager and a member of the Pension Management
Committee.
Adaline Mang-Yee Ko. Director. Born in 1943 and educated at
University of Birmingham, England and at London Business School where she
received her MBA. Ms. Ko has over 13 years of experience working with Far
East Asian equities. From 1982-1988, she worked at Save & Prosper Group
Ltd. as an investment manager. In 1988, Ms. Ko transferred to Robert
Fleming & Co. Ltd. In 1990, she was promoted to Director of Fleming
Investment Management Ltd. In 1992, she was promoted to Head of the
Pacific Region Portfolios Group where she supervised a team of 5 with
responsibility for over $1.5 billion in assets under management. Ms. Ko
joined LGM in 1995.
Under its investment advisory agreement with the Portfolio, the
Adviser receives a monthly advisory fee of 0.0625% (equivalent to 0.75%
annually) of the average daily net assets of the Portfolio up to $500
million, which fee declines at intervals above $500 million.
The Adviser also furnishes for the use of the Portfolio office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Portfolio. The Adviser places the
portfolio securities transactions of the Portfolio with many broker-dealer
firms and uses its best efforts to obtain execution of such transactions
at prices which are advantageous to the Portfolio and at reasonably
competitive commission rates. Subject to the foregoing, the Adviser may
consider sales of shares of certain investment companies sponsored by the
Adviser or Eaton Vance as a factor in the selection of broker-dealer firms
to execute portfolio transactions.
Administrator. Eaton Vance Management ("Eaton Vance") acts as
the administrator of the Portfolio. Eaton Vance, its affiliates and its
predecessor companies have been managing assets of individuals and
institutions since 1924 and managing investment companies since 1931.
Eaton Vance acts as investment adviser to investment companies and various
individual and institutional clients with assets under management of
approximately $16 billion. Eaton Vance is a wholly-owned subsidiary of
Eaton Vance Corp., a publicly held holding company. Eaton Vance Corp.,
through its subsidiaries and affiliates, engages in investment management
and marketing activities, oil and gas operations, real estate investment,
consulting and management, and development of precious metals properties.
Eaton Vance Corp. also owns 24% of the Class A shares issued by LGM.
Acting under the general supervision of the Portfolio's Board of
Trustees, Eaton Vance administers the business affairs of the Portfolio.
Eaton Vance's services include monitoring and providing reports to the
Trustees of the Portfolio concerning the investment performance achieved
by the Adviser, recordkeeping, preparation and filing of documents
required to comply with federal and state securities laws, supervising the
activities of the custodian of the Portfolio, providing assistance in
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connection with Trustees' and investors' meetings, and other
administrative services necessary to conduct the business of the
Portfolio. Eaton Vance does not provide any investment management or
advisory services to the Portfolio. Eaton Vance also furnishes for the
use of the Portfolio office space and all necessary office facilities,
equipment and personnel for administering the business affairs of the
Portfolio.
Under its administration agreement with the Portfolio, Eaton
Vance receives a monthly fee in the amount of 1/48 of 1% (equal to 0.25%
annually) of the average daily net assets of the Portfolio up to $500
million, which fee declines at intervals above $500 million. The combined
advisory and administration fees payable by the Portfolio are higher than
similar fees charged by most other investment companies.
The Portfolio will be responsible for all of its costs and
expenses not expressly stated to be payable by the Adviser under the
investment advisory agreement or by Eaton Vance under the administration
agreement. Such costs and expenses to be borne by the Portfolio include,
without limitation: custody fees and expenses, including those incurred
for determining net asset value and keeping accounting books and records;
expenses of pricing and valuation services; membership dues in investment
company organizations; brokerage commissions and fees; fees and expenses
of registering under the securities laws; expenses of reports to
investors; proxy statements, and other expenses of investors' meetings;
insurance premiums, printing and mailing expenses; interest, taxes and
corporate fees; legal and accounting expenses; compensation and expenses
of Trustees not affiliated with Eaton Vance or the Adviser; and investment
advisory and administration fees. The Portfolio will also bear expenses
incurred in connection with litigation in which the Portfolio is a party
and any legal obligation to indemnify its officers and Trustees with
respect thereto.
Item 6. Capital Stock and Other Securities
The Portfolio is organized as a trust under the laws of the State
of New York and intends to be treated as a partnership for federal tax
purposes. Under the Declaration of Trust, the Trustees are authorized to
issue interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value.
Investors in the Portfolio will each be liable for all obligations of the
Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance exists and the Portfolio itself is unable
to meet its obligations.
The Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of any investor in the
Portfolio unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio,
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by written instrument consented to by all investors, agree to continue the
business of the Portfolio. This provision is consistent with treatment of
the Portfolio as a partnership for federal income tax purposes.
Investments in the Portfolio have no preemptive or conversion
rights and are fully paid and nonassessable by the Portfolio, except as
set forth above. The Portfolio is not required and has no current
intention to hold annual meetings of investors, but the Portfolio 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. Changes
in fundamental policies or restrictions will be submitted to investors for
approval. The investment objective and all nonfundamental investment
policies of the Portfolio may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio.
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. Any Trustee may be removed by the
affirmative vote of two-thirds of the interests in the Portfolio. Upon
liquidation of the Portfolio, investors would be entitled to share pro
rata in the net assets of the Portfolio available for distribution to
investors.
Information regarding pooled investment entities or funds that
invest in the Portfolio may be obtained by contacting Eaton Vance
Distributors, Inc. ("EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of a larger investor in the Portfolio. For example, if a
large investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may hold fewer securities, resulting
in increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured funds
that have large or institutional investors.
As of January 31, 1996, Eaton Vance Management controlled the
Portfolio by virtue of owning 99.99% of the outstanding voting interests
in the Portfolio.
The Portfolio's net asset value is determined each day on which
the New York Stock Exchange (the "Exchange") is open for trading
("Portfolio 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 each Portfolio Business Day as of the close of regular trading on
the Exchange (normally 4:00 p.m., New York time) (the "Portfolio Valuation
Time").
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each Portfolio Business Day as of the
Portfolio Valuation Time. The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
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Portfolio by the percentage, determined on the prior Portfolio Business
Day, which represents that investor's share of the aggregate interests in
the Portfolio on such prior day. Any additions or withdrawals for the
current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interests in the Portfolio will then be
recomputed as the percentage equal to a fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business 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 on the current Portfolio
Business Day, and (ii) the denominator of which is the aggregate net asset
value of the Portfolio as of the Portfolio Valuation Time on the prior
Portfolio Business 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 on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
The Portfolio will allocate at least annually among its investors
its net investment income, net realized capital gains, and any other items
of income, gain, loss, deduction or credit. The Portfolio's net
investment income consists of all income accrued on the Portfolio's
assets, less all actual and accrued expenses of the Portfolio, determined
in accordance with generally accepted accounting principals.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any federal income tax. (See Part B,
Item 20.) However, each investor in the Portfolio will take into account
its allocable share of the Portfolio's ordinary income and capital gain in
determining its federal income tax liability. The determination of each
such share will be made in accordance with the governing instruments of
the Portfolio, which are intended to comply with the requirements of the
Code and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and
distributions will be managed in such a way that an investor in the
Portfolio that seeks to qualify as a regulated investment company under
the Code will be able to satisfy the requirements for such qualification.
Item 7. Purchase of Interests in the Portfolio
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio may be made without a sales load.
All investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not determine its net
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asset value on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
Portfolio's net asset value is computed in accordance with procedures
established by the Portfolio's Trustees.
The Portfolio's net asset value is determined as of the close of
regular trading on the Exchange by Investors Bank & Trust Company (as
custodian and agent for the Portfolio) based on market or fair value in
the manner authorized by the Portfolio's Trustees, with special provisions
for valuing debt obligations, short-term investments, foreign securities,
direct investments, hedging instruments, and assets not having readily
available market quotations, if any. The net asset value is computed by
subtracting the liabilities of the Portfolio from the value of its total
assets. For further information regarding the valuation of the
Portfolio's assets, see Part B.
There is no minimum initial or subsequent investment in the
Portfolio. The Portfolio reserves the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is EVD. The principal
business address of EVD is 24 Federal Street, Boston, Massachusetts 02210.
EVD receives no compensation for serving as the placement agent for the
Portfolio.
Item 8. Redemption or Decrease of Interest
An investor in the Portfolio may withdraw all of (redeem) or any
portion of (decrease) its interest in the Portfolio if a withdrawal
request in proper form is furnished by the investor to the Portfolio. All
withdrawals will be effected as of the next Portfolio Valuation Time. The
proceeds of a withdrawal will be paid by the Portfolio normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay the proceeds of a
withdrawal (whether a redemption or decrease) by a distribution in kind of
portfolio 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 interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
converting the securities to cash. The Portfolio has filed with the
Commission a notification of election on Form N-18F-1 committing to pay in
cash all requests for withdrawals by any investor, limited in amount with
respect to such investor during any 90-day period to the lesser of (a)
$250,000 or (b) 1% of the net asset value of the Portfolio at the
beginning of such period.
Investments in the 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
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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, or
during any other period permitted by order of the Commission for the
protection or investors.
Item 9. Pending Legal Proceedings
Not applicable.
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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 Portfolio . . . . . . . . . . . . . . . . B-9
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . B-13
Investment Advisory and Other Services . . . . . . . . . . . B-13
Brokerage Allocation and Other Practices . . . . . . . . . . B-17
Capital Stock and Other Securities . . . . . . . . . . . . . B-19
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . . . B-21
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . B-22
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . B-24
Calculations of Performance Data . . . . . . . . . . . . . . B-24
Financial Statements . . . . . . . . . . . . . . . . . . . . B-25
Appendix - Asian Region Countries . . . . . . . . . . . . . a-1
Item 12. General Information and History
The Portfolio has no prior history.
Item 13. Investment Objectives and Policies
Part A contains additional information about the investment
objective and policies of Asian Small Companies Portfolio (the
"Portfolio"). This Part B should be read in conjunction with Part A.
Capitalized terms used in this Part B and not otherwise defined have the
meanings given them in Part A.
Foreign Investments. Investing in securities issued by companies whose
principal business activities are outside the United States may involve
significant risks not present in domestic investments. For example, there
is generally less publicly available information about foreign companies,
particularly those not subject to the disclosure and reporting
requirements of the U.S. securities laws. Foreign issuers are generally
not bound by uniform accounting, auditing, and financial reporting
requirements and standards of practice comparable to those applicable to
domestic issuers. Investments in foreign securities 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 that could affect such investments.
Further, economies of particular countries or areas of the world may
differ favorably or unfavorably from the economy of the United States. It
is anticipated that in most cases the best available market for foreign
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<PAGE>
securities will be on exchanges or in over-the-counter markets located
outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. companies. In addition, foreign brokerage
commissions are generally higher than commissions on securities traded in
the United States and may be non-negotiable. In general, there is less
overall governmental supervision and regulation of foreign securities
markets, broker-dealers, and issuers than in the United States.
Physical delivery of securities in small lots generally is
required in India and a shortage of vault capacity and trained personnel
has existed among qualified custodial Indian banks. The Portfolio may be
unable to sell securities where the registration process is incomplete and
may experience delays in receipt of dividends. If trading volume is
limited by operational difficulties, the ability of the Portfolio to
invest its assets may be impaired. Settlement of securities transactions
in the Indian subcontinent may be delayed and is generally less frequent
than in the United States, which could affect the liquidity of the
Portfolio's assets. In addition, disruptions due to work stoppages and
trading improprieties in these securities markets have caused such markets
to close. If extended closings were to occur in stock markets where the
Portfolio was heavily invested, the Portfolio's ability to redeem
interests could become correspondingly impaired.
Foreign Currency Transactions. Because investments in companies whose
principal business activities are located outside of the United States
will frequently involve currencies of foreign countries, and because
assets of the Portfolio may temporarily be held in bank deposits in
foreign currencies during the completion of investment programs, the value
of the assets of the Portfolio as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency exchange rates can also be
effected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or
political developments in the U.S. or abroad. The Portfolio may conduct
its foreign currency exchange transactions on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market or
through entering into swaps, forward contracts, options or futures on
currencies. In spot transactions, foreign exchange dealers do not charge
a fee for conversion, but 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 foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange
should the Portfolio desire to resell that currency to the dealer.
Currency Swaps. Currency swaps require maintenance of a segregated
account as described under "Asset Coverage for Derivative Investments"
below. The Portfolio will not enter into any currency swap unless the
credit quality of the unsecured senior debt or the claims-paying ability
of the other party thereto is considered to be investment grade by Lloyd
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<PAGE>
George Investment Management (Bermuda) Limited (the "Adviser"). If there
is a default by the other party to such a transaction, the Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid in comparison with
the markets for other similar instruments that are traded in the interbank
market.
Forward Foreign Currency Exchange Transactions. The Portfolio may enter
into forward foreign currency exchange contracts in several circumstances.
First, when the Portfolio enters into a contract for the purchase or sale
of a security denominated in a foreign currency, or when the Portfolio
anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Portfolio may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for the purchase or sale, for a fixed
amount of dollars, of the amount of foreign currency involved in the
underlying transactions, the Portfolio will attempt to protect itself
against an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which
the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or
received.
Additionally, when management of the Portfolio believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating
the value of some or all of the securities held by the Portfolio
denominated in such foreign currency. The precise matching of the forward
contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of those securities between the date on which the contract is
entered into and the date on which it matures. The precise projection of
short-term currency market movements is not possible, and short-term
hedging provides a means of fixing the dollar value of only a portion of
the Portfolio's foreign assets.
Special Risks Associated With Currency Transactions. Transactions in
forward contracts, as well as futures and options on foreign currencies,
are subject to the risk of governmental actions affecting trading in or
the prices of currencies underlying such contracts, which could restrict
or eliminate trading and could have a substantial adverse effect on the
value of positions held by the Portfolio. In addition, the value of such
positions could be adversely affected by a number of other complex
political and economic factors applicable to the countries issuing the
underlying currencies.
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<PAGE>
Furthermore, unlike trading in most other types of instruments,
there is no systematic reporting of last sale information with respect to
the foreign currencies underlying forward contracts, futures contracts and
options. As a result, the available information on which the Portfolio's
trading systems will be based may not be as complete as the comparable
data on which the Portfolio makes investment and trading decisions in
connection with securities and other transactions. Moreover, because the
foreign currency market is a global, twenty-four hour market, events could
occur on that market which will not be reflected in the forward, futures
or options markets until the following day, thereby preventing the
Portfolio from responding to such events in a timely manner.
Settlements of over-the-counter forward contracts or of the
exercise of foreign currency options generally must occur within the
country issuing the underlying currency, which in turn requires parties to
such contracts to accept or make delivery of such currencies in conformity
with any United States or foreign restrictions and regulations regarding
the maintenance of foreign banking relationships, fees, taxes or other
charges.
Unlike currency futures contracts and exchange-traded options,
options on foreign currencies and forward contracts are not traded on
contract markets regulated by the Commodity Futures Trading Commission
(the "CFTC") or (with the exception of certain foreign currency options)
the Securities and Exchange Commission (the "SEC" or the "Commission").
To the contrary, such instruments are traded through financial
institutions acting as market-makers. (Foreign currency options are also
traded on the Philadelphia Stock Exchange subject to SEC regulation). In
an over-the-counter trading environment, many of the protections
associated with transactions on exchanges will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount
could be lost. Moreover, an option writer could lose amounts
substantially in excess of its initial investment due to the margin and
collateral requirements associated with such option positions. Similarly,
there is no limit on the amount of potential losses on forward contracts
to which the Portfolio is a party.
In addition, over-the-counter transactions can only be entered
into with a financial institution willing to take the opposite side, as
principal, of the Portfolio's position unless the institution acts as
broker and is able to find another counterparty willing to enter into the
transaction with the Portfolio. If no such counterparty is available, it
will not be possible to enter into a desired transaction. There also may
be no liquid secondary market in the trading of over-the-counter
contracts, and the Portfolio may be unable to close out options purchased
or written, or forward contracts entered into, until their exercise,
expiration or maturity. This in turn could limit the Portfolio's ability
to realize profits or to reduce losses on open positions and could result
in greater losses.
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<PAGE>
Furthermore, over-the-counter transactions are not backed by the
guarantee of an exchange's clearing corporation. The Portfolio will
therefore be subject to the risk of default by, or the bankruptcy of, the
financial institution serving as its counterparty. One or more of such
institutions also may decide to discontinue its role as market-maker in a
particular currency, thereby restricting the Portfolio's ability to enter
into desired hedging transactions. The Portfolio will enter into
over-the-counter transactions only with parties whose creditworthiness has
been reviewed and found satisfactory by the Adviser.
The purchase and sale of exchange-traded foreign currency
options, however, are subject to the risks of the availability of a liquid
secondary market described above, as well as the risks regarding adverse
market movements, margining of options written, the nature of the foreign
currency market, possible intervention by governmental authorities and the
effect of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise and
settlement of such options must be made exclusively through the Options
Clearing Corporation ("OCC"), which has established banking relationships
in applicable foreign countries for this purpose. As a result, the OCC
may, if it determines that foreign governmental restrictions or taxes
would prevent the orderly settlement of foreign currency option exercises,
or would result in undue burdens on the OCC or its clearing member, impose
special procedures for exercise and settlement, such as technical changes
in the mechanics of delivery of currency, the fixing of dollar settlement
prices or prohibitions on exercise.
Risks Associated with Derivative Instruments. Entering into a derivative
instrument involves a risk that the applicable market will move against
the Portfolio's position and that the Portfolio will incur a loss. For
derivative instruments other than purchased options, this loss may exceed
the amount of the initial investment made or the premium received by the
Portfolio. Derivative instruments may sometimes increase or leverage the
Portfolio's exposure to a particular market risk. Leverage enhances the
Portfolio's exposure to the price volatility of derivative instruments it
holds. The Portfolio's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instruments and the hedged asset. Imperfect correlation may be
caused by several factors, including temporary price disparities among
trading markets for the derivative instrument, the assets underlying the
derivative instrument and the Portfolio assets. Over-the-counter ("OTC")
derivative instruments involve an enhanced risk that the issuer or
counterparty will fail to perform its contractual obligations. Some
derivative instruments are not readily marketable or may become illiquid
under adverse market conditions. In addition, during periods of market
volatility, a commodity exchange may suspend or limit trading in an
exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. Commodity exchanges may also
establish daily limits on the amount that the price of a futures contract
or futures option can vary from the previous day's settlement price. Once
the daily limit is reached, no trades may be made that day at a price
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<PAGE>
beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses. The staff of the Commission takes the
position that purchased OTC options, and assets used as cover for written
OTC options, are subject to the Portfolio's 15% limit on illiquid
investments. However, with respect to options written with primary
dealers in U.S. government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula price. The
Portfolio's ability to terminate OTC derivative instruments may depend on
the cooperation of the counterparties to such contracts. For thinly
traded derivative instruments, the only source of price quotations may be
the selling dealer or counterparty. In addition, certain provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), limit the
extent to which the Portfolio may purchase and sell derivative
instruments. The Portfolio will engage in transactions in futures
contracts and related options only to the extent such transactions are
consistent with the requirements of the Code for maintaining the
qualification of each of the Portfolio's investment company investors as a
regulated investment company for federal income tax purposes. See "Tax
Status."
Asset Coverage for Derivative Instruments. Transactions using forward
contracts, futures contracts and options (other than options that the
Portfolio has purchased) expose the Portfolio to an obligation to another
party. The Portfolio will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities,
currencies, or other options or futures contracts, or (2) cash,
receivables and short-term debt securities with a value sufficient at all
times to cover its potential obligations not covered as provided in (1)
above. The Portfolio will comply with Commission guidelines regarding
cover for these instruments and, if the guidelines so require, set aside
cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed
amount.
Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding forward contract, futures
contract or option is open, unless they are replaced with other
appropriate assets. As a result, the commitment of a large portion of the
Portfolio's assets used as cover or held in segregated accounts could
impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
Repurchase Agreements. Under a repurchase agreement the Portfolio buys a
security at one price and simultaneously promises to sell that same
security back to the seller at a higher price. At no time will the
Portfolio commit more than 15% of its net assets to repurchase agreements
that mature in more than seven days and other illiquid securities. The
Portfolio's repurchase agreements will provide that the value of the
collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on
the repurchase agreement, and will be marked to market daily.
B-6
<PAGE>
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements. Under a reverse repurchase agreement, the
Portfolio temporarily transfers possession of a portfolio instrument to
another party, such as a bank or broker-dealer, in return for cash. At
the same time, the Portfolio agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, which reflects an
interest payment. The Portfolio expects that it will enter into reverse
repurchase agreements when it is able to invest the cash so acquired at a
rate higher than the cost of the agreement, which would increase the
income earned by the Portfolio. The Portfolio could also enter into
reverse repurchase agreements as a means of raising cash to satisfy
redemption requests without the necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement,
any fluctuations in the market value of either the securities transferred
to another party or the securities in which the proceeds may be invested
would affect the market value of the Portfolio's assets. As a result,
such transactions may increase fluctuations in the market value of the
Portfolio's assets. While there is a risk that large fluctuations in the
market value of the Portfolio's assets could affect the Portfolio's net
asset value, this risk is not significantly increased by entering into
reverse repurchase agreements, in the opinion of the Adviser. Because
reverse repurchase agreements may be considered to be the practical
equivalent of borrowing funds, they constitute a form of leverage. If the
Portfolio reinvests the proceeds of a reverse repurchase agreement at a
rate lower than the cost of the agreement, entering into the agreement
will lower the Portfolio's yield.
At all times that a reverse repurchase agreement is outstanding,
the Portfolio will maintain cash or high grade liquid securities in a
segregated account at its custodian bank with a value at least equal to
its obligation under the agreement. Securities and other assets held in
the segregated account may not be sold while the reverse repurchase
agreement is outstanding, unless other suitable assets are substituted.
While the Adviser does not consider reverse repurchase agreements to
involve a traditional borrowing of money, reverse repurchase agreements
will be included within the aggregate limitation on "borrowings" contained
in the Portfolio's investment restriction (1) set forth below.
Portfolio Turnover. The Portfolio cannot accurately predict its portfolio
turnover rate, but it is anticipated that the annual turnover rate
generally will not exceed 100% (excluding turnover of securities having a
maturity of one year or less). A 100% annual turnover rate would occur,
for example, if all the securities held in the portfolio were replaced
once in a period of one year. A high turnover rate (100% or more)
necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes
that a transaction including all costs will help in achieving its
investment objective either by increasing income or by enhancing the
Portfolio's net asset value. High portfolio turnover may also result in
the realization of substantial net short-term capital gains.
B-7
<PAGE>
Lending Portfolio Securities. If the Adviser decides to make securities
loans, the Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the SEC, such loans are required to be
secured continuously by collateral in cash, cash equivalents or U.S.
Government securities held by the Portfolio's custodian and maintained on
a current basis at an amount at least equal to the market value of the
securities loaned, which will be marked to market daily. Cash equivalents
include certificates of deposit, commercial paper and other short-term
money market instruments. The financial condition of the borrower will be
monitored by the Adviser on an ongoing basis. The Portfolio would
continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and would also receive a fee, or all
or a portion of the interest on investment of the collateral. The
Portfolio would have the right to call a loan and obtain the securities
loaned at any time on up to five business days' notice. The Portfolio
would not have the right to vote any securities having voting rights
during the existence of a loan, but could call the loan in anticipation of
an important vote to be taken among holders of the securities or the
giving or withholding of their consent on a material matter affecting the
investment. If the Adviser decides to make securities loans, it is
intended that the value of the securities loaned would not exceed one-
third of the Portfolio's total assets.
Investment Restrictions
Whenever an investment policy or investment restriction set forth
in Part A or this Part B states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall be
determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, assets or other
circumstances, other than a subsequent rating change below investment
grade made by a rating service, will not compel the Portfolio to dispose
of such security or other asset.
The Portfolio has adopted the following investment restrictions
which may not be changed without the approval by the holders of a
"majority of the outstanding voting securities" of the Portfolio, which as
used in this Part B means the lesser of (a) 67% or more of the outstanding
voting securities of the Portfolio present or represented by proxy at a
meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or
(b) 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 Investment Company Act of 1940 (the "1940 Act"). The
Portfolio may not:
(1) Borrow money or issue senior securities except as
permitted by the Investment Company Act of 1940;
B-8
<PAGE>
(2) Purchase any securities on margin (but the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities);
(3) Underwrite securities of other issuers;
(4) Invest in real estate including interests in real estate
limited partnerships (although it may purchase and sell securities which
are secured by real estate and securities of companies which invest or
deal in real estate) or in commodities or commodity contacts for the
purchase or sale of physical commodities;
(5) Make loans to any person, except by (a) the acquisition
of debt securities and making portfolio investments, (b) entering into
repurchase agreements, and (c) lending portfolio securities;
(6) With respect to 75% of its total assets, invest more than
5% of its total assets (taken at current value) in the securities of any
one issuer, or invest in more than 10% of the outstanding voting
securities of any one issuer, except obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and except
securities of other investment companies; or
(7) Concentrate its investments in any particular industry,
but, if deemed appropriate for the Portfolio's objective, up to 25% of the
value of its assets may be invested in securities of companies in any one
industry (although more than 25% may be invested in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities).
Notwithstanding the investment policies and restrictions of the
Portfolio, the Portfolio may invest part of its assets in another
investment company consistent with the 1940 Act.
The Portfolio has adopted the following investment policies which
may be changed without investor approval. The Portfolio may not invest
more than 15% of its net assets in investments which are not readily
marketable, including restricted securities and repurchase agreements with
a maturity longer than seven days. Restricted securities for the purposes
of this limitation do not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 and commercial paper issued
pursuant to Section 4(2) of said Act that the Board of Trustees of the
Portfolio, or its delegate, determines to be liquid. Factors taken into
account in reaching liquidity decisions include, but are not limited to:
(i) the frequency of trading in the security; (ii) the number of dealers
who provide quotes for the security; (ii) the number of dealers who have
undertaken to make a market in the security; (iv) the number of other
potential purchasers; and (v) the nature of the security and how trading
is effected (e.g., the time needed to sell the security, how offers are
solicited, and the mechanics of transfer). The Adviser will monitor the
liquidity of the Portfolio's securities and report periodically on such
decisions to the Board of Trustees of the Portfolio. The Portfolio does
not intend to invest in Rule 144A securities or make short sales of
B-9
<PAGE>
securities during the coming year. Except for obligations issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities, the Portfolio will not knowingly purchase a security
issued by a company (including predecessors) with less than three years
operating history (unless such security is rated at least B or a
comparable rating at the time of purchase by at least one nationally
recognized rating service) if, as a result of such purchase, more than 5%
of the Portfolio's total assets (taken at current value) would be invested
in such securities. The Portfolio will not purchase warrants if, as a
result of such purchase, more than 5% of the Portfolio's net assets (taken
at current value) would be invested in warrants, and the value of such
warrants which are not listed on the New York or American Stock Exchange
may not exceed 2% of the Portfolio's net assets; this policy does not
apply to or restrict warrants acquired by the Portfolio in units or
attached to securities, inasmuch as such warrants are deemed to be without
value. The Portfolio will not purchase any securities if at the time of
such purchase, permitted borrowings under investment restriction (1) above
exceed 5% of the value of the Portfolio's total assets. The Portfolio will
not purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development
programs. The Portfolio will not purchase or retain in its portfolio any
securities issued by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the Portfolio or is a
member, officer, director or trustee of any investment adviser of the
Portfolio, 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).
In order to permit the sale in certain states of shares of
certain open-end investment companies that are investors in the Portfolio,
the Portfolio may make commitments more restrictive than the policies
described above. Should the Portfolio determine that any such commitment
is no longer in the best interests of the Portfolio and its investors, it
will revoke such commitment.
Item 14. Management of the Portfolio
The Portfolio's Trustees and officers are listed below. Except
as indicated, each individual has held the office shown or other offices
in the same company for the last five years. The business address of the
Adviser is 3808 One Exchange Square, Central, Hong Kong. Those Trustees
who are "interested persons" of the Portfolio, the Adviser, Eaton Vance,
Boston Management and Research ("BMR"), Eaton Vance Corp. ("EVC") or Eaton
Vance, Inc. (" EV") as defined in the 1940 Act by virtue of their
affiliation with any one or more of the Portfolio, the Adviser, Eaton
Vance, BMR, EVC or EV, are indicated by an asterisk (*).
TRUSTEES OF THE PORTFOLIO
B-10
<PAGE>
JAMES B. HAWKES (54), Vice President and Trustee.*
Executive Vice President of Eaton Vance, BMR, EVC and EV, and a Director
of EVC and EV. Director of Lloyd George Management (B.V.I.) Limited.
Director or Trustee and officer of various investment companies managed by
Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
DONALD R. DWIGHT (64), Trustee.
President of Dwight Partners, Inc. (a corporate relations and
communications company) founded in 1988; Chairman of the Board of
Newspapers of New England, Inc. since 1983. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
SAMUEL L. HAYES, III (60), Trustee.
Jacob H. Schiff Professor of Investment Banking, Harvard University
Graduate School of Business Administration. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134.
NORTON H. REAMER (60), Trustee.
President and Director, United Asset Management Corporation, a holding
company owning institutional investment management firms. Chairman,
President and Director, UAM Funds (mutual funds). Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (69), Trustee.
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee.
Investment Adviser and Consultant. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE PORTFOLIO
HON. ROBERT LLOYD GEORGE (42), President.
Chairman and Chief Executive Officer of Lloyd George Management (B.V.I.)
Limited. Chairman and Chief Executive Officer of the Adviser. Managing
Director of Indosuez Asia Investment Services, Ltd. from 1984 to 1991.
Address: 3808 One Exchange Square, Central, Hong Kong.
SCOBIE DICKINSON WARD (29), Vice President, Assistant Secretary and
Assistant Treasurer.
Director of Lloyd George Management (B.V.I.) Limited. Director of the
Adviser. Investment Manager of Indosuez Asia Investment Services, Ltd.
from 1990 to 1991.
B-11
<PAGE>
Address: 3808 One Exchange Square, Central, Hong Kong.
WILLIAM WALTER RALEIGH KERR (44), Vice President, Secretary and Assistant
Treasurer.
Director of Lloyd George Management (B.V.I.) Limited. Director, Finance
Director and Chief Operating Officer of the Adviser.
Address: 3808 One Exchange Square, Central, Hong Kong.
JAMES L. O'CONNOR (50), Vice President and Treasurer.
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
THOMAS OTIS (63), Vice President and Assistant Secretary.
Vice President and Secretary of Eaton Vance, BMR, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
JANET E. SANDERS (60), Assistant Secretary.
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
WILLIAM J. AUSTIN, JR. (44), Assistant Treasurer.
Assistant Vice President of Eaton Vance, BMR and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
A. JOHN MURPHY (33), Assistant Secretary.
Assistant Vice President of Eaton Vance, BMR and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor,
The Boston Company (1991-1993) and Registration Specialist, Fidelity
Management & Research Co. (1986-1991). Officer of various investment
companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
ERIC G. WOODBURY (38), Assistant Secretary.
Vice President of Eaton Vance, BMR and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer
of various investment companies managed by Eaton Vance or BMR.
Address: Eaton Vance Management, 24 Federal Street, Boston, Massachusetts
02110.
The fees and expenses of those Trustees of the Portfolio who are
not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Portfolio. (The Trustees of the Portfolio who are members
of the Eaton Vance organization receive no compensation from the
B-12
<PAGE>
Portfolio). For the fiscal year ending August 31, 1996, it is estimated
that the noninterested Trustees of the Portfolio will receive the
following compensation in their capacities as Trustees of the Portfolio
and, during the year ended December 31, 1995, the noninterested Trustees
of the Portfolio earned the following compensation in their capacities as
Trustees of the funds in the Eaton Vance fund complex(1):
Estimated
Aggregate
Compensation Total Compensation
Name from Portfolio from Fund Complex
Donald R.
Dwight $80 $135,000(2)
Samuel L.
Hayes, III 80 150,000(3)
Norton H.
Reamer 80 135,000
John L.
Thorndike 80 140,000
Jack L.
Treynor 80 140,000
(1) The Eaton Vance fund complex consists of 219 registered
investment companies or series thereof.
(2) Includes $35,000 of deferred compensation.
(3) Includes $33,750 of deferred compensation.
Trustees of the Portfolio who are not affiliated with Eaton Vance
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his
deferred fees invested by the Portfolio in the shares of one or more funds
in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Plan will
have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the
services of any Trustee or obligate the Portfolio to pay any particular
level of compensation to the Trustee. The Portfolio is not a participant
in the Plan. The Portfolio does not have a retirement plan for its
Trustees.
The Adviser is a subsidiary of Lloyd George Management (B.V.I.)
Limited ("LGM"), which is ultimately controlled by the Hon. Robert J.D.
Lloyd George, President of the Portfolio and Chairman and Chief Executive
Officer of the Adviser. Mr. Hawkes is a Trustee and officer of the
Portfolio and an officer of the Portfolio's administrator.
B-13
<PAGE>
While the Portfolio is a New York trust, the Adviser, together
with Messrs. Lloyd George, Ward and Kerr, are not residents of the United
States, and substantially all of their respective assets may be located
outside of the United States. It may be difficult for investors to effect
service of process within the United States upon the individuals
identified above, or to realize judgments of courts of the United States
predicated upon civil liabilities of the Adviser and such individuals
under the federal securities laws of the United States. The Portfolio has
been advised that there is substantial doubt as to the enforceability in
the countries in which the Adviser and such individuals reside of such
civil remedies and criminal penalties as are afforded by the federal
securities laws of the United States.
The Portfolio's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved
because of their offices with the Portfolio, unless, as to liability to
the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect
to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Portfolio. In the case of settlement, such
indemnification will not be provided unless it has been determined by a
court or other body approving the settlement or other disposition, or by a
reasonable determination, based upon a review of readily available facts,
by vote of a majority of disinterested Trustees or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Item 15. Control Persons and Principal Holder of Securities
As of January 31, 1996, Eaton Vance Management controlled the
Portfolio by virtue of owning 99.99% of the outstanding voting interests
in the Portfolio.
Item 16. Investment Advisory and Other Services
Adviser. The Portfolio engages Lloyd George Investment
Management (Bermuda) Limited (the "Adviser") as its investment adviser
pursuant to an investment advisory agreement dated ________, 1996. As
investment adviser to the Portfolio, the Adviser manages the Portfolio's
investments, subject to the supervision of the Portfolio's Board of
Trustees. The Adviser is also responsible for effecting all security
transactions on behalf of the Portfolio, including the allocation of
principal transactions and portfolio brokerage and the negotiation of
commissions. See Item 17. Under the investment advisory agreement, the
Adviser is entitled to receive a monthly advisory fee computed by applying
the annual asset rate applicable to that portion of the average daily net
assets of the Portfolio throughout the month in each Category as indicated
below:
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<PAGE>
<TABLE>
<CAPTION>
Annual
Category Average Daily AssetRate
Net Assets
<S> <C> <C>
1 less than $500 million 0.75%
2 $500 million but less than $1 billion 0.70
3 $1 billion but less than $1.5 billion 0.65
4 $1.5 billion but less than $2 billion 0.60
5 $2 billion but less than $3 billion 0.55
6 $3 billion and over 0.50
</TABLE>
The directors of the Adviser are the Honourable Robert Lloyd
George, William Walter Raleigh Kerr, Scobie Dickinson Ward, M.F. Tang,
Peter Bubenzer and Judith Collis. The Hon. Robert J.D. Lloyd George is
Chairman and Chief Executive Officer of the Adviser and Mr. Kerr is an
officer of the Adviser. The business address of these individuals is
3808 One Exchange Square, Central, Hong Kong.
The Portfolio's investment advisory agreement with the Adviser
remains in effect until February 28, 1998; it may be continued from year
to year after February 28, 1998 so long as such continuance is approved at
least annually (i) by the vote of a majority of the Trustees of the
Portfolio who are not interested persons of the Portfolio cast in person
at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of
a majority of the outstanding voting securities of the Portfolio. The
agreement may be terminated at any time without penalty on sixty (60)
days' written notice by the Board of Trustees of the Portfolio or the
directors of the Adviser or by vote of the majority of the outstanding
voting securities of the Portfolio, and the agreement will terminate
automatically in the event of its assignment. The agreement provides that
the Adviser may render services to others. The agreement also provides
that, in the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties under the agreement on the
part of the Adviser, the Adviser shall not be liable to the Portfolio or
to any investor for any act or omission in the course of, or connected
with, rendering services or for any losses sustained in the purchase,
holding or sale of any security.
Administrator. See Item 5 in Part A for a description of the
services that Eaton Vance performs as the administrator of the Portfolio.
Under Eaton Vance's administration agreement with the Portfolio, Eaton
Vance receives a monthly administration fee computed by applying the
annual asset rate applicable to that portion of the average daily net
assets of the Portfolio throughout the month in each Category as indicated
below:
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<PAGE>
Annual
Category Average Daily Net Assets Asset Rate
1 less than $500 million 0.25%
2 $500 million but less than $1 billion 0.23333
3 $1 billion but less than $1.5 billion 0.21667
4 $1.5 billion but less than $2 billion 0.20
5 $2 billion but less than $3 billion 0.18333
6 $3 billion and over 0.16667
Eaton Vance's administration agreement with the Portfolio remains
in effect until February 28, 1998; it may be continued from year to year
after February 28, 1998 so long as such continuance is approved annually
by the vote of a majority of the Trustees of the Portfolio. The agreement
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party thereto, or by a vote of a
majority of the outstanding voting securities of the Portfolio. The
agreement will terminate automatically in the event of its assignment.
The agreement provides that, in the absence of Eaton Vance's willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties to the Portfolio under such agreement, Eaton Vance
will not be liable to the Portfolio or to any investor for any loss
incurred.
The Portfolio is responsible for all of its costs and expenses not
expressly stated to be payable by the Adviser under the investment
advisory agreement or by Eaton Vance under the administration agreement,
including, without implied limitation, (i) expenses of maintaining the
Portfolio and continuing its existence, (ii) registration of the Portfolio
under the 1940 Act, (iii) commissions, fees and other expenses connected
with the acquisition, holding and disposition of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and
redemption of interests in the Portfolio, (viii) expenses of registering
and qualifying the Portfolio and interests in the Portfolio under federal
and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and
for distributing the same to investors, and fees and expenses of
registering and maintaining registrations of the Portfolio and of the
Portfolio's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to investors and of
meetings of investors and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Portfolio
(including without limitation safekeeping for funds, securities and other
investments, keeping of books, accounts and records, and determination of
net asset values, book capital account balances and tax capital account
balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for
all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees
B-16
<PAGE>
of the Portfolio, (xvii) compensation and expenses of Trustees of the
Portfolio who are not members of the Adviser's organization, (xviii) the
administration fees or advisory fees payable by the Portfolio under any
administration or advisory agreement to which the Portfolio is a party,
and (xix) such nonrecurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of the Portfolio to indemnify its Trustees, officers and
investors with respect thereto.
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. BMR
is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and BMR are both
Massachusetts business trusts, and EV is the trustee of Eaton Vance and
BMR. The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M.
Dozier Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The
Directors of EVC consist of the same persons and John G.L. Cabot and Ralph
Z. Sorenson. Mr. Clay is chairman and Mr. Gardner is president and chief
executive officer of EVC, Eaton Vance, BMR and EV. All of the issued and
outstanding shares of Eaton Vance and of EV are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares
of the outstanding Voting Common Stock of EVC are deposited in a Voting
Trust which expires December 31, 1996, the Voting Trustees of which are
Messrs. Brigham, Clay, Gardner, Hawkes and Rowland. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All
of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of Eaton Vance and BMR who are also
officers and Directors of EVC and EV. As of December 31, 1995, Messrs.
Clay, Gardner and Hawkes each owned 24% of such voting trust receipts and
Messrs. Rowland and Brigham owned 15% and 13%, respectively, of such
voting trust receipts. Messrs. Hawkes and Otis are officers and/or
Trustees of the Portfolio and are members of the EVC, Eaton Vance, BMR and
EV organizations. Messrs. Austin, Murphy, O'Connor and Woodbury and Ms.
Sanders are officers of the Portfolio and are members of the Eaton Vance,
BMR and EV organizations. Eaton Vance will receive the fees paid under
the administration agreement.
EVC and its affiliates and their officers and employees from time
to time have transactions with various banks, including the custodian of
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's
opinion that the terms and conditions of such transactions were not and
will not be influenced by existing or potential custodial or other
relationships between the Portfolio and such banks.
Eaton Vance owns all of the stock of Energex Energy Corporation,
which is engaged in oil and gas operations. In addition, Eaton Vance owns
all of the stock of Northeast Properties, Inc., which is engaged in real
estate investment, consulting and management. EVC owns all of the stock
of Fulcrum Management, Inc. and MinVen, Inc., which are engaged in the
development of precious metal properties. EVC also owns 24% of the Class
A shares issued by the parent of the Adviser. EVC, Eaton Vance, BMR and
EV may also enter into other businesses.
B-17
<PAGE>
Custodian. Investors Bank & Trust Company ("IBT"), 89 South
Street, Boston, Massachusetts, acts as custodian for the Portfolio. IBT
has the custody of all cash and securities of the Portfolio purchased in
the United States, maintains the Portfolio's general ledger, and computes
the daily net asset value of interests in the Portfolio. In such
capacities IBT attends to details in connection with the sale, exchange,
substitution, or transfer of, or other dealings with, the Portfolio's
investments, receives and disburses all funds, and performs various other
ministerial duties upon receipt of proper instructions from the Portfolio.
Portfolio securities, if any, purchased by the Portfolio in the
U.S. are maintained in the custody of IBT or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S. are
maintained in the custody of foreign banks and trust companies that are
members of IBT's Global Custody Network, or foreign depositories used by
such foreign banks and trust companies. Each of the domestic and foreign
custodial institutions holding portfolio securities has been approved by
the Board of Trustees of the Portfolio in accordance with regulations
under the 1940 Act.
IBT charges fees that are competitive within the industry. These
fees for the Portfolio relate to: (1) custody services based upon a
percentage of the market values of Portfolio securities; (2) bookkeeping
and valuation services provided at an annual rate; (3) activity charges,
primarily the result of the number of portfolio transactions; and (4)
reimbursement of out-of-pocket expenses. These fees are then reduced by a
credit for cash balances of the Portfolio at the custodian equal to 75% of
the 91-day U.S. Treasury Bill auction rate applied to the Portfolio's
average daily collected balances. Landon T. Clay, a Director of EVC and
an officer, Trustee or Director of other entities in the Eaton Vance
organization, owns approximately 13% of the voting stock of Investors
Financial Services Corp., the holding company parent of IBT. Management
believes that such ownership does not create an affiliated person
relationship between the Portfolio and IBT under the 1940 Act.
Independent Certified Public Accountants. Deloitte & Touche LLP,
125 Summer Street, Boston, Massachusetts, are the independent certified
public accountants of the Portfolio, providing audit services, tax return
preparation, and assistance and consultation with respect to the
preparation of filings with the SEC.
Item 17. Brokerage Allocation and Other Practices
Decisions concerning the execution of portfolio security
transactions, including the selection of the market and the broker-dealer
firm, are made by the Adviser.
The Adviser places the portfolio security transactions of the
Portfolio and of certain other accounts managed by the Adviser for
execution with many firms. The Adviser uses its best efforts to obtain
execution of portfolio transactions at prices which are advantageous to
the Portfolio and (when a disclosed commission is being charged) at
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reasonably competitive commission rates. In seeking such execution, the
Adviser will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors
including, without limitation, the size and type of the transaction, the
general execution and operational capabilities of the broker-dealer, the
nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction,
the reputation, reliability, experience and financial condition of the
broker-dealer, the value and quality of the services rendered by the
broker-dealer in other transactions, and the reasonableness of the
commission, if any. Transactions on stock exchanges and other agency
transactions involve the payment by the Portfolio of negotiated brokerage
commissions. Such commissions vary among different broker-dealer firms,
and a particular broker-dealer may charge different commissions according
to such factors as the difficulty and size of the transaction and the
volume of business done with such broker-dealer. Transactions in foreign
securities usually involve the payment of fixed brokerage commissions,
which are generally higher than those in the United States. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid or received by the Portfolio
usually includes an undisclosed dealer markup or markdown. In an
underwritten offering the price paid by the Portfolio includes a disclosed
fixed commission or discount retained by the underwriter or dealer.
Although commissions paid on portfolio transactions will, in the judgment
of the Adviser, be reasonable in relation to the value of the services
provided, commissions exceeding those which another firm might charge may
be paid to broker-dealers who were selected to execute transactions on
behalf of the Portfolio and the Adviser's other clients in part for
providing brokerage and research services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of
1934, a broker or dealer who executes a portfolio transaction on behalf of
the Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such commission
was reasonable in relation to the value of the brokerage and research
services provided. This determination may be made on the basis of either
that particular transaction or on the basis of the overall
responsibilities which the Adviser and its affiliates have for accounts
over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar
value on the brokerage and research services provided or to determine what
portion of the commission should be related to such services. Brokerage
and research services may include advice as to the value of securities,
the advisability of investing in, purchasing, or selling securities, and
the availability of securities or purchasers or sellers of securities;
furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and
settlement); and the "Research Services" referred to in the next
paragraph.
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It is a common practice in the investment advisory industry for
the advisers of investment companies, institutions and other investors to
receive research, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealers which execute portfolio transactions for the clients
of such advisers and from third parties with which such broker-dealers
have arrangements. Consistent with this practice, the Adviser may receive
Research Services from broker-dealer firms with which the Adviser places
the portfolio transactions of the Portfolio and from third parties with
which these broker-dealers have arrangements. These Research Services may
include such matters as general economic and market reviews, industry and
company reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
data bases and services. Any particular Research Service obtained through
a broker-dealer may be used by the Adviser in connection with client
accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of
value to the Adviser in rendering investment advisory services to all or a
significant portion of its clients, or may be relevant and useful for the
management of only one client's account or of a few clients' accounts, or
may be useful for the management of merely a segment of certain clients'
accounts, regardless of whether any such account or accounts paid
commissions to the broker-dealer through which such Research Service was
obtained. The advisory fee paid by the Portfolio is not reduced because
the Adviser receives such Research Services. The Adviser evaluates the
nature and quality of the various Research Services obtained through
broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which the
Adviser believes are useful or of value to it in rendering investment
advisory services to its clients.
Subject to the requirement that the Adviser shall use its best
efforts to seek to execute portfolio security transactions of the
Portfolio at advantageous prices and at reasonably competitive commission
rates or spreads, the Adviser is authorized to consider as a factor in the
selection of any broker-dealer firm with whom portfolio orders may be
placed the fact that such firm has sold or is selling shares of investment
companies sponsored by the Adviser or its affiliates or shares of certain
investment companies sponsored by Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities
Dealers, Inc., which rule provides that no firm which is a member of the
Association shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the
basis of brokerage commissions received or expected by such firm from any
source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by the Adviser or its
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affiliates. The Adviser will attempt to allocate equitably portfolio
transactions among the Portfolio and the portfolios of its other
investment accounts whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be
considered are the respective investment objectives of the Portfolio and
such other accounts, the relative size of portfolio holdings of the same
or comparable securities, the availability of cash for investment by the
Portfolio and such accounts, the size of investment commitments generally
held by the Portfolio and such accounts and the opinions of the persons
responsible for recommending investments to the Portfolio and such
accounts. While this procedure could have a detrimental effect on the
price or amount of the securities available to the Portfolio from time to
time, it is the opinion of the Trustees of the Portfolio that the benefits
available from the Adviser's organization outweigh any disadvantage that
may arise from exposure to simultaneous transactions.
Item 18. Capital Stock and Other Securities
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, the Trustees
shall liquidate the assets of the Portfolio and apply and distribute the
proceeds thereof as follows: (a) first, to the payment of all debts and
obligations of the Portfolio to third parties including, without
limitation, the retirement of outstanding debt, including any debt owed to
holders of record of interests in the Portfolio ("Holders") or their
affiliates, and the expenses of liquidation, and to the setting up of any
reserves for contingencies which may be necessary; and (b) second, then in
accordance with the Holders' positive Book Capital Account balances after
adjusting Book Capital Accounts for certain allocations provided in the
Declaration of Trust and in accordance with the requirements described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(b) (2). Notwithstanding
the foregoing, if the Trustees shall determine that an immediate sale of
part or all of the assets of the Portfolio would cause undue loss to the
Holders, the Trustees, in order to avoid such loss, may, after having
given notification to all the Holders, to the extent not then prohibited
by the law of any jurisdiction in which the Portfolio is then formed or
qualified and applicable in the circumstances, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Portfolio except those necessary to satisfy the Portfolio's debts and
obligations or distribute the Portfolio's assets to the Holders in
liquidation. Interests in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except
as set forth below. Interests in the Portfolio may not be transferred.
Certificates representing an investor's interest in the Portfolio are
issued only upon the written request of a Holder.
Each Holder is entitled to vote in proportion to the amount of its
interest in the Portfolio. Holders do not have cumulative voting rights.
The Portfolio is not required and has no current intention to hold annual
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meetings of Holders but the Portfolio will hold meetings of Holders when
in the judgment of the Portfolio's Trustees it is necessary or desirable
to submit matters to a vote of Holders at a meeting. Any action which may
be taken by Holders may be taken without a meeting if Holders holding more
than 50% of all interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of the Declaration
of Trust of the Portfolio) consent to the action in writing and the
consents are filed with the records of meetings of Holders.
The Portfolio's Declaration of Trust may be amended by vote of
Holders of more than 50% of all interests in the Portfolio at any meeting
of Holders or by an instrument in writing without a meeting, executed by a
majority of the Trustees and consented to by the Holders of more than 50%
of all interests. The Trustees may also amend the Declaration of Trust
(without the vote or consent of Holders) to change the Portfolio's name or
the state or other jurisdiction whose law shall be the governing law, to
supply any omission or to cure, correct or supplement any ambiguous,
defective or inconsistent provision, to conform the Declaration of Trust
to applicable federal law or regulations or to the requirements of the
Code, or to change, modify or rescind any provision, provided that such
change, modification or rescission is determined by the Trustees to be
necessary or appropriate and not to have a materially adverse effect on
the financial interests of the Holders. No amendment of the Declaration
of Trust which would change any rights with respect to any Holder's
interest in the Portfolio by reducing the amount payable thereon upon
liquidation of the Portfolio may be made, except with the vote or consent
of the Holders of two-thirds of all interests. References in the
Declaration of Trust and in Part A or this Part B to a specified
percentage of, or fraction of, interests in the Portfolio, means Holders
whose combined Book Capital Account balances represent such specified
percentage or fraction of the combined Book Capital Account balance of
all, or a specified group of, Holders.
The Portfolio may merge or consolidate with any other corporation,
association, trust or other organization or may sell or exchange all or
substantially all of its assets upon such terms and conditions and for
such consideration when and as authorized by the Holders of (a) 67% or
more of the interests in the Portfolio present or represented at the
meeting of Holders, if Holders of more than 50% of all interests are
present or represented by proxy, or (b) more than 50% of all interests,
whichever is less. The Portfolio may be terminated (i) by the affirmative
vote of Holders of not less than two-thirds of all interests at any
meeting of Holders or by an instrument in writing without a meeting,
executed by a majority of the Trustees and consented to by Holders of not
less than two-thirds of all interests, or (ii) by the Trustees by written
notice to the Holders.
In accordance with the Declaration of Trust, there normally will
be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event, the Trustees of
the Portfolio then in office will call an investors' meeting for the
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election of Trustees. Except for the foregoing circumstances, and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust provides that no person shall serve as a
Trustee if investors holding two-thirds of the outstanding interests have
removed him from that office either by a written declaration or by votes
cast at a meeting called for that purpose. The Declaration of Trust
further provides that under certain circumstances, the investors may call
a meeting to remove a Trustee and that the Portfolio is required to
provide assistance in communicating with investors about such a meeting.
The Portfolio is organized as a trust under the laws of the State
of New York. Investors in the Portfolio will be held personally liable
for its obligations and liabilities, subject, however, to indemnification
by the Portfolio in the event that there is imposed upon an investor a
greater portion of the liabilities and obligations of the Portfolio than
its proportionate interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Item 19. Purchase, Redemption and Pricing of Securities
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "Purchase of Interests in the
Portfolio" and "Redemption or Decrease of Interest" in Part A.
The Trustees of the Portfolio have established the following
procedures for the fair valuation of the Portfolio's assets under normal
market conditions. Marketable securities listed on foreign or U.S.
securities exchanges or in the NASDAQ National Market System generally are
valued at closing sale prices or, if there were no sales, at the mean
between the closing bid and asked prices therefor on the exchange where
such securities are principally traded or on such National Market System
(such prices may not be used, however, where an active over-the-counter
market in an exchange listed security better reflects current market
value). Unlisted or listed securities for which closing sale prices are
not available are valued at the mean between the latest bid and asked
prices. An option is valued at the last sale price as quoted on the
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principal exchange or board of trade on which such option or contract is
traded, or in the absence of a sale, at the mean between the last bid and
asked prices. Futures positions on securities or currencies are generally
valued at closing settlement prices. All other securities are valued at
fair value as determined in good faith by or pursuant to procedures
established by the Trustees.
Short term debt securities with a remaining maturity of 60 days or
less are valued at amortized cost. If securities were acquired with a
remaining maturity of more than 60 days, their amortized cost value will
be based on their value on the sixty-first day prior to maturity. Other
fixed income and debt securities, including listed securities and
securities for which price quotations are available, will normally be
valued on the basis of valuations furnished by a pricing service.
Generally, trading in the foreign securities owned by the
Portfolio is substantially completed each day at various times prior to
the close of the Exchange. The values of these securities used in
determining the net asset value of the Portfolio's interests are computed
as of such times. Occasionally, events affecting the value of foreign
securities may occur between such times and the close of the Exchange
which will not be reflected in the computation of the Portfolio's net
asset value (unless the Portfolio deems that such events would materially
affect its net asset value, in which case an adjustment would be made and
reflected in such computation). Foreign securities and currency held by
the Portfolio will be valued in U.S. dollars; such values will be computed
by the custodian based on foreign currency exchange rate quotations
supplied by Reuters Information Service.
Item 20. Tax Status
The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Code, and it should not be a
"publicly traded partnership" within the meaning of Section 7704 of the
Code. Consequently, the Portfolio does not expect that it will be
required to pay any federal income tax, and each investor in the Portfolio
will be required to take into account in determining its federal income
tax liability its share of the Portfolio's income, gains, losses,
deductions and tax preference items.
Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity, depending upon
the factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio has
been advised by tax counsel that, in the case of an investor in the
Portfolio that seeks to qualify as a RIC under the Code, the aggregate
approach should apply, and each such investor should accordingly be deemed
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to own a proportionate share of each of the assets of the Portfolio and to
be entitled to the gross income of the Portfolio attributable to that
share for purposes of all requirements of Sections 851(b) and 852(b)(5) of
the Code. Further, the Portfolio has been advised by tax counsel that
each investor in the Portfolio that seeks to qualify as a RIC 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, for purposes of Subchapter K of the Code, in the
Portfolio, whichever is shorter. Investors should consult their tax
advisers regarding whether the entity or the aggregate approach applies to
their investment in the Portfolio in light of their particular tax status
and any special tax rules applicable to them.
In order to enable a Holder that is otherwise eligible to qualify
as a RIC, the Portfolio intends to satisfy the requirements of Subchapter
M of the Code relating to sources of income and diversification of assets
as if they were applicable to the Portfolio and to allocate and permit
withdrawals in a manner that will enable a Holder which is a RIC to comply
with those requirements. The Portfolio will allocate at least annually to
each Holder it's distributive share of the Portfolio's net investment
income, net realized capital gains, and any other items of income, gain,
loss, deduction or credit in a manner intended to comply with the Code and
applicable Treasury regulations. Tax counsel has advised the Portfolio
that the Portfolio's allocations of taxable income and loss should have
economic effect under applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal (or, under
certain circumstances, such proceeds plus the value of any marketable
securities distributed to an investor) ("liquid proceeds") exceed a
Holder's adjusted basis of his interest in the Portfolio, the Holder will
generally realize a gain for federal income tax purposes. If, upon a
complete withdrawal (redemption of the entire interest), the Holder's
adjusted basis of his interest exceeds the liquid proceeds of such
withdrawal, the Holder will generally realize a loss for federal income
tax purposes. The tax consequences of a withdrawal of property (instead
of or in addition to liquid proceeds) will be different and will depend on
the specific factual circumstances. A Holder's adjusted basis of an
interest in the Portfolio will generally be the aggregate prices paid
therefor (including the adjusted basis of contributed property and any
gain recognized on such contribution), increased by the amounts of the
Holder's distributive share of items of income (including interest income
exempt from federal income tax) and realized net gain of the Portfolio,
and reduced, but not below zero, by (i) the amounts of the Holder's
distributive share of items of Portfolio loss, and (ii) the amount of any
cash distributions (including distributions of interest income exempt from
federal income tax and cash distributions on withdrawals from the
Portfolio) and the basis to the Holder of any property received by such
Holder other than in liquidation, and (iii) the Holder's distributive
share of the Portfolio's nondeductible expenditures not properly
chargeable to capital account. Increases or decreases in a Holder's share
of the Portfolio's liabilities may also result in corresponding increases
or decreases in such adjusted basis. Distributions of liquid proceeds in
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excess of a Holder's adjusted basis in its interest in the Portfolio
immediately prior thereto generally will result in the recognition of gain
to the Holder in the amount of such excess.
Foreign exchange gains and losses realized by the Portfolio and
allocated to the investors in connection with the Portfolio's investments
in foreign securities and certain foreign currency related options,
futures or forward contracts or foreign currency may be treated as
ordinary income and losses under special tax rules. Certain options,
futures or forward contracts of the Portfolio may be required to be marked
to market (i.e., treated as if closed out) on the last day of each taxable
year, and any gain or loss realized with respect to these contracts may be
required to be treated as 60% long-term and 40% short-term gain or loss.
Positions of the Portfolio in foreign securities and offsetting options,
futures or forward contracts may be treated as "straddles" and be subject
to other special rules that may affect the amount, timing and character of
the Portfolio's income, gain or loss and its allocations among investors.
Certain uses of foreign currency and foreign currency derivatives such as
options, futures, forward contracts and swaps and investment by the
Portfolio in the stock of 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 or
to avoid imposition of a tax on such an investor.
The Portfolio anticipates that it will be subject to foreign taxes
on its income (including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes.
The Portfolio will allocate at least annually to its investors
their respective distributive shares of any net investment income and net
capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the Portfolio's fiscal year on
certain options and futures transactions that are required to be marked-
to-market).
An entity that is treated as a partnership under the Code, such as
the Portfolio, is generally treated as a partnership under state and local
tax laws, but certain states may have different entity classification
criteria and may therefore reach a different conclusion. Entities that
are classified as partnerships are not treated as separate taxable
entities under most state and local tax laws, and the income of a
partnership is considered to be income of partners both in timing and in
character. The laws of the various states and local taxing authorities
vary with respect to the status of a partnership interest under state and
local tax laws, and each holder of an interest in the Portfolio is advised
to consult his own tax adviser.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Investors should consult
their own tax advisers with respect to special tax rules that may apply in
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their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
Item 21. Underwriters
The placement agent for the Portfolio is Eaton Vance Distributors,
Inc., which receives no compensation for serving in this capacity. U.S.
and foreign investment companies, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
Item 22. Calculation of Performance Data
Not applicable.
Item 23. Financial Statements
The following financial statements included herein have been
included in reliance upon the report of Deloitte and Touche LLP,
independent certified public accountants, as experts in accounting and
auditing.
Statement of Assets and Liabilities as of January 31, 1996.
Independent Auditors' Report.
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FINANCIAL STATEMENTS
Asian Small Companies Portfolio
Statement of Assets and Liabilities
January 31, 1996
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,010
Deferred organization expenses . . . . . . . . . . . . . . . . . 7,000
Total assets . . . . . . . . . . . . . . . . . . . . $107,010
Liabilities:
Accrued organization expenses . . . . . . . . . . . . . . . . . 7,000
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . $100,010
NOTES:
(1) Asian Small Companies Portfolio (the "Portfolio") was organized as a
New York Trust on January 19, 1996 and has been inactive since that date,
except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and the sale
of interests therein at the purchase price of $100,000 to Eaton Vance
Management and the sale of an interest therein at the purchase price of
$10 to Boston Management & Research (the "Initial Interests").
(2) Organization expenses are being deferred and will be amortized on a
straight-line basis over a period not to exceed five years, commencing on
the effective date of the Portfolio's initial offering of its interests.
The amount paid by the Portfolio on any withdrawal by the holders of the
Initial Interests of any of the respective Initial Interests will be
reduced by a portion of any unamortized organization expenses, determined
by the proportion of the amount of the Initial Interests withdrawn to the
Initial Interests then outstanding.
(3) At 4:00 p.m., New York City time, on each business day of the
Portfolio, the value of an investor's interest in the Portfolio is equal
to the product of (1) the aggregate net asset value of the Portfolio
multiplied by (ii) the percentage representing that investor's share of
the aggregate interest in the Portfolio effective for that day.
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INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors of
Asian Small Companies Portfolio:
We have audited the accompanying statement of assets and
liabilities of Asian Small Companies Portfolio (a New York Trust) as of
January 31, 1996. This financial statement is the responsibility of the
Trust's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of Asian Small
Companies Portfolio as of January 31, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 1, 1996
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APPENDIX
ASIAN REGION COUNTRIES
The information set forth in this Appendix has been extracted
from various government and private publications. The Portfolio's Board of
Trustees makes no representation as to the accuracy of the information,
nor has the Board of Trustees attempted to verify it.
AUSTRALIA
The Commonwealth of Australia comprises an area of about
2,773,000 square miles - almost the same as that of the United States,
excluding Alaska. In June 1992, Australia's population was estimated to
be 17 million people.
The Commonwealth of Australia was formed as a federal union in
1901, when six British colonies of New South Wales, Victoria, Queensland,
South Australia and Tasmania were united as states in a "Federal
Commonwealth" under the authority of the Commonwealth of Australia
Constitution Act enacted by the British Parliament.
Prior to World War II, the Australian economy was highly
dependent on the rural sector. The 1950s and 1960s saw strong growth in
the economy and diversification through developments in the mining sector.
There have been some significant structural changes in the past 20 years,
with the tertiary and mining sectors growing strongly. The rural sector
now accounts for approximately 4% of Gross Domestic Product ("GDP"), 6% of
employment, and 23% of exports by value. The mining sector accounts for
approximately 8% of GDP and 1% of employment. Exports of mining
commodities (including basic metal products) account for approximately 42%
of exports by value. The tertiary sector accounts for approximately 71%
of GDP, approximately 78% of employment, and around 20% of exports by
value.
As of December 31, 1993, the total market capitalization of
Australian listed equities was U.S. $118 billion, which ranks behind
Japan, Hong Kong, and Malaysia in Asia.
PEOPLE'S REPUBLIC OF CHINA
GENERAL INFORMATION
China is the world's third largest country occupying a region of
9.6 million square kilometers. The country is divided into 23 provinces,
three municipalities (Beijing, Shanghai and Tianjin) and five autonomous
regions (Guangxi Xhuang, Nei Mongol, Ningxia Hui, Xinjiang Uygur and
Xizang (Tibet)). The capital and political center of China is Beijing.
Shanghai is the largest city and is also the commercial and financial
capital.
China is the world's most populous nation, consisting of more
than one-fifth of the human race. The estimated population is
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approximately 1.3 billion. China has engaged in a 20-year plan for
restraining population growth as part of its economic modernization
program. Despite the plan, the population is likely to exceed 1.300
billion by the year 2000.
In 1949, The Communist Party established the People's Republic of
China. The Communist government engaged in numerous campaigns to
industrialize the country with various programs. The failure of the
Communist Party to achieve substantive economic reform eventually led to
political domination by the army. In the 1970's, the Chinese government,
which had remained isolated from the world, opened its doors. President
Nixon's historic visit to China in 1972 established diplomatic ties
between China and the United States. China also renewed diplomatic and
trade relations with Western Europe, Japan and other Asian nations such as
Singapore, Indonesia and South Korea. Following Mao Zedong's death in
1976, and the election of Deng Xiaoping as China's paramount leader, China
has continued to pursue an "Open Door Policy" encouraging foreign
investment and expertise inside its borders. Deng's leadership has
emphasized pragmatism rather than Party ideology.
In 1989, a growing dissatisfaction with the Communist government
led to anti-government student protests culminating in what is known as
the Tiananmen Square incident. The government's use of the military to
suppress a peaceful demonstration resulted in world-wide criticism.
Currently, the leadership under Deng Xiaoping remains committed to basic
economic reforms but continues to reject liberalization from the
domination of the Communist Party in the political decision-making
process. The Chinese leadership still faces the challenge of maintaining
power under the Communist Party while fending off Western political
ideologies.
China currently has diplomatic ties with approximately 140
nations. It is a charter member of the United Nations and a permanent
member of the United Nations Security Council. Currently, China is seeking
admission to the General Agreement on Tariffs and Trade.
Over the past decade, China has achieved annual growth in real
gross national product (GNP) averaging 10%. GNP in 1994 had increased to
over 3.8 times the GNP in 1980 in real terms. However, growth has been
unsteady, with booms in 1984 and 1988 and downturns in 1981 and 1989. In
1988, the Chinese Government instituted an austerity program which slowed
the Chinese economy in the following year. However, growth increased after
1989, achieving growth rates of 9.5% in 1991, 14% in 1992, 13.3% in 1993,
and 11.6% in 1994.
The economy in China consists of three sectors: state,
cooperative, and private. The state sector, though decreasing from 76% of
GNP in 1980 to approximately 50% in 1991, continues to constitute the bulk
of the economy. In recent years, however, the economy has been
significantly restructured through the abolition of the commune system in
rural areas and the relaxing of government authority in the day to day
operations in both agricultural and industrial enterprises. As the
government assumes more of a regulatory and supervisory role and less of a
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direct management role, market forces have been allowed to operate. This
has resulted in increased productivity and rising incomes.
The following table sets forth selected data regarding the
Chinese economy.
<TABLE>
MAJOR ECONOMIC INDICATORS
<CAPTION>
1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross National Product
(% annual real growth) 11.3 4.1 3.8 9.3 14.2 13.5 11.8
(nominal, RMB billion) 1,492.8 1,690.9 1,853.1 2,161.8 2,663.5 3,451.5 4,500.6
(nominal, U.S. $ billion)* 401.3 358.2 355.8 368.1 463.2 595.1 533.2
Per Capita GNP (U.S. $) 364.2 320.1 313.0 346.8 397.9 504.5 435.9
17.9 6.8 6.0 14.2 20.4 23.6 21.7
Inflation (retail price index,
% annual growth) 18.6 17.8 2.1 3.0 6.2 13.2 21.8
20.7 18.7 28.9 27.6 29.5 23.6 34.4
Government Budget Surplus/Deficit
(U.S. $ billion)* (2.1) (1.9) (2.7) (3.9) (7.8) (10.3)
Exports (U.S. $ billion) 47.6 52.5 62.1 71.9 85.1 91.7 121.0
(% annual growth) 20.8 10.2 17.9 15.8 18.3 7.93 31.9
Imports (U.S. $ billion) 55.3 59.1 53.3 63.8 80.8 103.9 115.7
(% annual growth) 28.0 6.8 (9.8) 19.5 26.6 28.9 11.2
Trade Balance (U.S. $ billion) (7.8) (6.6) 8.6 8.1 4.3 (12.2) 5.3
Exchange Rate (RMB/U.S. $) 3.72 4.72 5.22 5.43 5.75 5.8 8.44
</TABLE>
*Translated at the respective exchange rate for each year shown in the
table.
Sources: China Statistical Yearbook, 1995 State Statistical Bureau of
the People's Republic of China, Baring Securities.
In 1990, industry accounted for 45.8% of China's National Income.
In the first three decades under Communist rule, China placed great
emphasis on heavy industry. Since the reform program began in 1978, a much
greater emphasis has been placed on light industry. Considerable
industrial growth has come from industrial enterprises in rural townships
which are engaged in the processing and assembly of consumer goods. These
operations are concentrated in southern China, where a major light
industrial base has developed. Industrial output has grown rapidly and is
increasingly important to the Chinese economy.
China's current industrial policy also places emphasis on
high-technology industries supported by foreign technology, such as
micro-electronics and telecommunications. However, overstocking and poor
economic results continue to plague Chinese industry. Continued growth has
been hampered by problems of access to raw materials and energy supplies.
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Although long term growth in agricultural production has slowed,
China remains one of the world's largest agricultural producers. The
government has emphasized diversification of production, and a commitment
to the maintenance of grain outputs. Other agricultural products have also
shown increases in production in recent years, with cotton production at
the forefront.
Although China has a vast potential for energy production, this
potential has been largely untapped. However, China is the world's largest
producer of coal and the world's fifth largest oil producer. Until
recently, China did not have the capacity to utilize its off-shore oil
fields due to the country's relatively low level of technology. Joint
ventures with foreign companies, however, have allowed China to use the
fields, and further growth in oil production, both off-shore and on-shore,
is expected. China also has significant potential for harnessing
hydroelectric power, but has utilized only a small portion of this
potential. China is planning to make hydroelectric power a major source of
energy in the years ahead.
China's objective to quadruple the 1980 industrial and
agricultural output by the year 2000 requires the country's output to grow
at an average annual rate of growth of about 6% in the 1990's. To enable
China to accomplish this growth target under the prevailing economic
environment, China's economic policy aims to provide a stable and
non-inflationary environment to revive growth. Another prevailing goal is
to relieve the supply bottlenecks arising from imbalanced growth over the
last 10 years with resources to be allocated to the priority areas of
agriculture, energy, transportation, telecommunications and basic
materials industries. Emphasis is also placed on export-oriented and
import-substitute production.
Historically, China has had a relatively high rate of national
savings. Total savings in 1994 were 3,682.98 billion RMB.
Inflationary pressures are a major concern in the Chinese economy.
While the retail price index has been relatively stable in recent years,
this figure understates inflation, especially urban inflation. A more
informative measure is the cost of living index in 35 major cities, which
has generally risen at a higher rate. In light of the on-going reforms of
price subsidies and continued growth, relatively high inflation should be
expected.
China's monetary policy has vacillated between expansionist and
contractionist. This varying monetary policy has contributed to a
fundamental cycle of the Chinese economy in recent years: reform and
expansion leading to overheating of the economy and tightening of control.
Persistent fiscal deficits have been a macroeconomic management problem in
China in recent years. Despite efforts by the government to increase
revenues and control spending, deficits continue to be a problem. The
deficit for 1994 was 37.95 billion RMB.
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As a result of the economic reforms commenced in 1978, China's
foreign trade has grown considerably in value, range of products and
number of trading partners. A major goal of China's trade policy is to
increase the percentage of manufactured goods in the country's total
exports. Gradual progress has been made in recent years with the aid of
the imported foreign technology. Textiles and garments together form the
single largest export category, representing 25% of total export values.
China's trade balance has fluctuated over the last five years. In 1994
China's foreign trade yielded a surplus of U.S. $5.35 billion.
Hong Kong is the leading destination for Chinese exports,
accounting for over 40% of total export volume. Hong Kong is also a major
re-export center for Chinese goods. Other large export markets for China
include Japan, the United States, and Germany. Over the past few years,
China's imports have continued to expand and diversify. Hong Kong, Japan
and the United States are China's top three suppliers. Other major
suppliers include Germany and Italy.
China has traditionally adopted a policy of self-reliance when
financing development; overseas borrowings have been minimal. The country
has remained a conservative borrower but, since the early 1980s, has been
making greater use of foreign capital and financing, including
government-assisted facilities and project and trade financing.
The primary sources of foreign capital for China, in order of
importance, are: (1) International Monetary Fund and World Bank loans and
credits; (2) government low interest loans and credits; and (3) commercial
loans and credits.
There is centralized control and unified management of foreign
exchange in China. The renminbi has been devalued progressively in recent
years, depreciating by almost 70% against the U.S. dollar between 1981 and
1990.
There currently are two officially recognized exchanges in China,
the Shanghai Securities Exchange ("SHSE"), which commenced trading on
December 19, 1990, and the Shenzhen Stock Exchange ("SZSE"), which
commenced trading on July 3, 1991. "B" shares are offered exclusively for
investment by foreign investors, and their total market capitalization in
December 1995 was over $2 billion. A number of organized securities
markets exist in other cities in China, but these are primarily
over-the-counter markets. China has not yet promulgated a national
securities law. At the local level, however, many cities and provinces
have promulgated securities rules and regulations.
HONG KONG
As a trade entrepot and finance center, Hong Kong's viability has
been inexorably linked to mainland China since the establishment of the
Colony in 1841. Hong Kong remains China's largest trade partner and its
leading foreign investor. In 1995, visible trade between Hong Kong and
China exceeded $33.4 billion.
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In the last two decades there has been a structural change in Hong
Kong's economy, with growth in the services sector outpacing manufacturing
growth. With more and more labor intensive manufacturing relocating to
Southern China, Hong Kong has developed its services sector, which in 1993
contributed 72.5% of GDP.
In recent years large numbers of Hong Kong based companies have
set up factories in the southern province of Guangdong, where it is
estimated that Hong Kong companies employ between 2.5 and 3.0 million
workers. The low cost of setting up a factory in China and low wage rates
have been the primary attractions. While few Hong Kong companies in the
service sector derive the majority of their sales from China, activity
there is increasing notably in the construction, utilities, communications
and tourism sectors. Examples include China Light and Power, Hong Kong
Telecom and Hopewell Holdings. Although less noticeable than Hong Kong's
investment in China, there has been considerable growth in Chinese
investment in Hong Kong over the last decade and particularly in the last
five years. In contrast to Japanese investment, Chinese investment in
Hong Kong typically involves the purchase of stakes in existing companies.
This has traditionally been in the banking and import/export sectors.
Recently, investment in property, manufacturing and infrastructure
projects has increased. The most active Chinese enterprise in Hong Kong,
the Bank of China Group, is the second largest banking group in Hong Kong.
Much as China has become the manufacturing capital for Hong Kong
companies, Hong Kong is the primary funding center for the development of
China through direct investment, syndicated loans, commercial paper and
share issues in Hong Kong by Chinese companies.
In view of the growing economic interaction between Hong Kong and
Southern China, it is increasingly meaningful to consider the concept of a
Greater Hong Kong economy consisting of Hong Kong and Guangdong Province,
with a combined population of 72 million and average per capita GDP of
$2,130 in 1993. Given the human, financial and technological resources in
Hong Kong and the low wage rates and infrastructural requirements of
China, the economic rationale for further integration of the two economies
is considerable. In ensuring the role of Hong Kong in the economy of
Southern China, the challenge of policy makers in Hong Kong is to see that
the colony's infrastructure is capable of accommodating the sustained 15%
annual growth of the Guangdong economy, and with it increasing trade and
investment flows. Towards this end, the Hong Kong government in 1989
unveiled PADS, the Port and Airport Development Strategy. The project,
estimated to cost $21 billion, is designed to allow Hong Kong's cargo
handling capacity to increase by four times between 1988 and 2011 and its
air traffic handling capacity to increase from 15 million passengers in
1988 to 50 million in 2011. Representatives of the Hong Kong and Chinese
governments are currently discussing the future of the PADS project and
its financing.
In the past, political considerations have hindered closer
economic integration between Hong Kong and China. It was largely in
response to the United Nations embargo on trade with China in the 1950s
and 1960s that Hong Kong developed a significant manufacturing base. In
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the last several years, however, there has been an improvement in
relations between China and Hong Kong. In September 1991, Hong Kong and
China concluded the Sino-British Memorandum of Understanding, providing a
framework for the PADS project. Of even greater importance, the Basic
Law, the outline for Hong Kong's government post 1997, calls for Hong
Kong's capitalist system to remain intact for an additional fifty years
after 1997 and sets out details for the integration of Hong Kong into
China after 1997.
The Stock Exchange of Hong Kong Ltd. ("Hong Kong Stock Exchange"
or "HKSE"), which commenced trading on April 2, 1986. The HKSE, with a
total market capitalization as of October, 1994 of approximately H.K.
$2,476 billion (approximately U.S. $320.3 billion), is now the second
largest stock market in Asia, measured by market capitalization, behind
only that of Japan. As of that date, 520 companies and 908 securities were
listed on the Hong Kong Stock Exchange. The securities listed include
ordinary shares, warrants and other derivative instruments.
There are no regulations governing foreign investment in Hong
Kong. There are no exchange control regulations and investors have total
flexibility in the movement of capital and the repatriation of profits.
Funds invested in Hong Kong can be repatriated at will; dividends and
interest are freely remittable.
INDIA
India is the seventh largest country in the world, covering an
area of approximately 3,300,000 square kilometers. It is situated in
South Asia and is bordered by Nepal, Bhutan and China in the north,
Myanmar and Bangladesh in the east, Pakistan in the west and Sri Lanka in
the south. Most of the population still lives in rural areas. The
official language is Hindi, with English also being used widely in
official and business communications. The Indian population is comprised
of diverse religious and linguistic groups. Despite this diversity, India
is the world's largest democracy and has had one of the more stable
political systems among the world's developing nations. However, periodic
sectarian conflict among India's religious and linguistic groups could
adversely affect Indian businesses, temporarily close stock exchanges or
other institutions, or undermine or distract from government efforts to
liberalize the Indian economy.
India became independent from the United Kingdom in 1947. It is
governed by a parliamentary democracy under the Constitution of India,
under which the executive, legislative and judicial functions are
separated. Since 1991, the government of Prime Minister Narasimha Rao has
introduced far-reaching measures with the goal of reducing government
intervention in the economy, strengthening India's industrial base,
expanding exports and increasing economic efficiency. The system of
industrial licenses known as the "License Raj," by means of which the
government controlled many private sector investment decisions, has been
cut back. Government approvals required to increase, reduce or change
production have been greatly reduced.
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Modern economic development in India began in the mid-1940s with
the publication of the Bombay Plan. The Planning Commission was
established in 1950 to asses the country's available resources and to
identify growth areas. A centrally planned economic model was adopted,
and in order to control the direction of private investment, all
investment and major economic decisions required government approval.
Foreign investment was allowed only selectively. This protectionist
regime held back development of India's economy until the mid-1980s when
there began to be some move towards liberalization and market orientation
of the economy. With the liberalization measures introduced in the budget
of 1985, the annual growth of the country's real gross domestic product
rose from an average 3-4% since the 1940s to an average 6.1 percent
between 1986 and 1990.
Since 1990, the Indian government has continued to adopt measures
to further open the economy to private investment, attract foreign capital
and speed up the country's industrial growth rate. For example, the
banking industry has recently been opened to the private sector, including
to foreign investors. Banks were nationalized in 1969, and no new
privately owned banks had been permitted. The government is now granting
new banking licenses. The government also has recently permitted foreign
brokerage firms to operate in India on behalf of foreign institutional
investors, and has permitted foreign investors to own majority stakes in
Indian asset management firms. Ownership and sale of commercial real
estate is expected to be permitted to foreign firms soon as well. In 1992,
it was announced that foreign institutional investors would be able to
invest directly in the Indian capital markets. In September 1992 the
guidelines for foreign institutional investors were published and a number
of such investors have been registered by the Securities and Exchange
Board of India, including the Adviser.
The government has also cut subsidies to ailing public sector
businesses. Further cuts, and privatizations, are expected, although
resistance by labor unions and other interest groups may hinder this
process. Continuing the reform process, India's Finance Minister in early
1994 proposed tax cuts for the corporate sector, sharp reductions in
import duties and a further lowering of bank interest rates. In sum, the
government's new policies seek to expand opportunities for
entrepreneurship in India.
Foreign investors have responded to these trends by putting
resources into the Indian economy. The Asian Development Bank, for
example, established its first Indian office in 1992. Investment by
Singapore-based companies accelerated significantly in 1993. India's
foreign exchange reserves, which had fallen to about $1 billion in 1991,
were over $20 billion in March 1995.
India's Parliament consists of the Lok Sabha (House of the People)
and the Rajya Sabha (Council of States). The Lok Sabha is elected
directly by universal suffrage for a period of five years while the Rajya
Sabha comprises members indirectly elected by the States and Union
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Territories for a six-year term and members nominated by the President of
India.
The President of India is the constitutional head of the executive
branch of government and exercises powers under the Constitution with the
advice of the Council of Ministers, headed by the Prime Minister. The
Prime Minister and the Council of Ministers, who are responsible to the
Lok Sabha, hold effective executive power. The present Prime Minister is
Mr. Narasimha Rao, who leads the Congress Party. The Congress Party holds
a slim majority of seats in the Lok Sabha. The Bhartiya Janata Party
holds the next largest number, accounting for approximately 20%. The
Congress Party lost 3 out of the 4 state legislature elections held in
1994.
India comprises 7 Union Territories and 25 States. Each state has
a governor, a council of ministers and a legislature. The Union
Territories are administered by the central government in New Delhi.
There is a general system of local government throughout the country.
The Judiciary consists of the Supreme Court of India, located at
New Delhi, and High Courts located in each State. The Judiciary is
independent of the Executive branch and the Legislature. The Supreme
Court is vested with powers to determine disputes between the Union
Territories and the States or between States, to enforce fundamental
rights and to act as the guardian of the Constitution. All judges of the
Supreme Court and High Courts are appointed by the President of India.
The Constitution provides that the judges cannot be removed from office
unless impeached by both Houses of Parliament.
The government of Mr. Narasimha Rao, which took office in June
1991, has been supported by consensus among the other main political
parties that structural changes in the economic system were required.
With a rising oil import bill, adverse balance of trade payments and a
large foreign debt, India had reached a position where it was unable to
obtain further commercial borrowings. In July 1991 the Finance Minister,
Dr. Manmohan Singh, presented his first budget and announced a new
industrial policy. In consequence, for many industrial sectors, it became
no longer necessary to obtain government approval for new investments.
Foreign companies could now hold up to 51% of an Indian company as opposed
to 40% previously.
The process of liberalization was taken further with the budget of
February 1992 when the Rupee was made partially convertible and import
tariffs were reduced. Personal tax rates were brought down. The office
of the Controller of Capital Issues which had determined the pricing of
shares issued by companies was abolished.
The Finance Minister has presented the budget for 1995 which has
further rationalized indirect taxes by reducing excise duties on a variety
of items and slashing peak import tariffs from 65% to 50%. However,
outlays on welfare measures has been increased and no further tax cuts
have been announced for the corporate sector.
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In India, Foreign Institutional Investors ("FIIs") may
predominately invest in exchange-traded securities (and securities to be
listed, or those approved on the over-the counter exchange of India)
subject to the conditions specified in the Guidelines for Direct Foreign
Investment by FIIs in India, (the "Guidelines") published in a Press Note
dated September 14, 1992, issued by the Government of India, Ministry of
Finance, Investment Division. FIIs have to apply for registration to the
Securities and Exchange Board of India ("SEBI") and to the Reserve Bank of
India for permission to trade in Indian securities. The Guidelines
require SEBI to take into account the track record of the FII, its
professional competence, financial soundness, experience and other
relevant criteria. SEBI must also be satisfied that suitable custodial
arrangements are in place for the Indian securities. The Adviser is a
registered FII and the inclusion of the Portfolio in the Adviser's
registration was approved by SEBI. FIIs are required to observe certain
investment restrictions, including an account ownership ceiling of 5% of
the total issued share capital of any one company. In addition, the
shareholdings of all registered FIIS, together with the shareholdings of
non-resident Indian individuals and foreign bodies corporate substantially
owned by non-resident Indians, may not exceed 24% of the issued share
capital of any one company. Only registered FIIS and non-Indian mutual
funds that comply with certain statutory conditions may make direct
portfolio investments in exchange-traded Indian securities. Income, gains
and initial capital with respect to such investments are freely
repatriable, subject to payment of applicable Indian taxes.
India currently imposes 20% withholding tax on interest and
dividends. A withholding tax of 10% is currently imposed on gains from
sales of shares held one year or more and a withholding tax of 30% is
imposed on gains from sales of shares held less than one year. The
withholding rate on gains from sales of debt securities is currently 10%
if the securities have been held three years or more and 30% if the
securities have been held less than three years. (Rates are higher for
non-FII transactions.)
INDONESIA
It can at least be argued that Indonesia has had fewer changes in
its political system than its Asian neighbours. In fact, there have been
only two rulers of Indonesia since independence was gained from the Dutch
in 1948 -- Sukarno and Suharto. But equally it should not be forgotten
that the two major turning points in the country's modern history --
independence and the 1965 revolution -- were unusually violent episodes in
the life of any country. The stability that Indonesia has enjoyed during
the past twenty-five years under Suharto should, therefore, be placed
against this background.
In many ways the same three pillars of stability which are found
in Thailand -- the army, the king and the national religion -- are present
in Indonesia except that the President, Suharto, stands in the place of
the monarchy and the national religion is Islam rather than Buddhism. The
question of monarchical or presidential succession remains perhaps the
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major political risk confronted by the foreign investor as so many aspects
of the business life of the country relate directly to Suharto or his
immediate family. The role of the army in Indonesia is a great deal more
clear cut and predictable than in either Thailand or in the Philippines.
In effect, there have been no attempted military coups since 1966. The
army remains wholly in support of Suharto. It has been suggested, in fact,
that anyone who might be considered as a candidate to succeed Suharto must
be Javanese and must be a general.
The role of Islam in the national life of Indonesia is a more
complex subject. The Mohammedan religion first reached the shores of
western Sumatra through the coming of the Arab traders around 1400. The
western-most state of Aceh has remained a stronghold of Islamic
fundamentalist belief ever since. Sumatra in general has remained restive
and unwilling to bend to the yoke of a tight central control from Java. In
fact, this is also true of many other island provinces of the huge
Indonesian archipelago which will have, by the year 2000, a population of
over 200 million. Following the 1958 uprising in Sumatra and Celebes (or
Sulawesi) the Javanese policy was to plant more settlers in these outlying
islands from Java (where 80 percent of the population lives). Political
and religious factors, therefore, cannot be disentangled in the future
horoscope of Indonesian political life.
Fundamentalism is on the rise in Indonesia, as in Malaysia, and
politicians with fundamentalist Islamic beliefs and supporters are likely
to take a more active role. However, the situation cannot be compared with
Iran or Saudi Arabia. In neither Indonesia nor Malaysia has Islam taken
over all aspects of every day life with its rules about the role of women,
or the consumption of alcohol or the exaction of interest or usury on
capital. In all these respects Indonesian life is relatively "modern."
There is a more easy-going Asian approach to matters of religious belief.
However, the social question, which one cannot ignore, concerns
the role of the minority and non-Muslim peoples in Indonesia, in
particular the Chinese community in Java. Although the total Chinese
population is less than 5 million, or around 3 percent of the total, 80
percent of the commerce and much of the capital wealth remains in the
hands of this small but tight-knit Chinese community. In 1966 there were
violent anti-Chinese riots and killings in Jakarta, Surabaya and other
Javanese cities. Many thousands of Chinese fled to Hong Kong and to China,
but this is a spectre which has been banished from the life of the nation
since Suharto came to power. He is well known to have close links with the
leading members of the Chinese business community.
The role of Chinese business people in Indonesia has been brought
into much greater focus by the explosion of the Jakarta stock market in
the late 1980's. Much of the wealth which was rumoured to exist in the
hands of the great Chinese families is now visibly calculated on a daily
basis in the large listed capitalization of the Indonesian-Chinese
industrial groups such as Indo-Cement and Astra. There is, of course, a
two-way flow of capital involved in this process of the rapid evolution of
the capital market in Jakarta, by which up to U.S. $5 billion of foreign
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capital has entered the country in the form of equity investment, largely
from foreign fund managers, and a substantial amount of Chinese capital
has been able to leave the country in the opposite direction.
The enormous economic potential of Indonesia, its vast natural
resources and its large labour force being two principal attractions,
cannot be doubted. However, the main element of political risk is the
possibility of a further violent episode in the political life of the
country when the next transfer of power occurs at the top.
The following table gives details of the overall economic
performance of Indonesia from 1987 to 1994.
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ (%) CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 1,720 3.6 9.0 4.6 83.0 0.07
1988 1,735 5.6 7.4 4.9 41.2 305.0 0.26
1989 1,784 7.4 6.0 5.8 24.7 399.0 2.42
1990 1,889 7.4 9.6 3.9 19.9 418.0 6.2
1991 1,984 6.5 9.5 5.5 17.1 247.0 8.1
1992 2,064 6.0 4.9 6.9 14.4 274.0 12.1
1993 2,110 6.5 7.0 9.0 27.4 589.0 43.0
1994 2,160 7.3 9.2 7.8 18.8 470.0 52.0
1995* 2,316 7.2 9.6 7.0 14.5 -- 55.0
*Estimate
Indonesia began the 1980s principally as an oil exporter. During
the 1970s it had a high rate of inflation but also a very rapid economic
growth on the back of the oil boom. The fall in oil prices in the early
1980s, which became precipitate in the spring of 1986, therefore, forced a
review of their priorities. Reducing inflation, diversifying the economy
away from oil and maintaining a stable growth in the economy to provide as
full employment as possible for the large young population, were selected
as the main objectives. It is remarkable to see the extent to which these
aims have been achieved during 1985-90. Inflation has been brought from 20
percent, at the beginning of the decade, to around 6 percent in 1989-90.
Economic growth, having fallen to 2.5 percent in 1985 regained the level
of 7.4 percent by 1990. The rupiah, which had undergone a 30 percent
once-and-for-all evaluation in the autumn of 1985, had stabilized on a
"crawling peg" system with an annual devaluation of around 5 percent. The
trade surplus continued at a healthy US $4-5 billion annually and the
inflow of foreign capital more than offset Indonesia's foreign debt
position. Therefore, it is possible to conclude that the good
macroeconomic management, which was achieved by the small group of
technocrats employed by Suharto to direct the economy, had been very
successful in reducing the economic risk of the country. The future path
of the Indonesian economy will, therefore, depend as much on the
development of low wage manufacturing and the inflow of Japanese capital,
and on the liberalization of the banking system and the capital market, as
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on the price of basic commodities. This gives a much greater degree of
stability to the Indonesian economy as a whole.
JAPAN
The Japanese archipelago stretches for 1,300 miles in the western
Pacific Ocean. The total area of all the islands is about equal to the
size of California. Only one third of the land is suitable for
agriculture, housing, industry, and commerce.
Japan has a population of about 125 million people, roughly half
that of the United States and twice that of England or Germany. Life
expectancy is the highest in the world. The literacy rate in Japan
approaches 100%. The high level of education, combined with the Confucian
work ethic, has created a motivated work force which boasts a very high
savings rate.
Japan is evolving into a post-industrial society and economy as we
approach the 21st century. Japan's postwar growth was phenomenal. By
1970, Japan's Gross National Product (GNP) had surpassed those of the
United Kingdom and the former Soviet Union. The Japanese economy is now
the second largest in the world; its per capita GNP is the highest among
large industrial countries.
During the era of high economic growth in the 1960s and early
1970s, Japanese expansion focused on the development of heavy industries
such as steel, shipbuilding and chemicals. In the 1970s, Japan's
industrial structure shifted toward assembly industries with a strong
emphasis on exports. In that decade, Japan became a major producer and
exporter of automobiles and consumer electronics. In the 1980s, Japan
gradually stepped toward a post-industrial society. This evolution has
been characterized by an increased reliance on services, a per capita
income which is the highest in the world, rapidly changing lifestyles
influenced by the younger generation, a greater dependence on domestic
markets, a comparative advantage in high technology, and active
participation in the high-growth economies of East Asia, including China.
Japan has had low inflation in recent years. In the past 10
years, the rate of inflation has ranged between 2% and 3% per year, making
it one of the lowest rates in the world. This remarkable achievement was
made possible by gains in productivity, which exceeded wage increases, and
by a strong yen, which reduced imported raw material costs.
Japan's stock exchanges comprise over 25% of the world's equity
market. Like other stock markets, the Japanese stock market can be
volatile. For example, the Japanese stock market, as measured by the
Tokyo Stock Price Index (TOPIX), increased by over 500% during the ten-
year period ended December 31, 1989, reaching its high of 2884.80 on
December 18, 1989, and it has declined by over 45% since that time,
falling to 1559.09 on December 30, 1994. This decline has had an adverse
effect on the availability of credit and on the value of the substantial
stock holdings of Japanese companies, in particular, Japanese banks,
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insurance companies and other financial institutions. This in turn has
contributed to the recent weakness in Japan's economy. A continuation or
recurrence of a Japanese stock market decline could have an adverse impact
throughout Japan's economy.
KOREA
Political volatility has characterized the history of South Korea
(referred to as Korea throughout this section) during the past forty
years, while at the same time an extraordinary economic boom has occurred.
Rigid discipline has been characteristic of the military government under
President Park during the 1960s and 1970s, which were the most successful
decades in economic terms particularly in the growth of Korea's exports
and in the per capita income. It is important to remember how completely
the cities and transport system of the southern part of the Korean
peninsula had been destroyed in the civil war of the 1950s. The effort of
reconstruction was, therefore, enormous. Living standards in the 1960s
were extremely low. The threat from North Korea has exerted a continuous
military pressure on the South in the past forty years which is probably
unique to any country in the world, even including West Germany or Taiwan.
Seoul is only 30 kilometers from the demilitarized zone and, therefore,
lives in a continuous state of tension and fear of an imminent invasion.
This very real threat is also translated into a very high percentage of
military spending in the national budget. If Korea is compared with Japan,
the Koreans have had to spend ten times more of their national income on
defense than the Japanese and yet have succeeded in recording higher rates
of economic growth.
The fierce political in-fighting, which has been a constant
characteristic of Korean history, was suppressed for a period in the 1970s
and 1980s, both before and after the assassination of President Park.
Since 1987 the opening up of the democratic process has been smoothly
handled despite the continuing student riots and disturbances. In fact,
stock market investors have generally ignored the television images of
riot police, tanks firing tear gas and students throwing petrol bombs, to
concentrate more on the continuous success of Korean companies in their
conquest of overseas export markets and their impressive earnings growth.
Nevertheless, the threat from the North and the fierceness of the Korean
political opposition do combine to give Korea a lower score for political
stability than its neighbours. We have the sense in Korea of a higher risk
but also a much greater potential should the rapprochement with the North
lead to a peaceful reunification.
The following table gives details of the overall economic
performance of South Korea from 1987 to 1994.
<TABLE>
<CAPTION> TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ % CPI (US $BN) P/E CLOSING (US $BN)
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<PAGE>
--------- ------- ------ ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1987 822.57 13.0 3.0 7.7 10.6 525.1 33.0
1988 731.47 12.4 7.1 11.4 13.6 907.2 94.3
1989 671.46 6.7 5.7 4.6 22.9 909.7 140.9
1990 707.76 9.3 8.6 (2.0) 18.5 696.1 110.2
1991 731.60 8.3 9.7 (7.0) 15.0 610.9 96.4
1992 781.08 4.7 6.2 (2.1) 15.0 678.4 107.4
1993 808.10 5.5 6.5 (1.6) 17.5 866.0 139.0
1994 803.62 8.4 6.3 (3.1) 18.0 1,027.0 190.0
1995* 768.40 9.0 5.2 0.7 15.1 -- 203.0
*Estimate
</TABLE>
South Korea has the highest overall score for economic growth in
the world over the past twenty years even when compared with the other
Asian tigers. The average growth over a twenty-year period has been close
to 9 percent in real terms, at certain times reaching even 13-14 percent.
This means that the average Korean today has a per capita income of nearly
U.S. $6,000 per annum, an income which has grown nearly thirty times in
thirty years. There have been tremendous social changes resulting from
this economic boom, notably the shift of population from the countryside
into the cities and the shift in the economic structure from agriculture
to industry and, more recently, to the service sector. This has all
occurred in a shorter period of time than in almost any other advanced
economy. What took England one hundred years and Japan thirty years, has
taken Korea typically less than ten years. There has been some slowing
during the 1980s compared to the 1970s, but Korea still has among the
highest overall ratings for GNP growth. Its industrial workforce has not
lost its competitive edge and the average working week in Korea is still
in excess of fifty hours, the longest working week in the world. These are
the foundations of Korea's continued economic success. It is unlikely that
such characteristics, being social in origin, will disappoint us in the
next decade. Therefore it is reasonable to expect Korea's economy to
continue to be one of Asia's most successful.
The flexibility of its large trading companies, the chaebol, has
been recently underlined again as they have shifted their emphasis from
the United States, Canada and Europe towards the new markets of China and
the Soviet Union. There is little doubt that Korean exporters will be
leading the Japanese in providing Russian consumers with basic consumer
goods. The readiness to take risks in new areas has continuously paid off
for Korean companies just as it did when they were able to grab the major
construction contracts in the Middle East during the oil boom of the
1970s. (These new trade links have also translated into new diplomatic
links with China, Hungary, Poland and the Soviet Union, thus further
isolating North Korea from its communist neighbours.)
Inflation in Korea has been higher than in Japan or Taiwan. In the
1970s, Korea experienced an annual average inflation rate of nearly 15
percent. Beginning in 1982, however, the tight monetary policy succeeded
in bringing this annual consumer price index down to single digits until
1990 when the rate jumped again to 8.6 percent. The Korean export boom has
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led to a big inflow of foreign exchange accompanying Korea's trade
surpluses of the past five years. This, in turn, has led to a sharp
increase in money supply and a boom in real estate prices in Seoul. Thus
the rise of both the Korean share market and property market since 1985
has in a sense been a lagging indicator of the economic boom of earlier
years with its inevitable build up of national and personal wealth among
the Korean population. Nowhere has the number of investors grown faster
than in The Korea Stock Exchange during the 1980s. Thus rising prices have
reflected rising national wealth. This inflation problem has been, and can
again be, tamed by a strong central bank response and this is what would
be expected in the 1990s.
The exchange rate of the Korean won against the U.S. dollar has
reflected both the relative inflation rates of Korea and its international
trading partners and also the more recent success of Korea in repaying
much of its foreign debt and building up its reserves. The won was held
very steady during the 1970s and then allowed to devalue between 1980 and
1985 from 484 won to the dollar to its lowest level of 890 won to the
dollar. With the sharp improvement in Korea's overseas trade position the
won started to appreciate from 1986 onwards. With the subsequent relapse
of Korea into a new trade deficit in 1990 and the recovery of the dollar
in world exchange markets, the Korean won has again depreciated slightly.
However, there is a high degree of stability and the currency is managed
by the central bank. A devaluation of more than 5 percent per annum should
not be expected unless Korea's trade or inflation problems worsen
significantly.
It is likely that Korea's foreign trade position will improve
again thanks to the country's competitive position in export markets. In a
more liberated domestic economy with lower tariffs on foreign goods,
however, it will be more difficult to restrain the growth of imports as
Korean consumers demand a greater choice. Korea's main deficit is with
Japan and consists largely of capital goods. This is likely to continue as
long as Korean manufacturers wish to maintain their competitive edge in
the most modern plant and equipment.
MALAYSIA
The central dilemma in assessing Malaysia's political risk is the
perennial question of relations between the Malay and Chinese communities
representing as they do about 60 percent and 30 percent of the population,
respectively. Since the 1969 anti-Chinese riots in Kuala Lumpur the
country has been unruffled by any serious inter-racial violence and during
this period a great deal has been accomplished in transforming the economy
and in transferring the wealth of the country from foreign and Chinese
hands into the hands of the bumiputra (or the sons of the soil), which is
the dominant Malay majority. The success of this New Economic Policy is
unquestioned and has given a great deal of legitimacy to the continued run
of the United Malay National Organisation (UMNO) under its successive
prime ministers and most recently under Dr. Mahathir Mohammed who has now
held power for a decade. This economic success has also done much to
defuse the threat from the Islamic fundamentalists who have tended to get
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co-opted into the ruling party. The Chinese community has also done well
in economic terms although the political disunity in the Malay Chinese
Association (MCA) has left them somewhat leaderless in the political
sphere.
Politics in Malaysia continues to be a question to revolve around
its leading personalities. It should also be noted, however, that Malaysia
shares one characteristic with Thailand, which is a strong monarchical
system. In Malaysia's case it is less visible because the kingship is
shared on a five- year revolving basis among the sultans of the various
states of the federation. This clear distinction of the British model
between the head of state, or monarch, and the prime minister, or
political leader, is important to Malaysia's overall stability.
The geographical divide between peninsular Malaysia and East
Malaysia, consisting of the states of Sabah and Sarawak, also underlines
the need for a great deal of political decentralization. Sabah and Sarawak
have very different histories from the other Malaysian states and can be
examined for their political make-up on a separate basis including the
question of the Christian minority in Sabah. Overall, however, it must be
judged that Malaysia's economic success has led to a far greater degree of
political stability than was expected following independence in 1963.
Malaysia's relations with its neighbours on the whole are
excellent and, in particular, the relationship with Singapore, which
remains the largest investor in the country, is a key one. The Singapore
government is obviously enthusiastic to diversify its industrial base
across the causeway into Johore and further north into peninsular
Malaysia. This is good news for Malaysia's economic and political
stability.
The following table gives details of the overall economic
performance of Malaysia from 1987 to 1994.
<TABLE>
<CAPTION>
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ % CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1987 2.52 5.4 0.8 5.9 78.0 261.19 18.49
1988 2.61 8.9 2.5 5.6 36.0 357.38 29.05
1989 2.70 9.2 2.8 3.9 28.7 562.28 39.73
1990 2.70 9.8 3.1 1.9 39.8 505.9 48.81
1991 2.75 8.8 4.3 (6.4) 29.3 556.2 57.49
1992 2.62 8.0 4.7 2.8 21.0 644.0 92.20
1993 2.70 8.5 3.6 3.8 34.3 1,275.0 241.00
1994 2.62 9.2 3.7 (2.2) 23.2 971.0 275.00
1995* 2.55 9.2 3.7 (6.7) 20.4 -- 204.00
*Estimate
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<PAGE>
</TABLE>
Malaysia, along with Singapore, experienced a sharp recession in
1985-6 owing to an excessive tight monetary policy in both countries.
Since 1987, Malaysia has returned, however, to the path of high growth and
low inflation. Nevertheless, over a twenty year period Malaysia ranks
behind Singapore, Thailand and Hong Kong, although ahead of Indonesia in
past overall economic growth. The change in the past five years has also
been accompanied by an accelerated shift into manufacturing and away from
the old dependence on the plantation sector. This manufacturing growth has
been led by investment from Japan and Taiwan and notable national projects
such as the Proton car. Malaysia is attempting to move up market into the
new product areas such as electronics, car assembly and consumer goods. It
is likely to be successful in doing so owing to its literate and trainable
workforce. Therefore, one can be fairly confident that Malaysia's economic
record will continue to be bright.
The exchange rate of the Malaysian ringgit has been closely tied
to that of the Singapore dollar, which itself has been very stable if not
strong against other world currencies, especially the US dollar.
Therefore, the ringgit has had a very stable record against the dollar and
is likely to maintain this stability. Malaysia's foreign trade has
generally been in surplus, although between 1990 and 1991 this figure fell
sharply partly owing to fall-off in Malaysia's energy exports. As
manufactured goods assume a larger importance in the composition of
exports compared with crude oil, rubber and palm oil, Malaysia's trade
position should gradually become steadier. For an investor Malaysia
remains attractive although vulnerable to external shocks either in terms
of commodity prices or in a fall in export demand in its principal
markets. The infrastructure, high literacy rate and relative political
stability in recent years are all bonus points for the country's overall
image.
PAKISTAN
Pakistan, occupying an area about 800,000 square kilometers, is
bounded in the south by the Arabian Sea and India. In the north are China
and Afghanistan. To the west and northwest are Iran and Afghanistan. To
the east is India. The capital is Islamabad. Karachi is the biggest
commercial and industrial city.
Pakistan is the world's ninth most populous country. The
population is currently estimated at approximately 130 million, with an
annual population growth rate of 3.0%. The national language is Urdu,
although English is widely spoken and understood throughout the country.
Pakistan was created in 1947 in response to the demands of Indian
Muslims for an independent homeland, by the partition from British India
of two Muslim majority areas. In 1971, a civil war in East Pakistan
culminated in independence for East Pakistan (now Bangladesh). Over the
past 45 years, Pakistan and India have gone to war three times and
intermittent border exchanges occur at times. In particular, relations
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with India remain unfriendly over the disputed territory of Kashmir, with
its majority Muslim population.
Pakistan has a federal parliamentary system in which its provinces
enjoy considerable autonomy. The head of state is the President, who has
certain important executive powers but is generally required by the
Constitution to act on the advice of the Prime Minister. The President is
elected for a period of five years by the members of the National
Assembly, the Senate and the four provincial assemblies. The Prime
Minister may remain in office as long as he or she has the support of the
National Assembly but not beyond the five-year term of Parliament. The
Prime Minister is currently Ms. Benazir Bhutto, of the Pakistan Peoples
Party.
Ms. Bhutto was preceded as Prime Minister by Mr. Moeen Qureshi,
who was named to head an interim government until a new government could
be elected following the resignations of the Prime Minister and President
in July 1993. Instead of acting as a caretaker for the term of the
interim government, Mr. Qureshi instituted a number of significant
policies designed to reform Pakistan's economy including new taxes on
large landowners, increased utility tariffs, reduced import duties,
increased autonomy of the State Bank of Pakistan and devaluation of
Pakistan's currency to make exports more competitive. Although Ms.
Bhutto's government has continued the implementation of many of the
reforms adopted by the interim government, the permanence of these reforms
depends on the political success and constancy of the new government, as
to which there can be no assurance.
The military has been, and continues to be, an important factor in
Pakistani government and politics and the civilian government continues to
rely on the support of the army. Ethnic unrest and troubled relations
with India are also continuing problems. Recent violence and political
unrest have made Pakistan a less attractive destination.
Economic development since 1955 has taken place within the
framework of successive five-year plans which established growth targets
and allocations of public sector investment. In addition, annual
development plans are prepared indicating yearly allocation of investment
and the program for economic development in the public and private
sectors.
For most of the 1980s, the Pakistani economy showed strong growth,
with GDP increasing at over 6% per annum. Over the past decade, despite a
rapid increase in the labor force, real wages in both rural and urban
areas rose substantially. However, the latter part of the decade was
characterized by increasing fiscal and external deficits, infrastructure
deficiencies and disruptions in production. In 1989, the government
initiated a three-year structural adjustment program with the assistance
of the International Monetary Fund. The program sought to redress the
growing macroeconomic imbalances resulting from the large fiscal deficits
and to increase productivity through major structural reforms in the
industrial and financial sectors.
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The government of Pakistan has been heavily involved in the
economy through ownership of financial and industrial enterprises,
investment policies and incentives and taxation programs established in
the five-year economic plans. Recent governments, however, have announced
various liberalization measures including banking reforms and a number of
measures designed to encourage the private sector.
In February 1991, the government announced a 25 point
liberalization and reform package. In particular, no approval would be
required for the issue and transfer of shares and the issue of capital by
companies in all but a few specified industries. Pakistanis residing
overseas and foreign investors would be permitted to purchase listed
shares and to transfer capital and dividends without approval. The
government has also embarked on a major privatization program and, as of
July 1994, a large number of public sector entities have been offered for
sale.
In 1992 and 1993, the rate of growth of approximately 6% attained
in previous years was interrupted with an estimated GDP growth of 3%. The
lower growth rate is mainly owing to a decline of 3.9% in agricultural
output due to heavy rains that caused damaging floods. During the summer
of 1994, there were also torrential rains, which caused flooding and crop
damage. In 1994, Pakistan's established GDP growth was approximately 4%.
The Government has recently downgraded its projection for economic growth
for 1994-1995 from 6.9% to 5.3% attributing it to a poor cotton crop.
In Pakistan, the Portfolio may invest in the shares of issuers
listed on any of the stock exchanges in the country provided that the
purchase price as certified by a local stock exchange broker is paid in
foreign exchange transferred into Pakistan through a commercial bank and
in the case of an off-exchange sales of listed shares, that the sale price
is not less than the price quoted on any of the local stock exchanges on
the date of the sale. In addition, the issuer's shares held by the
Portfolio must be registered with the State Bank of Pakistan for purposes
of repatriation of income, gains and initial capital. The Portfolio may
also invest in the shares of unlisted and closely-held manufacturing
companies provided that the sale price is certified by a Pakistani
chartered accountant to be not less than the break-up value of the shares
and is paid in foreign exchange transferred into Pakistan through a
commercial bank. If local procedures are complied with, income, gains,
and initial capital are freely repatriable after payment of any applicable
Pakistani withholding taxes.
Pakistan currently imposes a withholding tax on dividends at a
rate of 15% and on interest at a rate of 46%. Under current law, the
withholding rate on interest is to be reduced by three percentage points
per year through 1998. There is currently no withholding tax on capital
gains from listed shares. This exemption will expire in June 1998. As
regards the shares of unlisted and closely held manufacturing companies,
withholding tax on capital gains is currently imposed at a rate of 46%,
reduced to 27 1/2% (or 25% for small amounts) if the shares are held for
12 months or more.
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The Federal Shariat Court, a constitutionally established body
which has exclusive jurisdiction to determine whether any law in Pakistan
violates the principals of Islam (the official State religion), ruled in
November 1991 that a number of legal provisions in Pakistan violated
Islamic principles relating to Riba (an Islamic term generally accepted as
being analogous to interest) and instructed the government of Pakistan to
conform these provisions to Islamic principles. It is believed that
strict conformity with the ruling of the Shariat Court would substantially
disrupt a variety of commercial relationships in Pakistan involving the
payment of interest, although the extent and nature of any such disruption
on the Pakistani economy, or any segment thereof (other than the banking
system), is uncertain. The ruling of the Shariat Court has been appealed
and will have no effect until the Shariat Appellate Bench of the Supreme
Court of Pakistan renders a decision on the appeal. A hearing on the
appeal was held in November 1993, but, in early 1994 at the request of the
government of Pakistan, the appeal is still continuing. In addition,
pursuant to the Enforcement of Shariat Act, 1991 (the "Shariat Act"), the
government of Pakistan has appointed a commission to recommend steps to be
taken to introduce suitable alternatives by which an economic system in
Pakistan conforming to Islamic principles could be established. This
commission may be in a position to propose a pragmatic approach to the
requirements of the Constitution and the Shariat Act with a view to
avoiding any substantial disruption to the economy of Pakistan. There can
be no assurance, however, that the commission will propose such an
approach or that implementation of the steps recommended by the commission
or the effect of the ultimate decision of the courts in Pakistan on this
issue will not adversely affect the economy in Pakistan.
THE PHILIPPINES
The Philippines is a special case in Asia. Culturally and
politically it has a very distinct national personality. The Roman
Catholic Church plays a leading role in its national life, not least in
recent political changes. The fact that the Philippines was the only
American colony in Asia also gave it a very different tradition from
Indonesia or Malaysia, which had similar languages but very different
cultural traditions. The Spanish occupation of the previous four hundred
years also left some deeper traces than the Dutch did in Indonesia.
When speaking of political risk, however, the real problem in the
Philippines has been the lack of legitimacy that has plagued successive
governments and has led to the constant pendulum between dictatorship and
weak democratic governments.
The U.S. tutelage has left a lasting imprint on the country. The
charismatic leadership of Magsaysay in the 1950s also left a vivid example
to his successors. The attempts, in the 1960s, to solve the enormous
economic problems of the Philippines, especially the rural poverty and the
rapid growth of population, were not successful when pursued in a
socialist direction. Marcos arrived in power in 1965 and inherited a
country which still had higher living standards than most other Asian
countries such as Hong Kong, Korea, Taiwan and Singapore. Therefore,
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judgment on his twenty year rule must be very negative as a result, if
only judged as an economic failure.
The question most investors, therefore, raise is whether the
Philippines is capable of responsible government and economic planning
which would give it a GNP growth rate approaching that of its Asian tiger
neighbours. Many observers dismiss this prospect out of hand citing the
endemic problems of corruption, political in-fighting and the lack of
Confucian work ethic present in North Asia. However, there is no doubt
that the Philippines possesses enormous natural advantages and it would be
wrong to generalize about the whole archipelago of 7,000 islands from the
political life of Manila alone. The island of Cebu, for example, has seen
a successful economic transformation in the past twenty years.
Manufacturing investment has grown and has begun to replace agriculture as
a principal source of employment. The Philippines has a very high rate of
literacy and the work ethic cannot be doubted by anyone who has employed
Filipino domestic workers overseas. Their earnings are an important source
of remittance back to the Philippines each year. The Filipino population
in the United States is now the largest Asian ethnic group in that country
approaching 2 million, mainly in California. Both natural resources,
therefore, and an intelligent, hardworking population favour the country.
Unfortunately, the political system has never been able to
maintain the long-term stability for its promise to be fulfilled. The
years of the Aquino government, during which democratic procedures were
restored to Philippine political life, have also been disappointing in
that many of the features of Washington political life have been
reproduced in Manila -- continuous discord between Congress, Senate and
the President, making important national decisions extremely difficult to
reach. On top of that, of course, there have been the continuing attempts
by the military to unseat the elected government. Although all of these
have failed they have, nevertheless, done much to undermine the confidence
of international investors in the political stability of the country. In
particular, the failed attempt of December 1989 led to a slump in the
economy and the stock market and scared away much needed foreign capital.
There are signs that Japanese and Taiwanese investors and banks
are coming back to the Philippines. Nevertheless, it can only be
concluded that democracy is a fragile plant in the Philippines which may
be damaged in the future as it has been in the past. There is continued
rivalry for political and business influence among a small group of
leading Filipino families. The press, although perhaps the freest in Asia,
is considered to be irresponsible and corrupt and does much to undermine
the legitimacy of the ruling government. Political risk, therefore, is
judged to be higher here than in other Asian countries.
The following table gives details of the overall economic
performance of the Philippines from 1987 to 1994.
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ (%) CPI (US $BN) P/E CLOSING (US $BN)
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--------- ------- ------ ---------- ---- -------- --------
1987 20.5 4.8 3.8 (1.0) 15.9 642.72 2.97
1988 21.0 6.3 8.8 (1.1) 19.6 841.65 4.20
1989 21.7 5.0 10.6 (2.6) 16.8 1,145.45 11.82
1990 27.2 2.1 12.7 (4.0) 14.3 651.78 5.73
1991 26.2 (1.0) 17.7 (3.2) 12.7 1,152.00 11.10
1992 23.6 0.0 8.9 (4.7) 13.5 1,256.00 16.00
1993 27.1 1.7 9.8 (6.4) 29.4 3,196.00 39.00
1994 26.3 4.3 9.1 (7.8) 24.5 2,786.00 56.00
1995* 25.8 5.4 7.7 (9.3) 19.2 -- 56.00
*Estimate
The GDP growth, which had been running at 5.5 percent average for
the previous three years, fell to only 2 percent in 1990 and inflation
rose to 12 percent. The peso was rather weak and the trade deficit doubled
to nearly US $4 billion. The stock market tumbled by over 50 percent, from
a high of 1,145 to less than 600, and the overall value of listed
Philippine shares fell from US $12 billion to less than US $6 billion.
Such is the real economic risk for investors of this fragile political
system. Nevertheless, the recovery of confidence in early 1991 is
testament to the long-term value that investors see in the country. Even
if relative to its Asian neighbours the Philippines continues to have
economic problems (and notably its high foreign debt), it will benefit
from regional trends and it will present, from time to time, very
interesting buying opportunities. The educated and literate labour force
is a major resource of wages and relatively low taxes.
At the worst point of the last years of the Marcos regime
inflation in the Philippines reached 50 percent, the highest recorded in
Asia during the past decade. With the strong support of the central bank
under Governor Jobo Fernandez, the money supply was reined in, the peso
was stabilized and inflation came down to single digits between 1986 and
1988. The tight monetary policy has been maintained and interest rates
have been as high as 35 percent to control the supply of credit.
Therefore, with good macroeconomic management the inflation problems in
the Philippines can be contained.
The same rule can be applied to the value of the peso which has
had a poor long-term record and, despite the efforts of a strong and
independent central bank, has again slid in value against the dollar in
the past two years. With the benefit of strict International Monetary Fund
prescriptions it is hoped that the Philippines will now be able to
reschedule its foreign debt particularly with the help of the Japanese
banks, stabilize the currency and maintain a reasonable growth in its
export trade.
SINGAPORE
"The silent success", in the words of a Singapore government
minister, of this region is based on a high literacy rate and a
well-educated and trainable workforce. The investment in human capital has
proven to be more important to a lasting economic growth success story
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than the availability of finance or technology. The demise of communism is
also promoting greater confidence and political stability in the
Association of South East Asian Nations (ASEAN) region, of which Singapore
is the de facto financial centre.
Essentially Singapore's aim in the 1990s will be to emulate what
Hong Kong has done in Guangdong Province and the hinterland of southern
China. But in Singapore's case its export of jobs and lower value added
industries will be mainly to neighbouring Malaysia and, to a lesser
extent, to Indonesia. The plantations in the southern part of the
Malaysian peninsula depend almost entirely on the large annual in-take of
illegal workers from Indonesia. With 100 million people in Java alone,
Indonesia needs to provide employment for 2- 3 million a year. Thus
mobility of labour within ASEAN is as important, if not more so, than
mobility of capital.
Singapore is aiming its investment at Johore in Malaysia and Batam
Island in Indonesia. This is the so-called growth triangle. There is a
political aspect to this. Singapore is a small Chinese island surrounded
by a sea of Muslims. It needs to ensure political stability among its
neighbours. One of the best ways of doing this (as Hong Kong has found in
southern China) is to invest and create jobs and raise per capita incomes
from their present low level.
The other aspect of political risk when considering Singapore is,
of course, the handover of political power from one generation to another.
Although Lee Kwan Yew stepped down as Prime Minister in 1990, he continues
to wield a large influence and power behind the scenes. Nowhere in the
world could it be truer to say that the state is the creation of one man,
thus his succession poses a very real problem. His son, Lee Hsien Loong,
may not take up the post of Prime Minister for three to five years. In any
case, the question of dynastic succession in a parliamentary democracy,
even within a limited Confucian Chinese democracy, is, to say the least, a
questionable one. Many of the elder Lee's policies, such as imposing the
Mandarin Chinese language on the Singapore educational system, have
aroused fierce opposition among the older, anti-communist generation of
Singapore Chinese. The tight control of the media and the suppression of
all political opposition or criticism of the government, the People's
Action Party or the Prime Minister himself, has also aroused criticism
both at home and internationally.
But, on balance the enormous success of Lee Kwan Yew's achievement
in creating modern Singapore cannot be doubted. It is clean, efficient and
notably lacking in corruption compared to other Asian cities. The Central
Provident Fund, which takes 35 percent of every person's income as a
compulsory savings scheme, has built up an enormous reservoir of capital
for future use in Singapore. Notable public works such as Changi Airport
or the transport system have been the result. Long-term planning has not
been as successful anywhere else, with the possible exception of Japan.
The paternalistic attitude of the Singapore government towards its
citizens is unlikely to change in the immediate future especially since
the younger generation of Singaporeans have been thoroughly versed in the
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disciplined Confucian thinking and authoritarianism which characterizes
the school system as well as government. Singapore also has a well run and
modern citizens' army based, like the Swiss model, on an annual call-up of
every able-bodied man aged between 18 and 50. The city state is thus well
equipped to defend itself against any aggressor. Singapore will also
benefit from the inflow of human and financial capital from Hong Kong as
1997 approaches. In this sense it does not need to change but merely to
retain its present stability and attractive lifestyle in order to continue
to prosper. Thus, the conclusion to be drawn is that Singapore scores an
equally high rating in terms of very low political risk and a high degree
of stability as Japan.
The following table gives details of the overall economic
performance of Singapore from 1987 to 1994.
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ (%) CPI US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 2.10 9.4 0.5 (5.2) 17.8 270.34 17.86
1988 2.01 11.1 1.5 (4.7) 18.5 1,038.6 24.00
1989 1.95 9.2 2.4 (4.8) 18.3 1,481.3 35.95
1990 1.74 8.3 3.4 (5.3) 13.1 1,159.5 34.26
1991 1.62 6.7 3.4 (4.6) 18.5 1,490.7 51.20
1992 1.64 5.8 2.3 (4.9) 19.6 1,524.4 52.20
1993 1.61 9.9 2.4 (0.8) 36.0 2,426.0 132.05
1994 1.53 10.1 3.1 (5.9) 22.5 2,239.5 170.00
1995* 1.43 7.3 2.1 (4.9) 20.6 -- 160.00
*Estimate
Note: Market capital figures for Singapore for incorporated companies
only.
The Singapore economy has been characterized by the highest degree
of government involvement and intervention outside of the socialist world.
Nevertheless, the growth rate has been quite impressive, averaging around
7-8 percent, except during the 1985-6 recession, and even more impressive
has been the tight control of inflation which, along with that of Japan,
has remained extremely low at below 3 percent for the past decade. The
economic stability of Singapore, therefore, scores high on a comparative
basis although being a small island state it is very sensitive to
developments in its two main neighbours, Indonesia and Malaysia, with
their large commodity-based economies. Thus, Singapore runs a regular
trade deficit of around US $5 billion per annum which is easily covered by
its current account surplus on invisibles. Singapore's foreign reserves
held by the Monetary Authority of Singapore (MAS) and the Government
Investment Corporation of Singapore (GICS) are estimated to be in excess
of US $50 billion which would give this tiny Asian city state the third
highest foreign exchange reserves after Japan and Taiwan.
Thus, the overall management of "Singapore Inc." is extremely
conservative, with a very high degree of self-reliance, a high savings
rate and an ample cushion for unexpected global events. This financial
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conservatism has been reflected in the strong performance of the Singapore
dollar which has advanced steadily against the US dollar during the past
five years with an average appreciation of 5 percent per annum. It is
reasonable to expect these trends -- high economic growth, high savings
rate, low inflation and steady currency appreciation -- to continue during
the 1990s.
SRI LANKA
Sri Lanka, historically known as Ceylon, is an island about 65,000
square kilometers, situated off the southeast coast of India. It has a
relatively well-educated population, with nearly 25% of the 17 million Sri
Lankans speaking English and a literacy rate (in Sinhalese and Tamil) of
nearly 90%.
A former British colony, Ceylon became an independent Commonwealth
in 1948 and became the Democratic Socialist Republic of Sri Lanka in 1972.
Sri Lanka is governed by a popularly elected President and unicameral
Parliament.
In the parliamentary elections held in August 1994, the People's
Alliance led by Mrs. Chandrika Kumaratunga managed to form the government
ending the 17-year regime of the United National Party. The People's
Alliance has further consolidated its position by the victory of Mrs.
Chandrika Kumaratunga in the presidential elections held in November 1994.
Insurrection and political violence among Sri Lanka's ethnic groups
including terrorist actions by the Tamil Tigers, a separatist
organization, have in the past disrupted Sri Lanka's government and
economy. The new government has accorded top priority to settling the
ethnic conflict with the Tamils in the north and has initiated peace talks
with the LTTE. Although Sri Lanka's government is currently fairly
stable, there can be no assurance that such stability will continue.
The Sri Lankan government recently has reviewed and revised laws,
regulations and procedures to promote a competitive business environment,
remove distortions and reduce unnecessary government regulation. The
government has liberalized trade and encourages private ownership
including foreign investment. Laws pertaining to tax, labor standards,
customs and environmental norms have been designed to attract more
investment. There are now few exchange controls, a fairly stable currency
and many incentives for private investors. With guidance from the World
Bank, IMF and U.S. advisers, government enterprises area being privatized,
financial services liberalized, manufacturing for exports encouraged, a
stock exchange formed and foreign investment actively sought. About 80%
of the land in Sri Lanka is still owned by the governments including most
tea, rubber and coconut plantations. The government did privatize the
management of these estates recently, however.
Sri Lanka's economy is primarily agricultural, but the
manufacturing and service sectors have grown greatly in the past decade,
partly in response to the Sri Lankan government's efforts to diversify and
liberalize its economy. In 1991, gross foreign exchange earnings from
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apparel exports exceeded earnings from the entire agricultural sector
(tea, rubber and coconut) for the first time.
The financial system is reasonably sophisticated and basic
legislation for private corporations is in place. Commercial banks are
the principal source of finance. However, the increase in net government
borrowing (because of budget deficits) has reduced credit to the private
sector. Inflation, which was about 21% in 1990, has come down to
approximately 10-11% but remains a concern.
Sri Lanka is actively working to improve its basic infrastructure.
A $500 million expansion of the telecommunications network has begun. The
Colombo Container Port - the 25th busiest in the world - is expected to
increase its capacity soon, and new dry dock services are under
construction.
The economic statement announced by the new government in January
1995 attempts a careful balance between the compulsions for welfare
measures and the need for attracting fresh investments. The privatization
program is scheduled to continue with the private sector given a major
role in infrastructure development. The new government has also presented
its maiden budget in February 1995 in which it has tried to do a delicate
balancing act between an extensive array of consumer subsidies on wheat,
diesel and fertilizers with a steep cut in import tariffs on consumer
goods.
In Sri Lanka, the Portfolio may invest in the shares of exchange-
listed issuers, subject to certain limitations for specific sectors of the
economy. Sri Lanka imposes 15% withholding tax on dividends and interest
but does not impose withholding tax on capital gains of listed shares.
Unlisted shares are subject to a maximum capital gains tax of 35%.
TAIWAN
Taiwan is the most invisible country on the planet, and Taiwan is
recognized by very few countries, mostly small island states like itself
in the South Pacific and the Caribbean. And yet it is an oriental paradox
-- it has a financial and diplomatic influence which is out of all
proportion to its small size. For historical and cultural reasons Taiwan
stands between China and Japan. (The slow pace of the Sino-Japanese
relationship since 1972 may be partly caused by this conundrum.)
Indeed, if Taiwan is now going to be brought back into the fold it
is also reasonable to expect the level of Japanese investment and trade in
China to accelerate. It is very probable that Japan will use Taiwan as a
"middle-man" for trade and investment in China.
Taiwan is dependent on its close relationship with the United
States and its very successful diplomacy and public relations campaign
which, ever since Madame Chiang Kai-Shek's days in the 1940s has sustained
a high level of sympathy in Washington for the Nationalist regime. Taiwan
also has close relations with South Africa, from which it buys essential
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raw materials such as coal, and also with Israel, with whom it has had
military as well as trade links.
For all these reasons, much of the real Taiwan has been hidden for
many years. It is misunderstood by many Westerners -- the country has been
the most difficult of all Asian countries to follow and understand.
However, since the lifting of martial law in 1987 much of this has
changed. People in Taipei are again willing to talk openly and it is
possible to begin to understand the sense in which Taiwan has become a
repository of much of the best of the old Chinese traditions. In Taiwan
can be found many of the old Chinese arts -- a strong family life,
Confucianism, a flourishing trade in traditional Chinese medicines, the
martial arts, an excellent standard of Chinese movies and television, and
the tradition of Chinese law.
Nevertheless, the basic geopolitical fact about Taiwan is that it
sits under the shadow of mainland China and under the threat of
reunification, whether peaceful or by military means. However in the last
few years and especially since June 1989, the leadership of the Communist
Party in Peking and in Taipei have begun, for the first time since 1949,
to have serious talks and regular communication. At the same time the flow
of investment from Taiwan into mainland China, especially into the
neighbouring province of Fujian, has grown dramatically and the two-way
trade is now approaching US $4 billion annually. In the early days of this
two-way business, the authorities in Taipei turned a blind eye to the many
small projects that Taiwanese businesspeople were embarking upon with PRC
partners. Also, there was an enormous increase in the number of annual
visitors from Taiwan into China. Along with the travel and tourism came
the investment and it is now estimated that there is over US $500 million
of direct Taiwanese capital in plants and small businesses in China. Many
of the most successful toy and electronics factories in Shenznen, across
the border from Hong Kong, are owned and managed by Taiwanese. Speaking
Mandarin or the Fujianese dialect, they have the same natural advantage in
dealing with mainland officials and businesspeople that the Hong Kong
Cantonese have with the inhabitants of Guangdong Province.
So the analysis of risk and reward in Taiwan must already take
account of this rapidly growing economic integration between Taiwan and
China, which has led to over 30 percent of Taiwan's trade being with the
mainland and that the total investment from Taiwan to China may approach
US $5 billion or even US $10 billion. As with Hong Kong, increasingly an
investment in Taiwan will be seen indirectly as a "play" or an investment
in China itself. Nevertheless, Taiwan remains a free capitalist enclave
with some very successful entrepreneurial and export-oriented companies.
The government's role in the economy is relatively small. It has pursued
consistently, since 1950, a laissez-faire policy which allows small family
run companies typically to change their product line every two or three
years to meet the demands of American or other international clients.
Statistics clearly indicate that the exports strengths, which have powered
the Taiwanese economic boom for thirty or forty years, remain intact
despite the shortage of skilled labour, the high cost of labour and the
strong New Taiwan dollar, which has impelled many Taiwanese businesspeople
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to shift their production to Thailand, the Philippines, and Malaysia as
well as China. The best measure of Taiwan's economic success is in its US
$80 billion of foreign exchange reserves.
What then is the real risk to Taiwan? After Hong Kong is taken
over in 1997 Taiwan will appear more isolated and it will have lost its
neutral meeting point with China, which the British colony has
represented. On the other hand, by that time Taiwan and China may have
grown sufficiently close in economic, if not in political, terms that Hong
Kong will have become unnecessary. Direct trade and investment are already
commencing. Some form of political agreement allowing for Taiwan's
autonomy, if not independence, may be worked out. The one country, two
systems formula applied to Hong Kong and Macau was always designed by
Peking with the objective of regaining Taiwan in the long term. That long
term may not be as long as some observers have predicted. The passing away
of the older generation who fought in the bitter civil wars between the
communists and the KMT from 1927 to 1949 will remove much of the
bitterness and open up the way for a new dialogue between the younger
leaders in the two Chinas.
The strongest argument for a political compromise and a formula
for coexistence is the natural complementarity of the two Chinese
communities on an economic basis. China has the labour, the land and the
resources. Taiwan has the capital, the technology and the trained
entrepreneurs. A formidable Chinese Economic Community could be a reality
before the end of the century. However, a more pessimistic view would be
to see a return to ideological extremism in Peking resulting in a renewed
cold war across the Taiwan Straits, a cut off of business and cultural
links, and a potential military conflict. Even in this very gloomy
scenario Taiwan may be able to defend itself and maintain its economic
prosperity because it will still have the economic support of both Japan
and the United States.
Between 1960 and 1994, Taiwan's GNP grew from less than $2 billion
to over $240 billion. The economic growth has been accompanied by a
transformation of domestic production from labor intensive to capital
intensive industries in the 1970s and finally to higher technology
industries in the 1980s. With over $92 billion, Taiwan has the world's
largest foreign exchange reserves. Taiwan companies continue to be
attracted by China's low labor costs, inexpensive land and less rigid
environmental rules. It is estimated that accumulated Taiwanese
investment in China exceeds $3 billion. Taiwanese listed companies
include a number which invested indirectly in China, primarily in the
textiles, food and rubber industries. Given the proximity of Taiwan to
China, the cultural homogeneity and the compelling economic incentive for
further investment, the primary obstacle to greater investment flows has
been the prohibition by Taiwanese authorities of direct investment in
China. Based on discussions with Taiwanese companies and the trend toward
greater liberalization by the government of investment in China, the
Adviser believes that over the next several years the scope for investment
by Taiwanese companies in China will widen substantially and that many
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more companies listed on the Taiwan Stock Exchange Corp. will have
significant interests in China.
The following table gives details of the overall economic
performance of Taiwan from 1987 to 1994.
<TABLE>
<CAPTION>
EXCHANGE GDP TRADE MARKET MARKET
RATE GROWTH SURPLUS YEAR-END CAPITAL
AV. US $ (%) CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987 31.85 12.3 0.5 18.7 28.7 2,339.26 48.45
1988 28.57 7.3 1.3 10.9 68.9 5,119.11 120.1
1989 26.41 7.6 4.4 14.0 92.0 9,624.18 240.0
1990 26.39 6.9 4.1 14.9 33.0 4,530.16 112.4
1991 25.50 7.3 3.6 15.7 28.0 4,600.67 123.7
1992 25.20 6.1 4.5 12.5 30.1 3,377.06 100.1
1993 27.00 6.2 2.9 7.8 30.3 6,071.00 191.0
1994 26.36 6.5 4.1 7.8 22.6 7,125.00 242.1
1995* 27.30 6.6 3.4 -- 16.2 -- 186.7
*Estimate
</TABLE>
The risks for an investor in The Taiwan Stock Exchange Corp. are
specifically those of a highly priced and highly volatile securities
market with very weak regulations and poor accounting standards. It was
once estimated that, out of 140 listed companies in Taiwan, perhaps twenty
or thirty counters were those of companies which were technically
bankrupt. Investors take little account of security analysis or of the
investment fundamentals which might count more for long-term Western
investors. The speculative atmosphere of The Taiwan Stock Exchange Corp.
does, therefore, portray a high degree of risk. However, the New Taiwan
(NT) dollar is a very steady currency in relation to the U.S. dollar. The
economy of the island has shown a steady and non-inflationary growth rate
and savings are very high in relation to disposable income.
The most important risk to consider for a Western investor trying
to get into the Taiwanese market is the choice of a trustworthy and
reliable local partner. This is much more difficult to achieve in Taiwan
than in, say Hong Kong, where the British legal and commercial system and
the educational system are more familiar. Taiwan has a purely Chinese
culture and way of life even though most of the younger business people
are educated in the universities of the United States and many have PhDs.
Nevertheless, the way of doing business remains a traditional Chinese way.
Therefore, nothing can be achieved by means of legal contracts or
agreements in the accepted Western sense. Even more than in China, Taiwan
depends on the personal contact and trust between the two individuals
involved. Many Western banks have come to grief in their pursuit of the
elusive Taiwan millionaires in the private banking sector and in their
corporate loans to apparently sound Taiwanese companies, which either
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cannot or will not repay. Recourse is very hard to enforce and the legal
system is undeveloped. These are the major risks in doing business in
Taiwan but the potential rewards should not be underestimated. Those who
have had a long-term commitment to the island republic, have had good
contacts with the government and have done business in the Chinese way
with a good local Chinese partner have been able to demonstrate very good
long-term returns on their investments. In addition, the links that Taiwan
business people have built around the globe, in the United States in
particular but also increasingly in Canada, where they have followed Hong
Kong investors into Bristish Columbia, in Australia, in the Philippines
and in Bangkok, are impressive.
THAILAND
Thailand is unique in South East Asia in that it has escaped the
colonial experience and maintained its freedom and independence. In
addition, the monarchy plays a key role in maintaining the country's
political stability and independence. It is, nevertheless, sobering to
realize that since the absolute monarchy was ended in 1932 there have been
no less than twenty-one coup d'etats, of which twelve have been
successful. The recent international perception of Thailand was very much
coloured by the experience of the past fifteen years as there had been no
successful coup d'etat since 1977. Thus, the one that took place in
February 1991 was a surprise to many foreign observers and investors,
although it had broad popular support and the tacit blessing of King
Bhumibol himself. The army was felt to be acting not only to further its
own cause but to stamp out political corruption and restore, within a
period of six months, a democratically elected government. The Cabinet,
which was put in place immediately after this coup, contained fifteen PhDs
out of a total of twenty-three ministers, and the generals were in a small
minority compared to the businesspeople, diplomats and civil servants with
a record of disinterested public service. Thus, it seems that Thailand in
the 1990s will remain democratic but that the King and the army will
continue to play a role which would be described in a Western democracy as
that of "checks and balances" on the excesses of elected politicians.
Political risk in Thailand needs to be seen in this cultural
context. Thailand has been given a higher rating for political stability
because of the existence of the monarchy first of all. King Bhumibol, who
has been on the throne since 1946, commands enormous personal respect and
popular reverence. It is improbable, therefore, for any government or
military group to gain power without his tacit approval. This factor
mitigates much of the instability which may be suggested by the record for
the past sixty years of attempted military coups. At the same time
Thailand has differed from its neighbours Burma and Vietnam in possessing
a free and independent peasant population which has, on the whole, enjoyed
a higher standard of living than their neighbours and, therefore, the
communist movement has never made much headway among the rural people. On
the other hand again, Thailand's extraordinary economic growth in the
1980s (averaging 10 percent per annum) has put great strains not only on
the urban environment because of traffic jams and pollution, but also on
the social and family system. Many rural families have been forced to send
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their teenage children to the cities to find employment. The contrast of
living standards between Bangkok and the north east provinces (an
estimated per capital income would be perhaps US $2,500 per annum for the
former and less than US $500 per annum for the latter) must eventually
create social tensions and potential unrest. The laissez-faire policy of
the Bangkok government has thus far worked extremely well although the
lack of planning, in terms of the proliferation of factories around the
capital, leaves something to be desired.
The fact that Thailand is a majority Buddhist country may do much
to explain the non-violent changes of power and exchanges of politically
different views which characterizes its public life. So, along with the
monarchy, Buddhism must be counted as a major factor of political
stability. The army is the third element which can be considered, on
balance, to be a positive factor. During the 1970s it seemed more than
probable that Thailand would bear out the Pentagon "domino theory" by
which each country in succession -- China in 1949, North Vietnam in 1954,
South Vietnam in 1975, Laos, Cambodia in 1975-7...Thailand, Malaysia,
Singapore -- would fall to the irresistible southward movement of the
communist militias. But, Thailand was the point at which communism
stumbled and fell back. Much of this has to do with the professionalism of
the army and the basic resistance of the people to a foreign ideology. As
Siam had resisted British and French colonial pressure in the nineteenth
century, so Thailand in the twentieth century resisted the Marxist
Leninist dictatorship which engulfed its once prosperous neighbour,
Vietnam.
Thailand is, finally, the most open country to foreigners and
receives almost 5 million tourists a year. The self-confidence and strong
sense of cultural identity of the Thai people is in no way diminished by
the superlative standards of service that characterize their hotels,
tourist resorts and airlines. Any independent observer or visitor to
Thailand can, therefore, assess the real nature of the underlying social
stability of the country which supports the high degree of political
stability predicted for the country.
The following table gives details of the overall economic
performance of Thailand from 1987 to 1994.
TRADE
EXCHANGE GDP SURPLUS/ MARKET MARKET
RATE GROWTH (DEFICIT) YEAR-END CAPITAL
AV. US $ % CPI (US $BN) P/E CLOSING (US $BN)
--------- ------- ------ ---------- ---- -------- --------
1987 25.72 9.5 2.5 (1.6) 9.3 284.99 5.4
1988 25.29 13.2 3.9 (3.9) 16.3 386.73 8.86
1989 25.70 12.2 5.4 (5.4) 26.4 879.19 25.67
1990 25.56 10.0 6.0 (9.9) 13.8 612.86 23.86
1991 25.05 8.2 5.7 (9.6) 15.6 711.40 35.7
1992 25.49 7.5 4.1 (8.5) 15.2 893.40 58.20
1993 25.50 7.8 4.8 (9.2) 27.6 1,183.00 130.0
1994 25.10 8.2 5.0 (9.5) 21.3 1,360.00 150.0
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1995* 24.90 8.8 5.2 (11.9) 17.6 -- 140.0
*Estimate
Thailand's economy has been the fastest growing in the world for
the past three years. The take-off really began in 1986-7 with the flood
of new foreign investment into the country, largely from Japan and Taiwan.
The rapid appreciation of the Japanese yen against the dollar in 1985-6
forced many Japanese manufacturers to consider moving some of the low
technology, low labour cost activities, such as textiles, consumer
electronics and footwear, offshore. Thailand was a natural destination for
Japan's industrialists, made easier by the low degree of red tape and
bureaucratic delays. Hence as the figures published by the Board of
Investment between 1985 and 1992 show the rising tide of foreign capital
was a major cause of Thailand's economic boom. GDP growth reached over 12
percent in 1988 and 1989 and it seems likely that in the 1990s Thailand
can sustain a medium-term growth of nearly 7 percent annually in real
terms.
There has been a large shift away from agriculture towards
manufacturing. As recently as 1980, 50 percent of Thailand's exports
consisted of rice and tapioca and other agricultural products. By 1990, 75
percent of the total volume of exports were manufactured goods, mainly
from the newly established assembly plants in Bangkok and the south. This
has resulted in large changes in employment and moves of populations.
Nevertheless, the profound change in the structure of Thailand's economy
has been well absorbed and sets the stage for a move into higher value
added products in the years up to 2000.
It is surprising, considering the very high rate of economic
growth that the economy has experienced, that prices, as measured by the
consumer price index, have been kept under control. The last serious bout
of inflation in Thailand occurred during the two oil crises, first in
1973-4 when the CPI touched 24 percent and then again in 1980-1 when there
was a resurgence of inflation to nearly 20 percent. In the later 1980s,
and thanks largely to a more stable oil price, inflation has been held in
single digits and has not exceeded 6 percent. Nevertheless, the boom of
the past three years, particularly in Bangkok, has led to a rapid
escalation of real estate values and rents. It is likely that the slowdown
in the economy in 1991 will result in a lower inflation rate and,
therefore, it is expected that Thailand's inflation will be held at 5
percent or below in the next few years.
Once again the record is one of extraordinary stability. The Thai
baht has been carefully managed by the Bank of Thailand against a basket
of currencies which is thought to be around 80 percent dollars and 20
percent yen. When measured against the U.S. dollar it has resulted in a
very small annual variation of less than 3 or 4 percent. In fact, during
the last six years there has been virtually no change in the value of the
baht compared with the dollar. Clearly, the weaker dollar of the 1985-90
period has favoured Thailand's exports. (The same effect is observable
with the Hong Kong dollar which is also pegged to the American unit.)
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Therefore, it is expected that Thailand's currency will remain extremely
stable in dollar terms in the future.
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PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements called for by this Item are
included in Part B and listed in Item 23 hereof.
(b) Exhibits
1. Declaration of Trust dated January 19, 1996
filed herewith.
2. By-Laws of the Registrant as adopted January 19,
1996 filed herewith.
5. Form of Investment Advisory Agreement between
the Registrant and Lloyd George Investment
Management (Bermuda) Limited filed herewith.
6. Form of Placement Agent Agreement with Eaton
Vance Distributors, Inc. filed herewith.
8. Form of Custodian Agreement with Investors Bank
& Trust Company filed herewith.
9. Form of Administration Agreement between the
Registrant and Eaton Vance Management filed
herewith.
13. Investment representation letter of Eaton Vance
Management dated January 26, 1996 filed
herewith.
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 As of January 31, 1996
Interests Number of Record Holders
2
Item 27. Indemnification
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as Exhibit 1 hereto.
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The Trustees and officers of the Registrant and the personnel of
the Registrant's administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser
Lloyd George Investment Management (Bermuda) Limited ("Lloyd
George") serves as investment adviser to the Portfolio. Lloyd George, a
corporation organized under the laws of Bermuda, is a wholly-owned
subsidiary of Lloyd George Management (B.V.I.) Limited ("LGM"). LGM and
its subsidiaries act as investment adviser to various individual and
institutional clients.
To the knowledge of the Portfolio, none of the directors or
officers of Lloyd George, except as set forth on its Form ADV as filed
with the Securities and Exchange Commission, is engaged in any other
business, profession, vocation or employment of a substantial nature,
except that certain directors and officers also hold various positions
with and engage in business for affiliates of Lloyd George.
Item 29. Principal Underwriters
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 at the following
locations:
Name Address
Eaton Vance Distributors, Inc. 24 Federal Street
(placement agent) Boston, MA 02110
Lloyd George Investment 3808 One Exchange Square
Management (Bermuda) Limited Central, Hong Kong
(investment adviser)
Eaton Vance Management 24 Federal Street
(administrator) Boston, MA 02110
Investors Bank & Trust Company 89 South Street
(custodian) Boston, MA 02110
Item 31. Management Services
Not applicable.
C-2
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Item 32. Undertakings
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Boston and Commonwealth of Massachusetts on the
5th day of February, 1996.
ASIAN SMALL COMPANIES PORTFOLIO
By: /s/ James L. O'Connor
-----------------------------
James L. O'Connor, Treasurer
C-4
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1. Declaration of Trust dated January 19, 1996.
2. By-Laws of the Registrant as adopted January 19, 1996.
5. Form of Investment Advisory Agreement between the Registrant and
Lloyd George Investment Management (Bermuda) Limited.
6. Form of Placement Agent Agreement with Eaton Vance Distributors,
Inc.
8. Form of Custodian Agreement with Investors Bank & Trust Company.
9. Form of Administration Agreement between the Registrant and Eaton
Vance Management.
13. Investment representation letter of Eaton Vance Management dated
January 26, 1996.
C-5
<PAGE>
ASIAN SMALL COMPANIES PORTFOLIO
_______________________
DECLARATION OF TRUST
Dated as of January 19, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . . 3
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 General . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Investments . . . . . . . . . . . . . . . . . 5
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . . 6
Section 3.5 Decreases and Redemptions of Interests . . . 6
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . 6
Section 3.7 Delegation; Committees . . . . . . . . . . . 6
Section 3.8 Collection and Payment . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . 7
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . 7
Section 3.11 Further Powers . . . . . . . . . . . . . . . 7
Section 3.12 Litigation . . . . . . . . . . . . . . . . . 8
ARTICLE IV--Investment Advisory, Administration and Placement Agent
Arrangements . . . . . . . . . . . . . . . . 8
Section 4.1 Investment Advisory, Administration and Other
Arrangements . . . . . . . . . . . . . . . . 8
Section 4.2 Parties to Contract . . . . . . . . . . . . . 8
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. . . . . . . . . . . . . . . . 9
Section 5.1 Liability of Holders; Indemnification . . . . 9
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent
Contractors
to Third Parties . . . . . . . . . . 9
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent
Contractors
i
<PAGE>
to Trust, Holders, etc. . . . . . . . 9
Section 5.4 Mandatory Indemnification . . . . . . . . . . 9
Section 5.5 No Bond Required of Trustees . . . . . . . . 10
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc . . . . . . . . . 10
Section 5.7 Reliance on Experts, etc . . . . . . . . . . 11
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.1 Interests . . . . . . . . . . . . . . . . . . 11
Section 6.2 Non-Transferability . . . . . . . . . . . . . 11
Section 6.3 Register of Interests . . . . . . . . . . . . 11
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . 11
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . 12
Section 8.1 Book Capital Account Balances . . . . . . . . 12
Section 8.2 Allocations and Distributions to Holders . . 12
Section 8.3 Power to Modify Foregoing Procedures . . . . 12
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 9.1 Rights of Holders . . . . . . . . . . . . . . 12
Section 9.2 Meetings of Holders . . . . . . . . . . . . . 13
Section 9.3 Notice of Meetings . . . . . . . . . . . . . 13
Section 9.4 Record Date for Meetings, Distributions, etc. 13
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . 13
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . 14
Section 9.7 Inspection of Records . . . . . . . . . . . . 14
Section 9.8 Holder Action by Written Consent . . . . . . 14
Section 9.9 Notices . . . . . . . . . . . . . . . . . . . 14
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc. . . . . . . 14
Section 10.1 Duration . . . . . . . . . . . . . . . . . . 14
Section 10.2 Termination . . . . . . . . . . . . . . . . . 15
Section 10.3 Dissolution . . . . . . . . . . . . . . . . . 16
Section 10.4 Amendment Procedure . . . . . . . . . . . . . 16
Section 10.5 Merger, Consolidation and Sale of Assets . . 17
Section 10.6 Incorporation . . . . . . . . . . . . . . . . 17
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 18
Section 11.1 Governing Law . . . . . . . . . . . . . . . . 18
Section 11.2 Counterparts . . . . . . . . . . . . . . . . 18
Section 11.3 Reliance by Third Parties . . . . . . . . . . 18
Section 11.4 Provisions in Conflict With Law or Regulations 18
ii
<PAGE>
DECLARATION OF TRUST
OF
ASIAN SMALL COMPANIES PORTFOLIO
This DECLARATION OF TRUST of Asian Small Companies Portfolio is
made as of the 19th day of January, 1996 by the parties signatory hereto,
as Trustees (as defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the law
of the State of New York for the investment and reinvestment of its
assets; and
WHEREAS, it is proposed that the trust assets be composed of
money and property contributed thereto by the holders of interests in the
trust entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will hold
in trust all money and property contributed to the trust fund and will
manage and dispose of the same for the benefit of the holders of interests
in the Trust and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the "Trust")
shall be Asian Small Companies Portfolio and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents
and sue or be sued under that name, which name (and the word "Trust"
wherever hereinafter used) shall refer to the Trustees as Trustees, and
not individually, and shall not refer to the officers, employees, agents
or independent contractors of the Trust or holders of interests in the
Trust.
1.2. Definitions. As used in this Declaration, the following
terms shall have the following meanings:
"Administrator" shall mean any party furnishing services to the
Trust pursuant to any administration contract described in Section 4.1
hereof.
"Book Capital Account" shall mean, for any Holder at any time,
the Book Capital Account of the Holder for such day, determined in
accordance with Section 8.1 hereof.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
U.S. Internal Revenue Code of 1954, as amended (or any corresponding
provision or provisions of succeeding law).
<PAGE>
"Commission" shall mean the U.S. Securities and Exchange
Commission.
"Declaration" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "Declaration",
"hereof", "herein" and "hereunder" shall be deemed to refer to this
Declaration rather than the article or section in which any such word
appears.
"Fiscal Year" shall mean an annual period determined by the
Trustees which ends on August 31 of each year or on such other day as is
permitted or required by the Code.
"Holders" shall mean as of any particular time all holders of
record of Interests in the Trust.
"Institutional Investor(s)" shall mean any regulated investment
company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether organized
within or without the United States of America, other than an individual,
S corporation, partnership or grantor trust beneficially owned by any
individual, S corporation or partnership.
"Interest(s)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined
by calculating, at such times and on such basis as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance to the total of all Holders' Book Capital Account balances.
Reference herein to a specified percentage of, or fraction of, Interests,
means Holders whose combined Book Capital Account balances represent such
specified percentage or fraction of the combined Book Capital Account
balances of all, or a specified group of, Holders.
"Interested Person" shall have the meaning given it in the 1940
Act.
"Investment Adviser" shall mean any party furnishing services to
the Trust pursuant to any investment advisory contract described in
Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a meeting of
Holders, of (A) 67% or more of the Interests present or represented at
such meeting, if Holders of more than 50% of all Interests are present or
represented by proxy, or (B) more than 50% of all Interests, whichever is
less.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
2
<PAGE>
"Redemption" shall mean the complete withdrawal of an Interest of
a Holder the result of which is to reduce the Book Capital Account balance
of that Holder to zero, and the term "redeem" shall mean to effect a
Redemption.
"Trustees" shall mean each signatory to this Declaration, so long
as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been
duly elected or appointed and have qualified as Trustees in accordance
with the provisions hereof and are then in office, and reference in this
Declaration to a Trustee or Trustees shall refer to such individual or
individuals in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The "1940 Act" shall mean the U.S. Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall
be fixed from time to time by action of the Trustees taken as provided in
Section 2.5 hereof; provided, however, that the number of Trustees so
fixed shall in no event be less than two or more than 15. Any vacancy
created by an increase in the number of Trustees may be filled by the
appointment of an individual having the qualifications described in this
Section 2.1 made by action of the Trustees taken as provided in Section
2.5 hereof. Any such appointment shall not become effective, however,
until the individual named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be
bound by the terms of this Declaration. No reduction in the number of
Trustees shall have the effect of removing any Trustee from office.
Whenever a vacancy occurs, until such vacancy is filled as provided in
Section 2.4 hereof, the Trustees continuing in office, regardless of their
number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration. A
Trustee shall be an individual at least 21 years of age who is not under
legal disability.
2.2. Term and Election. Each Trustee named herein, or elected
or appointed prior to the first meeting of Holders, shall (except in the
event of resignations, retirements, removals or vacancies pursuant to
Section 2.3 or Section 2.4 hereof) hold office until a successor to such
Trustee has been elected at such meeting and has qualified to serve as
Trustee, as required under the 1940 Act. Subject to the provisions of
Section 16(a) of the 1940 Act and except as provided in Section 2.3
3
<PAGE>
hereof, each Trustee shall hold office during the lifetime of the Trust
and until its termination as hereinafter provided.
2.3. Resignation, Removal and Retirement. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting)
by an instrument in writing executed by such Trustee and delivered or
mailed to the Chairman, if any, the President or the Secretary of the
Trust and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument. Any Trustee may be
removed by the affirmative vote of Holders of two-thirds of the Interests
or (provided the aggregate number of Trustees, after such removal and
after giving effect to any appointment made to fill the vacancy created by
such removal, shall not be less than the number required by Section 2.1
hereof) with cause, by the action of two-thirds of the remaining Trustees.
Removal with cause includes, but is not limited to, the removal of a
Trustee due to physical or mental incapacity or failure to comply with
such written policies as from time to time may be adopted by at least
two-thirds of the Trustees with respect to the conduct of the Trustees and
attendance at meetings. Any Trustee who has attained a mandatory
retirement age, if any, established pursuant to any written policy adopted
from time to time by at least two-thirds of the Trustees shall,
automatically and without action by such Trustee or the remaining
Trustees, be deemed to have retired in accordance with the terms of such
policy, effective as of the date determined in accordance with such
policy. Any Trustee who has become incapacitated by illness or injury as
determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the
date of such Trustee's retirement. Upon the resignation, retirement or
removal of a Trustee, or a Trustee otherwise ceasing to be a Trustee, such
resigning, retired, removed or former Trustee shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held
in the name of such resigning, retired, removed or former Trustee. Upon
the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of
such deceased, removed, retired or resigning Trustee shall execute and
deliver on behalf of such deceased, removed, retired or resigning Trustee
such documents as the remaining Trustees shall require for the purpose set
forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, retirement, adjudicated incompetence or other incapacity to
perform the duties of the office, or removal, of a Trustee. No such
vacancy shall operate to annul this Declaration or to revoke any existing
agency created pursuant to the terms of this Declaration. In the case of
a vacancy, Holders of at least a majority of the Interests entitled to
vote, acting at any meeting of Holders held in accordance with Section 9.2
hereof, or, to the extent permitted by the 1940 Act, a majority vote of
the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the
Trustees or the Holders shall hold office as provided in this Declaration.
4
<PAGE>
2.5. Meetings. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the
Secretary, an Assistant Secretary or any two Trustees, at such time, on
such day and at such place, as shall be designated in the notice of the
meeting. The Trustees shall hold an annual meeting for the election of
officers and the transaction of other business which may come before such
meeting. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given by mail, by telegram
(which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). If notice is given by
mail, it shall be mailed not later than 48 hours preceding the meeting and
if given by telegram, telecopier or personally, such notice shall be sent
or delivery made not later than 24 hours preceding the meeting. Notice of
a meeting of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the purpose
of, any meeting of the Trustees need be stated in the notice or waiver of
notice of such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except in the situation in
which a Trustee attends a meeting for the express purpose of objecting, at
the commencement of such meeting, to the transaction of any business on
the ground that the meeting was not lawfully called or convened. The
Trustees may act with or without a meeting, but no notice need be given of
action proposed to be taken by written consent. A quorum for all meetings
of the Trustees shall be a majority of the Trustees. Unless provided
otherwise in this Declaration, any action of the Trustees may be taken at
a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the
Trustees.
Any committee of the Trustees, including an executive committee,
if any, may act with or without a meeting. A quorum for all meetings of
any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee
may be taken at a meeting by vote of a majority of the members present (a
quorum being present) or without a meeting by written consent of a
majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes
under this Section 2.5 and shall be entitled to vote to the extent
permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of
the Trustees or any committee thereof by means of a conference telephone
or similar communications equipment by means of which all individuals
participating in the meeting can hear each other and participation in a
meeting by means of such communications equipment shall constitute
presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees shall,
5
<PAGE>
from time to time, elect a President, a Secretary and a Treasurer. The
Trustees may elect or appoint, from time to time, a Chairman of the Board
who shall preside at all meetings of the Trustees and carry out such other
duties as the Trustees may designate. The Trustees may elect or appoint
or authorize the President to appoint such other officers, agents or
independent contractors with such powers as the Trustees may deem to be
advisable. The Chairman, if any, shall be and each other officer may, but
need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time to time,
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the
same extent as if the Trustees were the sole owners of the Trust Property
and such business in their own right, but with such powers of delegation
as may be permitted by this Declaration. The Trustees may perform such
acts as in their sole discretion they deem proper for conducting the
business of the Trust. The enumeration of or failure to mention any
specific power herein shall not be construed as limiting such exclusive
and absolute control. The powers of the Trustees may be exercised without
order of or resort to any court.
3.2. Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of U.S. and foreign currencies
and related instruments including forward contracts, and securities,
including common and preferred stock, warrants, bonds, debentures, time
notes and all other evidences of indebtedness, negotiable or non-
negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, and other securities, including, without limitation, those
issued, guaranteed or sponsored by any state, territory or possession of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the U.S. Government,
any foreign government, or any agency, instrumentality or political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank, savings institution,
corporation or other business entity organized under the laws of the
United States or under any foreign laws; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of any
6
<PAGE>
and all such investments of any kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of such
rights, powers and privileges in respect of any of such investments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional instruments in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made
by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall
have the power to cause legal title to any Trust Property to be held by or
in the name of one or more of the Trustees, or in the name of the Trust,
or in the name or nominee name of any other Person on behalf of the Trust,
on such terms as the Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter
become a Trustee upon his due election and qualification. Upon the
resignation, removal or death of a Trustee, such resigning, removed or
deceased Trustee shall automatically cease to have any right, title or
interest in any Trust Property, and the right, title and interest of such
resigning, removed or deceased Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of
title shall be effective whether or not conveyancing documents have been
executed and delivered.
3.4. Sale and Increases of Interests. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit
any Institutional Investor to purchase an Interest, or increase its
Interest, for such type of consideration, including cash or property, at
such time or times (including, without limitation, each business day), and
on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and
in connection with the assumption of, liabilities) and businesses.
Individuals, S corporations, partnerships and grantor trusts that are
beneficially owned by any individual, S corporation or partnership may not
purchase Interests. A Holder which has redeemed its Interest may not be
permitted to purchase an Interest until the later of 60 calendar days
after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 Decreases and Redemptions of Interests. Subject to
Article VII hereof, the Trustees, in their discretion, may, from time to
time, without a vote of the Holders, permit a Holder to redeem its
Interest, or decrease its Interest, for either cash or property, at such
time or times (including, without limitation, each business day), and on
such terms as the Trustees may deem best.
7
<PAGE>
3.6. Borrow Money. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging,
pledging or otherwise subjecting as security the assets of the Trust,
including the lending of portfolio securities, and to endorse, guarantee,
or undertake the performance of any obligation, contract or engagement of
any other Person.
3.7. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the
Trust Property and over the business of the Trust, to delegate from time
to time to such of their number or to officers, employees, agents or
independent contractors of the Trust the doing of such things and the
execution of such instruments in either the name of the Trust or the names
of the Trustees or otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including
taxes, against the Trust Property; to prosecute, defend, compromise or
abandon any claims relating to the Trust or the Trust Property; to
foreclose any security interest securing any obligation, by virtue of
which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
3.9. Expenses. The Trustees shall have power to incur and pay
any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to
pay reasonable compensation from the Trust Property to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal and brokerage services, as they in
good faith may deem reasonable, and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.10. Miscellaneous Powers. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem
appropriate for the transaction of the business of the Trust and terminate
such employees or contractual relationships as they consider appropriate;
(b) enter into joint ventures, partnerships and any other combinations or
associations; (c) purchase, and pay for out of Trust Property, insurance
policies insuring the Investment Adviser, Administrator, placement agent,
Holders, Trustees, officers, employees, agents or independent contractors
of the Trust against all claims arising by reason of holding any such
position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not the Trust would have the power to indemnify
such Person against such liability; (d) establish pension, profit-sharing
and other retirement, incentive and benefit plans for the Trustees,
officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious,
educational, scientific, civic or similar purposes; (f) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, placement agent, Holders,
Trustees, officers, employees, agents or independent contractors of the
8
<PAGE>
Trust, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and
change the Fiscal Year and the method by which the accounts of the Trust
shall be kept; and (i) adopt a seal for the Trust, but the absence of such
a seal shall not impair the validity of any instrument executed on behalf
of the Trust.
3.11. Further Powers. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of
its branches and maintain offices, whether within or without the State of
New York, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary,
proper, appropriate or desirable in order to promote the interests of the
Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust which is made by
the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a
grant of power to the Trustees. The Trustees shall not be required to
obtain any court order in order to deal with Trust Property.
3.12 Litigation. The Trustees shall have full power and
authority, in the name and on behalf of the Trust, to engage in and to
prosecute, defend, compromise, settle, abandon, or adjust by arbitration
or otherwise, any actions, suits, proceedings, disputes, claims and
demands relating to the Trust, and out of the assets of the Trust to pay
or to satisfy any liabilities, losses, debts, claims or expenses
(including without limitation attorneys' fees) incurred in connection
therewith, including those of litigation, and such power shall include
without limitation the power of the Trustees or any committee thereof, in
the exercise of their or its good faith business judgment, to dismiss or
terminate any action, suit, proceeding, dispute, claim or demand,
derivative or otherwise, brought by any Person, including a Holder in its
own name or in the name of the Trust, whether or not the Trust or any of
the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
4.1. Investment Advisory, Administration and Other
Arrangements. The Trustees may in their discretion, from time to time,
enter into investment advisory contracts, administration contracts or
placement agent agreements whereby the other party to such contract or
agreement shall undertake to furnish the Trustees such investment
advisory, administration, placement agent and/or other services as the
Trustees shall, from time to time, consider appropriate or desirable and
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all upon such terms and conditions as the Trustees may in their sole
discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Adviser (subject to such general
or specific instructions as the Trustees may, from time to time, adopt) to
effect purchases, sales, loans or exchanges of Trust Property on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Adviser (all without any further action by the
Trustees). Any such purchase, sale, loan or exchange shall be deemed to
have been authorized by the Trustees.
4.2. Parties to Contract. Any contract of the character
described in Section 4.1 hereof or in the By-Laws of the Trust may be
entered into with any corporation, firm, trust or association, although
one or more of the Trustees or officers of the Trust may be an officer,
director, Trustee, shareholder or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship, nor shall any
individual holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of
any such contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this
Article IV or the By-Laws of the Trust. The same Person may be the other
party to one or more contracts entered into pursuant to Section 4.1 hereof
or the By-Laws of the Trust, and any individual may be financially
interested or otherwise affiliated with Persons who are parties to any or
all of the contracts mentioned in this Section 4.2 or in the By-Laws of
the Trust.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
5.1. Liability of Holders; Indemnification. Each Holder shall
be jointly and severally liable (with rights of contribution inter se in
proportion to their respective Interests in the Trust) for the liabilities
and obligations of the Trust in the event that the Trust fails to satisfy
such liabilities and obligations; provided, however, that, to the extent
assets are available in the Trust, the Trust shall indemnify and hold each
Holder harmless from and against any claim or liability to which such
Holder may become subject by reason of being or having been a Holder to
the extent that such claim or liability imposes on the Holder an
obligation or liability which, when compared to the obligations and
liabilities imposed on other Holders, is greater than such Holder's
Interest (proportionate share), and shall reimburse such Holder for all
legal and other expenses reasonably incurred by such Holder in connection
with any such claim or liability. The rights accruing to a Holder under
this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the
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right of the Trust to indemnify or reimburse a Holder in any appropriate
situation even though not specifically provided herein. Notwithstanding
the indemnification procedure described above, it is intended that each
Holder shall remain jointly and severally liable to the Trust's creditors
as a legal matter.
5.2. Limitations of Liability of Trustees, Officers, Employees,
Agents, Independent Contractors to Third Parties. No Trustee, officer,
employee, agent or independent contractor (except in the case of an agent
or independent contractor to the extent expressly provided by written
contract) of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or the Holders, in
connection with Trust Property or the affairs of the Trust; and all such
Persons shall look solely to the Trust Property for satisfaction of claims
of any nature against a Trustee, officer, employee, agent or independent
contractor (except in the case of an agent or independent contractor to
the extent expressly provided by written contract) of the Trust arising in
connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Trust, Holders, etc. No
Trustee, officer, employee, agent or independent contractor (except in the
case of an agent or independent contractor to the extent expressly
provided by written contract) of the Trust shall be liable to the Trust or
the Holders for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee
to redress any breach of trust) except for such Person's own bad faith,
willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
5.4. Mandatory Indemnification. The Trust shall indemnify, to
the fullest extent permitted by law (including the 1940 Act), each
Trustee, officer, employee, agent or independent contractor (except in the
case of an agent or independent contractor to the extent expressly
provided by written contract) of the Trust (including any Person who
serves at the Trust's request as a director, officer or trustee of another
organization in which the Trust has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by such Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to
any matter as to which such Person shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of such Person's duties; provided, however, that as to any
matter disposed of by a compromise payment by such Person, pursuant to a
consent decree or otherwise, no indemnification either for such payment or
for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad
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faith, gross negligence or reckless disregard of the duties involved in
the conduct of such Person's office by the court or other body approving
the settlement or other disposition or by a reasonable determination,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees.
The rights accruing to any Person under these provisions shall not exclude
any other right to which such Person may be lawfully entitled; provided
that no Person may satisfy any right of indemnity or reimbursement granted
in this Section 5.4 or in Section 5.2 hereof or to which such Person may
be otherwise entitled except out of the Trust Property. The Trustees may
make advance payments in connection with indemnification under this
Section 5.4, provided that the indemnified Person shall have given a
written undertaking to reimburse the Trust in the event it is subsequently
determined that such Person is not entitled to such indemnification.
5.5. No Bond Required of Trustees. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the
performance of any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender or other Person dealing with any Trustee,
officer, employee, agent or independent contractor of the Trust shall be
bound to make any inquiry concerning the validity of any transaction
purporting to be made by such Trustee, officer, employee, agent or
independent contractor or be liable for the application of money or
property paid, loaned or delivered to or on the order of such Trustee,
officer, employee, agent or independent contractor. Every obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust made or sold by any Trustee, officer, employee, agent or independent
contractor of the Trust, in such capacity, shall contain an appropriate
recital to the effect that the Trustee, officer, employee, agent or
independent contractor of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property for
the satisfaction of any obligation or claim thereunder, and appropriate
references shall be made therein to the Declaration, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee,
officer, employee, agent or independent contractor of the Trust. Subject
to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees,
officers, employees, agents and independent contractors of the Trust in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer,
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employee, agent or independent contractor of the Trust shall, in the
performance of such Person's duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the
Trust (whether or not the Trust would have the power to indemnify such
Persons against such liability), upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by any
Investment Adviser or Administrator, accountant, appraiser or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property
shall consist of non-transferable Interests. The Interests shall be
personal property giving only the rights in this Declaration specifically
set forth. The value of an Interest shall be equal to the Book Capital
Account balance of the Holder of the Interest.
6.2. Non-Transferability. A Holder may not transfer, sell or
exchange its Interest.
6.3. Register of Interests. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name,
address and Book Capital Account balance of each Holder. Such register
shall be conclusive as to the identity of the Holders, and the Trust shall
not be bound to recognize any equitable or legal claim to or interest in
an Interest which is not contained in such register. No Holder shall be
entitled to receive payment of any distribution, nor to have notice given
to it as herein provided, until it has given its address to such officer
or agent of the Trust as is keeping such register for entry thereon.
ARTICLE VII
Increases, Decreases And Redemptions of Interests
Subject to applicable law, to the provisions of this Declaration
and to such restrictions as may from time to time be adopted by the
Trustees, each Holder shall have the right to vary its investment in the
Trust at any time without limitation by increasing (through a capital
contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the investment of a Holder in
the Trust shall be reflected as an increase in the Book Capital Account
balance of that Holder and a decrease in the investment of a Holder in the
Trust or the Redemption of the Interest of a Holder shall be reflected as
a decrease in the Book Capital Account balance of that Holder. The Trust
shall, upon appropriate and adequate notice from any Holder increase,
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decrease or redeem such Holder's Interest for an amount determined by the
application of a formula adopted for such purpose by resolution of the
Trustees; provided that (a) the amount received by the Holder upon any
such decrease or Redemption shall not exceed the decrease in the Holder's
Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at
any time and from time to time, charge fees for effecting any such
decrease or Redemption, at such rates as the Trustees may establish, and
may, at any time and from time to time, suspend such right of decrease or
Redemption. The procedures for effecting decreases or Redemptions shall
be as determined by the Trustees from time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
8.1. Book Capital Account Balances. The Book Capital Account
balance of each Holder shall be determined on such days and at such time
or times as the Trustees may determine. The Trustees shall adopt
resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations
pursuant to such resolutions may be delegated by the Trustees to the
Investment Adviser, Administrator, custodian, or such other Person as the
Trustees may determine. Upon the Redemption of an Interest, the Holder of
that Interest shall be entitled to receive the balance of its Book Capital
Account. A Holder may not transfer, sell or exchange its Book Capital
Account balance.
8.2. Allocations and Distributions to Holders. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall
make (i) the allocation of unrealized gains and losses, taxable income and
tax loss, and profit and loss, or any item or items thereof, to each
Holder, (ii) the payment of distributions, if any, to Holders, and
(iii) upon liquidation, the final distribution of items of taxable income
and expense. Such procedures shall be set forth in writing and be
furnished to the Trust's accountants. The Trustees may amend the
procedures adopted pursuant to this Section 8.2 from time to time. The
Trustees may retain from the net profits such amount as they may deem
necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the
conduct of the affairs of the Trust or to retain for future requirements
or extensions of the business.
8.3. Power to Modify Foregoing Procedures. Notwithstanding
any of the foregoing provisions of this Article VIII, the Trustees may
prescribe, in their absolute discretion, such other bases and times for
determining the net income of the Trust, the allocation of income of the
Trust, the Book Capital Account balance of each Holder, or the payment of
distributions to the Holders as they may deem necessary or desirable to
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enable the Trust to comply with any provision of the 1940 Act or any order
of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
9.1. Rights of Holders. The ownership of the Trust Property
and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Holders shall have no right or title
therein other than the beneficial interest conferred by their Interests
and they shall have no power or right to call for any partition or
division of any Trust Property.
9.2. Meetings of Holders. Meetings of Holders may be called
at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Holders holding, in the aggregate, not
less than 10% of the Interests, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall
be held within or without the State of New York and within or without the
United States of America on such day and at such time as the Trustees
shall designate. Holders of one-third of the Interests, present in person
or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other
applicable law, this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the
Holders present, either in person or by proxy, at such meeting constitutes
the action of the Holders, unless a greater number of affirmative votes is
required by the 1940 Act, other applicable law, this Declaration or the
By-Laws of the Trust. All or any one of more Holders may participate in a
meeting of Holders by means of a conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
9.3. Notice of Meetings. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at
least 10 days and not more than 60 days before the meeting. Notice of any
meeting may be waived in writing by any Holder either before or after such
meeting. The attendance of a Holder at a meeting shall constitute a
waiver of notice of such meeting except in the situation in which a Holder
attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting was not lawfully called or
convened. At any meeting, any business properly before the meeting may be
considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
9.4. Record Date for Meetings, Distributions, etc. For the
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purpose of determining the Holders who are entitled to notice of and to
vote or act at any meeting, including any adjournment thereof, or to
participate in any distribution, or for the purpose of any other action,
the Trustees may from time to time fix a date, not more than 90 days prior
to the date of any meeting of Holders or the payment of any distribution
or the taking of any other action, as the case may be, as a record date
for the determination of the Persons to be treated as Holders for such
purpose. If the Trustees do not, prior to any meeting of the Holders, so
fix a record date, then the date of mailing notice of the meeting shall be
the record date.
9.5. Proxies, etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such
vote is to be taken. A proxy may be revoked by a Holder at any time
before it has been exercised by placing on file with the Secretary, or
with such other officer or agent of the Trust as the Secretary may direct,
a later dated proxy or written revocation. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of the
Trust or of one or more Trustees or of one or more officers of the Trust.
Only Holders on the record date shall be entitled to vote. Each such
Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at
any meeting in person or by proxy in respect of such Interest, but if more
than one of them is present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to
be cast, such vote shall not be received in respect of such Interest. A
proxy purporting to be executed by or on behalf of a Holder shall be
deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. No proxy shall be
valid after one year from the date of execution, unless a longer period is
expressly stated in such proxy. The Trust may also permit a Holder to
authorize and empower individuals named as proxies on any form of proxy
solicited by the Trustees to vote that Holder's Interest on any matter by
recording his voting instructions on any recording device maintained for
that purpose by the Trust or its agent, provided the Holder complies with
such procedures as the Trustees may designate to be necessary or
appropriate to determine the authenticity of the voting instructions so
recorded; such instructions shall be deemed to constitute a written proxy
signed by the Holder and delivered to the Trust and shall be deemed to be
dated as of the date such instructions were transmitted, and the Holder
shall be deemed to have approved and ratified all actions taken by such
proxies in accordance with the voting instructions so recorded.
9.6. Reports. The Trustees shall cause to be prepared and
furnished to each Holder, at least annually as of the end of each Fiscal
Year, a report of operations containing a balance sheet and a statement of
income of the Trust prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant
on such financial statements. The Trustees shall, in addition, furnish to
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each Holder at least semi-annually interim reports of operations
containing an unaudited balance sheet as of the end of such period and an
unaudited statement of income for the period from the beginning of the
then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The books and records of the
Trust shall be open to inspection by Holders during normal business hours
for any purpose not harmful to the Trust.
9.8. Holder Action by Written Consent. Any action which may
be taken by Holders may be taken without a meeting if Holders holding more
than 50% of all Interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of this Declaration)
consent to the action in writing and the written consents are filed with
the records of the meetings of Holders. Such consents shall be treated
for all purposes as a vote taken at a meeting of Holders. Each such
written consent shall be executed by or on behalf of the Holder delivering
such consent and shall bear the date of such execution. No such written
consent shall be effective to take the action referred to therein unless,
within one year of the earliest dated consent, written consents executed
by a sufficient number of Holders to take such action are filed with the
records of the meetings of Holders.
9.9. Notices. Any and all communications, including any and
all notices to which any Holder may be entitled, shall be deemed duly
served or given if mailed, postage prepaid, addressed to a Holder at its
last known address as recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
Amendment; Mergers; Etc.
10.1. Duration. Subject to possible termination or dissolution
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration
of 20 years after the death of the last survivor of the initial Trustees
named herein and the following named persons:
Date of
Name Address Birth
Cassius Marcellus Cornelius 742 Old Dublin Road November 9, 1990
Clay Hancock, NH 03449
Sara Briggs Sullivan 1308 Rhodes Street September 17, 1990
Dubois, WY 82513
Myles Bailey Rawson Winhall Hollow Road May 13, 1990
R.R. #1, Box 178B
Bondville, VT 05340
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Zeben Curtis Kopchak Box 1126 October 31, 1989
Cordova, AK 99574
Landon Harris Clay 742 Old Dublin Road February 15, 1989
Hancock, NH 03449
Kelsey Ann Sullivan 1308 Rhodes Street May 1, 1988
Dubois, WY 82513
Carter Allen Rawson Winhall Hollow Road January 28, 1988
R.R. #1, Box 178B
Bondville, VT 05340
Obadiah Barclay Kopchak Box 1126 August 29, 1987
Cordova, AK 99574
Richard Tubman Clay 742 Old Dublin Road April 12, 1987
Hancock, NH 03449
Thomas Moragne Clay 742 Old Dublin Road April 11, 1985
Hancock, NH 03449
Zachariah Bishop Kopchak Box 1126 January 11, 1985
Cordova, AK 99574
Sager Anna Kopchak Box 1126 May 22, 1983
Cordova, AK 99574
10.2. Termination.
(a) The Trust may be terminated (i) by the affirmative
vote of Holders of not less than two-thirds of all Interests at any
meeting of Holders or by an instrument in writing without a meeting,
executed by a majority of the Trustees and consented to by Holders of not
less than two-thirds of all Interests, or (ii) by the Trustees by written
notice to the Holders. Upon any such termination,
(i) the Trust shall carry on no business except for the
purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of
the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust have been
wound up, including the power to fulfill or discharge the contracts
of the Trust, collect the assets of the Trust, sell, convey,
assign, exchange or otherwise dispose of all or any part of the
Trust Property to one or more Persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay the
liabilities of the Trust, and do all other acts appropriate to
liquidate the business of the Trust; provided that any sale,
conveyance, assignment, exchange or other disposition of all or
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substantially all the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the vote of Holders holding more than 50% of all
Interests; and
(iii) after paying or adequately providing for the payment
of all liabilities, and upon receipt of such releases, indemnities
and refunding agreements as they deem necessary for their
protection, the Trustees shall distribute the remaining Trust
Property, in cash or in kind or partly each, among the Holders
according to their respective rights as set forth in the procedures
established pursuant to Section 8.2 hereof.
(b) Upon termination of the Trust and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and
file with the records of the Trust an instrument in writing setting forth
the fact of such termination and distribution. Upon termination of the
Trust, the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Holders shall thereupon cease.
10.3. Dissolution. Upon the bankruptcy of any Holder, or upon the
Redemption of any Interest, the Trust shall be dissolved effective 120
days after the event. However, the Holders (other than such bankrupt or
redeeming Holder) may, by a unanimous affirmative vote at any meeting of
such Holders or by an instrument in writing without a meeting executed by
a majority of the Trustees and consented to by all such Holders, agree to
continue the business of the Trust even if there has been such a
dissolution.
10.4. Amendment Procedure.
(a) This Declaration may be amended by the vote of Holders
of more than 50% of all Interests at any meeting of Holders or by an
instrument in writing without a meeting, executed by a majority of the
Trustees and consented to by the Holders of more than 50% of all
Interests. Notwithstanding any other provision hereof, this Declaration
may be amended by an instrument in writing executed by a majority of the
Trustees, and without the vote or consent of Holders, for any one or more
of the following purposes: (i) to change the name of the Trust, (ii) to
supply any omission, or to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations
or the requirements of the applicable provisions of the Code, (iv) to
change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to
effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the law of
such state or other jurisdiction applicable to trusts or voluntary
associations, (B) to permit the Trust to elect to be treated as a
"regulated investment company" under the applicable provisions of the
Code, or (C) to permit the transfer of Interests (or to permit the
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transfer of any other beneficial interest in or share of the Trust,
however denominated), (vi) in conjunction with any amendment contemplated
by the foregoing clause (iv) or the foregoing clause (v) to make any and
all such further changes or modifications to this Declaration as the
Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution of any such amendment by a
majority of the Trustees, and (vii) change, modify or rescind any
provision of this Declaration provided such change, modification or
rescission is found by the Trustees to be necessary or appropriate and to
not have a materially adverse effect on the financial interests of the
Holders, any such finding to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that
unless effected in compliance with the provisions of Section 10.4(b)
hereof, no amendment otherwise authorized by this sentence may be made
which would reduce the amount payable with respect to any Interest upon
liquidation of the Trust and; provided, further, that the Trustees shall
not be liable for failing to make any amendment permitted by this Section
10.4(a).
(b) No amendment may be made under Section 10.4(a) hereof
which would change any rights with respect to any Interest by reducing the
amount payable thereon upon liquidation of the Trust, except with the vote
or consent of Holders of two-thirds of all Interests.
(c) A certification in recordable form executed by a
majority of the Trustees setting forth an amendment and reciting that it
was duly adopted by the Holders or by the Trustees as aforesaid or a copy
of the Declaration, as amended, in recordable form, and executed by a
majority of the Trustees, shall be conclusive evidence of such amendment
when filed with the records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in
any respect by the affirmative vote of a majority of the Trustees at any
meeting of Trustees or by an instrument executed by a majority of the
Trustees.
10.5. Merger, Consolidation and Sale of Assets. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of
the Trust Property, including good will, upon such terms and conditions
and for such consideration when and as authorized at any meeting of
Holders called for such purpose by a Majority Interests Vote, and any such
merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of
the State of New York.
10.6. Incorporation. Upon a Majority Interests Vote, the Trustees
may cause to be organized or assist in organizing a corporation or
corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to
20
<PAGE>
carry on any business in which the Trust directly or indirectly has any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, partnership, association or other organization in
exchange for the equity interests thereof or otherwise, and to lend money
to, subscribe for the equity interests of, and enter into any contract
with any such corporation, trust, partnership, association or other
organization, or any corporation, trust, partnership, association or other
organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent
permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist
in organizing one or more corporations, trusts, partnerships, associations
or other organizations and selling, conveying or transferring a portion of
the Trust Property to one or more of such organizations or entities.
ARTICLE XI
Miscellaneous
11.1. Governing Law. This Declaration is executed by the Trustees
and delivered in the State of New York and with reference to the law
thereof, and the rights of all parties and the validity and construction
of every provision hereof shall be subject to and construed in accordance
with the law of the State of New York and reference shall be specifically
made to the trust law of the State of New York as to the construction of
matters not specifically covered herein or as to which an ambiguity
exists.
11.2. Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original,
and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any one such original
counterpart.
11.3. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Holders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Holders, (d) the fact that the number of Trustees or Holders present at
any meeting or executing any written instrument satisfies the requirements
of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any officer elected by the Trustees, or (f) the existence of
any fact or facts which in any manner relate to the affairs of the Trust,
shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees.
11.4. Provisions in Conflict With Law or Regulations.
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<PAGE>
(a) The provisions of this Declaration are severable, and
if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, or with other applicable
law and regulations, the conflicting provision shall be deemed never to
have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Declaration in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the day and year first above written.
/s/James B. Hawkes /s/Samuel L. Hayes, III
-------------------------------- --------------------
James B. Hawkes, as Trustee and Samuel L. Hayes, III,
not individually as Trustee and
not individually
22
<PAGE>
ASIAN SMALL COMPANIES PORTFOLIO
BY-LAWS
As Adopted January 19, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . . . . . . 1
Section 1.1 Records at Holder Meetings . . . . 1
Section 1.2 Inspectors of Election . . . . . . 1
ARTICLE II -- Officers . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Officers of the Trust . . . . . . . 2
Section 2.2 Election and Tenure . . . . . . . . 2
Section 2.3 Removal of Officers . . . . . . . . 2
Section 2.4 Bonds and Surety . . . . . . . . . 2
Section 2.5 Chairman, President and Vice President 2
Section 2.6 Secretary . . . . . . . . . . . . . 3
Section 2.7 Treasurer . . . . . . . . . . . . . 3
Section 2.8 Other Officers and Duties . . . . . 3
ARTICLE III -- Miscellaneous . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Depositories . . . . . . . . . . . 4
Section 3.2 Signatures . . . . . . . . . . . . 4
Section 3.3 Seal . . . . . . . . . . . . . . . . 4
Section 3.4 Indemnification . . . . . . . . . . 4
Section 3.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . . . 4
ARTICLE IV -- Regulations; Amendment of By-Laws . . . . . . . . . . . 4
Section 4.1 Regulations . . . . . . . . . . . . 4
Section 4.2 Amendment and Repeal of By-Laws . . 5
<PAGE>
BY-LAWS
OF
ASIAN SMALL COMPANIES PORTFOLIO
These By-Laws are made and adopted pursuant to Section
2.7 of the Declaration of Trust establishing ASIAN SMALL COMPANIES
PORTFOLIO (the "Trust"), dated January 19, 1996, as from time to time
amended (the "Declaration"). All words and terms capitalized in these
By-Laws shall have the meaning or meanings set forth for such words or
terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1. Records at Holder Meetings. At each
meeting of the Holders there shall be open for inspection the minutes of
the last previous meeting of Holders of the Trust and a list of the
Holders of the Trust, certified to be true and correct by the Secretary or
other proper agent of the Trust, as of the record date of the meeting.
Such list of Holders shall contain the name of each Holder in alphabetical
order and the address and Interest owned by such Holder on such record
date.
Section 1.2. Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman, if any, of any meeting of the Holders
may, and on the request of any Holder or his proxy shall, appoint
Inspectors of Election. The number of Inspectors of Election shall be
either one or three. If appointed at the meeting on the request of one or
more Holders or proxies, a Majority Interests Vote shall determine whether
one or three Inspectors of Election are to be appointed, but failure to
allow such determination by the Holders shall not affect the validity of
the appointment of Inspectors of Election. In case any individual
appointed as an Inspector of Election fails to appear or fails or refuses
to so act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the
individual acting as chairman of the meeting. The Inspectors of Election
shall determine the Interest owned by each Holder, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents,
shall hear and determine all challenges and questions in any way arising
in connection with the right to vote, shall count and tabulate all votes
or consents, shall determine the results, and shall do such other acts as
may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision,
act or certificate of all. On request of the chairman, if any, of the
<PAGE>
meeting, or of any Holder or its proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined
by them and shall execute a certificate of any facts found by them.
ARTICLE II
Officers
Section 2.1. Officers of the Trust. The officers of the
Trust shall consist of a Chairman, if any, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be elected by the Trustees. Any two or more of the
offices may be held by the same individual. The Trustees may designate a
Vice President as an Executive Vice President and may designate the order
in which the other Vice Presidents may act. The Chairman shall be a
Trustee, but no other officer of the Trust, including the President, need
be a Trustee.
Section 2.2. Election and Tenure. At the initial
organization meeting and thereafter at each annual meeting of the
Trustees, the Trustees shall elect the Chairman, if any, the President,
the Secretary, the Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the
Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any
additional officer at any time.
Section 2.3. Removal of Officers. Any officer may be
removed at any time, with or without cause, by action of a majority of the
Trustees. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect
upon any cause of action which any officer may have as a result of removal
in breach of a contract of employment. Any officer may resign at any time
by notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, the President or the Secretary, and such resignation
shall take effect immediately, or at a later date according to the terms
of such notice in writing.
Section 2.4. Bonds and Surety. Any officer may be
required by the Trustees to be bonded for the faithful performance of his
duties in such amount and with such sureties as the Trustees may
determine.
Section 2.5. Chairman, President and Vice Presidents.
The Chairman, if any, shall, if present, preside at all meetings of the
Holders and of the Trustees and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the
Trustees. Subject to such supervisory powers, if any, as may be given by
the Trustees to the Chairman, if any, the President shall be the chief
executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
<PAGE>
corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Holders and, in the absence of the
Chairman, the President shall preside at all meetings of the Trustees.
The President shall be, ex officio, a member of all standing committees of
Trustees. Subject to the direction of the Trustees, the President shall
have the power, in the name and on behalf of the Trust, to execute any and
all loan documents, contracts, agreements, deeds, mortgages and other
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power to attend, to act and to vote, on
behalf of the Trust, at any meeting of any business organization in which
the Trust holds an interest, or to confer such powers upon any other
person, by executing any proxies duly authorizing such person. The
President shall have such further authorities and duties as the Trustees
shall from time to time determine. In the absence or disability of the
President, the Vice Presidents in order of their rank or the Vice
President designated by the Trustees, shall perform all of the duties of
the President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the
direction of the President, each Vice President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing,
and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 2.6. Secretary. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Holders, Trustees and
the Executive Committee, if any. The results of all actions taken at a
meeting of the Trustees, or by written consent of the Trustees, shall be
recorded by the Secretary. The Secretary shall be custodian of the seal
of the Trust, if any, and (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to
any instrument executed by the Trust which would be sealed by a New York
corporation executing the same or a similar instrument and shall attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall
also perform any other duties commonly incident to such office in a New
York corporation, and shall have such other authorities and duties as the
Trustees shall from time to time determine.
Section 2.7. Treasurer. Except as otherwise directed by
the Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers and
documents of the Trust, and shall have and exercise under the supervision
of the Trustees and of the President all powers and duties normally
incident to his office. The Treasurer may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or
to its order and shall deposit all funds of the Trust as may be ordered by
the Trustees or the President. The Treasurer shall keep accurate account
of the books of the Trust's transactions which shall be the property of
the Trust, and which together with all other property of the Trust in his
possession, shall be subject at all times to the inspection and control of
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<PAGE>
the Trustees. Unless the Trustees shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Trust and shall
also be the principal financial officer of the Trust. The Treasurer shall
have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize the Investment Adviser or the
Administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
Section 2.8. Other Officers and Duties. The Trustees
may elect such other officers and assistant officers as they shall from
time to time determine to be necessary or desirable in order to conduct
the business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer in
the duties of his office. Each officer, employee and agent of the Trust
shall have such other duties and authorities as may be conferred upon him
by the Trustees or delegated to him by the President.
ARTICLE III
Miscellaneous
Section 3.1. Depositories. The funds of the Trust shall
be deposited in such depositories as the Trustees shall designate and
shall be drawn out on checks, drafts or other orders signed by such
officer, officers, agent or agents (including the Investment Adviser or
the Administrator) as the Trustees may from time to time authorize.
Section 3.2. Signatures. All contracts and other
instruments shall be executed on behalf of the Trust by such officer,
officers, agent or agents as provided in these By-Laws or as the Trustees
may from time to time by resolution provide.
Section 3.3. Seal. The seal of the Trust, if any, may
be affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the
same manner and with the same effect as if done by a New York corporation.
Section 3.4. Indemnification. Insofar as the
conditional advancing of indemnification monies under Section 5.4 of the
Declaration for actions based upon the 1940 Act may be concerned, such
payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with
the preparation of a settlement; (ii) advances may be made only upon
receipt of a written promise by, or on behalf of, the recipient to repay
the amount of the advance which exceeds the amount to which it is
ultimately determined that he is entitled to receive from the Trust by
reason of indemnification; and (iii) (a) such promise must be secured by a
surety bond, other suitable insurance or an equivalent form of security
-4-
<PAGE>
which assures that any repayment may be obtained by the Trust without
delay or litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately will
be found entitled to indemnification.
Section 3.5. Distribution Disbursing Agents and the
Like. The Trustees shall have the power to employ and compensate such
distribution disbursing agents, warrant agents and agents for the
reinvestment of distributions as they shall deem necessary or desirable.
Any of such agents shall have such power and authority as is delegated to
any of them by the Trustees.
ARTICLE IV
Regulations; Amendment of By-Laws
Section 4.1. Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as
they may deem expedient concerning the sale and purchase of Interests of
the Trust.
Section 4.2. Amendment and Repeal of By-Laws. In
accordance with Section 2.7 of the Declaration, the Trustees shall have
the power to alter, amend or repeal the By-Laws or adopt new By-Laws at
any time. Action by the Trustees with respect to the By-Laws shall be
taken by an affirmative vote of a majority of the Trustees. The Trustees
shall in no event adopt By-Laws which are in conflict with the
Declaration.
The Declaration refers to the Trustees as Trustees, but
not as individuals or personally; and no Trustee, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the
Trust.
-5-
<PAGE>
FORM OF
ASIAN SMALL COMPANIES PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this day of April, 1996 between Asian Small
Companies Portfolio, a New York trust (the "Trust"), and Lloyd George
Investment Management (Bermuda) Limited, a Bermuda corporation (the
"Adviser").
1. Duties of the Adviser. The Trust hereby employs the
Adviser to act as investment adviser for and to manage the investment and
reinvestment of the assets of the Trust, subject to the supervision of the
Trustees of the Trust, for the period and on the terms set forth in this
Agreement.
The Adviser hereby accepts such employment, and undertakes to
afford to the Trust the advice and assistance of the Adviser's
organization in the choice of investments and in the purchase and sale of
securities for the Trust and to furnish for the use of the Trust office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Trust and to pay the salaries and fees of
all officers and Trustees of the Trust who are members of the Adviser's
organization and all personnel of the Adviser performing services relating
to research and investment activities. The Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, except as
otherwise expressly provided or authorized, have no authority to act for
or represent the Trust in any way or otherwise be deemed an agent of the
Trust.
The Adviser shall provide the Trust with such investment
management and supervision as the Trust may from time to time consider
necessary for the proper supervision of the Trust's investments. As
investment adviser to the Trust, the Adviser shall furnish continuously an
investment program and shall determine from time to time what securities
shall be purchased, sold or exchanged and what portion of the Trust's
assets shall be held uninvested, subject always to the applicable
restrictions of the Declaration of Trust, By-Laws and registration
statement of the Trust under the Investment Company Act of 1940, all as
from time to time amended. Should the Trustees of the Trust at any time,
however, make any specific determination as to investment policy for the
Trust and notify the Adviser thereof in writing, the Adviser shall be
bound by such determination for the period, if any, specified in such
notice or until similarly notified that such determination has been
revoked. The Adviser shall take, on behalf of the Trust, all actions
which it deems necessary or desirable to implement the investment policies
of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust with brokers or dealers
or banks or firms or other persons selected by the Adviser, and to that
end the Adviser is authorized as the agent of the Trust to give
<PAGE>
instructions to the custodian of the Trust as to deliveries of securities
and payment of cash for the account of the Trust. In connection with the
selection of such brokers or dealers or banks or firms or other persons
and the placing of such orders, the Adviser shall use its best efforts to
seek to execute security transactions at prices which are advantageous to
the Trust and (when a disclosed commission is being charged) at reasonably
competitive commission rates. In selecting brokers or dealers qualified
to execute a particular transaction, 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
Adviser and the Adviser is expressly authorized to pay any broker or
dealer who provides such brokerage and research services a commission for
executing a security transaction which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the overall responsibilities which
the Adviser and its affiliates have with respect to accounts over which
they exercise investment discretion. Subject to the requirement set forth
in the second sentence of this paragraph, the Adviser is authorized to
consider, as a factor in the selection of any broker or dealer with whom
purchase or sale orders may be placed, the fact that such broker or dealer
has sold or is selling shares of any one or more investment companies
sponsored by the Adviser or its affiliates or shares of any other
investment company or series thereof that invests substantially all of its
assets in the Trust.
The Adviser shall not be responsible for providing certain
special administrative services to the Trust under this Agreement. Eaton
Vance Management, in its capacity as Administrator of the Trust, shall be
responsible for providing such services to the Trust under the Trust's
separate Administration Agreement with the Administrator.
2. Compensation of the Adviser. For the services, payments
and facilities to be furnished hereunder by the Adviser, the Adviser shall
be entitled to receive from the Trust, a monthly advisory fee computed by
applying the annual asset rate applicable to that portion of the average
daily net assets of the Trust throughout the month in each Category as
indicated below:
Annual
Category Average Daily Net Assets Asset
Rate
1 less than $500 million 0.75%
2 $500 million but less than $1 billion 0.70%
3 $1 billion but less than $1.5 billion 0.65%
4 $1.5 billion but less than $2 billion 0.60%
5 $2 billion but less than $3 billion 0.55%
6 $3 billion and over 0.50%
2
<PAGE>
Such advisory fee shall be paid monthly in arrears on the last
business day of each month. The Trust's net asset value shall be computed
in accordance with the Declaration of Trust of the Trust and any
applicable votes and determinations of the Trustees of the Trust. In case
of initiation or termination of the Agreement during any month, the fee
for that month shall be based on the number of calendar days during which
it is in effect.
The Adviser may, from time to time, waive all or a part of the
above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all its expenses other than those expressly stated
to be payable by the Adviser hereunder, which expenses payable by the
Trust shall include, without implied limitation, (i) expenses of
maintaining the Trust and continuing its existence, (ii) registration of
the Trust under the Investment Company Act of 1940, (iii) commissions,
fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting
and legal expenses, (v) taxes and interest, (vi) governmental fees, (vii)
expenses of issue, sale and redemption of Interests in the Trust, (viii)
expenses of registering and qualifying the Trust and Interests in the
Trust under federal and state securities laws and of preparing and
printing registration statements or other offering documents or memoranda
for such purposes and for distributing the same to Holders and investors,
and fees and expenses of registering and maintaining registrations of the
Trust and of the Trust's placement agent as broker-dealer or agent under
state securities laws, (ix) expenses of reports and notices to Holders and
of meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Trust (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset
values, book capital account balances and tax capital account balances),
(xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, Holder servicing agents and registrars for all services
to the Trust, (xv) expenses for servicing the accounts of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust,
(xvii) compensation and expenses of Trustees of the Trust who are not
members of the Adviser's organization, (xviii) the administration fees
payable by the Trust under any administration or similar agreement to
which the Trust is a party, and (xvix) such non-recurring items as may
arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Trust to indemnify its
Trustees, officers and Holders with respect thereto.
4. Other Interests. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Adviser as directors, officers, employees,
shareholders or otherwise and that directors, officers, employees and
shareholders of the Adviser are or may be or become similarly interested
3
<PAGE>
in the Trust, and that the Adviser may be or become interested in the
Trust as a shareholder or otherwise. It is also understood that
directors, officers, employees and shareholders of the Adviser may be or
become interested (as directors, trustees, officers, employees,
shareholders or otherwise) in other companies or entities (including,
without limitation, other investment companies) which the Adviser may
organize, sponsor or acquire, or with which it may merge or consolidate,
and that the Adviser or its subsidiaries or affiliates may enter into
advisory or management agreements or other contracts or relationships with
such other companies or entities.
5. Limitation of Liability of the Adviser. The services of
the Adviser to the Trust are not to be deemed to be exclusive, the Adviser
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or to any Holder for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses which may
be sustained in the acquisition, holding or disposition of any security or
other investment.
6. Duration and Termination of this Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect through and including February 28, 1998 and shall continue in full
force and effect indefinitely thereafter, but only so long as such
continuance after February 28, 1998 is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without the payment
of any penalty, by action of the Trustees of the Trust or the directors of
the Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement by vote of a
majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
7. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the outstanding voting securities of the Trust.
8. Limitation of Liability. The Adviser expressly
acknowledges the provision in the Declaration of Trust of the Trust
4
<PAGE>
(Sections 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Adviser hereby agrees that it shall have
recourse to the Trust for payment of claims or obligations as between the
Trust and the Adviser arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
9. Certain Definitions. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Trust present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the
outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Trust. The terms "Holders" and "Interests" when used herein shall
have the respective meanings specified in the Declaration of Trust of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
ASIAN SMALL COMPANIES PORTFOLIO LLOYD GEORGE INVESTMENT
MANAGEMENT (BERMUDA) LIMITED
By:______________________________ By:________________________
President Vice President
5
<PAGE>
FORM OF
PLACEMENT AGENT AGREEMENT
April , 1996
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, Massachusetts 02110
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Asian Small Companies Portfolio
(the "Trust"), an open-end non-diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), organized as a New York trust, has agreed that Eaton Vance
Distributors, Inc. ("EVD") shall be the placement agent (the "Placement
Agent") of Interests in the Trust ("Trust Interests").
1. Services as Placement Agent.
1.1 EVD will act as Placement Agent of the Trust Interests
covered by the Trust's registration statement then in effect under the
1940 Act. In acting as Placement Agent under this Placement Agent
Agreement, neither EVD nor its employees or any agents thereof shall make
any offer or sale of Trust Interests in a manner which would require the
Trust Interests to be registered under the Securities Act of 1933, as
amended (the "1933 Act").
1.2 All activities by EVD and its agents and employees as
Placement Agent of Trust Interests shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act by the Securities and
Exchange Commission (the "Commission").
1.3 Nothing herein shall be construed to require the Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Board of Trustees.
1.4 The Portfolio shall furnish from time to time for use in
connection with the sale of Trust Interests such information with respect
to the Trust and Trust Interests as EVD may reasonably request. The Trust
shall also furnish EVD upon request with: (a) unaudited semiannual
statements of the Trust's books and accounts prepared by the Trust, and
(b) from time to time such additional information regarding the Trust's
financial or regulatory condition as EVD may reasonably request.
1.5 The Trust represents to EVD that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Trust Interests have been prepared in conformity with the requirements of
such statute and the rules and regulations of the Commission thereunder.
As used in this Agreement the term "registration statement" shall mean any
<PAGE>
-2-
registration statement filed with the Commission as modified by any
amendments thereto that at any time shall have been filed with the
Commission by or on behalf of the Trust. The Trust represents and
warrants to EVD that any registration statement will contain all
statements required to be stated therein in conformity with both such
statute and the rules and regulations of the Commission; that all
statements of fact contained in any registration statement will be true
and correct in all material respects at the time of filing of such
registration statement or amendment thereto; and that no registration
statement will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Trust Interests.
The Trust may but shall not be obligated to propose from time to time such
amendment to any registration statement as in the light of future
developments may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment and/or
supplement within fifteen days after receipt by the Trust of a written
request from EVD to do so, EVD may, at its option, terminate this
Agreement. The Trust shall not file any amendment to any registration
statement without giving EVD reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being
in all respects absolute and unconditional.
1.6 The Trust agrees to indemnify, defend and hold EVD, its
several officers and directors, and any person who controls EVD within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph 1.6,
collectively, "Covered Persons") free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Trust's agreement to
indemnify Covered Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any financial and other
statements as are furnished in writing to the Trust by EVD in its capacity
as Placement Agent for use in the answers to any items of any registration
statement or in any statements made in any Offering Material, or arising
out of or based on any omission or alleged omission to state a material
fact in connection with the giving of such information required to be
stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify EVD and the
Trust's representations and warranties hereinbefore set forth in this
paragraph 1.6 shall not be deemed to cover any liability to the Trust or
its investors to which a Covered Person would otherwise be subject by
<PAGE>
-3-
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of a Covered Person's reckless
disregard of its obligations and duties under this Agreement. The Trust
should be notified of any action brought against a Covered Person, such
notification to be given by a writing addressed to the Trust, 3808 One
Exchange Square, Central, Hong Kong, with a copy to the Administrator of
the Trust, Eaton Vance Management, 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. The failure to so notify the Trust of any such action shall not
relieve the Trust from any liability except to the extent the Trust shall
have been prejudiced by such failure, or from any liability that the Trust
may have to the Covered Person against whom such action is brought by
reason of any such untrue statement or omission, otherwise than on account
of the Trust's indemnity agreement contained in this paragraph. The Trust
will be entitled to assume the defense of any suit brought to enforce any
such claim, demand or liability, but in such case such defense shall be
conducted by counsel of good standing chosen by the Trust and approved by
EVD, which approval shall not be unreasonably withheld. In the event the
Trust elects to assume the defense of any such suit and retain counsel of
good standing approved by EVD, the defendant or defendants in such suit
shall bear the fees and expenses of any additional counsel retained by any
of them; but in case the Trust does not elect to assume the defense of any
such suit or in case EVD reasonably does not approve of counsel chosen by
the Trust, the Trust will reimburse the Covered Person named as defendant
in such suit, for the fees and expenses of any counsel retained by EVD or
it. The Trust's indemnification agreement contained in this paragraph and
the Trust's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of Covered Persons, and shall survive the delivery of
any Trust Interests. This agreement of indemnity will inure exclusively
to Covered Persons and their successors. The Trust agrees to notify EVD
promptly of the commencement of any litigation or proceedings against the
Trust or any of its officers or Trustees in connection with the issue and
sale of any Trust Interests.
1.7 EVD agrees to indemnify, defend and hold the Trust, its
several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act (for purposes of this paragraph 1.7, collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees incurred
in connection therewith) that Covered Persons may incur under the 1933
Act, the 1934 Act or common law or otherwise, but only to the extent that
such liability or expense incurred by a Covered Person resulting from such
claims or demands shall arise out of or be based on any untrue statement
of a material fact contained in information furnished in writing by EVD in
its capacity as Placement Agent to the Trust for use in the answers to any
of the items of any registration statement or in any statements in any
other Offering Material or shall arise out of or be based on any omission
to state a material fact in connection with such information furnished in
<PAGE>
-4-
writing by EVD to the Trust required to be stated in such answers or
necessary to make such information not misleading. EVD shall be notified
of any action brought against a Covered Person, such notification to be
given by a writing addressed to EVD at 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
process shall have been duly and completely served upon such Covered
Person. EVD shall have the right of first control of the defense of the
action with counsel of its own choosing satisfactory to the Trust if such
action is based solely on such alleged misstatement or omission on EVD's
part, and in any other event each Covered Person shall have the right to
participate in the defense or preparation of the defense of any such
action. The failure to so notify EVD of any such action shall not relieve
EVD from any liability except to the extent the Trust shall have been
prejudiced by such failure, or from any liability that EVD may have to
Covered Persons by reason of any such untrue or alleged untrue statement,
or omission or alleged omission, otherwise than on account of EVD's
indemnity agreement contained in this paragraph.
1.8 No Trust Interests shall be offered by either EVD or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Trust Interests hereunder shall be accepted by the
Trust if and so long as the effectiveness of the registration statement or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act or the 1940 Act; provided, however, that
nothing contained in this paragraph shall in any way restrict or have an
application to or bearing on the Trust's obligation to redeem Trust
Interests from any investor in accordance with the provisions of the
Trust's registration statement or Declaration of Trust, as amended from
time to time.
1.9 The Trust agrees to advise EVD as soon as reasonably
practical by a notice in writing delivered to EVD or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement then in
effect or that requires the making of a change in such registration
statement in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement that may from time to time be
filed with the Commission.
For purposes of this paragraph 1.9, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests
<PAGE>
-5-
by the Commission.
1.10 EVD agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and
other information not otherwise publicly available relative to the Trust
and its prior, present or potential investors and not to use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where EVD may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
2. Duration and Termination of this Agreement.
This Agreement shall become effective upon the date of its
execution, and, unless terminated as herein provided, shall remain in full
force and effect through and including February 28, 1998 and shall
continue in full force and effect indefinitely thereafter, but only so
long as such continuance after February 28, 1998 is specifically approved
at least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are not
interested persons of EVD or the Trust cast in person at a meeting called
for the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this agreement without the payment
of any penalty, by action of Trustees of the Trust or the Directors of
EVD, as the case may be, and the Trust may, at any time upon such written
notice to EVD, terminate this Agreement by vote of a majority of the
outstanding voting securities of the Trust. This Agreement shall
terminate automatically in the event of its assignment.
3. Representations and Warranties.
EVD and the Trust each hereby represents and warrants to the
other that it has all requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement and that, with respect to
it, this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
4. Limitation of Liability.
EVD expressly acknowledges the provision in the Declaration of
Trust of the Trust (Sections 5.2 and 5.6) limiting the personal liability
of the Trustees and officers of the Trust, and EVD hereby agrees that it
shall have recourse to the Trust for payment of claims or obligations as
between the Trust and EVD arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
<PAGE>
-6-
5. Certain Definitions.
The terms "assignment" and "interested persons" when used herein
shall have the respective meanings specified in the Investment Company Act
of 1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote, at a meeting of
Holders, of the lesser of (a) 67 per centum or more of the Interests in
the Trust present or represented by proxy at the meeting if the Holders of
more than 50 per centum of the outstanding Interests in the Trust are
present or represented by proxy at the meeting, or (b) more than 50 per
centum of the outstanding Interests in the Trust. The terms "Holders" and
"Interests" when used herein shall have the respective meanings specified
in the Declaration of Trust of the Trust.
6. Concerning Applicable Provisions of Law, etc.
This Agreement shall be subject to all applicable provisions of
law, including the applicable provisions of the 1940 Act and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the Commonwealth of Massachusetts shall, except to
the extent that any applicable provisions of federal law shall be
controlling, govern the construction, validity and effect of this
Agreement, without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so
indicate by executing the enclosed copy of this Agreement and returning
the same to the undersigned, whereupon this Agreement shall constitute a
binding contract between the parties hereto effective at the closing of
business on the date hereof.
Yours very truly,
ASIAN SMALL COMPANIES PORTFOLIO
By:____________________________
Vice President
Accepted:
EATON VANCE DISTRIBUTORS, INC.
By: ______________________________
President
<PAGE>
FORM OF
ASIAN SMALL COMPANIES PORTFOLIO
April , 1996
Asian Small Companies Portfolio hereby adopts and agrees to become a party
to the attached Custodian Agreement with Investors Bank & Trust Company.
ASIAN SMALL COMPANIES PORTFOLIO
BY: ______________________________
Accepted and agreed to:
INVESTORS BANK & TRUST COMPANY
BY:_____________________________
Title
<PAGE>
CUSTODIAN AGREEMENT
between
ASIAN SMALL COMPANIES PORTFOLIO et al
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1-3
2. Employment of Custodian and Property to be Held by it . . . . 3
3. Duties of the Custodian with Respect to Property of the Trust 4
A. Safekeeping and Holding of Property . . . . . . . . . . . 4
B. Delivery of Securities . . . . . . . . . . . . . . . . . 4-7
C. Registration of Securities . . . . . . . . . . . . . . . . 7
D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . 7-8
E. Payments for Interests, or Increases in Interests, in
the Trust . . . . . . . . . . . . . . . . . . . . . . . 8
F. Investment and Availability of Federal Funds . . . . . . . 8
G. Collections . . . . . . . . . . . . . . . . . . . . . . 8-9
H. Payment of Trust Monies . . . . . . . . . . . . . . . . 9-11
I. Liability for Payment in Advance of Receipt of Securities
Purchased . . . . . . . . . . . . . . . . . . . . . . . 11
J. Payments for Repurchases or Redemptions of Interests of
the Trust . . . . . . . . . . . . . . . . . . . . . . . 11
K. Appointment of Agents by the Custodian . . . . . . . . 11-12
L. Deposit of Trust Portfolio Securities in Securities
Systems . . . . . . . . . . . . . . . . . . . . . . 12-14
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper . . . . . . 14-16
N. Segregated Account . . . . . . . . . . . . . . . . . . 16-17
O. Ownership Certificates for Tax Purposes . . . . . . . . . 17
P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 17
Q. Communications Relating to Trust Portfolio Securities . . 17
R. Exercise of Rights; Tender Offers . . . . . . . . . . 17-18
S. Depository Receipts . . . . . . . . . . . . . . . . . . . 18
i
<PAGE>
T. Interest Bearing Call or Time Deposits . . . . . . . . 18-19
U. Options, Futures Contracts and Foreign Currency
Transactions . . . . . . . . . . . . . . . . . . . 19-21
V. Actions Permitted Without Express Authority . . . . . . . 21
4. Duties of Bank with Respect to Books of Account and
Calculations of Net Asset Value . . . . . . . . . . . . . 21-22
5. Records and Miscellaneous Duties . . . . . . . . . . . . . 22-23
6. Opinion of Trust's Independent Public Accountants . . . . . . 23
7. Compensation and Expenses of Bank . . . . . . . . . . . . . . 23
8. Responsibility of Bank . . . . . . . . . . . . . . . . . . 23-24
9. Persons Having Access to Assets of the Trust . . . . . . . . . 24
10. Effective Period, Termination and Amendment; Successor
Custodian . . . . . . . . . . . . . . . . . . . . . . . . 24-25
11. Interpretive and Additional Provisions . . . . . . . . . . 25-26
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . 26
14. Adoption of the Agreement by the Trust . . . . . . . . . . . . 26
ii
<PAGE>
CUSTODIAN AGREEMENT
This Agreement is made between Asian Small Companies Portfolio
and each of the investment companies listed on Schedule A attached hereto,
each of which has adopted this Agreement in the manner provided herein and
Investors Bank & Trust Company (hereinafter called "Bank", "Custodian" and
"Agent"), a trust company established under the laws of Massachusetts with
a principal place of business in Boston, Massachusetts.
Whereas, each such investment company is registered under the
Investment Company Act of 1940 and has appointed the Bank to act as
Custodian of its property and to perform certain duties as its Agent, as
more fully hereinafter set forth; and
Whereas, the Bank is willing and able to act as each such
investment company's Custodian and Agent, subject to and in accordance
with the provisions hereof;
Now, therefore, in consideration of the premises and of the
mutual covenants and agreements herein contained, each such investment
company and the Bank agree as follows:
1. Definitions
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Trust" shall mean the investment company which has adopted
this Agreement.
(b) "Board" shall mean the board of trustees of the Trust.
(c) "The Depository Trust Company", 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 and
which has been specifically approved as a securities depository for the
Trust by the Board.
(d) "Participants Trust Company", 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 and
which has been specifically approved as a securities depository for the
Trust by the Board.
(e) "Approved Clearing Agency" shall mean any other domestic
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 but only if the Custodian has received a certified
copy of a resolution of the Board approving such clearing agency as a
securities depository for the Trust.
(f) "Federal Book-Entry System" shall mean the book-entry
<PAGE>
system referred to in Rule 17f-4(b) under the Investment Company Act of
1940 for United States and federal agency securities (i.e., as provided in
Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR
Part 350, and the book-entry regulations of federal agencies substantially
in the form of Subpart O).
(g) "Approved Foreign Securities Depository" shall mean a
foreign securities depository or clearing agency referred to in Rule 17f-4
under the Investment Company Act of 1940 for foreign securities but only
if the Custodian has received a certified copy of a resolution of the
Board approving such depository or clearing agency as a foreign securities
depository for the Trust.
(h) "Approved Book-Entry System for Commercial Paper" shall mean
a system maintained by the Custodian or by a subcustodian employed
pursuant to Section 2 hereof for the holding of commercial paper in
book-entry form but only if the Custodian has received a certified copy of
a resolution of the Board approving the participation by the Trust in such
system.
(i) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in this
Agreement upon receipt of written or facsimile instructions signed by such
one or more person or persons as the Board shall have from time to time
authorized to give the particular class of instructions in question.
Different persons may be authorized to give instructions for different
purposes. A certified copy of a resolution of the Board may be received
and accepted by the Custodian as conclusive evidence of the authority of
any such person to act and may be considered as in full force and effect
until receipt of written notice to the contrary. Such instructions may be
general or specific in terms and, where appropriate, may be standing
instructions. Unless the resolution delegating authority to any person or
persons to give a particular class of instructions specifically requires
that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class,
the Custodian shall be under no obligation to question the right of the
person or persons giving such instructions in so doing. Oral instructions
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 Trust shall
cause all oral instructions to be confirmed in writing. The Trust
authorizes the Custodian to tape record any and all telephonic or other
oral instructions given to the Custodian. Upon receipt of a certificate
signed by two officers of the Trust as to the authorization by the
President and the Treasurer of the Trust accompanied by a detailed
description of the communication procedures approved by the President and
the Treasurer of the Trust, "proper instructions" may also include
communications effected directly between electromechanical or electronic
devices provided that the President and Treasurer of the Trust and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Trust's assets. In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of
2
<PAGE>
securities made by or for the Trust, the Custodian may take cognizance of
the provisions of the governing documents and registration statement of
the Trust as the same may from time to time be in effect (and resolutions
or proceedings of the holders of interests in the Trust or the Board),
but, nevertheless, except as otherwise expressly provided herein, the
Custodian may assume unless and until notified in writing to the contrary
that so-called proper instructions received by it are not in conflict with
or in any way contrary to any provisions of such governing documents and
registration statement, or resolutions or proceedings of the holders of
interests in the Trust or the Board.
(j) The term "Vote" when used with respect to the Board or the
Holders of Interests in the Trust shall include a vote, resolution,
consent, proceeding and other action taken by the Board or Holders in
accordance with the Declaration of Trust or By-Laws of the Trust.
2. Employment of Custodian and Property to be Held by It
The Trust hereby appoints and employs the Bank as its Custodian
and Agent in accordance with and subject to the provisions hereof, and the
Bank hereby accepts such appointment and employment. The Trust agrees to
deliver to the Custodian all securities, participation interests, cash and
other assets owned by it, and all payments of income, payments of
principal and capital distributions and adjustments received by it with
respect to all securities and participation interests owned by the Trust
from time to time, and the cash consideration received by it from time to
time in exchange for an interest in the Trust or for an increase in such
an interest. The Custodian shall not be responsible for any property of
the Trust held by the Trust and not delivered by the Trust to the
Custodian. The Trust will also deliver to the Bank from time to time
copies of its currently effective declaration of trust, by-laws,
registration statement and placement agent agreement with its placement
agent, together with such resolutions, and other proceedings of the Trust
as may be necessary for or convenient to the Bank in the performance of
its duties hereunder.
The Custodian may from time to time employ one or more
subcustodians to perform such acts and services upon such terms and
conditions as shall be approved from time to time by the Board. Any such
subcustodian so employed by the Custodian shall be deemed to be the agent
of the Custodian, and the Custodian shall remain primarily responsible for
the securities, participation interests, moneys and other property of the
Trust held by such subcustodian. Any foreign subcustodian shall be a bank
or trust company which is an eligible foreign custodian within the meaning
of Rule 17f-5 under the Investment Company Act of 1940, and the foreign
custody arrangements shall be approved by the Board and shall be in
accordance with and subject to the provisions of said Rule. For the
purposes of this Agreement, any property of the Trust held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the
Custodian under the terms of this Agreement.
3
<PAGE>
3. Duties of the Custodian with Respect to Property of the Trust
A. Safekeeping and Holding of Property The Custodian shall
keep safely all property of the Trust and on behalf of
the Trust shall from time to time receive delivery of
Trust property for safekeeping. The Custodian shall
hold, earmark and segregate on its books and records for
the account of the Trust all property of the Trust,
including all securities, participation interests and
other assets of the Trust (1) physically held by the
Custodian, (2) held by any subcustodian referred to in
Section 2 hereof or by any agent referred to in Paragraph
K hereof, (3) held by or maintained in The Depository
Trust Company or in Participants Trust Company or in an
Approved Clearing Agency or in the Federal Book-Entry
System or in an Approved Foreign Securities Depository,
each of which from time to time is referred to herein as
a "Securities System", and (4) held by the Custodian or
by any subcustodian referred to in Section 2 hereof and
maintained in any Approved Book-Entry System for
Commercial Paper.
B. Delivery of Securities The Custodian shall release and
deliver securities or participation interests owned by
the Trust held (or deemed to be held) by the Custodian or
maintained in a Securities System account or in an
Approved Book-Entry System for Commercial Paper account
only upon receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities or participation
interests for the account of the Trust, but only
against receipt of payment therefor; if delivery
is made in Boston or New York City, payment
therefor shall be made in accordance with
generally accepted clearing house procedures or
by use of Federal Reserve Wire System
procedures; if delivery is made elsewhere
payment therefor shall be in accordance with the
then current "street delivery" custom or in
accordance with such procedures agreed to in
writing from time to time by the parties hereto;
if the sale is effected through a Securities
System, delivery and payment therefor shall be
made in accordance with the provisions of
Paragraph L hereof; if the sale of commercial
paper is to be effected through an Approved
Book-Entry System for Commercial Paper, delivery
and payment therefor shall be made in accordance
with the provisions of Paragraph M hereof; if
the securities are to be sold outside the United
4
<PAGE>
States, delivery of the securities for the
account of the Trust may be made either (a) in
advance of receipt of payment therefor in the
absence of specific instructions to do so
provided such actions are consistent with local
settlement practices and customs, subject to the
Custodian's standard of care, or (b) in
accordance with procedures agreed to in writing
from time to time by the parties hereto; for the
purposes of this subparagraph, the term "sale"
shall include the disposition of a portfolio
security (i) upon the exercise of an option
written by the Trust and (ii) upon the failure
by the Trust to make a successful bid with
respect to a portfolio security, the continued
holding of which is contingent upon the making
of such a bid;
2) Upon the receipt of payment in connection with
any repurchase agreement or reverse repurchase
agreement relating to such securities and
entered into by the Trust;
3) To the depository agent in connection with
tender or other similar offers for portfolio
securities of the Trust;
4) To the issuer thereof or its agent when such
securities or participation interests 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 or any subcustodian employed
pursuant to Section 2 hereof;
5) To the issuer thereof, or its agent, for
transfer into the name of the Trust or into the
name of any nominee of the Custodian or into the
name or nominee name of any agent appointed
pursuant to Paragraph K hereof or into the name
or nominee name of any subcustodian employed
pursuant to Section 2 hereof; 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 or
participation interests are to be delivered to
the Custodian or any subcustodian employed
pursuant to Section 2 hereof;
6) To the broker selling the same for examination
in accordance with the "street delivery" custom;
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provided that the Custodian shall adopt such
procedures as the Trust from time to time shall
approve to ensure their prompt return to the
Custodian by the broker in the event the broker
elects not to accept them;
7) 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 of 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 or any subcustodian employed pursuant
to Section 2 hereof;
8) In the case of warrants, rights or similar
securities, the surrender thereof in connection
with 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 or any subcustodian
employed pursuant to Section 2 hereof;
9) For delivery in connection with any loans of
securities made by the Trust (such loans to be
made pursuant to the terms of the Trust's
current registration statement), but only
against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the
Trust, 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 securities
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 Treasury,
the Custodian will not be held liable or
responsible for the delivery of securities
loaned by the Trust prior to the receipt of such
collateral;
10) For delivery as security in connection with any
borrowings by the Trust requiring a pledge or
hypothecation of assets by the Trust (if then
permitted under circumstances described in the
current registration statement of the Trust),
provided, that the securities shall be released
only upon payment to the Custodian of the monies
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borrowed, except that in cases where additional
collateral is required to secure a borrowing
already made, further securities may be released
for that purpose; upon receipt of proper
instructions, the Custodian may pay any such
loan upon redelivery to it of the securities
pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the
loan;
11) When required for delivery in connection with
any reduction of or redemption of an interest in
the Trust in accordance with the provisions of
Paragraph J hereof;
12) For delivery in accordance with the provisions
of any agreement between the Custodian (or a
subcustodian employed pursuant to Section 2
hereof) and a broker-dealer registered under the
Securities Exchange Act of 1934 and, if
necessary, the Trust, relating to compliance
with the rules of The Options Clearing
Corporation or of any registered national
securities exchange, or of any similar
organization or organizations, regarding deposit
or escrow or other arrangements in connection
with options transactions by the Trust;
13) For delivery in accordance with the provisions
of any agreement among the Trust, the Custodian
(or a subcustodian employed pursuant to Section
2 hereof), and a futures commissions merchant,
relating to compliance with the rules of the
Commodity Futures Trading Commission and/or of
any contract market or commodities exchange or
similar organization, regarding futures margin
account deposits or payments in connection with
futures transactions by the Trust;
14) For any other proper corporate purpose, but only
upon receipt of, in addition to proper
instructions, a certified copy of a resolution
of the Board specifying the securities to be
delivered, setting forth the purpose for which
such delivery is to be made, declaring such
purpose to be proper corporate purpose, and
naming the person or persons to whom delivery of
such securities shall be made.
C. Registration of Securities Securities held by the
Custodian (other than bearer securities) for the account
of the Trust shall be registered in the name of the Trust
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or in the name of any nominee of the Trust or of any
nominee of the Custodian, or in the name or nominee name
of any agent appointed pursuant to Paragraph K hereof, or
in the name or nominee name of any subcustodian employed
pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants
Trust Company or Approved Clearing Agency or Federal
Book-Entry System or Approved Book-Entry System for
Commercial Paper; provided, that securities are held in
an account of the Custodian or of such agent or of such
subcustodian containing only assets of the Trust or only
assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a
fiduciary capacity for customers. All certificates for
securities accepted by the Custodian or any such agent or
subcustodian on behalf of the Trust shall be in "street"
or other good delivery form or shall be returned to the
selling broker or dealer who shall be advised of the
reason thereof.
D. Bank Accounts The Custodian shall open and maintain a
separate bank account or accounts in the name of the
Trust, subject only to draft or order by the Custodian
acting pursuant to the terms of this Agreement, and shall
hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for
the account of the Trust other than cash maintained by
the Trust 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 the Trust
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 the Custodian 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 be approved in writing by two
officers of the Trust. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
subject to withdrawal only by the Custodian in that
capacity.
E. Payment for Interests, or Increases in Interests, in the
Trust The Custodian shall make appropriate arrangements
with the Transfer Agent of the Trust to enable the
Custodian to make certain it promptly receives the cash
or other consideration due to the Trust for payment of
interests in the Trust, or increases in such interests,
in accordance with the governing documents and
registration statement of the Trust. The Custodian will
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<PAGE>
provide prompt notification to the Trust of any receipt
by it of such payments.
F. Investment and Availability of Federal Funds Upon
agreement between the Trust and the Custodian, the
Custodian shall, upon the receipt of proper instructions,
which may be continuing instructions when deemed
appropriate by the parties, invest in such securities and
instruments as may be set forth in such instructions on
the same day as received all federal funds received after
a time agreed upon between the Custodian and the Trust.
G. Collections The Custodian shall promptly collect all
income and other payments with respect to registered
securities held hereunder to which the Trust shall be
entitled either by law or pursuant to custom in the
securities business, and shall promptly collect all
income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and
shall credit such income, as collected, to the Trust's
custodian account. The Custodian shall do all things
necessary and proper in connection with such prompt
collections and, without limiting the generality of the
foregoing, the Custodian shall
1) Present for payment all coupons and other income
items requiring presentations;
2) Present for payment all securities which may
mature or be called, redeemed, retired or
otherwise become payable;
3) Endorse and deposit for collection, in the name
of the Trust, checks, drafts or other negotiable
instruments;
4) Credit income from securities maintained in a
Securities System or in an Approved Book-Entry
System for Commercial Paper at the time funds
become available to the Custodian; in the case
of securities maintained in The Depository Trust
Company funds shall be deemed available to the
Trust not later than the opening of business on
the first business day after receipt of such
funds by the Custodian. The Custodian shall
notify the Trust as soon as reasonably
practicable whenever income due on any security
is not promptly collected. In any case in which
the Custodian does not receive any due and
unpaid income after it has made demand for the
same, it shall immediately so notify the Trust
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<PAGE>
in writing, enclosing copies of any demand
letter, any written response thereto, and
memoranda of all oral responses thereto and to
telephonic demands, and await instructions from
the Trust; the Custodian shall in no case have
any liability for any nonpayment of such income
provided the Custodian meets the standard of
care set forth in Section 8 hereof. The
Custodian shall not be obligated to take legal
action for collection unless and until
reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all
stock dividends, rights and other items of like
nature, and deal with the same pursuant to
proper instructions relative thereto.
H. Payment of Trust Monies Upon receipt of proper
instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall
pay out monies of the Trust in the following cases only:
1) Upon the purchase of securities, participation
interests, options, futures contracts, forward
contracts and options on futures contracts
purchased for the account of the Trust but only
(a) against the receipt of
(i) such securities registered as provided in
Paragraph C hereof or in proper form for
transfer or
(ii) detailed instructions signed by an officer
of the Trust regarding the participation
interests to be purchased or
(iii) written confirmation of the purchase by
the Trust of the options, futures contracts,
forward contracts or options on futures
contracts by the Custodian (or by a subcustodian
employed pursuant to Section 2 hereof or by a
clearing corporation of a national securities
exchange of which the Custodian is a member or
by any bank, banking institution or trust
company doing business in the United States or
abroad which is qualified under the Investment
Company Act of 1940 to act as a custodian and
which has been designated by the Custodian as
its agent for this purpose or by the agent
specifically designated in such instructions as
representing the purchasers of a new issue of
privately placed securities); (b) in the case of
10
<PAGE>
a purchase effected through a Securities System,
upon receipt of the securities by the Securities
System in accordance with the conditions set
forth in Paragraph L hereof; (c) in the case of
a purchase of commercial paper effected through
an Approved Book-Entry System for Commercial
Paper, upon receipt of the paper by the
Custodian or subcustodian in accordance with the
conditions set forth in Paragraph M hereof; (d)
in the case of repurchase agreements entered
into between the Trust and another bank or a
broker-dealer, against receipt by the Custodian
of the securities underlying the repurchase
agreement either in certificate form or through
an entry crediting the Custodian's segregated,
non-proprietary account at the Federal Reserve
Bank of Boston with such securities along with
written evidence of the agreement by the bank or
broker-dealer to repurchase such securities from
the Trust; or (e) in the case of securities
purchased outside the United States, the
Custodian may make payment therefor either (i)
in advance of receipt of such securities in the
absence of specific instructions to do so
provided such actions are consistent with local
settlement practices and customs, subject to the
Custodian's standard of care, or (ii) in
accordance with procedures agreed to in writing
from time to time by the parties hereto;
2) When required in connection with the conversion,
exchange or surrender of securities owned by the
Trust as set forth in Paragraph B hereof;
3) When required for the reduction or redemption of
an interest in the Trust in accordance with the
provisions of Paragraph J hereof;
4) For the payment of any expense or liability
incurred by the Trust, including but not limited
to the following payments for the account of the
Trust: advisory fees, interest, taxes,
management compensation and expenses,
accounting, transfer agent and legal fees, and
other operating expenses of the Trust whether or
not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For distributions or payments to Holders of
Interest of the Trust; and
6) For any other proper corporate purpose, but only
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<PAGE>
upon receipt of, in addition to proper
instructions, a certified copy of a resolution
of the Board, 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 corporate purpose, and
naming the person or persons to whom such
payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for
purchase of securities for the account of the Trust is
made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written
instructions signed by two officers of the Trust to so
pay in advance, the Custodian shall be absolutely liable
to the Trust for such securities to the same extent as if
the securities had been received by the Custodian; except
that in the case of a repurchase agreement entered into
by the Trust with a bank which is a member of the Federal
Reserve System, the Custodian may transfer funds to the
account of such bank prior to the receipt of (i) the
securities in certificate form subject to such repurchase
agreement or (ii) written evidence that the securities
subject to such repurchase agreement have been
transferred by book-entry into a segregated
non-proprietary account of the Custodian maintained with
the Federal Reserve Bank of Boston or (iii) the
safekeeping receipt, provided that such securities have
in fact been so transferred by book-entry and the written
repurchase agreement is received by the Custodian in due
course; and except that if the securities are to be
purchased outside the United States, payment may be made
in accordance with procedures agreed to in writing from
time to time by the parties hereto. Notwithstanding any
other provision in this Agreement to the contrary, where
securities are purchased or sold outside the United
States, delivery of securities for the account of the
Trust may be made by the Custodian in advance of receipt
of payment for the securities sold, and the Custodian may
pay for securities in advance of receipt of the
securities purchased for the account of the Trust, in the
absence of specific instructions to do so provided such
actions are consistent with local settlement practices
and customs, subject to the Custodian's standard of care.
J. Payments for Repurchases or Redemptions of Interests in
the Trust From such funds as may be available for the
purpose, but subject to any applicable resolutions of the
Board and the current procedures of the Trust, the
Custodian shall, upon receipt of written instructions
from the Trust or from the Trust's transfer agent make
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<PAGE>
funds and/or portfolio securities available for payment
to holders of interest in the Trust which have caused the
amount of their interests to be reduced, or for their
interest to be redeemed.
K. Appointment of Agents by the Custodian The Custodian may
at any time or times in its discretion appoint (and may
at any time remove) any other bank or trust company
(provided such bank or trust company is itself qualified
under the Investment Company Act of 1940 to act as a
custodian or is itself an eligible foreign custodian
within the meaning of Rule 17f-5 under said Act) as the
agent of the Custodian to carry out such of the duties
and functions of the Custodian described in this Section
3 as the Custodian may from time to time direct;
provided, however, that the appointment of any such agent
shall not relieve the Custodian of any of its
responsibilities or liabilities hereunder, and as between
the Trust and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent.
For the purposes of this Agreement, any property of the
Trust held by any such agent shall be deemed to be held
by the Custodian hereunder.
L. Deposit of Trust Portfolio Securities in Securities
Systems The Custodian may deposit and/or maintain
securities owned by the Trust
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities
Depository
in each case only in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission
rules and regulations, and at all times subject to the
following provisions:
(a) The Custodian may (either directly or
through one or more subcustodians employed pursuant to
Section 2 keep securities of the Trust in a Securities
System provided that such securities are maintained in a
non-proprietary account ("Account") of the Custodian or
such subcustodian in the Securities System which shall
not include any assets of the Custodian or such
subcustodian or any other person other than assets held
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<PAGE>
by the Custodian or such subcustodian as a fiduciary,
custodian, or otherwise for its customers.
(b) The records of the Custodian with respect
to securities of the Trust which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Trust, and the Custodian
shall be fully and completely responsible for maintaining
a recordkeeping system capable of accurately and
currently stating the Trust's holdings maintained in each
such Securities System.
(c) The Custodian shall pay for securities
purchased in book-entry form for the account of the Trust
only upon (i) receipt of notice or advice from the
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 Trust; except
that when such securities are purchased outside the
United States, payment therefor may be made by the
Custodian in advance of receipt of such notice or advice
and the making of such entry in the absence of specific
instructions to do so provided such actions are
consistent with local settlement practices and customs,
subject to the Custodian's standard of care. The
Custodian shall transfer securities sold for the account
of the Trust only upon (i) receipt of notice or advice
from the 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
Trust; except that when such securities are sold outside
the United States, transfer thereof may be made by the
Custodian in advance of receipt of such notice or advice
and the making of such entry in the absence of specific
instructions to do so provided such actions are
consistent with local settlement practices and customs,
subject to the Custodian's standard of care. Copies of
all notices or advices from the Securities System of
transfers of securities for the account of the Trust
shall identify the Trust, be maintained for the Trust by
the Custodian and be promptly provided to the Trust at
its request. The Custodian shall promptly send to the
Trust confirmation of each transfer to or from the
account of the Trust in the form of a written advice or
notice of each such transaction, and shall furnish to the
Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the
account of the Trust on the next business day.
(d) The Custodian shall promptly send to the
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<PAGE>
Trust any report or other communication received or
obtained by the Custodian relating to the Securities
System's accounting system, system of internal accounting
controls or procedures for safeguarding securities
deposited in the Securities System; the Custodian shall
promptly send to the Trust any report or other
communication relating to the Custodian's internal
accounting controls and procedures for safeguarding
securities deposited in any Securities System; and the
Custodian shall ensure that any agent appointed pursuant
to Paragraph K hereof or any subcustodian employed
pursuant to Section 2 hereof shall promptly send to the
Trust and to the Custodian any report or other
communication relating to such agent's or subcustodian's
internal accounting controls and procedures for
safeguarding securities deposited in any Securities
System. The Custodian's books and records relating to
the Trust's participation in each Securities System will
at all times during regular business hours be open to the
inspection of the Trust's authorized officers, employees
or agents.
(e) The Custodian shall not act under this
Paragraph L in the absence of receipt of a certificate of
an officer of the Trust that the Board has approved the
use of a particular Securities System; the Custodian
shall also obtain appropriate assurance from the officers
of the Trust that the Board has annually reviewed the
continued use by the Trust of each Securities System, and
the Trust shall promptly notify the Custodian if the use
of a Securities System is to be discontinued; at the
request of the Trust, the Custodian will terminate the
use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any
such agent or subcustodian to enforce effectively such
rights as it may have against the Securities System or
any other person; at the election of the Trust, it shall
be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
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 Trust has not been made whole
for any such loss or damage.
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<PAGE>
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper Upon receipt of
proper instructions with respect to each issue of direct
issue commercial paper purchased by the Trust, the
Custodian may deposit and/or maintain direct issue
commercial paper owned by the Trust in any Approved
Book-Entry System for Commercial Paper, in each case only
in accordance with applicable Securities and Exchange
Commission rules, regulations, and no-action
correspondence, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or
through one or more subcustodians employed pursuant to
Section 2) keep commercial paper of the Trust in an
Approved Book-Entry System for Commercial Paper, provided
that such paper is issued in book entry form by the
Custodian or subcustodian on behalf of an issuer with
which the Custodian or subcustodian has entered into a
book-entry agreement and provided further that such paper
is maintained in a non-proprietary account ("Account") of
the Custodian or such subcustodian in an Approved
Book-Entry System for Commercial Paper which shall not
include any assets of the Custodian or such subcustodian
or any other person other than assets held by the
Custodian or such subcustodian as a fiduciary, custodian,
or otherwise for its customers.
(b) The records of the Custodian with respect
to commercial paper of the Trust which is maintained in
an Approved Book-Entry System for Commercial Paper shall
identify by book-entry each specific issue of commercial
paper purchased by the Trust which is included in the
System and shall at all times during regular business
hours be open for inspection by authorized officers,
employees or agents of the Trust. The Custodian shall be
fully and completely responsible for maintaining a
recordkeeping system capable of accurately and currently
stating the Trust's holdings of commercial paper
maintained in each such System.
(c) The Custodian shall pay for commercial
paper purchased in book-entry form for the account of the
Trust only upon contemporaneous (i) receipt of notice or
advice from the issuer that such paper has been issued,
sold and transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to reflect
such purchase, payment and transfer for the account of
the Trust. The Custodian shall transfer such commercial
paper which is sold or cancel such commercial paper which
is redeemed for the account of the Trust only upon
contemporaneous (i) receipt of notice or advice that
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<PAGE>
payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records
of the Custodian to reflect such transfer or redemption
and payment for the account of the Trust. Copies of all
notices, advices and confirmations of transfers of
commercial paper for the account of the Trust shall
identify the Trust, be maintained for the Trust by the
Custodian and be promptly provided to the Trust at its
request. The Custodian shall promptly send to the Trust
confirmation of each transfer to or from the account of
the Trust in the form of a written advice or notice of
each such transaction, and shall furnish to the Trust
copies of daily transaction sheets reflecting each day's
transactions in the System for the account of the Trust
on the next business day.
(d) The Custodian shall promptly send to the
Trust any report or other communication received or
obtained by the Custodian relating to each System's
accounting system, system of internal accounting controls
or procedures for safeguarding commercial paper deposited
in the System; the Custodian shall promptly send to the
Trust any report or other communication relating to the
Custodian's internal accounting controls and procedures
for safeguarding commercial paper deposited in any
Approved Book-Entry System for Commercial Paper; and the
Custodian shall ensure that any agent appointed pursuant
to Paragraph K hereof or any subcustodian employed
pursuant to Section 2 hereof shall promptly send to the
Trust and to the Custodian any report or other
communication relating to such agent's or subcustodian's
internal accounting controls and procedures for
safeguarding securities deposited in any Approved
Book-Entry System for Commercial Paper.
(e) The Custodian shall not act under this
Paragraph M in the absence of receipt of a certificate of
an officer of the Trust that the Board has approved the
use of a particular Approved Book-Entry System for
Commercial Paper; the Custodian shall also obtain
appropriate assurance from the officers of the Trust that
the Board has annually reviewed the continued use by the
Trust of each Approved Book-Entry System for Commercial
Paper, and the Trust shall promptly notify the Custodian
if the use of an Approved Book-Entry System for
Commercial Paper is to be discontinued; at the request of
the Trust, the Custodian will terminate the use of any
such System as promptly as practicable.
(f) The Custodian (or subcustodian, if the
Approved Book-Entry System for Commercial Paper is
maintained by the subcustodian) shall issue physical
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commercial paper or promissory notes whenever requested
to do so by the Trust or in the event of an electronic
system failure which impedes issuance, transfer or
custody of direct issue commercial paper by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Trust resulting from
use of any Approved Book-Entry System for Commercial
Paper by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or
subcustodians or of any of its or their employees or from
any failure of the Custodian or any such agent or
subcustodian to enforce effectively such rights as it may
have against the System, the issuer of the commercial
paper or any other person; at the election of the Trust,
it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the
System, the issuer of the commercial paper 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
Trust has not been made whole for any such loss or
damage.
N. Segregated Account The Custodian shall upon receipt of
proper instructions establish and maintain a segregated
account or accounts for and on behalf of the Trust, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account
by the Custodian pursuant to Paragraph L hereof, (i) in
accordance with the provisions of any agreement among the
Trust, the Custodian and any registered broker-dealer (or
any futures commission merchant), relating to compliance
with the rules of the Options Clearing Corporation and of
any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract
market or commodities exchange), or of any similar
organization or organizations, regarding escrow or
deposit or other arrangements in connection with
transactions by the Trust, (ii) for purposes of
segregating cash or U.S. Government securities in
connection with options purchased, sold or written by
the Trust or futures contracts or options thereon
purchased or sold by the Trust, (iii) for the purposes of
compliance by the Trust 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, a certificate signed by two officers of the
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<PAGE>
Trust, setting forth the purpose such segregated account
and declaring such purpose to be a proper purpose.
O. 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 securities of the Trust held by it and in
connection with transfers of securities.
P. Proxies The Custodian shall, with respect to the
securities held by it hereunder, cause to be promptly
delivered to the Trust all forms of proxies and all
notices of meetings and any other notices or
announcements or other written information affecting or
relating to the securities, and upon receipt of proper
instructions shall execute and deliver or cause its
nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian
nor its nominee shall vote upon any of the securities or
execute any proxy to vote thereon or give any consent or
take any other action with respect thereto (except as
otherwise herein provided) unless ordered to do so by
proper instructions.
Q. Communications Relating to Trust Portfolio Securities
The Custodian shall deliver promptly to the Trust all
written information (including, without limitation,
pendency of call and maturities of securities and
participation interests and expirations of rights in
connection therewith and notices of exercise of call and
put options written by the Trust and the maturity of
futures contracts purchased or sold by the Trust)
received by the Custodian from issuers and other persons
relating to the securities and participation interests
being held for the Trust. With respect to tender or
exchange offers, the Custodian shall deliver promptly to
the Trust all written information received by the
Custodian from issuers and other persons relating to the
securities and participation interests whose tender or
exchange is sought and from the party (or his agents)
making the tender or exchange offer.
R. Exercise of Rights; Tender Offers In the case of tender
offers, similar offers to purchase or exercise rights
(including, without limitation, pendency of calls and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices
of exercise of call and put options and the maturity of
futures contracts) affecting or relating to securities
and participation interests held by the Custodian under
this Agreement, the Custodian shall have responsibility
19
<PAGE>
for promptly notifying the Trust of all such offers in
accordance with the standard of reasonable care set forth
in Section 8 hereof. For all such offers for which the
Custodian is responsible as provided in this Paragraph R,
the Trust shall have responsibility for providing the
Custodian with all necessary instructions in timely
fashion. Upon receipt of proper instructions, the
Custodian shall timely deliver to the issuer or trustee
thereof, or to the agent of either, warrants, puts,
calls, rights or similar securities for the purpose of
being exercised or sold upon proper receipt therefor and
upon receipt of assurances satisfactory to the Custodian
that the new securities and cash, if any, acquired by
such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon
receipt of proper instructions, the Custodian shall
timely deposit securities upon invitations for tenders of
securities upon proper receipt therefor and upon receipt
of assurances satisfactory to the Custodian that the
consideration to be paid or delivered or the tendered
securities are to be returned to the Custodian or
subcustodian employed pursuant to Section 2 hereof.
Notwithstanding any provision of this Agreement to the
contrary, the Custodian shall take all necessary action,
unless otherwise directed to the contrary by proper
instructions, to comply with the terms of all mandatory
or compulsory exchanges, calls, tenders, redemptions, or
similar rights of security ownership, and shall
thereafter promptly notify the Trust in writing of such
action.
S. Depository Receipts The Custodian shall, upon receipt of
proper instructions, surrender or cause to be surrendered
foreign securities to the depository used by an issuer of
American Depository Receipts or International Depository
Receipts (hereinafter collectively referred to as "ADRs")
for such securities, against a written receipt therefor
adequately describing such securities and written
evidence satisfactory to the Custodian that the
depository has acknowledged receipt of instructions to
issue with respect to such securities ADRs in the name of
a nominee of the Custodian or in the name or nominee name
of any subcustodian employed pursuant to Section 2
hereof, for delivery to the Custodian or such
subcustodian at such place as the Custodian or such
subcustodian may from time to time designate. The
Custodian shall, upon receipt of proper instructions,
surrender ADRs to the issuer thereof against a written
receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the
Custodian that the issuer of the ADRs has acknowledged
receipt of instructions to cause its depository to
20
<PAGE>
deliver the securities underlying such ADRs to the
Custodian or to a subcustodian employed pursuant to
Section 2 hereof.
T. Interest Bearing Call or Time Deposits The Custodian
shall, upon receipt of proper instructions, place
interest bearing fixed term and call deposits with the
banking department of such banking institution (other
than the Custodian) and in such amounts as the Trust may
designate. Deposits may be denominated in U.S. Dollars
or other currencies. The Custodian shall include in its
records with respect to the assets of the Trust
appropriate notation as to the amount and currency of
each such deposit, the accepting banking institution and
other appropriate details and shall retain such forms of
advice or receipt evidencing the deposit, if any, as may
be forwarded to the Custodian by the banking institution.
Such deposits shall be deemed portfolio securities of the
Trust for the purposes of this Agreement, and the
Custodian shall be responsible for the collection of
income from such accounts and the transmission of cash to
and from such accounts.
U. Options, Futures Contracts and Foreign Currency
Transactions
1. Options The Custodian shall, upon receipt
of proper instructions and in accordance with
the provisions of any agreement between the
Custodian, any registered broker-dealer and, if
necessary, the Trust, relating to compliance
with the rules of the Options Clearing
Corporation or of any registered national
securities exchange or similar organization or
organizations, receive and retain confirmations
or other documents, if any, evidencing the
purchase or writing of an option on a security
or securities index or other financial
instrument or index by the Trust; deposit and
maintain in a segregated account for the Trust,
either physically or by book-entry in a
Securities System, securities subject to a
covered call option written by the Trust; and
release and/or transfer such securities or other
assets only in accordance with a notice or other
communication evidencing the expiration,
termination or exercise of such covered option
furnished by the Options Clearing Corporation,
the securities or options exchange on which such
covered option is traded or such other
organization as may be responsible for handling
such options transactions. The Custodian and
21
<PAGE>
the broker-dealer shall be responsible for the
sufficiency of assets held in the Trust's
segregated account in compliance with applicable
margin maintenance requirements.
2. Futures Contracts The Custodian shall,
upon receipt of proper instructions, receive and
retain confirmations and other documents, if
any, evidencing the purchase or sale of a
futures contract or an option on a futures
contract by the Trust; deposit and maintain in a
segregated account, for the benefit of any
futures commission merchant, assets designated
by the Trust as initial, maintenance or
variation "margin" deposits (including
mark-to-market payments) intended to secure the
Trust's performance of its obligations under any
futures contracts purchased or sold or any
options on futures contracts written by the
Trust, in accordance with the provisions of any
agreement or agreements among the Trust, the
Custodian and such futures commission merchant,
designed to comply with the rules of the
Commodity Futures Trading Commission and/or of
any contract market or commodities exchange or
similar organization regarding such margin
deposits or payments; and release and/or
transfer assets in such margin accounts only in
accordance with any such agreements or rules.
The Custodian and the futures commission
merchant shall be responsible for the
sufficiency of assets held in the segregated
account in compliance with the applicable margin
maintenance and mark-to-market payment
requirements.
3. Foreign Exchange Transactions The Custodian
shall, pursuant to proper instructions, enter
into or cause a subcustodian to enter into
foreign exchange contracts or options to
purchase and sell foreign currencies for spot
and future delivery on behalf and for the
account of the Trust. Such transactions may be
undertaken by the Custodian or subcustodian with
such banking or financial institutions or other
currency brokers, as set forth in proper
instructions. Foreign exchange contracts and
options shall be deemed to be portfolio
securities of the Trust; and accordingly, the
responsibility of the Custodian therefor shall
be the same as and no greater than the
Custodian's responsibility in respect of other
22
<PAGE>
portfolio securities of the Trust. The
Custodian shall be responsible for the
transmittal to and receipt of cash from the
currency broker or banking or financial
institution with which the contract or option is
made, the maintenance of proper records with
respect to the transaction and the maintenance
of any segregated account required in connection
with the transaction. The Custodian shall have
no duty with respect to the selection of the
currency brokers or banking or financial
institutions with which the Trust deals or for
their failure to comply with the terms of any
contract or option. Without limiting the
foregoing, it is agreed that upon receipt of
proper instructions and insofar as funds are
made available to the Custodian for the purpose,
the Custodian may (if determined necessary by
the Custodian to consummate a particular
transaction on behalf and for the account of the
Trust) make free outgoing payments of cash in
the form of U.S. dollars or foreign currency
before receiving confirmation of a foreign
exchange contract or confirmation that the
countervalue currency completing the foreign
exchange contract has been delivered or
received. The Custodian shall not be
responsible for any costs and interest charges
which may be incurred by the Trust or the
Custodian as a result of the failure or delay of
third parties to deliver foreign exchange;
provided that the Custodian shall nevertheless
be held to the standard of care set forth in,
and shall be liable to the Trust in accordance
with, the provisions of Section 8.
V. Actions Permitted Without Express Authority The
Custodian may in its discretion, without express
authority from the Trust:
1) make payments to itself or others for
minor expenses of handling securities or
other similar items relating to its
duties under this Agreement, provided,
that all such payments shall be
accounted for by the Custodian to the
Treasurer of the Trust;
2) surrender securities in temporary form
for securities in definitive form;
3) endorse for collection, in the name of
23
<PAGE>
the Trust, checks, drafts and other
negotiable instruments; and
4) in general, attend to all
nondiscretionary details in connection
with the sale, exchange, substitution,
purchase, transfer and other dealings
with the securities and property of the
Trust except as otherwise directed by
the Trust.
4. Duties of Bank with Respect to Books of Account and Calculations
of Net Asset Value
Inasmuch as the Trust is treated as a partnership for federal
income tax purposes, the Bank shall as Agent (or as Custodian, as the case
may be) keep and maintain the books and records of the Trust in accordance
with the Procedures for Allocations and Distributions adopted by the
Trustees of the Trust, as such Procedures may be in effect from time to
time. A copy of the current Procedures is attached to this Agreement, and
the Trust agrees promptly to furnish all revisions to or restatements of
such Procedures to the Bank.
The Bank shall as Agent (or as Custodian, as the case may be)
keep such books of account (including records showing the adjusted tax
costs of the Trust's portfolio securities) and render as at the close of
business on each day a detailed statement of the amounts received or paid
out and of securities received or delivered for the account of the Trust
during said day and such other statements, including a daily trial balance
and inventory of the Trust's portfolio securities; and shall furnish such
other financial information and data as from time to time requested by the
Treasurer or any executive officer of the Trust; and shall compute and
determine, as of the close of business of the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset
value of the Trust and the net asset value of each interest in the Trust,
such computations and determinations to be made in accordance with the
governing documents of the Trust and the votes and instructions of the
Board and of the investment adviser at the time in force and applicable,
and promptly notify the Trust and its investment adviser and such other
persons as the Trust may request of the result of such computation and
determination. In computing the net asset value the Custodian may rely
upon security quotations received by telephone or otherwise from sources
or pricing services designated by the Trust by proper instructions, and
may further rely upon information furnished to it by any authorized
officer of the Trust relative (a) to liabilities of the Trust not
appearing on its books of account, (b) to the existence, status and proper
treatment of any reserve or reserves, (c) to any procedures or policies
established by the Board regarding the valuation of portfolio securities
or other assets, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right,
security, participation interests or other asset or property for which
market quotations are not readily available. The Custodian shall also
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<PAGE>
compute and determine at such time or times as the Trust may designate the
portion of each item which has significance for a holder of an interest in
the Trust in computing and determining its federal income tax liability
including, but not limited to, each item of income, expense and realized
and unrealized gain or loss of the Trust which is attributable for Federal
income tax purposes to each such holder.
5. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating
to its activities and obligations under this Agreement in such manner as
will meet the obligations of the Trust under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable federal and state tax laws and any other law
or administrative rules or procedures which may be applicable to the
Trust. All books of account and records maintained by the Bank in
connection with the performance of its duties under this Agreement shall
be the property of the Trust, shall at all times during the regular
business hours of the Bank be open for inspection by authorized officers,
employees or agents of the Trust, and in the event of termination of this
Agreement shall be delivered to the Trust or to such other person or
persons as shall be designated by the Trust. Disposition of any account
or record after any required period of preservation shall be only in
accordance with specific instructions received from the Trust. The Bank
shall assist generally in the preparation of reports to holders of
interest in the Trust, to the Securities and Exchange Commission,
including Form N-SAR, and to others, audits of accounts, and other
ministerial matters of like nature; and, upon request, shall furnish the
Trust's auditors with an attested inventory of securities held with
appropriate information as to securities in transit or in the process of
purchase or sale and with such other information as said auditors may from
time to time request. The Custodian shall also maintain records of all
receipts, deliveries and locations of such securities, together with a
current inventory thereof, and shall conduct periodic verifications
(including sampling counts at the Custodian) of certificates representing
bonds and other securities for which it is responsible under this
Agreement in such manner as the Custodian shall determine from time to
time to be advisable in order to verify the accuracy of such inventory.
The Bank shall not disclose or use any books or records it has prepared or
maintained by reason of this Agreement in any manner except as expressly
authorized herein or directed by the Trust, and the Bank shall keep
confidential any information obtained by reason of this Agreement.
6. Opinion of Trust's Independent Public Accountants
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to enable the Trust to obtain from year to
year favorable opinions from the Trust's independent public accountants
with respect to its activities hereunder in connection with the
preparation of the Trust's registration statement and Form N-SAR or other
periodic reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
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<PAGE>
7. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its
services as Custodian and Agent, as agreed upon from time to time between
the Trust and the Bank. The Bank shall be entitled to receive from the
Trust on demand reimbursement for its cash disbursements, expenses and
charges, including counsel fees, in connection with its duties as
Custodian and Agent hereunder, but excluding salaries and usual overhead
expenses.
8. Responsibility of Bank
So long as and to the extent that it is in the exercise of
reasonable care, the Bank as Custodian and Agent 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.
The Bank as Custodian and Agent shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Bank as Custodian and Agent shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall
be liable only for its own negligent or bad faith acts or failures to act.
Notwithstanding the foregoing, nothing contained in this paragraph is
intended to nor shall it be construed to modify the standards of care and
responsibility set forth in Section 2 hereof with respect to subcustodians
and in subparagraph f of Paragraph L of Section 3 hereof with respect to
Securities Systems and in subparagraph g of Paragraph M of Section 3
hereof with respect to an Approved Book-Entry System for Commercial Paper.
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 subcustodians generally in Section 2 hereof, provided that, 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,
the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Trust to maintain custody of any securities or cash
of the Trust in a foreign country including, but not limited to, losses
resulting from governmental actions and restrictions, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, revolution, military or usurped powers, nuclear fission,
fusion or radiation, earthquake, storm or other disturbance of nature or
acts of God.
If the Trust requires the Bank in any capacity to take any action
with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Bank, result in the Bank or its
nominee assigned to the Trust being liable for the payment of money or
26
<PAGE>
incurring liability of some other form, the Trust, 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.
9. Persons Having Access to Assets of the Trust
(i) No trustee, officer, employee or agent of the Trust shall
have physical access to the assets of the Trust held by the Custodian or
be authorized or permitted to withdraw any investments of the Trust, nor
shall the Custodian deliver any assets of the Trust to any such person.
No officer or director, employee or agent of the Custodian who holds any
similar position with the Trust or the investment adviser or the
administrator of the Trust shall have access to the assets of the Trust.
(ii) Access to assets of the Trust held hereunder shall only be
available to duly authorized officers, employees, representatives or
agents of the Custodian or other persons or entities for whose actions the
Custodian shall be responsible to the extent permitted hereunder, or to
the Trust's independent public accountants in connection with their
auditing duties performed on behalf of the Trust.
(iii) Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Trust or of the investment adviser of the Trust
from giving instructions to the Custodian or executing a certificate so
long as it does not result in delivery of or access to assets of the Trust
prohibited by paragraph (i) of this Section 9.
10. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated by either party after
August 31, 2000 by an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
that the Trust may at any time by action of its Board, (i) substitute
another bank or trust company for the Custodian by giving notice as
described above to the Custodian in the event the Custodian assigns this
Agreement to another party without consent of the noninterested Trustees
of the Trust, or (ii) immediately terminate this Agreement in the event of
the appointment of a conservator or receiver for the Custodian by the
Federal Deposit Insurance Corporation or by the Banking Commissioner of
The Commonwealth of Massachusetts 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 Agreement, the Trust 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).
This Agreement may be amended at any time by the written
agreement of the parties hereto. If a majority of the non-interested
trustees of any of the Trusts determines that the performance of the
Custodian has been unsatisfactory or adverse to the interests of Trust
27
<PAGE>
holders of any Trust or Trusts or that the terms of the Agreement are no
longer consistent with publicly available industry standards, then the
Trust or Trusts shall give written notice to the Custodian of such
determination and the Custodian shall have 60 days to (1) correct such
performance to the satisfaction of the non-interested trustees or (2)
renegotiate terms which are satisfactory to the non-interested trustees of
the Trusts. If the conditions of the preceding sentence are not met then
the Trust or Trusts may terminate this Agreement on sixty (60) days
written notice.
The Board of the Trust shall, forthwith, upon giving or receiving
notice of termination of this Agreement, appoint as successor custodian, a
bank or trust company having the qualifications required by the Investment
Company Act of 1940 and the Rules thereunder. The Bank, as Custodian,
Agent or otherwise, shall, upon termination of the Agreement, deliver to
such successor custodian, all securities then held hereunder and all funds
or other properties of the Trust deposited with or held by the Bank
hereunder and all books of account and records kept by the Bank pursuant
to this Agreement, and all documents held by the Bank relative thereto.
In the event that no written order designating a successor custodian shall
have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Trust to the Trust but shall
have the right to deliver to a bank or trust company doing business in
Boston, Massachusetts of its own selection meeting the above required
qualifications, all funds, securities and properties of the Trust held by
or deposited with the Bank, and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. Thereafter such bank or trust company shall be the
successor of the Custodian under this Agreement.
11. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian
and the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this Agreement.
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 governing
instruments of the Trust. No interpretive or additional provisions made
as provided in the preceding sentence shall be deemed to be an amendment
of this Agreement.
12. Notices
Notices and other writings delivered or mailed postage prepaid to
the Trust addressed to 3808 One Exchange Square, Central Hong Kong, or to
such other address as the Trust may have designated to the Bank, in
writing with a copy to Eaton Vance Management at 24 Federal Street,
Boston, Massachusetts 02110, or to Investors Bank & Trust Company, 89
28
<PAGE>
South Street, Boston, Massachusetts 02111 with a copy to Eaton Vance
Management at 24 Federal Street, Boston, Massachusetts 02110, shall be
deemed to have been properly delivered or given hereunder to the
respective addressees.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
The Custodian expressly acknowledges the provision in the
Declaration of Trust of the Trust (Section 5.2 and 5.6) limiting the
personal liability of the Trustees and officers of the Trust, and the
Custodian hereby agrees that it shall have recourse to the Trust for
payment of claims or obligations as between the Trust and the Custodian
arising out of this Agreement and shall not seek satisfaction from any
Trustee or officer of the Trust.
14. Adoption of the Agreement by the Trust
The Trust represents that its Board has approved this Agreement
and has duly authorized the Trust to adopt this Agreement, such adoption
to be evidenced by a letter agreement between the Trust and the Bank
reflecting such adoption, which letter agreement shall be dated and signed
by a duly authorized officer of the Trust and duly authorized officer of
the Bank. This Agreement shall be deemed to be duly executed and
delivered by each of the parties in its name and behalf by its duly
authorized officer as of the date of such letter agreement, and this
Agreement shall be deemed to supersede and terminate, as of the date of
such letter agreement, all prior agreements between the Trust and the Bank
relating to the custody of the Trust's assets.
* * * * *
SCHEDULE A
TO CUSTODIAN AGREEMENT
BETWEEN
ASIAN SMALL COMPANIES PORTFOLIO
AND
INVESTORS BANK & TRUST COMPANY
Additional Parties to the Agreement Date of Agreement
Emerging Markets Portfolio March 8, 1994
Greater China Growth Portfolio October 27, 1992, as amended
February 7, 1994
South Asia Portfolio March 8, 1994
29
<PAGE>
ASIAN SMALL COMPANIES PORTFOLIO
-----------------------
PROCEDURES FOR ALLOCATIONS
AND DISTRIBUTIONS
January 19, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--Introduction . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III--Capital Accounts
Section 3.1 Capital Accounts of Holders . . . . 4
Section 3.2 Book Capital Accounts . . . . . . . 4
Section 3.3 Tax Capital Accounts . . . . . . . . 4
Section 3.4 Compliance with Treasury Regulations 5
ARTICLE IV--Distributions of Cash and Assets
Section 4.1 Distributions of Distributable Cash 5
Section 4.2 Division Among Holders . . . . . . . 5
Section 4.3 Distributions Upon Liquidation of a
Holder's Interest in the Trust . . . 5
Section 4.4 Amounts Withheld . . . . . . . . . . 5
ARTICLE V--Allocations
Section 5.1 Allocation of Items to Book Capital
Accounts . . . . . . . . . . . . . . 6
Section 5.2 Allocation of Taxable Income and Tax
Loss to Tax Capital Accounts . . . . 6
Section 5.3 Special Allocations to Book and Tax
Capital Accounts . . . . . . . . . . 7
Section 5.4 Other Adjustments to Book and Tax
Capital Accounts . . . . . . . . . . 7
Section 5.5 Timing of Tax Allocations to Book and
Tax Capital Accounts . . . . . . . . 7
Section 5.6 Redemptions During the Fiscal Year . 8
ARTICLE VI--Withdrawals
Section 6.1 Partial Withdrawals . . . . . . . . 8
Section 6.2 Redemptions . . . . . . . . . . . . 8
Section 6.3 Distribution in Kind . . . . . . . . 8
ARTICLE VII--Liquidation
Section 7.1 Liquidation Procedure . . . . . . . 8
Section 7.2 Alternative Liquidation Procedure . 9
Section 7.3 Cash Distributions Upon Liquidation 9
Section 7.4 Treatment of Negative Book Capital
Account Balance . . . . . . . . . 9
i
<PAGE>
PROCEDURES FOR
ALLOCATIONS AND DISTRIBUTIONS
OF
ASIAN SMALL COMPANIES PORTFOLIO
(the "Trust")
ARTICLE I
Introduction
The Trust is treated as a partnership for federal income tax
purposes. These procedures have been adopted by the Trustees of the Trust
and will be furnished to the Trust's accountants for the purpose of
allocating Trust gains, income or loss and distributing Trust assets. The
Trust will maintain its books and records, for both book and tax purposes,
using the accrual method of accounting.
ARTICLE II
Definitions
Except as otherwise provided herein, a term referred to herein
shall have the same meaning as that ascribed to it in the Declaration.
References in this document to "hereof", "herein" and "hereunder" shall be
deemed to refer to this document in its entirety rather than the article
or section in which any such word appears.
"Book Capital Account" shall mean, for any Holder at any time in
any Fiscal Year, the Book Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.2 hereof.
"Capital Contribution" shall mean, with respect to any Holder,
the amount of money and the Fair Market Value of any assets actually
contributed from time to time to the Trust with respect to the Interest
held by such Holder.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision
or provisions of succeeding law).
"Declaration" shall mean the Trust's Declaration of Trust, dated
January 19, 1996, as amended from time to time.
"Designated Expenses" shall mean extraordinary Trust expenses
attributable to a particular Holder that are to be borne by such Holder.
"Distributable Cash" for any Fiscal Year shall mean the gross
cash proceeds from Trust activities, less the portion thereof used to pay
or establish Reserves, plus such portion of the Reserves as the Trustees,
in their sole discretion, no longer deem necessary to be held as Reserves.
<PAGE>
Distributable Cash shall not be reduced by depreciation, amortization,
cost recovery deductions, or similar allowances.
"Fair Market Value" of a security, instrument or other asset on
any particular day shall mean the fair value thereof as determined in good
faith by or on behalf of the Trustees in the manner set forth in the
Registration Statement.
"Fiscal Year" shall mean an annual period determined by the
Trustees which ends on such day as is permitted by the Code.
"Holders" shall mean as of any particular time all holders of
record of Interests in the Trust.
"Interest(s)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by the
Declaration, which interest may be expressed as a percentage, determined
by calculating, at such times and on such bases as the Trustees shall from
time to time determine, the ratio of each Holder's Book Capital Account
balance to the total of all Holders' Book Capital Account balances.
"Investments" shall mean all securities, instruments or other
assets of the Trust of any nature whatsoever, including, but not limited
to, all equity and debt securities, futures contracts, and all property of
the Trust obtained by virtue of holding such assets.
"Matched Income or Loss" shall mean Taxable Income, Tax-Exempt
Income or Tax Loss of the Trust comprising interest, original issue
discount and dividends and all other types of income or loss to the extent
the Taxable Income, Tax-Exempt Income, Tax Loss or Loss items not included
in Tax Loss arising from such items are recognized for tax purposes at the
same time that Profit or Loss are accrued for book purposes by the Trust.
"Net Unrealized Gain" shall mean the excess, if any, of the
aggregate Fair Market Value of all Investments over the aggregate adjusted
bases, for federal income tax purposes, of all Investments.
"Net Unrealized Loss" shall mean the excess, if any, of the
aggregate adjusted bases, for federal income tax purposes, of all
Investments over the aggregate Fair Market Value of all Investments.
"Profit" and "Loss" shall mean, for each Fiscal Year or other
period, an amount equal to the Taxable Income or Tax Loss for such Fiscal
Year or period with the following adjustments:
(i) Any Tax-Exempt Income shall be added to
such Taxable Income or subtracted from such Tax Loss; and
(ii) Any expenditures of the Trust for such
year or period described in Section 705(a)(2)(B) of the
Code or treated as expenditures under
Section 705(a)(2)(B) of the Code pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(i), and not
otherwise taken into account in computing Profit or Loss
or specially allocated shall be subtracted from such
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Taxable Income or added to such Tax Loss.
"Redemption" shall mean the complete withdrawal of an Interest of
a Holder the result of which is to reduce the Book Capital Account balance
of that Holder to zero.
"Registration Statement" shall mean the Registration Statement of
the Trust on Form N-1A as filed with the U.S. Securities and Exchange
Commission under the 1940 Act, as the same may be amended from time to
time.
"Reserves" shall mean, with respect to any Fiscal Year, funds set
aside or amounts allocated during such period to reserves which shall be
maintained in amounts deemed sufficient by the Trustees for working
capital and to pay taxes, insurance, debt service, renewals, or other
costs or expenses, incident to the ownership of the Investments or to its
operations.
"Tax Capital Account" shall mean, for any Holder at any time in
any Fiscal Year, the Tax Capital Account balance of the Holder on the
first day of the Fiscal Year, as adjusted each day pursuant to the
provisions of Section 3.3 hereof.
"Tax-Exempt Income" shall mean income of the Trust for such
Fiscal Year or period that is exempt from federal income tax and not
otherwise taken into account in computing Profit or Loss.
"Tax Lot" shall mean securities or other property which are both
purchased or acquired, and sold or otherwise disposed of, as a unit.
"Taxable Income" or "Tax Loss" shall mean the taxable income or
tax loss of the Trust, determined in accordance with Section 703(a) of the
Code, for each Fiscal Year as determined for federal income tax purposes,
together with each of the Trust's items of income, gain, loss or deduction
which is separately stated or otherwise not included in computing taxable
income and tax loss.
"Treasury Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time
to time (including corresponding provisions of succeeding regulations).
"Trust" shall mean Asian Small Companies Portfolio, a trust fund
formed under the laws of the State of New York by the Declaration.
"Trustees" shall mean each signatory to the Declaration, so long
as such signatory shall continue in office in accordance with the terms
thereof, and all other individuals who at the time in question have been
duly elected or appointed and have qualified as Trustees in accordance
with the provisions thereof and are then in office.
The "1940 Act" shall mean the U.S. Investment Company Act of
1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE III
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Capital Accounts
3.1. Capital Accounts of Holders. A separate Book Capital
Account and a separate Tax Capital Account shall be maintained for each
Holder pursuant to Section 3.2 and Section 3.3. hereof, respectively. In
the event the Trustees shall determine that it is prudent to modify the
manner in which the Book Capital Accounts or Tax Capital Accounts, or any
debits or credits thereto, are computed in order to comply with the
Treasury Regulations, the Trustees may make such modification, provided
that it is not likely to have a material effect on the amounts
distributable to any Holder pursuant to Article VII hereof upon the
dissolution of the Trust.
3.2. Book Capital Accounts. The Book Capital Account balance
of each Holder shall be adjusted each day by the following amounts:
(a) increased by any increase in Net Unrealized Gains or
decrease in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(a) hereof;
(b) decreased by any decrease in Net Unrealized Gains or
increase in Net Unrealized Losses allocated to such Holder pursuant to
Section 5.1(b) hereof;
(c) increased or decreased, as the case may be, by the amount
of Profit or Loss, respectively, allocated to such Holder pursuant to
Section 5.1(c) hereof;
(d) increased by any Capital Contribution made by such
Holder; and,
(e) decreased by any distribution, including any distribution
to effect a withdrawal or Redemption, made to such Holder by the Trust.
Any adjustment pursuant to Section 3.2 (a), (b) or (c) above
shall be prorated for increases in each Holder's Book Capital Account
balance resulting from Capital Contributions, or distributions or
withdrawals from the Trust or Redemptions by the Trust occurring, during
such Fiscal Year as of the day after the Capital Contribution,
distribution, withdrawal or Redemption is accepted, made or effected by
the Trust.
3.3. Tax Capital Accounts. The Tax Capital Account balance of
each Holder shall be adjusted at the following times by the following
amounts:
(a) increased daily by the adjusted tax bases of any Capital
Contribution made by such Holder to the Trust;
(b) increased daily by the amount of Taxable Income and Tax-
Exempt Income allocated to such Holder pursuant to Section 5.2 hereof at
such times as the allocations are made under Section 5.2 hereof;
(c) decreased daily by the amount of cash distributed to the
Holder pursuant to any of these procedures including any distribution made
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to effect a withdrawal or Redemption; and
(d) decreased by the amount of Tax Loss allocated to such
Holder pursuant to Section 5.2 hereof at such times as the allocations are
made under Section 5.2 hereof.
3.4. Compliance with Treasury Regulations. The foregoing
provisions and other provisions contained herein relating to the
maintenance of Book Capital Accounts and Tax Capital Accounts are intended
to comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations.
The Trustees shall make any appropriate modifications in the
event unanticipated events might otherwise cause these procedures not to
comply with Treasury Regulations Section 1.704-1(b), including the
requirements described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(b)(1) and Treasury Regulations Section 1.704-1(b)(2)(iv).
Such modifications are hereby incorporated into these procedures by this
reference as though fully set forth herein.
ARTICLE IV
Distributions of Cash and Assets
4.1. Distributions of Distributable Cash. Except as otherwise
provided in Article VII hereof, Distributable Cash for each Fiscal Year
may be distributed to the Holders at such times, if any, and in such
amounts as shall be determined in the sole discretion of the Trustees. In
exercising such discretion, the Trustees shall distribute such
Distributable Cash so that Holders that are regulated investment companies
can comply with the distribution requirements set forth in Code
Section 852 and avoid the excise tax imposed by Code Section 4982.
4.2. Division Among Holders. All distributions to the Holders
with respect to any Fiscal Year pursuant to Section 4.1 hereof shall be
made to the Holders in proportion to the Taxable Income, Tax-Exempt Income
or Tax Loss allocated to the Holders with respect to such Fiscal Year
pursuant to the terms of these procedures.
4.3. Distributions Upon Liquidation of a Holder's Interest in
the Trust. Upon liquidation of a Holder's interest in the Trust, the
proceeds will be distributed to the Holder as provided in Section 5.6,
Article VI, and Article VII hereof. If such Holder has a negative book
capital account balance, the provisions of Section 7.4 will apply.
4.4. Amounts Withheld. All amounts withheld pursuant to the
Code or any provision of any state or local tax law with respect to any
payment or distribution to the Trust or the Holders shall be treated as
amounts distributed to such Holders pursuant to this Article IV for all
purposes under these procedures. The Trustees may allocate any such
amount among the Holders in any manner that is in accordance with
applicable law.
ARTICLE V
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Allocations
5.1. Allocation of Items to Book Capital Accounts.
(a) Increase in Net Unrealized Gains or Decrease in Net
Unrealized Losses. Any decrease in Net Unrealized Loss due to realization
of items shall be allocated to the Holder receiving the allocation of
Loss, in the same amount, under Section 5.1(c) hereof. Subject to Section
5.1(d) hereof, any increase in Net Unrealized Gains or decrease in Net
Unrealized Loss on any day during the Fiscal Year shall be allocated to
the Holders' Book Capital Accounts at the end of such day, in proportion
to the Holders' respective Book Capital Account balances at the
commencement of such day.
(b) Decrease in Net Unrealized Gains or Increase in Net
Unrealized Losses. Any decrease in Net Unrealized Gains due to
realization of items shall be allocated to the Holder receiving the
allocation of Profit, in the same amount, under Section 5.1(c) hereof.
Subject to Section 5.1(d) hereof, any decrease in Net Unrealized Gains or
increase in Net Unrealized Loss on any day during the Fiscal Year shall be
allocated to the Holders' Book Capital Accounts at the end of such day, in
proportion to the Holders' respective Book Capital Account balances at the
commencement of such day.
(c) Profit and Loss. Subject to Section 5.1(d) hereof,
Profit and Loss occurring on any day during the Fiscal Year shall be
allocated to the Holders' Book Capital Accounts at the end of such day in
proportion to the Holders' respective Book Capital Account balances at the
commencement of such day.
(d) Other Book Capital Account Adjustments.
(i) Any allocation pursuant to Section 5.1(a),
(b) or (c) above shall be prorated for increases in each
Holder's Book Capital Account resulting from Capital
Contributions, or distributions or withdrawals from the
Trust or Redemptions by the Trust occurring, during such
Fiscal Year as of the day after the Capital Contribution,
distribution, withdrawal or Redemption is accepted, made
or effected by the Trust.
(ii) For purposes of determining the Profit,
Loss, and Net Unrealized Gain or Net Unrealized Loss or
any other item allocable to any Fiscal Year, Profit,
Loss, and Net Unrealized Gain or Net Unrealized Loss and
any such other item shall be determined by or on behalf
of the Trustees using any reasonable method under Code
Section 706 and the Treasury Regulations thereunder.
5.2. Allocation of Taxable Income and Tax Loss to Tax Capital
Accounts.
(a) Taxable Income and Tax Loss. Subject to Section 5.2(b)
and Section 5.3 hereof, which shall take precedence over this Section
5.2(a), Taxable Income or Tax Loss for any Fiscal Year shall be allocated
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at least annually to the Holders' Tax Capital Accounts as follows:
(i) First, Taxable Income and Tax Loss,
whether constituting ordinary income (or loss) or capital
gain (or loss), derived from the sale or other
disposition of a Tax Lot of securities or other property
shall be allocated as of the date such income, gain or
loss is recognized for federal income tax purposes solely
in proportion to the amount of unrealized appreciation
(in the case of such income or capital gain, but not in
the case of any such loss) or depreciation (in the case
of any such loss, but not in the case of any such income
or capital gain) from that Tax Lot which was allocated to
the Holders' Book Capital Accounts each day that such
securities or other property was held by the Trust
pursuant to Section 5.1(a) and (b) hereof; and
(ii) Second, any remaining amounts at the end
of the Fiscal Year, to the Holders in proportion to their
respective daily average Book Capital Account balances
determined for the Fiscal Year of the allocation.
(b) Matched Income or Loss. Notwithstanding the provisions
of Section 5.2(a) hereof, Taxable Income, Tax-Exempt Income or Tax Loss
accruing on any day during the Fiscal Year constituting Matched Income or
Loss, shall be allocated daily to the Holders' Tax Capital Accounts solely
in proportion to and to the extent of corresponding allocations of Profit
or Loss to the Holders' Book Capital Accounts pursuant to the first
sentence of Section 5.1(c) hereof.
5.3. Special Allocations to Book and Tax Capital Accounts.
(a) The Designated Expenses computed for each Holder shall be
allocated separately (not included in the allocations of Matched Income or
Loss, Loss or Tax Loss) to the Book Capital Account and Tax Capital
Account of each Holder.
(b) If the Trust incurs any nonrecourse indebtedness, then
allocations of items attributable to nonrecourse indebtedness shall be
made to the Tax Capital Account of each Holder in accordance with the
requirements of Treasury Regulations Section 1.704-1(b)(4)(iv)(d).
(c) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, Taxable Income and Tax Loss with respect to any
property contributed to the capital of the Trust shall be allocated to the
Tax Capital Account of each Holder so as to take into account any
variation between the adjusted tax basis of such property to the Trust for
federal income tax purposes and such property's Fair Market Value at the
time of contribution to the Trust.
5.4. Other Adjustments to Book and Tax Capital Accounts.
(a) Any election or other decision relating to such
allocations shall be made by the Trustees in any manner that reasonably
reflects the purpose and intention of these procedures.
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(b) Each Holder will report its share of Trust income and
loss for federal income tax purposes in accordance with the allocations
effected pursuant to Section 5.2 hereof.
5.5. Timing of Tax Allocations to Book and Tax Capital
Accounts. Allocation of Taxable Income, Tax-Exempt Income and Tax Loss
pursuant to Section 5.2 hereof for any Fiscal Year, unless specified above
to the contrary, shall be made only after corresponding adjustments have
been made to the Book Capital Accounts of the Holders for the Fiscal Year
as provided pursuant to Section 5.1 hereof.
5.6. Redemptions During the Fiscal Year. If a Redemption
occurs prior to the end of a Fiscal Year, the Trust will treat the Fiscal
Year as ended for the purposes of computing the redeeming Holder's
distributive share of Trust items and allocations of all items to such
Holder will be made as though each Holder were receiving its allocable
share of Trust items at such time. All items so allocated to the
redeeming Holder will be subtracted from the items to be allocated among
the other non-redeeming Holders at the actual end of the Fiscal Year. All
items allocated among the redeeming and non-redeeming Holders will be made
subject to the rules of Code Sections 702, 704, 706 and 708 and the
Treasury Regulations promulgated thereunder.
ARTICLE VI
Withdrawals
6.1. Partial Withdrawals. At any time any Holder shall be
entitled to request a withdrawal of such portion of the Interest held by
such Holder as such Holder shall request.
6.2. Redemptions. At any time a Holder shall be entitled to
request a Redemption of all of its Interest. A Holder's Interest may be
redeemed at any time during the Fiscal Year as provided in Section 6.3
hereof by a cash distribution or, at the option of a Holder, by a
distribution of a proportionate amount except for fractional shares of
each Trust asset at the option of the Trust. However, the Holder may be
redeemed by a distribution of a proportionate amount of the Trust's assets
only at the end of a Fiscal Year. However, if the Holder has contributed
any property to the Trust other than cash, if such property remains in the
Trust at the time the Holder requests withdrawal, then such property will
be sold by the Trust prior to the time at which the Holder withdraws from
the Trust.
6.3. Distribution in Kind. If a withdrawing Holder receives a
distribution in kind of its proportionate part of Trust property, then
unrealized income, gain, loss or deduction attributable to such property
shall be allocated among the Holders as if there had been a disposition of
the property on the date of distribution in compliance with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(iv)(e).
ARTICLE VII
Liquidation
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7.1. Liquidation Procedure. Subject to Section 7.4 hereof,
upon dissolution of the Trust, the Trustees shall liquidate the assets of
the Trust, apply and distribute the proceeds thereof as follows:
(a) first to the payment of all debts and obligations of the
Trust to third parties, including without limitation the retirement of
outstanding debt, including any debt owed to Holders or their affiliates,
and the expenses of liquidation, and to the setting up of any Reserves for
contingencies which may be necessary; and
(b) then in accordance with the Holders' positive Book
Capital Account balances after adjusting Book Capital Accounts for
allocations provided in Article V hereof and in accordance with the
requirements described in Treasury Regulations Section 1.704-1(b)(2)
(ii)(b)(2).
7.2. Alternative Liquidation Procedure. Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the Trust assets would cause undue loss to the Holders, the
Trustees, in order to avoid such loss, may, after having given
notification to all the Holders, to the extent not then prohibited by the
law of any jurisdiction in which the Trust is then formed or qualified and
applicable in the circumstances, either defer liquidation of and withhold
from distribution for a reasonable time any assets of the Trust except
those necessary to satisfy the Trust's debts and obligations or distribute
the Trust's assets to the Holders in liquidation.
7.3. Cash Distributions Upon Liquidation. Except as provided
in Section 7.2 hereof, amounts distributed in liquidation of the Trust
shall be paid solely in cash.
7.4. Treatment of Negative Book Capital Account Balance. If a
Holder has a negative balance in its Book Capital Account following the
liquidation of its Interest, as determined after taking into account all
capital account adjustments for the Fiscal Year during which the
liquidation occurs, then such Holder shall restore the amount of such
negative balance to the Trust by the later of the end of the Fiscal Year
or 90 days after the date of such liquidation so as to comply with the
requirements of Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(3).
Such amount shall, upon liquidation, be paid to creditors of the Trust or
distributed to other Holders in accordance with their positive Book
Capital Account balances.
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FORM OF
ASIAN SMALL COMPANIES PORTFOLIO
ADMINISTRATION AGREEMENT
AGREEMENT made this day of April, 1996 between Asian
Small Companies Portfolio, a New York trust (the "Trust"), and Eaton Vance
Management, a Massachusetts business trust (the ``Administrator''):
1. Duties of the Administrator. The Trust hereby employs
the Administrator to act as administrator for and to manage and administer
the affairs of the Trust, subject to the supervision of the Trustees of
the Trust, for the period and on the terms set forth in this Agreement.
The Administrator hereby accepts such employment, and agrees to
manage and administer the Trust's business affairs and, in connection
therewith, to furnish for the use of the Trust office space and all
necessary office facilities, equipment and personnel for administering the
affairs of the Trust.
The Administrator's services include monitoring and providing
reports to the Trustees of the Trust concerning the investment performance
achieved by the Adviser for the Trust, recordkeeping, preparation and
filing of documents required to comply with Federal and state securities
laws, supervising the activities of the custodian of the Trust, providing
assistance in connection with meetings of the Trustees and of Holders of
Interests in the Trust and other management and administrative services
necessary to conduct the business of the Trust.
The Administrator shall not be responsible for providing
investment management or advisory services to the Trust under this
Agreement. Lloyd George Investment Management (Bermuda) Limited in its
capacity of investment adviser to the Trust, shall be responsible for
managing the investment and reinvestment of the assets of the Trust under
the Trust's separate Investment Advisory Agreement with the investment
adviser.
2. Compensation of the Administrator. For the services,
payments and facilities to be furnished hereunder by the Administrator,
the Trust shall pay to the Administrator on the last day of such month a
fee computed by applying the annual asset rate applicable to that portion
of the average daily net assets of the Trust throughout the month in each
Category as indicated below:
Annual
Category Average Daily Net Assets Asset Rate
1 less than $500 million 0.25000%
2 $500 million but less than $1 billion 0.23333%
3 $1 billion but less than $1.5 billion 0.21667%
4 $1.5 billion but less than $2 billion 0.20000%
<PAGE>
5 $2 billion but less than $3 billion 0.18333%
6 $3 billion and over 0.16667%
The average daily net assets of the Trust will be computed in
accordance with the Declaration of Trust, and any applicable votes and
determinations of the Trustees of the Trust. In case of initiation or
termination of this Agreement during any month, the fee for that month
shall be reduced proportionately on the basis of the number of calendar
days during which it is in effect and the fee shall be computed upon the
average net assets for the business days it is so in effect for that
month.
The Administrator may, from time to time, waive all or a part of
the above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all its expenses other than those expressly stated
to be payable by the Administrator hereunder, which expenses payable by
the Trust shall include, without implied limitation, (i) expenses of
maintaining the Trust and continuing its existence, (ii) registration of
the Trust under the Investment Company Act of 1940, (iii) commissions,
fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting
and legal expenses, (v) taxes and interest, (vi) governmental fees, (vii)
expenses of issue, sale and redemption of Interests in the Trust, (viii)
expenses of registering and qualifying the Trust and Interests in the
Trust under federal and state securities laws and of preparing and
printing registration statements or other offering documents or memoranda
for such purposes and for distributing the same to Holders and investors,
and fees and expenses of registering and maintaining registrations of the
Trust and of the Trust's placement agent as broker-dealer or agent under
state securities laws, (ix) expenses of reports and notices to Holders and
of meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and other
disbursements, if any, of custodians and sub-custodians for all services
to the Trust (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records,
and determination of net asset values, book capital account balances and
tax capital account balances), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, Holder servicing agents and
registrars for all services to the Trust, (xv) expenses of servicing the
accounts of Holders, (xvi) any direct charges to Holders approved by the
Trustees of the Trust, (xvii) compensation and expenses of Trustees of the
Trust who are not members of the Administrator's organization, (xviii) the
advisory fees payable under any advisory agreement to which the Trust is a
party and (xix) such non-recurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of the Trust to indemnify its Trustees, officers and Holders
with respect thereto.
4. Other Interests. It is understood that Trustees,
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officers and Holders of Interest in the Trust are or may be or become
interested in the Administrator as Trustees, officers, or employees, or
otherwise and that Trustees, officers and employees of the Administrator
are or may be or become similarly interested in the Trust, and that the
Administrator may be or become interested in the Trust as a shareholder or
otherwise. It is also understood that Trustees, officers and employees of
the Administrator may be or become interested (as directors, trustees,
officers, employees, shareholders or otherwise) in other companies or
entities (including, without limitation, other investment companies) which
the Administrator may organize, sponsor or acquire, or with which it may
merge or consolidate, and that the Administrator or its subsidiaries or
affiliates may enter into advisory or management agreements or other
contracts or relationships with such other companies or entities.
5. Limitation of Liability of the Administrator. The
services of the Administrator of the Trust are not to be deemed to be
exclusive, the Administrator being free to render services to others and
engage in other business activities. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Administrator, the
Administrator shall not be subject to liability to the Trust or to any
Holder of the Trust for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses which may be
sustained in the acquisition, holding or disposition of any security or
other investment.
6. Duration and Termination of the Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect to and including February 28, 1998 and shall continue in full force
and effect indefinitely thereafter, but only so long as such continuance
after February 28, 1998 is specifically approved at least annually by the
Trustees of the Trust.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement, without the payment
of any penalty, by action of its Trustees, and the Trust may, at any time
upon such written notice to the Administrator, terminate this Agreement by
vote of a majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
7. Amendment of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved by the vote
of a majority of the Trustees of the Trust.
8. Limitation of Liability. The Administrator expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Sections 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Administrator hereby agrees that it shall
have recourse to the Trust for payment of claims or obligations as between
the Trust and the Administrator arising out of this Agreement and shall
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not seek satisfaction from any Trustee or officer of the Trust.
9. Certain Definitions. The term "assignment" when used
herein shall have the meaning specified in the Investment Company Act of
1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The terms "Holders" and "Interests" when
used herein shall have the respective meanings specified in the
Declaration of Trust of the Trust.
ASIAN SMALL COMPANIES PORTFOLIO EATON VANCE MANAGEMENT
By_________________________ By____________________
Vice President Vice President,
and not individually
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Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
January 26, 1996
Asian Small Companies Portfolio
24 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of
$100,000, of an interest (an "Initial Interest") in Asian Small Companies
Portfolio (the "Portfolio"), we hereby advise you that we are purchasing
such Initial Interest for investment purposes without any present
intention of redeeming or reselling.
The amount paid by the Portfolio on any withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the
amount of such Initial Interest withdrawn to the aggregate Initial
Interests of all holders of similar Initial Interests then outstanding
after taking into account any prior withdrawals of any such Initial
Interest.
Very truly yours,
EATON VANCE MANAGEMENT
By /s/ James L. O'Connor
-----------------------
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