As filed with the Securities and Exchange Commission on October 30, 1996
File Nos. _________
811-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
VARIABLE ANNUITY PORTFOLIOS*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 617-423-1679
PHILIP W. COOLIDGE, 6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
ROGER P. JOSEPH, BINGHAM, DANA & GOULD LLP, 150 FEDERAL STREET,
BOSTON, MASSACHUSETTS 02110
Approximate Date of Proposed Public Offering: As soon as
practicable after the effectiveness of the registration under the
Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended, Registrant hereby elects to register an indefinite number of shares of
Registrant and any series thereof hereinafter created.
- ---------------------------------------------------------------------------
*This filing relates only to shares of CitiSelectSM VIP Folio 200, CitiSelectSM
VIP Folio 300, CitiSelectSM VIP Folio 400 and CitiSelectSM VIP Folio 500
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
(CITISELECTSM VIP FOLIO 200, CITISELECTSM VIP FOLIO 300,
CITISELECTSM VIP FOLIO 400 AND CITISELECTSM VIP FOLIO 500)
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
N-1A N-1A ITEM LOCATION
ITEM NO.
PROSPECTUS
PART A
Item 1. Cover Page...................... Cover Page
Item 2. Synopsis........................ Not Applicable
Item 3. Condensed Financial Information. Not Applicable
Item 4. General Description of Registrant Investment Information; General
Information;Appendix
Item 5. Management of the Fund.......... Management; Expenses
Item 5A. Management's Discussion of Fund
Performance..................... Not Applicable
Item 6. Capital Stock and Other Securities General Information;
Purchase and Redemption
of Shares; Dividends and
Distributions; Tax Matters
Item 7. Purchase of Securities Being Purchase and Redemption
Offered......................... of Shares
Item 8. Redemption or Repurchase........ Purchase and Redemption
of Shares
Item 9. Pending Legal Proceedings....... Not Applicable
STATEMENT OF
ADDITIONAL
PART B INFORMATION
Item 10. Cover Page...................... Cover Page
Item 11. Table of Contents............... Cover Page
Item 12. General Information and History. The Trust
Item 13. Investment Objectives and Policies Investment Objectives;
Description of Permitted
Investments and
Investment Practices;
Investment Restrictions
Item 14. Management of the Fund.......... Management
Item 15. Control Persons and Principal
Holders of Securities........... Management
Item 16. Investment Advisory and Other Management
Services........................
Item 17. Brokerage Allocation and Other Portfolio Transactions
Practices.......................
Item 18. Capital Stock and Other Securities Description of Shares,
Voting Rights and
Liabilities
Item 19. Purchase, Redemption and Pricing
of Securities Description of Shares,
Being Offered................... Voting Rights and
Liabilities;
Determination of Net
Asset Value; Valuation of
Securities; Additional
Redemption Information
Item 20. Tax Status...................... Certain Additional Tax
Matters
Item 21. Underwriters.................... Management
Item 22. Calculation of Performance Data. Performance Information
Item 23. Financial Statements............ Financial Statements
<PAGE>
PART C Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement.
<PAGE>
Prospectus
__________ __, 1996
CITISELECTSM VIP FOLIO 200
CITISELECTSM VIP FOLIO 300
CITISELECTSM VIP FOLIO 400
CITISELECTSM VIP FOLIO 500
CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP
Folio 400 and CitiSelectSM VIP Folio 500 (each, a "Fund" and collectively, the
"Funds") are investment vehicles for variable annuity contracts and variable
life insurance policies offered by the separate accounts ("Separate Accounts")
of participating life insurance companies ("Participating Insurance
Companies").
The Funds are asset allocation funds that offer investors a convenient way
to own a professionally managed portfolio tailored to specific investment
goals. Their investment objectives are described below. There is, of course, no
assurance that any Fund will achieve its investment objectives.
CitiSelect VIP Folio 200's objective is high total return over time
consistent with a primary emphasis on income and a secondary emphasis on
capital appreciation.
CitiSelect VIP Folio 300's objective is high total return over time
consistent with a balanced emphasis on income and capital appreciation.
CitiSelect VIP Folio 400's objective is high total return over time
consistent with a primary emphasis on capital appreciation and a secondary
emphasis on income for risk reduction purposes.
CitiSelect VIP Folio 500's objective is highest total return over time
consistent with a primary emphasis on capital appreciation and a secondary
emphasis on income for risk reduction purposes.
Citibank, N.A. ("Citibank" or the "Manager") is the investment manager for
each of the Funds. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SHARES OF THE
FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
Shares of the Funds are not offered to the general public but may only be
purchased by the Separate Accounts of Participating Insurance Companies for the
purpose of funding variable annuity contracts and variable life insurance
policies.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. A Statement of Additional
Information dated __________ __, 1996 (and incorporated by reference in this
Prospectus) has been filed with the Securities and Exchange Commission. Copies
of the Statement of Additional Information may be obtained without charge, and
further inquiries about the Funds may be made, by contacting the Funds'
distributor at (617) 423-1679 or a Participating Insurance Company.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
Page
Investment Information 4
Certain Risk Considerations 11
Valuation of Shares 12
Purchase and Redemption of Shares 12
Dividends and Distributions 13
Management 13
Tax Matters 19
Performance Information 20
General Information 20
Appendix--Permitted Investments and Investment Practices A-1
<PAGE>
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES
The investment objective of CITISELECT VIP FOLIO 200 is high total return
over time consistent with a primary emphasis on income and a secondary emphasis
on capital appreciation.
The investment objective of CITISELECT VIP FOLIO 300 is high total return
over time consistent with a balanced emphasis on income and capital
appreciation.
The investment objective of CITISELECT VIP FOLIO 400 is high total return
over time consistent with a primary emphasis on capital appreciation and a
secondary emphasis on income for risk reduction purposes.
The investment objective of CITISELECT VIP FOLIO 500 is highest total
return over time consistent with a primary emphasis on capital appreciation and
a secondary emphasis on income for risk reduction purposes.
The investment objective of each Fund may be changed without approval by
that Fund's shareholders, but shareholders will be given written notice at
least 30 days before any change is implemented. Of course, there can be no
assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES
THE FUNDS
The Funds are asset allocation funds. Asset allocation funds are a basic
tool of investment professionals and are differentiated by the use of
investment management strategies and techniques that range from the least
aggressive to the most aggressive. The Funds offer a convenient way to own a
diversified professionally managed portfolio tailored to specific investment
goals and expectations of risk and return. While time horizon is a factor, it
is not necessarily the determinative factor in choosing to invest in one of the
Funds. Certain investment goals may determine the appropriate asset allocation
and amount of risk that an investor seeks. See "Investment Information" and
"Risk Considerations."
CITISELECT VIP FOLIO 200 is expected to be the least volatile of the four
Funds and is designed for the investor who is seeking lower risk provided by
substantial investments in income-producing securities, but who also seeks some
capital growth. CITISELECT VIP FOLIO 300 offers a blend of capital appreciation
and income for the investor seeking a balanced approach by emphasizing stocks
for their higher capital appreciation potential but retaining a significant
income component to temper volatility. CITISELECT VIP FOLIO 400 and CITISELECT
VIP FOLIO 500 are designed for the investor willing and able to take higher
risks in the pursuit of long-term capital appreciation. CitiSelect VIP Folio
500 is expected to be the most volatile of the four Funds, and is designed for
investors who can withstand greater market swings to seek potential long-term
rewards. CitiSelect VIP Folio 400 is designed for investors seeking long-term
rewards, but with less volatility.
<PAGE>
INVESTMENT STRATEGY
Each Fund is a carefully selected and professionally managed diversified
mix of equity, fixed income and money market investments that are structured to
achieve certain risk and return objectives. Citibank allocates each Fund's
assets among the equity class of investments, the fixed income class of
investments and the money market class of investments. In making asset
allocations, Citibank considers long-term performance and valuation measures
within and between asset classes and the effects of market and economic
variables on those relationships. It uses this information to determine the
overall mix of each Fund's assets among the three general asset classes. Each
Fund's allocation or asset mix is determined by Citibank to be an optimal
combination of stocks, bonds and money market instruments that reduces risk and
maximizes potential return for that Fund's distinct investment objective.
The Funds' asset allocations generally correlate to different levels of
investment risk and return. Equity securities have the potential to outperform
fixed income securities over the long term. Equity securities have the greatest
potential for growth of capital, yet are generally the most volatile of the
three asset types. Fixed income and money market securities sometimes move in
the opposite direction of equity securities and may provide investment balance
to a Fund. The risks of each asset class will vary.
Citibank expects that, in general, each Fund's assets will be allocated
among the equity, fixed income and money market classes as provided in the
following chart. However, cash flows of a Fund or changes in market valuations
could produce different results. Citibank will review each Fund's asset
allocation quarterly and expects, in general, to rebalance the Fund's
investments, if necessary, at that time. Rebalancing may be accomplished over a
period of time and may be limited by tax and regulatory requirements.
CitiSelect CitiSelect CitiSelect CitiSelect
VIP Folio VIP Folio VIP Folio VIP Folio
200 300 400 500
Asset Class Range Range Range Range
Equity 25-45% 40-60% 55-85% 70-95%
Fixed Income 35-55 35-55 15-35 5-20
Money Market 10-30 1-10 1-10 1-10
Each asset class includes other investments described in Appendix A or
elsewhere in this Prospectus that are deemed related to the management of that
asset class. Percentage ranges shown for the equity and fixed income classes
include investment positions that seek equivalent asset class exposure or to
enhance income for that asset class. When money market instruments are used in
connection with these positions they will be counted towards the assets of the
applicable asset class and not towards the money market class.
Citibank will diversify the equity class of each Fund by allocating the
Fund's portfolio of equity securities among large capitalization securities,
small capitalization securities and international securities. Citibank will
diversify the fixed income class of each Fund by allocating the Fund's
portfolio of fixed income securities among U.S. and foreign government and
corporate bonds. There is no requirement that Citibank allocate a Fund's assets
among all of the foregoing types of equity and fixed income securities at all
times. These types of securities have been selected because Citibank believes
that this additional level of asset diversification will provide each Fund with
the potential for higher returns with lower overall volatility.
<PAGE>
From time to time Citibank may employ Subadvisers to perform the daily
management of a particular asset class for the Funds or of specific types of
securities within a particular asset class. Citibank will monitor and supervise
the activities of the Subadvisers and may terminate the services of any
Subadviser at any time. See "Management." In allocating each Fund's investments
among various asset classes and in supervising the Subadvisers, Citibank
employs a multi-style and multi-manager diversification strategy. Citibank
believes that there are periods when securities with particular
characteristics, or an investment style, outperform other types of securities
in the same asset class. For example, at certain times, equity securities with
growth characteristics outperform equities with income characteristics, and
vice versa. Citibank will seek to take advantage of this by blending asset
classes and investment styles on a complementary basis in an effort to maximize
the consistency of returns over longer time periods, and to reduce volatility.
In supervising the Subadvisers, Citibank will also be taking into account
the expertise they have demonstrated in particular areas and the historical
results they have achieved within selected asset classes or investment styles.
By combining these attributes with selected asset classes and styles, Citibank
will seek to increase returns.
Citibank has delegated the responsibility for the daily management of the
following kinds of securities to the following Subadvisers: large
capitalization value securities, Miller Anderson & Sherrerd, LLP; small
capitalization value securities, Franklin Advisory Services, Inc.;
international equity securities, Hotchkis & Wiley; and foreign government
securities, Pacific Investment Management Company. Citibank is responsible for
the daily management of all other kinds of securities of the Funds, including
large capitalization growth securities, small capitalization growth securities,
fixed income securities and money market securities.
INITIAL ASSET ALLOCATIONS
Initially one or more of the Funds may be of such a size that it is not
practicable for the Fund to invest in all of the above-mentioned asset classes
and types of securities. Until in Citibank's judgment a Fund has sufficient
assets to fully employ an investment strategy, Citibank may allocate assets
across fewer of the asset classes and fewer of the types of securities
identified above than it otherwise would. As a Fund's asset size increases,
Citibank will add asset classes and types of securities until the desired asset
allocation is reached. There may also be a delay in investing in asset classes
or types of securities due to market conditions and availability of suitable
investments.
THE EQUITY CLASS
Equity securities include common stocks, securities convertible into
common stocks, preferred stocks, warrants for the purchase of stock and
depositary receipts (receipts which represent the right to receive the
securities of non-U.S. issuers deposited in a U.S. or correspondent bank).
While equity securities historically have experienced a higher level of
volatility risk than fixed income securities, they also historically have
produced higher levels of total return. Long-term, investors with diversified
equity portfolios have a higher probability of achieving their investment goals
with lower levels of volatility than those who have not diversified.
<PAGE>
Each Fund will diversify its equity portfolio by investing those assets
which are allocated to the equity class among equity securities issued by large
capitalization issuers, small capitalization issuers and international issuers.
The mix of equity securities will vary from Fund to Fund. For example, the
equity class of CitiSelect VIP Folio 400 will emphasize securities of small cap
issuers. The equity class of CitiSelect VIP Folio 300 will emphasize securities
of large cap and small cap issuers. There is no requirement that each Fund
invest in each type of equity security.
Large Cap Issuers. Large cap issuers are those with market capitalizations
typically of $1 billion or more. In the selection of equity securities of large
cap issuers, securities issued by established companies with stable operating
histories are emphasized.
Small Cap Issuers. Small cap issuers are those with market capitalizations
below the top 1,000 stocks that comprise the large and midrange capitalization
sector of the equity market. These stocks are comparable to, but not limited
to, the stocks comprising the Russell 2000 Index, an index of small
capitalization stocks. Small cap companies are generally represented in new or
rapidly changing industries. They may offer more profit opportunity in growing
industries and during certain economic conditions than do large and medium
sized companies. However, small cap companies also involve special risks.
Often, liquidity and overall business stability of a small cap company may be
less than that associated with larger capitalized companies. Small cap stocks
frequently involve smaller, rapidly growing companies with high growth rates,
negligible dividend yields and extremely high levels of volatility.
International Issuers. International issuers are those based outside the
United States. In the selection of equity securities of international issuers,
securities included in the Morgan Stanley Capital International Europe,
Australia and Far East Index (called the EAFE Index) are emphasized. The EAFE
Index contains approximately 1,100 equity securities of companies located in
Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong,
Ireland, Italy, Japan, Malaysia, The Netherlands, Norway, Singapore, Spain,
Sweden, Switzerland and the United Kingdom. In addition, securities of issuers
located in emerging markets may be selected. The U.S. investor may benefit from
exposure to international equity securities and foreign economies, which may be
influenced by distinctly different factors impacting a country's rate of
economic growth, interest rate structure, currency, industry and local stock
market environment. In addition, investments in the non-U.S. equity markets
allow for further diversification as many countries and regions have
risk/reward characteristics and market performance that are not highly
correlated to each other or to the U.S. market. International investments,
however, particularly in emerging countries, are subject to special risks not
generally present in domestic equity investments.
See "Risk Considerations" for certain risks associated with investing in
equity securities.
THE FIXED INCOME CLASS
Fixed income securities include bonds and short-term obligations. Fixed
income securities, in general, offer a fixed stream of cash flow and may
provide good to moderate relative total return benefits over time. Most bond
investments focus on generating income, while the potential for capital
appreciation is a secondary objective. The bond markets provide diversification
benefits to a holder of equity securities depending upon the characteristics of
the bonds comprising the fixed income class of each Fund. The value of fixed
income securities generally fluctuates inversely with changes in interest
rates, and also fluctuates based on other market and credit factors as well.
<PAGE>
Each Fund will diversify its fixed income portfolio by investing those
assets which are allocated to the fixed income class among investment grade
corporate debt obligations and securities issued by the U.S. Government and its
agencies and instrumentalities and by foreign governments. Investment grade
securities are those rated Baa or better by Moody's Investors Service, Inc. or
BBB or better by Standard & Poor's Rating Group or securities which are not
rated by these rating agencies, but which Citibank or a Subadviser believes to
be of comparable quality. Securities rated Baa or BBB and securities of
comparable quality may have speculative characteristics.
The mix of fixed income securities may vary from Fund to Fund. There is no
requirement that each Fund invest in each type of fixed income security. The
Funds may invest in securities with all maturities, including long bonds (10+
years), intermediate notes (3 to 10 years) and short-term notes (1 to 3 years).
Government Securities. U.S. Government securities may provide
opportunities for income with minimal credit risk. U.S. Treasury securities are
considered the safest of all government securities. U.S. Government securities
are high quality instruments issued or guaranteed as to principal and interest
by the U.S. Government or by an agency or instrumentality of the U.S.
Government. Securities issued or guaranteed as to principal and interest by
foreign governments or agencies or instrumentalities of foreign governments
(which include securities of supranational agencies) also may provide
opportunities for income with minimal credit risk. Government securities are,
however, not immune from the market risk of principal fluctuation associated
with changing interest rates.
Corporate Bonds. Investment in bonds of U.S. and foreign corporate issuers
may provide relatively higher levels of current income. These bonds are used by
U.S. and foreign corporate issuers to borrow money from investors, and may have
varying maturities. Corporate bonds have varying degrees of quality and varying
degrees of sensitivity to changes in interest rates. The value of these
investments fluctuates based on changes in interest rates and in the underlying
credit quality of the bond issuers represented in the portfolio.
See "Risk Considerations" for certain risks associated with investing in
fixed income securities.
THE MONEY MARKET CLASS
Each Fund will invest those assets which are allocated to the money market
class in cash and in U.S. dollar-denominated high quality money market and
short-term instruments. These instruments include short-term obligations of the
U.S. Government and repurchase agreements covering these obligations,
commercial paper of U.S. and foreign issuers, bank obligations (such as
certificates of deposit, bankers' acceptances and fixed time deposits) of U.S.
and non-U.S. banks and obligations issued or guaranteed by the governments of
Western Europe, Scandinavia, Australia, Japan and Canada. These investments
provide opportunities for income with low credit risk, and may result in a
lower yield than would be available from investments with a lower quality or a
longer term.
<PAGE>
ADDITIONAL INVESTMENT POLICIES
FUTURES. Each of the Funds may use financial futures in order to protect
the Fund from fluctuations in interest rates (sometimes called "hedging")
without actually buying or selling debt securities, or to manage the effective
maturity or duration of fixed income securities in the Fund's portfolio in an
effort to reduce potential losses or enhance potential gain. The Funds also may
purchase stock index and foreign currency futures in order to protect against
declines in the value of portfolio securities or increases in the cost of
securities or other assets to be acquired and, subject to applicable law, to
enhance potential gain. Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a security at a
specified future time and price, or for making payment of a cash settlement
based on changes in the value of a security, an index of securities or other
assets. In many cases, the futures contracts that may be purchased by the Funds
are standardized contracts traded on commodities exchanges or boards of trade.
See Appendix A for more information.
TEMPORARY INVESTMENTS. During periods of unusual economic or market
conditions or for temporary defensive purposes or liquidity, each Fund may
invest without limit in cash and in U.S. dollar-denominated high quality money
market and short-term instruments. These investments may result in a lower
yield than would be available from investments with a lower quality or longer
term.
OTHER PERMITTED INVESTMENTS. For more information regarding the Funds'
permitted investments and investment practices, see Appendix A -- Permitted
Investments and Investment Practices on page A-1. The Funds will not
necessarily invest or engage in each of the investments and investment
practices in Appendix A but reserve the right to do so.
INVESTMENT RESTRICTIONS. The Statement of Additional Information contains
a list of specific investment restrictions which govern the investment policies
of the Funds, including a limitation that each Fund may borrow money from banks
in an amount not to exceed 1/3 of the Fund's net assets for extraordinary or
emergency purposes (e.g., to meet redemption requests). As a matter of
operating policy, however, the Funds will not borrow money in excess of 10% of
their respective total assets (taken at cost), except that each Fund may borrow
up to 25% of its total assets when such borrowing is necessary to meet
redemption requests. Also, as a matter of operating policy, no Fund will
purchase any securities at any time at which borrowings exceed 5% of its total
assets (taken at market value). Except as otherwise indicated, the Funds'
investment objectives and policies may be changed without shareholder approval.
If a percentage or rating restriction (other than a restriction as to
borrowing) is adhered to at the time an investment is made, a later change in
percentage or rating resulting from changes in a Fund's securities will not be
a violation of policy.
PORTFOLIO TURNOVER. Securities of each Fund will be sold whenever it is
appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
turnover rates for CitiSelect VIP Folio 200 and CitiSelect VIP Folio 300 are
not expected to exceed 175% annually; the turnover rates for CitiSelect VIP
Folio 400 and CitiSelect VIP Folio 500 are not expected to exceed 100%
annually. The amount of brokerage commissions and realization of taxable
capital gains will tend to increase as the level of portfolio activity
increases.
<PAGE>
BROKERAGE TRANSACTIONS. In connection with the selection of brokers or
dealers for securities transactions for the Funds and the placing of such
orders, brokers or dealers may be selected who also provide brokerage and
research services to the Funds or the other accounts over which Citibank, the
Subadvisers or their affiliates exercise investment discretion. Citibank and
the Subadvisers are authorized to pay a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for a Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if Citibank
or the applicable Subadviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer.
STATE INSURANCE REGULATION. Each Fund provides an investment vehicle for
variable annuity contracts and variable life insurance policies to be offered
by the Separate Accounts of Participating Insurance Companies. Certain states
have regulations concerning concentration of investments and purchase and sale
of futures contracts, among other techniques. If these regulations are applied
to a Fund, the Fund may be limited in its ability to engage in such techniques
and to manage its investments with the flexibility provided herein. It is each
Fund's intention to operate in material compliance with current insurance laws
and regulations, as applied in each jurisdiction in which contracts or policies
of Separate Accounts of Participating Insurance Companies are offered.
CERTAIN RISK CONSIDERATIONS
The risks of investing in each Fund vary depending upon the nature of the
securities held, and the investment practices employed, on its behalf. Certain
of these risks are described below.
CHANGES IN NET ASSET VALUE. Each Fund's net asset value will fluctuate
based on changes in the values of the underlying portfolio securities. This
means that an investor's shares may be worth more or less at redemption than at
the time of purchase. Equity securities fluctuate in response to general market
and economic conditions and other factors, including actual and anticipated
earnings, changes in management, political developments and the potential for
takeovers and acquisitions. During periods of rising interest rates the value
of debt securities generally declines, and during periods of falling rates the
value of these securities generally increases. Changes by recognized rating
agencies in the rating of any debt security, and actual or perceived changes in
an issuer's ability to make principal or interest payments, also affect the
value of these investments.
CREDIT RISK OF DEBT SECURITIES. Investors should be aware that securities
offering above average yields may at times involve above average risks.
Securities rated Baa by Moody's or BBB by S&P and equivalent securities may
have speculative characteristics. Adverse economic or changing circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade obligations.
NON-U.S. SECURITIES. Investments in non-U.S. securities involve risks
relating to political, social and economic developments abroad, as well as
risks resulting from the differences between the regulations to which U.S. and
non-U.S. issuers and markets are subject. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of portfolio assets and political
or social instability. Enforcing legal rights may be difficult, costly and slow
in non-U.S. countries, and there may be special problems enforcing claims
against non-U.S. governments. In addition, non-U.S. companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their operations.
Non-U.S. markets may be less liquid and more volatile than U.S. markets, and
may offer less protection to investors such as the Funds. Prices at which a
Fund may acquire securities may be affected by trading by persons with material
non-public information and by securities transactions by brokers in
anticipation of transactions by the Fund.
<PAGE>
Because non-U.S. securities often are denominated in currencies other than
the U.S. dollar, changes in currency exchange rates will affect a Fund's net
asset value, the value of dividends and interest earned and gains and losses
realized on the sale of securities. In addition, some non-U.S. currency values
may be volatile and there is the possibility of governmental controls on
currency exchanges or governmental intervention in currency markets.
The Funds may invest in issuers located in developing countries, which are
generally defined as countries in the initial stages of their industrialization
cycles with low per capita income. All of the risks of investing in non-U.S.
securities are heightened by investing in developing countries. Shareholders
should be aware that investing in the equity and fixed income markets of
developing countries involves exposure to economic structures that are
generally less diverse and mature, and to political systems which can be
expected to have less stability, than those of developed countries. Historical
experience indicates that the markets of developing countries have been more
volatile than the markets of developed countries with more mature economies;
such markets often have provided higher rates of return, and greater risks, to
investors. These heightened risks include (i) greater risks of expropriation,
confiscatory taxation and nationalization, and less social, political and
economic stability; (ii) the small current size of markets for securities of
issuers based in developing countries and the currently low or non-existent
volume of trading, resulting in a lack of liquidity and in price volatility;
(iii) certain national policies which may restrict a Fund's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures. Such characteristics can be expected to continue in
the future.
Equity securities traded in certain foreign countries may trade at
price-earnings multiples higher than those of comparable companies trading on
securities markets in the United States, which may not be sustainable. Rapid
increases in money supply in certain countries may result in speculative
investment in equity securities which may contribute to volatility of trading
markets.
The costs attributable to non-U.S. investing, such as the costs of
maintaining custody of securities in non-U.S. countries, frequently are higher
than those involved in U.S. investing. As a result, the operating expense
ratios of the Funds may be higher than those of investment companies investing
exclusively in U.S. securities.
SMALL CAP COMPANIES. Investors in the Funds should be aware that the
securities of companies with small market capitalizations may have more risks
than the securities of other companies. Small cap companies may be more
susceptible to market downturns or setbacks because they may have limited
product lines, markets, distribution channels, and financial and management
resources. Further, there is often less publicly available information about
small cap companies than about more established companies. As a result of these
and other factors, the prices of securities issued by small cap companies may
be volatile. Shares of the Funds, therefore, may be subject to greater
fluctuation in value than shares of an equity fund with more of its investments
in securities of larger, more established companies.
<PAGE>
INVESTMENT PRACTICES. Certain of the investment practices employed for the
Funds may entail certain risks. These risks are in addition to the risks
described above and are described in Appendix A. See Appendix A -- Permitted
Investments and Investment Practices on page A-1.
VALUATION OF SHARES
Net asset value per share of each Fund is determined each day the New York
Stock Exchange is open for trading (a "Business Day"). This determination is
made once each day as of the close of regular trading on the Exchange (normally
4:00 p.m. Eastern time) by adding the market value of all securities and other
assets attributable to a Fund, then subtracting the liabilities charged to the
Fund, and then dividing the result by the number of outstanding shares of the
Fund.
Fund securities and other assets are valued primarily on the basis of
market quotations, or if quotations are not available, by a method believed to
accurately reflect fair value. Non-U.S. securities are valued based on
quotations from the primary market in which they are traded and are translated
from the local currency into U.S. dollars using current exchange rates. In
light of the non-U.S. nature of some of each Fund's investments, trading may
take place in securities held by the Funds on days which are not Business Days
and on which it will not be possible to purchase or redeem shares of the Funds.
PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Funds directly, but
only through variable annuity contracts and variable life insurance policies
offered through the Separate Accounts of Participating Insurance Companies.
Investors should refer to the prospectus of the Participating Insurance
Company's Separate Account for information on how to purchase a variable
annuity contract or variable life insurance policy, how to select specific
Funds as investment options for the applicable contract or policy and how to
redeem monies from the applicable contract or policy.
The Separate Accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of the Funds based on, among other things,
the amount of premium payments to be invested and the amount of surrender and
transfer requests (as defined in the prospectus describing the variable annuity
contracts and variable life insurance policies issued by the Participating
Insurance Companies) to be effected on that day pursuant to variable annuity
contracts and variable life insurance policies. Orders received by the Funds
are effected on Business Days only. Orders for the purchase of shares of a Fund
are effected at the net asset value per share next calculated after an order is
received in proper form by the Fund or its designee so long as payment for the
shares is received by the end of the next Business Day. Redemptions are
effected at the net asset value per share next calculated after receipt in
proper form of a redemption request by a Fund or its designee. For purposes of
the purchase and redemption of shares of the Funds, the Separate Account of a
Participating Insurance Company shall be a designee of the Fund for receipt of
requests for purchase and redemption, and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of such
requests in accordance with applicable requirements on the next following
Business Day. Separate Accounts must transmit purchase and redemption orders
promptly. Payment for redemptions will be made by the Funds within seven days
after the request is received. The Funds may suspend the right of redemption
under certain extraordinary circumstances in accordance with the rules of the
Securities and Exchange Commission.
<PAGE>
The Funds do not assess any sales charges or redemption fees. Sales
charges, mortality and expense risk fees and other charges may be assessed by
Participating Insurance Companies under the variable annuity contracts or
variable life insurance policies. The Participating Insurance Companies are
required to describe these fees in the prospectuses for the contracts or
policies.
Shares of the Funds may be sold to and held by Separate Accounts that fund
variable annuity and variable life insurance contracts issued by both
affiliated and unaffiliated Participating Insurance Companies. The Funds
currently do not foresee any disadvantages to the holders of variable annuity
contracts and variable life insurance policies of affiliated and unaffiliated
Participating Insurance Companies arising from the fact that interests of the
holders of variable annuity contracts and variable life insurance policies may
differ due to differences of tax treatment or other considerations or due to
conflicts between the affiliated or unaffiliated Participating Insurance
Companies. Nevertheless, the Trustees will monitor events to seek to identify
any material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response to such conflicts. Should a
material irreconcilable conflict arise between the holders of variable annuity
contracts and variable life insurance policies of affiliated or unaffiliated
Participating Insurance Companies, the Participating Insurance Companies may be
required to withdraw the assets allocable to some or all of the Separate
Accounts from the Funds. Any such withdrawal could disrupt orderly portfolio
management to the potential detriment of such holders. The variable annuity
contracts and variable life insurance policies are described in the separate
prospectuses issued by the Participating Insurance Companies. The Funds assume
no responsibility for such prospectuses.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of each Fund's net income from dividends and interest is
distributed annually on or about the last day of December. Net realized
short-term and long-term capital gains, if any, will be distributed annually,
in December. Each Fund may also make additional distributions to the extent
necessary to avoid the application of the 4% non-deductible excise tax on
certain undistributed income and net capital gains of mutual funds.
All dividends and distributions will be automatically reinvested in
additional shares of a Fund issued at the net asset value of such shares on the
payment date of such dividends and distributions.
MANAGEMENT
TRUSTEES AND OFFICERS
Each Fund is supervised by the Board of Trustees of Variable Annuity
Portfolios. A majority of the Trustees are not affiliated with Citibank. More
information on the Trustees and officers of the Funds appears under
"Management" in the Statement of Additional Information.
<PAGE>
INVESTMENT MANAGER
Citibank. Each Fund draws on the strength and experience of Citibank.
Citibank offers a wide range of banking and investment services to customers
across the United States and throughout the world, and has been managing money
since 1822. Its portfolio managers are responsible for investing in money
market, equity and fixed income securities. Citibank and its affiliates manage
more than $83 billion in assets worldwide. Citibank is a wholly-owned
subsidiary of Citicorp. Citibank also serves as investment adviser to other
registered investment companies. Citibank's address is 153 East 53rd Street,
New York, New York 10043.
Subject to policies set by the Trustees, Citibank is responsible for
overall management of the Funds' business affairs, and has a separate
Management Agreement with each Fund. Citibank also provides certain
administrative services to the Funds. These administrative services include
providing general office facilities and supervising the overall administration
of the Funds. Pursuant to sub-administrative services agreements, the
distributor performs such sub-administrative duties for the Funds as from time
to time are agreed upon by Citibank and the distributor. The distributor's
compensation as sub-administrator is paid by Citibank.
Lawrence P. Keblusek, U.S. Chief Investment Officer of Citibank, has been
the overall portfolio manager of the Funds since their inception and is
responsible for determining asset allocations, supervising and monitoring the
performance of the Citibank personnel described below who are responsible for
the Funds' securities, and supervising and monitoring the performance of the
Subadvisers. Mr. Keblusek's investment experience is discussed below.
The following individuals at Citibank are responsible for daily management
of the following kinds of securities of each Fund (and related investments).
Large capitalization growth Lawrence P. Keblusek, U.S.
securities Chief Investment Officer,
has been responsible for the daily
management of large cap growth securities
since the Funds' inception. Mr. Keblusek,
who has 25 years experience in the
investment management industry, was most
recently Senior Vice President and
Director of Portfolio Management for The
Northern Trust Company with
responsibility for investment performance
in the organization's High Net Worth,
Corporate and Institutional and Mutual
Fund Group. Earlier in his career, Mr.
Keblusek held senior investment positions
with Maryland National Bank and the
National Bank of Washington.
<PAGE>
Small capitalization growth David N. Pearl, Vice President, has been
securities responsible for the daily management of
small cap growth securities since the
Funds' inception. Mr. Pearl is a
portfolio manager of U.S. equity
assets for institutional clients, and
joined Citibank in 1994. Prior to
joining Citibank he worked as a portfolio
manager at Fleming Capital Management
and Bankers Trust Company.
Domestic fixed income Mark Lindbloom, Vice President, has been
securities responsible for the daily management of
domestic fixed income securities since
the Funds' inception. Mr. Lindbloom has
more than 12 years of investment
management experience. Prior to joining
Citibank in 1986, Mr. Lindbloom was a
Fixed Income Portfolio Manager with Brown
Brothers Harriman & Co., where he managed
fixed income assets for discretionary
corporate portfolios.
Money market securities Kevin Kennedy, Vice President, has been
responsible for the daily management
of money market securities since the
Funds' inception. Mr. Kennedy is
responsible for managing the Liquidity
Management Unit of the U.S. Fixed
Income Department of Citibank Global
Asset Management. Prior to joining
Citibank in March 1993, Mr. Kennedy was
with the Metropolitan Life Insurance
Company as the Managing Trader of the
Treasurer's Division. He was
responsible for the management of more
than $9 billion in short duration
fixed income assets. Mr. Kennedy has
more than 15 years of fixed income
management experience.
Citibank has delegated the daily management of the following kinds of
securities of each Fund (and related investments) to the following Subadvisers.
Citibank pays all Subadviser compensation.
<PAGE>
Large capitalization value Miller Anderson & Sherrerd,
securities LLP, One Tower Bridge, West
Conshohocken, Pennsylvania 19428. Miller
Anderson has been a registered investment
adviser since 1974. Morgan Stanley Asset
Management Holdings, Inc., an indirect
wholly-owned subsidiary of Morgan Stanley
Group Inc., owns 95% of the interests in
Miller Anderson. Robert Marcin, CFA,
Partner, has been responsible for the
daily management of large cap value
securities since the Funds' inception.
Mr. Marcin has been with Miller Anderson
since 1988.
Small capitalization value Franklin Advisory Services,
securities Inc., 777 Mariners Island
Blvd., San Mateo, California 94404.
Franklin Advisory Services, a
wholly-owned subsidiary of Franklin
Resources, Inc., is a registered
investment adviser. William J. Lippman,
senior vice president of Franklin
Advisory Services or its predecessor
since June, 1988, has been responsible
for the daily management of small
capitalization value securities since the
Funds' inception. Prior to joining
Franklin Advisory Services, Mr. Lippman
was president of L.F. Rothschild Fund
Management, Inc.
International equity Hotchkis & Wiley, 800
securities West Sixth Street, Fifth Floor, Los
Angeles, California 90017. Hotchkis &
Wiley is a registered investment adviser
founded in 1980. Hotchkis & Wiley, a
limited partnership has entered into a
Purchase Agreement with Merrill Lynch &
Co., Inc. a Delaware corporation
("Merrill Lynch"), pursuant to which
Merrill Lynch, subject to a number of
contingencies, will acquire the
partnership interests in Hotchkis &
Wiley. The acquisition is expected to
close in the fourth quarter of 1996. If
the purchase occurs, the Sub-Management
Agreement by and among the Funds,
Citibank and Hotchkis & Wiley would
automatically terminate due to its
"assignment" (as that term is defined in
the 1940 Act) resulting from the change
in control of ownership of Hotchkis &
Wiley.
<PAGE>
Harry W. Hartford and Sarah H. Ketterer
have been responsible for the daily
management of international equity
securities since the Funds' inception.
Mr. Hartford and Ms. Ketterer manage
international equity accounts and are
also responsible for international
investment research. Each serves on the
Investment Policy Committee at Hotchkis &
Wiley. Prior to joining Hotchkis &
Wiley, Mr. Hartford was with The
Investment Bank of Ireland, where he
gained 10 years of experience in both
international and global equity
management. Prior to joining Hotchkis &
Wiley, Ms. Ketterer was an associate with
Bankers Trust and an analyst at Dean
Witter.
Foreign government securities Pacific Investment Management Company,
840 Newport Center Drive, Suite 360, P.O.
Box 6430, Newport Beach, California
92658-9030. PIMCO is a registered
investment adviser and is a subsidiary
partnership of PIMCO Advisors L.P. A
majority interest of PIMCO Advisors L.P.
is held by PIMCO Partners, G.P., a
general partnership between Pacific
Investment Management Company, a
California corporation and indirect
wholly-owned subsidiary of Pacific Mutual
Life Insurance Company, and PIMCO
Partners, L.L.C., a limited liability
company controlled by the Managing
Directors of PIMCO. Lee R. Thomas, III,
Senior International Portfolio Manager,
has been responsible for the daily
management of foreign government
securities since the Funds' inception.
He joined PIMCO in 1995. Previously he
was a member of Investcorp's Management
Committee, where he was responsible for
global securities and foreign exchange
trading. Prior to Investcorp, he was
associated with Goldman Sachs, where he
was an Executive Director in the fixed
income division of the London office.
Advisory Fees. For its services under the Management Agreements, Citibank
receives a fee, which is accrued daily and paid monthly, of 0.75% of each
Fund's average daily net assets on an annualized basis for that Fund's
then-current fiscal year. This fee is higher than the management fee paid by
most mutual funds. Citibank may voluntarily agree to waive a portion of its
management fee from any Fund.
<PAGE>
For their services to the Funds, Citibank pays the Subadvisers (out of
its management fee) the following fees, which are accrued daily and payable
monthly and are at the annual rates equal to the percentages specified below of
the aggregate assets of the Funds allocated to the particular Subadviser:
Miller Anderson & 0.625% on first $25 million
Sherrerd, LLP 0.375% on next $75 million
0.250% on next $400 million
0.20% on assets in excess of $500 million
Franklin Advisory 0.55% on first $250 million
Services, Inc. 0.50% on remaining assets
Hotchkis & Wiley 0.60% on first $10 million
0.55% on next $40 million
0.45% on next $100 million
0.35% on next $150 million
0.30% on remaining assets
PIMCO 0.35% on first $200 million
0.30% on remaining assets
Banking Relationships. Citibank and its affiliates may have deposit, loan
and other relationships with the issuers of securities purchased on behalf of
the Funds, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities so purchased. Citibank has
informed the Funds that, in making its investment decisions, it does not obtain
or use material inside information in the possession of any division or
department of Citibank or in the possession of any affiliate of Citibank.
Bank Regulatory Matters. The Glass-Steagall Act prohibits certain
financial institutions, such as Citibank, from underwriting securities of
open-end investment companies, such as the Funds. Citibank believes that its
services under the Management Agreements and the activities performed by it as
administrator are not underwriting and are consistent with the Glass-Steagall
Act and other relevant federal and state laws. However, there is no controlling
precedent regarding the performance of the combination of investment advisory
and administrative activities by banks. State laws on this issue may differ
from applicable federal law and banks and financial institutions may be
required to register as dealers pursuant to state securities laws. Changes in
either federal or state statutes or regulations, or in their interpretations,
could prevent Citibank or its affiliates from continuing to perform these
services for the Funds. If Citibank or its affiliates were to be prevented from
acting as the Manager or administrator, the affected Funds would seek
alternative means for obtaining these services. The Funds do not expect that
shareholders would suffer any adverse financial consequences as a result of any
such occurrence.
DISTRIBUTOR
Pursuant to a Distribution Agreement, LFBDS, 6 St. James Avenue, Boston,
MA 02116 (telephone: (617) 423-1679), serves as the distributor of shares of
each Fund. LFBDS receives no fee for performing distribution services for the
Funds.
<PAGE>
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
State Street Bank and Trust Company acts as transfer agent, dividend
disbursing agent and custodian for each Fund. Securities may be held by a
sub-custodian bank approved by the Trustees. State Street also provides certain
fund accounting services and calculates the daily net asset value for the
Funds. The principal business address of State Street is 225 Franklin Street,
Boston, Massachusetts 02110.
TAX MATTERS
This discussion of the federal income taxation of the Funds and their
distributions is for general information only. Purchasers of variable annuity
contracts or variable life insurance policies issued by Participating Insurance
Companies should refer to the prospectuses for those contracts or policies for
additional tax information and should consult their own tax advisers about
their particular situations.
Each Fund will be treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), which would relieve a Fund of liability for Federal income and excise
taxes to the extent the Fund's earnings are distributed in accordance with the
timing requirements of the Code. In order to so qualify, a Fund must comply
with certain distribution, diversification, source of income, holding period,
and other applicable requirements. If for any taxable year a Fund does not
qualify for the special Federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, a Fund's distributions to segregated asset accounts holding shares
of the Fund would be taxable as ordinary income to the extent of the Fund's
current and accumulated earnings and profits. A failure of a Fund to qualify as
a regulated investment company could also have the adverse effects on investors
noted below.
A segregated asset account upon which a variable annuity contract or
variable life insurance policy is based must meet certain diversification tests
set forth in U.S. Treasury regulations. If, as is intended, the Fund meets
these tests and complies with certain other conditions, a segregated asset
account investing solely in shares of a Fund will also be deemed to meet these
diversification requirements. However, a failure of the Fund to qualify as a
regulated investment company or to meet such conditions and to comply with such
tests could cause the owners of variable annuity contracts and variable life
insurance policies based on such accounts to recognize ordinary income each
year in the amount of any net appreciation of such contract or policy during
the year (including the annual costs of life insurance, if any, provided under
such policy).
Provided that the Fund and a segregated asset account investing in the
Fund satisfy the above requirements, any distributions from the Fund will be
exempt from current Federal income taxation to the extent that such
distributions accumulate in a variable annuity contract or a variable life
insurance contract.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is
subject to change by legislative or administrative action.
<PAGE>
PERFORMANCE INFORMATION
Each Fund's performance may be quoted in advertising, shareholder reports
and other communications in terms of yield or total rate of return. All
performance information is historical and is not intended to indicate future
performance. Yield and total rates of return fluctuate in response to market
conditions and other factors, and the value of an investor's shares when
redeemed may be more or less than their original cost.
Each Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period which was made at the maximum
public offering price and reflects any change in net asset value per share and
is compounded to include the value of any shares purchased with any dividends
or capital gains declared during such period. Period total rates of return may
be "annualized." An "annualized" total rate of return assumes that the period
total rate of return is generated over a one-year period.
Each Fund may provide annualized "yield" quotations. The "yield" of a Fund
refers to the income generated by an investment in the Fund over a 30-day or
one-month period (which period is stated in any such advertisement or
communication). This income is then annualized; that is, the amount of income
generated by the investment over that period is assumed to be generated each
month over a one-year period and is shown as a percentage of the maximum public
offering price on the last day of that period. A "yield" quotation, unlike a
total rate of return quotation, does not reflect changes in net asset value.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, a prospective
purchaser should carefully review the prospectus of the variable annuity
contract or variable life insurance policy he or she has chosen for information
on relevant charges and expenses. Including these charges in the quotations of
the Funds' yield and total return would have the effect of decreasing
performance. Performance information for the Funds must always be accompanied
by, and be reviewed with, performance information for the insurance product
which invests in the Funds. See the Statement of Additional Information for
more information concerning the calculation of yield and total rate of return
quotations for the Funds.
GENERAL INFORMATION
ORGANIZATION
Each Fund is a newly established diversified series of Variable Annuity
Portfolios, an open-end investment company organized as a Massachusetts
business trust on October 18, 1996.
Under the 1940 Act, a diversified series or diversified investment company
must invest at least 75% of its assets in cash and cash items, U.S. Government
securities, investment company securities and other securities limited as to
any one issuer to not more than 5% of the total assets of the investment
company and not more than 10% of the voting securities of the issuer.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the trust's
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
<PAGE>
VOTING AND OTHER RIGHTS
The Funds may issue an unlimited number of shares (without par value), may
create new series of shares and may divide shares in each series into classes.
Each share of each Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of the Funds have
equal voting rights except that, in matters affecting only a particular Fund,
only shares of that particular Fund are entitled to vote.
As series of a Massachusetts business trust, the Funds are not required to
hold annual shareholder meetings. Shareholder approval will usually be sought
only for changes in a Fund's fundamental investment restrictions and for the
election of Trustees under certain circumstances. Trustees may be removed by
shareholders under certain circumstances. Each share of each Fund is entitled
to participate equally in dividends and other distributions and the proceeds of
any liquidation of that Fund.
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the Separate
Accounts in a manner consistent with timely voting instructions received from
the holders of variable annuity contracts and variable life insurance policies.
Each Participating Insurance Company will vote Fund shares held in Separate
Accounts for which no timely instructions are received from the holders of
variable annuity contracts and variable life insurance policies, as well as
shares it owns, in the same proportion as those shares for which voting
instructions are received. For a further discussion, please refer to the
insurance company's Separate Account prospectus.
CERTIFICATES
The Funds' Transfer Agent maintains a share register for shareholders of
record, i.e., the Separate Accounts of the Participating Insurance Companies.
Share certificates are not issued.
EXPENSES
In addition to amounts payable under its Management Agreement each Fund is
responsible for its own expenses, including, among other things, the costs of
securities transactions, the compensation of Trustees that are not affiliated
with Citibank, government fees, taxes, accounting and legal fees, expenses of
communicating with shareholders, interest expense, and insurance premiums.
All fee waivers are voluntary and may be reduced or terminated at any
time.
COUNSEL AND INDEPENDENT AUDITORS
Bingham, Dana & Gould LLP, Boston, Massachusetts, is counsel for each
Fund. Price Waterhouse LLP, Boston, Massachusetts, serves as independent
auditor for each Fund.
---------------------------
<PAGE>
The Statement of Additional Information dated the date hereof contains
more detailed information about the Funds, including information relating to
(i) investment policies and restrictions, (ii) the Trustees, officers and
investment manager, (iii) securities transactions, (iv) the Funds' shares,
including rights and liabilities of shareholders, (v) the method used to
calculate performance information, and (vi) the determination of net asset
value.
No person has been authorized to give any information or make any
representations not contained in this Prospectus or the Statement of Additional
Information in connection with the offering made by this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Funds or their distributor. This Prospectus does
not constitute an offering by the Funds or their distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
APPENDIX A
PERMITTED INVESTMENTS AND
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements in
order to earn a return on temporarily available cash. Repurchase agreements are
transactions in which an institution sells the Fund a security at one price,
subject to the Fund's obligation to resell and the selling institution's
obligation to repurchase that security at a higher price normally within a
seven day period. There may be delays and risks of loss if the seller is unable
to meet its obligation to repurchase.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held
by the Fund and the agreement by the Fund to repurchase the securities at an
agreed-upon price, date and interest payment. When a Fund enters into reverse
repurchase transactions, securities of a dollar amount equal in value to the
securities subject to the agreement will be maintained in a segregated account
with the Fund's custodian. The segregation of assets could impair the Fund's
ability to meet its current obligations or impede investment management if a
large portion of the Fund's assets are involved. Reverse repurchase agreements
are considered to be a form of borrowing.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate additional income, each Fund may lend its
portfolio securities to broker-dealers and other institutional borrowers. Such
loans must be callable at any time and continuously secured by collateral (cash
or U.S. Government securities) in an amount not less than the market value,
determined daily, of the securities loaned. It is intended that the value of
securities loaned by a Fund would not exceed 30% of the Fund's total assets.
In the event of the bankruptcy of the other party to a securities loan,
repurchase agreement or a reverse repurchase agreement, a Fund could experience
delays in recovering either the securities lent or cash. To the extent that, in
the meantime, the value of the securities lent has increased or the value of
the securities purchased has decreased, the Fund could experience a loss.
RULE 144A SECURITIES. Each Fund may purchase restricted securities that
are not registered for sale to the general public if it is determined that
there is a dealer or institutional market in the securities. In that case, the
securities will not be treated as illiquid for purposes of the Fund's
investment limitations. The Trustees will review these determinations. These
securities are known as "Rule 144A securities," because they are traded under
SEC Rule 144A among qualified institutional buyers. Institutional trading in
Rule 144A securities is relatively new, and the liquidity of these investments
could be impaired if trading in Rule 144A securities does not develop or if
qualified institutional buyers become, for a time, uninterested in purchasing
Rule 144A securities.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS. Each Fund may invest up to
10% of its net assets in securities for which there is no readily available
market. These illiquid securities may include privately placed restricted
securities for which no institutional market exists. The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for a
Fund to sell them promptly at an acceptable price.
<PAGE>
"WHEN-ISSUED" SECURITIES. In order to ensure the availability of suitable
securities, each Fund may purchase securities on a "when-issued" or on a
"forward delivery" basis, which means that the securities would be delivered to
the Fund at a future date beyond customary settlement time. Under normal
circumstances, the Fund takes delivery of the securities. In general, the Fund
does not pay for the securities until received and does not start earning
interest until the contractual settlement date. While awaiting delivery of the
securities, the Fund establishes a segregated account consisting of cash, cash
equivalents or high quality debt securities equal to the amount of the Fund's
commitments to purchase "when-issued" securities. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when-issued"
basis may increase the volatility of its net asset value.
DOLLAR ROLLS. The Funds also may enter into "dollar rolls." A dollar roll
is a transaction pursuant to which a Fund sells mortgage-backed securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Fund foregoes principal and
interest paid on the mortgage-backed securities. The Fund is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. A "covered roll" is a specific
type of dollar roll for which a Fund establishes a segregated account with
liquid high grade debt securities equal in value to the securities subject to
repurchase by the Fund. The Funds will invest only in covered rolls.
COMMERCIAL PAPER. Each Fund may invest in commercial paper, which is
unsecured debt of corporations usually maturing in 270 days or less from its
date of issuance.
DEPOSITARY RECEIPTS FOR SECURITIES. American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and
other forms of depositary receipts for securities of non-U.S. issuers provide
an alternative method for a Fund to make non-U.S. investments. These securities
are not usually traded in the same currency as the securities into which they
may be converted. Generally, ADRs, in registered form, are designed for use in
U.S. securities markets and EDRs and GDRs, in bearer form, are designed for use
in European and global securities markets. ADRs are receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs and GDRs are European and global receipts, respectively,
evidencing a similar arrangement.
OTHER INVESTMENT COMPANIES. Subject to applicable statutory and regulatory
limitations, assets of each Fund may be invested in shares of other investment
companies. Each Fund may invest up to 5% of its assets in closed-end investment
companies which primarily hold securities of non-U.S. issuers.
CURRENCY EXCHANGE CONTRACTS. Forward currency exchange contracts may be
entered into for each Fund for the purchase or sale of non-U.S. currency to
hedge against adverse rate changes or otherwise to achieve the Fund's
investment objectives. A currency exchange contract allows a definite price in
dollars to be fixed for securities of non-U.S. issuers that have been purchased
or sold (but not settled) for the Fund. Entering into such exchange contracts
may result in the loss of all or a portion of the benefits which otherwise
could have been obtained from favorable movements in exchange rates. In
addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.
<PAGE>
SECURITIES RATED Baa or BBB. Each Fund may purchase securities rated Baa
by Moody's or BBB by S&P, which may have poor protection of payment of
principal and interest. These securities are often considered to be speculative
and involve greater risk of default or price changes than securities assigned a
higher quality rating due to changes in the issuer's creditworthiness. The
market prices of these securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates.
ASSET-BACKED SECURITIES. Each Fund may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or automobile
loan receivables, representing the obligations of a number of different
parties. Corporate asset-backed securities present certain risks. For instance,
in the case of credit card receivables, these securities may not have the
benefit of any security interest in the related collateral.
Each Fund also may purchase mortgage-backed securities issued or
guaranteed as to payment of principal and interest by the U.S. Government or
one of its agencies and backed by the full faith and credit of the U.S.
Government, including direct pass-through certificates of GNMA, as well as
mortgage-backed securities for which principal and interest payments are backed
by the credit of particular agencies of the U.S. Government. Mortgage-backed
securities are generally backed or collateralized by a pool of mortgages. These
securities are sometimes called collateralized mortgage obligations or CMOs.
Even if the U.S. Government or one of its agencies guarantees principal
and interest payments of a mortgage-backed security, the market price of a
mortgage-backed security is not insured and may be subject to market
volatility. When interest rates decline, mortgage-backed securities experience
higher rates of prepayment, because the underlying mortgages are refinanced to
take advantage of the lower rates. Thus the prices of mortgage-backed
securities may not increase as much as prices of other debt obligations when
interest rates decline, and mortgage-backed securities may not be an effective
means of locking in a particular interest rate. In addition, any premium paid
for a mortgage-backed security may be lost when it is prepaid.
Additionally mortgage-backed securities are also subject to maturity
extension risk, that is, the possibility that rising interest rates may cause
prepayments to occur at a slower than expected rate. This particular risk may
effectively convert a security that was considered short or intermediate-term
at the time of purchase into a long-term security. Long-term securities
generally fluctuate more widely in response to changes in interest rates than
short or intermediate-term securities. Thus, a rising interest rate would not
only likely decrease the value of the Fund's securities, but would also
increase the inherent volatility of the Fund by effectively converting short
term debt instruments into long term debt instruments.
FUTURES. Because the value of a futures contract changes based on the
price of the underlying security or other asset, futures contracts are commonly
referred to as "derivatives." Futures contracts are a generally accepted part
of modern portfolio management and are regularly utilized by many mutual funds
and other institutional investors. When a Fund purchases or sells a futures
contract, it is required to make an initial margin deposit. Although the amount
may vary, initial margin can be as low as 1% or less of the face amount of the
contract. Additional margin may be required as the contract fluctuates in
value. Since the amount of margin is relatively small compared to the value of
the securities covered by a futures contract, the potential for gain or loss on
a futures contract is much greater than the amount of a Fund's initial margin
deposit. None of the Funds currently intends to enter into a futures contract
if, as a result, the initial margin deposits on all of that Fund's futures
contracts would exceed approximately 5% of the Fund's net assets. Also, each
Fund intends to limit its futures contracts so that the value of the securities
covered by its futures contracts would not generally exceed 50% of the Fund's
other assets and to segregate sufficient assets to meet its obligations under
outstanding futures contracts.
<PAGE>
The ability of a Fund to utilize futures contracts successfully will
depend on Citibank's or a Subadviser's ability to predict interest rate, stock
price or currency movements, which cannot be assured. In addition to general
risks associated with any investment, the use of futures contracts entails the
risk that, to the extent Citibank's or the Subadviser's view as to interest
rate, stock price or currency movements is incorrect, the use of futures
contracts, even for hedging purposes, could result in losses greater than if
they had not been used. This could happen, for example, if there is a poor
correlation between price movements of futures contracts and price movements in
a Fund's related portfolio position. Also, the futures markets may not be
liquid in all circumstances. As a result, in certain markets, a Fund might not
be able to close out a transaction without incurring substantial losses, if at
all. When futures contracts are used for hedging, even if they are successful
in minimizing the risk of loss due to a decline in the value of the hedged
position, at the same time they limit any potential gain which might result
from an increase in value of such position. As noted, each Fund may also enter
into transactions in futures contracts for other than hedging purposes (subject
to applicable law), including speculative transactions, which involve greater
risk. In particular, in entering into such transactions, a Fund may experience
losses which are not offset by gains on other portfolio positions, thereby
reducing its gross income. In addition, the markets for such instruments may be
extremely volatile from time to time, which could increase the risks incurred
by the Fund in entering into such transactions.
The use of futures contracts potentially exposes a Fund to the effects of
"leveraging," which occurs when futures are used so that the Fund's exposure to
the market is greater than it would have been if the Fund had invested directly
in the underlying securities. "Leveraging" increases a Fund's potential for
both gain and loss. As noted above, each of the Funds intends to adhere to
certain policies relating to the use of futures contracts, which should have
the effect of limiting the amount of leverage by the Fund.
OPTIONS. Each Fund may write (sell) covered call and put options and
purchase call and put options on securities. A Fund will write options on
securities for the purpose of increasing its return on such securities and/or
to protect the values of its portfolio. In particular, where the Fund writes an
option which expires unexercised or is closed out by the Fund at a profit, it
will retain the premium paid for the option which will increase its gross
income and will offset in part the reduced value of the portfolio security
underlying the option, or the increased cost of portfolio securities to be
acquired. If the price of the underlying security moves adversely to the Fund's
position, the option may be exercised and the Fund will be required to purchase
or sell the underlying security at a disadvantageous price, which may only be
partially offset by the amount of the premium.
By writing a call option on a security, a Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has written
call options.
Each of the Funds also may purchase options on a non-U.S. currency in
order to protect against currency rate fluctuations. If a Fund purchases a put
option on a non-U.S. currency and the value of the U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency. Each Fund also may buy and
write options on stock indices.
<PAGE>
Each Fund may purchase and write options to buy or sell interest rate
futures contracts and options on stock index futures contracts. Such investment
strategies will be used for hedging and non-hedging purposes, subject to
applicable law. Put and call options on futures contracts may be traded by a
Fund in order to protect against declines in values of portfolio securities or
against increases in the cost of securities to be acquired. Purchase of options
on futures contracts may present less risk in hedging the portfolio of a Fund
than the purchase or sale of the underlying futures contracts since the
potential loss is limited to the amount of the premium plus related transaction
costs. The writing of such options, however, does not present less risk than
the trading of futures contracts and will constitute only a partial hedge, up
to the amount of the premium received. In addition, if an option is exercised,
the Fund may suffer a loss on the transaction.
Each Fund may enter into forward foreign currency contracts for the
purchase or sale of a fixed quantity of a foreign currency at a future date at
a price set at the time of the contract. A Fund may enter into forward
contracts for hedging and non-hedging purposes including transactions entered
into for the purpose of profiting from anticipated changes in foreign currency
exchange rates. Each Fund has established procedures consistent with statements
of the Securities and Exchange Commission and its staff regarding the use of
forward contracts by registered investment companies, which requires use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.
Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described herein.
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while forward
contracts may be entered into only in the over-the-counter market. Futures
contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the Commodity Futures Trading Commission and on foreign
exchanges. The securities underlying options and futures contracts traded by a
Fund may include domestic as well as foreign securities. Investors should
recognize that transactions involving foreign securities or foreign currencies,
and transactions entered into in foreign countries, may involve considerations
and risks not typically associated with investing in U.S. markets.
Transactions in options, futures contracts, options on futures contracts
and forward contracts entered into for non-hedging purposes involve greater
risk and could result in losses which are not offset by gains on other
portfolio assets. For example, a Fund may sell futures contracts on an index of
securities in order to profit from any anticipated decline in the value of the
securities comprising the underlying index. In such instances, any losses on
the futures transactions will not be offset by gains on any portfolio
securities comprising such index, as might occur in connection with a hedging
transaction.
<PAGE>
Statement of
Additional Information
__________ __, 1996
CITISELECTSM VIP FOLIO 200
CITISELECTSM VIP FOLIO 300
CITISELECTSM VIP FOLIO 400
CITISELECTSM VIP FOLIO 500
Variable Annuity Portfolios (the "Trust") is an investment company which
was organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 18, 1996. The Trust offers shares of four investment
funds -- CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM
VIP Folio 400 and CitiSelectSM VIP Folio 500 (each, a "Fund" and collectively,
the "Funds"), as well as the shares of one other series. The shares of the
Funds are offered only to separate accounts ("Separate Accounts") of
participating life insurance companies ("Participating Insurance Companies")
for the purpose of funding variable annuity contracts and variable life
insurance policies. The address and telephone number of the Trust are 6 St.
James Avenue, Boston, Massachusetts 02116, (617) 423-1679.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, CITIBANK, N.A. OR ANY OF ITS AFFILIATES, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Table of Contents
Page
The Trust 2
Investment Objectives 2
Description of Permitted Investments and
Investment Practices 3
Investment Restrictions 18
Performance Information 21
Determination of Net Asset Value; Valuation of
Securities; Additional Redemption Information 21
Management 23
Portfolio Transactions 28
Description of Shares, Voting Rights and Liabilities 29
Certain Additional Tax Matters 31
Financial Statements 31
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Trust's Prospectus, dated __________ __, 1996, by which shares of the Funds are
offered. This Statement of Additional Information should be read in conjunction
with the Prospectus, a copy of which may be obtained by an investor without
charge by contacting the Trust's distributor at (617) 423-1679 or a
Participating Insurance Company.
<PAGE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
1. THE TRUST
Variable Annuity Portfolios, the Trust, is an investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 18, 1996. This Statement of Additional Information
relates to four Funds offered by the Trust -- CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and CitiSelectSM VIP
Folio 500. The Funds are investment vehicles for variable annuity contracts and
variable life insurance policies offered by Separate Accounts of Participating
Insurance Companies.
Citibank, N.A. ("Citibank" or the "Manager") is investment adviser to
each of the Funds. The Manager manages the investments of the Funds from day to
day in accordance with each Fund's investment objectives and policies. The
selection of investments for the Funds and the way they are managed depend on
the conditions and trends in the economy and the financial marketplaces.
The Board of Trustees of the Trust provides broad supervision over the
affairs of the Funds. Shares of the Funds are continuously sold by the Landmark
Funds Broker-Dealer Services, Inc., the Funds' distributor ("LFBDS or the
"Distributor"), only to Separate Accounts.
2. INVESTMENT OBJECTIVES
The investment objective of CitiSelect VIP Folio 200 is high total return
over time consistent with a primary emphasis on income and a secondary emphasis
on capital appreciation.
The investment objective of CitiSelect VIP Folio 300 is high total return
over time consistent with a balanced emphasis on income and capital
appreciation.
The investment objective of CitiSelect VIP Folio 400 is high total return
over time consistent with a primary emphasis on capital appreciation and a
secondary emphasis on income for risk reduction purposes.
The investment objective of CitiSelect VIP Folio 500 is highest total
return over time consistent with a primary emphasis on capital appreciation and
a secondary emphasis on income for risk reduction purposes.
The investment objective of each Fund may be changed by its Trustees
without approval by that Fund's shareholders, but shareholders will be given
written notice at least 30 days before any change is implemented. Of course,
there can be no assurance that any Fund will achieve its investment objective.
The Prospectus contains a discussion of the various types of securities
in which each Fund may invest and the risks involved in such investments. The
following supplements the information contained in the Prospectus concerning
the investment objective, policies and techniques of each Fund.
<PAGE>
The Funds are asset allocation funds. Asset allocation funds are a basic
tool of investment professionals and are differentiated by the use of
investment management strategies and techniques that range from the least
aggressive to the most aggressive. The Funds offer a convenient way to own a
diversified professionally managed portfolio tailored to specific investment
goals and expectations of risk and return. While time horizon is a factor, it
is not necessarily the determinative factor in choosing to invest in one of the
Funds. Certain investment goals may determine the appropriate asset allocation
and amount of risk that an investor seeks.
CitiSelect VIP Folio 200 is expected to be the least volatile of the four
Funds and is designed for the investor who is seeking lower risk provided by
substantial investments in income-producing securities, but who also seeks some
capital growth. CitiSelect VIP Folio 300 offers a blend of capital appreciation
and income for the investor seeking a balanced approach by emphasizing stocks
for their higher capital appreciation potential but retaining a significant
income component to temper volatility. CitiSelect VIP Folio 400 and CitiSelect
VIP Folio 500 are designed for the investor willing and able to take higher
risks in the pursuit of long-term capital appreciation. CitiSelect VIP Folio
500 is expected to be the most volatile of the four Funds, and is designed for
investors who can withstand greater market swings to seek potential long-term
rewards. CitiSelect VIP Folio 400 is designed for investors seeking long-term
rewards, but with less volatility.
The Trust has also adopted the following policies with respect to each
Fund's investments in (i) warrants and (ii) securities of issuers with less
than three years' continuous operation. The Trust's purchases of warrants for
each Fund will not exceed 5% of the Fund's net assets. Included within that
amount, but not exceeding 2% of its net assets, may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange. Any such
warrants will be valued at their market value except that warrants which are
attached to securities at the time such securities are acquired for a Fund will
be deemed to be without value for the purpose of this restriction. The Trust
will not invest more than 5% of each Fund's assets in companies which,
including their respective predecessors, have a record of less than three
years' continuous operation.
3. DESCRIPTION OF PERMITTED INVESTMENTS AND INVESTMENT PRACTICES
BANK OBLIGATIONS
Each of the Funds may invest in bank obligations, i.e., certificates of
deposit, time deposits (including Eurodollar time deposits) and bankers'
acceptances and other short-term debt obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and
foreign branches of foreign banks, domestic savings and loan associations and
other banking institutions. A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less. A certificate of deposit is a
negotiable interest-bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. A time deposit is a non-negotiable receipt issued by a bank
in exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot
be traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
<PAGE>
MORTGAGE-BACKED SECURITIES
Each of the Funds may invest in mortgage-backed securities, which are
securities representing interests in pools of mortgage loans. Interests in
pools of mortgage-related securities differ from other forms of debt securities
which normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. The market value and interest yield of these instruments
can vary due to market interest rate fluctuations and early prepayments of
underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and
credit of the United States Government while obligations of FNMA and FHLMC are
supported by the respective agency only. Although GNMA certificates may offer
yields higher than those available from other types of U.S. Government
securities, GNMA certificates may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of a
GNMA certificate likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price
of a GNMA certificate originally purchased at a premium to decline in price to
its par value, which may result in a loss.
Each Fund may also invest a portion of its assets in collateralized
mortgage obligations or "CMOs," a type of mortgage-backed security. CMOs are
securities collateralized by mortgages, mortgage pass-through certificates,
mortgage pay-through bonds (bonds representing an interest in a pool of
mortgages where the cash flow generated from the mortgage collateral pool is
dedicated to bond repayment), and mortgage-backed bonds (general obligations of
the issuers payable out of the issuers' general funds and additionally secured
by a first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities and
are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligations is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-through certificates to be prepaid prior
to their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-through certificates issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
<PAGE>
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
As described in the Prospectus, the Funds may enter into mortgage "dollar
roll" transactions pursuant to which they sell mortgage-backed securities for
delivery in the future and simultaneously contract to repurchase substantially
similar securities on a specified future date. During the roll period, a Fund
foregoes principal and interest paid on the mortgage-backed securities. The
Fund is compensated for the lost principal and interest by the difference
between the current sales price and the lower price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund may also be compensated by receipt of a
commitment fee.
CORPORATE ASSET-BACKED SECURITIES
Each of the Funds may invest in corporate asset-backed securities. These
securities, issued by trusts and special purpose corporations, are backed by a
pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. A Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
<PAGE>
RULE 144A SECURITIES
Consistent with applicable investment restrictions, each of the Funds may
purchase securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "Securities Act"), but can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act.
However, none of the Funds invests more than 10% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restrictions on resale and restricted
securities, unless the Board of Trustees of the Trust determines, based on the
trading markets for the specific restricted security, that it is liquid. The
Trustees may adopt guidelines and delegate to the Manager or to a Subadviser
the daily function of determining and monitoring liquidity of restricted
securities. The Trustees, however, retain sufficient oversight and are
ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market
for restricted securities sold and offered under Rule 144A will develop, the
Trust's Trustees will carefully monitor each Fund's investments in these
securities, focusing on such factors, among others, as valuation, liquidity and
availability of information.
SECURITIES OF NON-U.S. ISSUERS
Each of the Funds may invest in securities of non-U.S. issuers. Investing
in securities of foreign issuers may involve significant risks not present in
domestic investments. For example, the value of such securities fluctuates
based on the relative strength on the U.S. dollar. In addition, there is
generally less publicly available information about foreign issuers,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Non-U.S. issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to domestic issuers. Investments in securities of non-U.S. issuers
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on the
removal of funds or other assets of the Fund, political or financial
instability or diplomatic and other developments which would affect such
investments. Further, economies of other countries or areas of the world may
differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for
securities of non-U.S. issuers would be on exchanges or in over-the-counter
markets located outside the U.S. Non-U.S. stock markets, while growing in
volume and sophistication, are generally not as developed as those in the U.S.,
and securities of some non-U.S. issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities of
comparable U.S. companies. Non-U.S. security trading practices, including those
involving securities settlement where the Fund's assets may be released prior
to receipt of payments, may expose the Fund to increased risk in the event of a
failed trade or the insolvency of a non-U.S. broker-dealer. In addition,
foreign brokerage commissions are generally higher than commissions on
securities traded in the U.S. and may be non-negotiable. In general, there is
less overall governmental supervision and regulation of non-U.S. securities
exchanges, brokers and listed companies than in the U.S.
Investments in closed-end investment companies which primarily hold
securities of non-U.S. issuers may entail the risk that the market value of
such investments may be substantially less than their net asset value and that
there would be duplication of investment management and other fees and
expenses.
<PAGE>
American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and other forms of depositary
receipts for securities of non-U.S. issuers provide an alternative method for
the Funds to make non-U.S. investments. These securities are not usually
denominated in the same currency as the securities into which they may be
converted. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs and GDRs, in bearer form, are designed for use in
European and global securities markets. ADRs are receipts typically issued by a
U.S. bank or trust company evidencing ownership of the underlying securities.
EDRs and GDRs are European and global receipts, respectively, evidencing a
similar arrangement.
The Funds may invest in securities of non-U.S. issuers that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than securities of non-U.S. issuers of the same
class that are not subject to such restrictions.
REPURCHASE AGREEMENTS
Each of the Funds may invest in repurchase agreements collateralized by
securities in which that Fund may otherwise invest. Repurchase agreements are
agreements by which a Fund purchases a security and simultaneously commits to
resell that security to the seller (which is usually a member bank of the U.S.
Federal Reserve System or a member firm of the New York Stock Exchange (or a
subsidiary thereof)) at an agreed upon date within a number of days (usually
not more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security,
usually U.S. Government or Government agency issues. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), repurchase agreements may be
considered to be loans by the buyer. A Fund's risk is limited to the ability of
the seller to pay the agreed-upon amount on the delivery date. If the seller
defaults, the underlying security constitutes collateral for the seller's
obligation to pay although that Fund may incur certain costs in liquidating
this collateral and in certain cases may not be permitted to liquidate this
collateral. All repurchase agreements entered into by the Funds are fully
collateralized, with such collateral being marked to market daily.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements and in order to
generate income, each of the Funds may lend its securities to broker-dealers
and other institutional borrowers. Such loans will usually be made only to
member banks of the U.S. Federal Reserve System and to member firms of the New
York Stock Exchange (and subsidiaries thereof). Loans of securities would be
secured continuously by collateral in cash, cash equivalents, or U.S. Treasury
obligations maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The cash collateral would be invested in
high quality short-term instruments. A Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will not usually exceed three business days). During the
existence of a loan, a Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would
also receive compensation based on investment of cash collateral or a fee from
the borrower in the event the collateral consists of securities. The Fund,
would not, however, have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of the giving or
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withholding of their consent on a material matter affecting the investment. As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the collateral should the borrower fail financially. However,
the loans would be made only to entities deemed by the Manager or a Subadviser
to be of good standing, and when, in the judgment of the Manager or a
Subadviser, the consideration which can be earned currently from loans of this
type justifies the attendant risk. If the Manager or a Subadviser determines to
make loans, it is not intended that the value of the securities loaned would
exceed 30% of the value of the respective Fund's total assets.
WHEN-ISSUED SECURITIES
Each of the Funds may purchase securities on a "when-issued" or on a
"forward delivery" basis. It is expected that, under normal circumstances, the
applicable Fund would take delivery of such securities. When a Fund commits to
purchase a security on a "when-issued" or on a "forward delivery" basis, it
sets up procedures consistent with Securities and Exchange Commission policies.
Since those policies currently require that an amount of a Fund's assets equal
to the amount of the purchase be held aside or segregated to be used to pay for
the commitment, the respective Fund expects always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any
commitments or to limit any potential risk. However, even though the Funds do
not intend to make such purchases for speculative purposes and intend to adhere
to the provisions of Securities and Exchange Commission policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, a Fund may have to sell assets which have been set aside in order
to meet redemptions. Also, if the Manager or a Subadviser determines it is
advisable as a matter of investment strategy to sell the "when-issued" or
"forward delivery" securities, the Fund would be required to meet its
obligations from the then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of the
"when-issued" or "forward delivery" securities themselves (which may have a
value greater or less than the Fund's payment obligation).
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each of the Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds may enter into
foreign currency exchange transactions to convert United States currency to
foreign currency and foreign currency to United States currency, as well as
convert foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. The Funds may also enter into foreign currency hedging
transactions in an attempt to protect the value of the assets of the respective
Fund as measured in U.S. dollars from unfavorable changes in currency exchange
rates and control regulations. (Although each Fund's assets are valued daily in
terms of U.S. dollars, the Trust does not intend to convert a Fund's holdings
of other currencies into U.S. dollars on a daily basis.)
The Funds may convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
currency exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell a
currency at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
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A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no fees or
commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a non-U.S. currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale, for a fixed amount of U.S. dollars, of the amount of non-U.S. currency
involved in the underlying security transaction, the Fund will be able to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the non-U.S. currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received.
When the Manager or a Subadviser believes that the currency of a
particular country may suffer a substantial decline against the U.S. dollar, a
Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of non-U.S. currency approximating the value of some or all
of the Fund's securities denominated in such non-U.S. currency. The precise
matching of the forward contract amounts and the value of the securities
involved is not generally possible since the future value of such securities in
non-U.S. currencies changes as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. The projection of a short-term hedging strategy is highly
uncertain. The Funds do not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts obligates a
Fund to deliver an amount of non-U.S. currency in excess of the value of the
Fund's securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated in the investment decisions made with regard to overall
diversification strategies. However, the Manager believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that the best interests of the Fund will be served.
The Funds generally would not enter into a forward contract with a term
greater than one year. At the maturity of a forward contract, a Fund will
either sell the security and make delivery of the non-U.S. currency, or retain
the security and terminate its contractual obligation to deliver the non-U.S.
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
non-U.S. currency. If a Fund retains the security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the non-U.S. currency. Should forward prices decline
during the period between the date a Fund enters into a forward contract for
the sale of the non-U.S. currency and the date it enters into an offsetting
contract for the purchase of such currency, the Fund will realize a gain to the
extent the selling price of the currency exceeds the purchase price of the
currency. Should forward prices increase, the Fund will suffer a loss to the
extent that the purchase price of the currency exceeds the selling price of the
currency.
It is impossible to forecast with precision the market value of Fund
securities at the expiration of the contract. Accordingly, it may be necessary
for a Fund to purchase additional non-U.S. currency on the spot market if the
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market value of the security is less than the amount of non-U.S. currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of such currency. Conversely, it may be necessary to sell on the
spot market some of the non-U.S. currency received upon the sale of the
security if its market value exceeds the amount of such currency the Fund is
obligated to deliver.
Each of the Funds may also purchase put options on a non-U.S. currency in
order to protect against currency rate fluctuations. If a Fund purchases a put
option on a non-U.S. currency and the value of the U.S. currency declines, the
Fund will have the right to sell the non-U.S. currency for a fixed amount in
U.S. dollars and will thereby offset, in whole or in part, the adverse effect
on the Fund which otherwise would have resulted. Conversely, where a rise in
the U.S. dollar value of another currency is projected, and where the Fund
anticipates investing in securities traded in such currency, the Fund may
purchase call options on the non-U.S. currency.
The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. However, the benefit to the
Fund from purchases of foreign currency options will be reduced by the amount
of the premium and related transaction costs. In addition, where currency
exchange rates do not move in the direction or to the extent anticipated, the
Fund could sustain losses on transactions in foreign currency options which
would require it to forgo a portion or all of the benefits of advantageous
changes in such rates.
The Funds may write options on non-U.S. currencies for hedging purposes
or otherwise to achieve their investment objectives. For example, where a Fund
anticipates a decline in the value of the U.S. dollar value of a foreign
security due to adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be exercised, and the
diminution in value of the security held by the Fund will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the cost of a foreign security to be acquired because
of an increase in the U.S. dollar value of the currency in which the underlying
security is primarily traded, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire unexercised
and allow the Fund to hedge such increased cost up to the amount of the
premium. However, the writing of a currency option will constitute only a
partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on currencies, a Fund also may be required to forgo all or a portion of
the benefits which might otherwise have been obtained from favorable movements
in exchange rates.
Put and call options on non-U.S. currencies written by a Fund will be
covered by segregation of cash, short-term money market instruments or high
quality debt securities in an account with the custodian in an amount
sufficient to discharge the Fund's obligations with respect to the option, by
acquisition of the non-U.S. currency or of a right to acquire such currency (in
the case of a call option) or the acquisition of a right to dispose of the
currency (in the case of a put option), or in such other manner as may be in
accordance with the requirements of any exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
Investing in ADRs and other depositary receipts presents many of the same
risks regarding currency exchange rates as investing directly in securities
traded in currencies other than the U.S. dollar. Because the securities
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underlying ADRs are traded primarily in non-U.S. currencies, changes in
currency exchange rates will affect the value of these receipts. For example,
decline in the U.S. dollar value of another currency in which securities are
primarily traded will reduce the U.S. dollar value of such securities, even if
their value in the other non-U.S. currency remains constant, and thus will
reduce the value of the receipts covering such securities. A Fund may employ
any of the above described foreign currency hedging techniques to protect the
value of its assets invested in depositary receipts.
Of course, a Fund is not required to enter into the transactions
described above and does not do so unless deemed appropriate by the Manager or
a Subadviser. It should also be realized that this method of protecting the
value of a Fund's securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities.
Additionally, although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
Each Fund has established procedures consistent with policies of the
Securities and Exchange Commission concerning forward contracts. Since those
policies currently recommend that an amount of a Fund's assets equal to the
amount of the purchase be held aside or segregated to be used to pay for the
commitment, each Fund expects to always have cash, cash equivalents or high
quality debt securities available sufficient to cover any commitments under
these contracts or to limit any potential risk.
OPTIONS
Each of the Funds may write covered call and put options and purchase
call and put options on securities. Call and put options written by a Fund may
be covered in the manner set forth below.
A call option written by a Fund is "covered" if the Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if a Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
a Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. A put option written by
a Fund is "covered" if the Fund maintains cash, short term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund
in cash, short-term money market instruments or high quality debt securities in
a segregated account with its custodian. Put and call options written by a Fund
may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counter party with which, the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.
Each of the Funds may purchase options for hedging purposes or to
increase the Fund's return. Put options may be purchased to hedge against a
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decline in the value of portfolio securities. If such decline occurs, the put
options will permit a Fund to sell the securities at the exercise price, or to
close out the options at a profit. By using put options in this way, the Fund
will reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and by
transaction costs.
Each of the Funds may purchase call options to hedge against an increase
in the price of securities that the Fund anticipates purchasing in the future.
If such increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund.
Each of the Funds may write (sell) covered call and put options and
purchase call and put options on stock indices. In contrast to an option on a
security, an option on a stock index provides the holder with the right, but
not the obligation, to make or receive a cash settlement upon exercise of the
option, rather than the right to purchase or sell a security. The amount of
this settlement is equal to (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of
a put) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier."
Each of the Funds may cover call options on stock indices by owning
securities whose price changes, in the opinion of the Manager or a Subadviser,
are expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities in
its portfolio. Where a Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. A Fund may also cover call options on stock indices by holding a call on
the same index and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash, short-term money
market instruments or high quality debt securities in a segregated account with
its custodian. A Fund may cover put options on stock indices by maintaining
cash, short-term money market instruments or high quality debt securities with
a value equal to the exercise price in a segregated account with its custodian,
or by holding a put on the same stock index and in the same principal amount as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written or where the exercise price of the
put held is less than the exercise price of the put written if the difference
is maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. Put and
call options on stock indices may also be covered in such other manner as may
be in accordance with the rules of the exchange on which, or the counterparty
with which, the option is traded and applicable laws and regulations.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which a Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation
in the Fund's stock investments. By writing a put option, a Fund assumes the
risk of a decline in the index. To the extent that the price changes of
<PAGE>
securities owned by a Fund correlate with changes in the value of the index,
writing covered put options on indices will increase the Fund's losses in the
event of a market decline, although such losses will be offset in part by the
premium received for writing the option.
Each of the Funds may also purchase put options on stock indices to hedge
the Fund's investments against a decline in value. By purchasing a put option
on a stock index, a Fund will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Fund's investments does not decline as anticipated, or if the value of the
option does not increase, the Fund's loss will be limited to the premium paid
for the option plus related transaction costs. The success of this strategy
will largely depend on the accuracy of the correlation between the changes in
value of the index and the changes in value of the Fund's security holdings.
The purchase of call options on stock indices may be used by a Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, a Fund will also bear the risk of losing all or a portion of
the premium paid if the value of the index does not rise. The purchase of call
options on stock indices when a Fund is substantially fully invested is a form
of leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility similar to those involved in
purchasing calls on securities the Fund owns.
Each of the Funds may purchase and write options on foreign currencies in
a manner similar to that in which futures contracts on foreign currencies, or
forward contracts, will be utilized.
FUTURES CONTRACTS
Each of the Funds may enter into interest rate futures contracts, stock
index futures contracts and/or foreign currency futures contracts. Such
investment strategies will be used for hedging purposes and for nonhedging
purposes, subject to applicable law.
A futures contract is an agreement between two parties for the purchase
or sale for future delivery of securities or for the payment or acceptance of a
cash settlement based upon changes in the value of the securities or of an
index of securities. A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by the contract at
a specified price, or to make or accept the cash settlement called for by the
contract, on a specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities called for by
the contract at a specified price, or to make or accept the cash settlement
called for by the contract, on a specified date. Futures contracts have been
designed by exchanges which have been designated "contract markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on these markets, and the
exchanges, through their clearing organizations, guarantee that the contracts
will be performed as between the clearing members of the exchange.
While futures contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. Brokerage fees will be incurred when a Fund purchases
<PAGE>
or sells a futures contract. At the same time such a purchase or sale is made,
the Fund must provide cash or securities as a deposit ("initial deposit") known
as "margin." The initial deposit required will vary, but may be as low as 1% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and the Fund may receive
or be required to pay additional "variation margin" as the futures contract
becomes more or less valuable. At the time of delivery of securities pursuant
to such a contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate than the
specific security that provides the standard for the contract. In some (but not
many) cases, securities called for by a futures contract may not have been
issued when the contract was entered into.
A Fund may purchase or sell futures contracts to attempt to protect the
Fund from fluctuations in interest rates, or to manage the effective maturity
or duration of the Fund's portfolio in an effort to reduce potential losses or
enhance potential gain, without actually buying or selling debt securities. For
example, if interest rates were expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as if the Fund sold bonds that it owned, or as if the Fund sold
longer-term bonds and purchased shorter-term bonds. If interest rates did
increase, the value of the Fund's debt securities would decline, but the value
of the futures contracts would increase, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. Similar results
could be accomplished by selling bonds, or by selling bonds with longer
maturities and investing in bonds with shorter maturities. However, by using
futures contracts, the Fund avoids having to sell its securities.
Similarly, when it is expected that interest rates may decline, a Fund
might enter into futures contracts for the purchase of debt securities. Such a
purchase would be intended to have much the same effect as if the Fund
purchased bonds, or as if the Fund sold shorter-term bonds and purchased
longer-term bonds. If interest rates did decline, the value of the futures
contracts would increase.
Each of the Funds may purchase and sell foreign currency futures
contracts to attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could reduce the
dollar value of portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be acquired, even if the
value of such securities in the currencies in which they are denominated
remains constant. A Fund may sell futures contracts on a foreign currency, for
example, where it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on the value of
foreign-denominated securities may be offset, in whole or in part, by gains on
the futures contracts.
Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts
on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. Where the Fund purchases futures contracts under
such circumstances, however, and the prices of securities to be acquired
instead decline, the Fund will sustain losses on its futures position which
could reduce or eliminate the benefits of the reduced cost of portfolio
securities to be acquired.
Although the use of futures for hedging should tend to minimize the risk
of loss due to a decline in the value of the hedged position (e.g., if a Fund
<PAGE>
sells a futures contract to protect against losses in the debt securities held
by the Fund), at the same time the futures contract limits any potential gain
which might result from an increase in value of a hedged position.
In addition, the ability effectively to hedge all or a portion of a
Fund's investments through transactions in futures contracts depends on the
degree to which movements in the value of the debt securities underlying such
contracts correlate with movements in the value of the Fund's securities. If
the security underlying a futures contract is different than the security being
hedged, they may not move to the same extent or in the same direction. In that
event, the Fund's hedging strategy might not be successful and the Fund could
sustain losses on these hedging transactions which would not be offset by gains
on the Fund's other investments or, alternatively, the gains on the hedging
transaction might not be sufficient to offset losses on the Fund's other
investments. It is also possible that there may be a negative correlation
between the security underlying a futures contract and the securities being
hedged, which could result in losses both on the hedging transaction and the
securities. In these and other instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken. Similarly, even
where a Fund enters into futures transactions other than for hedging purposes,
the effectiveness of its strategy may be affected by lack of correlation
between changes in the value of the futures contracts and changes in value of
the securities which the Fund would otherwise buy and sell.
The ordinary spreads between prices in the cash and futures markets, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, there is the potential that the liquidity of
the futures market may be lacking. Prior to expiration, a futures contract may
be terminated only by entering into a closing purchase or sale transaction,
which requires a secondary market on the contract market on which the futures
contract was originally entered into. While a Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In that event, it may not be possible to close
out a position held by the Fund, which could require the Fund to purchase or
sell the instrument underlying the futures contract or to meet ongoing
variation margin requirements. The inability to close out futures positions
also could have an adverse impact on the ability effectively to use futures
transactions for hedging or other purposes.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a futures
contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of futures contracts also is subject
to the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times
make it difficult or impossible to liquidate existing positions or to recover
excess variation margin payments.
Investments in futures contracts also entail the risk that if the
Manager's or a Subadviser's investment judgment about the general direction of
interest rates is incorrect, the Fund's overall performance may be poorer than
if any such contract had not been entered into. For example, if a Fund hedged
against the possibility of an increase in interest rates which would adversely
affect the price of the Fund's bonds and interest rates decrease instead, part
<PAGE>
or all of the benefit of the increased value of the Fund's bonds which were
hedged will be lost because the Fund will have offsetting losses in its futures
positions. Similarly, if a Fund purchases futures contracts expecting a
decrease in interest rates and interest rates instead increased, the Fund will
have losses in its futures positions which will increase the amount of the
losses on the securities in its portfolio which will also decline in value
because of the increase in interest rates. In addition, in such situations, if
the Fund has insufficient cash, the Fund may have to sell bonds from its
investments to meet daily variation margin requirements, possibly at a time
when it may be disadvantageous to do so.
Each contract market on which futures contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Manager does not believe that these trading and position limits would have
an adverse impact on a Fund's hedging strategies.
CFTC regulations require compliance with certain limitations in order to
assure that a Fund is not deemed to be a "commodity pool" under such
regulations. In particular, CFTC regulations prohibit a Fund from purchasing or
selling futures contracts (other than for bona fide hedging transactions) if,
immediately thereafter, the sum of the amount of initial margin required to
establish that Fund's non-hedging futures positions would exceed 5% of that
Fund's net assets.
Each Fund will comply with this CFTC requirement, and each Fund currently
intends to adhere to the additional policies described below. First, an amount
of cash or cash equivalents will be maintained by each Fund in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
initial margin held on deposit, will be approximately equal to the amount
necessary to satisfy the Fund's obligations under the futures contract. The
second is that a Fund will not enter into a futures contract if immediately
thereafter the amount of initial margin deposits on all the futures contracts
held by the Fund would exceed approximately 5% of the net assets of the Fund.
The third is that the aggregate market value of the futures contracts held by a
Fund not exceed approximately 50% of the market value of the Fund's total
assets other than its futures contracts. For purposes of this third policy,
"market value" of a futures contract is deemed to be the amount obtained by
multiplying the number of units covered by the futures contract times the per
unit price of the securities covered by that contract.
The ability of a Fund to engage in futures transactions may be limited by
the current federal income tax requirement that less than 30% of a Fund's gross
income be derived from the sale or other disposition of stock or securities
held for less than three months. In addition, the use of futures contracts may
increase the amount of taxable income of a Fund and may affect the amount,
timing and character of a Fund's income for tax purposes, as more fully
discussed herein in the section entitled "Certain Additional Tax Matters."
OPTIONS ON FUTURES CONTRACTS
Each of the Funds may purchase and write options to buy or sell futures
contracts in which the Fund may invest. Such investment strategies will be used
for hedging purposes and for non-hedging purposes, subject to applicable law.
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
<PAGE>
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series, (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by a Fund on
U.S. exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC
and the performance guarantee of the exchange clearinghouse. In addition,
options on futures contracts may be traded on foreign exchanges.
Each of the Funds may cover the writing of call options on futures
contracts (a) through purchases of the underlying futures contract, (b) through
ownership of the instrument, or instruments included in the index, underlying
the futures contract, or (c) through the holding of a call on the same futures
contract and in the same principal amount as the call written where the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash or securities in a
segregated account with its custodian. A Fund may cover the writing of put
options on futures contracts (a) through sales of the underlying futures
contract, (b) through segregation of cash, short-term money market instruments
or high quality debt securities in an amount equal to the value of the security
or index underlying the futures contract, (c) through the holding of a put on
the same futures contract and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written or where the exercise price of the put held
is less than the exercise price of the put written if the difference is
maintained by a Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. Put and
call options on futures contracts may also be covered in such other manner as
may be in accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations. Upon the exercise of a call option
on a futures contract written by a Fund, the Fund will be required to sell the
underlying futures contract which, if the Fund has covered its obligation
through the purchase of such contract, will serve to liquidate its futures
position. Similarly, where a put option on a futures contract written by a Fund
is exercised, the Fund will be required to purchase the underlying futures
contract which, if the Fund has covered its obligation through the sale of such
contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. A Fund will receive an option premium when it writes the
call, and, if the price of the futures contract at expiration of the option is
below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may
have occurred in the Fund's security holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If
a Fund writes an option on a futures contract and that option is exercised, the
Fund may incur a loss, which loss will be reduced by the amount of the option
premium received, less related transaction costs. A Fund's ability to hedge
effectively through transactions in options on futures contracts depends on,
<PAGE>
among other factors, the degree of correlation between changes in the value of
securities held by the Fund and changes in the value of its futures positions.
This correlation cannot be expected to be exact, and the Fund bears a risk that
the value of the futures contract being hedged will not move in the same
amount, or even in the same direction, as the hedging instrument. Thus it may
be possible for a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
Each of the Funds may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, a Fund could, in lieu of selling futures contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by a Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call options on futures contracts, rather than
purchasing the underlying futures contracts.
4. INVESTMENT RESTRICTIONS
The Trust, on behalf of the Funds, has adopted the following policies
which may not be changed with respect to any Fund without approval by holders
of a majority of the outstanding voting securities of that Fund, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding voting securities of the Fund present at a
meeting at which the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (ii) more than
50% of the outstanding voting securities of the Fund. The term "voting
securities" as used in this paragraph has the same meaning as in the 1940 Act.
None of the Funds may:
(1) Borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the current
value of its net assets, including the amount borrowed (nor purchase any
securities at any time at which borrowings exceed 5% of the total assets of the
Fund, taken at market value). It is intended that a Fund would borrow money
only from banks and only to accommodate requests for the repurchase of shares
of the Fund while effecting an orderly liquidation of portfolio securities.
(2) Make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value), (b) through the use of repurchase
agreements or the purchase of short-term obligations or (c) by purchasing all
or a portion of an issue of debt securities of types commonly distributed
privately to financial institutions. The purchase of short-term commercial
paper or a portion of an issue of debt securities which is part of an issue to
the public shall not be considered the making of a loan.
(3) Purchase securities of any issuer if such purchase at the time
thereof would cause with respect to 75% of the total assets of the Fund more
than 10% of the voting securities of such issuer to be held by the Fund, except
that a Fund may invest all or substantially all of its investable assets in
<PAGE>
another registered investment company having the same investment objectives and
policies and substantially the same investment restrictions as those with
respect to the Fund (a "Qualifying Portfolio").
(4) Purchase securities of any issuer if such purchase at the time
thereof would cause as to 75% of the Fund's total assets more than 5% of the
Fund's assets (taken at market value) to be invested in the securities of such
issuer (other than securities or obligations issued or guaranteed by the United
States, any state or political subdivision thereof, or any political
subdivision of any such state, or any agency or instrumentality of the United
States or of any state or of any political subdivision of any state), except
that, with respect to each Fund, the Fund may invest all or substantially all
of its investable assets in a Qualifying Portfolio.
(5) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Fund's investment objectives, up
to 25% of its assets, at market value at the time of each investment, may be
invested in any one industry.
(6) Underwrite securities issued by other persons, except that all the
assets of the Fund may be invested in a Qualifying Portfolio and except in so
far as the Fund may technically be deemed an underwriter under the Securities
Act in selling a security.
(7) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (each Fund reserves the freedom of action to
hold and to sell real estate acquired as a result of the ownership of
securities by the Fund).
(8) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options, futures contracts, and options on futures contracts,
including deposits of initial and variation margin, are not considered to be
the issuance of a senior security for purposes of this restriction and except
as appropriate to evidence a debt incurred without violating Investment
Restriction (1) above.
NON-FUNDAMENTAL RESTRICTIONS
Each Fund does not as a matter of operating policy:
(i) borrow money in excess of 10% of the total assets of the Fund (taken
at cost), except that such Fund may borrow up to 25% of its total assets when
such borrowing is necessary to meet redemption requests (moreover, the Fund
will not purchase any securities for the Fund at any time at which borrowings
exceed 5% of the total assets of the Fund (taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the net assets of the Fund (taken at market value),
(iii)sell any security which the Fund does not own unless by virtue of
the ownership of other securities there is at the time of sale a right to
obtain securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions (provided that this
limitation shall not prevent the Fund from entering into futures contracts or
options thereon),
<PAGE>
(iv) invest for the purpose of exercising control or management, except
that all of the assets of the Fund may be invested in a Qualifying Portfolio,
(v) purchase securities issued by any registered investment company,
except that all of the assets of the Fund may be invested in a Qualifying
Portfolio and except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that the Fund will not purchase the securities of any registered
investment company if such purchase at the time thereof would cause more than
10% of the total assets of the Fund (taken in each case at the greater of cost
or market value) to be invested in the securities of such issuers or would
cause more than 3% of the outstanding voting securities of any such issuer to
be held for the Fund (for purposes of this clause (v) securities of non-U.S.
banks shall be treated as investment company securities, except that debt
securities and non-voting preferred stock of non-U.S. banks are not subject to
the 10% limitation described herein),
(vi) invest more than 15% of the net assets of the Fund in securities
that are not readily marketable, including debt securities for which there is
no established market and fixed time deposits and repurchase agreements
maturing in more than seven days, except that all the assets of the Fund may be
invested in a Qualifying Portfolio,
(vii) purchase or retain any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust, or is an officer or director of the Manager, if after the purchase
of the securities of such issuer by the Fund, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than 1/2 of
1% of such shares or securities together own beneficially more than 5% of such
shares or securities, or both, all taken at market value,
(viii) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of the net
assets of the Fund (taken at market value) is held as collateral for such sales
at any one time (the Funds do not presently intend to make such short sales for
investment purposes), or
(ix) invest more than 20% of is total assets in the securities of issuers
located in any one foreign country, except that the Fund may have an additional
15% of its total assets in the securities of issuers located in any one of the
following countries: Australia, Canada, France, Japan, the United Kingdom, or
Germany.
These policies are not fundamental and may be changed by each Fund
without the approval of its shareholders.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage or rating restriction on investment or utilization of
assets set forth above or referred to in this Registration Statement is adhered
to at the time an investment is made or assets are so utilized, a later change
in percentage resulting from changes in the value of the securities or a later
change in the rating of the securities held for the Fund will not be considered
a violation of policy.
<PAGE>
5. PERFORMANCE INFORMATION
A total rate of return quotation for a Fund is calculated for any period
by (a) dividing (i) the sum of the net asset per share on the last day of the
period and the net asset value per share on the last day of the period of
shares purchasable with dividends and capital gains distributions declared
during such period with respect to a share held at the beginning of such period
and with respect to shares purchased with such dividends and capital gains
distributions, by (ii) the public offering price per share on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate
of return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting
1 from the result. Total rates of return may also be calculated on investments
at various sales charge levels or at net asset value. Any performance data
which is based on a reduced sales charge or net asset value would be reduced if
the maximum sales charge were taken into account.
Any current yield quotation for a Fund consists of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a 30 calendar day or one month period and is calculated by (a) raising
to the sixth power the sum of 1 plus the quotient obtained by dividing the
Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum public offering price per share on the
last day of the period, (b) subtracting 1 from the result, and (c) multiplying
the result by 2.
Yields and total returns quoted for a Fund include the effect of
deducting the Fund's expenses, but may not include charges and expenses
attributable to a particular variable annuity contract or variable life
insurance policy. Since shares of the Funds can be purchased only through a
variable annuity contract or variable life insurance policy, a purchaser of
such contract or policy should carefully review the prospectus for the
applicable variable annuity contract or variable life insurance policy for
information on relevant charges and expenses. Including these charges in the
quotations of a Fund's yield and total return would have the effect of
decreasing performance. Performance information for the Funds must always be
accompanied by, and be reviewed with, performance information for the insurance
product which invests in the Funds.
6. DETERMINATION OF NET ASSET VALUE; VALUATION OF
SECURITIES; ADDITIONAL REDEMPTION INFORMATION
The net asset value of each share of each Fund is determined each day
during which the New York Stock Exchange is open for trading. As of the date of
this Statement of Additional Information, such Exchange is open for trading
every weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. This
determination of net asset value of shares of a Fund is made once each day as
of the close of regular trading on such Exchange by dividing the value of the
Fund's net assets (i.e., the value of its assets less its liabilities,
including expenses payable or accrued) by the number of shares of the Fund
outstanding at the time the determination is made. A share's net asset value is
effective for orders received by the Trust prior to its calculation and
<PAGE>
received by the Distributor prior to the close of the business day on which
such net asset value is determined.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in non-U.S. currencies will be converted into
U.S. dollars at the prevailing market rates at the time of valuation. Equity
securities are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues,
or at the last quoted bid price for securities in which there were no sales
during the day or for unlisted securities not reported on the NASDAQ system.
Securities listed on a foreign exchange are valued at the last quoted sale
price available before the time when net assets are valued. Bonds and other
fixed income securities (other than short-term obligations) are valued on the
basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees of the Trust. In making such valuations, the
pricing service utilizes both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations (maturing
in 60 days or less) are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees of the Trust. Futures contracts are
normally valued at the settlement price on the exchange on which they are
traded. Securities for which there are no such valuations are valued at fair
value as determined in good faith by or at the direction of the Board of
Trustees of the Trust.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of regular trading on the
Exchange and may also take place on days on which the Exchange is closed. If
events materially affecting the value of foreign securities occur between the
time when the exchange on which they are traded closes and the time when a
Fund's net asset value is calculated, such securities will be valued at fair
value in accordance with procedures established by and under the general
supervision of the Board of Trustees of the Trust.
Interest income on long-term obligations held for a Fund is determined on
the basis of interest accrued plus amortization of "original issue discount"
(generally, the difference between issue price and stated redemption price at
maturity) and premiums (generally, the excess of purchase price over stated
redemption price at maturity). Interest income on short-term obligations is
determined on the basis of interest accrued plus amortization of premium.
Subject to compliance with applicable regulations, the Trust has reserved
the right to pay the redemption or repurchase price of shares of the Funds,
either totally or partially, by a distribution in kind of readily marketable
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares or beneficial interests being sold. If a holder of shares or
beneficial interests received a distribution in kind, such holder could incur
brokerage or other charges in converting the securities to cash.
The Trust may suspend the right of redemption or postpone the date of
payment for shares of a Fund more than seven days during any period when (a)
trading in the markets a Fund normally utilizes is restricted, or an emergency,
<PAGE>
as defined by the rules and regulations of the Securities and Exchange
Commission (the "SEC"), exists making disposal of a Fund's investments or
determination of its net asset value not reasonably practicable; (b) the New
York Stock Exchange is closed (other than customary weekend and holiday
closings); or (c) the SEC has by order permitted such suspension.
7. MANAGEMENT
TRUSTEES
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate that those Trustees and officers are
"interested persons" (as defined in the 1940 Act) of the Trust. Unless
otherwise indicated below, the address of each Trustee and officer is 6 St.
James Avenue, Boston, Massachusetts.
TRUSTEES OF THE TRUST
H.B. ALVORD (aged 74) -- Treasurer-Tax Collector, County of Los Angeles
(retired, March, 1984); Chairman, certain registered investment companies in
the 59 Wall Street funds group. His address is 1450 Oleada Road, Pebble Beach,
California.
ELLIOTT J. BERV (aged 53) -- Chairman and Director, Catalyst, Inc.
(Management Consultants) (since June, 1992); President, Chief Operating Officer
and Director, Deven International, Inc. (International Consultants) (June, 1991
to June 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May, 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine.
PHILIP W. COOLIDGE* (aged 45) -- President of the Trust; Chief Executive
Officer, Signature Financial Group, Inc. and The Landmark Funds Broker-Dealer
Services, Inc. (since December, 1988).
MARK T. FINN (aged 53) -- President and Director, Delta Financial, Inc.
(since June, 1983); Chairman of the Board and Chief Executive Officer, FX 500
Ltd. (Commodity Trading Advisory Firm) (since April, 1990); Director, Vantage
Consulting Group, Inc. (since October, 1988). His address is 3500 Pacific
Avenue, P.O. Box 539, Virginia Beach, Virginia.
RILEY C. GILLEY (aged 70) -- Vice President and General Counsel, Corporate
Property Investors (November, 1988 to December, 1991); Partner, Breed, Abbott &
Morgan (Attorneys) (retired, December, 1987). His address is 4041 Gulf Shore
Boulevard North, Naples, Florida.
DIANA R. HARRINGTON (aged 56) -- Professor, Babson College (since September,
1993); Visiting Professor, Kellogg Graduate School of Management, Northwestern
University (September, 1992 to September, 1993); Professor, Darden Graduate
School of Business, University of Virginia (September, 1978 to September,
1993); Consultant to PanAgora Asset Management (since 1994). Her address is 120
Goulding Street, Holliston, Massachusetts.
SUSAN B. KERLEY (aged 45) -- President, Global Research Associates, Inc.
(Investment Research) (since August, 1990); Manager, Rockefeller & Co. (March,
1988 to July, 1990); Trustee, Mainstay Institutional Funds (since December,
1990). Her address is P.O. Box 9572, New Haven, Connecticut.
<PAGE>
C. OSCAR MORONG, JR. (aged 61) -- Chairman of the Board of Trustees of the
Trust; Managing Director, Morong Capital Management (since February, 1993);
Senior Vice President and Investment Manager, CREF Investments, Teachers
Insurance & Annuity Association (retired January, 1993); Director, Indonesia
Fund; Director, MAS Funds. His address is 1385 Outlook Drive West,
Mountainside, New Jersey.
WALTER E. ROBB, III (aged 70) -- President, Benchmark Consulting Group, Inc.
(since 1991); Principal, Robb Associates (corporate financial advisers) (since
1978); President, Benchmark Advisors, Inc. (Corporate Financial Advisors)
(since 1989); Trustee of certain registered investment companies in the MFS
Family of Funds. His address is 35 Farm Road, Sherborn, Massachusetts.
E. KIRBY WARREN (aged 62) -- Professor of Management, Graduate School of
Business, Columbia University (since 1987); Samuel Bronfman Professor of
Democratic Business Enterprise (1978-1987). His address is Columbia University,
Graduate School of Business, 725 Uris Hall, New York, New York.
WILLIAM S. WOODS, JR. (aged 76) -- Vice President-Investments, Sun Company,
Inc. (retired, April, 1984). His address is 35 Colwick Road, Cherry Hill,
New Jersey.
OFFICERS OF THE TRUST
PHILIP W. COOLIDGE* (aged 45) -- President of the Trust; Chairman, Chief
Executive Officer and President, Signature Financial Group, Inc. and The
Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
SAMANTHA M. BURGESS* (aged 26) -- Assistant Secretary and Assistant
Treasurer of the Trust; Assistant Vice President, Signature Financial Group,
Inc. (since November, 1995); Graduate Student, Loyola University (prior to
August, 1995).
CHRISTINE A. DRAPEAU* (aged 26) -- Assistant Secretary and Assistant Treasurer
of the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
January, 1996); Paralegal and Compliance Officer, various financial companies
(July, 1992 to January, 1996); Graduate Student, Bentley College (prior to
December, 1994).
JOHN R. ELDER* (aged 48) -- Treasurer of the Trust; Vice President, Signature
Financial Group, Inc. (since April, 1995); Treasurer, The Landmark Funds
Broker-Dealer Services, Inc. (since April, 1995); Treasurer of the Phoenix
Family of Mutual Funds, Phoenix Home Life Mutual Insurance Company (1983 to
March, 1995).
LINDA T. GIBSON* (aged 31) -- Secretary of the Trust; Legal Counsel, Signature
Financial Group, Inc. (since June, 1991); Vice President, Signature Financial
Group, Inc. (since May, 1992); Assistant Secretary, The Landmark Funds
Broker-Dealer Services, Inc. (since October, 1992); Law Student, Boston
University School of Law (September, 1989 to May, 1992).
JOAN R. GULINELLO* (aged 41) -- Assistant Secretary and Assistant Treasurer
of the Trust; Vice President, Signature Financial Group, Inc. (since
October, 1993); Secretary, The Landmark Funds Broker-Dealer Services, Inc.
(since October, 1995); Vice President and Assistant General Counsel,
Massachusetts Financial Services Company (prior to October, 1993).
<PAGE>
JAMES E. HOOLAHAN* (aged 49) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Senior Vice President, Signature Financial
Group, Inc.
SUSAN JAKUBOSKI* (aged 32) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group
(Cayman) Ltd. (since August, 1994); Senior Fund Administrator, Signature
Financial Group, Inc. (since August, 1994); Assistant Treasurer, Signature
Broker-Dealer Services, Inc. (since September, 1994); Fund Compliance
Administrator, Concord Financial Group (November, 1990 to August, 1994). Her
address is Elizabethan Square, George Town, Grand Cayman, Cayman Islands, BWI.
MOLLY S. MUGLER* (aged 45) -- Assistant Secretary and Assistant Treasurer of
the Trust; Legal Counsel and Assistant Secretary, Signature Financial Group,
Inc. (since December, 1988); Assistant Secretary, The Landmark Funds
Broker-Dealer Services, Inc. (since December, 1988).
SHARON M. WHITSON* (aged 48) -- Assistant Secretary and Assistant Treasurer of
the Trust; Assistant Vice President, Signature Financial Group, Inc. (since
November, 1992); Associate Trader, Massachusetts Financial Services Company
(prior to November, 1992).
JULIE J. WYETZNER* (aged 37) -- Vice President, Assistant Secretary and
Assistant Treasurer of the Trust; Vice President, Signature Financial Group,
Inc.
The Trustees and officers of the Trust also hold comparable positions
with certain other funds for which The Landmark Funds Broker-Dealer Services,
Inc., Signature Financial Group, Inc. or their affiliates serve as the
distributor or administrator.
As of the date of this Statement of Additional Information, there are no
shareholders of any of the Funds.
The Declaration of Trust of the Trust provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Trust unless, as to liability to the Trust, or its investors,
it is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless with respect to any other matter it is finally adjudicated that they
did not act in good faith in the reasonable belief that their actions were in
the best interests of the Trust. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court
or other body approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees of the Trust, or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
The Trustees of the Trust (with the exception of Mr. Coolidge, who will
receive no remuneration from the Trust) are expected to receive the following
remuneration from the Trust during its fiscal year ending December 31, 1997:
<PAGE>
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
AGGREGATE RETIREMENT ESTIMATED FROM REGISTRANT
COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
NAME OF PERSON, FROM AS PART OF FUND BENEFITS UPON COMPLEX PAID
POSITION REGISTRANT(1) EXPENSES RETIREMENT TO TRUSTEES (1)
<S> <C> <C> <C> <C>
H.B. ALVORD $1,500 NONE NONE $44,000
ELLIOT J. BERV $1,500 NONE NONE $49,000
MARK T. FINN $1,500 NONE NONE $44,000
RILEY C. GILLEY $1,500 NONE NONE $44,000
DIANA R. HARRINGTON $1,500 NONE NONE $49,000
SUSAN B. KERLEY $1,500 NONE NONE $49,000
C. OSCAR MORONG, JR. $1,500 NONE NONE $64,000
WALTER E. ROBB, III $1,500 NONE NONE $44,000
E. KIRBY WARREN $1,500 NONE NONE $44,000
WILLIAM S. WOODS, JR. $1,500 NONE NONE $44,000
</TABLE>
(1) Information is estimated with respect to the fiscal year ending December
31, 1997. Messrs. Alvord, Berv, Coolidge, Finn, Gilley, Morong, Robb, Warren
and Woods and Mses. Harrington and Kerley are trustees of 20, 16, 18, 36, 19,
16, 20, 19, 19 and 19 funds, respectively, of the Landmark Family of Funds.
MANAGER
Citibank manages the assets of each Fund and provides certain
administrative services to the Trust pursuant to separate management agreements
(the "Management Agreements"). Citibank furnishes at its own expense all
services, facilities and personnel necessary in connection with managing each
Fund's investments and effecting securities transactions for each Fund. The
Management Agreements provide that Citibank may delegate the daily management
of the securities of each Fund to one or more Subadvisers. The Management
Agreements will continue in effect until __________ __, 1998 and thereafter as
long as such continuance is specifically approved at least annually by the
Board of Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the applicable Fund, and, in either case, by a majority of
the Trustees of the Trust who are not parties to the Management Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Management Agreement.
Citibank provides the Trust with general office facilities and supervises
the overall administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the Trust's independent contractors
and agents; the preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trust. Trustees, officers, and
investors in the Trust are or may be or may become interested in Citibank, as
directors, officers, employees, or otherwise and directors, officers and
employees of Citibank are or may become similarly interested in the Trust.
Each Management Agreement provides that Citibank may render services to
others. Each Management Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Trust when
authorized either by a vote of a majority of the outstanding voting securities
<PAGE>
of the applicable Fund or by a vote of a majority of the Board of Trustees of
the Trust, or by Citibank on not more than 60 days' nor less than 30 days'
written notice, and will automatically terminate in the event of its
assignment. Each Management Agreement provides that neither Citibank nor its
personnel shall be liable for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
execution of securities transactions for the applicable Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties under
the Management Agreement.
The Prospectus contains a description of the fees payable to Citibank for
services under each of the Management Agreements. Citibank, if required by
state law, will reimburse the Funds or waive all or a portion of its management
fees to the extent that the expenses of a Fund exceed the expense limitation
prescribed by any state in which that Fund is qualified for offer or sale.
Pursuant to a sub-administrative services agreement with Citibank, LFBDS
performs such sub-administrative duties for the Trust as from time to time are
agreed upon by Citibank and LFBDS. For performing such sub-administrative
services, LFBDS receives compensation as from time to time is agreed upon by
Citibank, not in excess of the amount paid to Citibank for its services under
the Management Agreements. All such compensation is paid by Citibank.
Citibank has entered into separate Submanagement Agreements with the
Subadvisers listed below for the kinds of assets of each Fund noted opposite
the Subadvisers' names. Each Subadviser's compensation is described in the
Prospectus and is payable by Citibank.
Large cap value securities Miller Anderson & Sherrerd, LLP
Small cap value securities Franklin Advisory Services, Inc.
International equity securities Hotchkis & Wiley
Foreign government securities Pacific Investment Management Company
It is the responsibility of the Subadviser to make the day-to-day
investment decisions for their allocated assets of the Funds, and to place the
purchase and sales orders for securities transactions concerning those assets,
subject in all cases to the general supervisions of Citibank. Each Subadviser
furnishes at its own expense all services, facilities and personnel necessary
in connection with managing the assets of the Funds allocated to it and
effecting securities transactions concerning those assets.
Each Submanagement Agreement will continue in effect as to each
applicable Fund until ___________ __, 1998 and thereafter as long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust as to that Fund or by a vote of a majority of the outstanding
voting securities of that Fund, and, in either case, by a majority of the
Trustees of the Trust who are not parties to the Submanagement Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Submanagement Agreement.
Each Submanagement Agreement provides that the applicable Subadviser may
render services to others. Each Submanagement Agreement is terminable as to any
Fund without penalty on not more than 60 days' nor less than 30 days' written
notice by the Trust, when authorized either by a vote of a majority of the
outstanding voting securities of the applicable Fund or by a vote of a majority
<PAGE>
of the Board of Trustees of the Trust, or by Citibank on not more than 60 days'
nor less than 30 days' written notice, and will automatically terminate in the
event of its assignment. Each Submanagement Agreement may be terminated by the
applicable Subadviser on not less than 90 days' written notice. Each
Submanagement Agreement provides that neither the Subadviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
security transactions for any Fund, except for willful misfeasance, bad faith
or gross negligence or reckless disregard of its or their obligations and
duties under the Submanagement Agreement.
DISTRIBUTOR
LFBDS serves as the Distributor of the Trust's shares pursuant to a
Distribution Agreement with the Trust. Unless otherwise terminated, the
Distribution Agreement continues in effect from year to year upon annual
approval by the Trust's Board of Trustees, or by the vote of a majority of the
outstanding shares of the Trust and by the vote of a majority of the Board of
Trustees of the Trust who are not parties to the agreement or interested
persons of any such party, cast in person at a meeting called for the purpose
of voting on such approval. The agreement will terminate in the event of its
assignment, as defined in the 1940 Act. LFBDS is not currently paid a fee for
the provision of distribution services with respect to shares of the Funds.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency and Service Agreement with
State Street Bank and Trust Company ("State Street") pursuant to which State
Street acts as transfer agent for each Fund. The Trust also has entered into a
Custodian Agreement and a Fund Accounting Agreement with State Street, pursuant
to which custodial and fund accounting services, respectively, are provided for
each Fund. See "Custodian, Transfer Agent and Fund Accountant" in the
Prospectus for additional information. The principal business address of State
Street is 225 Franklin Street, Boston, Massachusetts 02110.
AUDITORS
Price Waterhouse LLP are the independent certified public accountants for
the Trust, providing audit services and assistance and consultation with
respect to the preparation of filings with the SEC. The address of Price
Waterhouse LLP is 160 Federal Street, Boston, Massachusetts 02110.
8. PORTFOLIO TRANSACTIONS
The Trust trades securities for a Fund if it believes that a transaction
net of costs (including custodian charges) will help achieve the Fund's
investment objective. Changes in the Fund's investments are made without regard
to the length of time a security has been held, or whether a sale would result
in the recognition of a profit or loss. Therefore, the rate of turnover is not
a limiting factor when changes are appropriate. Specific decisions to purchase
or sell securities for each Fund are made by a portfolio manager who is an
employee of Citibank and who is appointed and supervised by its senior officers
or by a Subadviser. The portfolio manager or Subadviser may serve other clients
of Citibank in a similar capacity.
In connection with the selection of brokers or dealers and the placing of
portfolio securities transactions, brokers or dealers may be selected who also
<PAGE>
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to a Fund and/or the other
accounts over which the Manager, the Subadvisers or their affiliates exercise
investment discretion. The Manager and the Subadvisers are authorized to pay a
broker or dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Manager or the applicable Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Manager, the Subadvisers and their
affiliates have with respect to accounts over which they exercise investment
discretion. The Trustees of the Trust shall periodically review the commissions
paid by the Fund to determine if the commissions paid over representative
periods of time were reasonable in relation to the benefits to the Fund.
The investment advisory fee that each Fund pays to Citibank will not be
reduced as a consequence of Citibank's receipt of brokerage and research
services. While such services are not expected to reduce the expenses of
Citibank, Citibank would, through the use of the services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff or obtain such services independently.
In certain instances there may be securities that are suitable as an
investment for a Fund as well as for one or more of Citibank's or a
Subadviser's other clients. Investment decisions for each Fund and for
Citibank's and the Subadvisers' other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could adversely affect the price of or the size of the position
obtainable in a security for a Fund. When purchases or sales of the same
security for a Fund and for other portfolios managed by Citibank or a
Subadviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large volume
purchases or sales.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest (without
par value) of each series and to divide or combine the shares of any series
into a greater or lesser number of shares of that series without thereby
changing the proportionate beneficial interests in that series. The Funds and
Landmark Small Cap Equity VIP Fund are the only current series of shares of the
Trust and the Trust has reserved the right to create and issue additional
series of shares. Each share of each Fund represents an equal proportionate
interest in the Fund with each other share. Shares of each series participate
equally in the earnings, dividends and distribution of net assets of the
particular series upon liquidation or dissolution. Shares of each series are
entitled to vote separately to approve advisory agreements or changes in
investment policy, but shares of all series may vote together in the election
or selection of Trustees and accountants for the Trust.
<PAGE>
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust
would not be able to elect any Trustee. The Trust is not required and has no
present intention to hold annual meetings of shareholders but the Trust will
hold special meetings of shareholders when in the judgment of the Trustees it
is necessary or desirable to submit matters for a shareholder vote.
Shareholders have, under certain circumstances (e.g., upon the application and
submission of certain specified documents to the Trustees by a specified number
of shareholders), the right to communicate with other shareholders in
connection with requesting a meeting of shareholders for the purpose of
removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding shares of each
series affected by the amendment.
(See "Investment Restrictions.")
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by a vote of the holders of
two-thirds of the Trust's outstanding shares, voting as a single class, or of
the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such sale of assets, merger or consolidation,
the approval by vote of the holders of a majority of the Trust's outstanding
shares would be sufficient. The Trust or any series of the Trust, as the case
may be, may be terminated (i) by a vote of a majority of the outstanding voting
securities of the Trust or the affected series or (ii) by the Trustees by
written notice to the shareholders of the Trust or the affected series. If not
so terminated, the Trust will continue indefinitely.
The rights accompanying Fund shares are legally vested in the Separate
Accounts. However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the Separate
Accounts in a manner consistent with timely voting instructions received from
the holders of variable annuity contracts and variable life insurance policies.
Each Participating Insurance Company will vote Fund shares held in Separate
Accounts for which no timely instructions are received from the holders of
variable annuity contracts and variable life insurance policies, as well as
shares it owns, in the same proportion as those shares for which voting
instructions are received. For a further discussion, please refer to the
insurance company's Separate Account prospectus.
Share certificates will not be issued.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Trust and provides for indemnification and reimbursement of expenses out of
Trust property for any shareholder held personally liable for the obligations
of the Trust. The Declaration of Trust also provides that the Trust may
maintain appropriate insurance (for example, fidelity bonding and errors and
omissions insurance) for the protection of the Trust, its investors, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of an investor incurring financial loss on account of investor
<PAGE>
liability is limited to circumstances in which both inadequate insurance
existed and the Trust itself was unable to meet its obligations.
10. CERTAIN ADDITIONAL TAX MATTERS
Any investment in zero coupon bonds, certain stripped securities, and
certain securities purchased at a market discount will cause a Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, the
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or
loss to the Fund. A Fund's transactions in options, futures contracts, and
forward contracts will be subject to special tax rules that may affect the
amount, timing and character of Fund income and distributions to shareholders.
Certain positions held by a Fund that substantially diminish its risk of loss
with respect to other positions in its portfolio may constitute "straddles,"
and may be subject to special tax rules that would cause deferral of Fund
losses, adjustments in the holding periods of Fund securities, and conversion
of short-term into long-term capital losses. Certain tax elections exist for
straddles that may alter the effects of these rules. A Fund will limit its
activities in options, futures contracts, and forward contracts to the extent
necessary to meet the requirements of Subchapter M of the Internal Revenue
Code.
Special tax considerations apply with respect to foreign investments. Use
of foreign currencies for non-hedging purposes may be limited in order to avoid
a tax on a Fund. Investment by a Fund in certain "passive foreign investments
companies" may also be limited in order to avoid a tax on the Fund. Investment
income received by a Fund from foreign securities may be subject to foreign
income taxes withheld at the source. The United States has entered into tax
treaties with many foreign countries that may entitle a Fund to a reduced rate
of tax or an exemption from tax on such income; each of the Funds intends to
qualify for treaty reduced rates where available. It is not possible, however,
to determine a Fund's effective rate of foreign tax in advance since the amount
of a Fund's assets to be invested within various countries is not known.
11. FINANCIAL STATEMENTS
Not applicable.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements Included in Part A:
Not applicable.
Financial Statements Included in Part B:
Not applicable.
(b) Exhibits
1 Amended and Restated Declaration of
Registrant
2 By-Laws of the Registrant
5(a) Form of Management Agreement betwee
Registrant and Citibank, N.A., as i
and administrator
5(b) Form of Sub Management Agreement wi
Sherrerd, LLP
5(c) Form of Sub Management Agreement wi
5(d) Form of Sub Management Agreement wi
Investment Management Company
5(e) Form of Sub Management Agreement wi
Services, Inc.
6 Form of Distribution Agreement betw
and The Landmark Funds Broker-Deale
("LFBDS"), as distributor
7 Form of Custodian Agreement between
behalf of the Funds, and State Stre
Company ("State Street"), as custod
9 Form of Transfer Agency and Service
the Registrant and State Street, as
10 Form of opinion of Bingham, Dana &
Item 25. Persons Controlled by or under Common Control wi
Not applicable.
Item 26. Number of Holders of Securities.
Title of Class Number of Record H
Shares of Beneficial Interest As of October 29,
(par value $0.00001 per share)
CitiSelectSM VIP Folio 200 0
CitiSelectSM VIP Folio 300 0
CitiSelectSM VIP Folio 400 0
CitiSelectSM VIP Folio 500 0
<PAGE>
Item 27. Indemnification.
Reference is hereby made to (a) Article V of the Regi
of Trust, filed as an Exhibit herein; (b) Section 6 of the
Agreement between the Registrant and LFBDS, filed as an Ex
the undertaking of the Registrant regarding indemnificatio
Registration Statement on Form N-1A.
The Trustees and officers of the Registrant and the p
Registrant's administrator are insured under an errors and
insurance policy. The Registrant and its officers are also
fidelity bond required by Rule 17g-1 under the Investment
Item 28. Business and Other Connections of Investment Adv
Citibank, N.A. ("Citibank") is a commercial bank offe
banking and investment services to customers across the Un
around the world. Citibank is a wholly-owned subsidiary of
registered bank holding company. Citibank also serves as i
the following registered investment companies (or series t
Portfolios (Balanced Portfolio, Equity Portfolio, Governme
International Equity Portfolio, Emerging Asian Markets Equ
Small Cap Equity Portfolio), Tax Free Reserves Portfolio,
Reserves Portfolio, Cash Reserves Portfolio, Asset Allocat
Allocation Portfolio 200, Asset Allocation Portfolio 300,
Portfolio 400 and Asset Allocation Portfolio 500), Landmar
Free Funds (Landmark New York Tax Free Reserves, Landmark
Reserves and Landmark California Tax Free Reserves), Landm
Funds (Landmark Intermediate Income Fund), Landmark Tax Fr
(Landmark National Tax Free Income Fund and Landmark New Y
Fund) and Landmark VIP Funds (Landmark VIP U.S. Government
VIP Balanced Portfolio, Landmark VIP Equity Portfolio and
International Equity Portfolio). As of December 31, 1995,
affiliates managed assets in excess of $83 billion worldwi
place of business of Citibank is located at 399 Park Avenu
10043.
The Chairman of the Board and a Director of Citibank
following are Vice Chairmen of the Board and Directors of
Collins, William R. Rhodes and H. Onno Ruding. Other Direc
D. Wayne Calloway, Chairman and Chief Executive Officer, P
Purchase, New York; Colby H. Chandler, Former Chairman and
Officer, Eastman Kodak Company; Kenneth T. Derr, Chairman
Officer, Chevron Corporation; H.J. Haynes, Senior Counselo
Inc., San Francisco, California; Rozanne L. Ridgway, Presi
Council of the United States; Robert B. Shapiro, President
Officer, Monsanto Company; Frank A. Shrontz, Chairman and
Officer, The Boeing Company, Seattle, Washington; Roger B.
Chairman and Chief Executive Officer, General Motors Corpo
Thomas, President, The Ford Foundation, New York, New York
Woolard, Jr., Chairman and Chief Executive Officer, E.I. D
Company.
Each of the individuals named above is also a Directo
addition, the following persons have the affiliations indi
<PAGE>
D. Wayne Calloway Director, Exxon Corporation
Director, General Electric Compan
Director, Pepsico, Inc.
Colby H. Chandler Director, Digital Equipment Corpo
Director, Ford Motor Company
Director, J.C. Penney Company, In
Paul J. Collins Director, Kimberly-Clark Corporat
Kenneth T. Derr Director, American Telephone and
Director, Chevron Corporation
Director, Potlatch Corporation
H.J. Haynes Director, Bechtel Group, Inc.
Director, Boeing Company
Director, Fremont Group, Inc.
Director, Hewlett-Packard Company
Director, Paccar Inc.
Director, Saudi Arabian Oil Compa
John S. Reed Director, Monsanto Company
Director, Philip Morris Companies
Stockholder, Tampa Tank & Welding
William R. Rhodes Director, Private Export Funding
Rozanne L. Ridgway Director, 3M
Director, Bell Atlantic Corporati
Director, Boeing Company
Director, Emerson Electric Compan
Member-International Advisory Boa
New Perspective Fund, Inc.
Director, RJR Nabisco, Inc.
Director, Sara Lee Corporation
Director, Union Carbide Corporati
H. Onno Ruding Member, Board of Supervisory Dire
Amsterdam Trustee's Kantoor
Board Member, Corning, Incorporat
Advisor, Intercena (C&A)(Netherla
Member, Board of Supervisory Dire
Pechiney Nederland N.V.
Member, Board of Advisers, Robeco
Advisory Director, Unilever N.V.
Advisory Director, Unilever PLC
<PAGE>
Robert B. Shapiro Director, G.D. Searle & Co.
Director, Silicon Graphics
Director, Monsanto Company
Director, The Nutrasweet Company
Frank A. Shrontz Director, 3M
Director, Baseball of Seattle, In
Director, Boeing Company
Director, Boise Cascade Corp.
Roger B. Smith Director, International Paper Com
Director, Johnson & Johnson
Director, Pepsico, Inc.
Franklin A. Thomas Director, Aluminum Company of Ame
Director, American Telephone and
Director, Cummins Engine Company,
Director, Pepsico, Inc.
Edgar S. Woolard, Jr. Director, E.I. DuPont De Nemours
Franklin Advisory Services, Inc. ("Franklin"), a sub-
Registrant, maintains its principal office at 777 Mariners
Mateo, California 94404. Franklin, a California corporatio
1985, is a registered investment adviser under the Investm
1940 and is a wholly-owned subsidiary of Franklin Resource
owned holding company. Franklin is an investment adviser t
and closed-end investment companies.
William P. Lippman has been senior vice president of
1988. Prior to joining Franklin, Mr. Lippman was president
Fund Management, Inc. He is president and director of Fran
which includes Franklin Rising Dividends Fund, Franklin Co
Dividend Fund, Franklin Investment Grade Income Fund and F
Value Fund. Mr. Lippman also manages Franklin Balance Shee
the Franklin Valuemark Rising Dividends Fund.
<PAGE>
Each of the individuals named below is an officer and
Franklin and has the affiliations indicated:
<TABLE>
<CAPTION>
Name: Affiliations:
<S> <C>
Charles Bartlett Johnson President and Director, Fran
Chairman of the Board Director, Templeton Worldwid
Chairman of Board, Franklin/
Director, Franklin Managemen
Director, Franklin Instituti
Director, Franklin Templeton
Director, Franklin/Templeton
Director, Property Resources
Director, Franklin Bank
Director, Franklin Capital C
Director, FCC Receivables Co
President and Chairman of Bo
Templeton Travel, Inc.
Director, F.S. Capital Group
Director, F.S. Properties
Director, Franklin Agency, I
Director, Templeton Global I
President and Chairman of Bo
Director, Templeton, Galbrai
Chairman of Board, Franklin
Systems (1982-95)
President & Director, Frankl
(1983-95)
Rupert Harris Johnson, Jr. Executive Vice President and
President and Director Director, Templeton Worldwid
Executive Vice President and
Franklin/Templeton Distrib
Chairman of Board, Franklin
Chairman of Board, Franklin
Executive Vice President, Se
and Director, Franklin Tem
Director, Franklin/Templeton
Director, Property Resources
Director, Franklin Propertie
Director, Franklin Real Esta
Director, Franklin Bank
Director, Franklin Capital C
Director, FCC Receivables Co
Executive Vice President and
Franklin/Templeton Travel,
Director, Franklin Agency, I
Director, Templeton Global I
<PAGE>
President, Templeton Interna
Vice President and Director,
Management Systems (1982-9
Director, Franklin Energy Co
Harmon Evan Burns Executive Vice President - L
Executive Vice President Secretary, Franklin Resource
Director, Templeton Worldwid
Executive Vice President and
Templeton Distributors, In
Secretary, Franklin Manageme
Director, Franklin/Templeton
Director, Franklin Instituti
Director, Franklin Templeton
Director, Franklin Propertie
Director, Franklin Real Esta
Director, Franklin Bank
Director, Franklin Capital C
Director, FCC Receivables Co
Executive Vice President and
Templeton Travel, Inc.
Director, F.S. Capital Group
Director, F.S. Properties
Secretary, Franklin Agency,
Director, Templeton Global I
Executive Vice President and
Franklin Investment Services
Secretary and Treasurer, Fra
Systems (1982-95)
Executive Vice President, Fr
Corporation (1983-95)
Kenneth Vernon Domingues Senior Vice President, Frank
Senior Vice President Senior Vice President, Frank
Distributors, Inc.
Director, F.S. Capital Group
Director, F.S. Properties
Treasurer, Franklin Asset Ma
Systems (1989-95)
Treasurer, Franklin Manageme
Treasurer, Franklin Institut
Corporation (1991-93)
Treasurer, Franklin Trust Co
Martin Lawrence Flanagan Senior Vice President, Chief
Senior Vice President Treasurer, Franklin Resour
and Treasurer Executive Vice President and
Worldwide, Inc.
Treasurer, Franklin Manageme
Senior Vice President and Tr
Institutional Services Cor
<PAGE>
Treasurer, Franklin Templeto
Senior Vice President, Frank
Services, Inc.
Vice President and Chief Fin
Resources, Inc.
Vice President and Chief Fin
Properties, Inc.
Vice President and Chief Fin
Real Estate Management, In
Treasurer, Franklin Capital
President, FCC Receivables C
Vice President and Treasurer
Travel, Inc.
Senior Vice President, Frank
President, Chief Executive O
Board, Templeton Global In
Executive Vice President, Ch
and Director, Templeton In
Director, Templeton Quantita
Director, Templeton/Franklin
Services, Inc.
Director, Templeton Funds Tr
Director and Treasurer, Temp
Company
Executive Vice President, Ch
and Director, Templeton In
Director, Templeton Manageme
Director, Templeton Investme
Kong), Ltd.
Director, Templeton Investme
(Singapore) Plc. Ltd.
Managing Director, Templeton
Chairman of Board, Templeton
Services, S.A.
Director, Templeton Manageme
Executive Vice President, Ch
and Director, T.G.H. Holdi
Director, Templeton Heritage
Director, Templeton Investme
Director, Templeton Unit Tru
Director, Templeton Holdings
Director, Templeton/National
Management (Lux) S.A.
Executive Vice President and
Galbraith and Hansberger L
Senior Vice President and Tr
Templeton Distributors, In
Treasurer, Franklin Energy C
Director, Templeton Life Ass
Director, Templeton Funds Ma
Director, Templeton Funds Di
Director, The DAIS Group, In
<PAGE>
Vice-Chairman of Board, Temp
Managers, Inc. (1990-93)
Edward Burton Jamieson Portfolio Manager, Franklin
Senior Vice President Institutional Services Cor
Thomas Joseph Kenny None
Senior Vice
President and
Director of Municipal
Development
Leslie Michael Kratter Vice President and Assistant
Secretary Franklin Resources, Inc.
Secretary, Templeton Worldwi
Secretary, Franklin/Templeto
Secretary, Franklin Manageme
Vice President and Secretary
Services Corporation
Secretary, Franklin/Templeto
Secretary, FCC Receivables C
President and Director, Fran
Secretary, Franklin Agency,
Secretary, Templeton Global
Secretary, Templeton Interna
Secretary, Templeton/Frankli
Secretary, Franklin Energy C
Executive Vice President, In
Co. Ltd. 1979-92)
Jack Henry Lemein Employee, Franklin Resources
Senior Vice President Vice President, Franklin/Tem
Vice President, Franklin Man
Portfolio Manager, Franklin
Corporation
William Jennings Lippman Senior Vice President, Frank
Senior Vice President Senior Vice President, Frank
Distributors, Inc.
Senior Vice President, Frank
Portfolio Manager, Franklin
Corporation
Rico Martin Wiskemann Employee, Franklin/Templeton
Senior Vice President Senior Vice President, Frank
and Director Senior Vice President, Treasurer an
Financial Services, Inc.
Vice President and Director,
Company of America
</TABLE>
<PAGE>
Pacific Investment Management Company ("PIMCO"), a su
Registrant, maintains its principal office at 840 Newport
360, P.O. Box 6480, Newport Beach, California 92658-9030.
investment adviser under the Investment Company Act of 194
Lee R. Thomas, III joined PIMCO in 1995 and is the Se
Portfolio Manager at PIMCO. Previously he was a member of
Management Committee, where he was responsible for global
foreign exchange trading. Prior to Investcorp, he was asso
Sachs, where he was an Executive Director in the fixed inc
London office.
Each of the individuals named below is a Managing Dir
has the affiliations indicated:
Name and Position: Other Affiliations:
William H. Gross, CFA None
Senior Fixed Income
Portfolio Manager
David H. Edington None
Senior Fixed Income
Portfolio Manager
John L. Hague None
Senior Fixed Income
Portfolio Manager
Brent R. Harris, CFA None
Director of Marketing
Dean S. Meiling, CFA None
Account Manager
James F. Muzzy, CFA None
Account Manager
William F. Podlich, III None
William C. Powers None
Senior Fixed Income
Portfolio Manager
Frank B. Rabinovitch None
Senior Fixed Income
Portfolio Manager
<PAGE>
William S. Thompson Director, Spieker Properties Inc.
Chief Executive
Officer
Hotchkis & Wiley ("Hotchkis"), a sub-adviser of the R
its principal office at 800 West Sixth Street, Fifth Floor
California 90017. Hotchkis is a registered investment advi
Harry Hartford and Sarah Ketterer will be responsible for
of international equity securities of the Registrant. Mr.
Ketterer manage international equity accounts and are also
international investment research. Each serves on the Inve
Committee at Hotchkis. Prior to joining Hotchkis, Mr. Hart
Investment Bank of Ireland, where he gained 10 years of ex
international and global equity management. Prior to joini
Ketterer was an associate with Bankers Trust and an analys
Each of the individuals named below is a Managing Dir
partner of Hotchkis and has the affiliations indicated:
Name and Position: Other Affiliations:
Gail L. Bardin None
Portfolio Manager
Michael F. Baxter None
Portfolio Manager
George H. Davis, Jr. None
Portfolio Manager
Dr. Roger DeBard Executive Vice President, Hotchki
Portfolio Manager and Wiley Funds
John F. Hotchkis Trustee, Hotchkis and Wiley Funds
Portfolio Manager Governor, The Music Center
Director and Treasurer, The Music
Director, Los Angeles World Affai
Director, Los Angeles Philharmoni
Director, Big Brothers of Greater
Director, Executive Service Corps
California
Director, KCET
Trustee, The Lawrenceville School
Trustee, Robert Louis Stevenson S
Director, Fountainhead Water Comp
George Wiley Trustee, Hotchkis and Wiley Funds
Portfolio Manager
<PAGE>
Miller Anderson & Sherrerd, LLP ("MAS"), a sub-advise
maintains its principal office at One Tower Bridge, West C
Pennsylvania 19428. MAS has been a registered investment a
Investment Company Act of 1940 since 1974. MAS serves as t
and Fund Administrator for the MAS Funds and is also the p
Fund Distribution, Inc. ("MASDI"), a registered limited pu
that was formed in 1992 solely to distribute shares of the
registered representatives of MASDI are also employees of
Partnership I, L.P. ("MAS I") and MAS Fixed Income Partner
II") are investment partnerships established by MAS. MAS h
Fixed Income I, L.L.C., MAS Fixed Income II, L.L.C., MAS M
MAS Investors I, LLP to administer and manage the investme
also participates in a joint venture with LTCB Capital Mar
LTCB-MAS Investment Management, Inc., a registered investm
MAS is a Pennsylvania limited liability partnership a
wholly-owned subsidiary of Morgan Stanley Group Inc., the
services firm, upon the completion of Morgan Stanley Asset
acquisition of MAS in January of 1996. MAS's general partn
95% of the MAS partnership interests is Morgan Stanley Ass
Holdings, Inc. ("MSAMH"), a direct wholly-owned subsidiary
Asset Management Inc. MSAMH is also one of MAS's three lim
other two limited partners of MAS are MSL Incorporated and
Incorporated, which are both holding companies within Morg
corporate structure and own the remaining 3% and 2% of MAS
interests, respectively.
Following are the officers and directors of Morgan Stanley
Management Holdings, Inc.
Name and Position: Affiliations:
James M. Allwin Director and Managing Di
President and Director Stanley Asset Managemen
and President since 199
Employee of Morgan Stanl
Incorporated since 197
Managing Director sinc
President of Morgan Stan
since 1988;
Member of the Board of O
Dartmouth College;
Member of the Executive
The National Realty Co
Trustee, The Urban Land
Chairman, Cities in Scho
Barton M. Biggs Chairman and Director of
Chairman of the Board and Asset Management Inc.
Director Chairman and Director of
Asset Management Limit
Managing Director of Mor
Incorporated since 197
Director of Morgan Stanl
since 1991;
Member of the Investment
of The Thailand Fund;
Director, The Rand McNal
Member, Yale Development
Director and officer of
companies managed by M
Asset Management Inc.
Harold J. Schaaff, Jr. Principal of Morgan Stan
Secretary and Director Incorporated;
General Counsel and Secr
Stanley Asset Manageme
Officer of various inves
managed by Morgan Stan
Inc.
Debra M. Aaron Employee of Morgan Stanl
Vice President Incorporated since 198
since 1986 and a Princ
Bruce R. Sandberg Employee of Morgan Stanl
Vice President Incorporated since 198
since 1988 and a Princ
Eileen Murray Employee of Morgan Stanl
Treasurer Incorporated since 1984;
Treasurer and Managing D
Stanley Asset Manageme
Stanley & Co. Incorpor
of 1996
Madeline D. Barkhorn Employee of Morgan Stanl
Assistant Secretary Incorporated since 1994
Asset Management Inc.
Charlene R. Herzer Employee of Morgan Stanl
Assistant Secretary Incorporated since 1990
since 1995
The primary portfolio managers for MAS's Value Portfo
Williams, Jr., CFA and Robert J. Marcin, CFA. Richard M. B
recent addition to the value team. All other members of th
investment management department serve as analyst resource
in the management of the portfolio while maintaining respo
MAS equity related portfolios.
<PAGE>
Each of the individuals named below is a former part
the affiliations indicated:
Name: Other Affiliations:
A. Morris Williams, C.A.R.E. Council of Trustees
Jr., CFA Duke University, Trustee
The Salvation Army Advisory Board
Philadelphia
Philadelphia Scholars Fund Adviso
Chairman
Philadelphia Schools Collaborativ
Board of Directors
Richard B. Worley University of Pennsylvania, Trust
Medical Center of the University
Trustee
Pennsylvania Academy of Fine Arts
Thomas L. Bennett, CFA MAS Funds, Chairman
Robert L. Hagin Society of Quantitative Analysts,
T. Dean Williams International Society of Financia
Governors
Shanghai Dazhong Co., Director
John D. Connolly, CFA Financial Analysts of Philadelphi
Kenneth B. Dunn Journal of Fixed Income, Associat
Institute for the Study of Securi
of Directors
Ellen D. Harvey, CFA St. Timothy's School, Trustee, 19
Investment Chairman, 1994-pres
Bryn Mawr Rehabilitation Hospital
Main Line Health System, Trustee
Owosso Corporation, Director
Gary G. Schlarbaum, CFA Coe College, Trustee
James D. Schmid MAS Funds, President
Head of Mutual Funds MAS Fund Distribution, Inc., Dire
The Minerva Fund, Inc., Chairman
Directors
Arden C. Armstrong, CFA American Friends Service Committe
Committee
Wharton Fellow's Fund, Board of O
Stephen F. Esser, CFA None
<PAGE>
J. David Germany None
Nicholas J. Kovich None
Robert J. Marcin, CFA None
Mary Ann Milias California Pacific Medical Center
Trustee
Schools of the Sacred Heart, Trus
Sisters of the Presentation - Inv
Committee
Marin Community Foundation - Inve
Committee
Scott F. Richard Journal of Fixed Income, Associat
Horacio A. Valeiras, CFA None
Glenn E. Becker Germantown Academy, Education Com
The Salvation Army Advisory Board
Philadelphia
Philadelphia Leadership Foundatio
Steven K. Kreider, CFA Lehigh University, Investment Com
Marna C. Whittington Rohm & Haas Company, Director
Tower Hill School, Trustee
Upland Country Day School, Truste
The Philadelphia Contributionship
Federated Department Stores, Inc.
Berwind Group, Director
Item 29. Principal Underwriters.
(a) The Landmark Funds Broker-Dealer Services, Inc. (
Registrant's Distributor, is also the distributor for Land
Equity Fund, Landmark Emerging Asian Markets Equity Fund,
Treasury Reserves, Landmark Cash Reserves, Premium U.S. Tr
Premium Liquid Reserves, Landmark Institutional U.S. Treas
Landmark Institutional Liquid Reserves, Landmark Tax Free
California Tax Free Reserves, Landmark Connecticut Tax Fre
New York Tax Free Reserves, Landmark U.S. Government Incom
Intermediate Income Fund, Landmark Balanced Fund, CitiSele
CitiSelectSM Folio 300, CitiSelectSM Folio 400, CitiSelect
Landmark Equity Fund, Landmark Small Cap Equity Fund, Land
Free Income Fund, Landmark New York Tax Free Income Fund,
Funds (Landmark VIP U.S. Government Portfolio, Landmark VI
Landmark VIP Equity Portfolio and Landmark VIP Internation
LFBDS is also the placement agent for International Equity
Portfolio, Equity Portfolio, Small Cap Equity Portfolio, G
Portfolio, Emerging Asian Markets Equity Portfolio, Tax Fr
Portfolio, Cash Reserves Portfolio, Asset Allocation Portf
<PAGE>
Allocation Portfolio 300, Asset Allocation Portfolio 400,
Portfolio 500 and U.S. Treasury Reserves Portfolio.
(b) The information required by this Item 29 with re
director and officer of LFBDS is incorporated by reference
Form BD filed by LFBDS pursuant to the Securities and Exch
(File No. 8-32417).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are locat
part, at the office of the Registrant and the following lo
NAME ADDRESS
The Landmark Funds Broker-Dealer 6 St. James Avenue
Services, Inc. Boston, MA 02116
(distributor)
State Street Bank and Trust Company 1776 Heritage Driv
(custodian and transfer agent) North Quincy, MA 0
Citibank, N.A. 153 East 53rd Stre
(investment manager) New York, NY 10043
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) The Registrant hereby undertakes to file a post-e
this Registration Statement, containing reasonably current
that need not be certified, within four to six months foll
commencement of operations of the Funds.
(b) The Registrant hereby undertakes to call a meetin
the purpose of voting upon the question of removal of one
Trust's Trustees when requested in writing to do so by the
10% of the Registrant's outstanding shares, and in connect
comply with the provisions of Section 16(c) of the Investm
1940 relating to shareholder communication.
(c) The Registrant undertakes to furnish to each pers
prospectus of CitiSelectSM VIP Folio 200, CitiSelectSM VIP
CitiSelectSM VIP Folio 400 and CitiSelectSM VIP Folio 500
copy of its latest Annual Report to Shareholders, upon req
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
Investment Company Act of 1940, the Registrant has duly ca
Registration Statement to be signed on its behalf by the u
duly authorized, in the City of Boston and Commonwealth of
29th day of October, 1996.
VARIABLE ANNUITY PORTF
By: Philip W. Coolidge
Philip W. Coolidge
President
Pursuant to the requirements of the Securities Act of
Registration Statement has been signed below by the follow
capacities indicated below on October 29, 1996.
Signature Title
Philip W. Coolidge President, Principal
Philip W. Coolidge Executive Officer and Tru
John R. Elder Principal Financial Offic
John R. Elder and Principal Accounting
Linda T. Gibson Trustee
Linda T. Gibson
Molly S. Mugler Trustee
Molly S. Mugler
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
1 Amended and Restated Declaration of Trust of
2 By-Laws of the Registrant
5(a) Form of Management Agreement between the Reg
Citibank, N.A., as investment manager and ad
5(b) Form of Sub Management Agreement with Miller
& Sherrerd, LLP
5(c) Form of Sub Management Agreement with Hotchk
5(d) Form of Sub Management Agreement with Pacifi
Management Company
5(e) Form of Sub Management Agreement with Frankl
Services, Inc.
6 Form of Distribution Agreement between the R
The Landmark Funds Broker-Dealer Services,
("LFBDS"), as distributor
7 Form of Custodian Agreement between the Regi
of the Funds, and State Street Bank and Tr
("State Street"), as custodian
9 Form of Transfer Agency and Service Agreemen
Registrant and State Street, as transfer a
10 Form of opinion of Bingham, Dana & Gould LLP
Exhibit 1
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
VARIABLE ANNUITY PORTFOLIOS
6 St. James Avenue
Boston, Massachusetts 02116
----------------------------------
Dated October 25, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--Name and Definitions 1
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--Trustees 3
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 4
Section 2.4 Vacancies 5
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III--Powers of Trustees 5
Section 3.1 General 5
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money; Lending Trust Property 8
Section 3.6 Delegation; Committees 8
Section 3.7 Collection and Payment 8
Section 3.8 Expenses 8
Section 3.9 Manner of Acting; By-Laws 8
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 9
Section 3.12 Trustees and Officers as Shareholders 9
ARTICLE IV--Investment Adviser, Distributor, Administrator,
Transfer Agent and Shareholder Servicing Agents 10
Section 4.1 Investment Adviser 10
Section 4.2 Distributor 11
Section 4.3 Administrator 11
Section 4.4 Transfer Agent and Shareholder
Servicing Agents 11
Section 4.5 Parties to Contract 11
<PAGE>
ARTICLE V--Limitations of Liability of Shareholders, Trustees and
Others 12
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 12
Section 5.2 Non-Liability of Trustees, etc. 13
Section 5.3 Mandatory Indemnification 13
Section 5.4 No Bond Required of Trustees 15
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 15
Section 5.6 Reliance on Experts, etc. 15
ARTICLE VI--Shares of Beneficial Interest 16
Section 6.1 Beneficial Interest 16
Section 6.2 Rights of Shareholders 16
Section 6.3 Trust Only 16
Section 6.4 Issuance of Shares 16
Section 6.5 Register of Shares 17
Section 6.6 Transfer of Shares 17
Section 6.7 Notices 18
Section 6.8 Voting Powers 18
Section 6.9 Series Designation 19
Section 6.10 Class Designation 21
ARTICLE VII--Redemptions 22
Section 7.1 Redemptions 22
Section 7.2 Suspension of Right of Redemption 22
Section 7.3 Redemption of Shares; Disclosure of Holding 23
Section 7.4 Redemptions of Accounts of Less than $500 23
Section 7.5 Redemptions Pursuant to Constant
Net Asset Value Formula 23
ARTICLE VIII--Determination of Net Asset Value, Net Income and
Distributions 24
ARTICLE IX--Duration; Termination of Trust; Amendment;
Mergers, etc. 24
Section 9.1 Duration 24
Section 9.2 Termination of Trust 24
Section 9.3 Amendment Procedure 25
Section 9.4 Merger, Consolidation and Sale of Assets 26
Section 9.5 Incorporation, Reorganization 27
Section 9.6 Incorporation or Reorganization of Series 27
ARTICLE X--Reports to Shareholders and Shareholder
Communications 27
ARTICLE XI--Miscellaneous 28
Section 11.1 Filing 28
Section 11.2 Governing Law 29
Section 11.3 Counterparts 29
Section 11.4 Reliance by Third Parties 29
Section 11.5 Provisions in Conflict with Law or Regulations 29
SIGNATURE PAGE 31
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
VARIABLE ANNUITY PORTFOLIOS
----------------------------------
Dated October 25, 1996
----------------------------------
WHEREAS, the Trustees have established a trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest ($0.00001 par
value per share) issued in one or more series as hereinafter provided; and
WHEREAS, the Trustees hereby confirm that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares of
Beneficial Interest ($0.00001 par value per share) issued hereunder and subject
to the provisions hereof; and
WHEREAS, the Trustees now desire to amend and restate this Declaration to
incorporate all prior amendments hereto;
NOW THEREFORE, the Trustees hereby declare that this Declaration is hereby
amended and restated in full as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is "Variable
Annuity Portfolios."
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.3 hereof.
<PAGE>
(b) "By-Laws" means the By-laws referred to in Section 3.9 hereof, as from
time to time amended.
(c) "Commission" has the meaning given that term in the 1940 Act.
(d) "Custodian" means a party employed by the Trust to furnish services as
described in Article X of the By-Laws.
(e) "Declaration" means this Declaration of Trust, as amended from time to
time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(f) "Distributor" means a party furnishing services to the Trust pursuant
to any contract described in Section 4.2 hereof.
(g) "Interested Person" has the meaning given that term in the 1940 Act.
(h) "Investment Adviser" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(i) "Majority Shareholder Vote" has the same meaning as the phrase "vote
of a majority of the outstanding voting securities" as defined in the 1940 Act,
except that such term may be used herein with respect to the Shares of the
Trust as a whole or the Shares of any particular series or class, as the
context may require.
(j) "1940 Act" means the Investment Company Act of 1940 and the Rules and
Regulations thereunder, as amended from time to time.
(k) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof,
whether domestic or foreign.
(l) "Shareholder" means a record owner of outstanding Shares.
(m) "Shares" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series of Shares established by the Trustees
pursuant to Section 6.9 hereof, units into which such series of Shares shall be
<PAGE>
divided from time to time in accordance with the terms hereof. The term
"Shares" includes fractions of Shares as well as whole Shares.
(n) "Shareholder Servicing Agent" means a party furnishing services to the
Trust pursuant to any shareholder servicing contract described in Section 4.4
hereof.
(o) "Transfer Agent" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4 hereof.
(p) "Trust" means the trust created hereby.
(q) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees, including, without limitation, any and all property
allocated or belonging to any series of Shares pursuant to Section 6.9 hereof.
(r) "Trustees" means the persons who have signed the Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly elected or appointed, qualified
and serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three nor more than 15.
Section 2.2. Term of Office of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided;
except (a) that any Trustee may resign his trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein; (b) that any Trustee may be removed with
cause, at any time by written instrument, signed by at least two-thirds of the
remaining Trustees, specifying the date when such removal shall become
<PAGE>
effective; (c) any Trustee who has attained a mandatory retirement age
established pursuant to any written policy adopted from time to time by at
least two-thirds of the Trustees shall, automatically and without action of
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; (d) 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 signed by a majority of the other Trustees,
specifying the date of his retirement; and (e) a Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the outstanding Shares of
each series. For the purposes of the foregoing clause (b), the term "cause"
shall include, but not be limited to, failure to comply with such written
policies as may from time to time be adopted by at least two-thirds of the
Trustees with respect to the conduct of Trustees and attendance at meetings.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he 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 the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining
Trustees shall require as provided in the preceding sentence.
Section 2.3. Resignation and Appointment of Trustees. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or
for any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other individual as they in their discretion shall see fit.
Such appointment shall be evidenced by a written instrument signed by a
majority of the Trustees in office. Any such appointment shall not become
effective, however, until the person 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 the Declaration. Within twelve months of
such appointment, the Trustees shall cause notice of such appointment to be
mailed to each Shareholder at his address as recorded on the books of the
Trustees. An appointment of a Trustee may be made by the Trustees then in
office and notice thereof mailed to Shareholders as aforesaid in anticipation
of a vacancy to occur by reason of retirement, resignation or increase in
number of Trustees effective at a later date, provided that said appointment
shall become effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. The power of appointment is
subject to the provisions of Section 16(a) of the 1940 Act.
<PAGE>
Section 2.4. Vacancies. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall not operate to
annul the Trust or to revoke any existing agency created pursuant to the terms
of this Declaration. Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.3, the Trustees 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 the
Declaration. A written instrument certifying the existence of such vacancy
signed by a majority of the Trustees shall be conclusive evidence of the
existence of such vacancy.
Section 2.5. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two Trustees personally exercise the powers granted to the Trustees
under the Declaration except as herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
Section 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
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. 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 both within and without the Commonwealth of
Massachusetts, 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 the Trustees deem necessary, proper
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 made by the Trustees in good faith shall be
conclusive. In construing the provisions of the Declaration, the presumption
shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
<PAGE>
Section 3.2. Investments. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an investment
company;
(ii) to subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of
gold or other precious metal, commodity contracts, any form of option contract,
contracts for the future acquisition or delivery of fixed income or other
securities, and securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, negotiable or
non-negotiable instruments, obligations, evidences of indebtedness,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, bankers' acceptances, and other securities of any kind, issued,
created, guaranteed or sponsored by any and all Persons, including, without
limitation,
(A) states, territories and possessions of the United States and the
District of Columbia and any political subdivision, agency or instrumentality
of any such Person,
(B) the U.S. Government, any foreign government, any political subdivision
or any agency or instrumentality of the U.S. Government, any foreign government
or any political subdivision of the U.S. Government or any foreign government,
(C) any international instrumentality,
(D) any bank or savings institution, or
(E) any corporation or organization organized under the laws of the United
States or of any state, territory or possession thereof, or under any foreign
law;
or in "when issued" contracts for any such securities, to retain Trust assets
in cash and from time to time to change the securities or obligations in
which the assets of the Trust are invested; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all such
investments of every 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 said rights, powers and
privileges in respect of any of said investments; and
<PAGE>
(iii) to carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary, proper or desirable
for the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, and to do every other act or
thing incidental or appurtenant to or connected with the aforesaid purposes,
objects or powers.
(b) The Trustees shall not be limited to investing in securities or
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.
(c) Notwithstanding any other provision of this Declaration to the
contrary, the Trustees shall have the power in their discretion without any
requirement of approval by shareholders to either invest all or a portion of
the Trust Property, or sell all or a portion of such Trust Property and invest
the proceeds of such sales, in another investment company that is registered
under the 1940 Act.
Section 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
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 of
any other Person or nominee, 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 Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, such Trustee shall automatically
cease to have any right, title or interest in any of the Trust Property, and
the right, title and interest of such 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.
Section 3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section
6.9 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds of the Trust or other Trust
Property whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the Commonwealth of Massachusetts governing
business corporations.
<PAGE>
Section 3.5. Borrowing Money; Lending Trust Property. 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 Trust Property, to
endorse, guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust Property.
Section 3.6. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
Section 3.7. Collection and Payment. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay all
claims, including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust Property; to foreclose
any security interest securing any obligations, by virtue of which any property
is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 3.8. Expenses. Subject to Section 6.9 hereof, the Trustees shall
have the 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 the
Declaration, and to pay reasonable compensation from the funds of the Trust to
themselves as Trustees. The Trustees shall fix the compensation of all
officers, employees and Trustees.
Section 3.9. Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken
by a majority of the Trustees present at a meeting of Trustees at which a
quorum is present, including any meeting held by means of a conference
telephone circuit or similar communications equipment by means of which all
persons participating in the meeting can hear each other, or by written
consents of all the Trustees. The Trustees may adopt By-Laws not inconsistent
with this Declaration to provide for the conduct of the business of the Trust
and may amend or repeal such By-Laws to the extent such power is not reserved
to the Shareholders.
Section 3.10. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate,
and
<PAGE>
appoint from their own number, and terminate, any one or more committees
which may exercise some or all of the power and authority of the Trustees as
the Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, the Administrator, Trustees,
officers, employees, agents, the Investment Adviser, the Distributor, selected
dealers 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 constituting negligence, or
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, Share purchase, and
other retirement, incentive and benefit plans for any Trustees, officers,
employees or agents of the Trust; (f) to the extent permitted by law, indemnify
any person with whom the Trust has dealings, including any Investment Adviser,
Administrator, Custodian, Distributor, Transfer Agent, Shareholder Servicing
Agent and any dealer, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, provided, that the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust.
Section 3.11. Principal Transactions. Except in transactions permitted by
the 1940 Act, or any order of exemption issued by the Commission, the Trustees
shall not, on behalf of the Trust, buy any securities (other than Shares) from
or sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee
or officer is a member acting as principal, or have any such dealings with any
Investment Adviser, Administrator, Shareholder Servicing Agent, Custodian,
Distributor or Transfer Agent or with any Interested Person of such Person; but
the Trust may, upon customary terms, employ any such Person, or firm or company
in which such Person is an Interested Person, as broker, legal counsel,
registrar, transfer agent, dividend disbursing agent or custodian.
Section 3.12. Trustees and Officers as Shareholders. Except as hereinafter
provided, no officer, Trustee or Member of the Advisory Board of the Trust, and
no member, partner, officer, director or trustee of the Investment Adviser,
Administrator or of the Distributor, and no Investment Adviser, Administrator
or Distributor of the Trust, shall take long or short positions in the
securities issued by the Trust. The foregoing provision shall not prevent:
<PAGE>
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of the
Trust;
(c) The purchase from the Trust or from the Distributor of Shares by any
officer, Trustee or member of any Advisory Board of the Trust or by any member,
partner, officer, director or trustee of the Investment Adviser or of the
Distributor at a price not lower than the net asset value of the Shares at the
moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the Trust's current prospectus or
statement of additional information; or
(d) The Investment Adviser, the Distributor, or any of their officers,
partners, directors or trustees from purchasing Shares prior to the effective
date of the Trust's Registration Statement under the Securities Act of 1933, as
amended, relating to the Shares.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR,
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS
Section 4.1. Investment Adviser. Subject to a Majority Shareholder Vote of
the Shares of each series affected thereby, the Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts whereby the other party to each such contract shall
undertake to furnish the Trust such management, investment advisory,
statistical and research facilities and services, promotional activities, and
such other facilities and services, if any, with respect to one or more series
of Shares, as the Trustees shall from time to time consider desirable and all
upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provision of the Declaration, the Trustees may
delegate to the Investment Adviser authority (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of assets of the Trust on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect such
<PAGE>
purchases, sales, loans or exchanges pursuant to recommendations of the
Investment Adviser (and all without further action by the Trustees). Any of
such purchases, sales, loans or exchanges shall be deemed to have been
authorized by all the Trustees. Such services may be provided by one or more
Persons.
Section 4.2. Distributor. The Trustees may in their discretion from time
to time enter into one or more distribution contracts providing for the sale of
Shares whereby the Trust may either agree to sell the Shares to the other party
to any such contract or appoint any such other party its sales agent for such
Shares. In either case, any such contract shall be on such terms and conditions
as the Trustees may in their discretion determine, provided that such terms and
conditions are not inconsistent with the provisions of the Declaration or the
By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may
provide that such other party may enter into selected dealer agreements with
registered securities dealers to further the purpose of the distribution or
repurchase of the Shares. Such services may be provided by one or more Persons.
Section 4.3. Administrator. The Trustees may in their discretion from time
to time enter into one or more administrative services contracts whereby the
other party to each such contract shall undertake to furnish such
administrative services to the Trust as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees may
in their discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons.
Section 4.4. Transfer Agent and Shareholder Servicing Agents. The Trustees
may in their discretion from time to time enter into one or more transfer
agency and shareholder servicing contracts whereby the other party to each such
contract shall undertake to furnish such transfer agency and/or shareholder
services to the Trust as the Trustees shall from time to time consider
desirable and all upon such terms and conditions as the Trustees may in their
discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws. Such
services may be provided by one or more Persons.
Section 4.5. Parties to Contract. Any contract of the character described
in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or any Custodian contract
may be entered into with any Person, although one or more of the Trustees or
officers of the Trust may be an officer, partner, director, trustee,
shareholder, or member of such other party to the contract, and no such
<PAGE>
contract shall be invalidated or rendered voidable by reason of the existence
of any such relationship; nor shall any Person 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 not inconsistent with the provisions of this Article IV or the
By-Laws. The same Person may be the other party to contracts entered into
pursuant to Sections 4.1, 4.2, 4.3 and 4.4 above or any Custodian contract, 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 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising
in connection with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a party to any suit
or proceeding to enforce any such liability, he shall not, on account thereof,
be held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even though
not specifically provided herein. Notwithstanding any other provision of this
Declaration to the contrary, no Trust Property shall be used to indemnify or
reimburse any Shareholder of any Shares of any series other than Trust Property
allocated or belonging to such series.
<PAGE>
Section 5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof 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 his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
Section 5.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit" or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason of a
final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b) (i) or (b) (ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or by a
<PAGE>
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a Person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such
Person. Nothing contained herein shall affect any rights to indemnification to
which personnel other than Trustees and officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to
indemnification under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3 a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
<PAGE>
Section 5.4. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 5.5. No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, Shareholder Servicing Agent, Transfer Agent or other
Person dealing with the Trustees or any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent or
be liable for the application of money or property paid, loaned, or delivered
to or on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking, and every other act or thing whatsoever executed in
connection with the Trust shall be conclusively presumed to have been executed
or done by the executors thereof only in their capacity as Trustees under the
Declaration or in their capacity as officers, employees or agents of the Trust.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or undertaking made or issued by the Trustees shall
recite that the same is executed or made by them not individually, but as
Trustees under the Declaration, and that the obligations of any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the trust estate, and may contain any further recital which they or he may
deem appropriate, but the omission of such recital shall not operate to bind
any of the Trustees or Shareholders individually. The Trustees shall at all
times maintain insurance for the protection of the Trust Property, the Trust's
Shareholders, Trustees, officers, employees and agents 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.
Section 5.6. Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his 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, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by the Investment Adviser, the
Distributor, Transfer Agent, any Shareholder Servicing Agent, selected dealers,
accountants, appraisers 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.
<PAGE>
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the beneficiaries
hereunder may be divided into transferable Shares of Beneficial Interest
($0.00001 par value per share), which may be divided into one or more series as
provided in Section 6.9 hereof. The number of Shares authorized hereunder is
unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split of Shares, shall be
fully paid and non-assessable.
Section 6.2. Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion
or exchange rights, except as the Trustees may determine with respect to any
series or class of Shares.
Section 6.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4. Issuance of Shares. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition
to the then issued and outstanding Shares and Shares held in the treasury, to
such party or parties and for such amount and type of consideration, including
cash or property, at such time or times, 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. In connection with any issuance of Shares, the
Trustees may issue fractional Shares. The Trustees may from time to time divide
or combine the Shares of any series into a greater or lesser number without
<PAGE>
thereby changing their proportionate beneficial interests in Trust Property
allocated or belonging to such series. Contributions to the Trust may be
accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths
of a Share or integral multiples thereof .
Section 6.5 Register of Shares. A register or registers shall be kept at
the principal office of the Trust or at an office of the Transfer Agent or,
upon the vote of a majority of the Trustees of the Trust, at an office of any
one or more Shareholder Servicing Agents, which register or registers, taken
together, shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register or registers shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders.
Unless the Trustees have authorized a Shareholder Servicing Agent to keep a
register of Shares, that Shareholder Servicing Agent shall be the holder of
record of all outstanding Shares shown on the records of the Transfer Agent as
being held by such Shareholder Servicing Agent. No Shareholder shall be
entitled to receive payment of any dividend or distribution, nor to have notice
given to him as herein or in the By-Laws provided, until he has given his
address to the Transfer Agent or such other officer or agent of the Trustees as
shall keep the said register for entry thereon, or, if the Trustees have
authorized a Shareholder Servicing Agent to keep the register for the Shares of
such Shareholder, such Shareholder Servicing Agent (as used in this
Declaration, such Shareholder's "agent of record"). It is not contemplated that
certificates will be issued for the Shares; however, the Trustees, in their
discretion, may authorize the issuance of Share certificates and promulgate
appropriate rules and regulations as to their use.
Section 6.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent
thereunto authorized in writing, upon delivery to the Trustees, the Transfer
Agent or the Shareholder Servicing Agent which is the agent of record for such
Shareholder, of a duly executed instrument of transfer together with any
certificate or certificates (if issued) for such Shares and such evidence of
the genuineness of each such execution and authorization and of other matters
as may reasonably be required. Upon such delivery the transfer shall be
recorded on the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent, Shareholder
Servicing Agent or registrar nor
<PAGE>
any officer, employee or agent of the Trust shall be affected by any notice of
the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees, the Transfer
Agent or the Shareholder Servicing Agent which is the agent of record for such
Shareholder; but until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent, Shareholder Servicing Agent or registrar
nor any officer or agent of the Trust shall be affected by any notice of such
death, bankruptcy or incompetence, or other operation of law.
Section 6.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.8. Voting Powers. The Shareholders shall have power to vote only
(i) for the removal of Trustees as provided in Section 2.2 hereof, (ii) with
respect to any investment advisory or management contract as provided in
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to any amendment of this Declaration
to the extent and as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Sections 9.4 and 9.6
hereof, (vi) with respect to incorporation of the Trust or any series to the
extent and as provided in Sections 9.5 and 9.6 hereof, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or
not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to
the Trust as may be required by the Declaration, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the Trustees may consider necessary or desirable. Each whole Share
shall be entitled to one vote as to any matter on which it is entitled to vote
and each fractional Share shall be entitled to a proportionate fractional vote,
except that Shares held in the treasury of the Trust shall not be voted. Shares
shall be voted by individual series on any matter submitted to a vote of the
Shareholders of the Trust except as provided in Section 6.9(g) hereof. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, the Declaration or the By-Laws to be taken by
Shareholders. At any meeting of Shareholders of the Trust or of any series of
the Trust, a Shareholder Servicing
<PAGE>
Agent may vote any Shares as to which such Shareholder Servicing Agent is the
agent of record and which are not otherwise represented in person or by proxy
at the meeting proportionately in accordance with the votes cast by holders of
all Shares otherwise represented at the meeting in person or by proxy as to
which such Shareholder Servicing Agent is the agent of record. Any Shares so
voted by a Shareholder Servicing Agent will be deemed represented at the
meeting for quorum purposes. The By-Laws may include further provisions for
Shareholder votes and meetings and related matters.
Section 6.9. Series Designation. Shares of the Trust may be divided into
series, the number and relative rights, privileges and preferences of which
shall be established and designated by the Trustees, in their discretion, in
accordance with the terms of this Section 6.9. The Trustees may from time to
time exercise their power to authorize the division of Shares into one or more
series by establishing and designating one or more series of Shares upon and
subject to the following provisions:
(a) All Shares shall be identical except that there may be such variations
as shall be fixed and determined by the Trustees between different series as to
purchase price, right of redemption and the price, terms and manner of
redemption, and special and relative rights as to dividends and on liquidation.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired
of any series into one or more series that may be established and designated
from time to time. The Trustees may hold as treasury shares (of the same or
some other series), reissue for such consideration and on such terms as they
may determine, or cancel any Shares of any series reacquired by the Trust at
their discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series, and shall be so recorded upon the books of account
<PAGE>
of the Trust. In the event that there are any assets, income, earnings,
profits and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more of the series established and designated from time
to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all series for all purposes. No
holder of Shares of any particular series shall have any claim on or right to
any assets allocated or belonging to any other series of Shares.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees, in their sole discretion, deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items
as capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders. Under no circumstances shall the assets
allocated or belonging to any particular series be charged with liabilities
attributable to any other series. All Persons who have extended credit which
has been allocated to a particular series, or who have a claim or contract
which has been allocated to any particular series, shall look only to the
assets of that particular series for payment of such credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust Property
allocated or belonging to any particular series shall be governed by Section
3.2 hereof unless otherwise provided in the instrument of the Trustees
establishing such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in the
net assets allocated or belonging to such series only, and such interest shall
not extend to the assets of the Trust generally. Dividends and distributions on
Shares of a particular series may be paid with such frequency as the Trustees
may determine, which may be monthly or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that series only, from such
of the income and capital gains, accrued or realized, from the assets belonging
<PAGE>
to that series, as the Trustees may determine, after providing for actual
and accrued liabilities belonging to that series. All dividends and
distributions on Shares of a particular series shall be distributed pro rata to
the holders of that series in proportion to the number of Shares of that series
held by such holders at the date and time of record established for the payment
of such dividends or distributions. Shares of any particular series of the
Trust may be redeemed solely out of Trust Property allocated or belonging to
that series. Upon liquidation or termination of a series of the Trust,
Shareholders of such series shall be entitled to receive a pro rata share of
the net assets of such series only.
(g) Notwithstanding any provision hereof to the contrary, on any matter
submitted to a vote of the Shareholders of the Trust, all Shares then entitled
to vote shall be voted by individual series, except that (i) when required by
the 1940 Act to be voted in the aggregate, Shares shall not be voted by
individual series, and (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series, only
Shareholders of such series shall be entitled to vote thereon.
(h) The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such series, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any particular
series previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
Section 6.10. Class Designation. The Trustees may, in their discretion,
authorize the division of Shares of the Trust (or any series of the Trust) into
one or more classes. All Shares of a class shall be identical with each other
and with the Shares of each other class of the Trust or the same series of the
Trust (as applicable), except for such variations between classes as may be
approved by the Board of Trustees and permitted by the 1940 Act or pursuant to
any exemptive order issued by the Securities and Exchange Commission.
<PAGE>
ARTICLE VII
REDEMPTIONS
Section 7.1. Redemptions. In case any Shareholder at any time desires to
dispose of his Shares, he may deposit his certificate or certificates therefor,
duly endorsed in blank or accompanied by an instrument of transfer executed in
blank, or if the Shares are not represented by any certificates, a written
request or other such form of request as the Trustees may from time to time
authorize, at the office of the Transfer Agent, the Shareholder Servicing Agent
which is the agent of record for such Shareholder, or at the office of any bank
or trust company, either in or outside of Massachusetts, which is a member of
the Federal Reserve System and which the said Transfer Agent or the said
Shareholder Servicing Agent has designated in writing for that purpose,
together with an irrevocable offer in writing in a form acceptable to the
Trustees to sell the Shares represented thereby to the Trust at the net asset
value thereof per Share, determined as provided in Section 8.1 hereof, next
after such deposit. Payment for said Shares shall be made to the Shareholder
within seven days after the date on which the deposit is made, unless (i) the
date of payment is postponed pursuant to Section 7.2 hereof, or (ii) the
receipt, or verification of receipt, of the purchase price for the Shares to be
redeemed is delayed, in either of which events payment may be delayed beyond
seven days.
Section 7.2. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which
the New York Stock Exchange is closed other than customary week-end and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Trust fairly to determine the value
of its net assets, or (iv) during any other period when the Commission may for
the protection of security holders of the Trust by order permit suspension of
the right of redemption or postponement of the date of payment of the
redemption proceeds; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (ii), (iii)
or (iv) exist. Such suspension shall take effect at such time as the Trust
shall specify but not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall be no right
of redemption or payment of the redemption proceeds until the Trust shall
declare the suspension at an end, except that the suspension shall terminate in
any event on the first day on which said stock exchange shall have reopened or
<PAGE>
the period specified in (ii) or (iii) shall have expired (as to which, in the
absence of an official ruling by the Commission, the determination of the Trust
shall be conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
Section 7.3. Redemption of Shares; Disclosure of Holding. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code of 1954, as
amended (the "Code"), then the Trustees shall have the power by lot or other
means deemed equitable by them (i) to call for redemption by any such Person a
number, or principal amount, of Shares or other securities of the Trust
sufficient to maintain or bring the direct or indirect ownership of Shares or
other securities of the Trust into conformity with the requirements for such
qualification, and (ii) to refuse to transfer or issue Shares or other
securities of the Trust to any Person whose acquisition of the Shares or other
securities of the Trust in question would result in such disqualification. The
redemption shall be effected at the redemption price and in the manner provided
in Section 7.1 hereof.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Code, or to comply with the
requirements of any other authority. Upon the failure of a Shareholder to
disclose such information and to comply with such demand of the Trustees, the
Trust shall have the power to redeem such Shares at a redemption price
determined in accordance with Section 7.1 hereof.
Section 7.4. Redemptions of Accounts of Less than $500. The Trustees shall
have the power at any time to redeem Shares of any Shareholder at a redemption
price determined in accordance with Section 7.1 hereof if at such time the
aggregate net asset value of the Shares in such Shareholder's account is less
than $500. A Shareholder shall be notified that the value of his account is
less than $500 and allowed 60 days to make an additional investment before
redemption is processed.
Section 7.5. Redemptions Pursuant to Constant Net Asset Value Formula. The
Trust may also reduce the number of outstanding Shares pursuant to the
provisions of Section 8.3 hereof.
<PAGE>
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-laws or in a duly adopted vote of the Trustees such bases and
times for determining the per Share net asset value of the Shares or net
income, or the declaration and payment of dividends and distributions, as they
may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 9.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust may be terminated (i) by
a Majority Shareholder Vote of the holders of its Shares, or (ii) by the
Trustees by written notice to the Shareholders. Any series of the Trust may be
terminated (i) by a Majority Shareholder Vote of the holders of Shares of that
series, or (ii) by the Trustees by written notice to the Shareholders of that
series. Upon the termination of the Trust or any series of the Trust:
(i) The Trust or series of 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 or
series of the Trust and all the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series of the Trust shall have
been wound up, including the power to fulfill or discharge the contracts of the
Trust or series of the Trust, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property or Trust Property of the series 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 its
liabilities, and to do all other acts appropriate to liquidate its business;
provided, that any sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all the Trust Property shall require
<PAGE>
Shareholder approval in accordance with Section 9.4 hereof, and any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all of the Trust Property allocated or belonging to any series
shall require the approval of the Shareholders of such series as provided in
Section 9.6 hereof; 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 may
distribute the remaining Trust Property or Trust Property of the series, in
cash or in kind or partly in cash and partly in kind, among the Shareholders of
the Trust or the series according to their respective rights.
(b) After termination of the Trust or series and distribution to the
Shareholders of the Trust or series as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an instrument
in writing setting forth the fact of such termination, and the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder with
respect to the Trust or series, and the rights and interests of all
Shareholders of the Trust or series shall thereupon cease.
Section 9.3. Amendment Procedure. (a) This Declaration may be amended by a
Majority Shareholder Vote of the Shareholders of the Trust or by any instrument
in writing, without a meeting, signed by a majority of the Trustees and
consented to by the holders of not less than a majority of the Shares of the
Trust. The Trustees may also amend this Declaration without the vote or consent
of Shareholders to designate series in accordance with Section 6.9 hereof, to
change the name of the Trust, to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if
they deem it necessary or advisable to conform this Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code of
1986, as amended, but the Trustees shall not be liable for failing so to do.
(b) No amendment which the Trustees have determined shall affect the
rights, privileges or interests of holders of a particular series or class of
Shares, and which would otherwise require a Majority Shareholder Vote under
paragraph (a) of this Section 9.3, but not the rights, privileges or interests
of holders of Shares of the Trust generally, may be made except with the vote
or consent by a Majority Shareholder Vote of such series or class.
<PAGE>
(c) Notwithstanding any other provision hereof, no amendment may be made
under this Section 9.3 which would change any rights with respect to the
Shares, or any series of Shares, by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the Majority Shareholder Vote of the Shares or
that series of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability
of the Shareholders, Trustees, officers, employees and agents of the Trust or
to permit assessments upon Shareholders.
(d) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
(e) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of a particular series of the Trust
shall have become effective, this Declaration may be amended in any respect as
to that series by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
Section 9.4. 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 (or all or substantially all of the Trust Property allocated or
belonging to a particular series of the Trust) including its good will, upon
such terms and conditions and for such consideration when and as authorized at
any meeting of Shareholders called for such purpose by the vote of the holders
of two-thirds of the outstanding Shares of all series of the Trust voting as a
single class, or of the affected series of the Trust, as the case may be, or by
an instrument or instruments in writing without a meeting, consented to by the
vote of the holders of two-thirds of the outstanding Shares of all series of
the Trust voting as a single class, or of the affected series of the Trust, as
the case may be; provided, however, that if such merger, consolidation, sale,
lease or exchange is recommended by the Trustees, the vote or written consent
by Majority Shareholder Vote shall be sufficient authorization; 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
Commonwealth of Massachusetts. Nothing contained herein shall be construed as
requiring approval of Shareholders for any sale of assets in the ordinary
course of the business of the Trust.
<PAGE>
Section 9.5. Incorporation, Reorganization. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust, unit
investment trust, partnership, association or other organization to take over
all of the Trust Property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any
other interest. Subject to Section 9.4 hereof, 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 in this Section 9.5 shall be
construed as requiring approval of Shareholders 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 such organization or entities.
Section 9.6. Incorporation or Reorganization of Series. With the approval
of a Majority Shareholder Vote of any series, the Trustees may sell, lease or
exchange all of the Trust Property allocated or belonging to that series, or
cause to be organized or assist in organizing a corporation or corporations
under the laws of any other jurisdiction, or any other trust, unit investment
trust, partnership, association or other organization, to take over all of the
Trust Property allocated or belonging to that series and to sell, convey and
transfer such Trust Property to any such corporation, trust, unit investment
trust, partnership, association, or other organization in exchange for the
shares or securities thereof or otherwise.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER
COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
<PAGE>
Whenever 10 or more Shareholders of record who have been such for at least
six months preceding the date of application, and who hold in the aggregate
either Shares having a net asset value of at least $25,000 or at least 1% of
the Shares outstanding, whichever is less, shall apply to the Trustees in
writing, stating that they wish to communicate with other Shareholders with a
view to obtaining signatures to a request for a meeting of Shareholders for the
purpose of removing one or more Trustees pursuant to Section 2.2 hereof and
accompany such application with a form of communication and request which they
wish to transmit, the Trustees shall within five business days after receipt of
such application either (a) afford to such applicants access to a list of the
names and addresses of all Shareholders as recorded on the books of the Trust;
or (b) inform such applicants as to the approximate number of Shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request. If the Trustees elect to follow the course specified in
(b) above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be mailed and of the reasonable
expenses of mailing, shall, with reasonable promptness, mail such material to
all Shareholders of record, unless within five business days after such tender
the Trustees mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing. This Declaration, as amended, and any subsequent
amendment hereto shall be filed in the office of the Secretary of the
Commonwealth of Massachusetts and in such other place or places as may be
required under the laws of the Commonwealth of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein, and unless such amendment or such certificate sets forth some
later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect
and operative, may be executed from time to time by a majority of the Trustees
and shall, upon filing with the Secretary of the Commonwealth of Massachusetts,
<PAGE>
be conclusive evidence of all amendments contained therein and may thereafter
be referred to in lieu of the original Declaration and the various amendments
thereto.
Section 11.2. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction
of every provision hereof shall be subject to and construed according to the
laws of said Commonwealth.
Section 11.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument or
writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements
of this Declaration, (v) the form of any By-Laws adopted by or the identity of
any officers elected by the Trustees, or (vi) the existence of any fact or
facts which in any manner relates 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 and their successors.
Section 11.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1954, as amended, or with other applicable laws 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
<PAGE>
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 the
Declaration in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 25th day of October, 1996.
Philip W. Coolidge
Philip W. Coolidge,
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
Linda T. Gibson
Linda T. Gibson,
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
Molly S. Mugler
Molly S. Mugler
as Trustee
and not individually
6 St. James Avenue
Boston, Massachusetts
<PAGE>
VARIABLE ANNUITY PORTFOLIOS
ESTABLISHMENT AND DESIGNATION OF SERIES OF
SHARES OF BENEFICIAL INTEREST ($0.00001 PAR VALUE PER SHARE)
Pursuant to Section 6.9 of the Declaration of Trust, dated October 15,
1996 (the "Declaration of Trust"), of Variable Annuity Portfolios (the
"Trust"), the undersigned, being a majority of the Trustees of the Trust, do
hereby establish and designate five series of Shares (as defined in the
Declaration of Trust), such series to have the following special and relative
rights:
1. The series shall be designated as follows:
CITISELECTSM VIP FOLIO 200
CITISELECTSM VIP FOLIO 300
CITISELECTSM VIP FOLIO 400
CITISELECTSM VIP FOLIO 500
LANDMARK SMALL CAP EQUITY VIP FUND
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective registration statement under the Securities Act of
1933 to the extent pertaining to the offering of Shares of each series. Each
Share of each series shall be redeemable, shall be entitled to one vote or
fraction thereof in respect of a fractional share on matters on which shares of
that series shall be entitled to vote, shall represent a pro rata beneficial
interest in the assets allocated or belonging to such series, and shall be
entitled to receive its pro rata share of the net assets of such series upon
liquidation of the series, all as provided in Section 6.9 of the Declaration of
Trust.
3. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to each series as provided in, Rule 18f-2,
as from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated to each
series as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter created or
otherwise to change the special and relative rights of any such series.
IN WITNESS WHEREOF, the undersigned have executed this Establishment and
Designation of Series this 28th day of October, 1996.
Philip W. Coolidge
Philip W. Coolidge
Linda T. Gibson
Linda T. Gibson
Molly S. Mugler
Molly S. Mugler
Exhibit 2
BY-LAWS OF VARIABLE ANNUITY PORTFOLIOS
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares,"
"Transfer Agent," "Trust," "Trust Property" and "Trustees" have the respective
meanings given them in the Declaration of Trust of Variable Annuity Portfolios
dated October 18, 1996.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts (the "Commonwealth")
shall be in the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within the Commonwealth as the Trustees may from time to
time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of Shareholders may be called at any time by
a majority of the Trustees and shall be called by any Trustee upon written
request, which shall specify the purpose or purposes for which such meeting is
to be called, of Shareholders holding in the aggregate not less than 10% of the
outstanding Shares entitled to vote on the matters specified in such written
request. Any such meeting shall be held within or without the Commonwealth on
such day and at such time as the Trustees shall designate. The holders of a
majority of outstanding Shares entitled to vote present in person or by proxy
shall constitute a quorum at any meeting of the Shareholders, except that where
any provision of law, the Declaration or these By-Laws permits or requires that
holders of any series shall vote as a series, then a majority of the aggregate
number of Shares of that series entitled to vote shall be necessary to
<PAGE>
constitute a quorum for the transaction of business by that series. In the
absence of a quorum, a majority of outstanding Shares entitled to vote present
in person or by proxy may adjourn the meeting from time to time until a quorum
shall be present.
Whenever a matter is required to be voted by Shareholders of the Trust in
the aggregate under Section 6.8 and Section 6.9(g) of the Declaration, the
Trust may either hold a meeting of Shareholders of all series, as defined in
Section 6.9 of the Declaration, to vote on such matter, or hold separate
meetings of Shareholders of each of the individual series to vote on such
matter, provided that (i) such separate meetings shall be held within one year
of each other, (ii) a quorum consisting of the holders of the majority of
outstanding Shares of the individual series entitled to vote present in person
or by proxy shall be present at each such separate meeting and (iii) a quorum
consisting of the holders of the majority of all Shares of the Trust entitled
to vote present in person or by proxy shall be present in the aggregate at such
separate meetings, and the votes of Shareholders at all such separate meetings
shall be aggregated in order to determine if sufficient votes have been cast
for such matter to be voted.
Section 2. Notice of Meetings. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the
notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need be
given to any Shareholder who shall have failed to inform the Trust of his
current address or if a written waiver of notice, executed before or after the
meeting by the Shareholder or his attorney thereunto authorized, is filed with
the records of meeting. Where separate meetings are held for Shareholders of
each of the individual series to vote on a matter required to be voted on by
Shareholders of the Trust in the aggregate, as provided in Article III, Section
1 above, notice of each such separate meeting shall be provided in the manner
described above in this Section 2.
Section 3. Record Date. For the purpose of determining the Shareholders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time close the transfer books for such period, not exceeding 30 days,
as the Trustees may determine; or without closing the transfer books the
Trustees may fix a date not more than 60 days prior to the date of any meeting
of Shareholders or distribution or other action as a record date for the
determination of the persons to be treated as Shareholders of record for such
purpose. Where separate meetings are held for Shareholders of each of the
individual series to vote on a matter required to be voted on by Shareholders
of
<PAGE>
the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
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 shall be
taken. Pursuant to a vote of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or one or more of the officers of
the Trust. Only Shareholders of record shall be entitled to vote. Each full
Share shall be entitled to one vote and fractional Shares shall be entitled to
a vote of such fraction. When any Share is held jointly by several persons, any
one of them may vote at any meeting in person or by proxy in respect of such
Share, but if more than one of them shall be 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 Share.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. If the holder of any such
Share is a minor or a person of unsound mind, and subject to guardianship or to
the legal control of any other person as regards the charge or management of
such Share, such Share may be voted by such guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy. Unless otherwise specifically limited by their terms, proxies shall
entitle the holder thereof to vote at any adjournment of a meeting.
Section 5. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders
of a Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
<PAGE>
stated meetings need not be given. Meetings of the Trustees other than
regular or stated meetings shall be held whenever called by the Chairman or by
any Trustee. Notice of the time and place of each meeting other than regular or
stated meetings shall be given by the Secretary or an Assistant Secretary or by
the officer or Trustee calling the meeting and shall be mailed to each Trustee
at least two days before the meeting, or shall be telegraphed, cabled, or
wirelessed to each Trustee at his business address, or personally delivered to
him at least one day before the meeting. Such notice may, however, be waived by
any Trustee. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him before or after the meeting, is filed with
the records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice need not specify the purpose of any meeting. The
Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, which telephone conference meeting shall be deemed
to have been held at a place designated by the Trustees at the meeting.
Participation in a telephone conference meeting shall constitute presence in
person at such meeting. Any action required or permitted to be taken at any
meeting of the Trustees may be taken by the Trustees without a meeting if all
the Trustees consent to the action in writing and the written consents are
filed with the records of the Trustees' meetings. Such consents shall be
treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees present
in person at any regular or special meeting of the Trustees shall constitute a
quorum for the transaction of business at such meeting and (except as otherwise
required by law, the Declaration or these By-Laws) the act of a majority of the
Trustees present at any such meeting, at which a quorum is present, shall be
the act of the Trustees. In the absence of a quorum, a majority of the Trustees
present may adjourn the meeting from time to time until a quorum shall be
present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than two Trustees to hold office at the
pleasure of the Trustees. While the Trustees are not in session, the Executive
Committee shall have the power to conduct the current and ordinary business of
the Trust, including the purchase and sale of securities and the designation of
securities to be delivered upon redemption of Shares of the Trust, and such
other powers of the Trustees as the Trustees may, from time to time, delegate
to
<PAGE>
the Executive Committee except those powers which by law, the Declaration
or these By-Laws the Trustees are prohibited from so delegating. The Trustees
may also elect from their own number other Committees from time to time, the
number composing such Committees, the powers conferred upon the same (subject
to the same limitations as with respect to the Executive Committee) and the
term of membership on such Committees to be determined by the Trustees. The
Trustees may designate a chairman of any such Committee. In the absence of such
designation a Committee may elect its own chairman. The Trustees may abolish
any Committee at any time. The Trustees shall have power to rescind any action
of any Committee, but no such rescission shall have retroactive effect.
Section 2. Meeting. Quorum and Manner of Acting. The Trustees may (i)
provide for stated meetings of any Committee, (ii) specify the manner of
calling and notice required for special meetings of any Committee, (iii)
specify the number of members of a Committee required to constitute a quorum
and the number of members of a Committee required to exercise specified powers
delegated to such Committee, (iv) authorize the making of decisions to exercise
specified powers by written assent of the requisite number of members of a
Committee without a meeting, and (v) authorize the members of a Committee to
meet by means of a telephone conference circuit.
Unless the Trustees so provide, all the Committees shall be governed by
the same rules as the full Board is.
Each Committee shall keep regular minutes of its meetings and records of
decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
Section 3. Advisory Board. The Trustees may appoint an Advisory Board to
consist in the first instance of not less than two members. Members of such
Advisory Board shall not be Trustees or officers and need not be Shareholders.
A member of such Advisory Board shall hold office for such period as the
Trustees may by vote provide and may resign therefrom by a written instrument
signed by him which shall take effect upon its delivery to the Trustees. The
Advisory Board shall have no legal powers and shall not perform the functions
of Trustees in any manner, such Advisory Board being intended merely to act in
an advisory capacity. Such Advisory Board shall meet at such times and upon
such notice as the Trustees may by resolution provide.
Section 4. Chairman. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to hold office until his
successor shall have been duly elected and qualified. The Chairman shall not
hold any other office. The Chairman may be, but need not be, a Shareholder. The
<PAGE>
Chairman shall preside at all meetings of the Trustees and shall have such
other duties as may be assigned to him from time to time by the Trustees.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, and shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Treasurers, and one or more Assistant Secretaries. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By-Laws, each of the President, the Treasurer
and the Secretary shall be in office until his respective successor shall have
been duly elected and qualified, and all other officers shall hold office at
the pleasure of the Trustees. The Secretary and Treasurer may be the same
person. A Vice President and the Treasurer or a Vice President and the
Secretary may be the same person, but the offices of Vice President, Secretary
and Treasurer shall not be held by the same person. The President shall not
hold any other office. Except as above provided, any two offices may be held by
the same person. Any officer may be, but none need be, a Trustee or
Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause by a vote of a majority
of the Trustees. Any officer or agent appointed by any officer or committee may
be removed with or without cause by such appointing officer or committee.
Section 4. Powers and Duties of the President. The President shall be the
principal executive officer of the Trust. Subject to the control of the
Trustees and any committee of the Trustees, the President shall at all times
exercise a general supervision and direction over the affairs of the Trust. The
President shall have the power to employ attorneys and counsel for the Trust
and to employ such subordinate officers, agents, clerks and employees as he may
find necessary to transact the business of the Trust. The President shall also
have the power to grant, issue, execute or sign such powers of attorney,
proxies or other documents as may be deemed advisable or necessary in the
furtherance of the interests of the Trust. The President shall have such other
powers and duties as, from time to time, may be conferred upon or assigned to
him by the Trustees.
<PAGE>
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time
to time may be assigned to him by the Trustees. The Treasurer shall give a bond
for the faithful discharge of his duties, if required to do so by the Trustees,
in such sum and with such surety or sureties as the Trustees shall require.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Shareholders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall
have custody of the seal of the Trust; and shall have charge of the Share
transfer books, lists and records unless the same are in the charge of the
Transfer Agent. The Secretary shall attend to the giving and serving of all
notices by the Trust in accordance with the provisions of these By-Laws and as
required by law; and subject to these By-Laws, shall in general perform all the
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his duties, if required to do
so by the Trustees, in such sum and with such surety or sureties as the
Trustees shall require.
Section 9. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all of the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
<PAGE>
Section 10. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any committee of officers upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the last day of December in the succeeding year,
provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been
telegraphed, cabled or wirelessed for the purposes of these By-Laws when it has
been delivered to a representative of any telegraph, cable or wireless company
with instruction that it be telegraphed, cabled or wirelessed. Any notice shall
be deemed to be given at the time when the same shall be mailed, telegraphed,
cabled or wirelessed.
ARTICLE X
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall at all times employ
a bank or trust company having a capital, surplus and undivided profits of at
least $5,000,000 as custodian with authority as its agent, but subject to such
<PAGE>
restrictions, limitations and other requirements, if any, as may be contained
in the Declaration and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver
the same upon written order;
(ii) to receive and receipt for any monies due to the
Trust and deposit the same in its own banking
department or elsewhere as the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and
accounting services; and
(v) if authorized by the Trustees, to compute the net
income of the Trust and the net asset value of
Shares;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees, subject to
such requirements as may be contained in the Declaration and the 1940 Act.
Section 2. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian
to deposit all or any part of the securities owned by the Trust in a system for
the central handling of securities established by a national securities
exchange or a national securities association registered with the Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of
any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodian.
Section 3. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
<PAGE>
ARTICLE XI
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell or cause to be issued
and sold Shares for cash or other property, which shall in every case be paid
or delivered to the Custodian as agent of the Trust before the delivery of any
certificate for such Shares. The Shares, including such Shares which may have
been repurchased by the Trust (herein sometimes referred to as "Treasury
Shares"), may be sold at a price based on the net asset value thereof (as
defined in Article XII hereof) determined by or on behalf of the Trust next
after the sale is made or at some later time after such sale.
When a distribution contract is in effect pursuant to Section 4.2 of
Article IV of the Declaration, the time of sale shall be the time when an
unconditional order is placed with the distributor or with a dealer with whom
the underwriter shall have a sales agreement, whichever first occurs. Such
contract may provide for the sale of Shares either as a price based on the net
asset value determined next after the order is placed with said distributor or
dealer or at a price based on a net asset value to be determined at some later
time. No Shares need be offered to existing Shareholders before being offered
to others. No Shares shall be sold by the Trust (although Shares previously
contracted to be sold may be issued upon payment therefor) during any period
when the determination of net asset value is suspended by declaration of the
Trustees pursuant to the provisions of Article XII hereof. In connection with
the acquisition by merger or otherwise of all or substantially all the assets
of an investment company (whether a regulated or private investment company or
a personal holding company), the Trustees may issue or cause to be issued
Shares and accept in payment therefor such assets at not more than market value
in lieu of cash, notwithstanding that the federal income tax basis to the Trust
of any assets so acquired may be less than the market value, provided that such
assets are of the character in which the Trustees are permitted to invest the
funds of the Trust.
ARTICLE XII
NET ASSET VALUE OF SHARES
Section 1. Time of Determination. The net asset value of each Share
outstanding shall be determined by the Trustees on each business day (which
term shall, whenever it appears in these By-Laws, be deemed to mean each day
when the New York Stock Exchange is open for trading) as of the close of
regular trading on the New York Stock Exchange. The power and duty to determine
net asset value may be delegated by the Trustees from time to time to one or
more of the Trustees or officers of the Trust, to the other party to any
contract entered
<PAGE>
into pursuant to Section 4.1 of Article IV of the Declaration, or to the
custodian or the Transfer Agent. The Trustees may also determine or cause to be
determined the net asset value as of any particular time in addition to the
closing time of each business day. Such additional or interim determination may
be made either by appraisal or by calculation or estimate. Any such calculation
or estimate shall be based on changes in the market value of representative or
selected securities or on changes in recognized market averages since the last
closing appraisal, and made in a manner which in the opinion of the Trustees
will fairly reflect the changes in the net asset value. At any time when the
New York Stock Exchange is closed (other than customary weekend and holiday
closings), the Trustees may cause the net asset value to be determined by
appraising all securities at last sale prices, or at not more than the current
asked nor less than the current bid prices, in the over-the-counter or other
market, and all other assets at fair value in the best judgment of the
Trustees, and otherwise proceeding as above stated. For the purposes of Article
VII of the Declaration and Articles XI and XII hereof, any reference to the
time at which a determination of net asset value is made shall mean the time as
of which the determination is made.
Section 2. Suspension of Determination. The Trustees may declare a
suspension of the determination of net asset value to the extent permitted by
the 1940 Act and rules, regulations and orders promulgated by the Commission
thereunder.
Section 3. Computation. The net asset value of each Share as of any
particular time shall be the quotient (adjusted to the nearer cent) obtained by
dividing the value, as of such time, of the net assets of the Trust (i.e., the
value of the assets of the Trust less its liabilities exclusive of capital and
surplus) by the total number of Shares outstanding (exclusive of Treasury
Shares) at such time, all determined and computed as follows:
A. The assets of the Trust shall be deemed to include (i) all cash on
hand, on deposit or on call, including any interest accrued thereon, (ii) all
bonds, debentures, bills and notes and accounts receivable and other evidences
of indebtedness, (iii) all shares of stock, subscription rights, warrants and
other securities, other than its own Shares, (iv) all stock and cash dividends
or distributions receivable by the Trust which have been declared and are
ex-dividend to Shareholders of record at or before the time as of which the net
asset value is being determined, (v) all interest accrued on any
interest-bearing securities owned by the Trust, and (vi) all other property of
every kind and nature including prepaid expenses, the value of such assets to
be determined as follows:
(a) The value of any cash on hand, on deposit or on call, bills and
notes and accounts receivable, prepaid expenses, cash dividends and
<PAGE>
interest declared or accrued as aforesaid and not yet received,
shall be deemed to be the face amount thereof unless the Trustees
shall have determined that any such item is not worth the face
amount thereof, in which event the value thereof shall be
determined in good faith by or at the direction of the Trustees;
(b) The value of any security which is listed or dealt in upon the New
York Stock Exchange or upon the American Stock Exchange shall be
determined by taking the latest sale price (or, lacking any sales,
not less than the closing bid price nor more than the closing asked
price therefor) at the time as of which the net asset value is
being determined, all as reported by any report in common use or
authorized by the New York Stock Exchange or the American Stock
Exchange, as the case may be; provided, however, that prices on
such Exchanges need not be used to determine the value of debt
securities owned by the Trust if, in the opinion of the Trustees,
some other method would more accurately reflect the fair market
value of such debt securities;
(c) The value of any security which is not listed or dealt in on either
of such Exchanges shall be determined in the manner described in
the next preceding paragraph if listed or dealt in on any other
Exchange;
(d) The value of any security not listed or dealt in on any Exchange
and for which market quotations are readily available shall be
determined by taking not less than the closing bid price nor more
than the closing asked price therefor on the date as of which
the net asset value is being determined; and
(e) In the case of any security or other property for which no price
quotations are available as above provided, the value thereof shall
be determined from time to time in such manner as is specified from
time to time by vote of the Trustees.
B. The liabilities of the Trust shall be deemed to include (i) all bills,
notes and accounts payable, (ii) all administrative expenses payable and/or
accrued, (iii) all contractual obligations for the payment of money or
property, including the amount of any unpaid dividends upon the Shares,
declared to Shareholders of record at or before the time as of which the net
asset value is being determined, (iv) all reserves authorized or approved by
the Trustees for taxes or contingencies, and (v) all other liabilities of the
Trust of whatsoever
<PAGE>
kind and nature except liabilities represented by outstanding Shares and
capital surplus of the Trust.
C. For the purposes of this Article XII
(i) Shares sold shall be deemed to become outstanding
immediately after the close of business on the day on
which the contract of sale is made, and the sale
price thereof (less commission, if any, and less any
stamp or other tax payable by the Trust in connection
with the issuance thereof) shall thereupon be deemed
an asset of the Trust.
(ii) Shares tendered for purchase by the Trust under
Section 7.1 of Article VII of the Declaration shall
be deemed to be outstanding at the close of business
on the day as of which the purchase price is
determined, and thereafter they shall be deemed
treasury stock and until paid, the price thereof
shall be deemed a liability of the Trust.
(iii) Credits and contractual obligations payable to the
Trust in foreign currency and liabilities and
contractual obligations payable by the Trust in
foreign currency shall be taken at the current cable
rate of exchange as nearly as practicable at the time
as of which the net asset value is computed.
(iv) Portfolio securities owned by the Trust which the
Trustees or their delegate shall, pursuant to Section
7.4 of Article VII of the Declaration, have selected
for distribution in redemption or repurchase of
Shares tendered to it pursuant to Section 7.1 of
Article VII of the Declaration at any time shall be
included in determining the price of such Shares, and
thereafter neither such securities nor such Shares
shall be included in determination of net asset value
pursuant to this Article XII.
ARTICLE XIII
DIVIDENDS AND DISTRIBUTIONS
Section 1. Limitations on Distributions. The total of distributions to
Shareholders paid in respect of any one fiscal year, subject to the exceptions
noted below, shall, when and as declared by the Trustees be approximately equal
to the sum of
(A) The net income, exclusive of the profits or losses realized upon the
sale of securities or other property, for such fiscal year,
determined
<PAGE>
in accordance with generally accepted accounting principles (which,
if the Trustees so determine, may be adjusted for net amounts
included as such accrued net income in the price of Shares issued or
repurchased), but if the net income exceeds the amount distributed by
less than one cent per share outstanding at the record date for the
final dividend, the excess shall be treated as distributable income
for the following fiscal year; and
(B) in the discretion of the Trustees, an additional amount which shall
not substantially exceed the excess of profits over losses on sales
of securities or other property for such fiscal year.
The decision of the Trustees as to what, in accordance with generally
accepted accounting principles, is income and what is principal shall be final,
and except as specifically provided herein the decision of the Trustees as to
what expenses and charges of the Trust shall be charged against principal and
what against income shall be final, all subject to any applicable provisions of
the 1940 Act and rules, regulations and orders of the Commission promulgated
thereunder. For the purposes of the limitation imposed by this Section 1,
Shares issued pursuant to Section 2 of this Article XIII shall be valued at the
amount of cash which the Shareholders would have received if they had elected
to receive cash in lieu of such Shares.
Inasmuch as the computation of net income and gains for federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give to the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes. Any payment made to
Shareholders pursuant to clause (B) of this Section 1 shall be accompanied by a
written statement showing the source or sources of such payment, and the basis
of computation thereof.
Section 2. Distributions Payable in Cash or Shares. The Trustees shall
have power, to the fullest extent permitted by the laws of the Commonwealth of
Massachusetts but subject to the limitation as to cash distributions imposed by
Section 1 of this Article XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election of any Shareholder
(whether exercised before or after the declaration of the distribution) either
in cash or in Shares, provided that the sum of (i) the cash distribution
actually paid to any Shareholder and (ii) the net asset value of the Shares
which that Shareholder elects to receive, in effect at such time at or after
the election as the Trustees may specify, shall not exceed the full amount of
cash to which that Shareholder would be entitled if he elected to receive only
cash. In the case of a distribution payable in cash or Shares at the election
of a
<PAGE>
Shareholder, the Trustees may prescribe whether a Shareholder, failing to
express his election before a given time shall be deemed to have elected to
take Shares rather than cash, or to take cash rather than Shares, or to take
Shares with cash adjustment for fractions.
Section 3. Stock Dividends. Anything in these By-Laws to the contrary
notwithstanding, the Trustees may at any time declare and distribute pro rata
among the Shareholders a "stock dividend" out of either authorized but unissued
Shares or Treasury Shares of the Trust or both.
ARTICLE XIV
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or new
By-Laws may be adopted (a) by Majority Shareholder Vote, or (b) by the
Trustees, provided, however, that no By-Law may be amended, adopted or repealed
by the Trustees if such amendment, adoption or repeal requires, pursuant to
law, the Declaration or these By-Laws, a vote of the Shareholders.
Exhibit 5(a)
FORM OF MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
[Name of Series]
MANAGEMENT AGREEMENT, dated as of __________ __, 1996, by and between
Variable Annuity Portfolios, a Massachusetts trust (the "Trust"), and Citibank,
N.A., a national banking association ("Citibank" or the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"), and
WHEREAS, the Trust wishes to engage Citibank to provide certain investment
advisory and administrative services for the series of the Trust designated as
[Name of Series] (the "Fund"), and Citibank is willing to provide such
investment advisory and administrative services for the Fund on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Citibank. (a) Citibank shall act as the Manager for the Fund
and as such shall furnish continuously an investment program and shall
determine from time to time what securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held uninvested,
subject always to the restrictions of the Trust's Declaration of Trust, dated
October 18, 1996, and By-laws, as each may be amended and restated from time to
time (respectively, the "Declaration" and the "By-Laws"), the provisions of the
1940 Act, and the then-current Registration Statement of the Trust with respect
to the Fund. The Manager shall also make recommendations as to the manner in
which voting rights, rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be exercised. Should the
Board of Trustees of the Trust at any time, however, make any definite
determination as to investment policy applicable to the Fund and notify the
Manager thereof in writing, the Manager shall be bound by such determination
for the period, if any, specified
<PAGE>
in such notice or until similarly notified that such determination has
been revoked. The Manager shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
securities for the Fund's account with the brokers or dealers selected by it,
and to that end the Manager is authorized as the agent of the Trust to give
instructions to the custodian or any subcustodian of the Fund as to deliveries
of securities and payments of cash for the account of the Fund. In connection
with the selection of such brokers or dealers and the placing of such orders,
brokers or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Fund and/or the other accounts over which the
Manager or its affiliates exercise investment discretion. The Manager is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund which
is in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Manager determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Manager and its affiliates have with
respect to accounts over which they exercise investment discretion. The
Trustees of the Trust shall periodically review the commissions paid by the
Fund to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Fund. In making purchases or
sales of securities or other property for the account of the Fund, the Manager
may deal with itself or with the Trustees of the Trust or the Trust's
underwriter or distributor, to the extent such actions are permitted by the
1940 Act. In providing the services and assuming the obligations set forth
herein, the Manager may, at its own expense, employ one or more subadvisers;
provided that the Manager shall supervise the activities of each subadviser.
Any agreement between the Manager and a subadviser shall be subject to the
renewal, termination and amendment provisions applicable to this Agreement.
(b) Subject to the direction and control of the Board of Trustees of the
Trust, Citibank shall perform such administrative and management services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: (a) providing office space, equipment and clerical
personnel necessary for maintaining the organization of the Trust and for
performing the administrative and management functions herein set forth; (b)
supervising the overall administration of the Trust, including negotiation of
contracts and fees
<PAGE>
with and the monitoring of performance and billings of the Trust's
transfer agent, custodian and other independent contractors or agents; (c)
preparing and, if applicable, filing all documents required for compliance by
the Trust with applicable laws and regulations, including registration
statements, prospectuses and statements of additional information, semi-annual
and annual reports to shareholders, proxy statements and tax returns; (d)
preparation of agendas and supporting documents for and minutes of meetings of
Trustees, committees of Trustees and shareholders; and (e) arranging for
maintenance of books and records of the Trust. Notwithstanding the foregoing,
Citibank shall not be deemed to have assumed any duties with respect to, and
shall not be responsible for, the distribution of shares of beneficial interest
in the Fund, nor shall Citibank be deemed to have assumed or have any
responsibility with respect to functions specifically assumed by any transfer
agent, fund accounting agent or custodian of the Trust or the Fund. In
providing administrative and management services as set forth herein, Citibank
may, at its own expense, employ one or more subadministrators; provided that
Citibank shall remain fully responsible for the performance of all
administrative and management duties set forth herein and shall supervise the
activities of each subadministrator.
2. Allocation of Charges and Expenses. Citibank shall furnish at its own
expense all necessary services, facilities and personnel in connection with its
responsibilities under Section 1 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of the Fund
all of its own expenses allocable to the Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not
"interested persons" of the Trust; governmental fees; interest charges; loan
commitment fees; taxes; membership dues in industry associations allocable to
the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing
and mailing prospectuses, statements of additional information, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to existing shareholders of the Fund; expenses connected with
the execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of the Fund
(including but not limited to the fees of
<PAGE>
independent pricing services); expenses of meetings of the Fund's shareholders;
expenses relating to the issuance, registration and qualification of shares of
the Fund; and such non-recurring or extraordinary expenses as may arise,
including those relating to actions, suits or proceedings to which the Trust on
behalf of the Fund may be a party and the legal obligation which the Trust may
have to indemnify its Trustees and officers with respect thereto.
3. Compensation of Citibank. For the services to be rendered and the
facilities to be provided by Citibank hereunder, the Trust shall pay to
Citibank from the assets of the Fund a management fee computed daily and paid
monthly at an annual rate equal to 0.75% of the Fund's average daily net assets
for the Fund's then-current fiscal year. If Citibank provides services
hereunder for less than the whole of any period specified in this Section 3,
the compensation to Citibank shall be accordingly adjusted and prorated.
4. Covenants of Citibank. Citibank agrees that it will not deal with
itself, or with the Trustees of the Trust or the Trust's principal underwriter
or distributor, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the 1940
Act, will not take a long or short position in shares of the Fund except as
permitted by the Declaration, and will comply with all other provisions of the
Declaration, the Trust's By-Laws, as in effect from time to time and the
then-current Registration Statement applicable to the Fund relative to Citibank
and its directors and officers.
5. Limitation of Liability of Citibank. Citibank shall not be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of securities
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 5, the term
"Citibank" shall include directors, officers and employees of Citibank as well
as Citibank itself.
6. Activities of Citibank. The services of Citibank to the Fund are not to
be deemed to be exclusive, Citibank being free to render investment advisory,
administrative and/or other services to others. It is understood that Trustees,
officers, and shareholders of the Trust are or may be or may become interested
in Citibank, as directors, officers, employees, or otherwise and that
directors, officers and employees of Citibank are or may become similarly
interested in the Trust and that Citibank may be or may become interested in
the Trust as a shareholder or otherwise.
<PAGE>
7. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, shall govern
the relations between the parties hereto thereafter and shall remain in force
until __________ __, 1998, on which date it will terminate unless its
continuance after __________ __, 1998 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are
not "interested persons" of the Trust or of Citibank at a meeting specifically
called for the purpose of voting on such approval, and (b) by the Board of
Trustees of the Trust or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by the "vote of a majority of the outstanding voting
securities" of the Fund, or by Citibank, in each case on not more than 60 days'
nor less than 30 days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment."
This Agreement may be amended only if such amendment is approved by the
"vote of a majority of the outstanding voting securities" of the Fund (except
for any such amendment as may be effected in the absence of such approval
without violating the 1940 Act).
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
Each party acknowledges and agrees that all obligations of the Trust under
this Agreement are binding only with respect to the Fund; that any liability of
the Trust under this Agreement, or in connection with the transactions
contemplated herein, shall be discharged only out of the assets of the Fund;
and that no other series of the Trust shall be liable with respect to this
Agreement or in connection with the transactions contemplated herein.
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration and the obligations of
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually.
<PAGE>
8. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
9. Use of Name. (a) The Trust hereby acknowledges that any and all rights
in or to the names "CitiSelect" and "CitiSelect Folios" which exist on the date
of this Agreement or which may arise hereafter are, and under any and all
circumstances shall continue to be, the sole property of Citibank; that
Citibank may assign any or all of such rights to another party or parties
without the consent of the Trust; and that Citibank may permit other parties,
including other investment companies, to use the word "CitiSelect" or the words
"CitiSelect Folios" in their names. If Citibank, or its assignee as the case
may be, ceases to serve as the adviser to the Trust, the Trust hereby agrees to
take promptly any and all actions which are necessary or desirable to change
its name so as to delete the word "CitiSelect" or the words "CitiSelect
Folios."
(b) The Trust hereby acknowledges that any and all rights in or to the
names "Landmark" and "Landmark Funds" which exist on the date of this Agreement
or which may arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of The Landmark Funds Broker-Dealer Services,
Inc. ("LFBDS"); that LFBDS may assign any or all of such rights to another
party or parties without the consent of the Trust; and that LFBDS may permit
other parties, including other investment companies, to use the word "Landmark"
or the words "Landmark Funds" in their names. If LFBDS, or its assignee as the
case may be, ceases to serve as the distributor of shares of the Trust, the
Trust hereby agrees to take promptly any and all actions which are necessary or
desirable to change its name so as to delete the word "Landmark" or the words
"Landmark Funds."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
VARIABLE ANNUITY CITIBANK, N.A.
PORTFOLIOS
By:________________________ By:________________________
Title:_____________________ Title:_____________________
The Landmark Funds Broker-Dealer Services, Inc. joins is this Agreement for
purposes of Section 9(b) only.
THE LANDMARK FUNDS
BROKER-DEALER SERVICES, INC.
By:__________________________
Title:_______________________
Exhibit 5(b)
FORM OF SUB-MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of __________ __, 1996, by and between
Citibank, N.A., a national banking association (the "Manager"), and Miller
Anderson & Sherrerd, LLP, a limited liability partnership (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Manager has been retained by Variable Annuity Portfolios, a
Massachusetts business trust (the "Trust"), to act as investment adviser to the
Trust with respect to the series of the Trust designated as CitiSelectSM VIP
Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500 (each individually a "Fund" and collectively the
"Funds"), and
WHEREAS, the Trust engages in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"), and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain
investment advisory services for the Funds, and the Subadviser is willing to
provide such investment advisory services for the Funds on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Manager (the "Management
Agreement"), the Manager hereby appoints the Subadviser to act as subadviser
with respect to each of the Funds for the period and on the terms set forth in
this Agreement. The Subadviser accepts such appointment and agrees to provide
an
<PAGE>
investment program with respect to the Funds for the compensation provided by
this Agreement.
2. Duties of the Subadviser. The Subadviser shall provide the Manager with
such investment advice and supervision as the Manager may from time to time
consider necessary for the proper supervision of such portion of each Fund's
investment assets as the Manager may designate from time to time.
Notwithstanding any provision of this Agreement, the Manager shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
shall furnish continuously an investment program and shall determine from time
to time what securities shall be purchased, sold or exchanged and what portion
of the assets of a Fund allocated by the Manager to the Subadviser shall be
held uninvested, subject always to the restrictions of the Trust's Declaration
of Trust, dated October 18, 1996, and By-laws, as each may be amended from time
to time (respectively, the "Declaration" and the "By-Laws"), the provisions of
the 1940 Act, the then-current Registration Statement of the Trust with respect
to that Fund, and subject, further, to the Subadviser notifying the Manager in
advance of the Subadviser's intention to purchase any securities except insofar
as the requirement for such notification may be waived or limited by the
Manager, it being understood that the Subadviser shall be responsible for
compliance with any restrictions imposed in writing by the Manager from time to
time in order to facilitate compliance with the above-mentioned restrictions
and such other restrictions as the Manager may determine. Further, the Manager
or the Trustees of the Trust may at any time, upon written notice to the
Subadviser, suspend or restrict the right of the Subadviser to determine what
securities shall be purchased or sold on behalf of a Fund and what portion, if
any, of the assets of a Fund allocated by the Manager to the Subadviser shall
be held uninvested. The Subadviser shall also, as requested, make
recommendations to the Manager as to the manner in which proxies, voting
rights, rights to consent to corporate action and any other rights pertaining
to a Fund's portfolio securities shall be exercised. Should the Board of
Trustees of the Trust or the Manager at any time, however, make any definite
determination as to investment policy applicable to a Fund and notify the
Subadviser thereof in writing, the Subadviser shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked.
The Subadviser shall take, on behalf of each Fund, all actions which it
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
<PAGE>
securities for each Fund's account with the brokers or dealers selected by
it, and to that end the Subadviser is authorized as the agent of the Trust to
give instructions to the custodian and any subcustodian of a Fund as to
deliveries of securities and payments of cash for the account of that Fund. The
Subadviser will advise the Manager on the same day it gives any such
instructions. In connection with the selection of such brokers or dealers and
the placing of such orders, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to a Fund and/or the other accounts over
which the Subadviser or its affiliates exercise investment discretion. The
Subadviser is authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for a
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the Subadviser determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Subadviser and its affiliates have
with respect to accounts over which they exercise investment discretion. The
Trustees of the Trust shall periodically review the commissions paid by each
Fund to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Fund. In making purchases or
sales of securities or other property for the account of a Fund, the Subadviser
may deal with itself or with the Trustees of the Trust or the Trust's
underwriter or distributor, to the extent such actions are permitted by the
1940 Act. The Board of Trustees of the Trust, in its discretion, may instruct
the Subadviser to effect all or a portion of its securities transactions with
one or more brokers and/or dealers selected by the Board of Trustees, if it
determines that the use of such brokers and/or dealers is in the best interest
of the Trust.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each Fund
all of its own expenses allocable to that Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not
"interested persons" of the Trust; governmental fees; interest charges; loan
commitment fees; taxes; membership dues in industry associations allocable to
the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interests and
servicing shareholder
<PAGE>
accounts; expenses of preparing, typesetting, printing and mailing
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions and to shareholders in the Fund; expenses connected
with the execution, recording and settlement of security transactions;
insurance premiums; fees and expenses of the custodian for all services to the
Fund, including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating the net asset value of the Fund
(including but not limited to the fees of independent pricing services);
expenses of meetings of the Fund's shareholders; expenses relating to the
issuance of shares of beneficial interests in the Fund; and such non-recurring
or extraordinary expenses as may arise, including those relating to actions,
suits or proceedings to which the Trust on behalf of the Fund may be a party
and the legal obligation which the Trust may have to indemnify its Trustees and
officers with respect thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Manager shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, an
investment subadvisory fee, accrued daily and paid monthly, at an annual rate
equal to the percentages specified below of the aggregate assets of all Funds
allocated to the Subadviser:
0.625% on the first $25 million;
0.375% on the next $75 million;
0.250% on the next $400 million; and
0.20% on assets in excess of $500 million.
If the Subadviser serves as investment subadviser for less than the whole
of any period specified in this Section 4, the compensation to the Subadviser
shall be prorated. Neither the Trust nor the Funds shall be liable to the
Subadviser for the compensation of the Subadviser.
5. Covenants of the Subadviser. The Subadviser agrees that it will not
deal with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Fund, except as permitted by
the 1940 Act, will not take a long or short position in shares of beneficial
interests of a Fund except as permitted by the Declaration, and will comply
with all other provisions of the Declaration and By-Laws and the then-current
Registration Statement applicable to each Fund relative to the Subadviser and
its partners, directors and officers.
<PAGE>
6. Limitation of Liability of the Subadviser. The Subadviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of securities
transactions for a Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 6, the term
"Subadviser" shall include directors, officers, partners and employees of the
Subadviser as well as the Subadviser itself. The Trust, on behalf of the Funds,
is expressly made a third party beneficiary of this Agreement, and may enforce
any obligations of the Subadviser under this Agreement and recover directly
from the Subadviser for any liability the Subadviser may have hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Funds are not to be deemed to be exclusive, the Subadviser being free to render
investment advisory and/or other services to others, including accounts or
investment management companies with similar or identical investment objectives
to the Funds. It is understood that Trustees, officers, and shareholders of the
Trust or the Manager are or may be or may become interested in the Subadviser,
as directors, officers, partners, employees, or otherwise and that directors,
officers, partners and employees of the Subadviser are or may become similarly
interested in the Trust or the Manager and that the Subadviser may be or may
become interested in the Trust as a shareholder or otherwise.
8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until __________ __, 1998, on which date it will terminate unless its
continuance after __________ __, 1998 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are
not "interested persons" of the Trust or of the Manager or of the Subadviser at
a meeting specifically called for the purpose of voting on such approval, and
(b) by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of each Fund.
This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of the
outstanding voting securities" of that Fund, or (iii) the Manager, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party. This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by the Subadviser on not less than 90 days' written
notice to the Manager. This Agreement shall automatically terminate in the
event
<PAGE>
of its "assignment." Termination of this Agreement as to any Fund shall not
terminate this Agreement as it applies to the remaining Funds.
This Agreement constitutes the entire agreement between the parties and
may be amended as to any Fund only if such amendment is approved by the
Subadviser and the "vote of a majority of the outstanding voting securities" of
that Fund (except for any such amendment as may be effected in the absence of
such approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Fund shall not, without more, amend such
term with respect to any other Fund.
The terms "specifically approved at least annually," "vote of a majority
of the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIBANK, N.A. MILLER ANDERSON &
SHERRERD, LLP
By:________________________ By:___________________________
Title:_____________________ Title:________________________
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Funds or
otherwise, any obligation to the Subadviser.
VARIABLE ANNUITY PORTFOLIOS
on behalf of CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP
Folio 500
By:_________________________________
Title:______________________________
Exhibit 5(c)
FORM OF SUB-MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of __________ __, 1996, by and between
Citibank, N.A., a national banking association (the "Manager"), and Hotchkis &
Wiley, L.P., a California limited partnership (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Manager has been retained by Variable Annuity Portfolios, a
Massachusetts business trust (the "Trust"), to act as investment adviser to the
Trust with respect to the series of the Trust designated as CitiSelectSM VIP
Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500 (each individually a "Fund" and collectively the
"Funds"), and
WHEREAS, the Trust engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (collectively with the rules and regulations promulgated thereunder, the
"1940 Act"), and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain
investment advisory services for the Funds, and the Subadviser is willing to
provide such investment advisory services for the Funds on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Manager (the "Management
Agreement"), the Manager hereby appoints the Subadviser to act as subadviser
with respect to each of the Funds for the period and on the terms set forth in
this Agreement. The Subadviser accepts such appointment and agrees to provide an
<PAGE>
investment program with respect to the Funds for the compensation provided by
this Agreement.
2. Duties of the Subadviser. The Subadviser shall provide the Manager with
such investment advice and supervision as the Manager may from time to time
consider necessary for the proper supervision of such portion of each Fund's
investment assets as the Manager may designate from time to time.
Notwithstanding any provision of this Agreement, the Manager shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
shall furnish continuously an investment program and shall determine from time
to time what securities shall be purchased, sold or exchanged and what portion
of the assets of a Fund allocated by the Manager to the Subadviser shall be held
uninvested, subject always to the restrictions of the Trust's Declaration of
Trust, dated October 18, 1996, and By-laws, as each may be amended from time to
time (respectively, the "Declaration" and the "By-Laws"), the provisions of the
1940 Act, the then-current Registration Statement of the Trust with respect to
that Fund, and subject, further, to the Subadviser notifying the Manager in
advance of the Subadviser's intention to purchase any securities except insofar
as the requirement for such notification may be waived or limited by the
Manager, it being understood that the Subadviser shall be responsible for
compliance with any restrictions imposed in writing by the Manager from time to
time in order to facilitate compliance with the above-mentioned restrictions and
such other restrictions as the Manager may determine. Further, the Manager or
the Trustees of the Trust may at any time, upon written notice to the
Subadviser, suspend or restrict the right of the Subadviser to determine what
securities shall be purchased or sold on behalf of a Fund and what portion, if
any, of the assets of a Fund allocated by the Manager to the Subadviser shall be
held uninvested. The Subadviser shall also, as requested, make recommendations
to the Manager as to the manner in which proxies, voting rights, rights to
consent to corporate action and any other rights pertaining to a Fund's
portfolio securities shall be exercised. Should the Board of Trustees of the
Trust or the Manager at any time, however, make any definite determination as to
investment policy applicable to a Fund and notify the Subadviser thereof in
writing, the Subadviser shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked.
The Subadviser shall take, on behalf of each Fund, all actions which it
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
<PAGE>
securities for each Fund's account with the brokers or dealers selected by it,
and to that end the Subadviser is authorized as the agent of the Trust to give
instructions to the custodian and any subcustodian of a Fund as to deliveries of
securities and payments of cash for the account of that Fund. The Subadviser
will advise the Manager on the same day it gives any such instructions. In
connection with the selection of such brokers or dealers and the placing of such
orders, brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to a Fund and/or the other accounts over which the
Subadviser or its affiliates exercise investment discretion. The Subadviser is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for a Fund which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Subadviser and its affiliates have with
respect to accounts over which they exercise investment discretion. The Trustees
of the Trust shall periodically review the commissions paid by each Fund to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Fund. In making purchases or sales
of securities or other property for the account of a Fund, the Subadviser may
deal with itself or with the Trustees of the Trust or the Trust's underwriter or
distributor, to the extent such actions are permitted by the 1940 Act. The Board
of Trustees of the Trust, in its discretion, may instruct the Subadviser to
effect all or a portion of its securities transactions with one or more brokers
and/or dealers selected by the Board of Trustees, if it determines that the use
of such brokers and/or dealers is in the best interest of the Trust.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each Fund
all of its own expenses allocable to that Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not "interested
persons" of the Trust; governmental fees; interest charges; loan commitment
fees; taxes; membership dues in industry associations allocable to the Trust;
fees and expenses of independent auditors, legal counsel and any transfer agent,
distributor, registrar or dividend disbursing agent of the Trust; expenses of
issuing and redeeming shares of beneficial interests and servicing shareholder
<PAGE>
accounts; expenses of preparing, typesetting, printing and mailing shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders in the Fund; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Fund (including but
not limited to the fees of independent pricing services); expenses of meetings
of the Fund's shareholders; expenses relating to the issuance of shares of
beneficial interests in the Fund; and such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or proceedings
to which the Trust on behalf of the Fund may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Manager shall pay to the Subadviser out of the
management fee it receives from the Trust, and only to the extent thereof, an
investment subadvisory fee, accrued daily and paid monthly, at an annual rate
equal to the percentages specified below of the aggregate assets of all Funds
allocated to the Subadviser:
0.60% on the first $10 million;
0.55% on the next $40 million;
0.45% on the next $100 million;
0.35% on the next $150 million; and
0.30% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of any
period specified in this Section 4, the compensation to the Subadviser shall be
prorated. Neither the Trust nor the Funds shall be liable to the Subadviser for
the compensation of the Subadviser.
If in any fiscal year the aggregate expenses of a Fund and any fund
investing its assets therein (including fees pursuant to the Management
Agreement, but excluding interest, taxes, brokerage and, with the prior written
consent of the necessary state securities commissions, extraordinary expenses)
exceed the expense limitation of any state having jurisdiction over that Fund
and any fund investing its assets therein, the Manager may deduct from the fees
to be paid hereunder, or the Subadviser will bear such excess expense on a
pro-rata basis with the Manager, in the proportion that the subadvisory fee
payable pursuant to this Agreement bears to the fee payable to the Manager
<PAGE>
pursuant to the Management Agreement, to the extent required by state law. The
Subadviser's obligation pursuant hereto will be limited to the amount of its
fees hereunder. Such deduction or payment, if any, will be estimated daily, and
reconciled and effected or paid, as the case may be, on a monthly basis.
5. Covenants of the Subadviser. The Subadviser agrees that it will not deal
with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Fund, except as permitted by
the 1940 Act, will not take a long or short position in shares of beneficial
interests of a Fund except as permitted by the Declaration, and will comply with
all other provisions of the Declaration and By-Laws and the then-current
Registration Statement applicable to each Fund relative to the Subadviser and
its directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of securities
transactions for a Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 6, the term
"Subadviser" shall include directors, officers and employees of the Subadviser
as well as the Subadviser itself. The Trust, on behalf of the Funds, is
expressly made a third party beneficiary of this Agreement, and may enforce any
obligations of the Subadviser under this Agreement and recover directly from the
Subadviser for any liability the Subadviser may have hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Funds are not to be deemed to be exclusive, the Subadviser being free to render
investment advisory and/or other services to others, including accounts or
investment management companies with similar or identical investment objectives
to the Funds. It is understood that Trustees, officers, and shareholders of the
Trust or the Manager are or may be or may become interested in the Subadviser,
as directors, officers, employees, or otherwise and that directors, officers,
and employees of the Subadviser are or may become similarly interested in the
Trust or the Manager and that the Subadviser may be or may become interested in
the Trust as a shareholder or otherwise.
8. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
<PAGE>
govern the relations between the parties hereto thereafter and shall remain in
force until __________ __, 1998, on which date it will terminate unless its
continuance after __________ __, 1998 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Manager or of the Subadviser at a
meeting specifically called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of each Fund.
This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of the
outstanding voting securities" of that Fund, or (iii) the Manager, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party. This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by the Subadviser on not less than 90 days' written
notice to the Manager. This Agreement shall automatically terminate in the event
of its "assignment." Termination of this Agreement as to any Fund shall not
terminate this Agreement as it applies to the remaining Funds.
This Agreement constitutes the entire agreement between the parties and may
be amended as to any Fund only if such amendment is approved by the Subadviser
and the "vote of a majority of the outstanding voting securities" of that Fund
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Fund shall not, without more, amend such
term with respect to any other Fund.
The terms "specifically approved at least annually," "vote of a majority of
the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
9. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIBANK, N.A. HOTCHKIS & WILEY, L.P.
By:__________________________ By:____________________________
Title:_______________________ Title:_________________________
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Funds or
otherwise, any obligation to the Subadviser.
VARIABLE ANNUITY PORTFOLIOS
on behalf of CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500
By:_____________________________________
Title:__________________________________
Exhibit 5(d)
FORM OF SUB-MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of ___________ __, 1996, by and between
Citibank, N.A., a national banking association (the "Manager"), and Pacific
Investment Management Company, a Delaware general partnership (the
"Subadviser").
W I T N E S S E T H:
WHEREAS, the Manager has been retained by Variable Annuity Portfolios, a
Massachusetts business trust (the "Trust"), to act as investment adviser to the
Trust with respect to the series of the Trust designated as CitiSelectSM VIP
Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500 (each individually a "Fund" and collectively the
"Funds"), and
WHEREAS, the Trust engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (collectively with the rules and regulations promulgated thereunder, the
"1940 Act"), and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain
investment advisory services for the Funds, and the Subadviser is willing to
provide such investment advisory services for the Funds on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Manager (the "Management
Agreement"), the Manager hereby appoints the Subadviser to act as subadviser
with respect to each of the Funds for the period and on the terms set forth in
this Agreement. The Subadviser accepts such appointment and agrees to provide an
<PAGE>
investment program with respect to the Funds for the compensation provided by
this Agreement.
2. Duties of the Subadviser. The Subadviser shall provide the Manager with
such investment advice and supervision as the Manager may from time to time
consider necessary for the proper supervision of such portion of each Fund's
investment assets as the Manager may designate from time to time.
Notwithstanding any provision of this Agreement, the Manager shall retain all
rights and ultimate responsibilities to supervise and, in its discretion,
conduct investment advisory activities relating to the Trust. The Subadviser
shall furnish continuously an investment program and shall determine from time
to time what securities shall be purchased, sold or exchanged and what portion
of the assets of a Fund allocated by the Manager to the Subadviser shall be held
uninvested, subject always to the restrictions of the Trust's Declaration of
Trust, dated October 18, 1996, and By-laws, as each may be amended from time to
time (respectively, the "Declaration" and the "By-Laws"), the provisions of the
1940 Act, the then-current Registration Statement of the Trust with respect to
that Fund, it being understood that the Subadviser shall be responsible for
compliance after a reasonable implementation period with any restrictions
imposed in writing by the Manager from time to time in order to facilitate
compliance with the above-mentioned restrictions and such other restrictions as
the Manager may determine. Further, the Manager or the Trustees of the Trust may
at any time, upon written notice to the Subadviser, suspend or restrict the
right of the Subadviser to determine what securities shall be purchased or sold
on behalf of a Fund and what portion, if any, of the assets of a Fund allocated
by the Manager to the Subadviser shall be held uninvested. The Subadviser shall
also, as requested, make recommendations to the Manager as to the manner in
which proxies, voting rights, rights to consent to corporate action and any
other rights pertaining to a Fund's portfolio securities shall be exercised.
Should the Board of Trustees of the Trust or the Manager at any time, however,
make any definite determination as to investment policy applicable to a Fund and
notify the Subadviser thereof in writing, the Subadviser shall be bound by such
determination, following a reasonable implementation period, for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked.
The Subadviser shall take, on behalf of each Fund, all actions which it
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
securities for each Fund's account with the brokers or dealers selected by it,
and to that end the Subadviser is authorized as the agent of the Trust to give
<PAGE>
instructions to the custodian and any subcustodian of a Fund as to deliveries of
securities and payments of cash for the account of that Fund. The Subadviser
will advise the Manager on the same day it gives any such instructions. In
connection with the selection of such brokers or dealers and the placing of such
orders, brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to a Fund and/or the other accounts over which the
Subadviser or its affiliates exercise investment discretion. The Subadviser is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for a Fund which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Subadviser and its affiliates have with
respect to accounts over which they exercise investment discretion. The Trustees
of the Trust shall periodically review the commissions paid by each Fund to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Fund. In making purchases or sales
of securities or other property for the account of a Fund, the Subadviser may
deal with itself or with the Trustees of the Trust or the Trust's underwriter or
distributor to the extent such actions are permitted by the 1940 Act. The Board
of Trustees of the Trust, in its discretion, may instruct the Subadviser to
effect all or a portion of its securities transactions with one or more brokers
and/or dealers selected by the Board of Trustees, if it determines that the use
of such brokers and/or dealers is in the best interest of the Trust. The
Subadviser shall not be liable for any actions or omissions of brokers and/or
dealers selected by the Board of Trustees or the Manager.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each Fund
all of its own expenses allocable to that Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not "interested
persons" of the Trust; governmental fees; interest charges; loan commitment
fees; taxes; membership dues in industry associations allocable to the Trust;
fees and expenses of independent auditors, legal counsel and any transfer agent,
distributor, registrar or dividend disbursing agent of the Trust; expenses of
issuing and redeeming shares of beneficial interests and servicing shareholder
<PAGE>
accounts; expenses of preparing, typesetting, printing and mailing shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders in the Fund; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Fund (including but
not limited to the fees of independent pricing services); expenses of meetings
of the Fund's shareholders; expenses relating to the issuance of shares of
beneficial interests in the Fund; and such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or proceedings
to which the Trust on behalf of the Fund may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers, its Subadvisers
and their employees with respect thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Manager shall pay to the Subadviser an investment
subadvisory fee, accrued daily and paid monthly, at an annual rate equal to the
percentages specified below of the aggregate assets of all Funds allocated to
the Subadviser:
0.35% on the first $200 million;
0.30% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of any
period specified in this Section 4, the compensation to the Subadviser shall be
prorated. Neither the Trust nor the Funds shall be liable to the Subadviser for
the compensation of the Subadviser.
5. Covenants of the Subadviser. The Subadviser agrees that it will not deal
with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Fund, except as permitted by
the 1940 Act, will not take a long or short position in shares of beneficial
interests of a Fund except as permitted by the Declaration, and will comply with
all other provisions of the Declaration and By-Laws and the then-current
Registration Statement applicable to each Fund relative to the Subadviser and
its partners, directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution of securities
transactions for a Fund including, without limitation, acts or omissions of any
<PAGE>
brokers, dealers and custodians, except for willful misfeasance, bad faith or
gross negligence in the performance of Subadviser's duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Section 6, the term "Subadviser" shall include directors, officers, partners and
employees of the Subadviser as well as the Subadviser itself. The Trust, on
behalf of the Funds, is expressly made a third party beneficiary of this
Agreement, and may enforce any obligations of the Subadviser under this
Agreement and recover directly from the Subadviser for any liability the
Subadviser may have hereunder.
7. Activities of the Subadviser. The services of the Subadviser to the
Funds are not to be deemed to be exclusive, the Subadviser being free to render
investment advisory and/or other services to others, including accounts or
investment management companies with similar or identical investment objectives
to the Funds. It is understood that Trustees, officers, and shareholders of the
Trust or the Manager are or may be or may become interested in the Subadviser,
as directors, officers, partners, employees, or otherwise and that directors,
officers, partners and employees of the Subadviser are or may become similarly
interested in the Trust or the Manager and that the Subadviser may be or may
become interested in the Trust as a shareholder or otherwise.
8. Aggregation of Orders. The Subadviser may aggregate sales and purchase
orders of securities with similar orders being made simultaneously for other
accounts managed by the Subadviser or with accounts of the affiliates of the
Subadviser, if in the Subadviser's reasonable judgment such aggregation shall
result in an overall economic benefit to the relevant Fund, taking into
consideration the advantageous selling or purchase price, brokerage commission
and other expenses. In accounting for such aggregated order price, commission
and other expenses shall be averaged on a per bond or share basis daily. Manager
acknowledges that the determination of such economic benefit to the relevant
Fund by the Subadviser is subjective and represents the Subadviser's evaluation
that the relevant Fund is benefited by relatively better purchase or sales
prices, lower commission expenses and beneficial timing of transactions or a
combination of these and other factors.
9. All notices provided for in this Agreement shall be sent to:
If to the Subadviser:
Pacific Investment Management Company
840 Newport Center Drive
<PAGE>
Newport Beach, CA 92660
Attention: James Muzzy and John Loftus.
If to the Manager:
Citibank Global Asset Management
Citibank, N.A.
153 E. 53rd Street, 6th Floor, Zone 6
New York, New York 10043
Attention: Andrew Shoup
10. Special Termination Rights. Notwithstanding anything in this Agreement
to the contrary, the Manager may terminate this Agreement without penalty within
five (5) days of its execution of this Agreement by giving written notice to
such effect to the Subadviser within such five (5) day period.
11. Delivery of Part II of Form ADV. Concurrently with execution of this
Agreement, the Subadviser is delivering to the Manager a copy of Part II of its
Form ADV, as amended, on file with the Securities and Exchange Commission. The
Manager hereby acknowledges receipt of such copy.
12. Delivery of CFTC Disclosure Document. Upon the solicitation of the
Manager, the Subadviser delivered to the Manager a copy of its Disclosure
Document, dated _________ __, 1996, on file with the Commodity Futures Trading
Commission. The Manager hereby acknowledges receipt of such copy.
13. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until _________ __, 1998, on which date it will terminate unless its
continuance after _________ __, 1998 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Manager or of the Subadviser at a
meeting specifically called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of each Fund.
<PAGE>
This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of the
outstanding voting securities" of that Fund, or (iii) the Manager, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party. This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by the Subadviser on not less than 90 days' written
notice to the Manager. This Agreement shall automatically terminate in the event
of its "assignment." Termination of this Agreement as to any Fund shall not
terminate this Agreement as it applies to the remaining Funds.
This Agreement constitutes the entire agreement between the parties and may
be amended as to any Fund only if such amendment is approved by the Subadviser
and the "vote of a majority of the outstanding voting securities" of that Fund
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Fund shall not, without more, amend such
term with respect to any other Fund.
The terms "specifically approved at least annually," "vote of a majority of
the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
14. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIBANK, N.A. PACIFIC INVESTMENT
MANAGEMENT COMPANY
By:______________________ By: PIMCO Management, Inc.
Title:___________________ its general partner
By:___________________________
Title:________________________
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Funds or
otherwise, any obligation to the Subadviser.
VARIABLE ANNUITY PORTFOLIOS
on behalf of CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500
By:__________________________________
Name:
Title:
Exhibit 5(e)
FORM OF SUB-MANAGEMENT AGREEMENT
VARIABLE ANNUITY PORTFOLIOS
SUB-MANAGEMENT AGREEMENT, dated as of ________ __, 1996, by and between
Citibank, N.A., a national banking association (the "Manager"), and Franklin
Advisory Services, Inc., a Delaware corporation (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Manager has been retained by Variable Annuity Portfolios, a
Massachusetts business trust (the "Trust"), to act as investment adviser to the
Trust with respect to the series of the Trust designated as CitiSelectSM VIP
Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500 (each individually a "Fund" and collectively the
"Funds"), and
WHEREAS, the Trust engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (collectively with the rules and regulations promulgated thereunder, the
"1940 Act"), and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain
investment advisory services for the Funds, and the Subadviser is willing to
provide such investment advisory services for the Funds on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Appointment of the Subadviser. In accordance with and subject to the
Management Agreement between the Trust and the Manager (the "Management
Agreement"), the Manager hereby appoints the Subadviser to act as subadviser
with respect to each of the Funds for the period and on the terms set forth in
this Agreement. The Subadviser accepts such appointment and agrees to manage the
<PAGE>
Fund assets as are allocated to it by the Manager for the compensation provided
by this Agreement.
2. Duties of the Subadviser. The Subadviser shall manage the Fund assets as
are allocated to it by the Manager. Notwithstanding any provision of this
Agreement, the Manager shall retain all rights and ultimate responsibilities to
supervise and, in its discretion, conduct investment advisory activities
relating to the Trust. The Subadviser shall determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the assets
of a Fund allocated by the Manager to the Subadviser shall be held uninvested,
subject always to the restrictions of the Trust's Declaration of Trust, dated
October 18, 1996, and By-laws, as each may be amended from time to time
(respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940
Act, the then-current Registration Statement of the Trust with respect to that
Fund, and subject, further, to the Subadviser notifying the Manager in advance
of the Subadviser's intention to purchase any securities except insofar as the
requirement for such notification may be waived or limited by the Manager, it
being understood that the Subadviser shall be responsible for compliance with
any restrictions imposed in writing by the Manager from time to time in order to
facilitate compliance with the above-mentioned restrictions and such other
restrictions as the Manager may determine. Further, the Manager or the Trustees
of the Trust may at any time, upon written notice to the Subadviser, suspend or
restrict the right of the Subadviser to determine what securities shall be
purchased or sold on behalf of a Fund and what portion, if any, of the assets of
a Fund allocated by the Manager to the Subadviser shall be held uninvested. The
Subadviser shall also, as requested, make recommendations to the Manager as to
the manner in which proxies, voting rights, rights to consent to corporate
action and any other rights pertaining to a Fund's portfolio securities shall be
exercised. However, in no event shall the Subadviser have the power to exercise
proxies or voting rights or be responsible for record-keeping relating to such
items. Should the Board of Trustees of the Trust or the Manager at any time,
however, make any definite determination as to investment policy applicable to a
Fund and notify the Subadviser thereof in writing, the Subadviser shall be bound
by such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked.
The Subadviser shall take, on behalf of each Fund, all actions which it
deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
securities for each Fund's account with the brokers or dealers selected by it,
and to that end the Subadviser is authorized as the agent of the Trust to give
<PAGE>
instructions to the custodian and any subcustodian of a Fund as to deliveries of
securities and payments of cash for the account of that Fund. The Subadviser
will advise the Manager on the same day it gives any such instructions. In
connection with the selection of such brokers or dealers and the placing of such
orders, brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to a Fund and/or the other accounts over which the
Subadviser or its affiliates exercise investment discretion. The Subadviser is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for a Fund which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction or
the overall responsibilities which the Subadviser and its affiliates have with
respect to accounts over which they exercise investment discretion. The Trustees
of the Trust shall periodically review the commissions paid by each Fund to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Fund. In making purchases or sales
of securities or other property for the account of a Fund, the Subadviser may
deal with affiliated brokers and/or dealers as defined by the 1940 Act and to
the extent such actions are permitted by the 1940 Act. The Board of Trustees of
the Trust, in its discretion, may instruct the Subadviser to effect all or a
portion of its securities transactions with one or more brokers and/or dealers
selected by the Board of Trustees, if it determines that the use of such brokers
and/or dealers is in the best interest of the Trust. The Subadviser shall not be
responsible for and shall be held harmless with respect to any execution costs
incurred by the Trust relating to securities transactions conducted with brokers
and/or dealers in accordance with instructions given to the Subadviser by the
Trust's Board of Trustees. In addition, the Board of Trustees acknowledges that
to the extent the Subadviser is directed to use a particular broker and/or
dealer, it may not be able to obtain best execution on all trades executed
through that broker and/or dealer.
3. Allocation of Charges and Expenses. The Subadviser shall furnish at its
own expense all necessary services, facilities and personnel in connection with
its responsibilities under Section 2 above. Except as provided in the foregoing
sentence, it is understood that the Trust will pay from the assets of each Fund
all of its own expenses allocable to that Fund including, without limitation,
organization costs of the Fund; compensation of Trustees who are not "interested
<PAGE>
persons" of the Trust; governmental fees; interest charges; loan commitment
fees; taxes; membership dues in industry associations allocable to the Trust;
fees and expenses of independent auditors, legal counsel and any transfer agent,
distributor, registrar or dividend disbursing agent of the Trust; expenses of
issuing and redeeming shares of beneficial interests and servicing shareholder
accounts; expenses of preparing, typesetting, printing and mailing shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders in the Fund; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Fund,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Fund (including but
not limited to the fees of independent pricing services); expenses of meetings
of the Fund's shareholders; expenses relating to the issuance of shares of
beneficial interests in the Fund; and such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or proceedings
to which the Trust on behalf of the Fund may be a party and the legal obligation
which the Trust may have to indemnify its Trustees and officers with respect
thereto.
4. Compensation of the Subadviser. For the services to be rendered by the
Subadviser hereunder, the Manager shall pay to the Subadviser an investment
subadvisory fee, accrued daily and paid monthly, at an annual rate equal to the
percentages specified below of the aggregate assets of all Funds allocated to
the Subadviser:
0.55% on the first $250 million; and
0.50% on remaining assets.
If the Subadviser serves as investment subadviser for less than the whole of any
period specified in this Section 4, the compensation to the Subadviser shall be
prorated. Neither the Trust nor the Funds shall be liable to the Subadviser for
the compensation of the Subadviser.
5. Covenants of the Subadviser. The Subadviser agrees that it will not deal
with itself, or with the Trustees of the Trust or the Trust's principal
underwriter or distributor, as principals in making purchases or sales of
securities or other property for the account of a Fund, except as permitted by
the 1940 Act, will not take a long or short position in shares of beneficial
interests of a Fund except as permitted by the Declaration, and will comply with
all other provisions of the Declaration and By-Laws and the then-current
<PAGE>
Registration Statement applicable to each Fund relative to the Subadviser and
its directors and officers.
6. Limitation of Liability of the Subadviser. The Subadviser shall not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of securities
transactions for a Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Section 6, the term
"Subadviser" shall include directors, officers and employees of the Subadviser
as well as the Subadviser itself. The Trust, on behalf of the Funds, is
expressly made a third party beneficiary of this Agreement, and may enforce any
obligations of the Subadviser under this Agreement and recover directly from the
Subadviser for any liability the Subadviser may have hereunder.
7. Indemnification. The Trust and the Manager agree to indemnify and hold
harmless the Subadviser against any and all losses, claims, damages, liabilities
or expenses (including reasonable counsel fees) arising out of or based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of additional information
for the Trust or contained in the sales literature or other promotional material
for the Trust (or any statement or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided that this agreement to indemnify shall not apply
as to the Subadviser if such statement or omission or such alleged statement or
omission was made in reasonable reliance upon and in conformity with information
furnished to the Trust or the Manager by or on behalf of the Subadviser for use
in the registration statement, prospectus or statement of additional information
for the Funds or sales literature or other promotional material (or any
amendment or supplement) or otherwise for use in connection with the sale of
shares of the Trust.
The Subadviser agrees to indemnify and hold harmless the Trust and the
Manager against any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees) arising out of or based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional information for
the Trust or contained in the sales literature or other promotional material for
the Trust (or any statement or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
<PAGE>
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall apply as
to the Trust and/or the Manager only if such statement or omission or such
alleged statement or omission was made in reasonable reliance upon and in
conformity with information furnished to the Trust or the Manager by or on
behalf of the Subadviser for use in the registration statement, prospectus or
statement of additional information for the Funds or sales literature or other
promotional material (or any amendment or supplement) or otherwise for use in
connection with the sale of shares of the Trust.
8. Activities of the Subadviser. The services of the Subadviser to the
Funds are not to be deemed to be exclusive, the Subadviser being free to render
investment advisory and/or other services to others, including accounts or
investment management companies with similar or identical investment objectives
to the Funds. It is understood that Trustees, officers, and shareholders of the
Trust or the Manager are or may be or may become interested in the Subadviser,
as directors, officers, employees, or otherwise and that directors, officers,
and employees of the Subadviser are or may become similarly interested in the
Trust or the Manager and that the Subadviser may be or may become interested in
the Trust as a shareholder or otherwise.
9. Duration, Termination and Amendments of this Agreement. This Agreement
shall become effective as of the day and year first above written, and shall
govern the relations between the parties hereto thereafter and shall remain in
force until _________ __, 1998, on which date it will terminate unless its
continuance after _________ __, 1998 is "specifically approved at least
annually" (a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Manager or of the Subadviser at a
meeting specifically called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by "vote of a majority of the
outstanding voting securities" of each Fund.
This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by (i) the Trustees, (ii) the "vote of a majority of the
outstanding voting securities" of that Fund, or (iii) the Manager, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party. This Agreement may be terminated as to any Fund at any time without the
payment of any penalty by the Subadviser on not less than 90 days' written
notice to the Manager. This Agreement shall automatically terminate in the event
<PAGE>
of its "assignment." Termination of this Agreement as to any Fund shall not
terminate this Agreement as it applies to the remaining Funds.
This Agreement constitutes the entire agreement between the parties and may
be amended as to any Fund only if such amendment is approved by the Subadviser
and the "vote of a majority of the outstanding voting securities" of that Fund
(except for any such amendment as may be effected in the absence of such
approval without violating the 1940 Act). Amendment of any term of this
Agreement with respect to any single Fund shall not, without more, amend such
term with respect to any other Fund.
The terms "specifically approved at least annually," "vote of a majority of
the outstanding voting securities," "assignment," "affiliated person," and
"interested persons," when used in this Agreement, shall have the respective
meanings specified in, and shall be construed in a manner consistent with, the
1940 Act, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
10. Governing Law. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts provided, however, that nothing herein will be construed in a
manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or
any rules or regulations of the Securities and Exchange Commission thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
CITIBANK, N.A. FRANKLIN ADVISORY
SERVICES, INC.
By:______________________ By:______________________
Title:___________________ Title:___________________
The foregoing is acknowledged:
The undersigned officer of the Trust has executed this Agreement not
individually but in his capacity as an officer of the Trust under the
Declaration. The Trust does not hereby undertake, on behalf of the Funds or
otherwise, any obligation to the Subadviser.
VARIABLE ANNUITY PORTFOLIOS
on behalf of CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400 and
CitiSelectSM VIP Folio 500
By:_____________________________________
Title:__________________________________
Exhibit 6
FORM OF DISTRIBUTION AGREEMENT
AGREEMENT, dated as of __________ __, 1996, by and between Variable Annuity
Portfolios, a Massachusetts business trust (the "Trust"), and The Landmark Funds
Broker-Dealer Services, Inc., a Massachusetts corporation ("Distributor").
WHEREAS, the Trust engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust's shares of beneficial interest ("Shares") are divided
into separate series representing interests in separate funds of securities and
other assets;
WHEREAS, the Trust wishes to retain the services of a distributor for
Shares of each class of each of the Trust's series listed on Exhibit A hereto
(the "Funds") and has registered the Shares of the Funds under the Securities
Act of 1933, as amended (the "1933 Act");
WHEREAS, Distributor has agreed to act as distributor of the Shares of each
class of the Funds for the period of this Agreement;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of Distributor.
(a) The Trust hereby appoints Distributor its exclusive agent for the
distribution of Shares of each class of the Funds in jurisdictions wherein such
Shares may be legally offered for sale; provided, however, that the Trust in its
absolute discretion may issue Shares of the Funds in connection with (i) the
payment or reinvestment of dividends or distributions; (ii) any merger or
consolidation of the Trust or of the Funds with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity or another Fund of the Trust; or (iii) any offer of exchange
permitted by Section 11 of the 1940 Act.
(b) Distributor hereby accepts such appointment as exclusive agent for the
distribution of Shares of each class of the Funds and agrees that it will sell
the Shares as agent for the Trust at prices determined as hereinafter provided
<PAGE>
and on the terms hereinafter set forth, all according to the then-current
prospectus and statement of additional information of each Fund (collectively,
the "Prospectus" and the "Statement of Additional Information"), applicable
laws, rules and regulations and the Declaration of Trust of the Trust.
Distributor agrees to use its best efforts to solicit orders for the sale of
Shares of the Funds, and agrees to transmit promptly to the Trust (or to the
transfer agent of the Funds, if so instructed in writing by the Trust) any
orders received by it for purchase or redemption of Shares.
(c) Distributor may sell Shares of the Funds to or through qualified
securities dealers, financial institutions or others. Distributor will require
each dealer or other such party to conform to the provisions of this Agreement,
the Prospectus, the Statement of Additional Information and applicable law; and
neither Distributor nor any such dealers or others shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(d) Distributor shall order Shares of the Funds from the Trust only to the
extent that it shall have received unconditional purchase orders therefor.
Distributor will not make, or authorize any dealers or others to make: (i) any
short sales of Shares; or (ii) any sales of Shares to any Trustee or officer of
the Trust, any officer or director of Distributor or any corporation or
association furnishing investment advisory, managerial or supervisory services
to the Trust, or to any such corporation or association, unless such sales are
made in accordance with the Prospectus and the Statement of Additional
Information.
(e) Distributor is not authorized by the Trust to give any information or
make any representations regarding Shares of the Funds, except such information
or representations as are contained in the Prospectus, the Statement of
Additional Information or advertisements and sales literature prepared by or on
behalf of the Trust for Distributor's use.
(f) The Trust agrees to execute any and all documents, to furnish any and
all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with the
qualification of Shares of each Fund for sale in such states as Distributor and
the Trust agree.
(g) No Shares of any Fund shall be offered by either Distributor or the
Trust under this Agreement, and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Trust, if and so long as the
<PAGE>
effectiveness of the Trust's then current registration statement as to Shares of
that Fund or any necessary amendments thereto shall be suspended under any of
the provisions of the 1933 Act, or if and so long as a current prospectus for
Shares of that Fund as required by Section 10 of the 1933 Act is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph (g) shall in any way restrict the Trust's obligation
to repurchase any Shares from any shareholder in accordance with the provisions
of the applicable Fund's Prospectus or charter documents.
(h) Notwithstanding any provision hereof, the Trust may terminate, suspend
or withdraw the offering of Shares of any Fund whenever, in its sole discretion,
it deems such action to be desirable.
2. Offering Price of Shares. All Fund Shares sold under this Agreement
shall be sold at the public offering price per Share in effect at the time of
the sale, as described in the Prospectus. The excess, if any, of the public
offering price over the net asset value of the Shares sold by Distributor as
agent, and any contingent deferred sales charge applicable to Shares of any
class of any Fund as set forth in the applicable Fund's Prospectus, shall be
retained by Distributor as a commission for its services hereunder. Out of such
commission Distributor may allow commissions, concessions or agency fees to
dealers or other financial institutions, including banks, and may allow them to
others in its discretion in such amounts as Distributor shall determine from
time to time. Except as may be otherwise determined by Distributor from time to
time, such commissions, concessions or agency fees shall be uniform to all
dealers and other financial institutions. At no time shall the Trust receive
less than the full net asset value of the Shares of each Fund, determined in the
manner set forth in the Prospectus and the Statement of Additional Information.
3. Furnishing of Information.
(a) The Trust shall furnish to Distributor copies of any information,
financial statements and other documents that Distributor may reasonably request
for use in connection with the sale of Shares of the Funds under this Agreement.
The Trust shall also make available a sufficient number of copies of the Funds'
Prospectus and Statement of Additional Information for use by the Distributor.
(b) The Trust agrees to advise Distributor immediately in writing:
<PAGE>
(i) of any request by the Securities and Exchange Commission for
amendments to any registration statement concerning a Fund or to a
Prospectus or for additional information;
(ii) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of any such
registration statement or Prospectus or the initiation of any proceeding
for that purpose;
(iii) of the happening of any event which makes untrue any statement
of a material fact made in any such registration statement or Prospectus
or which requires the making of a change in such registration statement or
Prospectus in order to make the statements therein not misleading; and
(iv) of all actions of the Securities and Exchange Commission with
respect to any amendments to any such registration statement or Prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
4. Expenses.
(a) The Trust will pay or cause to be paid the following expenses:
organization costs of the Funds; compensation of Trustees who are not
"interested persons" of the Trust; governmental fees; interest charges; loan
commitment fees; taxes; membership dues in industry associations allocable to
the Trust; fees and expenses of independent auditors, legal counsel and any
transfer agent, distributor, registrar or dividend disbursing agent of the
Trust; expenses of issuing and redeeming shares of beneficial interest and
servicing shareholder accounts; expenses of preparing, typesetting, printing and
mailing prospectuses, statements of additional information, shareholder reports,
notices, proxy statements and reports to governmental officers and commissions
and to existing shareholders of the Funds; expenses connected with the
execution, recording and settlement of security transactions; insurance
premiums; fees and expenses of the custodian for all services to the Funds,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of the Funds (including
but not limited to the fees of independent pricing services); expenses of
meetings of shareholders; expenses relating to the issuance, registration and
qualification of shares; and such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
<PAGE>
Trust may be a party and the legal obligation which the Trust may have to
indemnify its Trustees and officers with respect thereto.
(b) Except as otherwise provided in this Agreement, Distributor will pay or
cause to be paid all expenses connected with its own qualification as a dealer
under state and federal laws and all other expenses incurred by Distributor in
connection with the sale of Shares of each Fund as contemplated by this
Agreement.
5. Repurchase of Shares. Distributor as agent and for the account of the
Trust may repurchase Shares of the Funds offered for resale to it and redeem
such Shares at their net asset value.
6. Indemnification by the Trust. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties hereunder
on the part of Distributor, the Trust agrees to indemnify Distributor, its
officers and directors, and any person which controls Distributor within the
meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
in connection therewith by or on behalf of Distributor. Nothing herein contained
shall require the Trust to take any action contrary to any provision of its
Declaration of Trust or any applicable statute or regulation.
7. Indemnification by Distributor. Distributor agrees to indemnify the
Trust, its officers and Trustees and any person which controls the Trust within
the meaning of the 1933 Act against any and all claims, demands, liabilities and
expenses that any such indemnified party may incur under the 1933 Act, or common
law or otherwise, arising out of or based upon (i) any alleged untrue statement
of a material fact contained in the registration statement for any Fund, any
Prospectus or Statement of Additional Information, or any advertisements or
sales literature prepared by or on behalf of the Trust for Distributor's use, or
any omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, if such statement or omission was made
<PAGE>
in reliance upon and in conformity with information furnished to the Trust in
connection therewith by or on behalf of Distributor; and (ii) any act or deed of
Distributor or its sales representatives that has not been authorized by the
Trust in any Prospectus or Statement of Additional Information or by this
Agreement.
8. Term and Termination.
(a) Unless terminated as herein provided, this Agreement shall continue in
effect as to each Fund until __________ __, 199_ and shall continue in full
force and effect as to each Fund for successive periods of one year thereafter,
but only so long as each such continuance is approved (i) by either the Trustees
of the Trust or by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the particular Fund, or (ii) by vote of a majority
of the Trustees of the Trust who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such party and who have no direct or
indirect financial interest in this Agreement or in any agreement related
thereto ("Independent Trustees"), cast at a meeting called for the purpose of
voting on such approval.
(b) This Agreement may be terminated as to any Fund on not less than thirty
days' nor more than sixty days' written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
9. Limitation of Liability. The obligations of the Trust hereunder shall
not be binding upon any of the Trustees, officers or shareholders of the Trust
personally, but shall bind only the assets and property of the particular Fund
or Funds in question, and not any other Fund or series of the Trust. The term
"Variable Annuity Portfolios" means and refers to the Trustees from time to time
serving under the Declaration of Trust of the Trust, a copy of which is on file
with the Secretary of the Commonwealth of Massachusetts. The execution and
delivery of this Agreement has been authorized by the Trustees, and this
Agreement has been signed on behalf of the Trust by an authorized officer of the
Trust, acting as such and not individually, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Trust as
provided in the Declaration of Trust.
<PAGE>
10. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts and the provisions of the 1940
Act.
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
Variable Annuity Portfolios
By:_______________________________
The Landmark Funds Broker-Dealer
Services, Inc.
By:_______________________________
<PAGE>
Exhibit A
Funds
CitiSelectSM VIP Folio 200
CitiSelectSM VIP Folio 300
CitiSelectSM VIP Folio 400
CitiSelectSM VIP Folio 500
Landmark Small Cap Equity VIP Fund
Exhibit 7
FORM OF CUSTODIAN CONTRACT
Between
VARIABLE ANNUITY PORTFOLIOS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It...............
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States..............
2.1 Holding Securities.........................................
2.2 Delivery of Securities.....................................
2.3 Registration of Securities.................................
2.4 Bank Accounts..............................................
2.5 Availability of Federal Funds..............................
2.6 Collection of Income.......................................
2.7 Payment of Fund Monies.....................................
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased.......................................
2.9 Appointment of Agents......................................
2.10 Deposit of Fund Assets in U.S. Securities System...........
2.11 Fund Assets Held in the Custodian's Direct Paper System....
2.12 Segregated Account.........................................
2.13 Ownership Certificates for Tax Purposes....................
2.14 Proxies
2.15 Communications Relating to Portfolio Securities............
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States..........................
3.1 Appointment of Foreign Sub-Custodians......................
3.2 Assets to be Held..........................................
3.3 Foreign Securities Systems.................................
3.4 Holding Securities.........................................
3.5 Agreements with Foreign Banking Institutions...............
3.6 Access of Independent Accountants of the Fund..............
3.7 Reports by Custodian.......................................
3.8 Transactions in Foreign Custody Account....................
3.9 Liability of Foreign Sub-Custodians........................
3.10 Liability of Custodian.....................................
3.11 Reimbursement for Advances.................................
3.12 Monitoring Responsibilities................................
3.13 Branches of U.S. Banks.....................................
3.14 Tax Law....................................................
<PAGE>
4. Payments for Sales or Repurchases or Redemptions of Shares
of the Fund................................................
5. Proper Instructions........................................
6. Actions Permitted Without Express Authority................
7. Evidence of Authority......................................
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income..........
9. Records....................................................
10. Opinion of Fund's Independent Accountants..................
11. Reports to Fund by Independent Public Accountants..........
12. Compensation of Custodian..................................
13. Responsibility of Custodian................................
14. Effective Period, Termination and Amendment................
15. Successor Custodian........................................
16. Interpretive and Additional Provisions.....................
17. Additional Funds...........................................
18. Massachusetts Law to Apply.................................
19. Prior Contracts............................................
20. No Liability of Other Series...............................
21. Shareholder Communications Election........................
<PAGE>
CUSTODIAN CONTRACT
This Contract between Variable Annuity Portfolios, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 6 St. James Avenue, Boston, Massachusetts 02116
(hereinafter called the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110 (hereinafter called the
"Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to offer shares in five new series, CitiSelectSM
VIP Folio 200, CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400,
CitiSelectSM VIP Folio 500 and Landmark Small Cap Equity VIP Fund (such series
together with all other series subsequently established by the Fund and made
subject to this Contract in accordance with paragraph 17, being herein referred
to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on
behalf of the applicable Portfolio desires to be held in places within
the United States ("domestic securities") and securities it desires to
be held outside the United States ("foreign securities") pursuant to
the provisions of the Declaration of Trust of the Fund (the
"Declaration of Trust"). The Fund on behalf of the Portfolio(s) agrees
to deliver to the Custodian all securities and cash of the Portfolios,
and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by
the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the
Fund representing interests in the Portfolios ("Shares") as may be
issued or sold from time to time. The Custodian shall not be
responsible for any property of a Portfolio held or received by the
Portfolio and not delivered to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians, located in the United
States but only in accordance with an applicable vote by the Board of
Trustees of the Fund on behalf of the applicable Portfolio(s), and
provided that the Custodian shall have no more or less responsibility
or liability to the Fund on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may employ as sub-custodian for the Fund's
foreign securities on behalf of the applicable Portfolio(s) the foreign
banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article
3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies (each, a "U.S. Securities
System") and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper System
of the Custodian (the "Direct Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.10 hereof;
<PAGE>
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
<PAGE>
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of Shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
<PAGE>
proper purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
<PAGE>
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2(10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
<PAGE>
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section
2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense of the Portfolio, including but
not limited to the following payments for the account of the
Portfolio: interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
<PAGE>
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S.
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
<PAGE>
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial certificate required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Portfolio
in the Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of
the Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Portfolio;
<PAGE>
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions from the Fund on behalf
<PAGE>
of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions," as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
<PAGE>
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities," as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
<PAGE>
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Accounts.
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract
shall apply, mutatis mutandis to the foreign securities of the
Fund held outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for
the account of each applicable Portfolio and delivery of
securities maintained for the account of each applicable
Portfolio may be effected in accordance with the customary
established securities trading or securities processing
practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer
<PAGE>
therefor (or an agent for such purchaser or dealer) against
a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
<PAGE>
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of
the Investment Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The appointment of any
such branch as a sub-custodian shall be governed by paragraph
I of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established
for the Fund with the Custodian's London branch, which account
shall be subject to the direction of the Custodian, State
Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
<PAGE>
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian
will provide timely notification to the Fund on behalf of each such
Portfolio and the Transfer Agent of any receipt by it of payments for
Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the
Board of Trustees of the Fund pursuant thereto, the Custodian shall,
upon receipt of instructions from the Transfer Agent, make funds
available to the Fund at an account of the Fund controlled from outside
of the United States for payment to holders of Shares who have
delivered to the Transfer Agent a request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of
Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming Shareholders. In connection
with the redemption or repurchase of Shares of the Fund, the Custodian
shall honor checks drawn on the Custodian by a holder of Shares, which
checks have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between the Fund
and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of
Trustees shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been
given by a person authorized to give such instructions with respect to
the transaction involved. The Fund shall cause all oral instructions to
be confirmed in writing. Upon receipt of a certificate of the Secretary
<PAGE>
or an Assistant Secretary as to the authorization by the Board of
Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may
include communications effected directly between electromechanical or
electronic devices provided that the Board of Trustees and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian
pursuant to any three-party agreement which requires a segregated asset
account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such
payments shall be accounted for to the Fund on behalf of the
Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed by or
on behalf of the Fund. The Custodian may receive and accept a certified
copy of a vote of the Board of Trustees of the Fund as conclusive
evidence (a) of the authority of any person to act in accordance with
such vote or (b) of any determination or of any action by the Board of
Trustees pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
<PAGE>
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund
to keep the books of account of each Portfolio and/or compute the net
asset value per share of the outstanding shares of each Portfolio or,
if directed in writing to do so by the Fund on behalf of the Portfolio,
shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate
daily the net income of the Portfolio as described in the Fund's
currently effective prospectus related to such Portfolio and shall
advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund
to do so, shall advise the Transfer Agent periodically of the division
of such net income among its various components. The calculations of
the net asset value per share and the daily income of each Portfolio
shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under
the Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such
records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by
duly authorized officers, employees or agents of the Fund and employees
and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include certificate
numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain
from year to year favorable opinions from the Fund's independent
accountants with respect to its activities hereunder in connection with
the preparation of the Fund's Form N-1A and Form N-SAR or other annual
<PAGE>
reports to the Securities and Exchange Commission and with respect to
any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating
to the services provided by the Custodian under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and,
if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between the Fund on behalf of each applicable Portfolio and the
Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it
or delivered by it pursuant to this Contract and shall be held harmless
in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by
the proper party or parties, including any futures commission merchant
acting pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held to the exercise of reasonable
care in carrying out the provisions of this Contract, but shall be kept
indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It
shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian
or agent, the Custodian shall be without liability to the Fund for any
loss, liability, claim or expense resulting from or caused by: (i)
events or circumstances beyond the reasonable control of the Custodian
<PAGE>
or any sub-custodian or Securities System or any agent or nominee of
any of the foregoing, including, without limitation, nationalization or
expropriation, imposition of currency controls or restrictions, the
interruption, suspension or restriction of trading on or the closure of
any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts; (ii)
errors by the Fund or the Investment Advisor in their instructions to
the Custodian provided such instructions have been in accordance with
this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or
clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company,
corporation, or other body in charge or registering or transferring
securities in the name of the Custodian, the Fund, the Custodian's
sub-custodians, nominees or agents or any consequential losses arising
out of such delay or failure to transfer such securities including
non-receipt of bonus, dividends and rights and other accretions or
benefits; (vi) delays or inability to perform its duties due to any
disorder in market infrastructure with respect to any particular
security or Securities System; and (vii) any provision of any present
or future law or regulation or order of the United States of America,
or any state thereof, or any other country, or political subdivision
thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of the Portfolio requires the Custodian to take
any action with respect to securities, which action involves the
payment of money or which action may, in the opinion of the Custodian,
result in the Custodian or its nominee assigned to the Fund or the
Portfolio being liable for the payment of money or incurring liability
of some other form, the Fund on behalf of the Portfolio, as a
prerequisite to requiring the Custodian to take such action, shall
provide indemnity to the Custodian in an amount and form satisfactory
to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but
not limited to securities settlements, foreign exchange contracts and
assumed settlement) or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
<PAGE>
property at any time held for the account of the applicable Portfolio
shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties
hereto and may be terminated with respect to any Portfolio by either
party by an instrument in writing delivered or mailed, postage prepaid
to the other party, such termination to take effect not sooner than
thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act
under Section 2.10 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board
of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio, as required by Rule 17f-4 under
the Investment Company Act of 1940, as amended and that the Custodian
shall not with respect to a Portfolio act under Section 2.11 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial
use of the Direct Paper System by such Portfolio; provided further,
however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the
Fund on behalf of one or more of the Portfolios may at any time by
action of its Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of
the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at
the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as
of the date of such termination and shall likewise reimburse the
Custodian for its costs, expenses and disbursements.
<PAGE>
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian
shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer,
all securities of each applicable Portfolio then held by it hereunder
and shall transfer to an account of the successor custodian all of the
securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with
such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio
and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor
custodian all of the securities of each such Portfolio held in any
Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing
to failure of the Fund to procure the certified copy of the vote
referred to or of the Board of Trustees to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its
services during such period as the Custodian retains possession of such
securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time
<PAGE>
agree on such provisions interpretive of or in addition to the
provisions of this Contract as may in their joint opinion be consistent
with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and
shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Declaration of Trust of the Fund.
No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to CitiSelectSM VIP Folio 200, CitiSelectSM VIP Folio 300,
CitiSelectSM VIP Folio 400, CitiSelectSM VIP Folio 500 and Landmark
Small Cap Equity VIP Fund with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios
and the Custodian relating to the custody of the Fund's assets.
20. No Liability of Other Series
Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Portfolio are separate
and distinct from the assets and liabilities of each other Portfolio
and that no Portfolio shall be charged for any debt, obligation or
liability of any other Portfolio, whether arising under this Agreement
or otherwise.
21. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by
issuers of securities for the names, addresses and holdings of
beneficial owners of securities of that issuer held by the bank unless
<PAGE>
the beneficial owner has expressly objected to disclosure of this
information. In order to comply with the rule, the Custodian needs the
Fund to indicate whether it authorizes the Custodian to provide the
Fund's, name, address, and share position to requesting companies whose
securities the Fund owns. If the Fund tells the Custodian "no," the
Custodian will not provide this information to requesting companies. If
the Fund tells the Custodian "yes" or does not check either "yes" or
"no" below, the Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all securities owned
by the Fund or any funds or accounts established by the Fund. For the
Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate
communications. Please indicate below whether the Fund consents or
objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the ____ day of __________, 1996.
ATTEST VARIABLE ANNUITY PORTFOLIOS
__________________________ By_________________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
________________________________ By________________________________
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Variable Annuity
Portfolios for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
____________________________
Fund's Authorized Officer
Date:_______________________
<PAGE>
Schedule A
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1996
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Argentina Citibank, N.A. Caja de Valores S.A.
Australia Westpac Banking Austraclear Limited;
Corporation
Reserve Bank Information
and Transfer System (RITS)
Austria GiroCreditBank Oesterreichische
Aktiengesellschaft Kontrollbank AG
de Sparkassen Wertpapiersammelbank
Division)
Bangladesh Standard Chartered Bank None
Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de Virements
de Titres S.A. (CIK);
Banque Nationale de
Belgique
Botswana Barclays Bank of Botswana None
Limited
Brazil Citibank, N.A. Bolsa de Valores de Sao
Paulo (Bovespa);
Banco Central do Brasil,
Systema Especial de
Liquidacao e Custodia
(SELIC)
Canada Canada Trustco The Canadian Depository
Mortgage Company for Securities Limited
(CDS)
Chile Citibank, N.A. None
<PAGE>
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1996
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
People's Republic of The Hongkong and Shanghai Shanghai Securities Central
China Banking Corporation Limited, Clearing and Registration
Shanghai and Shenzhen Corporation (SSCCRC);
branches
Shenzhen Securities
Registrars Co., Ltd. and it
designated agent banks
Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
Cyprus Barclays Bank PLC None
Czech Republic Ceskoslovenska Obchodni Stredisko Cennych Papiru
Banka A.S. (SCP);
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen - The
Danish Securities Center
(VP)
Ecuador Citibank, N.A. None
Egypt National Bank of Egypt None
Finland Merita Bank Limited The Central Share Register
of Finland
France Banque Paribas Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres
(SICOVAM);
Banque de France,
Saturne System
Germany Dresdner Bank A.G. The Deutscher Kassenverein
AG
Ghana Barclays Bank of Ghana None
Limited
<PAGE>
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1996
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Greece National Bank of Greece S.A. The Central Securities
Depository Apothetirion
Titlon A.E.)
Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest)
Ltd. (KELER Ltd.)
India Deutsche Bank AG None
Indonesia Standard Chartered Bank None
Ireland Bank of Ireland None;
The Central Bank of
Ireland, The Gilt
Settlement Office
(GSO)
Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
Italy Morgan Guaranty Trust Monte Titoli S.p.A.;
Company
Japan The Sumitomo Trust Japan Securities
& Banking Co., Ltd. Depositary Center
(JASDEC);
Bank of Japan Net System
Jordan The British Bank of the None
Middle East
Kenya Barclays Bank of Kenya None
Limited
Republic of Korea SEOULBANK Korea Securities
Depository (KSD)
<PAGE>
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1996
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Malaysia Standard Chartered Bank None
Malaysia Berhad
Mauritius The HongKong and Shanghai None
Banking Corporation Limited
Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el
Deposito de Valores);
Banco de Mexico
Morocco Banque Commerciale du None
Maroco
Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
New Zealand ANZ Banking Group None
(New Zealand) Limited
The Reserve Bank of New
Zealand, Austraclear NZ
Norway Christiania Bank og Verdipapirestralen - The
Kreditkasse Norwegian Registry of
Securities (VPS)
Pakistan Deutsche Bank AG None
Peru Citibank, N.A. Caja de Valores (CAVAL)
Philippines Standard Chartered Bank None
Poland Citibank Poland S.A. The National Depository of
Securities (Centrum
Krajowego Depozytu
Papiero Wartos' ciowych)
<PAGE>
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1996
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Portugal Banco Comercial Portugues Central de Valores
Mobiliarios (Central)
Russia Credit Suisse
Singapore The Development Bank of The Central Depository (Pte)
Singapore Ltd. Limited (CDP)
Slovak Republic Ceskoslovenska Obchadna Stredisko cennych papierov
Banka A.S. (SPC);
National Bank of Slovakia
South Africa Standard Bank of South None
Africa Limited
Spain Banco Santander, S.A. Servicio de Compensacion y
Liquidacion de Valores
(SCLV); Banco de Espana,
Anotaciones en Cuenta
Sri Lanka The Hongkong and Shanghai The Central Depository
Banking Corporation Limited System (Pvt) Limited
Swaziland Barclays Bank of Swaziland None
Limited
Sweden Skandinaviska Enskilda Vardepapperscentralen - The
Banken Swedish Securities Register
Center (VPC)
Switzerland Union Bank of Switzerland Schweizerische Effekten -
Giro AG (SEGA)
Taiwan-R.O.C. Central Trust of China The Taiwan Securities
Central Depository Company,
Ltd. (TSCD)
Thailand Standard Chartered Bank Thailand Securities
Depository Company Limited
(TSD)
<PAGE>
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1996
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Turkey Citibank, N.A. Istanbul Stock Exchange
Settlement and Custody Co.
Inc. (I.M.K.B. Takas ve
Saklama A.S.)
United Kingdom State Street Bank and Trust None
Company
The Bank of England,
The Central Gilts Office
(CGO);
The Central Monemarkets
Office (CMO)
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
Zambia Barclays Bank of Zambia None
Limited
Zimbabwe Barclays Bank of Zimbabwe None
Limited
Euroclear (The Euroclear System)/State Street London Limited
Cedel (Cedel Bank societe anonyme)/State Street London Limited
Exhibit 9
FORM OF
TRANSFER AGENCY AND SERVICE AGREEMENT
between
(Name of Mutual Fund, Trust or Company)
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank................
2. Fees and Expenses.......................................
3. Representations and Warranties of the Bank..............
4. Representations and Warranties of the Fund..............
5. Data Access and Proprietary Information.................
6. Indemnification.........................................
7. Standard of Care........................................
8. Covenants of the Fund and the Bank......................
9. Termination of Agreement................................
10. Additional Funds........................................
11. Assignment..............................................
12. Amendment...............................................
13. Massachusetts Law to Apply..............................
14. Force Majeure...........................................
15. Consequential Damages...................................
16. Merger of Agreement.....................................
17. Limitations of Liability of the Trustees
or Shareholders.........................................
18. Counterparts............................................
19. Reproduction of Documents...............................
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of ,
199 , by and between
, a
business trust, having its principal
office and place of business at (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in series, the (NAME EACH
PORTFOLIO) (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as
its transfer agent, dividend disbursing agent, custodian of certain retirement
plans and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the Bank
to act as, and the Bank agrees to act as its transfer agent for the
Fund's authorized and issued shares of its common stock, $ par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 The Bank agrees that it will perform the following services:
<PAGE>
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
<PAGE>
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses
to current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S. Treasury
Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue
sky reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment
of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
<PAGE>
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only
a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial
fee schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, tabulating proxies, records
storage, or advances incurred by the Bank for the items set out in the
fee schedule attached hereto. In addition, any other expenses incurred by
the Bank at the request or with the consent of the Fund, will be
reimbursed by the Fund on behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
<PAGE>
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the State of .
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund
being offered for sale.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability
to access certain Fund-related data ("Customer Data") maintained by the
Bank on data bases under the control and ownership of the Bank or other
third party ("Data Access Services") constitute copyrighted, trade
secret, or other proprietary information (collectively, "Proprietary
Information") of substantial value to the Bank or other third party. In
no event shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the Bank
and further agrees that it shall not divulge any Proprietary Information
<PAGE>
to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Fund agrees for itself and its
employees and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
<PAGE>
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by the Bank
from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have
been prepared, maintained or performed by the Fund or any other
person or firm on behalf of the Fund including but not limited to
any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such Shares in such state.
<PAGE>
(f) The negotiation and processing by the Bank of checks not made
payable to the order of the Bank, the Fund, the Fund's management
company, transfer agent or distributor or the retirement account
custodian or trustee for a plan account investing in Shares, which
checks are tendered to the Bank for the purchase of Shares (i.e.,
checks made payable to prospective or existing Shareholders, such
checks are commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or subcontractors
shall not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in acting
upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of
authority of any person, until receipt of written notice thereof from the
Fund. The Bank, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or
co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund
of such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
<PAGE>
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared
or maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with
its request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
<PAGE>
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the
average of three (3) months' fees.
10. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to (LIST FUNDS) with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall
so notify the Bank in writing, and if the Bank agrees in writing to
provide such services, such series of Shares shall become a Portfolio
hereunder.
11. Assignment
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a
BFDS subsidiary duly registered as a transfer agent pursuant to Section
17A(c)(2) or (iii) a BFDS affiliate; provided, however, that the Bank
shall be as fully responsible to the Fund for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
12. Amendment
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board
of Trustees of the Fund.
<PAGE>
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.
14. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Shareholders
individually but are binding only upon the assets and property of the
Fund.
18. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
<PAGE>
19. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or
not such reproduction was made by a party in the regular course of
business, and that any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
BY:___________________________________
ATTEST:
______________________
STATE STREET BANK AND TRUST
COMPANY
BY:___________________________________
Executive Vice President
ATTEST:
______________________
<PAGE>
STATE STREET BANK AND TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
<PAGE>
Service Performed Responsibility
Bank Fund
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a),
(b) and (c) of the Agreement.
BY:___________________________________
ATTEST:
______________________
STATE STREET BANK AND TRUST
COMPANY
BY:___________________________________
Executive Vice President
ATTEST:
______________________
EXHIBIT 10
DRAFT
BINGHAM, DANA & GOULD LLP
150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110-1726
November __, 1996
Variable Annuity Portfolios
6 St. James Avenue
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have acted as counsel to Variable Annuity Portfolios, a Massachusetts
business trust (the "Trust"), in connection with the preparation and filing of
the Trust's initial Registration Statement on Form N-1A and Pre-Effective
Amendment No. 1 thereto, filed with the Securities and Exchange Commission (the
"Commission") on October 30, 1996 and November __, 1996, respectively (as
amended, the "Registration Statement"), with respect to an indefinite number of
Shares of Beneficial Interest ($0.00001 par value) (the "Shares") of the
separate series of the Trust designated as CitiSelectSM VIP Folio 200,
CitiSelectSM VIP Folio 300, CitiSelectSM VIP Folio 400 and CitiSelectSM VIP
Folio 500 (collectively, the "Funds").
In connection with this opinion, we have examined the following described
documents:
(a) the Registration Statement;
(b) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust;
(c) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and of all amendments
thereto on file in the office of the Secretary of State; and
<PAGE>
(d) a Certificate executed by Linda T. Gibson, Secretary of the Trust,
certifying as to, and attaching copies of, the Trust's By-Laws and certain
votes of the Trustees of the Trust authorizing the issuance of the Shares.
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all original documents reviewed by
us in original or copy form and the legal competence of each individual
executing any document.
This opinion is based entirely on our review of the documents listed
above. We have made no other review or investigation of any kind whatsoever,
and we have assumed, without independent inquiry, the accuracy of the
information set forth in such documents.
This opinion is limited solely to the laws of the Commonwealth of
Massachusetts (other than the Massachusetts Uniform Securities Act, as to which
we express no opinion) as applied by courts in such Commonwealth to the extent
such laws may apply to or govern the matters covered by this opinion.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is our
opinion that the Shares, when issued and sold in accordance with the
Registration Statement and the Trust's Declaration of Trust and By-laws, will
be legally issued, fully paid and non-assessable, except that, as set forth in
the Registration Statement, shareholders of the Funds may under certain
circumstances be held personally liable for the Trust's obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
BINGHAM, DANA & GOULD LLP
