As filed with the Securities and Exchange Commission
on December 18, 1996
Registration Nos. 33-
811-07977
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(Check appropriate box or boxes.)
GRESHAM VARIABLE INSURANCE SERIES TRUST
_________________________________________________
(Exact name of registrant as specified in charter)
565 Fifth Avenue, Third Floor
New York, New York 10017
________________________________________ _________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 984-1450
Jonathan S. Spencer
President
Gresham Investment Management, Inc.
565 Fifth Avenue, Third Floor
New York, New York 10017
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
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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 said Section
8(a), may determine.
GRESHAM VARIABLE INSURANCE SERIES TRUST
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
<TABLE>
<CAPTION>
<S> <C> <C>
PART A
N-1A
- --------
Item No. Location
- -------- -------------------------
1. Cover Page........................... Cover Page
2. Synopsis............................. Not Applicable
3. Condensed Financial Information...... Not Applicable
4. General Description of Registrant.... Cover Page; Investment
Objective and Investment
Policies of the
Portfolio; General
Information; Appendix
5. Management of the Fund............... Management of the Trust
and the Portfolio;
General Information
5A. Management's Discussion of Fund
Performance..................... Not Applicable
6. Capital Stock and Other Securities... Sale and Redemption of
Shares; Net Asset Value;
Tax Matters; General
Information
7. Purchase of Securities Being Offered. Net Asset Value; Sale and
Redemption of Shares
8. Redemption or Repurchase............. Sale and Redemption of
Shares; Net Asset Value
9. Pending Legal Proceedings............ Not Applicable
PART B
10. Cover Page........................... Cover Page
11. Table of Contents.................... Cover Page
12. General Information and History...... General Information and
History
13. Investment Objectives and Policies... Additional Investment
Restrictions and Policies
of the Trust; Description
of Various Securities and
Investment Techniques
</TABLE>
CROSS REFERENCE SHEET (CONT'D)
(as required by Rule 404(c))
<TABLE>
<CAPTION>
<S> <C> <C>
N-1A
- --------
Item No. Location
- -------- ------------------------
Item 14. Management of the Fund............... Trustees and Officers
of the Trust
Item 15. Control Persons and Principal Holders
of Securities................... Not Applicable
Item 16. Investment Advisory and Other
Services........................ The Investment Advisory
Agreement; Independent
Auditors; Custodian
Item 17. Brokerage Allocation and Other
Practices....................... The Investment Advisory
Agreement (Brokerage and
Research Services);
Investment Decisions
Item 18. Capital Stock and Other Securities... Determination of Net
Asset Value; Taxes;
Dividends and Distribu-
tions; Organization and
Capitalization
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered........ Determination of Net
Asset Value
Item 20. Tax Status........................... Taxes; Dividends and
Distributions
Item 21. Underwriters......................... Not Applicable
Item 22. Calculations of Performance Data..... Performance Information
Item 23. Financial Statements................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
GRESHAM VARIABLE INSURANCE SERIES TRUST
565 FIFTH AVENUE, THIRD FLOOR
NEW YORK, NEW YORK 10017
Gresham Variable Insurance Series Trust (the "Trust") is an open-end,
diversified series management investment company which currently offers shares
of beneficial interest of one series, the Risk Dispersing Portfolio (the
"Portfolio"). Additional series of the Trust may be offered in the future. The
Trust is intended to be a funding vehicle for variable annuity contracts ("VA
Contracts") and variable life insurance policies ("VLI Policies") offered
through separate accounts of various life insurance companies (the
"Participating Insurance Companies").
This Prospectus sets forth concisely information about the Portfolio and the
Trust that an investor should know before investing in the Portfolio through a
VA Contract or a VLI Policy offered by a Participating Insurance Company. It
should be read and retained for future reference. A Statement of Additional
Information ("SAI") dated ________________, is available without charge upon
request and may be obtained by calling the Trust at 1-800-___-____ or by
writing to the Trust at 565 Fifth Avenue, Third Floor, New York, New York
10017. Some of the discussions contained in this Prospectus refer to the more
detailed descriptions contained in the SAI, which is incorporated by reference
into this Prospectus and has been filed with the Securities and Exchange
Commission ("SEC").
INVESTMENTS IN THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE TRUST ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE TRUST IS SUBJECT TO RISK THAT MAY
CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR.
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.
TRUST SHARES ARE AVAILABLE EXCLUSIVELY AS A FUNDING VEHICLE FOR LIFE INSURANCE
COMPANIES ISSUING VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY
CONTRACTS. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY A PROSPECTUS FOR SUCH
POLICIES OR CONTRACTS.
Prospectus Dated ___________________
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE AND INVESTMENT POLICIES OF THE PORTFOLIO
IMPLEMENTATION OF POLICIES
INVESTMENT TECHNIQUES
RISK FACTORS AND OTHER CONSIDERATIONS
INVESTMENT RESTRICTIONS
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
SALE AND REDEMPTION OF SHARES
NET ASSET VALUE
GENERAL INFORMATION
PERFORMANCE
TAX MATTERS
APPENDIX
GLOSSARY OF INVESTMENT TERMS
INVESTMENT OBJECTIVE AND INVESTMENT POLICIES OF THE PORTFOLIO
The investment objective of the Portfolio is to achieve a higher total return
while exposing the Portfolio to significantly less risk than a portfolio that
consists entirely of either common stocks or a mix of common stocks and bonds.
There is no guarantee that the Portfolio will achieve its stated objective.
The investment objective is non-fundamental and may be changed by the Trustees
of the Trust without a vote of the shareholders. The Trust will not change any
fundamental investment policy of the Portfolio without a vote of shareholders
of the Portfolio.
To achieve the Portfolio's objective, the Portfolio's adviser, Gresham
Investment Management, Inc. (the "Adviser"), has determined that there are
seven asset classes that the Portfolio will invest in:
- U.S. Common Stocks
- Intermediate-Term (5 year average maturity) U.S. Treasury Bonds or bonds
backed by the "full faith and credit" of the U.S. Government (Average
Maturity: 5 years). This class may, in the future, also be comprised of
intermediate-term, investment grade corporate debt securities.
- Long-Term U.S. Treasury Bonds and bonds backed by the "full faith and
credit" of the U.S. Government (Average Maturity: 20 years). This class may,
in the future, also be comprised of long-term, investment grade corporate debt
securities.
- Foreign Stocks
- Foreign Currencies
- Precious Metals
- Tangible Commodities (Agriculturals, Livestock, Softs/Tropicals, and
Petroleum)
These classes were chosen because they represent a broad spectrum of
investments that potentially allow the investor to consistently obtain returns
that exceed the risk-free rate of return (as measured by the 90-day Treasury
bill yield) while not taking unnecessary risk. See "Implementation of
Policies" for a description of the securities in which the Portfolio invests
and other investment practices of the Portfolio.
To determine the specific allocation of funds among these classes, the Adviser
developed a proprietary software program (the "Portfolio Simulator"). The
Adviser supplies the Portfolio Simulator with performance parameters and then,
using more than 70 years of data, the program suggests the optimum allocation
of the Portfolio's funds. Once the initial allocation has been implemented,
the Adviser monitors the performance of the Portfolio and adjusts the
allocation based upon new results generated by the Portfolio Simulator (using
updated parameters).
Rather than adjusting the Portfolio's allocation in response to every market
fluctuation (which would generate unnecessary transaction costs such as
brokerage fees), the Adviser has determined in advance the thresholds that
must be crossed before any rebalancing occurs. If the performance of an asset
class does not cross the given threshold, no change is made to the allocation
of that asset.
The Adviser anticipates that approximately 60%-80% of the Portfolio's assets
will be allocated among U.S. common stocks, intermediate- and long-term U.S.
Treasury Bonds, foreign stocks, and precious metals. The remaining 20%-40% of
the Portfolio's funds will be allocated between foreign currencies and
tangible commodities.
United States Treasury Regulations require that portfolios that serve as
funding vehicles for VA Contracts and VLI Policies invest no more than 55% of
the value of their assets in one investment, no more than 70% in two
investments, no more than 80% in three investments, and no more than 90% of
the value of their assets in four investments. The Portfolio plans on
complying with these regulations.
In order to comply with regulations which may be issued by the U.S. Treasury,
the Trust may be required to limit the availability, or change the investment
policies, of the Portfolio, or to take steps to liquidate the Portfolio.
Research is performed continuously on topics such as adding:
- new asset classes (i.e., emerging markets or debt obligations issued or
guaranteed by foreign governments)
- new instruments in which the Adviser may invest on behalf of the
Portfolio to implement any new or existing asset class
- new optimization techniques
- new rebalancing methods
If new instruments, strategies or techniques would involve a material change
to the information contained herein, they will not be purchased or implemented
until this Prospectus is appropriately supplemented.
THE ADVISER'S INVESTMENT PHILOSOPHY
The Adviser will construct the Portfolio with the goal of enhancing returns
while, at the same time, reducing inherent risks. The Adviser's investment
philosophy is reflected in an integrated set of principles upon which it has
constructed the Portfolio Simulator. These principles are:
- Financial markets are so efficient in their distribution of investment
and pricing information, that the benefit of finding a truly undervalued
investment rarely outweighs the cost of finding it.
- A return that exceeds the risk-free rate is usually associated with
underlying (sometimes invisible) risk that the investor is being paid to take
and is often higher than he expects.
- As the value of one class of investments increases, the value of other
investment classes decreases (unless of course the money supply is
simultaneously increasing enough to offset this).
- The frequency of trades and their accompanying transaction costs (and
the taxes that are due on realized gains) have so great an effect on a
portfolio's return that the number of trades should be kept as low as
possible.
- Investing in illiquid assets gives rise to such high transaction costs
and risks that it is sounder to concentrate on investments that constitute the
main components of the world's wealth portfolio.
- The market price of any investment that the Adviser places in a
portfolio has to be easy to determine.
- the correct distribution of a portfolio among different investment
classes is:
- more important than finding the best investment within each class,
- the best way to obtain consistently superior returns, and
- the best way to balance rewards and risk so that the investor gets the
return he wants while carrying risks he can identify and accepts.
Once the Adviser had established its investment philosophy, it had to
determine which of the "world wealth portfolio" investment types (i.e., asset
classes) satisfied its requirements. The Adviser then identified the seven
asset classes described above.
IMPLEMENTATION OF POLICIES
The Portfolio invests in the seven asset classes described below in varying
proportions. (See "Risk Factors and Other Considerations" for a discussion of
various risks involved with respect to the investments described below.)
(1) U.S. COMMON STOCKS. The Portfolio will invest in a diversified portfolio
of U.S. common stocks selected to parallel the investment performance of the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index").
(2) INTERMEDIATE-TERM U.S. TREASURY BONDS. The Portfolio will invest in
intermediate-term U.S. Treasury bonds (those with initial maturities generally
of 3-10 years). As part of its intermediate-term bond investments, the
Portfolio may also invest in other "full faith and credit" obligations of the
U.S. Government such as securities issued by the Government National Mortgage
Association ("GNMA"). The Portfolio may also invest in other U.S. government
agency securities issued or guaranteed by U.S. government agencies,
instrumentalities, or other U.S. government-sponsored enterprises.
The Portfolio may also invest in commodity futures on U.S. Treasuries that
trade on the Chicago Board of Trade.
(3) LONG-TERM U.S. TREASURY BONDS. The Portfolio will invest in long-term
U.S. Treasury bonds (those with initial maturities generally of 11-20 years).
As part of its long-term bond investments, the Portfolio may also invest in
U.S. Government and agency securities and in commodity futures on U.S.
Treasuries in the same manner as the Intermediate-Term U.S. Treasury Bond
asset class described in (2) above. The determination as to the percentage of
assets allocated between this class and the Intermediate-Term U.S. Treasury
Bond asset class is a function of prevailing interest rates.
(4) FOREIGN STOCKS. The Portfolio will invest a portion of its assets in the
stocks of foreign issuers of developed (non-emerging) nations. This asset
class will consist of a "basket" of stocks which track a particular benchmark
(e.g., EAFE Europe) or commodity futures on a foreign stock index (e.g.,
Eurotop 100, which trades on the Comex Division of the New York Mercantile
Exchange).
(5) FOREIGN CURRENCIES. The Portfolio will enter into foreign currency
exchange transactions to convert to and from different foreign currencies and
to convert foreign currencies to and from the U.S. dollar. This asset class
will consist of a "basket" of foreign currencies of developed (non-emerging)
nations. These investments will be implemented via the Interbank Market or by
way of commodity futures contracts traded on the International Monetary Market
of the Chicago Mercantile Exchange or a similar exchange.
(6) PRECIOUS METALS. The Portfolio will invest a portion of its assets in
gold bullion and other precious metals (i.e., silver, platinum) via the
purchase of the physical metal or through commodities futures contracts which
trade on the Comex Division of the New York Mercantile Exchange or similar
exchanges.
(7) TANGIBLE COMMODITIES. The Portfolio will invest a portion of its assets
in tangible commodities futures from each of the following four U.S. exchange
traded commodity groups: Agriculturals, Livestock, Softs/Tropicals and the
Petroleum Complex.
INVESTMENT TECHNIQUES
In an effort to maximize its total investment return, the Portfolio may use
the following investment techniques (see the Appendix for the definition of
certain terms used below):
BORROWING. The Portfolio may borrow up to one-third of the value of its net
assets taken at market value. Under the Investment Company Act of 1940 ("1940
Act"), the Portfolio is required to maintain continuous asset coverage of 300%
with respect to such borrowings and to sell (within three days) sufficient
portfolio holdings to restore such coverage if it should decline to less than
300% because of market fluctuations or other factors, even if the sale would
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing will exaggerate the effect of any increase or decrease in the value
of portfolio securities on the Portfolio's net asset value, and money borrowed
will be subject to interest and other costs (which may include commitment fees
and/or the cost of maintaining minimum average balances) which may or may not
exceed the investment return received from the securities purchased with
borrowed funds. It is anticipated that such borrowings would be pursuant to a
negotiated loan agreement with a commercial bank or other institutional
lender.
SECURITIES LENDING. The Portfolio may lend its portfolio securities; however,
the value of the loaned securities (together with all other assets that are
loaned, including those subject to repurchase agreements) may not exceed
one-third of the Portfolio's total assets. The Portfolio will not lend
portfolio securities to affiliates. Though fully collateralized, lending
portfolio securities involves certain risks, including the possibility that
the Portfolio may incur costs in liquidating the collateral or a loss if the
collateral declines in value. In the event of a disparity between the value
of the loaned security and the collateral, there is the additional risk that
the borrower may fail to return the securities or provide additional
collateral.
REPURCHASE AGREEMENTS. Under a repurchase agreement, the Portfolio may acquire
a debt instrument for a relatively short period subject to an obligation by
the seller to repurchase and by the Portfolio to resell the instrument at a
fixed price and time.
The Portfolio may enter into repurchase agreements with domestic banks and
broker-dealers. Such agreements, although fully collateralized, involve the
risk that the seller of the securities may fail to repurchase them. In that
event, the Portfolio may incur costs in liquidating the collateral or a loss
if the collateral declines in value. If the default on the part of the seller
is due to insolvency and the seller initiates bankruptcy proceedings, the
ability of a Portfolio to liquidate the collateral may be delayed or limited.
The Board of Trustees has established credit standards for repurchase
transactions entered into by the Portfolio.
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. A derivative is a
financial instrument, the value of which is "derived" from the performance of
an underlying asset (such as a security or index of securities). In addition
to futures and options, derivatives include, but are not limited to, forward
contracts and swaps.
THE PORTFOLIO INTENDS TO USE FUTURES CONTRACTS TO IMPLEMENT A POSITION(S) IN
VARIOUS ASSET CLASSES. THEREFORE, THE PORTFOLIO MAY HAVE A SUBSTANTIAL
PERCENTAGE OF ITS ASSETS INVESTED IN DERIVATIVES.
Although the seven asset classes constituting the Portfolio are commonly
traded, the classes can be complex, expensive to buy or sell and difficult to
track. It is the Adviser's view that effective surrogates are available for
each of these asset classes in the United States' highly efficient and
well-regulated futures markets. It is also the Adviser's view that these
futures markets are:
- liquid in the sense that there are so many thousands of trades a day
that there is always a buyer willing to buy and a seller willing to sell at or
close to the current trading price;
- inexpensive in terms of commission costs when the latter are compared
to the investments' value; and
- price-transparent, meaning that these markets show the traded
investments' prices so continuously and efficiently that it is relatively easy
for the investor to track the performance of the objects in which he trades.
While the Portfolio intends to invest in the futures markets to a significant
degree, it also will invest in the actual investments themselves (i.e., shares
of stock, bonds or precious metals) when it determines that it is more
advantageous to do so (i.e., when the Adviser believes that the actual
investments have the potential to increase in value more than their futures
market surrogates do).
The Portfolio may also use derivatives to manage its exposure to changing
interest rates, securities prices and currency exchange rates (collectively
known as hedging strategies), or to increase its investment return.
For hedging and other purposes (such as creating synthetic positions), the
Portfolio may invest in premiums on call and put options on domestic and
foreign securities, foreign currencies, stock and bond indices, financial
futures contracts and commodity futures contracts.
Investments in futures contracts and related options with respect to foreign
currencies, fixed income securities and foreign stock indices may be made by
the Portfolio to hedge against price fluctuations, and in some cases, for the
purpose of increasing the Portfolio's exposure in a particular asset class or
market segment, which strategy may be considered speculative. With respect to
futures contracts or related options that may be entered into for speculative
purposes, the aggregate initial margin for futures contracts and premiums for
options will not exceed 5% of the Portfolio's net assets, after taking into
account realized profits and unrealized losses on such futures contracts.
The Portfolio may invest in forward contracts on foreign currency ("forward
exchange contracts"). These contracts may involve "cross-hedging," a
technique in which the Portfolio hedges with currencies which differ from the
currency in which the underlying asset is denominated.
The Portfolio may also invest in interest rate swap transactions. Interest
rate swaps are subject to credit risks (if the other party fails to meet its
obligations) and also interest rate risks, because the Portfolio could be
obligated to pay more under its swap agreements than it receives under them as
a result of interest rate changes.
CASH OR CASH EQUIVALENTS. The Portfolio reserves the right to depart from its
investment objective temporarily by investing up to 100% of its assets in cash
or cash equivalents for defense against potential market declines and to
accommodate cash flows from the purchase and sale of Portfolio shares.
OTHER INVESTMENTS. The Portfolio may use other investment techniques,
including "when-issued" and "delayed-delivery securities" and variable rate
instruments. These techniques are described in the Appendix and the SAI.
RISK FACTORS AND OTHER CONSIDERATIONS
GENERAL CONSIDERATIONS. The different types of securities purchased and
investment techniques used by the Portfolio involve varying amounts of risk.
For example, equity securities are subject to a decline in the stock market or
in the value of the issuer, and preferred stocks have price risk and some
interest rate and credit risk. The value of debt securities may be affected by
changes in general interest rates. Debt securities with longer maturities
(for example, over ten years) are generally more affected by changes in
interest rates and provide less price stability than securities with short
term maturities (for example, one to ten years). In addition, foreign
securities have currency risk. Some of the risks involved in the securities
acquired by the Portfolio are discussed in this section. Additional discussion
is contained above under "Investment Techniques" and in the SAI.
PORTFOLIO TURNOVER. Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold in
the aggregate during the year. BASED ON ITS EXPERIENCE IN MANAGING A SIMILAR
RISK DISPERSING PORTFOLIO, THE ADVISER ANTICIPATES THAT THE PORTFOLIO TURNOVER
RATE WILL BE QUITE LOW, WHICH WILL, IN TURN, RESULT IN LOW TRANSACTION COSTS.
FOREIGN SECURITIES. Investments in securities of foreign issuers or
securities denominated in foreign currencies typically involve risks not
present in domestic markets. Such risks include: currency fluctuations and
related currency conversion costs; less liquidity; price or income volatility;
less government supervision and regulation of foreign stock exchanges, brokers
and listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic developments;
different accounting procedures and auditing standards; the possible
imposition of withholding taxes on interest income payable on securities; the
possible seizure or nationalization of foreign assets; the possible
establishment of exchange controls or other foreign laws or restrictions which
might adversely affect the payment and transferability of principal, interest
and dividends on securities; higher transaction costs; possible settlement
delays; and less publicly available information about foreign issuers.
THE ADVISER, HOWEVER, WILL ATTEMPT TO REDUCE THE RISKS OTHERWISE PRESENT IN
THE PURCHASE OF FOREIGN SECURITIES, BY BUYING U.S. DOLLAR-DENOMINATED INDICES
WHENEVER POSSIBLE. IF IT IS UNABLE TO PURCHASE SUCH INDICES, IT WILL HEDGE THE
CURRENCY EXPOSURE OR HOLD IT IF IT LIKES A PARTICULAR CURRENCY.
DEPOSITARY RECEIPTS. The Portfolio can invest in both sponsored and
unsponsored depositary receipts. Unsponsored depositary receipts, which are
typically traded in the over-the-counter market, may be less liquid than
sponsored depositary receipts and therefore may involve more risk. In
addition, there may be less information available about issuers of unsponsored
depositary receipts.
The Portfolio will generally acquire American Depositary Receipts ("ADRs")
which are dollar denominated, although their market price is subject to
fluctuations of the foreign currency in which the underlying securities are
denominated. All depositary receipts will be considered foreign securities
for purposes of the Portfolio's investment limitation concerning investment in
foreign securities. See the Appendix and the SAI for more information.
DERIVATIVES. The Portfolio may use derivative instruments as described above
under "Investment Techniques - Options, Futures and Other Derivative
Instruments." Derivatives can be volatile investments and involve certain
risks. The Portfolio may be unable to limit its losses by closing a position
due to lack of a liquid market or similar factors. Losses may also occur if
there is not a perfect correlation between the value of futures or forward
contracts and the related securities. As a result, small price movements in
futures contracts may result in immediate and potentially unlimited gains or
losses to the Portfolio. Leverage may exaggerate losses of principal.
THE ADVISER WILL PURCHASE FUTURES CONTRACTS ON BEHALF OF THE PORTFOLIO ONLY
WHERE SUCH INVESTMENTS ARE FULLY COLLATERALIZED BY THE ESTABLISHMENT OF A
SEGREGATED ACCOUNT WITH THE TRUST'S CUSTODIAN. THE PORTFOLIO WILL MAINTAIN,
IN THIS SEGREGATED ACCOUNT, CASH, U.S. GOVERNMENT SECURITIES OR OTHER LIQUID
HIGH-GRADE DEBT OBLIGATIONS EQUAL IN VALUE AT ALL TIMES TO ITS OBLIGATIONS IN
RESPECT OF THE FUTURES CONTRACTS.
The use of forward exchange contracts may reduce the gain that would otherwise
result from a change in the relationship between the U.S. dollar and a foreign
currency. In an attempt to limit its risk in forward exchange contracts, the
Portfolio limits its exposure to the amount of its assets denominated in the
foreign currency being cross-hedged. Cross-hedging entails a risk of loss on
both the value of the security that is the basis of the hedge and the currency
contract that was used in the hedge. These risks are described in greater
detail in the SAI.
PRECIOUS METALS. Precious metals trading is a speculative activity. Prices
of precious metals are affected by factors such as cyclical economic
conditions, political events and monetary policies of various countries. Gold
and other precious metals are also subject to governmental action for
political reasons. These markets can be volatile and experience sharp
fluctuations in prices even during periods of rising prices. Under current
U.S. tax law, the Portfolio may not receive more than 10% of its respective
yearly income from gains resulting from selling precious metals or any other
physical commodity. The Portfolio may be required, therefore, to hold its
precious metals or sell them at a loss, or to sell its portfolio securities at
a gain, when it would not otherwise do so for investment reasons.
ASSET ALLOCATION. The Portfolio is a balanced portfolio. Balanced portfolios
consist of a combination of stocks and bonds. The Portfolio extends the
concept of a balanced portfolio by investing in seven asset classes that take
into consideration economic factors beyond domestic stocks and bonds, thus
providing what the Adviser considers to be a better balance.
The Adviser allocates the funds in the Portfolio based on a combination of
historical returns, risks and cross-correlations among the seven asset classes
over various calendar periods of the past and upon the prevailing political
and economic conditions in conjunction with historical results for periods
that had the same conditions.
Investors should be aware that the investment results of the Portfolio depend
upon the Adviser's ability to correctly identify the historical risks and
rewards associated with the asset classes. While the Adviser has substantial
experience in asset allocation, there can be no assurance that it will
correctly identify the optimum asset allocation on a consistent basis.
The Portfolio's short term investment results would suffer, for example, if
only a small portion of the Portfolio's assets were allocated to domestic
stocks during a significant stock advance or if a major portion of its assets
were allocated to stocks during a market decline. It must be pointed out that
domestic stocks represent only one of the seven asset classes in which the
Portfolio invests and similar results might occur if any one of the classes
behaves in the same way.
INVESTMENT RESTRICTIONS
In addition to the restrictions discussed under "Investment Techniques," the
Portfolio will not concentrate its investments in any one industry, except
that the Portfolio may invest up to 25% of its total assets in securities
issued by companies principally engaged in any one industry. For purposes of
this restriction, finance companies will be classified as separate industries
according to the end users of their services, such as automobile finance,
computer finance and consumer finance. This limitation will not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Additionally, the Portfolio will not invest more than 5% of its total assets
in the securities of any one issuer (excluding securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) or purchase more
than 10% of the outstanding voting securities of any one issuer. This
restriction applies only to 75% of the Portfolio's total assets. See the SAI
for additional investment restrictions.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. The operations of the Trust and the Portfolio are managed under the
direction of the Board of Trustees ("Trustees"). The Trustees set broad
policies for the Portfolio. Information about the Trustees is found in the
SAI.
ADVISER. The Adviser is a Delaware corporation formed in July 1992. The
Adviser is registered with the SEC as an investment adviser. The Adviser is
also registered with the Commodity Futures Trading Commission ("CFTC") as a
Commodity Trading Advisor ("CTA") and as a Commodity Pool Operator ("CPO") and
is a member of the National Futures Association ("NFA"). The Adviser's sole
business activity is to render advisory services and manage assets on behalf
of its clients. Its main administrative and corporate business offices are
located at 565 Fifth Avenue, Third Floor, New York, NY 10017. The Adviser has
had no previous experience in advising a mutual fund.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of the Portfolio in a
manner consistent with the Portfolio's investment objective, policies and
restrictions and to determine from time to time securities to be purchased,
sold, retained or lent by the Portfolio and to implement those decisions. The
Investment Advisory Agreement also provides that the Adviser shall manage the
Trust's business and affairs and shall provide the services required for
effective administration of the Trust. The Investment Advisory Agreement
further provides that the Adviser shall furnish the Trust with office space
and necessary personnel, pay ordinary office expenses, pay all executive
salaries of the Trust and furnish, without expense to the Trust, the services
of such members of its organization as may be duly elected officers or
Trustees of the Trust.
As full compensation for its services under the Investment Advisory Agreement,
the Trust will pay the Adviser a monthly fee at the following annual rate
shown in the table below based on the average daily net assets of the
Portfolio.
<TABLE>
<CAPTION>
<S> <C>
Portfolio Advisory Fee
- --------------- --------------------------
Risk Dispersing .75% of average net assets
</TABLE>
PORTFOLIO MANAGEMENT
The three individuals responsible for the management of the Portfolio are
- Dr. Henry G. Jarecki,
- Jonathan S. Spencer, and
- Dr. Stanley A. Lefkowitz.
These men have more than 25 years experience providing trading, brokerage, and
computer services to banks and investors around the world.
Dr. Jarecki is the Director and sole shareholder of the Adviser as well as of
the following financial service affiliates:
- THE FALCONWOOD CORPORATION
develops computerized services for brokerage and trading companies and
also is a market maker in tangible commodities options,
- HIGHLAND FINANCIAL CORPORATION
(formerly known as Falconwood Financial Corporation)
loans and arranges credit facilities for commodity merchants.
- GRESHAM ASSET MANAGEMENT, INCORPORATED
a CTA and CPO formed in October 1991 that offers its clients managed
investment services utilizing the expertise of the other corporations'
commodities trading, computerized systems development, and investment
research.
Dr. Jarecki is registered with the NFA as a principal of the Adviser since
August 17, 1995.
In 1970 Dr. Jarecki founded Mocatta Metals, the U.S. affiliate of Mocatta &
Goldsmid Limited, London's 300-year-old bullion trading company. By 1982, the
Mocatta Group had become the largest gold and silver bullion trading company
in the world. In 1986, Dr. Jarecki sold Mocatta's bullion business to
Standard Chartered Bank Limited.
On August 1, 1995, Dr. Jarecki sold the assets of Brody, White & Company,
Inc., a U.S.-based Futures Commission Merchant ("FCM"), and its London
affiliate, Brody White U.K. Limited, to Fimat Futures USA, Inc.
Dr. Jarecki has been the principal shareholder of The Falconwood Corporation
since June 1974 and is a principal of Fixed Plus Service Partners, L.P., a
registered investment adviser and CTA, since March 1995.
Jonathan Spencer, the President of the Adviser since August 1995, is
responsible for the day-to-day operation and administration. Mr. Spencer has
been registered with the NFA as a principal and associate of the Adviser since
August 17, 1994.
After receiving a Bachelor of Science Degree in Management Information Systems
from the State University of New York at Buffalo in May 1986, Mr. Spencer
began working for The Falconwood Corporation. He is currently the senior
portfolio manager and Executive Vice President of the corporation.
From September 1991 to July 1995, Mr. Spencer was also president of KPQ
Futures, a FCM.
Since 1993, Mr. Spencer has served as the President and Treasurer of Gresham
Asset Management Incorporated ("GAMI"), another CTA/CPO affiliated with the
Adviser. He is also responsible for GAMI's research and development.
Dr. Stanley Lefkowitz is a Vice President and the Secretary of the Adviser.
He has been registered with the NFA as a principal of the Adviser since August
17, 1994.
Dr. Lefkowitz has been an Administrator for The Falconwood Corporation since
March 1975.
Dr. Lefkowitz was a principal of KPQ Futures from September 1991 to July 1995
and has served as an Executive Vice President of Windham since August 1995.
Dr. Lefkowitz graduated from Temple University in 1965 with a Bachelor of Arts
degree in Chemistry and from Princeton University in 1970 with a Ph.D. in
Chemistry.
EXPENSE CAP
The Adviser has undertaken to reimburse the Portfolio for all operating
expenses, excluding management fees, that exceed 1% of the average daily net
assets of the Portfolio. This undertaking is subject to termination at any
time without notice to shareholders.
EXPENSES AND TRUST ADMINISTRATION. The organizational expenses of the Trust
were paid for by the Adviser. Pursuant to an Administrative Services Agreement
with the Trust, _________________ provides certain administrative services
necessary for the Trust's operations.
SALE AND REDEMPTION OF SHARES
Purchases and redemptions of shares may be made only by Participating
Insurance Companies for their separate accounts at the direction of VA
Contract Owners and VLI Policy Owners. Please refer to the prospectus for your
VA Contract or VLI Policy for information on how to direct investments in or
redemptions from the Portfolio and any fees that may apply. Generally,
Participating Insurance Companies aggregate orders received from VA Contract
Owners and VLI Policy Owners during the day and place an order to purchase or
redeem the net number of shares during the night. Orders are generally
executed at the net asset value per share ("NAV") determined at the end of the
previous business day. The Trust reserves the right to suspend the offering of
shares, or to reject any specific purchase order. The Trust may suspend
redemptions or postpone payments when the New York Stock Exchange is closed or
when trading is restricted for any reason (other than weekends or holidays) or
under emergency circumstances as determined by the SEC.
NET ASSET VALUE
The NAV of the Portfolio is determined as of 4:00 p.m. New York time on each
day that the New York Stock Exchange is open for trading. The Portfolio's NAV
is computed by taking the total value of the Portfolio's securities, plus any
cash or other assets (including dividends and interest accrued but not
collected) and subtracting all liabilities (including accrued expenses), and
dividing the total by the number of shares outstanding. Portfolio securities
are valued primarily by independent pricing services, based on market
quotations. Short-term debt instruments maturing in less than 60 days are
valued at amortized cost. Securities for which market quotations are not
readily available are valued at their fair value in such manner as may be
determined, from time to time, in good faith, by or under the authority of,
the Trustees.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by a Declaration of Trust dated November 29, 1996. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of
the trust. The Declaration of Trust contains an express disclaimer of
shareholder liability in connection with Trust property or the acts,
obligations, or affairs of the Trust. The Declaration of Trust also provides
for indemnification out of a Portfolio's property of any shareholder of that
Portfolio held personally liable for the claims and liabilities to which a
shareholder may become subject by reason of being or having been a
shareholder. Thus, the risk of a shareholder's incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Portfolio itself would be unable to meet its obligations. A copy of the
Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial interest.
Shares of the Trust are entitled to one vote per share (with proportional
voting for fractional shares) and are freely transferable, and, in liquidation
of a Portfolio, shareholders of the Portfolio are entitled to receive pro rata
the net assets of the Portfolio. Although no Portfolio is required to hold
annual meetings of its shareholders, shareholders have the right to call a
meeting to elect or remove Trustees or to take other actions as provided in
the Declaration of Trust. Shareholders have no preemptive rights. The Trust's
custodian, transfer and dividend-paying agent is _________________. The
Participating Insurance Companies holding the shares in their separate
accounts will generally request voting instructions from the VA Contract
Owners and VLI Policy Owners and generally must vote the shares in proportion
to the voting instructions received. Voting rights for VA Contracts and VLI
Policies are discussed in the prospectus for the applicable contract or
policy.
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Trust and the Adviser have adopted policies
that restrict securities trading in personal accounts of the portfolio
managers and others who normally come into possession of information on
portfolio transactions. These policies comply, in all material respects, with
the recommendations of the Investment Company Institute.
PERFORMANCE
From time to time advertisements and other sales materials for the Trust may
include information concerning the historical performance of the Portfolio.
Such advertisements will also describe the performance of the relevant
Participating Insurance Company separate accounts. Any such information will
include the average annual total return of the Portfolio calculated on a
compounded basis for specified periods of time. Total return information will
be calculated pursuant to rules established by the SEC. In lieu of or in
addition to total return calculations, such information may include
performance rankings and similar information from independent organizations
such as Lipper Analytical Services, Inc., Morningstar, Business Week, Forbes
or other industry publications.
The Portfolio calculates average annual total return by determining the
redemption value at the end of specified periods (assuming reinvestment of all
dividends and distributions) of a $1,000 investment in the Portfolio at the
beginning of the period, deducting the initial $1,000 investment, annualizing
the increase or decrease over the specified period and expressing the result
as a percentage.
Total return figures utilized by the Portfolio are based on historical
performance and are not intended to indicate future performance. Total return
and net asset value per share can be expected to fluctuate over time, and
accordingly, upon redemption, shares may be worth more or less than their
original cost.
PRIVATE ACCOUNT PERFORMANCE
The Portfolio is newly organized and does not yet have its own performance
record. However, it has an investment objective, policies and strategies which
are substantially similar to those employed by the Adviser with respect to
certain Private Accounts.
Thus, the performance information derived from these Private Accounts is
deemed relevant to the investor. The performance of the Portfolio may vary
from the Private Account composite information because the Portfolio will have
certain investment restrictions which the Private Accounts do not have and
because its investments will vary from time to time and will not be identical
to the past portfolio investments of the Private Accounts. Moreover, the
Private Accounts are not registered under the 1940 Act and therefore are not
subject to certain investment restrictions that are imposed by the 1940 Act,
which, if imposed, could have adversely affected the Private Accounts'
performances.
The chart below shows hypothetical performance information derived from
historical composite performance of the Private Accounts included in the
Composite. THE HYPOTHETICAL PERFORMANCE FIGURES FOR THE PORTFOLIO REPRESENT
THE ACTUAL PERFORMANCE RESULTS OF THE COMPOSITE OF COMPARABLE PRIVATE
ACCOUNTS, ADJUSTED TO REFLECT THE DEDUCTION OF THE FEES AND EXPENSES
ANTICIPATED TO BE PAID BY THE PORTFOLIO. The actual Private Account composite
performance figures are time-weighted rates of return which include all income
and accrued income and realized and unrealized gains or losses, but do not
reflect the deduction of investment advisory fees actually charged to the
Private Accounts.
Investors should not consider the performance data of these Private Accounts
as an indication of the future performance of the Portfolio. The figures also
do not reflect the deduction of any insurance fees or charges which are
imposed by any Participating Insurance Company in connection with its sale of
VA Contracts and VLI Policies. Investors should refer to the separate account
prospectuses describing the VA Contracts and VLI Policies for information
pertaining to these insurance fees and charges. The insurance fees and
charges will have a detrimental effect on the performance of the Portfolio.
The following tables show hypothetical performance information derived from
private account composite performance reduced by anticipated Portfolio fees
and expenses, as well as comparisons with the S&P 500, (an unmanaged index
generally considered to be representative of the stock market), 90 day
Treasury bill yields, the rate of inflation as measured by the Consumer Price
Index and a portfolio of U.S. common stocks, bonds, U.S. Treasury bonds and
U.S. Treasury bills.
HYPOTHETICAL INVESTMENT PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
<S> <C> <C>
RISK DISPERSING PORTFOLIO
1 YEAR SINCE INCEPTION
Composite _____% _____%
S&P 500 Stock Index _____% _____%
90 day Treasury Bill Yields _____% _____%
Rate of Inflation (as measured
by the Consumer Price Index) _____% _____%
Portfolio of U.S. common stocks,
bonds, U.S. Treasury bonds
and U.S. Treasury bills _____% _____%
</TABLE>
Results shown are through the period ended _____________, 1996. The inception
date is ________________ for the Composite.
TAX MATTERS
The Portfolio intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including requirements with respect to
diversification of assets, distribution of income and sources of income. As a
regulated investment company, the Portfolio generally will not be subject to
tax on its ordinary income and net realized capital gains.
The Portfolio also intends to comply with the diversification requirements of
Section 817(h) of the Code for variable annuity contracts and variable life
insurance policies so that the VA Contract Owners and VLI Policy Owners should
not be subject to federal tax on distributions of dividends and income from
the Portfolio to the Participating Insurance Company separate accounts. VA
Contract Owners and VLI Policy Owners should review the prospectus for their
VA Contract or VLI Policy for information regarding the tax consequences to
them of purchasing a contract or policy.
APPENDIX
GLOSSARY OF INVESTMENT TERMS
CALL OPTION. The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be
exercised if the market price rises above the strike price; if not, the option
expires worthless.
CONVERTIBLE SECURITIES. Corporate securities (usually bonds or preferred
stock) that can be exchanged for a set number of shares of another security,
usually common stock.
COVERED CALL OPTIONS. A call option backed by the securities underlying the
option. The owner of a security will normally sell covered call options to
collect premium income or to reduce price fluctuations of the security. A
covered call option limits the capital appreciation of the underlying
security.
EURODOLLARS. Eurodollars are U.S. dollars held in banks outside the United
States, mainly in Europe but also in other countries, and are commonly used
for the settlement of international transactions. There are many types of
Eurodollar securities including Eurodollar CDS and bonds; these securities are
not registered with the SEC. Certain Eurodollar deposits are not FDIC insured
and may be subject to future political and economic developments and
governmental restrictions.
DEPOSITARY RECEIPTS. Negotiable certificates evidencing ownership of shares
of a non-U.S. corporation, government, or foreign subsidiary of a U.S.
corporation. A U.S. bank typically issues depositary receipts, which are
backed by ordinary shares that remain on deposit with a custodian bank in the
issuer's home market. A depositary receipt can either be "sponsored" by the
issuing company or established without the involvement of the company, which
is referred to as "unsponsored."
FORWARD CONTRACTS. A purchase or sale of a specific quantity of a government
security, foreign currency, or other financial instrument at the current
price, with delivery and settlement at a specified future date.
FUTURES CONTRACTS. An agreement to buy or sell a specific amount of a
financial instrument at a particular price on a stipulated future date. A
futures contract obligates the buyer to purchase and the seller to sell,
unlike an option where one party can choose whether or not to exercise the
option.
PREFERRED STOCK. Stock which has a preference over common stock, whether as
to payment of dividends or to assets on liquidation. It ordinarily pays a
fixed dividend.
PUT OPTION. The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the market price falls below the strike price; if not, the option expires
worthless.
SWAP. An exchange of one security for another. A swap may be executed to
change the maturities of a bond portfolio or the quality of the issues in a
stock or bond portfolio.
U.S. GOVERNMENT SECURITIES. Securities issued by the U.S. Government and its
agencies.
Direct Obligations of the U.S. Government are:
TREASURY BILLS - issued with short maturities (one year or less) and
priced at a discount to face value. The income for investors is the
difference between the purchase price and the face value.
TREASURY NOTES - intermediate-term securities with maturities of between
one to ten years. Income to investors is paid in semiannual interest
payments.
TREASURY BONDS - long-term securities with maturities from ten years to
up to thirty years. Income is paid to investors on a semiannual basis.
In addition, U.S. Government Agencies issue debt securities to finance
activities for the U.S. Government. These agencies include among others the
Federal Home Loan Bank, Federal National Mortgage Association ("FNMA" or
"Fannie Mae"), Government National Mortgage Association ("GNMA" or "Ginnie
Mae"), Export-Import Bank and the Tennessee Valley Authority.
Not all agencies are backed by the full faith and credit of the United States;
for example the FNMA may borrow money from the U.S. Treasury only under
certain circumstances. There is no guarantee that the government will support
these types of securities and they therefore involve more risk than direct
government obligations.
PART B
STATEMENT OF ADDITIONAL INFORMATION DATED:
____________________
GRESHAM VARIABLE INSURANCE SERIES TRUST
565 FIFTH AVENUE, THIRD FLOOR
NEW YORK, NEW YORK 10017
FORM N-1A
PART B
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus for Gresham Variable Insurance
Series Trust dated ____________. A free prospectus is available upon request
by writing to Gresham Variable Insurance Series Trust at the address listed
above or calling 1-800-___ - ____.
READ THE PROSPECTUS BEFORE YOU INVEST.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF THE TRUST
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
TRUSTEES AND OFFICERS OF THE TRUST
THE INVESTMENT ADVISORY AGREEMENT
INVESTMENT DECISIONS
DETERMINATION OF NET ASSET VALUE
TAXES
DIVIDENDS AND DISTRIBUTIONS
PERFORMANCE INFORMATION
SHAREHOLDER COMMUNICATIONS
ORGANIZATION AND CAPITALIZATION
CUSTODIAN
LEGAL COUNSEL
INDEPENDENT AUDITORS
SHAREHOLDER LIABILITY
FINANCIAL STATEMENTS
GENERAL INFORMATION AND HISTORY
Gresham Variable Insurance Series Trust (the "Trust") was established as a
Massachusetts business trust under the laws of Massachusetts by a Declaration
of Trust dated November 29, 1996. The Trust is an open-end management
investment company. The Trust is authorized to issue multiple series of
shares, each representing a diversified portfolio of investments with
different investment objectives, policies and restrictions. The Trust
currently offers shares of beneficial interest of one series, the Risk
Dispersing Portfolio (the "Portfolio").
The investment objective and general investment policies of the Portfolio are
described in the Prospectus.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF THE TRUST
The investment policies and restrictions of the Trust, set forth below, are
matters of fundamental policy for purposes of the Investment Company Act of
1940 (the "1940 Act") and therefore cannot be changed, with regard to a
particular Portfolio, without the approval of a majority of the outstanding
voting securities of that Portfolio as defined by the 1940 Act. This means the
lesser of: (i) 67% of the shares of a Portfolio present at a shareholders'
meeting if the holders of more than 50% of the shares of that Portfolio then
outstanding are present in person or by proxy; or (ii) more than 50% of the
outstanding voting securities of a Portfolio.
As a matter of fundamental policy, the Portfolio will not:
(1) hold more than 5% of the value of its total assets in the securities
of any one issuer or hold more than 10% of the outstanding voting securities
of any one issuer. This restriction applies only to 75% of the value of the
Portfolio's total assets. Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities are excluded from this
restriction;
(2) concentrate its investments in any one industry, except that the
Portfolio may invest up to 25% of its total assets in securities issued by
companies principally engaged in any one industry. For purposes of this
restriction, finance companies will be classified as separate industries
according to the end user of their services, such as automobile finance,
computer finance and consumer finance. This limitation will not, however,
apply to securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities;
(3) make loans, except that, to the extent appropriate under its
investment program, the Portfolio may (a) purchase bonds, debentures or other
debt securities, including short-term obligations; (b) enter into repurchase
transactions; and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Portfolio's total
assets;
(4) issue any senior security (as defined in the 1940 Act), except that
(a) the Portfolio may enter into commitments to purchase securities in
accordance with the Portfolio's investment program, including reverse
repurchase agreements, which may be considered the issuance of senior
securities; (b) the Portfolio may engage in transactions that may result in
the issuance of a senior security to the extent permitted under applicable
regulations, interpretations of the 1940 Act or an exemptive order; (c) the
Portfolio may engage in short sales of securities to the extent permitted in
its investment program and other restrictions; (d) the purchase or sale of
futures contracts and related options shall not be considered to involve the
issuance of senior securities; and (e) subject to fundamental restrictions,
the Portfolio may borrow money as authorized by the 1940 Act;
(5) purchase real estate, interests in real estate or real estate
limited partnership interests except that to the extent appropriate under its
investment program, the Portfolio may invest in securities secured by real
estate or interests therein or issued by companies, including real estate
investment trusts, which deal in real estate or interests therein;
(6) borrow money which is in excess of one-third of the value of its
total assets taken at market value, except that (a) the Portfolio may enter
into certain futures contracts and options related thereto; (b) the Portfolio
may enter into commitments to purchase securities in accordance with that
Portfolio's investment program, including reverse repurchase agreements; and
(c) for purposes of leveraging, the Portfolio may borrow money from banks
(including its custodian bank) only if, immediately after such borrowing, the
value of the Portfolio's assets, including the amount borrowed, less its
liabilities, is equal to at least 300% of the amount borrowed, plus all
outstanding borrowings. If, at any time, the value of the Portfolio's assets
fails to meet the 300% asset coverage requirement relative only to leveraging,
the Portfolio will, within three days (not including Sundays and holidays),
reduce its borrowings to the extent necessary to meet the 300% test; or
(7) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by the Portfolio, the
Portfolio may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (the "1933 Act").
The Trust has also adopted certain other investment restrictions reflecting
the current investment practices of the Portfolio which may be changed by the
Trustees of the Trust and without shareholder vote. Some of these restrictions
are described in the Prospectus. In addition, the Portfolio will not:
(1) make short sales of securities, other than short sales "against the
box," or purchase securities on margin except for short-term credits necessary
for clearance of portfolio transactions, provided that this restriction will
not be applied to limit the use of options, futures contracts and related
options, in the manner otherwise permitted by the investment restrictions,
policies and investment programs of each Portfolio, as described here and in
the Prospectus;
(2) invest in companies for the purpose of exercising control or
management;
(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act.
Where the Portfolio's investment objective or policy restricts it to a
specified percentage of its total assets in any type of instrument, that
percentage is measured at the time of purchase. There will be no violation of
any investment policy or restriction if that restriction is complied with at
the time the relevant action is taken, notwithstanding a later change in the
market value of an investment, in net or total assets, in the securities
rating of the investment or any other change.
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS
The Portfolio may use derivative instruments as described in the prospectus
under "Investment Techniques." The following provides additional information
about these instruments.
FUTURES CONTRACTS - The Portfolio may enter into futures contracts as
described in the Prospectus. The Portfolio may enter into futures contracts
which are traded on national futures exchanges and are standardized as to
maturity date and underlying financial instrument. The futures exchanges and
trading in the United States are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission (the "CFTC").
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument(s) or a
specific stock market index for a specified price at a designated date and
time. Brokerage fees are incurred when a futures contract is bought or sold
and at expiration, and margin deposits must be maintained. Although certain
futures contracts require actual future delivery of and payment for the
underlying instruments, those contracts are usually closed out before the
delivery date. Stock index futures contracts do not contemplate actual future
delivery and will be settled in cash at expiration or closed out prior to
expiration. Closing out an open futures contract sale or purchase is effected
by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical type of
underlying instrument and the same delivery date. There can be no assurance,
however, that the Portfolio will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Portfolio is not able to enter into an offsetting transaction, it will
continue to be required to maintain the margin deposits on the contract and
continue to bear the risk of market improvement.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates and equities
prices, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand
for futures and for securities, including technical influences in futures
trading, and differences between the financial instruments being hedged and
the instruments underlying the standard futures contracts available for
trading. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or stock market or interest rate trends.
Most United States futures exchanges limit the amount of fluctuation permitted
in interest rates futures contract prices during a single trading day, and
temporary regulations limiting price fluctuations for stock index futures
contracts are also now in effect. The daily limits establishes the maximum
amount that the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading session. Once the
daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some persons
engaging in futures transactions to substantial losses.
Sales of futures contracts which are intended to hedge against a change in the
value of securities held by the Portfolio may affect the holding period of
such securities and, consequently, the nature of the gain or loss on such
securities upon disposition.
"Margin" is the amount of funds that must be deposited by the Portfolio with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in the Portfolio's futures contracts. A margin
deposit is intended to assure the Portfolio's performance of the futures
contract. The margin required for a particular futures contract is set by the
exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin.
However, if the value of a position increases because of favorable price
changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will promptly pay the excess to the Portfolio.
These daily payments to and from the Portfolio are called variation margin. At
times of extreme price volatility such as occurred during the week of October
19, 1987, intra-day variation margin payments may be required. In computing
daily net asset values, the Portfolio will mark-to-market the current value of
its open futures contracts. The Portfolio expects to earn interest income on
its initial margin deposits. Furthermore, in the case of a futures contract
purchase, the Portfolio has deposited in a segregated account money market
instruments sufficient to meet all futures contract initial margin
requirements.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, small price movements in
futures contracts may result in immediate and potentially unlimited loss or
gain to the Portfolio relative to the size of the margin commitment. For
example, if at the time of purchase 10% of the value of the futures contract
is deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit before any
deduction for the transaction costs, if the contract were then closed out. A
15% decrease in the value of the futures contract would result in a loss equal
to 150% of the original margin deposit, if the contract were closed out. Thus,
a purchase or sale of a futures contract may result in losses in excess of the
amount initially invested in the futures contract. However, the Portfolio
would presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline.
The Portfolio can enter into options on futures contacts. See "Covered Call
and Put Options" below. The risk involved in writing options on futures
contracts or market indices is that there could be an increase in the market
value of such contracts or indices. If that occurred, the option would be
exercised and the Portfolio would not benefit from any increase in value above
the exercise price. Usually, this risk can be eliminated by entering into an
offsetting transaction. However, the cost to do an offsetting transaction and
terminate the Portfolio's obligation might be more or less than the premium
received when it originally wrote the option. Further, the Portfolio might
occasionally not be able to close the option because of insufficient activity
in the options market.
COVERED CALL AND PUT OPTIONS - The Portfolio may write (sell) covered call
options and purchase put options and may purchase call and sell put options
including options on securities, indices and futures as discussed in the
Prospectus and in this Section. A call option gives the holder (buyer) the
right to buy and obligates the writer (seller) to sell a security or financial
instrument at a stated price (strike price) at any time until a designated
future date when the option expires (expiration date). A put option gives the
holder (buyer) the right to sell and obligates the writer (seller) to purchase
a security or financial instrument at a stated price at any time until the
expiration date. The Portfolio may write or purchase put or call options
listed on national securities exchanges in standard contracts or may write or
purchase put or call options with or directly from investment dealers meeting
the creditworthiness criteria of Gresham Investment Management, Inc. (the
"Adviser").
So long as the obligation of the writer of a call option continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was settled, requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, by the exercise of the call option, or by
entering into an offsetting transaction. To secure the writer's obligation to
deliver the underlying security, a writer of a call option is required to
deposit in escrow the underlying security or other assets in accordance with
the rules of the clearing corporations and of the exchanges. The Portfolio
will only write a call option on a security which it already owns and will not
write call options on when-issued securities.
When writing a call option, in return for the premium, the writer gives up the
opportunity to profit from the price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price
of the security decline. If a call option expires unexercised, the writer
will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is exercised, the writer would realize a
gain or loss from the transaction depending on what it received from the call
and what it paid for the underlying security.
The Portfolio may purchase and write call options on stock indices, including
the S&P 500, as well as on any individual stock, as described below. The
Portfolio will use these techniques primarily as a temporary substitute for
taking positions in certain securities or in the securities that comprise the
index, particularly if the Adviser considers these instruments to be
undervalued relative to the prices of particular securities or of the
securities that comprise the index.
An option on an index (or a particular security) is a contract that gives the
purchaser of the option, in return for the premium paid, the right to receive
from the writer of the option cash equal to the difference between the closing
price of the index (or security) and the exercise price of the option,
expressed in dollars, times a specified multiple (the "multiplier"). The
Portfolio may, in particular, purchase call options on an index (or a
particular security) to protect against increases in the price of securities
underlying that index (or individual securities) that the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly
manner.
In the case of a put option, as long as the obligation of the put writer
continues, it may be assigned an exercise notice by the broker-dealer through
which such option was sold, requiring the writer to take delivery of the
underlying security against payment of the exercise price. A writer has no
control over when it may be required to purchase the underlying security,
since it may be assigned an exercise notice at any time prior to the
expiration date. This obligation terminates earlier if the writer effects a
closing purchase transaction by purchasing a put of the same series as that
previously sold.
To secure its obligation to pay for the underlying security, the writer of a
put generally must deposit in escrow liquid assets with a value equal to or
greater than the exercise price of the put option. The writer therefore
foregoes the opportunity of investing the segregated assets or writing calls
against those assets. The Portfolio may write put options on debt securities
or futures, only if such puts are covered by segregated liquid assets.
In writing puts, there is the risk that a writer may be required to buy the
underlying security at a disadvantageous price. Writing a put covered by
segregated liquid assets equal to the exercise of the put has the same
economic effect as writing a covered call option. The premium the writer
receives from writing a put option represents a profit, as long as the price
of the underlying instrument remains above the exercise price; however, if the
put is exercised, the writer is obligated during the option period to buy the
underlying instrument from the buyer of the put at the exercise price, even
though the value of the investment may have fallen below the exercise price.
If the put lapses unexercised, the writer realizes a gain in the amount of the
premium. If the put is exercised, the writer may incur a loss, equal to the
difference between the exercise price and the current market value of the
underlying instrument.
The Portfolio may purchase put options when the Adviser believes that a
temporary defensive position is desirable in light of market conditions, but
does not desire to sell a portfolio security. The purchase of put options for
these purposes may be used to protect the Portfolio's holdings in an
underlying security against a substantial decline in market value. Such
protection is, of course, only provided during the life of the put option when
the Portfolio, as the holder of the put option, is able to sell the underlying
security at the put exercise price regardless of any decline in the underlying
security's market price. By using put options in this manner, the Portfolio
will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs. The
security covering the call or put option will be segregated at the Portfolio's
custodian.
The premium received from writing a call or put option, or paid for purchasing
a call or put option will reflect, among other things, the current market
price of the underlying security, the relationship of the exercise price to
such market price, the historical price volatility of the underlying security,
the length of the option period, and the general interest rate environment.
The premium received by the Portfolio for writing call options will be
recorded as a liability in the statement of assets and liabilities of the
Portfolio. This liability will be adjusted daily to the option's current
market value. The liability will be extinguished upon expiration of the
option, by the exercise of the option, or by entering into an offsetting
transaction. Similarly, the premium paid by the Portfolio when purchasing a
put option will be recorded as an asset in the statement of assets and
liabilities of the Portfolio. This asset will be adjusted daily to the
option's current market value. The asset will be extinguished upon expiration
of the option, by selling an identical option in a closing transaction, or by
exercising the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying security.
Furthermore, effecting a closing transaction will permit the Portfolio to
write another call option, or purchase another put option, on the underlying
security with either a different exercise price or expiration date or both. If
the Portfolio desires to sell a particular security from its portfolio on
which it has written a call option, or purchased a put option, it will seek to
effect a closing transaction prior to, or concurrently with, the sale of the
security. There is, of course, no assurance that the Portfolio will be able
to effect a closing transaction at a favorable price. If the Portfolio cannot
enter into such a transaction, it may be required to hold a security that it
might otherwise have sold, in which case it would continue to be at market
risk on the security. The Portfolio will pay brokerage commissions in
connection with the sale or purchase of options to close out previously
established option positions. Such brokerage commissions are normally higher
as a percentage of underlying asset values than those applicable to purchases
and sales of portfolio securities. The exercise price of an option may be
below, equal to, or above the current market value of the underlying security
at the time the option is written. From time to time, the Portfolio may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assignment, rather than delivering such security from
its portfolio. In such cases additional brokerage commissions will be
incurred.
The Portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option; however, any loss so incurred in a
closing purchase transaction may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different option.
Also, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Portfolio.
FOREIGN FUTURES CONTRACTS AND FOREIGN OPTIONS - The Portfolio may
engage in transactions in foreign futures contracts and foreign options.
Participation in foreign futures contracts and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the CFTC, the National Futures Association
("NFA") nor any domestic exchange regulates activities of any foreign boards
of trade including the execution, delivery and clearing of transactions, or
has the power to compel enforcement of the rules of a foreign board of trade
or any applicable foreign laws. Generally, the foreign transaction will be
governed by applicable foreign law. This is true even if the exchange is
formally linked to a domestic market so that a position taken on the market
may be liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures contract or foreign options transaction occurs. Investors which trade
foreign futures contracts or foreign options contracts may not be afforded
certain of the protective measures provided by domestic exchanges, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the NFA. In particular, funds received from customers
for foreign futures contracts or foreign options transactions may not be
provided the same protections as funds received for transactions on United
States futures exchanges. The price of any foreign futures contracts or
foreign options contract and, therefore, the potential profit and loss
thereon, may be affected by an variance in the foreign exchange rate between
the time an order is placed and the time it is liquidated, offset or
exercised.
OPTIONS ON FOREIGN CURRENCIES - The Portfolio may write and purchase
calls on foreign currencies. The Portfolio may purchase and write puts and
calls on foreign currencies that are traded on a securities or commodities
exchange or quoted by major recognized dealers in such options for the
purposes of protecting against declines in the dollar value of foreign
securities and against increases in the dollar cost of foreign securities to
be acquired. If a rise is anticipated in the dollar value of a foreign
currency in which securities to be required are denominated, the increased
cost of such securities may be partially offset by purchasing calls or writing
puts on that foreign currency. If a decline in the dollar value of a foreign
currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. In the event of rate fluctuations
adverse to the Portfolio's position, it would lose the premium it paid and
transaction costs. A call written on a foreign currency by the Portfolio is
covered if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by the
Portfolio on a foreign currency to provide a hedge against a decline due to an
expected adverse change in the exchange rate in the U.S. dollar value of a
security which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option. This is a "cross-hedging"
strategy. In such circumstances, the Portfolio collateralizes the position by
maintaining in a segregated account with the Portfolio's custodian cash or
U.S. Government securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked-to-market daily.
FORWARD EXCHANGE CONTRACTS - The Portfolio may enter into forward contracts
for foreign currency ("forward exchange contracts"), which obligate the seller
to deliver and the purchaser to take a specific amount of a specified foreign
currency at a future date at a price set at the time of the contract. These
contracts are generally traded in the interbank market conducted directly
between currency traders and their customers. The Portfolio may enter into a
forward exchange contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold but
which has not yet settled (a "transaction hedge"); or to lock in the value of
an existing portfolio security (a "position hedge"); or to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and a foreign currency. There is a risk that use of forward
exchange contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
Forward exchange contracts include standardized foreign currency futures
contracts which are traded on exchanges and are subject to procedures and
regulations applicable to futures. The Portfolio may also enter into a forward
exchange contract to sell a foreign currency which differs from the currency
in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign currency
of the forward exchange contract and the foreign currency of the underlying
investment than between the U.S. dollar and the foreign currency of the
underlying investment. This technique is referred to as "cross-hedging." The
success of cross-hedging is dependent on many factors, including the ability
of the Adviser to correctly identify and monitor the correlation between
foreign currencies and the U.S. dollar. To the extent that the correlation is
not identical, the Portfolio may experience losses or gains on both the
underlying security and the cross currency hedge.
The Portfolio may use forward exchange contracts to protect against
uncertainty in the level of future exchange rates. The use of forward
exchange contracts does not eliminate fluctuations in the prices of the
underlying securities the Portfolio owns or intends to acquire, but it does
fix a rate of exchange in advance. In addition, although forward exchange
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
There is no limitation as to the percentage of a Portfolio's assets that may
be committed to forward exchange contracts. The Portfolio will not enter into
a "cross-hedge," unless it is denominated in a currency or currencies that the
Adviser believes will have price movements that tend to correlate closely with
the currency in which the investment being hedged is denominated.
The Trust's custodian will place cash or U.S. Government securities or other
liquid high-quality debt securities in a separate account of the Portfolio
having a value equal to the aggregate amount of the Portfolio's commitments
under forward contracts entered into with respect to position hedges and
cross-hedges. If the value of the securities placed in the separate account
declines, additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the amount of the
Portfolio's commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no higher than the
forward contract price, or the Portfolio may purchase a put option permitting
the Portfolio to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward contract
price. Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward
contract is entered into and the date it is sold. Accordingly, it may be
necessary for the Portfolio to purchase additional foreign currency on the
spot (i.e., cash) market (and bear the expense of such purchase), if the
market value of the security is less than the amount of foreign currency the
Portfolio is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security if its market value exceeds the amount
of foreign currency the Portfolio is obligated to deliver. The projection of
short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
Forward contracts involve the risk that anticipated currency movements will
not be accurately predicted, causing the Portfolio to sustain losses on these
contracts and transactions costs.
At or before the maturity of a forward exchange contract requiring the
Portfolio to sell a currency, the Portfolio may either sell a portfolio
security and use the sale proceeds to make delivery of the currency or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Portfolio will obtain, on
the same maturity date, the same amount of the currency that it is obligated
to deliver. Similarly, the Portfolio may close out a forward contract
requiring it to purchase a specified currency by entering into a second
contract entitling it to sell the same amount of the same currency on the
maturity date of the first contract. The Portfolio would realize a gain or
loss as a result of entering into such an offsetting forward contract under
either circumstance to the extent the exchange rate(s) between the currencies
involved moved between the execution dates of the first contract and the
offsetting contract.
The cost to the Portfolio of engaging in forward exchange contracts varies
with factors such as the currencies involved, the length of the contract
period and the market conditions then prevailing. Because forward contracts
are usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Portfolio
must evaluate the credit and performance risk of each particular counterparty
under a forward contract.
Although the Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Portfolio may convert foreign currency from
time to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion, but
they do seek to realize a profit based on the difference between the prices at
which they buy and sell various currencies. Thus, a dealer may offer to sell a
foreign currency to the Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS - CFTC regulations
require that all short futures positions be entered into for the purpose of
hedging the value of securities held, and that all long futures positions
either constitute bona fide hedging transactions, as defined in such
regulations, or have a total value not in excess of an amount determined by
reference to certain cash and securities positions maintained, and accrued
profits on such positions. With respect to futures contracts or related
options that are entered into for purposes that may be considered speculative,
the aggregate initial margin for future contracts and premiums for options
will not exceed 5% of the Portfolio's net assets, after taking into account
realized profits and unrealized losses on such futures contracts.
The Portfolio's ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that the
Portfolio derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months.
INTEREST RATE SWAP TRANSACTIONS - Swap agreements entail both interest rate
risk and credit risk. There is a risk that, based on movements of interest
rates in the future, the payments made by the Portfolio under a swap agreement
will have been greater than those received by it. Credit risk arises from the
possibility that the counterparty will default. If the counterparty to an
interest rate swap defaults, the Portfolio's loss will consist of the net
amount of contractual interest payments that the Portfolio has not yet
received. The Adviser will monitor the creditworthiness of counterparties to
the Portfolio's interest rate swap transactions on an ongoing basis. The
Portfolio will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides
that all swaps done between the Portfolio and that counterparty under that
master agreement shall be regarded as parts of an integral agreement. If on
any date amounts are payable in the same currency in respect of one or more
swap transactions, the net amount payable on that date in that currency shall
be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default resulting
in a loss to one party, the measure of that party's damages is calculated by
reference to the average cost of a replacement swap with respect to each swap
(i.e., the mark-to-market value at the time of the termination of each swap).
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and
the netting of gains and losses on termination is generally referred to as
"aggregation."
ADDITIONAL RISK FACTORS IN USING DERIVATIVES - In addition to any risk factors
which may be described elsewhere in this section, or in the Prospectus under
"Investment Techniques" and "Risk Factors and Other Considerations," the
following sets forth certain information regarding the potential risks
associated with the Portfolio's transactions in derivatives.
Risk of Imperfect Correlation - The Portfolio's ability to hedge
effectively all or a portion of its portfolio through transactions in futures,
options on futures or options on securities and indexes depends on the degree
to which movements in the value of the securities or index underlying such
hedging instrument correlate with movements in the value of the assets being
hedged. If the values of the assets being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for the Portfolio might not be successful and the Portfolio could sustain
losses on its hedging transactions which would not be offset by gains on its
portfolio. It is also possible that there may be a negative correlation
between the security or index underlying a futures or option contract and the
portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio securities. In such instances, the
Portfolio's overall return could be less than if the hedging transactions had
not been undertaken. Stock index futures or options based on a narrower index
of securities may present greater risk than options or futures based on a
broad market index, as a narrower index is more susceptible to rapid and
extreme fluctuations resulting from changes in the value of a small number of
securities.
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and the
value of the underlying index. The anticipated spread between the prices may
be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase
of an option on a futures contract also involves the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. The risk of imperfect correlation, however,
generally tends to diminish as the maturity date of the futures contract or
termination date of the option approaches. The risk incurred in purchasing an
option on a futures contract is limited to the amount of the premium plus
related transaction costs, although it may be necessary under certain
circumstances to exercise the option and enter into the underlying futures
contract in order to realize a profit. Under certain extreme market
conditions, it is possible that the Portfolio will not be able to establish
hedging positions, or that any hedging strategy adopted will be insufficient
to completely protect the Portfolio.
The Portfolio will purchase or sell futures contracts or options for hedging
purposes, only if, in the Adviser's judgment, there is expected to be a
sufficient degree of correlation between movements in the value of such
instruments and changes in the value of the assets being hedged for the hedge
to be effective. There can be no assurance that the Adviser's judgment will be
accurate.
Potential Lack of a Liquid Secondary Market - The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants
in the futures markets are subject to initial deposit and variation margin
requirements. This could require the Portfolio to post additional cash or
cash equivalents as the value of the position fluctuates. Rather than meeting
additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of
the futures or options market may be lacking. Prior to exercise or
expiration, a futures or option position may be terminated only by entering
into a closing purchase or sale transaction, which requires a secondary market
on the exchange on which the position was originally established. While the
Portfolio will establish a futures or option 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 or option contract at any
specific time. In such event, it may not be possible to close out a position
held by the Portfolio, which could require the Portfolio to purchase or sell
the instrument underlying the position, make or receive a cash settlement, or
meet ongoing variation margin requirements. The inability to close out
futures or option positions also could have an adverse impact on the
Portfolio's ability effectively to hedge its portfolio, or the relevant
portion thereof.
The liquidity of a secondary market in a futures contract or an option on 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 contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange
or clearing house equipment failures, government intervention, insolvency of
the 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.
Trading and Position Limits - Each contract market on which futures and
option 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 Portfolio does not believe that these
trading and position limits will have an adverse impact on the hedging
strategies regarding the Portfolio.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards established
by the Trust's Board of Trustees. A repurchase agreement allows the Portfolio
to determine the yield during the Portfolio's holding period. This results in
a fixed rate of return insulated from market fluctuations during such period.
Such underlying debt instruments serving as collateral will meet the quality
standards of the Portfolio. The market value of the underlying debt
instruments will, at all times, be equal to the dollar amount invested.
Repurchase agreements, although fully collateralized, involve the risk that
the seller of the securities may fail to repurchase them from the Portfolio.
In that event, the Portfolio may incur (a) disposition costs in connection
with liquidating the collateral, or (b) a loss if the collateral declines in
value. Also, if the default on the part of the seller is due to insolvency and
the seller initiates bankruptcy proceedings, the Portfolio's ability to
liquidate the collateral may be delayed or limited. Under the 1940 Act,
repurchase agreements are considered loans by the Portfolio. Repurchase
agreements maturing in more than seven days will not exceed 15 percent of the
total assets of the Portfolio.
SECURITIES LENDING
The Portfolio can lend securities in its portfolio subject to the following
conditions: (a) the borrower will provide collateral equal to an amount of at
least 100% of the then current market value of the loaned securities
throughout the life of the loan; (b) loans will be made subject to the rules
of the New York Stock Exchange; (c) the loan collateral will be either cash,
direct obligations of the U.S. government or agencies thereof or irrevocable
letters of credit; (d) cash collateral will be invested only in highly liquid
short-term investments; (e) during the existence of a loan, the Portfolio will
continue to receive any distributions paid on the borrowed securities or
amounts equivalent thereto; and (f) no more than one-third of the net assets
of the Portfolio will be on loan at any one time. A loan may be terminated at
any time by the borrower or lender upon proper notice.
In the Adviser's opinion, lending portfolio securities to qualified
broker-dealers affords the Portfolio a means of increasing the yield on its
portfolio. The Portfolio will be entitled either to receive a fee from the
borrower or to retain some or all of the income derived from its investment of
cash collateral. The Portfolio will continue to receive the interest or
dividends paid on any securities loaned, or amounts equivalent thereto.
Although voting rights will pass to the borrower of the securities, whenever a
material event affecting the borrowed securities is to be voted on, the
Adviser will regain or direct the vote with respect to loaned securities.
The primary risk the Portfolio assumes in loaning securities is that the
borrower may become insolvent on a day on which the loaned security is rapidly
increasing in price. In such event, if the borrower fails to return the loaned
securities, the existing collateral might be insufficient to purchase back the
full amount of the security loaned, and the borrower would be unable to
furnish additional collateral. The borrower would be liable for any shortage,
but the Portfolio would be an unsecured creditor as to such shortage and might
not be able to recover all or any of it.
FOREIGN SECURITIES
Investments in foreign securities, including futures and options contracts,
offer potential benefits not available solely through investment in securities
of domestic issuers. Foreign securities offer the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers typically involve certain risks
not ordinarily associated with investments in securities of domestic issuers.
Such risks include fluctuations in exchange rates, adverse foreign political
and economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Since the Portfolio may
invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the value of
securities in the portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. THE ADVISER, HOWEVER, WILL
ATTEMPT TO REDUCE THE RISKS OTHERWISE PRESENT IN THE PURCHASE OF FOREIGN
SECURITIES, BY BUYING U.S. DOLLAR-DENOMINATED INDICES WHENEVER POSSIBLE. IF IT
IS UNABLE TO PURCHASE SUCH INDICES, IT WILL HEDGE THE CURRENCY EXPOSURE OR
HOLD IT IF IT LIKES A PARTICULAR CURRENCY. In addition, with respect to
certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability, or diplomatic
developments that could adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. issuers. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign issuers are less liquid and their
prices more volatile than securities of comparable U.S. issuers.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the U.S. The
Fund might have greater difficulty taking appropriate legal action with
respect to foreign investments in non-U.S. courts than with respect to
domestic issuers in U.S. courts. In addition, transactions in foreign
securities may involve greater time from the trade date until settlement than
domestic securities transactions and involve the risk of possible losses
through the holding of securities by custodians and securities depositories in
foreign countries.
Dividend and interest income from foreign securities may generally be subject
to withholding taxes by the country in which the issuer is located and may not
be recoverable by the Portfolio or its investors.
Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the
underlying securities are denominated. Depositary receipts include: (a)
American Depositary Receipts (ADRs), which are typically designed for U.S.
investors and held either in physical form or in book entry form; (b) European
Depositary Receipts (EDRs), which are similar to ADRs but may be listed and
traded on a European exchange as well as in the United States. Typically,
these securities are traded on the Luxembourg exchange in Europe; and (c)
Global Depositary Receipts (GDRS), which are similar to EDRS although they may
be held through foreign clearing agents such as Euroclear and other foreign
depositories. Depositary receipts are not considered foreign securities for
purposes of the Portfolio's investment limitation concerning investment in
foreign securities.
MORTGAGE-RELATED DEBT SECURITIES
Federal mortgage-related securities include obligations issued or guaranteed
by the Government National Mortgage Association (GNMA), the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). GNMA is a wholly owned corporate instrumentality of the United
States, the securities and guarantees of which are backed by the full faith
and credit of the United States. FNMA, a federally chartered and privately
owned corporation, and FHLMC, a federal corporation, are instrumentalities of
the United States with Presidentially-appointed board members. The obligations
of FNMA and FHLMC are not explicitly guaranteed by the full faith and credit
of the federal government.
Pass-through, mortgage-related securities are characterized by monthly
payments to the holder, reflecting the monthly payments made by the borrowers
who received the underlying mortgage loans. The payments to the security
holders, like the payments on the underlying loans, represent both principal
and interest. Although the underlying mortgage loans are for specified periods
of time, often twenty or thirty years, the borrowers can repay such loans
sooner. Thus, the security holders frequently receive repayments of principal,
in addition to the principal which is part of the regular monthly payment. A
borrower is more likely to repay a mortgage which bears a relatively high rate
of interest. This means that in times of declining interest rates, some
higher yielding securities held by the Portfolio might be converted to cash,
and the Portfolio could be expected to reinvest such cash at the then
prevailing lower rates. The increased likelihood of prepayment when interest
rates decline also limits market price appreciation of mortgage-related
securities. If the Portfolio buys mortgage-related securities at a premium,
mortgage foreclosures or mortgage prepayments may result in losses of up to
the amount of the premium paid since only timely payment of principal and
interest is guaranteed.
CONVERTIBLES
A convertible bond or convertible preferred stock gives the holder the option
of converting these securities into common stock. Some convertible securities
contain a call feature whereby the issuer may redeem the security at a
stipulated price, thereby limiting the possible appreciation.
WARRANTS
Warrants allow the holder to subscribe for new shares in the issuing company
within a specified time period, according to a predetermined formula governing
the number of shares per warrant and the price to be paid for those shares.
Warrants may be issued separately or in association with a new issue of bonds,
preferred stock, common stock or other securities.
Covered warrants allow the holder to purchase existing shares in the issuing
company, or in a company associated with the issuer, or in a company in which
the issuer has or may have a share stake which covers all or part of the
warrants' subscription rights.
PORTFOLIO TURNOVER
The portfolio turnover rate of a portfolio is defined by the Securities and
Exchange Commission as the ratio of the lesser of annual sales or purchases to
the monthly average value of the portfolio, excluding from both the numerator
and the denominator securities with maturities at the time of acquisition of
one year or less. Portfolio turnover generally involves some expense to a
portfolio, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities.
The Adviser anticipates that the portfolio turnover rate will be quite low
which will, in turn, result in low transaction costs.
The Trust's Board of Trustees periodically reviews the Adviser's performance
of its responsibilities in connection with the placement of portfolio
transactions on behalf of the Portfolio, and reviews the commissions paid by
the Portfolio to determine whether such commissions are reasonable in relation
to what the Trustees believe are the benefits for the Portfolio.
TRUSTEES AND OFFICERS OF THE TRUST
The investments and administration of the Trust are under the direction of the
Board of Trustees. The Board of Trustees, in turn, appoints the officers who
are responsible for administering the day-to-day operations of the Trust.
Listed below are the Trustees and officers of the Trust and their affiliations
and principal occupations for the past five years.
<TABLE>
<CAPTION>
<S> <C> <C>
Position(s) Principal Occupation During Past Five Years
Held with (and Positions held with Affiliated Persons
Name, Address and Age Registrant or Principal Underwriters of the Registrant)
- ----------------------------- ----------- ------------------------------------------------
Dr. Henry G. Jarecki* Trustee Director and Sole Shareholder of the Adviser,
565 Fifth Avenue, Third Floor The Falconwood Corporation, Highland Financial
New York, New York 10017 Corporation and Gresham Asset Management,
Age: 63 Incorporated; Principal of Fixed Plus Service
Partners, L.P., a registered investment adviser
and Commodity Trading Advisor
_____________________________
* Interested person of the
Trust within the meaning of
the 1940 Act
</TABLE>
Each Trustee of the Trust who is not an "interested person" of the Trust or
the Adviser receives an annual fee of $______ and an additional fee of $_____
for each Trustees' meeting attended and is reimbursed for expenses incurred in
connection with attending Trustees' meetings.
The Declaration of 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, except if it is determined in the manner specified in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust or that such
indemnification would relieve any officer or Trustee of any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of his or her duties. The Trust, at its
expense, may provide liability insurance for the benefit of its Trustees and
officers.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Trust and the Adviser (the
"Investment Advisory Agreement"), the Adviser, at its expense, provides the
Portfolio with investment advisory services and advises and assists the
officers of the Trust in taking such steps as are necessary or appropriate to
carry out the decisions of its Trustees regarding the conduct of business of
the Trust and the Portfolio. The fees to be paid under the Investment Advisory
Agreement are set forth in the Prospectus.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of the Portfolio in a
manner consistent with the Portfolio's investment objective, policies and
restrictions and to determine from time to time securities to be purchased,
sold, retained or lent by the Portfolio and implement those decisions, subject
always to the provisions of the Trust's Declaration of Trust and By-laws, and
of the 1940 Act, and subject further to such policies and instructions as the
Trustees may from time to time establish.
The Investment Advisory Agreement further provides that the Adviser shall
furnish the Trust with office space and necessary personnel, pay ordinary
office expenses, pay all executive salaries of the Trust and furnish, without
expense to the Trust, the services of such members of its organization as may
be duly elected officers or Trustees of the Trust.
Under the Investment Advisory Agreement, the Trust is responsible for all its
other expenses including, but not limited to, the following expenses: legal,
auditing or accounting expenses, Trustees' fees and expenses, insurance
premiums, brokers' commissions, taxes and governmental fees, reports and
notices to shareholders, and fees and disbursements of custodians, transfer
agents, registrars, shareholder servicing agents and dividend disbursing
agents, and certain expenses with respect to membership fees of industry
associations.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of the Adviser will be liable for any loss
suffered by the Trust in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations and duties. In addition, the
Agreement provides for indemnification of the Adviser by the Trust.
The Investment Advisory Agreement may be terminated without penalty by vote of
the Trustees, as to the Portfolio by the shareholders of the Portfolio, or by
the Adviser on 60 days written notice. The Agreement also terminates without
payment of any penalty in the event of its assignment. In addition, the
Investment Advisory Agreement may be amended only by a vote of the
shareholders of the Portfolio, and provides that it will continue in effect
from year to year only so long as such continuance is approved at least
annually with respect to the Portfolio by vote of either the Trustees or the
shareholders of the Portfolio, and, in either case, by a majority of the
Trustees who are not "interested persons" of the Adviser. In each of the
foregoing cases, the vote of the shareholders is the affirmative vote of a
"majority of the outstanding voting securities" as defined in the 1940 Act.
The Adviser has undertaken to bear certain operating expenses of the Portfolio
as described in the Prospectus.
_____________________ provides certain accounting and other services to the
Trust.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Trust of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the
United States. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
The Adviser will place all orders for the purchase and sale of portfolio
securities for the Trust and buy and sell securities for the Trust through a
number of brokers and dealers. In so doing, the Adviser will use its best
efforts to obtain for the Trust the best price and execution available. In
seeking the best price and execution, the Adviser, having in mind the Trust's
best interests, will consider all factors it deems relevant, including, by way
of illustration, price, the size of the transaction, the nature of the market
for the security, the amount of the commission, the timing of the transaction
taking into account market prices and trends, the reputation, experience, and
financial stability of the broker-dealer involved, and the quality of service
rendered by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research, statistical, and quotation services from
broker-dealers which execute portfolio transactions for the clients of such
advisers. Consistent with this practice, the Adviser may receive research,
statistical, and quotation services from any broker-dealers with which they
place the Trust's portfolio transactions. These services, which in some cases
may also be purchased for cash, include such matters as general economic and
security market reviews, industry and company reviews, evaluations of
securities, and recommendations as to the purchase and sale of securities.
Some of these services may be of value to the Adviser and/or its affiliates in
advising various other clients (including the Trust), although not all of
these services are necessarily useful and of value in managing the Trust. The
management fees paid by the Trust are not reduced because the Adviser and/or
its affiliates may receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser may cause the Portfolio to pay a broker-dealer which provides
brokerage and research services to the Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess
of the commission which another broker-dealer would have charged for effecting
that transaction provided that the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker-dealer viewed in terms of that
particular transaction or in terms of all of the accounts over which
investment discretion is so exercised. The Adviser's authority to cause the
Portfolio to pay any such greater commissions is also subject to such policies
as the Trustees may adopt from time to time.
INVESTMENT DECISIONS
The Portfolio and another advisory client of the Adviser, or the Adviser
itself, may desire to buy or sell the same publicly traded security at or
about the same time. In such a case, the purchases or sales will normally be
allocated as nearly as practicable on a pro rata basis in proportion to the
amounts to be purchased or sold by each. In some cases the smaller orders will
be filled first. In determining the amounts to be purchased and sold, the main
factors to be considered are the respective investment objectives of the
Portfolio and the other portfolios, the relative size of portfolio holdings of
the same or comparable securities, availability of cash for investment, and
the size of their respective investment commitments. Orders for different
clients received at approximately the same time may be bunched for purposes of
placing trades, as authorized by regulatory directives. Prices are averaged
for those transactions.
The Trustees have also adopted a Code of Ethics governing personal trading by
persons who manage, or who have access to trading activity by, the Portfolio.
The Code of Ethics allows trades to be made in securities that may be held by
the Portfolio, however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolio is determined daily as of 4:00
p.m. New York time on each day the New York Stock Exchange is open for
trading. The New York Stock Exchange is normally closed on the following
national holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
The value of a foreign security is determined in its national currency as of
the close of trading on the foreign exchange on which it is traded or as of
4:00 p.m. New York time, if that is earlier, and that value is then converted
into its U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security is
determined.
The net asset value of the shares of the Portfolio is determined by dividing
the total assets of the Portfolio, less all liabilities, by the total number
of shares outstanding. Securities traded on a national securities exchange or
quoted on the NASDAQ National Market System are valued at their last-reported
sale price on the principal exchange or reported by NASDAQ or, if there is no
reported sale, and in the case of over-the-counter securities not included in
the NASDAQ National Market System, at a bid price estimated by a broker or
dealer. Debt securities, including zero-coupon securities, and certain foreign
securities will be valued by a pricing service. Other foreign securities will
be valued by the Trust's custodian. Securities for which current market
quotations are not readily available and all other assets are valued at fair
value as determined in good faith by the Trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
Trustees.
If any securities held by the Portfolio are restricted as to resale, their
fair value is generally determined as the amount which the Trust could
reasonably expect to realize from an orderly disposition of such securities
over a reasonable period of time. The valuation procedures applied in any
specific instance are likely to vary from case to case. However, consideration
is generally given to the financial position of the issuer and other
fundamental analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Trust in connection with such
disposition). In addition, specific factors are also generally considered,
such as the cost of the investment, the market value of any unrestricted
securities of the same class (both at the time of purchase and at the time of
valuation), the size of the holding, the prices of any recent transactions or
offers with respect to such securities, and any available analysts' reports
regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of these securities used in determining
the net asset value of the Trust's shares are computed as of such times. Also,
because of the amount of time required to collect and process trading
information as to large numbers of securities issues, the values of certain
securities (such as convertible bonds and U.S. Government Securities) are
determined based on market quotations collected earlier in the day at the
latest practicable time prior to the close of the Exchange. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the Exchange which will not be reflected in the computation of
the Trust's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value, in the manner described above.
The proceeds received by the Portfolio for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to the Portfolio, and
constitute the underlying assets of the Portfolio. The underlying assets of
the Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of the Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to any two or more
Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can
otherwise be fairly made.
TAXES
The Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, the Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to the separate accounts of Participating Insurance
Companies. As a series of a Massachusetts business trust, the Portfolio under
present law will not be subject to any excise or income taxes in
Massachusetts.
In order to qualify as a "regulated investment company," the Portfolio must,
among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities, or foreign currencies, and
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities,
or currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock and securities) held less
than three months; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government Securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the Portfolio and not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any issuer (other than U.S. Government
Securities). In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, the Portfolio
must in general distribute at least 90% of its interest, dividends, net
short-term capital gain, and certain other income each year.
With respect to investment income and gains received by the Portfolio from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which the Portfolio will be subject depends on the specific countries
in which its assets will be invested and the extent of the assets invested in
each such country and therefore cannot be determined in advance.
The Portfolio's ability to use options, futures, and forward contracts and
other hedging techniques, and to engage in certain other transactions, may be
limited by tax considerations. The Portfolio's transactions in
foreign-currency-denominated debt instruments and its hedging activities will
likely produce a difference between its book income and its taxable income.
This difference may cause a portion of the Portfolio's distributions of book
income to constitute returns of capital for tax purposes or require the
Portfolio to make distributions exceeding book income in order to permit the
Trust to continue to qualify, and be taxed under Subchapter M of the Code, as
a regulated investment company.
It is the policy of the Portfolio to meet the requirements of the Code to
qualify as a regulated investment company that is taxed pursuant to Subchapter
M of the Code. One of these requirements is that less than 30% of a
Portfolio's gross income must be derived from gains from sale or other
disposition of securities held for less than three months (with special rules
applying to so-called designated hedges). Accordingly, the Portfolio will be
restricted in selling securities held or considered under Code rules to have
been held less than three months, and in engaging in hedging or other
activities (including entering into options, futures, or short-sale
transactions) which may cause the Trust's holding period in certain of its
assets to be less than three months.
This discussion of the federal income tax and state tax treatment of the Trust
and its shareholders is based on the law as of the date of this Statement of
Additional Information. It does not describe in any respect the tax treatment
of any insurance or other product pursuant to which investments in the Trust
may be made.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio will declare and distribute dividends from net investment
income, if any, and will distribute its net realized capital gains, if any, at
least annually. Both dividends and capital gain distributions will be made in
shares of the Portfolio unless an election is made on behalf of a separate
account to receive dividends and capital gain distributions in cash.
PERFORMANCE INFORMATION
Total return of the Portfolio for periods longer than one year is determined
by calculating the actual dollar amount of investment return on a $1,000
investment in the Portfolio made at the beginning of each period, then
calculating the average annual compounded rate of return which would produce
the same investment return on the $1,000 investment over the same period.
Total return for a period of one year or less is equal to the actual
investment return on a $1,000 investment in the Portfolio during that period.
Total return calculations assume that all Portfolio distributions are
reinvested at net asset value on their respective reinvestment dates.
From time to time, the Adviser may reduce its compensation or assume expenses
in respect of the operations of the Portfolio in order to reduce the
Portfolio's expenses. Any such waiver or assumption would increase the
Portfolio's yield and total return during the period of the waiver or
assumption.
The performance of the Portfolio may, from time to time, be compared to that
of other mutual funds tracked by mutual fund rating services, to broad groups
of comparable mutual funds, or to unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs.
The Portfolio's investment results will vary from time to time depending upon
market conditions, the composition of its investment portfolio and its
operating expenses. Performance information of the Portfolio will not be
compared in advertisements with such information for funds that offer their
shares directly to the public, because Portfolio performance data does not
reflect charges imposed by the Participating Insurance Companies on the VA
Contracts and VLI Policies. The total return for the Portfolio should be
distinguished from the rate of return of a corresponding division of the
Participating Insurance Company's separate account, which rate will reflect
the deduction of additional insurance charges, including mortality and expense
risk charges, and will therefore be lower. Accordingly, performance figures
for the Portfolio will only be advertised if comparable performance figures
for the corresponding division of the separate account are included in the
advertisements. VA Contract owners and VLI Policy owners should consult their
contract and policy prospectuses, respectively, for further information. The
Portfolio's results also should be considered relative to the risks associated
with its investment objectives and policies.
SHAREHOLDER COMMUNICATIONS
Owners of VA Contracts and VLI Policies issued by Participating Insurance
Companies for which shares of the Portfolio are the investment vehicle are
entitled to receive from the Participating Insurance Company unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Trust's independent public accountants. Each report will show
the investments owned by the Portfolio and the market value thereof and will
provide other information about the Portfolio and its operations.
ORGANIZATION AND CAPITALIZATION
The Trust is an open-end investment company established under the laws of The
Commonwealth of Massachusetts by a Declaration of Trust dated November 29,
1996.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, a separate vote will be taken by each
Portfolio on matters affecting an individual Portfolio. Additionally, approval
of the Investment Advisory Agreement is a matter to be determined separately
by each Portfolio. Approval by the shareholders of one Portfolio is effective
as to that Portfolio. Shares have noncumulative voting rights. Although the
Trust is not required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees or
to take other actions as provided in the Declaration of Trust. Shares have no
preemptive or subscription rights, and are transferable. Shares are entitled
to dividends as declared by the Trustees, and if a Portfolio were liquidated,
the shares of that Portfolio would receive the net assets of that Portfolio.
The Trust may suspend the sale of shares at any time and may refuse any order
to purchase shares.
Additional Portfolios may be created from time to time with different
investment objectives or for use as funding vehicles for variable life
insurance policies or for different variable annuity contracts. In addition,
the Trustees have the right, subject to any necessary regulatory approvals, to
create additional classes of shares in a Portfolio, with the classes being
subject to different charges and expenses and having such other different
rights as the Trustees may prescribe and to terminate any Portfolio of the
Trust.
CUSTODIAN
___________________________ is the custodian of the Trust's assets. The
custodian's responsibilities include safeguarding and controlling the Trust's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on the Trust's investments. The Trust may
employ foreign sub-custodians that are approved by the Board of Trustees to
hold foreign assets.
LEGAL COUNSEL
Legal matters in connection with the offering are being passed upon by
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut.
INDEPENDENT AUDITORS
The Trust has selected ___________________ as the independent auditors who
will audit the annual financial statements of the Trust.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of a
Portfolio's property for all loss and expense of any shareholder held
personally liable for the obligations of a Portfolio. Thus the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio would be unable to meet its
obligations.
FINANCIAL STATEMENTS
[TO BE FILED BY AMENDMENT]
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS:
To be filed by amendment.
(b) EXHIBITS
(1) Declaration of Trust
(2) By-laws of Trust (to be filed by amendment)
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Advisory Agreement (to be filed by amendment)
(6) Not Applicable
(7) Not Applicable
(8) Form of Custodian Agreement and Fund Accounting Agreement
(to be filed by amendment)
(9)(a) Form of Subadministration Agreement for Reporting and
Accounting Services between the Registrant and the
Subadministrator (to be filed by amendment)
(b) Form of Transfer Agency and Service Agreement between
the Registrant and the Transfer Agent (to be filed by
amendment)
(10) Consent and Opinion of Counsel (to be filed by amendment)
(11) Consent of Independent Auditors (to be filed by amendment)
(12) Not Applicable
(13) Agreement re: Initial Contribution of Capital (to be filed
by amendment)
(14) Not Applicable
(15) Not Applicable
(16) Schedule for Computation of Performance Data - Calculation
of Private Account Composite Performance Information
(to be filed by amendment)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
None
ITEM 27. INDEMNIFICATION
Each officer, Trustee or agent of the Trust shall be indemnified by the Trust
to the full extent permitted under the General Laws of The Commonwealth of
Massachusetts and the Investment Company Act of 1940 ("1940 Act"), as amended,
except that such indemnity shall not protect any such person against any
liability to the Trust or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct"). Indemnification shall be made when (i) a final
decision on the merits, by a court or other body before whom the proceeding
was brought, that the person to be indemnified was not liable by reason of
disabling conduct or, (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct, by (a) the vote of
a majority of a quorum of Trustees who are neither "interested persons" of the
company as defined in section 2(a)(19) of the 1940 Act, nor parties to the
proceedings or (b) an independent legal counsel in a written opinion. The
Trust may, by vote of a majority of a quorum of Trustees who are not
interested persons, advance attorneys' fees or other expenses incurred by
officers, Trustees, investment advisers or principal underwriters, in
defending a proceeding upon the undertaking by or on behalf of the person to
be indemnified to repay the advance unless it is ultimately determined that he
is entitled to indemnification. Such advance shall be subject to at least one
of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Trust shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification. The law of
Massachusetts is superseded by the 1940 Act insofar as it conflicts with the
1940 Act or rules published thereunder.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a trustee, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
There is set forth below information as to any other business, profession,
vocation or employment of a substantial nature in which each director or
officer of the Registrant's Investment Adviser is, or at any time during the
past two years has been, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
<S> <C>
NAME AND PRINCIPAL
BUSINESS ADDRESS BUSINESS AND OTHER CONNECTIONS
- ----------------------------- -----------------------------------------
Dr. Henry G. Jarecki Director and Sole Shareholder of the
565 Fifth Avenue, Third Floor Adviser, The Falconwood Corporation,
New York, New York 10017 Highland Financial Corporation, and
Gresham Asset Management, Incorporated;
Principal of Fixed Plus Service
Partners, L.P., a registered investment
adviser and Commodity Trading Advisor;
Formerly, Chairman of FIMAT Futures USA,
Inc. - Brody White Division (a commodity
brokerage business)
Jonathan S. Spencer President of the Adviser since August,
565 Fifth Avenue, Third Floor 1995; President and Treasurer of
New York, New York 10017 Gresham Asset Management, Incorporated
since 1993; Executive Vice President of
The Falconwood Corporation; formerly,
President of KPQ Futures, a futures
commission merchant.
Dr. Stanley A. Lefkowitz Vice President and Secretary of the
565 Fifth Avenue, Third Floor Adviser since March, 1994; Administrator
New York, New York 10017 for The Falconwood Corporation since
March, 1975; formerly, a principal of
KPQ Futures, a futures commission
merchant.
</TABLE>
The principal address of Registrant's Investment Adviser is 565 Fifth Avenue,
Third Floor, New York, New York 10017.
ITEM 29. PRINCIPAL UNDERWRITER
Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts, books, and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder include the Registrant; the
Registrant's investment adviser, Gresham Investment Management, Inc.; and the
Registrant's custodian. The address of the Registrant and Gresham Investment
Management, Inc. is 565 Third Avenue, Third Floor, New York, New York 10017.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Portfolio's latest annual report to shareholders, upon
request and without charge.
The Registrant undertakes to file a Post-Effective Amendment to this
Registration Statement, using financial statements which need not be
certified, within four to six months from the effective date of Registrant's
1933 Act Registration Statement.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereto duly authorized, in the City of New York,
and State of New York, on the 18th day of December, 1996.
GRESHAM VARIABLE INSURANCE SERIES TRUST
_______________________________________
Registrant
By: /S/ DR. HENRY G. JARECKI
___________________________________
Dr. Henry G. Jarecki
Trustee
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons on the 18th day of
December, 1996 in the capacities indicated.
SIGNATURE AND TITLE
/S/ DR. HENRY G. JARECKI Trustee
_________________________________
Dr. Henry G. Jarecki
INDEX TO EXHIBITS
PAGE
EX-99.B1 Declaration of Trust
DECLARATION OF TRUST
GRESHAM VARIABLE INSURANCE SERIES TRUST
NOVEMBER 29, 1996
TABLE OF CONTENTS
PAGE
ARTICLE I
THE TRUST
SECTION 1.1 Name
SECTION 1.2 Location
SECTION 1.3 Nature of Trust
SECTION 1.4 Definitions
ARTICLE II
POWERS OF TRUSTEES
SECTION 2.1 General
SECTION 2.2 Investments
SECTION 2.3 Legal Title
SECTION 2.4 Disposition of Assets
SECTION 2.5 Taxes
SECTION 2.6 Rights as Holder of Securities
SECTION 2.7 Delegation; Committees
SECTION 2.8 Collection
SECTION 2.9 Expenses
SECTION 2.10 Borrowing
SECTION 2.11 Deposits
SECTION 2.12 Allocation
SECTION 2.13 Valuation
SECTION 2.14 Fiscal Year
SECTION 2.15 Concerning the Trust and Certain
Affiliates
SECTION 2.16 Power to Contract
SECTION 2.17 Insurance
SECTION 2.18 Pension and Other Plans
SECTION 2.19 Seal
SECTION 2.20 Charitable Contributions
SECTION 2.21 Indemnification
SECTION 2.22 Remedies
SECTION 2.23 Separate Accounting
SECTION 2.24 Further Powers
ARTICLE III
ADVISER AND DISTRIBUTOR
SECTION 3.1 Appointment
SECTION 3.2 Provisions of Agreement
ARTICLE IV
INVESTMENTS
SECTION 4.1 Statement of Investment Objectives and
Policies
SECTION 4.2 Restrictions
SECTION 4.3 Percentage Restrictions
SECTION 4.4 Amendment of Investment Objectives and
Policies and of Investment Limitations
ARTICLE V
LIMITATIONS OF LIABILITY
SECTION 5.1 Liability to Third Persons
SECTION 5.2 Liability to Trust or to Shareholders
SECTION 5.3 Indemnification
SECTION 5.4 Surety Bonds
SECTION 5.5 Apparent Authority
SECTION 5.6 Recitals
SECTION 5.7 Reliance on Experts, Etc.
SECTION 5.8 Liability Insurance
ARTICLE VI
CHARACTERISTICS OF SHARES
SECTION 6.1 General
SECTION 6.2 Classes of Stock
SECTION 6.3 Evidence of Share Ownership
SECTION 6.4 Death of Shareholders
SECTION 6.5 Repurchase of Shares
SECTION 6.6 Trustees as Shareholders
SECTION 6.7 Redemption and Stop Transfers for Tax
Purposes; Redemption to Maintain
Constant Net Asset Value
SECTION 6.8 Information from Shareholders
SECTION 6.9 Redemptions
SECTION 6.10 Suspension of Redemption; Postponement
of Payment
ARTICLE VII
RECORD AND TRANSFER OF SHARES
SECTION 7.1 Share Register
SECTION 7.2 Transfer Agent
SECTION 7.3 Owner of Record
SECTION 7.4 Transfers of Shares
SECTION 7.5 Limitation of Fiduciary Responsibility
SECTION 7.6 Notices
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders
SECTION 8.2 Quorums
SECTION 8.3 Notice of Meetings
SECTION 8.4 Record Date for Meetings
SECTION 8.5 Proxies, Etc.
SECTION 8.6 Reports
SECTION 8.7 Inspection of Records
SECTION 8.8 Shareholder Action by Written Consent
SECTION 8.9 Voting Rights of Shareholders
ARTICLE IX
TRUSTEES
SECTION 9.1 Number and Qualification
SECTION 9.2 Term and Election
SECTION 9.3 Resignation and Removal
SECTION 9.4 Vacancies
SECTION 9.5 Meetings
SECTION 9.6 Officers
SECTION 9.7 By-laws
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND DETERMINATION
OF NET ASSET VALUE AND NET INCOME
SECTION 10.1 General
SECTION 10.2 Retained Earnings
SECTION 10.3 Source of Distributions
SECTION 10.4 Net Asset Value
SECTION 10.5 Power to Modify Valuation Procedures
ARTICLE XI
CUSTODIAN
SECTION 11.1 Appointment and Duties
SECTION 11.2 Central Certificate System
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
SECTION 12.1 Recording
ARTICLE XIII
AMENDMENT OR TERMINATION OF THE TRUST
SECTION 13.1 Amendment or Termination
SECTION 13.2 Power to Effect Reorganization
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Governing Law
SECTION 14.2 Counterparts
SECTION 14.3 Reliance by Third Parties
SECTION 14.4 Provisions in Conflict with Law or
Regulations
SECTION 14.5 Section Headings
ARTICLE XV
DURATION OF TRUST
SECTION 15.1 Duration
DECLARATION OF TRUST
OF
GRESHAM VARIABLE INSURANCE SERIES TRUST
This Declaration of Trust made the 29th day of November, 1996 by Dr.
Henry G. Jarecki, the undersigned Trustee of GRESHAM VARIABLE INSURANCE SERIES
TRUST.
WITNESSETH:
WHEREAS, the Trustees desire to establish an unincorporated voluntary
association commonly known as a business trust, as described in the provisions
of Chapter 182 of the General Laws of Massachusetts, for the principal purpose
of the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that such trust be a registered open-end
investment company under the Investment Company Act of 1940; and
WHEREAS, the Trustees have acknowledged the receipt of and investment of
One Hundred Thousand ($100,000.00) Dollars by means of an Agreement Governing
Contribution and have agreed to hold, invest, and dispose of the same and any
property acquired or otherwise added thereto as such Trustees as hereinafter
stated; and
WHEREAS, it is proposed that the beneficial interest in the Trust's
assets shall be divided into transferable shares of beneficial interest, which
shall be evidenced by the Share Register maintained by the Trust or its agent,
or, in the discretion of the Trustees, be evidenced by certificates therefor,
as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold all
property of every type and description which they are acquiring or may
hereafter acquire as such Trustees, together with the proceeds thereof, in
trust, to manage and dispose of the same for the benefit of the holders of
record from time to time of the Shares being issued and to be issued hereunder
and in the manner and subject to the provisions hereof.
ARTICLE I
THE TRUST
1.1 NAME . The name of the trust created by this Declaration of
Trust shall be GRESHAM VARIABLE INSURANCE SERIES TRUST (hereinafter called the
"Trust") and so far as may be practicable the Trustees shall conduct the
Trust's activities, execute all documents and sue or be sued under that name,
which name (and the word "Trust" wherever used in this Declaration of Trust,
except where the context otherwise requires) shall refer to the Trustees in
their capacity as Trustees, and not individually or personally and shall not
refer to the officers, agents, employees or Shareholders of the Trust or of
such Trustees. Should the Trustees determine that the use of such name is not
practicable, legal or convenient, they may use such other designation or they
may adopt such other name for the Trust as they deem proper and the Trust may
hold property and conduct its activities under such designation or name.
1.2 LOCATION . The Trust shall maintain a registered office in
Boston, Massachusetts, and may maintain such other offices or places of
business as the Trustees may from time to time determine.
1.3 NATURE OF TRUST . The Trust shall be of the type commonly termed
a "business" trust. The Trust is not intended to be, shall not be deemed to
be and shall not be treated as, a general partnership, limited partnership,
joint venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder. The
Trust is intended to have the status of a registered open-end investment
company under the Investment Company Act of 1940 and of a "regulated
investment company" as that term is defined in Section 851 of the Internal
Revenue Code of 1986, as amended, and this Declaration of Trust and all
actions of the Trustees hereunder shall be construed in accordance with such
intent.
1.4 DEFINITIONS . As used in this Declaration of Trust, the
following terms shall have the following meanings unless the context hereof
otherwise requires:
"1940 Act" shall mean the Investment Company Act of 1940, as amended from
time to time.
"Adviser" and "Distributor" shall mean any Person or Persons appointed,
employed or contracted with by the Trustees under the applicable provisions of
Section 3.1 hereof.
"Affiliate" shall have the same meaning as the term Affiliated Person
under the 1940 Act.
"Assignment," "Commission," and "Prospectus" shall have the meanings
given them in the 1940 Act.
"Declaration of Trust" shall mean this Declaration of Trust as amended,
restated, or modified from time to time. References in this Declaration of
Trust to "Declaration," "hereof," "herein," "hereby" and "hereunder" shall be
deemed to refer to the Declaration of Trust and shall not be limited to the
particular text, article, or section in which such words appear.
"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other entities whether or not legal entities and
governments and agencies and political subdivisions thereof.
"Portfolio" shall mean any subdivision of the Trust so designated as such
by the Trustees.
"Securities" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise or, in general, any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for, guarantees
of, or any right to subscribe to, purchase or acquire any of the foregoing.
"Shareholders" shall mean, as of any particular time, all holders of
record of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the Trust as
described in Article VI.
"Trust Property" shall mean, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is
transferred, conveyed or paid to the Trust or Trustees and all income, profits
and gains therefrom and which at such time is owned or held by, or for the
account of, the Trust or the Trustees.
ARTICLE II
POWERS OF TRUSTEES
2.1 GENERAL . The Trustees shall have, without other or further
authorization, full, exclusive and absolute power, control and authority over
the Trust Property and over the business of the Trust to the same extent as if
the Trustees were the sole and absolute owners of the Trust Property and
business in their own right, and with such powers of delegation as may be
permitted by this Declaration of Trust. The Trustees may do and perform such
acts and things as in their sole judgment and discretion are necessary and
proper for conducting the business and affairs of the Trust or promoting the
interests of the Trust and the Shareholders. The enumeration of any specific
power or authority herein shall not be construed as limiting the aforesaid
power or authority or any specific power or authority. The Trustees shall
have the power to enter into commitments to make any investment, purchase or
acquisition, or to exercise any power authorized by this Declaration of Trust.
Such powers of the Trustees may be exercised without order of or resort to
any court.
2.2 INVESTMENTS . The Trustees shall have power, subject in all
respects to Article IV hereof,
(a) to conduct, operate and carry on the business of an investment
company; and
(b) for such consideration as they may deem proper, to subscribe for,
invest in, reinvest in, purchase or otherwise acquire, hold, pledge, sell,
assign, transfer, exchange, distribute or otherwise deal in or dispose of
negotiable or nonnegotiable instruments, obligations, evidences of
indebtedness, bankers' acceptances, certificates of deposit or indebtedness,
commercial paper, securities subject to repurchase agreements and other money
market securities, including, without limitation, those issued, guaranteed or
sponsored by the United States Government or its agencies or
instrumentalities, or international instrumentalities, or by any of the
several states of the United States of America or their political
subdivisions, agencies or instrumentalities, or any bank or savings
institution, or by any corporation organized under the laws of the United
States or of any state, territory or possession thereof, or by corporations
organized under foreign laws; marketable straight debt securities; securities
(payable in U.S. dollars) of, or guaranteed by, the government of Canada or of
a Province of Canada; common stock, securities convertible into common stock,
purchase rights, warrants, options, futures, commodities contracts,
instruments for future delivery and any other investments as the Trustees deem
necessary, appropriate or desirable; and nothing herein shall be construed to
mean the Trustees shall not have the foregoing powers with respect to any
Securities in which the Trust may invest in accordance with Article IV hereof.
In the exercise of their powers, the Trustees shall not be limited, except as
otherwise provided hereunder, to investing in Securities maturing before the
possible termination of the Trust, nor shall the Trustees be limited by any
law now or hereafter in effect limiting the investments which may be held or
retained by trustees or other fiduciaries, but they shall have full authority
and power to make any and all investments within the limitations of this
Declaration of Trust, that they, in their absolute discretion, shall
determine, and without liability for loss, even though such investments shall
be of a character or an amount not considered proper for the investment of
trust funds.
2.3 LEGAL TITLE . Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants and held by and transferred to the
Trustees, 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 with suitable reference to their trustee status, or in the name of
the Trust, or in the name of any other Person as nominee, on such terms, in
such manner and with such powers as the Trustees may determine, so long as in
their judgment the interest of the Trust is adequately protected.
The right, title and interest of the Trustees in and to the Trust
Property shall vest automatically in all persons who may hereafter become
Trustees upon their due election and qualification without any further act.
Upon the resignation, removal or death of a Trustee, he (and in the event of
his death, his estate) shall automatically cease to have any right, title or
interest in or to any of the Trust Property, and the right, title and interest
of such Trustee in and to the Trust Property shall vest automatically in the
remaining Trustees without any further act.
2.4 DISPOSITION OF ASSETS . Subject in all respects to Article IV
hereof, the Trustees shall have power to sell, lease, exchange or otherwise
dispose of or grant options with respect to any and all Trust Property free
and clear of any and all encumbrances, at public or private sale, for cash or
on terms, without advertisement, and subject to such restrictions,
stipulations, agreements and reservations as they shall deem proper, and to
execute and deliver any deed or other instrument in connection with the
foregoing. The Trustees shall also have the power, subject in all respects to
Article IV hereof, to:
(a) rent, lease or hire from others for terms which may extend beyond
the termination of this Declaration of Trust any property or rights to
property, real, personal or mixed, tangible or intangible, and, except for
real property, to own, manage, use and hold such property and such rights;
(b) give consents and make contracts relating to Trust Property or its
use;
(c) grant security interests in or otherwise encumber Trust Property in
connection with borrowings; and
(d) release any Trust Property.
2.5 TAXES . The Trustees shall have power to pay all taxes or
assessments, of whatever kind or nature, imposed upon or against the Trust or
the Trustees in connection with the Trust Property or upon or against the
Trust Property or income or any part thereof, to settle and compromise
disputed tax liabilities and, for the foregoing purposes, to make such returns
and do all other such acts and things as may be deemed by the Trustees to be
necessary or desirable.
2.6 RIGHTS AS HOLDER OF SECURITIES . The Trustees shall have the
power to exercise all the rights, powers and privileges appertaining to the
ownership of all or any Securities or other property forming part of the Trust
Property to the same extent that any individual might, and, without limiting
the generality of the foregoing, to vote or give any consent, request or
notice or waive any notice either in person or by proxy or power of attorney
with or without power of substitution, to one or more Persons, which proxies
and powers of attorney may be for meetings or action generally or for any
particular meetings or action, and may include the exercise of discretionary
powers.
2.7 DELEGATION; COMMITTEES . The Trustees shall have power,
consistent with their continuing exclusive authority over the management of
the Trust, the conduct of its affairs and the management and disposition of
Trust Property, to delegate from time to time to such one or more of their
number (who may be designated as constituting a Committee of the Trustees) 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 as their attorney or attorneys or otherwise as the Trustees
may from time to time deem expedient.
2.8 COLLECTION . The Trustees shall have power to collect, sue for,
receive and receipt for all sums of money or other property due to the Trust,
to consent to extensions of the time for payment, or to the renewal of any
Securities or obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or otherwise any
actions, suits, proceedings, disputes, claims, demands or things relating to
the Trust Property; to foreclose any Security or other instrument securing any
notes, debentures, bonds, obligations or contracts, by virtue of which any
sums of money are owed to the Trust; to exercise any power of sale held by
them, and to convey good title thereunder free of any and all trusts, and in
connection with any such foreclosure or sale, to purchase or otherwise acquire
title to any property; to be parties to reorganization and to transfer to and
deposit with any corporation, committee, voting trustee or other Person any
Securities or obligations of any corporation, trust, association or other
organization, the Securities of which form a part of the Trust Property, for
the purpose of any reorganization of any such corporation, trust, association
or other organization, or otherwise, to participate in any arrangement for
enforcing or protecting the interests of the Trustees as the owners or holders
of such Securities or obligations and to pay any assessment levied in
connection with such reorganization or arrangement; to extend the time (with
or without security) for the payment or delivery of any debts or property and
to execute and enter into releases, agreements and other instruments; and to
pay or satisfy any debts or claims upon any evidence that the Trustees shall
think sufficient.
2.9 EXPENSES . The Trustees shall have power to incur and pay any
charges or expenses which, in the opinion of the Trustees, are necessary or
incidental to or proper for carrying out any of the purposes of this
Declaration of Trust, and to reimburse others for the payment therefor, and to
pay appropriate compensation or fees from the funds of the Trust to themselves
as Trustees and to Persons with whom the Trust has contracted or transacted
business. The Trustees shall fix the compensation of all officers, employees
and Trustees. The Trustees may be paid reasonable compensation for their
general services as Trustees and officers hereunder, and the Trustees may pay
themselves or any one or more of themselves such compensation for special
services, including legal services, as they in good faith may deem reasonable
and reimbursement for expenses reasonably incurred by themselves or any one or
more of themselves on behalf of the Trust. Each Portfolio must pay the
expenses directly attributable to it. However, to the extent that the
Trustees can effect cost savings by the sharing of expenses they are
authorized to do so. Such general administrative expenses will be allocated
on the basis of the asset size of the respective Portfolios.
2.10 BORROWING . The Trustees shall have power to borrow money only
to the extent, for the purposes and in the manner authorized by Article IV
hereof.
2.11 DEPOSITS . The Trustees shall have power to deposit any monies
or Securities included in the Trust Property with one or more banks, trust
companies or other banking institutions whether or not such deposits will draw
interest. Such deposits are to be subject to withdrawal in such manner as the
Trustees may determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
other banking institution with whom the monies or Securities have been
deposited.
2.12 ALLOCATION . The Trustees shall have power to determine whether
monies or other assets received by the Trust shall be charged or credited to
income or capital or allocated between income and capital, including the power
to amortize or fail to amortize any part or all of any premium or discount, to
treat any part or all of the profit resulting from the maturity or sale of any
assets, whether purchased at a premium or at a discount, as income or capital
or apportion the same between income and capital, to apportion the sale price
of any asset between income and capital and to determine in what manner any
expenses or disbursements are to be borne as between income and capital,
whether or not in the absence of the power and authority conferred by this
Section 2.12, such assets would be regarded as income or as capital or such
expense or disbursement would be charged to income or to capital; to treat any
dividend or other distribution on any investment as income or capital or
apportion the same between income and capital; to provide or fail to provide
reserves for depreciation, amortization or obsolescence in respect of any
Trust Property in such amounts and by such methods and for such purposes as
they shall determine, and to allocate to the share of beneficial interest
account less than all of the consideration received for Shares (but not less
than the par value thereof) and to allocate the balance thereof to paid-in
capital, all as the Trustees may reasonably deem proper.
2.13 VALUATION . The Trustees shall have power to determine in good
faith, conclusively, the value of any of the Trust Property and of any
services, Securities, assets or other consideration hereafter to be acquired
or disposed of by the Trust, and to revalue the Trust Property.
2.14 FISCAL YEAR . The Trustees shall have power to determine the
fiscal year of the Trust and the method or form in which its accounts shall be
kept and, from time to time, to change the fiscal year or method or form of
accounts.
2.15 CONCERNING THE TRUST AND CERTAIN AFFILIATES .
(a) The Trust may enter into transactions with any Affiliate of the
Trust or of the Adviser or any Affiliate of any Trustee, director, officer or
employee of the Trust or of the Adviser if (i) each such transaction has,
after disclosure of such affiliation, been approved or ratified by the
affirmative vote of a majority of the Trustees, including a majority of the
Trustees who are not Affiliates of any Person (other than the Trust) who is a
party to the transaction with the Trust, (ii) such transaction is, in the
opinion of the Trustees, on terms fair and reasonable to the Trust and the
Shareholders and at least as favorable to them as similar arrangements for
comparable transactions (of which the Trustees have knowledge) with
organizations unaffiliated with the Trust or with the Person who is a party to
the transaction with the Trust, and (iii) such transaction is in accordance
with the 1940 Act or an exemption granted thereunder.
(b) Except as otherwise provided by this Declaration of Trust and in the
absence of fraud, a contract, act or other transaction, between the Trust and
any other Person, or in which the Trust is interested, is valid and no
Trustee, officer, employee or agent of the Trust shall have any liability as a
result of entering into any such contract, act or transaction even though (a)
one or more of the Trustees, officers, employees or agents of the Trust is
directly or indirectly interested in or affiliated with, or are trustees,
partners, directors, employees, officers or agents of such other Person, or
(b) one or more of the Trustees, officers, employees or agents of the Trust,
individually or jointly with others, is a party or are parties to, or directly
interested in, or affiliated with, such contract, act or transaction, provided
that (i) such interest or affiliation is disclosed to the Trustees and the
Trustees authorized such contract, act or other transaction by a vote of a
majority of the unaffiliated Trustees, or (ii) such interest or affiliation is
disclosed to the Shareholders, and such contract, act or transaction is
approved by the Shareholders.
(c) Any Trustee or officer, employee or agent of the Trust may acquire,
own, hold and dispose of Shares for his individual account, and may exercise
all rights of a holder of such Shares to the same extent and in the same
manner as if he were not such a Trustee or officer, employee or agent. The
Trustees shall use their best efforts to obtain through the Adviser or other
Persons a continuing and suitable investment program, consistent with the
investment policies and objectives of the Trust, and the Trustees shall be
responsible for reviewing and approving or rejecting investment opportunities
presented by the Adviser or such other Persons. Any Trustee or officer,
employee or agent of the Trust may, in his personal capacity, or in a capacity
as trustee, officer, director, stockholder, partner, member, adviser or
employee of any Person, have business interests and engage in business
activities in addition to those relating to the Trust, which interests and
activities may be similar to those of the Trust and include the acquisition,
syndication, holding, management, operation or disposition, of his own account
or for the account of such Person, and each Trustee, officer, employee and
agent of the Trust shall be free of any obligation to present to the Trust any
investment opportunity which comes to him in any capacity other than solely as
Trustee, officer, employee or agent of the Trust, even if such opportunity is
of a character which, if presented to the Trust, could be taken by the Trust.
Subject to the provisions of Article III hereof, any Trustee or officer,
employee or agent of the Trust may be interested as Trustee, officer,
director, stockholder, partner, member, adviser or employee of, or otherwise
have a direct or indirect interest in, any Person who may be engaged to render
advice or services to the Trust, and may receive compensation from such Person
as well as compensation as Trustee, officer, employee or agent of the Trust or
otherwise hereunder. None of the activities referred to in this paragraph
shall be deemed to conflict with his duties and powers as Trustee, officer,
employee or agent of the Trust. To the extent that any other provision of
this Declaration of Trust conflicts with, or is otherwise contrary to, the
provisions of this Section 2.15, the provisions of this Section shall be
deemed controlling.
2.16 POWER TO CONTRACT . Subject to the provisions of Section 3.1
hereof with respect to delegation of authority by the Trustees, the Trustees
shall have power to appoint, employ or contract with any Person (including one
or more of themselves and any corporation, partnership or trust of which one
or more of them may be an Affiliate, subject to the applicable requirements of
Section 2.15 hereof) as the Trustees may deem necessary or desirable for the
transaction of the business of the Trust, including any Person who, under the
supervision of the Trustees, may, among other things: serve as the Trust's
investment adviser and consultant in connection with policy decisions made by
the Trustees; furnish reports to the Trustees and provide research, economic
and statistical data in connection with the Trust's investments; act as
consultants, accountants, technical advisers, attorneys, brokers,
underwriters, corporation fiduciaries, escrow agents, depositaries, custodians
or agents for collection, insurers or insurance agents, transfer agents or
registrars for Shares or in any other capacity deemed by the Trustees
necessary or desirable; investigate, select, and, on behalf of the Trust,
conduct relations with Persons acting in such capacities and pay appropriate
fees to, and enter into appropriate contracts with, or employ, or retain
services performed or to be performed by, any of them in connection with the
investments acquired, sold, or otherwise disposed of, or committed,
negotiated, or contemplated to be acquired, sold or otherwise disposed of;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments, and in the
handling, prosecuting or settling of any claims of the Trust, including the
foreclosure or other enforcement of any lien or security securing investments;
and assist in the performance of such ministerial functions necessary in the
management of the Trust as may be agreed upon with the Trustees or officers of
the Trust.
2.17 INSURANCE . The Trustees shall have the power to purchase and
pay for, entirely out of Trust Property, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
including the Adviser or independent contractors of the Trust, individually
against all claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence. However, such policies shall not pay or
reimburse any director, officer, investment adviser or principal underwriter
for any liability arising by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties. Such policies are to set forth a
reasonable and fair means for determining whether payment or reimbursement
shall be made.
2.18 PENSION AND OTHER PLANS . The Trustees shall have the power to
pay pensions for faithful service, as deemed appropriate by the Trustees, and
to adopt, establish and carry out pension, profit-sharing, savings, thrift and
other retirement, incentive and benefit plans, trusts and provisions,
including, without limitation, the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any
or all of the Trustees, officers, employees and agents of the Trust.
2.19 SEAL . The Trustees shall have the power to adopt and use a
seal for the Trust, but, unless otherwise required by the Trustees, it shall
not be necessary for the seal to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
2.20 CHARITABLE CONTRIBUTIONS . The Trustees shall have the power to
make donations, irrespective of benefit to the Trust, for the public welfare
or for community fund, hospital, charitable, religious, educational,
scientific, literary, civic or similar purpose and, in time of war or other
national emergency, in aid thereof.
2.21 INDEMNIFICATION . In addition to the mandatory indemnification
provided for in Section 5.3 hereof, the Trustees shall have power, to the
extent permitted by law, to indemnify or enter into agreements with respect to
indemnification with any Person with whom the Trust has dealings, including,
without limitation, any investment adviser, including the Adviser, or
independent contractor, to such extent as the Trustees shall determine.
2.22 REMEDIES . Notwithstanding any provision in this Declaration of
Trust, when the Trustees deem that there is a significant risk that an obligor
to the Trust may default or is in default under the terms of any obligation to
the Trust, the Trustees shall have power to pursue any remedies permitted by
law which, in their sole judgment, are in the best interests of the Trust, and
the Trustees shall have the power to enter into any investment, commitment or
obligation of the Trust resulting from the pursuit of such remedies as is
necessary or desirable to dispose of property acquired in the pursuit of such
remedies.
2.23 SEPARATE ACCOUNTING . The Trustees shall establish the books
and records for each Portfolio and maintain such records separately as if each
Portfolio were a separate legal entity.
2.24 FURTHER POWERS . The Trustees shall have power to do all such
other matters and things and execute all such instruments as they deem
necessary, proper or desirable in order to carry out, promote or advance the
interests of the Trust although such matters or things are not herein
specifically mentioned. Any determination as to what is in the best interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration of Trust, the presumption shall
be in favor of a grant of power to the Trustees. The Trustees will not be
required to obtain any court order to deal with the Trust Property.
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 APPOINTMENT . The Trustees are responsible for the general
investment policy of the Trust, the distribution of its Shares and for the
general supervision of the business of the Trust conducted by officers,
agents, employees, investment advisers, distributors or independent
contractors of the Trust. However, the Trustees are not required personally
to conduct all of the business of the Trust and, consistent with their
ultimate responsibility as stated herein, the Trustees may appoint, employ or
contract with an investment adviser (the "Adviser") and/or a distributor and
underwriter for the Trust's Shares (the "Distributor"), and may grant or
delegate such authority to the Adviser and/or Distributor (pursuant to the
terms of Section 2.16 hereof) or to any other Person the services of whom are
obtained by the Adviser or Distributor, as the Trustees may, in their sole
discretion, deem to be necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees.
3.2 PROVISIONS OF AGREEMENT . The Trustees shall not enter into any
agreement with the Adviser or Distributor pursuant to the provisions of
Section 3.1 hereof unless such agreement is consistent with the provisions of
Section 15 of the 1940 Act.
ARTICLE IV
INVESTMENTS
4.1 STATEMENT OF INVESTMENT OBJECTIVES AND POLICIES . The Trustees
shall be guided in their actions by the Investment Objectives and Policies as
set forth in the most current effective registration statement for the Trust
as filed with the Securities and Exchange Commission. Because the Trust is
divided into separate Portfolios, the Trustees shall supervise the investments
and the recordkeeping for each Portfolio within the Trust as if it was a
separate legal entity. In addition to any other power granted to the
Trustees, the Trustees may, as they deem appropriate, provide for additional
Portfolios in a manner consistent with the 1940 Act.
4.2 RESTRICTIONS . Notwithstanding anything in this Declaration of
Trust which may be deemed to authorize the contrary, the Trust, with respect
to each Portfolio, shall conduct its affairs in accordance with the Investment
Limitations (Restrictions) as set forth in the most current, effective
registration statement for the Trust as filed with the Securities and Exchange
Commission.
4.3 PERCENTAGE RESTRICTIONS . If the percentage restrictions as set
forth in the Investment Limitations described in Section 4.2 above are adhered
to at the time of each investment, a later increase or decrease in percentage
resulting from a change in the value of the Trust's assets is not a violation
of such investment restrictions.
4.4 AMENDMENT OF INVESTMENT OBJECTIVES AND POLICIES AND OF INVESTMENT
LIMITATIONS . Any Investment Objectives and Policies or Investment
Limitations which are deemed in the most current, effective registration
statement for the Trust as filed with the Securities and Exchange Commission
to be fundamental policies may not be changed without the approval of the
holders of a majority of the outstanding voting shares of each Portfolio
affected which, for purposes herein, shall mean the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding
shares are present or represented by proxy and (ii) more than 50% of the
outstanding shares. A change in a fundamental policy affecting only one
Portfolio may be affected only with the approval of a majority of the
outstanding shares of such Portfolio.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 LIABILITY TO THIRD PERSONS . No Shareholder shall be subject to
any personal liability whatsoever, in tort, contract or otherwise, to any
other Person or Persons in connection with the Trust Property or the affairs
of the Trust; and no Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever, in tort, contract or otherwise;
to any other Person or Persons in connection with Trust Property or the
affairs of the Trust, except for that arising from his bad faith, willful
misconduct, gross negligence or reckless disregard of his duties or for his
failure to act in good faith in the reasonable belief that his action was in
the best interest of the Trust; and all such other 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 proceedings to enforce any such liability, he shall not on account thereof
be held to any personal liability.
5.2 LIABILITY TO TRUST OR TO SHAREHOLDERS . No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust or to any
Shareholder, Trustee, officer, employee or agent of the Trust 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
for his duties.
5.3 INDEMNIFICATION . The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, whether they
proceed to judgment or are settled or otherwise brought to a conclusion, 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 5.3 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; provided, however, that the Trust
shall have no liability to reimburse Shareholders for taxes assessed against
them by reason of their ownership of Shares, nor for any losses suffered by
reason of changes in the market value of Shares.
Each officer, Trustee or agent of the Trust shall be indemnified by the
Trust to the full extent permitted under the General Laws of the Commonwealth
of Massachusetts and the 1940 Act, except that such indemnity shall not
protect any such person against any liability to the Trust or any Shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct"). Indemnification
shall be made when (i) a final decision on the merits, by a court or other
body before whom the proceeding was brought, that the person to be indemnified
was not liable by reason of disabling conduct, or (ii) in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the person to be indemnified was not liable by reason of disabling conduct, by
(a) the vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a)(19) of the 1940 Act, nor
parties to the proceedings or (b) an independent legal counsel in a written
opinion. The Trust may, by vote of a majority of a quorum of Trustees who are
not interested persons, advance attorneys' fees or other expenses incurred by
officers, Trustees, investment advisers or principal underwriters, in
defending a proceeding upon the undertaking by or on behalf of the person to
be indemnified to repay the advance unless it is ultimately determined that he
is entitled to indemnification. Such advance shall be subject to at least one
of the following: (1) the person to be indemnified shall provide a security
for his undertaking, (2) the Trust shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the person to be
indemnified ultimately will be found entitled to indemnification. The law of
Massachusetts is superseded by the 1940 Act insofar as it conflicts with the
1940 Act or rules published thereunder.
5.4 SURETY BONDS . No Trustee shall, as such, be obligated to give
any bond or surety or other security for the performance of his duties.
5.5 APPARENT AUTHORITY . No purchaser, lender, 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 such officer, employee
or agent or make inquiry concerning or be liable for the application of money
or property paid, loaned or delivered to or on the order of the Trustees or of
such officer, employee or agent.
5.6 RECITALS . Any written instrument creating an obligation of the
Trust shall be conclusively taken to have been executed or done by a Trustee
or Trustees or an officer, employee or agent of the Trust only in their or his
capacity as Trustees or Trustee under this Declaration of Trust or in the
capacity of officer, employee or agent of the Trust. Any written instrument
creating an obligation of the Trust shall refer to this Declaration of Trust
and contain a recital to the effect that the obligations thereunder are not
personally binding upon, nor shall resort be had to the private property of,
any of the Trustees, Shareholders, officers, employees or agents of the Trust,
but the Trust Property or a specific portion thereof only shall be bound, and
may contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust.
5.7 RELIANCE ON EXPERTS, ETC. Each Trustee and each officer 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 Adviser, accountants, appraisers or other
experts or consultants selected with reasonable care by the Trustees or
officers of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
5.8 LIABILITY INSURANCE . The Trustees shall, at all times, maintain
insurance for the protection of the Trust Property, its Shareholders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover all foreseeable tort liability to the extent available
at reasonable rates.
ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 GENERAL . The interest of the Shareholders hereunder shall be
divided into Shares, all of one class and having a par value of $.01 per
Share. The number of Shares authorized hereunder is unlimited. All Shares
shall have equal noncumulative voting and other rights, shall be fully paid
and non-assessable, and shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights of any kind. 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 share or assume any losses of the Trust
or suffer an assessment of any kind by virtue of their ownership of Shares,
except as provided in Section 10.5 hereof. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration of
Trust.
6.2 CLASSES OF STOCK .
(a) The Shares shall be divided into ten classes of common stock and
designated Classes A, B, C, D, E, F, G, H, I and J, respectively.
(b) The holders of each Share of stock of the Trust shall be entitled to
one vote for each full Share, and a fractional vote for each fractional Share
of stock, irrespective of the Class, then standing in his name on the books of
the Trust. On any matter submitted to a vote of Shareholders, all Shares of
the Trust then issued and outstanding and entitled to vote shall be voted in
the aggregate and not by class except that (1) when otherwise expressly
required by Massachusetts Law, the 1940 Act, or this Declaration of Trust,
Shares shall be voted by individual class; (2) Shares of the respective
Classes are entitled to vote in matters concerning only that Class; (3)
fundamental policies, as specified in Article IV hereof, may not be changed,
unless a change affects only one Class, without the approval of the holders of
a majority of the Trust's outstanding voting shares, including a majority (as
defined under the 1940 Act) of the Shares of each Class.
(c) Each Class of stock of the Trust shall have the following powers,
preferences or other special rights, and qualifications, restrictions, and
limitations thereof shall be as follows:
(1) The Trustees may from time to time declare and pay dividends or
distributions, in stock or in cash, on any or all Classes of stock, the amount
of such dividends and distributions and the payment of them being wholly in
the discretion of the Trustees.
(i) Dividends or distributions on shares of any Class of stock
shall be paid only out of earned surplus or other lawfully available assets
belonging to such Class.
(ii) Inasmuch as one goal of the Trust is to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, or any successor or comparable statute thereto, and Regulations
promulgated thereunder, and inasmuch as the computation of net income and
gains for Federal income tax purposes may vary from the computation thereof on
the books of the Trust, the Trustees shall have the power in their discretion
to distribute in any fiscal years as dividends, including dividends designated
in whole or in part as capital gains distributions, amounts sufficient in the
opinion of the Trustees, to enable the Trust to qualify as a regulated
investment company and to avoid liability for the Trust for Federal income tax
in respect of that year. In furtherance, and not in limitation of the
foregoing, in the event that a Class of shares has a net capital loss for a
fiscal year, and to the extent that a net capital loss for a fiscal year
offsets net capital gains from one or more of the other classes, the amount to
be deemed available for distribution to the Class or Classes with the net
capital gain may be reduced by the amount offset.
(2) The assets belonging to any Class of stock shall be charged
with the liabilities in respect to such Class, and shall also be charged with
its share of the general liabilities of the Trust in proportion to the asset
values of the respective Classes. The determination of the Trustees shall be
conclusive as to the amount of liabilities, the allocation of the same as to a
given Class and as to whether the same or general assets of the Trust are
allocable to one or more Classes.
(3) Prior to the issuance of any shares of a Class, the Trustees
may by resolution change the designation of such Class to the name of the
Portfolio of the Trust with respect to which such shares will be issued.
(4) The assets belonging to any Class of stock shall be available
only to the Shareholders of that Class in the event of a liquidation.
6.3 EVIDENCE OF SHARE OWNERSHIP . Evidence of Share ownership shall
be reflected in the Share Register maintained by or on behalf of the Trust
pursuant to Section 7.1 hereof, and the Trust shall not be required to issue
certificates as evidence of Share ownership; provided, however, that the
Trustees may, in their discretion, authorize the use of certificates as a
means of evidencing the ownership of Shares by setting forth in the Trust's
By-laws or in a resolution, provisions for the form of certificates and
regulations governing their execution, issuance and transfer. Subject to
Section 6.7 hereof, such certificates shall be treated as negotiable and title
thereto and to the Shares represented thereby shall be transferred by delivery
thereof to the same extent in all respects as a stock certificate, and the
Shares represented thereby, of a Massachusetts business corporation.
6.4 DEATH OF SHAREHOLDERS . The death of a Shareholder during the
continuance of the Trust shall not terminate this Declaration of Trust nor
give such Shareholder's legal representatives a right to an accounting or to
take any action in the courts or otherwise against other Shareholders or the
Trustees or the Trust Property, but shall simply entitle the legal
representatives of the deceased Shareholder to require the recordation of such
legal representative's ownership of or rights in the deceased Shareholder's
Shares, and, upon the acceptance thereof, such legal representative shall
succeed to all the rights of the deceased Shareholder under this Declaration
of Trust.
6.5 REPURCHASE OF SHARES . The Trustees may, on behalf of the Trust,
purchase or otherwise acquire outstanding Shares from time to time for such
consideration and on such terms as they may deem proper. Shares so purchased
or acquired by the Trustees for the account of the Trust shall not, so long as
they belong to the Trust, receive distributions (other than, at the option of
the Trustees, distributions in Shares) or be entitled to any voting rights.
Such Shares may, in the discretion of the Trustees, be cancelled and the
number of Shares issued thereby reduced, or such Shares may, in the discretion
of the Trustees, be held in the treasury and may be disposed of by the
Trustees at such time or times, to such party or parties and for such
considerations as the Trustees may determine.
6.6 TRUSTEES AS SHAREHOLDERS . Any Trustee in his individual
capacity may purchase and otherwise acquire or sell and otherwise dispose of
Shares or other Securities issued by the Trust, and may exercise all the
rights of a Shareholder to the same extent as though he were not a Trustee.
6.7 REDEMPTION AND STOP TRANSFERS FOR TAX PURPOSES; REDEMPTION TO
MAINTAIN CONSTANT NET ASSET VALUE . 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, then the Trustees shall have the power by lot
or other means deemed equitable by them (i) to call for redemption a number,
or principal amount, of Shares or other Securities of the Trust sufficient, in
the opinion of the Trustees, 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 which would, in the
opinion of the Trustees, result in such disqualification. The redemption shall
be effected at a redemption price determined in accordance with Section 6.9.
The Shares of one or more Classes of stock may also be subject to
redemption pursuant to the procedure for reduction of outstanding Shares set
forth in Section 10.5 hereof in order to maintain the constant net asset value
per share.
6.8 INFORMATION FROM SHAREHOLDERS . 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 reasonably deem
necessary, to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
6.9 REDEMPTIONS . All outstanding Shares may be redeemed at the
option of the holders thereof, upon and subject to the terms and conditions
provided in this Declaration of Trust. The Trust shall, upon application of
any Shareholder, redeem or repurchase from such Shareholder outstanding Shares
for an amount per share determined by the application of a formula adopted for
such purpose by the Trustees (which formula shall be consistent with the 1940
Act and the rules and regulations promulgated thereunder); provided that such
amount per Share shall not exceed the cash equivalent of the proportionate
interest of each Share in the assets of the Portfolio of the Trust at the time
of the purchase or redemption. The procedures for effecting redemption shall
be as adopted by the Trustees and set forth in the Prospectus for the Trust
from time to time.
6.10 SUSPENSION OF REDEMPTION; POSTPONEMENT OF PAYMENT . The
Trustees may suspend the right of redemption or postpone the date of payment
for the whole or any part of any period (i) during which the New York Stock
Exchange is closed other than customary weekend 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 to determine fairly the value of its net assets, or
(iv) during any other period when the Securities and Exchange Commission (or
any succeeding governmental authority) 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 on redemption; provided that applicable
rules and regulations of the Commission (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (ii), (iii)
or (iv) exist. Such suspensions shall take effect at such time as the
Trustees 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 until the Trustees 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 the period specified in (ii), (iii) or (iv) shall have expired (as to which
in the absence of an official ruling by said Commission or succeeding
authority, the determination of the Trustees 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.
ARTICLE VII
RECORD AND TRANSFER OF SHARES
7.1 SHARE REGISTER . A register shall be kept by or on behalf of the
Trustees, under the direction of the Trustees, which shall contain the names
and addresses of the Shareholders and the number and Class of Shares held by
them respectively and a record of all transfers thereof. Such register shall
be conclusive as to who are the holders of the Shares. Only Shareholders
whose ownership of Shares is recorded on such register shall be entitled to
vote or to receive distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive any
distribution, nor to have notice given to him as herein provided, until he has
given his address to a transfer agent or such other officer or agent of the
Trust as shall keep the register for entry thereon.
7.2 TRANSFER AGENT . The Trustees shall have power to employ, within
or without the Commonwealth of Massachusetts, a transfer agent or transfer
agents and, if they so determine, a registrar or registrars. The transfer
agent or transfer agents may keep the registrar and record therein the
original issues and transfers of Shares. Any such transfer agents and
registrars shall perform the duties usually performed by transfer agents and
registrars of certificates and shares of stock in a corporation, except as
modified by the Trustees.
7.3 OWNER OF RECORD . Any person becoming entitled to any Share in
consequence of the death, bankruptcy or insolvency of any Shareholder, or
otherwise, by operation of law, shall be recorded as holder of such Shares.
But until such record is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereof and neither the Trustees nor
any transfer agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of such death, bankruptcy, insolvency or other event.
7.4 TRANSFERS OF SHARES . Shares shall be transferable on the
records of the Trust (other than by operation of law) only by the record
holder thereof or by his agent thereunto duly authorized in writing upon
delivery to the Trust or a transfer agent of the Trust of a duly executed
instrument of transfer, together with such evidence of the genuineness of
execution and authorization and of other matters as may reasonably be required
by the Trust or the transfer agent. Upon such delivery, the transfer shall be
recorded on the register of the Trust. But until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereof and neither the Trustees nor the Trust nor any transfer agent
or registrar nor any officer or agent of the Trust shall be affected by any
notice of the proposed transfer. This Section 7.4 and Section 7.3 hereof are
subject in all respects to the provisions of Section 6.7 hereof.
7.5 LIMITATION OF FIDUCIARY RESPONSIBILITY . The Trustees shall not,
nor shall the Shareholders or any officer, transfer agent or other agent of
the Trust, be bound to see to the execution of any trust, express, implied or
constructive, or of any charge, pledge or equity to which any of the Shares or
any interest therein are subject, or to ascertain or inquire whether any sale
or transfer of any such Shares or interest therein by any such Shareholder or
his personal representative is authorized by such trust, charge, pledge or
equity, or to recognize any Person as having any interest therein except the
Persons recorded as such Shareholders. The receipt of the Person in whose
name any Share is recorded, or, if such Share is recorded in the names of more
than one Person, the receipt of any one such Persons or of the duly authorized
agent of any such Person shall be a sufficient discharge for all money,
Securities and other property payable, issuable or deliverable in respect of
such Share and from all liability to see the proper application thereof.
7.6 NOTICES . Any and all notices to which Shareholders hereunder
may be entitled, and any and all communications, shall be deemed duly served
or given if mailed, postage prepaid, addressed to Shareholders of record at
their last known post office addresses as recorded on the Share register
provided for in Section 7.1 hereof.
ARTICLE VIII
SHAREHOLDERS
8.1 MEETINGS OF SHAREHOLDERS . Meetings of the Shareholders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Shareholders holding in the aggregate not less
than ten (10%) percent of the outstanding Shares having voting rights, such
request specifying the purpose or purposes for which such meeting is to be
called. Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. In
the event that the number of Trustees elected by vote of the Shareholders
shall, at any time, fall below a majority, a Special Meeting shall be called
at the earliest practicable time for the election of Trustees; provided,
however, that such meeting shall, in any event be held within sixty (60) days
of the date on which the number of Trustees elected by vote of the
Shareholders falls below a majority.
8.2 QUORUMS . The holders of a majority of outstanding Shares,
entitled to vote at such a meeting, present in person or by proxy shall
constitute a quorum at any meeting of Shareholders.
8.3 NOTICE OF MEETINGS . Notice of all meetings of the Shareholders
entitled to vote at such a meeting, stating the time, place and purposes of
the meeting, shall be given by the Trustees by mail to each Shareholder at his
registered address, mailed at least ten (10) days and not more than sixty (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.
8.4 RECORD DATE FOR MEETINGS . For the purposes of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or 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 thirty (30) days, as
the Trustees may determine; or without closing the transfer books, the
Trustees may fix a date not more than sixty (60) days prior to the date of any
meeting of Shareholders or other actions as a record date for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, except for dividend payments which shall be governed by
Section 10.1, and any Shareholder who was a Shareholder at the time so fixed
shall be entitled to vote at such meeting or any adjournment thereof, even
though he has since that date disposed of his Shares, and no Shareholder
becoming such after that date shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Shareholder of record for
purposes of such other action.
8.5 PROXIES, ETC. 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 the verification prior to the time at which such
vote shall be taken. Pursuant to a resolution 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 and each full Share shall be entitled to one vote and fractional Shares
shall be entitled to fractional votes. 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, he may vote by his guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
8.6 REPORTS . The Trustees shall cause to be prepared at least
annually a report of operations containing a balance sheet and statements of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent
certified public accountant on such financial statements based on an
examination of the books and records of the Trust, and made in accordance with
generally accepted auditing standards. A signed copy of such report and
opinion shall be filed with the Trustees within sixty (60) days after the
close of the period covered thereby. Copies of such reports shall be mailed
to all Shareholders of record within the time required by the 1940 Act and in
any event within a reasonable period preceding the annual meeting of
Shareholders. The Trustees shall, in addition, furnish to the Shareholders, at
least semi-annually, an interim report containing an unaudited balance sheet
of the Trust as at the end of such semi-annual period and a statement of
income and surplus for the period from the beginning of the current fiscal
year to the end of such semi-annual period.
8.7 INSPECTION OF RECORDS . The records of the Trust shall be open
to inspections by Shareholders to the same extent as is permitted shareholders
of a Massachusetts business corporation.
8.8 SHAREHOLDER ACTION BY WRITTEN CONSENT . Any action 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 any express provision of this Declaration of Trust) 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.
8.9 VOTING RIGHTS OF SHAREHOLDERS . The Shareholders shall be
entitled to vote only upon the following matters: (a) election of Trustees as
provided in Sections 9.2, 9.3 and 9.4 hereof; (b) amendment of the Declaration
of Trust or termination of this Trust as provided in Section 4.4 and Section
13.1 hereof; (c) reorganization of this Trust as provided in Section 13.2
hereof; and (d) all matters for which the approval of the Shareholders of the
Trust is required by the 1940 Act, as amended. Except with respect to the
foregoing matters specified in this Section 8.9, no action taken by the
Shareholders at any meeting shall in any way bind the Trustees.
ARTICLE IX
TRUSTEES
9.1 NUMBER AND QUALIFICATION . The number of Trustees shall be fixed
from time to time by resolution of a majority of the Trustees then in office,
provided, however, that subsequent to any sale of Shares pursuant to a public
offering, there shall not be fewer than three (3) Trustees. Any vacancy
created by an increase in Trustees may be filled by the appointment of an
individual having the qualifications described in this Section 9.1 made by a
resolution of a majority of the Trustees then in office. Any such appointment
shall not become effective, however, until the individual named in the
resolution of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration of Trust. No
reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his term. Whenever a vacancy
in the number of Trustees shall occur, until such vacancy is filled as
provided in Section 9.4 hereof, the Trustees or Trustee continuing in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this
Declaration of Trust. A Trustee shall be an individual at least twenty-one
(21) years of age who is not under legal disability. The Trustees, in their
capacity as Trustees, shall not be required to devote their entire time to the
business and affairs of the Trust.
9.2 TERM AND ELECTION . Each Trustee named herein, or elected or
appointed as provided in Section 9.1 and 9.4 hereof shall (except in the event
of resignations or removals or vacancies pursuant to Sections 9.3 or 9.4
hereof) hold office until his successor has been elected and has qualified to
serve as Trustee. Election of Trustees shall be by the affirmative vote of
the holders of at least a majority of the Shares entitled to vote present in
person or by proxy at such meeting. The election of any Trustee (other than
an individual who was serving as a Trustee immediately prior to such election)
pursuant to this Section 9.2 shall not become effective unless and until such
person shall have in writing accepted his election and agreed to be bound by
the terms of this Declaration of Trust. Trustees may, but need not, own
Shares.
9.3 RESIGNATION AND REMOVAL . Any Trustee may resign (without need
for prior or subsequent accounting) by an instrument in writing signed by him
and delivered or mailed to the Chairman, the President or the Secretary
(referred to in Section 9.6 hereof) and such resignation shall be effective
upon such delivery, or at a later date according to the terms of the notice.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than the number required by Section 9.1
hereof) with cause, by the action of two-thirds (2/3) of the remaining
Trustees. 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.
No natural person shall serve as Trustee after the holders of record of
not less than two-thirds of the outstanding Shares of beneficial interest in
the Trust have declared that he be removed from that office either by
declaration in writing filed with the Custodian of the securities of the Trust
or by votes cast in person or by proxy at a meeting called for the purpose.
The Trustees shall promptly call a meeting of Shareholders for the
purpose of voting upon the question of removal if any such Trustee or Trustees
are requested in writing to do so by the recordholders of not less than ten
(10) per centum of the outstanding Shares.
Whenever ten 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 $50,000 or at
least one (1) per centum of the outstanding Shares, 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 for the purposes of removing Trustee(s) and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall
within five (5) business days after receipt of such application either:
(1) 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
(2) 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 (2) above, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, the Trustees
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five (5)
business days after such tender the Trustees shall mail to such applicants and
file with the Securities and Exchange 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.
9.4 VACANCIES . The term of office of a Trustee shall terminate and
a vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office, or removal of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust, and title to any Trust Property held in
the name of any Trustee alone, jointly with one or more of the other Trustees
or otherwise, shall, in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to exercise the
duties of the office of such Trustee, vest in the continuing or surviving
Trustees without necessity of any further act or conveyance. In the case of
an existing vacancy (other than by reason of increase in the number of
Trustees) the holders of at least a majority of the Shares entitled to vote,
acting at any meeting of Shareholders called for the purpose, or a majority of
the Trustees continuing in office acting by resolution, may fill such vacancy,
and any Trustee so elected by the Trustees shall hold office until his
successor has been elected and has qualified to serve as Trustee. Upon the
effectiveness of any such appointment as provided in this Section, the Trust
Property shall vest in such new Trustee jointly with the continuing or
surviving Trustees without the necessity of any further act or conveyance;
provided, however, that no such election or appointment as provided in this
Section 9.4 shall become effective unless or until the new Trustee shall have
accepted in writing his appointment and agreed to be bound by the terms of
this Declaration of Trust.
9.5 MEETINGS . Meetings of the Trustees shall be held from time to
time upon the call of the Chairman, the President, the Secretary or any two
Trustees. Regular meetings of the Trustees may be held without call or notice
at a time and place fixed by the By-laws or by resolution of the Trustees.
Notice of any other meeting shall be mailed or otherwise given not less than
forty-eight (48) hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of such notice except where a Trustee
attends a meeting for the express purpose of objecting to the transaction of
any business on the grounds that the meeting has not been lawfully called or
convened. The Trustees may act with or without a meeting. A quorum for all
meetings of the Trustees shall be a majority of the Trustees. Subject to
Section 2.15 hereof and unless specifically provided otherwise in this
Declaration of Trust, any action of the Trustees may be taken at a meeting by
vote of a majority of the Trustees present (a quorum being present) or,
without a meeting, by written consents of a majority of the Trustees. Any
agreement, or other instrument or writing executed by one or more of the
Trustees or by any authorized Person shall be valid and binding upon the
Trustees and upon the Trust when authorized or ratified by action of the
Trustees as provided in this Declaration of Trust.
Any committee of the Trustees, including an Executive Committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless otherwise
specifically provided in this Declaration of Trust, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or, without a meeting, by written consent of
a majority of the members.
With respect to actions of the Trustees and any committee thereof,
Trustees who are affiliated within the meaning of Section 2.15 hereof or
otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 9.5 and shall be entitled to vote to the extent
permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by utilizing conference, telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other and participation in a meeting pursuant to
such communications shall constitute presence in person at such meeting. The
minutes of any meeting of Trustees held by utilizing such communications
equipment shall be prepared in the same manner as those of a meeting of
Trustees held in person.
9.6 OFFICERS . The Trustees shall elect a Chairman from among their
number and shall appoint a President, Secretary and Treasurer and such other
officers as they deem necessary or appropriate to carry out the business of
the Trust. Such officers shall be appointed and hold office in accordance
with By-law provisions.
9.7 BY-LAWS . The Trustees may adopt and, from time to time, amend
or repeal By-laws for the conduct of the business of the Trust, and in such
By-laws may define the duties of the respective officers, agents, employees
and representatives.
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
10.1 GENERAL . The Trustees may, from time to time, declare and pay
to the Shareholders, in proportion to their respective ownership of Shares in
each class, out of the earnings, net profits or surplus (including paid-in
capital), capital or assets of the respective Portfolio in the hands of the
Trustees, such dividends or other distributions as they may determine. The
declaration and payment of such dividends or other distributions and the
determination of earnings, profits, surplus (including paid-in capital) and
capital available for dividends and other purposes shall lie wholly in the
discretion of the Trustees and no Shareholder shall be entitled to receive or
be paid any dividends or to receive any distributions except as determined by
the Trustees in the exercise of said discretion. The Trustees may, in
addition, from time to time in their discretion, declare and pay as dividends
or other distributions such additional amounts, whether or not out of
earnings, profits and surplus available therefor, sufficient to enable the
Trust to avoid or reduce its liability for Federal income taxes, inasmuch as
the computations of net income and gains for Federal income tax purposes may
vary from the computations thereof on the books of the Trust. Any or all such
dividends or other distributions may be made, in whole or in part, in cash,
property or other assets or obligations of the Trust, as the Trustees may in
their sole discretion from time to time determine. The Trustees may also
distribute to the Shareholders of a class, in proportion to their respective
ownership of Shares in the class, additional Shares issuable hereunder in such
manner and on such terms as they may deem proper. Any or all such dividends
or distributions may be made among the Shareholders of the class of record at
the time of declaring a distribution or among the Shareholders of record at
such later date as the Trustees shall determine.
10.2 RETAINED EARNINGS . The Trustees, except as provided in Section
10.1 hereof, may retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust, to meet obligations of
the Trust, to establish reserves or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of
the business of the Trust.
10.3 SOURCE OF DISTRIBUTIONS . Shareholders shall receive annually a
statement in writing advising the Shareholders of the source of the funds so
distributed so that distributions of ordinary income, return of capital and
capital gains income will be clearly distinguished.
10.4 NET ASSET VALUE . The net asset value of each outstanding Share
of the Trust shall be determined once on each business day, as of the close of
trading on the New York Stock Exchange or at any other time as the Trustees,
by resolution, may determine and which is in compliance with the 1940 Act.
The method of determination of net asset value shall be determined by the
Trustees and shall be set forth in the Prospectus. The power and duty to make
the daily calculations may be delegated by the Trustees to the Adviser, the
Custodian, the Transfer Agent, the Distributor or such other person as the
Trustees by resolution may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
10.5 POWER TO MODIFY VALUATION PROCEDURES . Notwithstanding any of
the foregoing provisions of this Article X, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Trust's Shares or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable to enable the Trust to comply with any provision of the 1940 Act, or
any rule or regulation thereunder, including any rule or regulation adopted
pursuant to Section 22 of the 1940 Act by the Commission or any securities
association registered under the Securities Exchange Act of 1934, or any order
of exemption issued by said Commission, all as in effect now or as hereafter
amended or modified.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT AND DUTIES . The Trustees shall, at all times,
employ a bank or trust company organized under the laws of the United States
of America or one of the several states thereof having a capital, surplus and
undivided profits of at least two million dollars ($2,000,000) as Custodian
with authority as its agent, but subject to such restrictions, limitations and
other requirements, if any, as may be contained in the By-laws of the Trust
and the 1940 Act:
(a) to hold the securities owned by the Trust and deliver the same upon
written order;
(b) 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;
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the books and accounts of the
Trust and furnish clerical and accounting services;
(e) if authorized to do so by the Trustees, to compute the net income of
the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and Custodian.
The Trust may also employ the Custodian as its agent for other purposes.
The Trustees may also authorize the Custodian to employ one or more
Sub-Custodians (including a foreign Sub-Custodian(s)) 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, provided that, in every case, such Sub-Custodian
shall meet the applicable requirements under the 1940 Act, and the regulations
thereunder to act as such.
11.2 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.
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 RECORDING . This Declaration of Trust and any amendment hereto
shall be filed in the office of the Secretary 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 filed with the Secretary of the Commonwealth of Massachusetts sets
forth some earlier or later time for the effectiveness of such amendment, such
amendment shall be effective upon its filing with the Secretary of said
Commonwealth. An amended Declaration, containing the original Declaration and
all amendments theretofore made, may be executed any time or from time to time
by a majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, 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.
ARTICLE XIII
AMENDMENT OR TERMINATION OF THE TRUST
13.1 AMENDMENT OR TERMINATION . The provisions of this Declaration
of Trust may be amended or altered (except as to the limitations on personal
liability of the Shareholders and Trustees and the prohibition of assessments
upon Shareholders), or the Trust may be terminated, at any meeting of the
Shareholders called for the purpose, by the affirmative vote of the holders of
a majority of the Shares then outstanding and entitled to vote, or by an
instrument or instruments in writing, without a meeting, signed by a majority
of the Trustees and the holders of a majority of such Shares; provided,
however, that the Trustees may, from time to time by a two-thirds (2/3) vote
of the Trustees, and after fifteen (15) days prior written notice to the
Shareholders, amend or alter the provisions of this Declaration of Trust,
without the vote or assent of the Shareholders, to the extent deemed by the
Trustees in good faith to be necessary to conform this Declaration to the
requirements of the regulated investment company provisions of the Internal
Revenue Code or the requirements of applicable federal laws or regulations or
any interpretation thereof by a court or other governmental agency of
competent jurisdiction but the Trustees shall not be liable for failing so to
do. Notwithstanding the foregoing, (i) no amendment may be made pursuant to
this Section 13.1 which would change any rights with respect to any
outstanding Shares of the Trust by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or written consent of the holders of
two-thirds (2/3) of the outstanding Shares entitled to vote thereon; and (ii)
no amendment may be made with respect to the investment restrictions contained
in Section 4.2 hereof without the affirmative vote of the holders of a
majority (as defined in the 1940 Act) of the Shares of the Class of stock
affected by such change. Upon the termination of the Trust pursuant to this
Section 13.1:
(a) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(b) The Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration of Trust shall
continue until the affairs of the Trust shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of all
or any part of the remaining Trust Property to one or more persons at public
or private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and 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 of the Trust Property shall require
approval of the principal terms of the transaction and the nature and amount
of the consideration by affirmative vote of not less than a majority of all
outstanding Shares entitled to vote.
(c) 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, in cash or in kind or partly of each,
among the Shareholders according to their respective rights.
Upon termination of the Trust and distribution to the Shareholders 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, and the right, title and interest of all
Shareholders shall cease and be cancelled and discharged.
A certification in recordable form 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, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.
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 Shares shall have become effective, this
Declaration of Trust may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
13.2 POWER TO EFFECT REORGANIZATION . The Trustees, by vote or
written approval of a majority of the Trustees, may select or direct the
organization of a corporation, association, trust or other organization with
which the Trust may merge, or which shall take over the Trust Property and
carry on the affairs of the Trust, and after receiving an affirmative vote of
not less than a majority of the outstanding Shares entitled to vote at any
meeting of Shareholders, the notice for which included a statement of such
proposed action, the Trustees may effect such merger or may sell, convey and
transfer the Trust Property to any such corporation, association, trust or
organization in exchange for cash or shares or securities thereof, or
beneficial interest therein with the assumption by such transferee of the
liabilities of the Trust; and thereupon the Trustees shall terminate the Trust
and deliver such cash, shares, securities or beneficial interest ratably among
the Shareholders of this Trust in redemption of their Shares.
ARTICLE XIV
MISCELLANEOUS
14.1 GOVERNING LAW . This Declaration of Trust 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,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of said Commonwealth and reference shall be
specifically made to the Business Corporation Law of the Commonwealth of
Massachusetts as to the construction of matters not specifically covered
herein or as to which an ambiguity exists.
14.2 COUNTERPARTS . This Declaration of Trust may be simultaneously
executed in several counterparts, each of which so executed shall be deemed to
be an original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such
original counterpart.
14.3 RELIANCE BY THIRD PARTIES . Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements
of this Declaration of Trust, (e) the form of any By-law adopted by or the
identity of any officers elected by the Trustees, or (f) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any person
dealing with the Trustees or any of them and the successors of such person.
14.4 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS .
(a) The provisions of this Declaration of Trust are severable and if the
Trustees shall determine, with the advice of counsel, that any one or more of
such provisions (the "Conflicting Provisions") are in conflict with the
regulated investment company provisions of the Internal Revenue Code or with
other applicable federal or state laws and regulations, the Conflicting
Provisions shall be deemed never to have constituted a part of this
Declaration of Trust; provided, however, that such determination by the
Trustees shall not affect or impair any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
(including, but not limited to, the election of Trustees) prior to such
determination.
(b) If any provisions of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
14.5 SECTION HEADINGS . Section headings have been inserted for
convenience only and are not a part of this Declaration of Trust.
ARTICLE XV
DURATION OF TRUST
15.1 DURATION . Subject to possible termination in accordance with
the provisions of Article XIII hereof, the Trust shall be of unlimited
duration.
IN WITNESS WHEREOF, the undersigned majority of all of the Trustees of
the Trust have caused these presents to be executed as of the 29th day of
November, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Position with
Name Trust Address
- ------------------------ ------------- --------------------------
/S/ DR. HENRY G. JARECKI 565 Fifth Avenue
- ------------------------
Dr. Henry G. Jarecki Trustee New York, New York 10017
</TABLE>
