1940 Act File No: 811-6393
As filed with the Securities and Exchange Commission
on
August 30, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 8 /X/
LFC UTILITIES TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
617-426-6750
(Registrant's Telephone Number, Including Area Code)
Name and Address
of Agent for Service Copy to:
Arthur O. Stern, Esq. John M. Loder, Esq.
Colonial Management Associates, Inc. Ropes & Gray
One Financial Center One International Place
Boston, MA 02111 Boston, MA 02110-2524
<PAGE>
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to Section
8(b) of the Investment Company Act of 1940 (the "1940 Act"). However, beneficial
interests in the Registrant are not being registered under the Securities Act of
1933 (the "1933 Act") because such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities that are "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any beneficial interests in the Registrant.
Registrant's Registration Statement on Form N-1A under the 1940 Act is hereby
amended to read in its entirety as follows:
PART A
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant
Introduction
LFC Utilities Trust (the "Portfolio") is a no-load, diversified, open-end
management investment company which was organized as a trust under the laws of
the Commonwealth of Massachusetts on August 14, 1991. Beneficial interests in
the Portfolio (the "Interest" or "Interests") are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Portfolio may be made only by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. As of July 31, 1996 Colonial Global Utilities
Fund (the "Fund"), a series of Colonial Trust III, a Massachusetts business
trust, owned in excess of 99.99% of the Interests in the Portfolio and the
balance was owned by Liberty Financial Services, Inc., a subsidiary of Liberty
Financial Companies, Inc. (Liberty Services). This registration statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The Portfolio's Investment Objective
The Portfolio's investment objective is to provide its investors with current
income and long-term growth of capital and income. It seeks to achieve its
objective by investing primarily in equity and debt securities of public utility
companies. The Portfolio is managed by Stein Roe & Farnham Incorporated ("Stein
Roe"), successor to an investment advisory business that was founded in 1932
How the Portfolio Pursues its Objective and Certain Risk Factors
The Portfolio normally invests at least 65% of its total assets in U.S. and
foreign equity and debt securities of companies engaged in the manufacture,
production, generation, transmission, sale or distribution of electricity,
natural gas or other types of energy, or water or other sanitary services,
and companies engaged in telecommunications, including telephone, telegraph,
satellite, microwave and other communications media (but not companies
primarily engaged in public broadcasting, print media or cable
television) (Utility Companies). The Portfolio will invest primarily in
securities of large, established Utility Companies located in developed
countries, including the U.S. The Portfolio may invest without limit in foreign
securities. The Portfolio normally will invest in securities issued by
companies located in at least three countries including the U.S. Because the
Portfolio concentrates its investments in securities of Utility Companies,
an investment in the Portfolio may entail more risk than an investment in a more
diversified portfolio. See "Utility Companies" below.
Equity Securities Generally. Equity securities generally include common and
preferred stock, warrants (rights) to purchase such stock, debt securities
convertible into such stock and sponsored and unsponsored American Depository
Receipts (receipts issued in the U.S. by banks or trust companies evidencing
ownership of underlying foreign securities). At least 20% of the Portfolio's
total assets will be invested in equity securities of Utility Companies. Up to
35% of the Portfolio's total assets may be invested in equity securities of any
type and investment grade debt securities that are not issued by Utility
Companies.
Debt Securities Generally. Debt securities generally include securities of
any maturity that pay fixed, floating or adjustable interest rates.
The Portfolio also may invest in debt securities (referred to as zero coupon
securities) that do not pay interest but, instead, are issued at a significant
discount to their maturity values, or that pay interest, at the issuer's option,
in additional securities instead of cash (referred to as pay-in-kind
securities). The debt securities in which the Portfolio invests will be rated at
the time of investment at least Baa by Moody's Investors Service (Moody's) or
BBB by Standard & Poor's Corporation (S&P) or will be comparable unrated
securities. Such securities will not necessarily be sold if the rating is
subsequently reduced unless any such down-grade would cause the Portfolio to
hold more than 5% of its total assets in debt securities rated below investment
grade. Debt securities rated BBB or Baa have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuers of such securities to make principal and
interest payments than would likely be the case with investments in securities
with higher credit ratings.
The values of debt securities generally fluctuate inversely with changes in
interest rates. This is less likely to be true for adjustable or floating rate
securities, since interest rate changes are more likely to be reflected in
changes in the rates paid on the securities. However, reductions in interest
rates may translate into lower distributions paid by the Fund. Additionally,
because zero coupon and pay-in-kind securities do not pay interest but the
Portfolio nevertheless must accrue and distribute the income deemed to be earned
on a current basis, the Portfolio may have to sell other investments to raise
the cash needed to make income distributions.
The Portfolio may invest in equity and debt securities on a "when-issued" or
forward basis. This means that the Portfolio will enter into a contract to
purchase the underlying security for a fixed price on a date beyond the
customary settlement date. No interest accrues until settlement.
Utility Companies. The values of securities issued by Utility Companies are
especially affected by changes in prevailing interest rate levels (as interest
rates increase, the values of Utility Company securities tend to decrease, and
vice versa), as well as general competitive and market forces in the utility
industries, changes in federal and state regulation, energy conservation efforts
and other environmental concerns and, particularly with respect to nuclear
facilities, shortened economic life and cost overruns. Certain utilities,
especially gas and telephone utilities, have in recent years been affected by
increased competition, which could adversely affect the profitability of such
utilities. Similarly, the profitability of certain electric utilities may in the
future be adversely affected by increased competition resulting from partial
deregulation.
Foreign Investments. Investments in foreign securities (both debt and equity)
and American Depository Receipts have special risks related to political,
economic and legal conditions outside of the U.S. As a result, the prices of
such securities may fluctuate substantially more than the prices of securities
of issuers based in the U.S. Special risks associated with foreign securities
include the possibility of unfavorable currency exchange rates, the existence of
less liquid markets, the unavailability of reliable information about issuers,
the existence (or potential imposition) of exchange control regulations
(including currency blockage), and political and economic instability, among
others. In addition, transactions in foreign securities may be more costly due
to currency conversion costs and higher brokerage and custodial costs. See
"Foreign Securities" and "Foreign Currency Transactions" in the Statement of
Additional Information for more information about foreign investments.
Foreign Currency Transactions. In connection with its investments in foreign
securities, the Portfolio may purchase and sell (i) foreign currencies on a spot
or forward basis, (ii) foreign currency futures contracts, and (iii) options on
foreign currencies and foreign currency futures. Such transactions will be
entered into (i) to lock in a particular foreign exchange rate pending
settlement of a purchase or sale of a foreign security or pending the receipt of
interest, principal or dividend payments on a foreign security held by the
Portfolio, or (ii) to hedge against a decline in the value, in U.S. dollars or
in another currency, of a foreign currency in which securities held by the
Portfolio are denominated. The Portfolio will not attempt, nor would it be able,
to eliminate all foreign currency risk. Further, although hedging may lessen the
risk of loss if the hedged currency's value declines, it limits the potential
gain from currency value increases. See the Statement of Additional Information
for information relating to the Fund's obligations in entering into such
transactions.
Index and Interest Rate Futures; Options. The Portfolio may purchase and sell
(i) U.S. and foreign stock and bond index futures contracts, (ii) U.S. and
foreign interest rate futures contracts and (iii) options on any of the
foregoing. Such transactions will be entered into (i) to gain exposure to a
particular market pending investment in individual securities, or (ii) to hedge
against increases in interest rates. The Portfolio also may purchase and sell
options on individual securities. A futures contract creates an obligation by
the seller to deliver and the buyer to take delivery of a type of instrument at
the time and in the amount specified in the contract. A sale of a futures
contract can be terminated in advance of the specified delivery date by
subsequently purchasing a similar contract; a purchase of a futures contract can
be terminated by a subsequent sale. Gain or loss on a contract generally is
realized upon such termination. An option generally gives the option holder the
right, but not the obligation, to purchase or sell prior to the option's
specified expiration date. If the option expires unexercised, the holder will
lose any amount it paid to acquire the option. Transactions in futures and
related options may not precisely achieve the goals of hedging or gaining market
exposure to the extent there is an imperfect correlation between the price
movements of the contracts and of the underlying securities. In addition, if
Stein Roe's prediction on rates or stock market movements is inaccurate, the
Portfolio may be worse off than if it had not hedged.
Securities Loans. For the purpose of realizing additional income, the Portfolio
may lend its portfolio securities to broker-dealers or institutional investors.
Such loans will be limited to securities not exceeding 30% in value of the
Portfolio's total assets. Each such loan will be continuously secured by
collateral at least equal to the value of the securities loaned. In the event of
bankruptcy or other default of the borrower, the Portfolio could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and losses including (a) possible decline in the value of the collateral or in
the value of the securities loaned during the period while the Portfolio seeks
to enforce its rights thereto, (b) possible subnormal levels of income and lack
of access to income during this period, and (c) expenses of enforcing its
rights.
Leverage. The purchase of securities on a "when-issued" basis and the purchase
and sale of futures and forward currency contracts and the purchase and sale of
certain options may present additional risks associated with the use of
leverage. Leverage may magnify the effect on Fund shares of fluctuations in the
values of the securities underlying these transactions. In accordance with
Securities and Exchange Commission pronouncements, to reduce (but not
necessarily eliminate) leverage, the Portfolio will either "cover" its
obligations under such transactions by holding the securities (or rights to
acquire the securities) it is obligated to deliver under such transactions, or
deposit and maintain in a segregated account with its custodian cash, high
quality liquid debt securities, or equity securities denominated in the
particular foreign currency, equal in value to the Portfolio's obligations under
such transactions.
Temporary/Defensive Investments. Temporarily available cash may be invested in
certificates of deposit, bankers' acceptances, high quality commercial paper,
Treasury bills and repurchase agreements. Some or all of the Portfolio's assets
also may be invested in such investments or in investment grade U.S. or foreign
debt securities, Eurodollar certificates of deposit and obligations of savings
institutions during periods of unusual market conditions. Under a repurchase
agreement, the Portfolio buys a security from a bank or dealer, which is
obligated to buy it back at a fixed price and time. The security is held in a
separate account at the Portfolio's custodian, and constitutes the Portfolio's
collateral for the bank's or dealer's repurchase obligation. Additional
collateral will be added so that the obligation will at all times be fully
collateralized. However, if the bank or dealer defaults or enters bankruptcy,
the Portfolio may experience costs and delays in liquidating the collateral, and
may experience a loss if it is unable to demonstrate its rights to the
collateral in a bankruptcy proceeding. Not more than 15% of the Portfolio's net
assets will be invested in repurchase agreements maturing in more than 7 days
and other illiquid securities.
Borrowing of Money. The Portfolio may borrow money from banks for temporary or
emergency purposes up to 33 1/3% of total assets of the Portfolio; however, they
will not purchase additional portfolio securities while borrowings exceed 5% of
total assets of the Portfolio.
Other. The Portfolio may not always achieve its investment objective. The
Portfolio's non-fundamental policies may be changed without shareholder
approval. The Portfolio's investment objectives and fundamental policies listed
in Part B of this Registration Statement cannot be changed without the approval
of a majority of the Portfolio's outstanding voting securities. Additional
information concerning certain of the securities and investment techniques
described above is contained in Part B of this Registration Statement.
Portfolio Turnover
The Portfolio does not trade securities for the purpose of seeking short-term
profits, but Stein Roe will change the Portfolio's investments whenever it
believes it is appropriate to do so. The length of time the Portfolio has held a
particular security is not generally a consideration in investment decisions. As
a result, the portfolio turnover rate of the Portfolio may vary from year to
year but is not expected to be greater than 100%.
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer markups and other transaction costs on the sale
of securities and reinvestment in other securities. If sales of securities were
to result in realization of capital gains, shareholders would be taxed on any
net gains distributed to them.
Investment Restrictions
As a matter of fundamental policy, the Portfolio will not (i) acquire more than
10% of the voting securities of any one issuer, or invest more than 5% of its
total assets in the securities of any one issuer, except for U.S. Government
securities; (ii) invest more than 15% of its net assets in securities that are
illiquid (including repurchase agreements maturing in more than seven days);
(iii) issue senior securities or borrow money, except that the Portfolio may
borrow as a temporary measure for extraordinary or emergency purposes, and then
only from banks in aggregate amounts at any one time outstanding not exceeding
33-1/3% of its total assets valued at market; or (iv) purchase additional
securities when money borrowed exceeds 5% of the Portfolio's total assets valued
at market. In addition, as a non-fundamental operating policy, the Portfolio
will not purchase a voting security of a public utility company if as a result
it would own 5% or more of the outstanding voting securities of more than one
public utility company.
Further Information
The Portfolio's investment policies include additional restrictions which are
described in Part B of this Registration Statement. Except for the Portfolio's
investment objective and the fundamental investment restrictions described above
and in Part B of this Registration Statement, the Portfolio's investment
policies are operating policies and may be changed without investor approval.
The Portfolio's investment objective and fundamental investment policies may be
changed only with investor approval.
Item 5. Management of the Portfolio
The Management of the Portfolio's business and affairs is the responsibility of
the Board of Trustees of the Portfolio.
The Portfolio has retained the services of Stein Roe as investment adviser and
administrator.
Stein Roe, One South Wacker Drive, Chicago, Illinois 60606, is responsible for
the investment management and administration of the Portfolio pursuant to a
management agreement with the Portfolio. Stein Roe was organized in 1986 to
succeed to the business of Stein Roe & Farnham, a partnership that was founded
in 1932 and had advised and managed mutual funds since 1949. Stein Roe is an
indirect wholly-owned subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn an indirect wholly-owned subsidiary of Liberty Mutual
Insurance Company ("Liberty Mutual"). Liberty Mutual is an underwriter of
workers' compensation insurance and a casualty insurer in the U.S.
Ophelia L. Barsketis, Senior Vice President and Senior International Analyst of
Stein Roe, has co-managed the Portfolio since September 1993. Ms. Barsketis
joined Stein Roe in 1983 and progressed through a variety of equity analyst
positions before assuming her current responsibilities.
Deborah A. Lee, Vice President and Senior Research Analyst for global and
domestic equities and global economic forecasting for Stein Roe, has co-managed
the Portfolio since April 1996. After joining Stein Roe in 1987, Ms. Lee served
as an associate economist until 1992 when she was named senior economist. In
1993, she became a Vice President of Stein Roe. Ms. Lee left Stein Roe in
January 1995 and returned to her position as Vice President in March 1996. From
June 5, 1995 through June 30, 1995, Ms. Lee was a Senior Equity Research Analyst
for BancOne Investment Advisers Corporation.
Stein Roe places the orders for the purchase and sale of securities and options
and futures contracts for the Portfolio. In doing so, Stein Roe seeks to obtain
the best combination of price and execution , which involves a number of
judgmental factors. When Stein Roe believes that more than one broker-dealer is
capable of providing the best combination of price and execution in a particular
portfolio transaction, Stein Roe often selects a broker-dealer that furnishes it
with research products or services, and may consider sales of shares of the Fund
as a factor in the selection of the broker-dealer.
Pursuant to its management agreement with the Portfolio, Stein Roe is also
responsible for the supervision of the overall administration of the Portfolio
including providing office space and equipment in connection with the
maintenance of the headquarters of the Portfolio, with certain administrative
responsibilities being performed on its behalf by its affiliate, Colonial
Management Associates, Inc. ("Colonial"). Such administrative services include
(i); maintenance of books and records (other than accounting books and records);
(ii) the preparation and filing of all documents required for compliance by the
Portfolio with applicable laws and regulations; and (iii) negotiating the
Portfolio's agreements with, and overseeing and coordinating the activities of,
its custodian and other independent contractors and agents. Colonial, on behalf
of Stein Roe, provides office space and facilities, equipment and personnel for
the performance of its administrative functions under the agreement. All
compensation of the trustees and officers of the Portfolio who are affiliated
persons of Colonial is paid by Colonial or its affiliates.
For its services under the management agreement, Stein Roe receives from the
Portfolio a fee, accrued daily and paid monthly, at an annual rate of 0.55% of
the Portfolio's average daily net assets up to $400 million and 0.50% of its
average daily net assets over that amount. For these services, the Portfolio
paid Stein Roe 0.55% of the Portfolios average daily net asset for 1995.
Stein Roe provides pricing and bookkeeping services to the Portfolio for a fee
of $25,000 per year plus 0.0025% of the Portfolio's average daily assets in
excess of $50 million and reimbursement of Stein Roe's out-of-pocket expenses;
Stein Roe also provides investor accounting services to the Portfolio for a fee
of $7,500 per year.
Custodian
State Street Bank and Trust Company ("State Street Bank") acts as the custodian
of the Portfolio's assets, including its portfolio securities and cash. Foreign
securities held by the Portfolio are maintained in the custody of foreign banks
and trust companies that are members of State Street Bank's Global Custody
Network or foreign depositories used by such members.
Expenses
The Portfolio pays all of its expenses, including: the compensation of its
Trustees who are not interested persons of the Portfolio; governmental fees;
interest charges; brokerage commissions; taxes; membership dues in the
Investment Company Institute allocable to the Portfolio; fees and expenses of
independent auditors, legal counsel and of the custodian of the Portfolio;
insurance premiums; amortization of organizational expenses; expenses of
calculating the net asset value of the Portfolio; and the investment management
and investor accounting service fees paid by the Portfolio to Stein Roe,
SteinRoe Services, Inc. and Colonial, respectively. For fiscal year 1995, the
Portfolio's total expenses amounted to 0.63% of the Portfolio's average daily
net assets.
Item 5A. Management's Discussion of Fund Performance
Omitted pursuant to paragraph 4 of Instruction F of the General Instructions to
Form N-1A.
Item 6. Capital Stock and Other Securities.
Investments in the Portfolio have no pre-emptive or conversion rights and are
fully paid and non-assessable, except as set forth below. The Portfolio is not
required and has no current intention to hold annual meetings of investors, but
the Portfolio will hold special meetings of investors when in the judgment of
the Trustees it is necessary or desirable to submit matters for an investor
vote. Changes in investment objective and fundamental policies will be submitted
to investors for approval. An investors' meeting will be held upon the written,
specific request to the Trustees of investors holding, in the aggregate, not
less than 10% of the Interests in the Portfolio. Investors have under certain
circumstances (e.g. upon application and submission of certain specified
documents to the Trustees by a specified number of shareholders) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified number of investors. Upon liquidation of the Portfolio,
investors would be entitled to share pro rata in the net assets of the Portfolio
available for distribution to investors (unless another sharing method is
required for federal income tax reasons, in accordance with the sharing method
adopted by the Trustees).
The Portfolio reserves the right to create and issue a number of series, in
which case investors in each series would participate solely in the earnings,
dividends and assets of the particular series. Interests in any series of the
Portfolio may be divided into two or more classes of Interests having such
preferences or special or relative rights or privileges as the Trustees of the
Portfolio may determine. Currently, the Portfolio has only one class of one
series.
The Portfolio is organized as a trust under the laws of the Commonwealth of
Massachusetts. Under the Declaration of Trust, the Trustees are authorized to
issue Interests in the Portfolio. Each investor is entitled to vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or a portion
of his investment at any time at net asset value. Investors in the Portfolio
(e.g., investment companies, insurance company separate accounts and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of an investor in the Portfolio incurring financial
loss on account of such liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way than an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Code for qualification as a regulated
investment company, assuming that the investor invested all of its assets in the
Portfolio.
The net income of the Portfolio shall consist of (i) all income accrued, less
the amortization of any premium, on the assets of the Portfolio, less (ii) all
actual and accrued expenses of the Portfolio determined in accordance with
generally accepted accounting principles. Income includes discount earned
(including both original issue and, by election, market discount) on discount
paper accrued ratably to the date of maturity and any net realized gains or
losses on the assets of the Portfolio. All the Net Income of the Portfolio is
allocated among the investors in the Portfolio in accordance with their
Interests (unless another sharing method is required for federal income tax
reasons, in accordance with the sharing method adopted by the Trustees).
Under the anticipated method of operation of the Portfolio, the Portfolio will
not be subject to any Federal income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with an allocation method designed to satisfy
the Internal Revenue Code of 1986, as amended, (the "Code") and regulations
promulgated thereunder. Distributions of net income and capital gain are to be
made pro rata to investors in accordance with their investment in the Portfolio.
For federal income tax purposes, however, income, gain or loss may be allocated
in a manner other than pro rata, if necessary to reflect gains or losses
properly allocable to fewer than all investors as a result of contributions of
securities to the Portfolio or redemptions of portions of an investor's
unrealized gain or loss in Portfolio assets.
As of the date of this Amendment, the Fund held over 99.99% of the Interests in,
and accordingly controlled, Registrant.
Item 7. Purchase of Securities Being Offered.
Interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Portfolio may be made only by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All investments
are made at net asset value next determined if an order is received by SteinRoe
Services Inc., the Portfolio's investor accounting agent, by the designated
cutoff time. The net asset value of the Portfolio is determined each day the New
York Stock Exchange ("Exchange") is open for trading (a "Business Day") as of
the close of the Exchange (normally 4:00 p.m. Boston time). The Portfolio
determines its net asset value by subtracting its liabilities from its total
assets (i.e. the value of its portfolio securities and other assets). For this
purpose, portfolio securities held by the Portfolio for which market quotations
are readily available are valued, in the case of listed domestic securities, at
the last sale price on the exchange on which that security is principally traded
(or, if there were no sales that day, at the latest bid price). Each
over-the-counter security for which the last sale price on the day of valuation
is available from NASDAQ is valued at the price. All other over-the-counter
securities for which reliable quotations are available are valued at the latest
bid price. Long-term corporate bonds and notes, for which market quotations are
not considered readily available, are valued on the basis of valuations
furnished by a pricing service approved by the Board of Trustees of the
Portfolio which determines valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders. Foreign security valuations are
generally based upon local convention or regulation which may be the last sales
price, last bid or asked price, or the mean between last bid and asked price as
of, in each case, the close of the appropriate exchange or other designated
time. Securities for which no such reliable quotations or valuations are
available are valued at fair value as determined by the Board of Trustees of the
Portfolio. Short-term securities with less than sixty days remaining to maturity
are valued at amortized cost, which approximates market value.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. The investor's percentage of the aggregate
Interests in the Portfolio will be computed as the percentage equal to the
fraction (i) the numerator of which is the beginning of the day value of such
investor's investment in the Portfolio, on such day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate beginning of the day net asset value of the Portfolio on
such day plus or minus, as the case may be, the amount of the net additions to
or withdrawals from the aggregate investments in the Portfolio by all investors
in the Portfolio. The percentage so determined will then be applied to determine
the value of the investor's interest in the Portfolio as of the close of
business, on the following Business Day of the Portfolio.
There is no minimum initial or subsequent investment in the Portfolio.
The Portfolio reserves the right to cease accepting investments at any time or
to reject any investment order.
Item 8. Redemption or Repurchase
An investor in the Portfolio may withdraw all or any portion of its investment
in the Portfolio at the next determined net asset value if a withdrawal request
in proper form is furnished by the investor to SteinRoe Services Inc., the
Portfolio's investor accounting agent, by the designated cutoff time. The
proceeds of a withdrawal will be paid by the Portfolio in federal funds normally
on the Business Day the withdrawal is effected, but in any event within seven
days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any withdrawal may
be suspended or the payment of the withdrawal proceeds postponed during any
period in which the Exchange is closed (other than weekends or holidays) or
trading on such Exchange is restricted, or to the extent otherwise permitted by
the 1940 Act as amended, if an emergency exists.
The Portfolio reserves its right to redeem in kind.
Item 9. Pending Legal Proceedings.
Not applicable.
PART B
Item 10. Cover Page.
Not Applicable.
Item 11. Table of Contents.
Page
General Information and History 12
Investment Objective and Policies 12
Management of the Portfolio 26
Control Persons and Principal Holders of Securities 30
Investment Advisory and Other Services 30
Brokerage Allocation and Other Practices 32
Capital Stock and Other Securities 34
Purchase, Redemption and Pricing of Securities 35
Tax Status 36
Underwriters 37
Calculation of Performance Data 37
Financial Statements 37
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objective and Policies.
The basic investment policies and strategies of the Portfolio are described in
Part A. The following supplements the information contained in Part A regarding
certain miscellaneous investment practices in which the Portfolio may engage and
the risks associated therewith.
Foreign Securities
The Portfolio may invest in securities traded in markets outside the United
States. Foreign investments can be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations. There may be less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing and
financial reporting standards comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees may be higher than in the United States. Investments in foreign securities
can involve other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on dividend or
interest payments. Foreign securities, like other assets of the Portfolio, will
be held by the Portfolio's custodian or by a subcustodian or depository. See
also "Foreign Currency Transactions" below.
The Portfolio may invest in certain Passive Foreign Investment Companies (PFICs)
which may be subject to U.S. federal income tax on a portion of any "excess
distribution" or gain (PFIC tax) related to the investment. The PFIC tax is the
highest ordinary income rate, and it could be increased by an interest charge on
the deemed tax deferral.
The Portfolio may possibly elect to include in its income its pro rata share of
the ordinary earnings and net capital gain of PFICs. This election requires
certain annual information from the PFICs which in many cases may be difficult
to obtain. An alternative election would permit the Portfolio to recognize as
income any appreciation (but not depreciation) on its holdings of PFICs as of
the end of its fiscal year.
<PAGE>
Zero Coupon Securities (Zeros)
The Portfolio may invest in debt securities which do not pay interest, but
instead are issued at a deep discount from par. The value of the security
increases over time to reflect the interest accreted. The value of these
securities may fluctuate more than similar securities which are issued at par
and pay interest periodically. Although these securities pay no interest to
holders prior to maturity, interest on these securities is reported as income to
the Portfolio and distributed to its shareholders. These distributions must be
made from the Portfolio's cash assets or, if necessary, from the proceeds of
sales of portfolio securities. The Portfolio will not be able to purchase
additional income producing securities with cash used to make such distributions
and its current income ultimately may be reduced as a result.
Pay-In-Kind (PIK) Securities
The Portfolio may invest in securities which pay interest either in cash or
additional securities at the issuer's option. These securities are generally
high yield securities and in addition to the other risks associated with
investing in high yield securities are subject to the risk that the interest
payments which consist of additional securities are also subject to the risks of
high yield securities.
Money Market Instruments
Government obligations are issued by the U.S. or foreign governments, their
subdivisions, agencies and instrumentalities. Supranational obligations are
issued by supranational entities and are generally designed to promote economic
improvements. Certificates of deposits are issued against deposits in a
commercial bank with a defined return and maturity. Banker's acceptances are
used to finance the import, export or storage of goods and are "accepted" when
guaranteed at maturity by a bank. Commercial paper are promissory notes issued
by businesses to finance short-term needs (including those with floating or
variable interest rates, or including a frequent interval put feature).
Short-term corporate obligations are bonds and notes (with one year or less to
maturity at the time of purchase) issued by businesses to finance long-term
needs. Participation Interests include the underlying securities and any related
guaranty, letter of credit, or collateralization arrangement which the Portfolio
would be allowed to invest in directly.
Securities Loans
The Portfolio may make secured loans of its portfolio securities amounting to
not more than the percentage of its total assets specified in Part 1 of this
SAI, thereby realizing additional income. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. As a matter of policy, securities loans are made
to banks and broker-dealers pursuant to agreements requiring that loans be
continuously secured by collateral in cash or short-term debt obligations at
least equal at all times to the value of the securities on loan. The borrower
pays to the Portfolio an amount equal to any dividends or interest received on
securities lent. The Portfolio retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the borrower.
Although voting rights, or rights to consent, with respect to the loaned
securities pass to the borrower, the Portfolio retains the right to call the
loans at any time on reasonable notice, and it will do so in order that the
securities may be voted by the Portfolio if the holders of such securities are
asked to vote upon or consent to matters materially affecting the investment.
The Portfolio may also call such loans in order to sell the securities involved.
Forward Commitments
The Portfolio may enter into contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments" and
"when issued securities") if the Portfolio holds until the settlement date, in a
segregated account, cash or high-grade debt obligations in an amount sufficient
to meet the purchase price, or if the Portfolio enters into offsetting contracts
for the forward sale of other securities it owns. Forward commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date. Where such
purchases are made through dealers, the Portfolio relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to the
Portfolio of an advantageous yield or price. Although the Portfolio will
generally enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options contracts it
has entered into, the Portfolio may dispose of a commitment prior to settlement
if the Adviser deems it appropriate to do so. The Portfolio may realize
short-term profits or losses upon the sale of forward commitments.
Repurchase Agreements
The Portfolio may enter into repurchase agreements. A repurchase agreement is a
contract under which the Portfolio acquires a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Portfolio to resell such security at a fixed time and
price (representing the Portfolio's cost plus interest). It is the Portfolio's
present intention to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to obligations of the U.S.
government or its agencies or instrumentalities. Repurchase agreements may also
be viewed as loans made by the Portfolio which are collateralized by the
securities subject to repurchase. The Adviser will monitor such transactions to
determine that the value of the underlying securities is at least equal at all
times to the total amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Portfolio could realize a loss on the sale
of the underlying security to the extent that the proceeds of sale including
accrued interest are less than the resale price provided in the agreement
including interest. In addition, if the seller should be involved in bankruptcy
or insolvency proceedings, the Portfolio may incur delay and costs in selling
the underlying security or may suffer a loss of principal and interest if the
Portfolio is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
Options on Securities
Writing covered options. The Portfolio may write covered call options and
covered put options on securities held in its portfolio when, in the opinion of
the Adviser, such transactions are consistent with the Portfolio's investment
objective and policies. Call options written by the Portfolio give the purchaser
the right to buy the underlying securities from the Portfolio at a stated
exercise price; put options give the purchaser the right to sell the underlying
securities to the Portfolio at a stated price.
The Portfolio may write only covered options, which means that, so long as the
Portfolio is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or comparable securities satisfying
the cover requirements of securities exchanges). In the case of put options, the
Portfolio will hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition, the Portfolio will
be considered to have covered a put or call option if and to the extent that it
holds an option that offsets some or all of the risk of the option it has
written. The Portfolio may write combinations of covered puts and calls on the
same underlying security.
The Portfolio will receive a premium from writing a put or call option, which
increases the Portfolio's return on the underlying security if the option
expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and
the current market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until expiration, current
interest rates, and the effect of supply and demand in the options market and in
the market for the underlying security. By writing a call option, the Portfolio
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option but continues to bear
the risk of a decline in the value of the underlying security. By writing a put
option, the Portfolio assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Portfolio may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an offsetting option. The Portfolio realizes a profit or loss from a closing
transaction if the cost of the transaction (option premium plus transaction
costs) is less or more than the premium received from writing the option.
Because increases in the market price of a call option generally reflect
increases in the market price of the security underlying the option, any loss
resulting from a closing purchase transaction may be offset in whole or in part
by unrealized appreciation of the underlying security.
If the Portfolio writes a call option but does not own the underlying security,
and when it writes a put option, the Portfolio may be required to deposit cash
or securities with its broker as "margin" or collateral for its obligation to
buy or sell the underlying security. As the value of the underlying security
varies, the Portfolio may have to deposit additional margin with the broker.
Margin requirements are complex and are fixed by individual brokers, subject to
minimum requirements currently imposed by the Federal Reserve Board and by stock
exchanges and other self-regulatory organizations.
Purchasing put options. The Portfolio may purchase put options to protect its
portfolio holdings in an underlying security against a decline in market value.
Such hedge protection is provided during the life of the put option since the
Portfolio, as 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. For a put option to be profitable, the market price of the
underlying security must decline sufficiently below the exercise price to cover
the premium and transaction costs. By using put options in this manner, the
Portfolio will reduce any profit it might otherwise have realized from
appreciation of the underlying security by the premium paid for the put option
and by transaction costs.
Purchasing call options. The Portfolio may purchase call options to hedge
against an increase in the price of securities that the Portfolio wants
ultimately to buy. Such hedge protection is provided during the life of the call
option since the Portfolio, as holder of the call option, is able to buy the
underlying security at the exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. These costs will
reduce any profit the Portfolio might have realized had it bought the underlying
security at the time it purchased the call option.
Over-the-Counter (OTC) options. The Staff of the Division of Investment
Management of the Securities and Exchange Commission has taken the position that
OTC options purchased by the Portfolio and assets held to cover OTC options
written by the Portfolio are illiquid securities. Although the Staff has
indicated that it is continuing to evaluate this issue, pending further
developments, the Portfolio intends to enter into OTC options transactions only
with primary dealers in U.S. Government Securities and, in the case of OTC
options written by the Portfolio, only pursuant to agreements that will assure
that the Portfolio will at all times have the right to repurchase the option
written by it from the dealer at a specified formula price. The Portfolio will
treat the amount by which such formula price exceeds the amount, if any, by
which the option may be "in-the-money" as an illiquid investment. It is the
present policy of the Portfolio not to enter into any OTC option transaction if,
as a result, more than 15% (10% in some cases, refer to your Portfolio's
Prospectus) of the Portfolio's net assets would be invested in (i) illiquid
investments (determined under the foregoing formula) relating to OTC options
written by the Portfolio, (ii) OTC options purchased by the Portfolio, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
Risk factors in options transactions. The successful use of the Portfolio's
options strategies depends on the ability of the Adviser to forecast interest
rate and market movements correctly.
When it purchases an option, the Portfolio runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Portfolio exercises the option or enters into a closing sale transaction with
respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, the Portfolio will lose part or all of its investment in the option. This
contrasts with an investment by the Portfolio in the underlying securities,
since the Portfolio may continue to hold its investment in those securities
notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Portfolio's ability to
terminate option positions at times when the Adviser deems it desirable to do
so. Although the Portfolio will take an option position only if the Adviser
believes there is a liquid secondary market for the option, there is no
assurance that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the
Portfolio could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for particular
options or series of options. A marketplace may discontinue trading of a
particular option or options generally. In addition, a market could become
temporarily unavailable if unusual events -- such as volume in excess of trading
or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on
particular types of options transactions, which may limit the Portfolio's
ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or
sold by the Portfolio could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Portfolio as purchaser or writer of
an option will be unable to close out its positions until options trading
resumes, and it may be faced with losses if trading in the security reopens at a
substantially different price. In addition, the Options Clearing Corporation
(OCC) or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Portfolio as purchaser or writer of an option will be
locked into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Portfolio
has expired, the Portfolio could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because of time
differences between the United States and various foreign countries, and because
different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of the underlying
interest in the United States.
<PAGE>
Futures Contracts and Related Options
Upon entering into futures contracts, in compliance with the SEC's requirements,
cash, cash equivalents or high-grade debt securities, equal in value to the
amount of the Portfolio's obligation under the contract (less any applicable
margin deposits and any assets that constitute "cover" for such obligation),
will be segregated with the Portfolio's custodian. For example, if a Portfolio
investing primarily in foreign equity securities enters into a contract
denominated in a foreign currency, the Portfolio will segregate cash, cash
equivalents or high-grade debt securities equal in value to the difference
between the Portfolio's obligation under the contract and the aggregate value of
all readily marketable equity securities denominated in the applicable foreign
currency held by the Portfolio.
A futures contract sale creates an obligation by the seller to deliver the type
of instrument called for in the contract in a specified delivery month for a
stated price. A futures contract purchase creates an obligation by the purchaser
to take delivery of the type of instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken at settlement date are not determined until on or near that date. The
determination is made in accordance with the rules of the exchanges on which the
futures contract was made. Futures contracts are traded in the United States
only on commodity exchange or boards of trade -- known as "contract markets" --
approved for such trading by the Commodity Futures Trading Commission ("CFTC"),
and must be executed through a futures commission merchant or brokerage firm
which is a member of the relevant contract market.
Although futures contracts by their terms call for actual delivery or acceptance
of commodities or securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Closing out a futures
contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid the difference
and realizes a gain. Conversely, if the price of the offsetting purchase exceeds
the price of the initial sale, the seller realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the purchaser's
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the purchaser realizes a gain, and if the purchase price exceeds
the offsetting sale price, the purchaser realizes a loss.
Unlike when the Portfolio purchases or sells a security, no price is paid or
received by the Portfolio upon the purchase or sale of a futures contract,
although the Portfolio is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin". The nature of
initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of Portfolios by the Portfolio to finance the transactions. Rather,
initial margin is in the nature of a performance bond or good faith deposit on
the contract that is returned to the Portfolio upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin", to and from the broker (or the
custodian) are made on a daily basis as the price of the underlying security or
commodity fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to market."
The Portfolio may elect to close some or all of its futures positions at any
time prior to their expiration. The purpose of making such a move would be to
reduce or eliminate the hedge position then currently held by the Portfolio. The
Portfolio may close its positions by taking opposite positions which will
operate to terminate the Portfolio's position in the futures contracts. Final
determinations of variation margin are then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or a
gain. Such closing transactions involve additional commission costs.
Options on futures contracts. The Portfolio will enter into written options on
futures contracts only when, in compliance with the SEC's requirements, cash or
equivalents equal in value to the commodity value (less any applicable margin
deposits) have been deposited in a segregated account of the Portfolio's
custodian. The Portfolio may purchase and write call and put options on futures
contracts it may buy or sell and enter into closing transactions with respect to
such options to terminate existing positions. The Portfolio may use such options
on futures contracts in lieu of writing options directly on the underlying
securities or purchasing and selling the underlying futures contracts. Such
options generally operate in the same manner as options purchased or written
directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be effected.
The Portfolio will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it pursuant
to brokers' requirements similar to those described above.
Risks of transactions in futures contracts and related options. Successful use
of futures contracts by the Portfolio is subject to the Adviser`s ability to
predict correctly movements in the direction of interest rates and other factors
affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to the Portfolio
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Portfolio
when the purchase or sale of a futures contract would not, such as when there is
no movement in the prices of the hedged investments. The writing of an option on
a futures contract involves risks similar to those risks relating to the sale of
futures contracts.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution, by exchanges, of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Portfolio, the Portfolio may
seek to close out a position. The ability to establish and close out positions
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop or continue to exist for a
particular futures contract. Reasons for the absence of a liquid secondary
market on an exchange include the following: (i) there may be insufficient
trading interest in certain contracts or options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange (or in the class or series of contracts or
options) would cease to exist, although outstanding contracts or options on the
exchange that had been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
Index futures contracts. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The Portfolio may enter into stock index futures contracts,
debt index futures contracts, or other index futures contracts appropriate to
its objective(s). The Portfolio may also purchase and sell options on index
futures contracts.
There are several risks in connection with the use by the Portfolio of index
futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the index futures and movements
in the prices of securities which are the subject of the hedge. The Adviser will
attempt to reduce this risk by selling, to the extent possible, futures on
indices the movements of which will, in its judgment, have a significant
correlation with movements in the prices of the Portfolio's portfolio securities
sought to be hedged.
Successful use of index futures by the Portfolio for hedging purposes is also
subject to the Adviser's ability to predict correctly movements in the direction
of the market. It is possible that, where the Portfolio has sold futures to
hedge its portfolio against a decline in the market, the index on which the
futures are written may advance and the value of securities held in the
Portfolio's portfolio may decline. If this occurs, the Portfolio would lose
money on the futures and also experience a decline in the value in its portfolio
securities. However, while this could occur to a certain degree, the Adviser
believes that over time the value of the Portfolio's portfolio will tend to move
in the same direction as the market indices which are intended to correlate to
the price movements of the portfolio securities sought to be hedged. It is also
possible that, if the Portfolio has hedged against the possibility of a decline
in the market adversely affecting securities held in its portfolio and
securities prices increase instead, the Portfolio will lose part or all of the
benefit of the increased values of those securities that it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the securities of
the portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
index and futures markets. Second, margin requirements in the futures market are
less onerous than margin requirements in the securities market, and as a result
the futures market may attract more speculators than the securities market.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction.
Options on index futures. Options on index futures are similar to options on
securities except that options on index futures give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
Options on indices. As an alternative to purchasing call and put options on
index futures, the Portfolio may purchase call and put options on the underlying
indices themselves. Such options could be used in a manner identical to the use
of options on index futures.
Foreign Currency Transactions
The Portfolio may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
The Portfolio may engage in both "transaction hedging" and "position hedging".
When it engages in transaction hedging, the Portfolio enters into foreign
currency transactions with respect to specific receivables or payables of the
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. The Portfolio will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Portfolio attempts to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold, or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.
The Portfolio may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. The Portfolio may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Portfolio may also purchase exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies. Over-the-counter options are considered to be
illiquid by the SEC staff. A put option on a futures contract gives the
Portfolio the right to assume a short position in the futures contract until
expiration of the option. A put option on currency gives the Portfolio the right
to sell a currency at an exercise price until the expiration of the option. A
call option on a futures contract gives the Portfolio the right to assume a long
position in the futures contract until the expiration of the option. A call
option on currency gives the Portfolio the right to purchase a currency at the
exercise price until the expiration of the option.
When it engages in position hedging, the Portfolio enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated (or an increase in
the value of currency for securities which the Portfolio expects to purchase,
when the Portfolio holds cash or short-term investments). In connection with
position hedging, the Portfolio may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Portfolio may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for the Portfolio to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Portfolio is obligated to deliver and if a
decision is made to sell the security or securities 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 or
securities if the market value of such security or securities exceeds the amount
of foreign currency the Portfolio is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the Portfolio owns or intends to purchase or
sell. They simply establish a rate of exchange which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain which might result from the increase in value of
such currency.
Currency forward and futures contracts. Upon entering into such contracts, in
compliance with the SEC's requirements, cash, cash equivalents or high-grade
debt securities, equal in value to the amount of the Portfolio's obligation
under the contract (less any applicable margin deposits and any assets that
constitute "cover" for such obligation), will be segregated with the Portfolio's
custodian. For example, if a Portfolio investing primarily in foreign equity
securities enters into a contract denominated in a foreign currency, the
Portfolio will segregate cash, cash equivalents or high-grade debt securities
equal in value to the difference between the Portfolio's obligation under the
contract and the aggregate value of all readily marketable equity securities
denominated in the applicable foreign currency held by the Portfolio.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract as agreed by the parties, at a price set at the time of
the contract. In the case of a cancelable contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A currency futures contract is a standardized contract for
the future delivery of a specified amount of a foreign currency at a future date
at a price set at the time of the contract. Currency futures contracts traded in
the United States are designed and traded on exchanges regulated by the CFTC,
such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain
respects. For example, the maturity date of a forward contract may be any fixed
number of days from the date of the contract agreed upon by the parties, rather
than a predetermined date in a given month. Forward contracts may be in any
amounts agreed upon by the parties rather than predetermined amounts. Also,
forward contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires no margin or
other deposit.
At the maturity of a forward or futures contract, the Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in currency futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market in such contracts. Although the
Portfolio intends to purchase or sell currency futures contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures position and, in the event of
adverse price movements, the Portfolio would continue to be required to make
daily cash payments of variation margin.
Currency options. In general, options on currencies operate similarly to options
on securities and are subject to many similar risks. Currency options are traded
primarily in the over-the-counter market, although options on currencies have
recently been listed on several exchanges. Options are traded not only on the
currencies of individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of currencies, and is the
official medium of exchange of the European Economic Community's European
Monetary System.
The Portfolio will only purchase or write currency options when the Adviser
believes that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specified time. Currency options are affected by all of those factors which
influence exchange rates and investments generally. To the extent that these
options are traded over the counter, they are considered to be illiquid by the
SEC staff.
The value of any currency, including the U.S. dollars, may be affected by
complex political and economic factors applicable to the issuing country. In
addition, the exchange rates of currencies (and therefore the values of currency
options) may be significantly affected, fixed, or supported directly or
indirectly by government actions. Government intervention may increase risks
involved in purchasing or selling currency options, since exchange rates may not
be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in
turn reflects relative values of two currencies, the U.S. dollar and the foreign
currency in question. Because currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved in
the exercise of currency options, investors may be disadvantaged by having to
deal in an odd lot market for the underlying currencies in connection with
options at prices that are less favorable than for round lots. Foreign
governmental restrictions or taxes could result in adverse changes in the cost
of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and
there is no regulatory requirement that quotations available through dealers or
other market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot transactions in
the interbank market and thus may not reflect exchange rates for smaller odd-lot
transactions (less than $1 million) where rates may be less favorable. The
interbank market in currencies is a global, around-the-clock market. To the
extent that options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets.
Settlement procedures. Settlement procedures relating to the Portfolio's
investments in foreign securities and to the Portfolio's foreign currency
exchange transactions may be more complex than settlements with respect to
investments in debt or equity securities of U.S. issuers, and may involve
certain risks not present in the Portfolio's domestic investments, including
foreign currency risks and local custom and usage. Foreign currency transactions
may also involve the risk that an entity involved in the settlement may not meet
its obligations.
Foreign currency conversion. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(spread) between prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Portfolio at one
rate, while offering a lesser rate of exchange should the Portfolio desire to
resell that currency to the dealer. Foreign currency transactions may also
involve the risk that an entity involved in the settlement may not meet its
obligation.
Fundamental Investment Policies
The Portfolio has adopted the following fundamental investment policies which
may not be changed without approval by holders of a "majority of the outstanding
Interests" of the Portfolio, which as used in this Part B, means the vote of the
lesser of (i) 67% or more of the outstanding "voting Interests" of the Portfolio
present at a meeting, if the holders of more than 50% of the outstanding "voting
Interests" of the Portfolio are present or represented by proxy, or (ii) more
than 50% of the outstanding "voting Interests" of the Portfolio.
As fundamental policies, the Portfolio may not:
(1) Issue senior securities (as defined in the 1940 Act and the rules
thereunder) or borrow money, except that as a temporary measure for
extraordinary or emergency purposes, the Portfolio may borrow from
banks in aggregate amounts at any one time outstanding not exceeding
331/3 % of the total assets (including the amount borrowed) of the
Portfolio, valued at market; and the Portfolio may not purchase any
securities at any time when borrowings exceed 5% of the total assets
of the Portfolio (taken at market value); and except that the
Portfolio may enter into options and futures transactions;
(2) Purchase any security on margin, except that the Portfolio may
obtain such short-term credit as may be necessary for the clearance
of purchases and sales of securities (this restriction does not
apply to securities purchased on a when-issued basis or to margin
deposits in connection with futures and options transactions);
(3) Underwrite securities issued by other persons, except insofar as the
Portfolio may technically be deemed an underwriter under the 1933
Act in selling a security;
(4) Make loans to other persons except (a) through the lending of
securities held by the Portfolio, but not in excess of 30% of the
total assets of the Portfolio, or (b) through the purchase of debt
securities in accordance with the investment policies of the
Portfolio;
(5) Purchase the securities of any one issuer (except securities issued
or guaranteed by the U.S. Government and its agencies or
instrumentalities, as to which there are no percentage limits or
restrictions) if immediately after and as a result of such purchase
(a) more than 5% of the value of its assets would be invested in
that issuer, or (b) the Portfolio would hold more than 10% of the
outstanding voting securities of that issuer;
(6) Purchase or sell real estate or interests in real estate limited
partnerships (other than securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts in the ordinary course of
business (the Portfolio reserves the freedom of action to hold and
to sell real estate acquired as a result of the ownership of
securities and to enter into futures and options transactions in
accordance with its investment policies);
(7) Invest more than 25% of its total assets in the securities of
issuers whose principal business activities are in the same industry
(excluding obligations of the U.S. Government and repurchase
agreements collateralized by obligations of the U.S. Government),
except that the Portfolio may invest without limit (but may not
invest less than 25% of its total assets) in the securities of
companies in the public utilities industry.
Other Investment Policies
The Portfolio has also adopted the following additional non-fundamental
investment policies that may be required by various laws and administrative
positions
As non-fundamental investment policies which may be changed without the approval
of the investors in the Portfolio, the Portfolio may not:
(a) Invest in illiquid securities, including repurchase agreements
maturing in more than seven days but excluding securities which may
be resold pursuant to Rule 144A under the 1933 Act, if, as a result
thereof, more than 15% of the net assets (taken at market value at
the time of each investment) would be invested in such securities.
(b) Invest in companies for the purpose of exercising control or
management;
(c) Invest in the voting securities of a public utility company if, as a
result it would own 5% or more of the outstanding voting securities
of more than one public utility company;
(d) Make investments in the securities of other investment companies;
(e) Invest in securities of issuers (other than U.S. Government
securities) having a record of less than three years of
continuous operation (for this purpose, the period of operation
of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer), if more
than 5% of the total assets (taken at market value at the time of
each investment) of the Portfolio would be invested in such
securities;
(f) Make short sales of securities or maintain a short position
except in connection with futures and options transactions;
(g) Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned by the Portfolio
except (a) as may be necessary in connection with borrowings
mentioned in (1) above, and (b) that the Portfolio may enter into
futures and options transactions;
(h) Invest more than 5% of its net assets (valued at the time of
purchase)in warrants, nor more than 2% of its net assets in warrants
that are not listed on the New York or American Stock
Exchange or a recognized foreign exchange;
(i) Invest more than 5% of its total assets in puts, calls, straddles,
spreads or any combination thereof (except that the Portfolio may
enter into transactions in options, futures and options on
futures);
(j) Write secured puts if the aggregate value of the obligations
underlying such puts would exceed 50% of its net assets;
(k) Purchase or hold securities of an issuer if 5% of the securities of
such issuer are owned by those officers, trustees or directors of
the Fund or the Portfolio or the investment adviser of the
Portfolio, who each own more than 1/2 of 1% of the securities of
that issuer; or
(l) Invest more than 10% of its total assets in securities (debt or
equity) which the Portfolio would be restricted from selling without
registration under the 1933 Act, excluding securities which are
eligible for resale pursuant to Rule 144A thereunder, or more than
5% of its total assets in equity securities which are not readily
marketable.
The Portfolio's portfolio turnover rate for the fiscal years ended October 31,
1994 and 1995 was 34% and 46%, respectively.
Item 14. Management of the Portfolio
The officers and Trustees of the Portfolio are listed below.
Position Principal Occupation During Past
Name and Address Age with Portfolio Five Years
Robert J. Birnbaum 68 Trustee Retired (formerly Special
313 Bedford Road Counsel, Dechert Price & Rhoads)
Ridgewood, NJ 07450
Tom Bleasdale 65 Trustee Retired (formerly Chairman of
1508 Ferncroft Tower the Board and Chief Executive
Danvers, MA 01923 Officer, Shore Bank & Trust
Company)
Lora S. Collins 60 Trustee Attorney with Kramer, Levin,
919 Third Avenue Naftalis,Nessen, Kamin & Frankel
New York, NY 10022
James E. Grinnell 66 Trustee Private Investor (formerly
22 Harbor Avenue Senior Vice
Marblehead, MA 01945 President-Operations, The
Rockport Company)
William D. Ireland, Jr. 72 Trustee Retired (formerly Chairman of
103 Springline Drive the Board, Bank of New England,
Vero Beach, FL 32963 - Worcester)
Richard W. Lowry 59 Trustee Private Investor (formerly
10701 Charleston Drive Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood
Corporation)
William E. Mayer (1) 55 Trustee Dean, College of Business and
College Park, MD 20742 Management, University of
Maryland (formerly Dean, Simon
Graduate School of Business,
University of Rochester;
Chairman and Chief Executive
Officer, C.S. First Boston
Merchant Bank; and President and
Chief Executive Officer, The
First Boston Corporation from
September)
James L. Moody, Jr. 64 Trustee Chairman of the Board, Hannaford
Hannaford Bros. Co. Bros. Co. (formerly Chief
P.O. Box 1000 Executive Officer, Hannaford
Portland, ME 04104 Bros. Co.)
John J. Neuhauser 52 Trustee Dean, Boston College School of
140 Commonwealth Ave. Management
Chestnut, Hill MA 02167
George L. Shinn 73 Trustee Financial Consultant (formerly
The First Boston Corp. Chairman, Chief Executive
Tower Forty Nine Officer and Consultant, The
12 East 49th Street First Boston Corporation)
New York, NY 10017
Robert L. Sullivan 68 Trustee Self-employed Management
7121 Natelli Woods Lane Consultant (formerly Management
Bethesda, MD 20817 Consultant, Saatchi and Saatchi
Consulting Ltd.; and
International Practice Director,
Management Consulting, Peat
Marwick Main & Co.)
Sinclair Weeks, Jr. 72 Trustee Chairman of the Board, Reed &
Bay Colony Corporate Ctr. Barton Corporation
Suite 4550
1000 Winter Street
Waltham, MA 02154
Gary A. Anetsberger (2) 40 Vice President Senior Vice President of Stein
Roe
Ophelia L. Barsketis (2) 38 Vice President Senior Vice President of Stein
Roe (formerly Vice President of
Stein Roe)
Harold W. Cogger (3) 59 President President of Colonial Group of
Mutual Funds (4); is President,
Chief Executive Officer and
Director of Colonial and The
Colonial Group, Inc. (TCG)
(formerly Executive Vice
President of Colonial);
Executive Vice President and
Director, Liberty Financial
Deborah A. Lee (2) 40 Vice President Vice President and Senior
Research Analyst for global and
domestic equities and global
economic forecasting for Stein
Roe (formerly an associate
economist and senior economist
for Stein Roe; and senior equity
research analyst for BancOne
Investment Advisers Corporation).
Peter L. Lydecker (3) 41 Chief Chief Financial Officer, Chief
Financial Accounting Officer and
Officer, Controller of Colonial Group of
Chief Mutual Funds (4); Vice President
Accounting of Colonial (formerly Assistant
Officer and Vice President of Colonial)
Controller
Davey S. Scoon (3) 49 Vice President Vice President of Colonial Group
of Mutual Funds (4), is
Executive Vice President and
Director of Colonial (formerly
Senior Vice President and
Treasurer of Colonial);
Executive Vice President and
Chief Operating Officer, TCG
since (formerly Vice President -
Finance and Administration, TCG)
Arthur O. Stern 56 Secretary Secretary of Colonial Group of
Mutual Funds (4), is Director,
Executive Vice President,
General Counsel, Clerk and
Secretary of Colonial; Executive
Vice President, Legal and
Compliance, Clerk of TCG
(formerly Vice President - Legal
of TCG)
(1) Trustees who are "interested persons" (as defined in the 1940 Act) of
the Portfolio or Stein Roe.
(2) The address of each of these officers is One South Wacker Drive,
Chicago, IL 60606.
(3) The address of each of these officers is One Financial Center, Boston,
MA 02111.
(4) Colonial Group of Mutual Funds includes: Colonial Trust I, Colonial II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust
VI, Colonial Trust VII, Colonial Intermediate High Income Fund, Colonial
Municipal Income Trust, Colonial InterMarket Income Trust I, Colonial
High Income Municipal Trust and Colonial Investment Grade Municipal
Trust.
Each Trustee and officer of the Portfolio holds the same position with the
Fund except for Mr. Anetsberger, Ms. Barsketis and Ms. Lee, who are officers
of the Portfolio only.
<PAGE>
Trustees Fees
For the fiscal year ended October 31, 1995 and the calendar year ended December
31, 1995, the Trustees received the following compensation for serving as
Trustees (i) of the Fund and the Portfolio, and (ii) of the Fund complex:
Aggregate
Compensation
From Portfolio
and Fund for Total Compensation From
Fiscal Year Fund Complex Paid To The
Ended October Trustees For Year Ended
Trustee 31, 1995 December 31, 1995 (a)
- ------- -------- ---------------------
Robert J. Birnbaum $259 $ 71,250
Tom Bleasdale 282(b) $ 98,000 (c)
Lora S. Collins 264 $ 91,000
James E. Grinnell 259 $ 71,250
William D. Ireland, Jr. 309 $113,000
Richard W. Lowry 259 $ 71,250
William E. Mayer 262 $ 91,000
James L. Moody, Jr. 295(d) $ 94,500 (e)
John J. Neuhauser 262 $ 91,000
George L. Shinn 233 $102,500
Robert L. Sullivan 302 $101,000
Sinclair Weeks, Jr. 345 $112,000
(a) At December 31, 1995, the Colonial funds complex consisted of 33 open-end
and 5 closed-end management investment company portfolios.
(b) Includes $170 payable in later years as deferred compensation.
(c) Includes $49,000 payable in later years as deferred compensation.
(d) Includes $295 payable in later years as deferred compensation.
(e) Total compensation of $94,500 for the calendar year ended December 31,
1995 will be payable in later years as deferred compensation.
The following table sets forth the amount of compensation paid to Messrs.
Birnbaum, Grinnell and Lowry in their capacities as Trustees of the Liberty
All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (formerly known as
The Charles Allmon Trust, Inc.) (together, Liberty Funds I) for service during
the calendar year ended December 31, 1995, and of Liberty Financial Trust (now
known as Colonial Trust VII) and the Portfolio (together, Liberty Funds II) for
the period January 1, 1995 through March 26, 1995 (f):
Total Compensation From Total Compensation From
Liberty Funds II For The Liberty Funds I For The
Period January 1, 1995 Calendar Year Ended
Trustee through March 26, 1995 December 31, 1995 (g)
- ------- ---------------------- ---------------------
Robert J. Birnbaum(h) $2,900 $16,675
James E. Grinnell(h) $2,900 22,900
Richard W. Lowry(h) $2,900 26,250 (i)
(f) On March 27, 1995, four of the portfolios in the Liberty Financial Trust
(now known as Colonial Trust VII) were merged into existing Colonial
funds and a fifth was reorganized into the Fund. Prior to their election
as Trustees of the Colonial Funds, Messrs. Birnbaum, Grinnell and Lowry
served as Trustees of Liberty Funds II and continue to serve as Trustees
of Liberty Funds I.
(g) At December 31, 1995, the Liberty Funds I were advised by Liberty Asset
Management Company (LAMCO). LAMCO is an indirect wholly-owned subsidiary
of Liberty Financial (an indirect parent of Stein Roe).
(h) Elected as a trustee of the Colonial Funds complex on April 21, 1995.
(i) Includes $3,500 paid to Mr. Lowry for service as Trustee of Liberty
Newport World Portfolio (formerly known as Liberty All-Star World
Portfolio) (Liberty Newport) during the calendar year ended December 31,
1995. At December 31, 1995, Liberty Newport was managed by Stein Roe and
Newport Pacific Management, Inc.
The Trustees and officers of the Portfolio owned an aggregate of shares of the
Fund as of July 31, 1996, constituting less than 1% of the number of shares of
the Fund outstanding.
The Portfolio's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Portfolio, unless it is determined that they had acted with willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices or had not acted in good faith in the reasonable belief that their
actions were in the best interests of the Portfolio.
Item 15. Control Persons and Principal Holders of Securities.
The Fund has informed the Portfolio that whenever it is requested to vote on
matters pertaining to the fundamental policies of the Portfolio, it will hold a
meeting of Fund shareholders and will cast its proportionate vote as instructed
by its shareholders. It is anticipated that other investors in the Portfolio
will follow the same or similar practice.
On the date of this Amendment, the Fund owned in excess of 99.99% of the
Interests in Registrant, and the balance was owned by Liberty Services. On that
date no person owned of record, or is known by Registrant to have owned
beneficially, 5% or more of the outstanding shares of the Fund. The officers and
trustees of the Fund as a group owned an aggregate of less than one percent of
the outstanding shares of the Fund on that date.
The Fund's address is One Financial Center, Boston, MA 02111.
Item 16. Investment Advisory And Other Services.
The Portfolio has retained the services of Stein Roe as investment adviser and
as administrator, with its administrative responsibilities thereunder being
delegated to its affiliate, Colonial. The following describes the services
provided by Stein Roe to the Portfolio and the fees payable to it.
Under its Management Agreement with the Portfolio, Stein Roe provides the
Portfolio with discretionary investment services. Specifically, Stein Roe
supervises and directs the investments of the Portfolio in accordance with the
Portfolio's investment objective, program, and restrictions as provided in this
Registration Statement and any other directions or limitations as the Portfolio
may impose on Stein Roe. Stein Roe is also responsible for effecting all
security transactions on behalf of the Portfolio, including the allocation of
principal business and portfolio brokerage and the negotiation of commissions.
Stein Roe is a an indirect wholly-owned subsidiary of Liberty Financial which in
turn is an indirect subsidiary of Liberty Mutual Insurance Company.
Stein Roe and its predecessor have been providing investment advisory services
since 1932. Stein Roe acts as investment adviser to wealthy individuals,
trustees, pension and profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1996, Stein Roe managed over $24.7
billion in assets: over $7.4 billion in equities and over $17.3 billion in
fixed-income securities (including $1.2 billion in municipal securities). The
$24.7 billion in managed assets included over $7 billion held by open-end mutual
funds managed by Stein Roe (approximately 16% of the mutual fund assets were
held by clients of Stein Roe). These mutual funds were owned by over 189,000
shareholders. The $7 billion in mutual fund assets included over $660 million in
over 38,000 IRA accounts. In managing those assets, Stein Roe utilizes a
proprietary computer-based information system that maintains and regularly
updates information for approximately 6,500 companies. Stein Roe also monitors
over 1,400 issues via a proprietary credit analysis system. At June 30, 1996,
Stein Roe employed approximately 16 research analysts and 32 account managers.
The average investments-related experience of these individuals was 20 years.
The directors of Stein Roe are Kenneth R. Leibler, C. Allen Merritt,
Jr., Hans P. Ziegler, Timothy K. Armour and N. Bruce Callow. Mr.
Leibler is President and Chief Executive Officer of Liberty Financial;
Mr. Merritt is Senior Vice President and Treasurer of Liberty
Financial; Mr. Ziegler is Chief Executive Officer of Stein Roe; Mr.
Armour is President of Stein Roe's Mutual Funds division; and Mr.
Callow is President of Stein Roe's Investment Counsel division. The
business address of Messrs. Leibler and Merritt is Federal Reserve
Plaza, 600 Atlantic Avenue, Boston, Massachusetts 02210; and that of
Messrs. Armour, Ziegler and Callow is One South Wacker Drive, Chicago,
Illinois 60606.
Stein Roe is also responsible for providing the Portfolio with general
administrative services. Specifically, Stein Roe provides office space and
equipment in connection with the maintenance of the headquarters of the
Portfolio and for the maintenance of its books and records (other than
accounting books and records). Stein Roe also is responsible for reviewing the
performance under their contracts with the Portfolio of the Portfolio's
custodian and other agents and provides reports to the Board of Trustees of the
Portfolio with respect to such performance. Colonial, on behalf of Stein Roe,
provides office space, facilities and supplies, equipment and personnel for the
performance of its functions and pays all compensation of the Trustees, officers
and employees of the Portfolio who are affiliated persons of Colonial.
Under the Management Agreement, Stein Roe receives from the Portfolio a monthly
fee at an annual rate of 0.55% of its average daily net assets up to $400
million and 0.50% of its average daily net assets over that amount
Giving effect to the fee waiver and expense reimbursement agreements of Stein
Roe then in effect, management fees of $1,060,680, $1,602,643 and $1,256,020
were paid for the fiscal years ended October 31, 1993, 1994 and 1995,
respectively.
Under its management agreement, Stein Roe is not liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio in
connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties or from reckless disregard of its obligations and
duties under the agreement.
Under its management agreement with Stein Roe, the Portfolio may use the name
"LFC," "Liberty," or "Liberty Financial" only so long as the management
agreement remains in effect.
Custodian
State Street Bank and Trust Company (the "Bank") is the custodian for the
securities and cash of the Portfolio, but it does not participate in the
investment decisions of the Portfolio. The Portfolio has authorized the Bank to
deposit certain portfolio securities in central depository systems as allowed by
federal law. The Bank's main office is at 225 Franklin Street, Boston,
Massachusetts 02107.
Portfolio securities purchased by the Portfolio in the U.S. are maintained in
the custody of the bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the U.S. are maintained in the custody of
foreign banks and trust companies that are members of the Bank's Global Custody
Network, and foreign depositories of such foreign banks and trust companies.
Each of the domestic and foreign custodial institutions holding portfolio
securities has been approved by the Board of Trustees of the Portfolio in
accordance with regulations under the 1940 Act.
The Portfolio may invest in obligations (including repurchase agreements) of the
Bank and may purchase or sell securities from or to the Bank.
Independent Auditors
The independent public accountants for the Portfolio are KPMG Peat Marwick, One
Boston Place, Boston, Massachusetts 02108. KPMG Peat Marwick audits and reports
on the annual financial statements of the Portfolio, reviews certain regulatory
reports of the Portfolio and its Federal income tax returns, and performs such
other accounting, auditing, tax and advisory services as the Portfolio may
engage them to do.
Limitation on Expenses
The Portfolio bears all expenses of its operations other than those expressly
assumed by other entities under contract with it, as described in Part A.
Stein Roe has agreed not to impose their respective fees under their management
and administrative agreements with the Portfolio and the Fund to the extent
those fees would otherwise cause the aggregate expenses of the Fund and the
Portfolio, excluding interest, taxes, brokerage and other expenses which are
capitalized in accordance with generally accepted accounting practices and
extraordinary expenses, to exceed the applicable limits prescribed by any state
in which the Fund's shares are being offered to the public. The Fund believes
that currently the most restrictive state limit on mutual fund expenses is that
of California, which limits such expenses to 2 1/2% of the first $30 million of
average net assets, 2% of the next $70 million, and 1 1/2% of average net assets
in excess of $100 million.
Item 17. Brokerage Allocation and Other Practices
Portfolio Transactions
Stein Roe places the orders for the purchase and sale of the Portfolio's
portfolio securities and options and futures contracts. Stein Roe's overriding
objective in effecting portfolio transactions is to seek to obtain the best
combination of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Stein Roe's knowledge of
negotiated commission rates currently available and other current transaction
costs; the nature of the security being traded; the size of the transaction; the
desired timing of the trade; the activity existing and expected in the market
for the particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and others which are
considered; the Stein Roe's knowledge of the financial stability of the broker
or dealer selected and such other brokers or dealers; and the Stein Roe's
knowledge of actual or apparent operational problems of any broker or dealer.
Recognizing the value of these factors, the Portfolio may pay a brokerage
commission in excess of that which another broker or dealer may have charged for
effecting the same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an ongoing basis by the
Stein Roe's staff while effecting portfolio transactions. The general level of
brokerage commissions paid is reviewed by the Adviser, and reports are made
annually to the Board of Trustees of the Portfolio.
With respect to issues of securities involving brokerage commissions, when more
than one broker or dealer is believed to be capable of providing the best
combination of price and execution with respect to a particular portfolio
transaction for the Portfolio, Stein Roe often selects a broker or dealer that
has furnished it with research products or services such as research reports,
subscriptions to financial publications and research compilations, compilations
of securities prices, earnings, dividends, and similar data, and computer data
bases, quotation equipment and services, research-oriented computer software and
services, and services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding with any of the
brokers or dealers; however, Stein Roe uses an internal allocation procedure to
identify those brokers or dealers who provide it with research products or
services and the amount of research products or services they provide, and
endeavors to direct sufficient commissions generated by its clients' accounts in
the aggregate, including the Portfolio, to such brokers or dealers to ensure the
continued receipt of research products or services that Stein Roe feels are
useful. In certain instances, Stein Roe receives from brokers and dealers
products or services which are used both as investment research and for
administrative, marketing, or other non-research purposes. In such instances,
Stein Roe makes a good faith effort to determine the relative proportions of
such products or services which may be considered as investment research. The
portion of the costs of such products or services attributable to research usage
may be defrayed by Stein Roe (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions by clients
(including the Portfolio), while the portions of the costs attributable to
non-research usage of such products or services is paid by Stein Roe in cash. No
person acting on behalf of the Portfolio is authorized, in recognition of the
value of research products or services, to pay a commission in excess of that
which another broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers and dealers may
be used in servicing any or all of the clients of Stein Roe and not all such
research products or services are used in connection with the management of the
Portfolio.
As stated above, Stein Roe's overriding objective in effecting portfolio
transactions for the Portfolio is to seek to obtain the best combination of
price and execution. However, consistent with the provisions of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., Stein Roe
may, in selecting broker dealers to effect portfolio transactions for the
Portfolio, and where more than one broker dealer is believed capable of
providing the best combination of price and execution with respect to a
particular transaction, select a broker dealer in recognition of its sales of
shares of the Portfolio. Stein Roe maintains an internal procedure to identify
broker dealers which have sold shares of the Portfolio and the amount of such
shares sold by them. Neither the Portfolio nor Stein Roe has entered into any
agreement with, or made any commitment to, any broker dealer which would bind
Stein Roe or the Portfolio to compensate any broker dealer, directly or
indirectly, for sales of shares of the Portfolio. Stein Roe does not cause the
Portfolio to pay brokerage commissions higher than those obtainable from other
broker dealers in recognition of such sales. With respect to the Portfolio's
purchases and sales of portfolio securities transacted with a broker or dealer
on a net basis, Stein Roe may also consider the part, if any, played by the
broker or dealer in bringing the security involved to Stein Roe's attention,
including investment research related to the security and provided to the
Portfolio.
The Portfolio has arranged for its custodian to act as a soliciting dealer to
accept any fees available to the custodian as a soliciting dealer in connection
with any tender offer for the Portfolio's portfolio securities held by the
Portfolio. The custodian will credit any such fees received against its
custodial fees. In addition, the Board of Trustees has reviewed the legal
developments pertaining to and the practicability of attempting to recapture
underwriting discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual Portfolio currently is not permitted under
the Rules of Fair Practice of the National Association of Securities Dealers.
For the fiscal years ended October 31, 1993, 1994 and 1995, Registrant paid
total brokerage commissions of $218,069, $228,144, and $ 287,806 respectively.
Item 18. Capital Stock and Other Securities
Under the Declaration of Trust, the Trustees are authorized to issue Interests
in the Portfolio. Investors are entitled to participate pro rata in
distributions of taxable income, loss, gain and credit of the Portfolio (unless
another sharing method is required for federal income tax reasons, in accordance
with the sharing method adopted by the Trustees). Upon liquidation or
dissolution of the Portfolio, investors are entitled to share pro rata in the
Portfolio's net assets available for distribution to its investors (unless
another sharing method is required for federal income tax reasons, in accordance
with the sharing method adopted by the Trustees). Investments in the Portfolio
have no preference, preemptive, conversion or similar rights and are fully paid
and nonassessable, except as set forth below. Investments in the Portfolio may
not be transferred. No certificates representing an investor's Interest in the
Portfolio will be issued.
Each investor is entitled to vote in proportion to the amount of its investment
in the Portfolio. Investors in the Portfolio do not have cumulative voting
rights, and investors holding more than 50% of the aggregate Interest in the
Portfolio may elect all of the Trustees of the Portfolio if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. The Portfolio will be required
to call a meeting of investors, upon specific written request to the Trustees of
investors holding, in the aggregate, not less than 10% of the Interests of the
Portfolio. The Trustees may make changes to the Portfolio's Declaration of Trust
which do not adversely affect the rights of investors, without investor
approval, if the Trustees deem such changes necessary or desirable.
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two-thirds of its
investors (with the vote of each being in proportion to the respective
percentages of the Interests in the Portfolio), except that if the Trustees of
the Portfolio recommend such sale of assets, the approval by vote of a majority
of the investors (with the votes of each being in proportion to their respective
percentages of the Interests of the Portfolio) will be sufficient. The Portfolio
will dissolve upon the complete withdrawal, resignation, retirement or
bankruptcy of any investor and will terminate unless reconstituted and continued
with the consent of all remaining investors. The Portfolio may also be
terminated (I) if approved by the vote of two-thirds of its investors (with the
votes of each being in proportion to the amount of their investment), or (ii) by
the Trustees of the Portfolio by written notice to its investors. The
Declaration of Trust of the Portfolio contains a provision limiting the life of
the Portfolio to a term of years; consequently, the Portfolio will terminate on
December 31, 2080.
The Portfolio is organized as a trust under the laws of The Commonwealth of
Massachusetts. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
Interest in the Portfolio. The Declaration of Trust also provides that the
Portfolio shall maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Portfolio, its
investors, Trustees, officers, employees and agents covering possible tort and
other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
The Declaration of Trust of the Portfolio further provides that obligations of
the Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action for failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
The Portfolio reserves the right to create and issue any number of series, in
which case investors in each series would participate only in the earnings and
assets of the particular series. Investors in each series would be entitled to
vote separately to approve advisory agreements or changes in investment policy,
but investors of all series may vote together in the election or selection of
Trustees, principal underwriters and accountants for the Portfolio. Upon
liquidation or dissolution of the Portfolio, the investors in each series would
be entitled to share pro rata in the net assets of their respective series
available for distribution to investors (unless another sharing method is
required for federal income tax reasons, in accordance with the sharing method
adopted by the Trustees). Interests of any series of the Portfolio may be
divided into two or more classes of interests having such preferences or special
or relative privileges as the Trustees of the Portfolio may determine.
Although it is expected that the Portfolio will initially have 10 or fewer
investors, the number of investors in the Portfolio will in no case exceed 100
in order to satisfy certain tax requirements. This number may be increased or
decreased should such requirements change. Similarly, if Congress enacts certain
proposed amendments to the Code, it may be desirable for the Portfolio to elect
the status of a regulated investment company ("RIC") as that term is defined in
Subchapter M of the Code, which would require that the Portfolio first change
its organizational status from that of a Massachusetts trust to that of a
Massachusetts business trust ("MBT") or other entity treated as a corporation
under the Code. The Portfolio's Declaration of Trust empowers the Trustees, on
behalf of the Portfolio, to change the Portfolio's organization form to that of
a MBT or otherwise reorganized as an entity treated as a corporation under the
Code and to elect RIC status without a vote of the investors. Any such action on
the part of the Trustees to on behalf of the Portfolio would be contingent upon
there being no adverse tax consequences to such action.
Item 19. Purchase, Redemption and Pricing of Securities Being Offered
Interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in the Portfolio may be made only by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entitles that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This registration statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.
The value of each investor's investment in the Portfolio will be based on its
pro rata share of the total net asset value of the Portfolio (i.e., the value of
its portfolio securities and other assets less its liabilities) as of the same
date and time. The Portfolio's net asset value per share is calculated as of
4:00 p.m. (Boston time) on each day the Exchange is open for trading. For this
purpose, portfolio securities held by the Portfolio for which market quotations
are readily available are valued, in the case of listed securities, at the last
sale price on the exchange on which that security is principally traded (or, if
there were no sales that day, at the closing bid price). Each over-the-counter
security for which the last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter securities for which
reliable quotations are available are valued at the latest bid price. Long-term
corporate bonds and notes, for which market quotations are not considered
readily available, are valued on the basis of valuations furnished by a pricing
service approved by the Board of Trustees of the Portfolio which determines
valuations for normal, institutional-size trading units of such securities using
methods based on market transactions for comparable securities and various
relationships between securities which are generally recognized by institutional
traders. Securities for which no such reliable quotations or valuations are
available are valued at fair value as determined by the board of Trustees of the
Portfolio. Short-Term securities with less than sixty days remaining to maturity
are valued at amortized cost, which approximates market value.
The computation of the Registrant's net assets applicable to its investors'
beneficial interest is included in the Statement of Assets and Liabilities of
Registrant as at October 31, 1995, referred to under Item 23. See Item 6 of Part
A.
Item 20. Tax Status
The Portfolio is organized as a trust under the laws of the Commonwealth of
Massachusetts. Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any Federal income tax, nor is it expected to
have any Massachusetts income tax liability. Each investor in the Portfolio will
be taxable on its share (as determined in accordance with the governing
instruments of the Portfolio) of the Portfolio's ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with a method designed to satisfy the Code and
regulations promulgated thereunder. There can be no assurance, however, that the
Internal Revenue Service will agree with such a method of allocation.
The Portfolio's taxable year-end is October 31. Although, as described above,
the Portfolio will not be subject to federal income tax, it will file
appropriate income tax returns.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Code for qualification as a RIC,
assuming that the investor invests all of its assets in the Portfolio.
In order for the Fund or any other investment company investing in the Portfolio
to qualify for Federal income tax treatment as a regulated investment company,
at least 90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from loans of
securities, gains from the sale of stock or securities or foreign currencies or
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in stock,
securities or currencies. In addition, gains realized on the sale or other
disposition of any of the following held for less than three months must be
limited to less than 30% of its annual gross income: (i) stock or securities,
(ii) options, futures or forward contracts (other than on foreign currencies),
and (iii) foreign currencies and currency forward contracts that are not
directly related to its principal business of investing in stocks, securities,
and options and futures with respect to stocks or securities. Each of the Fund
and any such other investment company will also be required to distribute each
year at least 90% of its investment company taxable income (in order to escape
federal income tax on distributed amounts) and to meet certain tax
diversification requirements. Because the Fund will, and any such other
investment company may, invest all of its assets in the Portfolio, the Portfolio
must satisfy all of these tax requirements in order for the Fund and any such
other investment company to satisfy them. In order to avoid realizing excessive
gains on securities held less than three months, the Portfolio may be required
to defer the closing out of certain positions beyond the time when it would
otherwise be advantageous to do so. Year-end mark-to-market gains on positions
open for less than three months as of the end of the Portfolio's fiscal year are
not considered gains on securities held for less than three months for the
purposes of the 30% test.
The Portfolio will allocate at least annually to the Fund and its other
shareholders their respective distributive shares of any net investment income
and net capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the Portfolio's taxable year on
certain options and futures transactions that are required to be
marked-to-market).
To the extent the Portfolio invests in foreign securities, it may be subject to
withholding and other taxes imposed by foreign countries. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes. The
Fund and any other investment companies investing all their assets in the
Portfolio do not expect to be able to pass through their respective distributive
shares of such foreign taxes to their shareholders, who therefore will not be
entitled to foreign tax credits or deductions. However, the Fund and such other
companies will be entitled to deduct their respective distributive shares of
such taxes in determining their distributable income.
The Portfolio's foreign currency gains and losses from foreign currency
dispositions, foreign-currency denominated debt securities and payables or
receivables, and foreign currency forward contracts are subject to special tax
rules that generally cause them to be recharacterized as ordinary income and
losses and may affect the timing and amount of the Portfolio's recognition of
income, gain or loss.
In order to avoid adverse tax consequences, the Portfolio may be required to
limit its equity investments in non-U.S. corporations that are treated as
"passive foreign investment companies" under the Code.
Item 21. Underwriters
Not Applicable.
Item 22. Calculations of Performance Data
Not Applicable.
Item 23. Financial Statements
The financial statements included herein have been included in reliance upon the
report of KPMG Peat Marwick, independent certified public accountants, as
experts in accounting and auditing.
<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements (incorporated by reference in Amendment No. 7
filed with the Securities and Exchange Commission via EDGAR on
February 26, 1996)
Investment portfolio, October 31, 1995
Statement of assets and liabilities, October 31, 1995
Statement of operations, Year ended October 31, 1995
Statement of changes in net assets, Years ended
October 31, 1995 and 1994
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
(b) Exhibits
1. Declaration of Trust of Registrant
2. By-laws of Registrant
3. Inapplicable
4. Inapplicable
5. Inapplicable
6. Inapplicable pursuant to Instruction F.4 to Form N-1A
7. Inapplicable
8. Custodian Contract between Registrant and State Street Bank &
Trust Company
9.(a)(1) Management Agreement between Registrant and Stein Roe &
Farnham Incorporated
(a)(2) Amendment effective March 1, 1994 to Management Agreement
between Registrant and Stein Roe & Farnham Incorporated
(b) Service Agreement between Registrant and Stein Roe
(c) Accounting and Bookkeeping Agreement between Registrant and
Stein Roe
10. Inapplicable pursuant to Instruction F.4 to Form N-1A
11. Inapplicable pursuant to Instruction F.4 to Form N-1A
12. Inapplicable pursuant to Instruction F.4 to Form N-1A
13. Inapplicable
14. Inapplicable
15. Inapplicable
16. Inapplicable
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
As of July 31 1996, over 99.99% of the outstanding Interests in Registrant were
held by the Fund, a registered open-end management investment company organized
as a series of Colonial Trust III, a Massachusetts business trust, and the
balance was owned by Liberty Services. See Item 15 above for information about
the principal holders of the shares of the Fund.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders (as of
Title of Class July 31, 1996)
Beneficial Interests 2
Item 27. Indemnification
See Article V, Sections 5.02 and 5.03 of Registrant's Declaration of Trust filed
as Exhibit 1 hereto.
Item 28. Business and Other Connections of Investment Adviser
Stein Roe (Manager), the investment manager of the Portfolio, is a wholly owned
subsidiary of SteinRoe Services Inc. (SSI), which in turn is a wholly owned
subsidiary of Liberty Financial, which in turn is a subsidiary of Liberty Mutual
Equity Corporation, which in turn is a subsidiary of Liberty Mutual. The Manager
acts as investment adviser to individuals, trustees, pension and profit-sharing
plans, charitable organizations, and other investors. In addition to the
Portfolio, it also acts as investment adviser to other investment companies
having different investment policies.
For the two-year business history of the directors and officers of the Manager,
please refer to the Form ADV of Stein Roe & Farnham Incorporated and to Item 16
of Part B of this Registration Statement.
Certain directors and officers of the Manager also serve and have during the
past two years served in various capacities as officers, directors or trustees
of SSI, or investment companies managed by the Manager, as shown below. (The
listed entities are all located at One South Wacker Drive, Chicago, IL 60606;
the address of SteinRoe Variable Investment Trust is Federal Reserve Plaza, 600
Atlantic Avenue, Boston, MA 02110).
<TABLE>
<CAPTION>
Position Formerly
Held Within Past
Current Position Two Years
SteinRoe Services Inc.
<S> <C> <C>
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
Hans P. Ziegler Director; President; Chairman Vice Chairman
C. Allen Merritt, Jr. Director; Vice President
SR&F Base Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour Pres.; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
N. Bruce Callow Executive Vice President
Hans P. Ziegler Executive Vice President
Stein Roe Income Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Anthony G. Zulfer, Jr. Trustee Emeritus Trustee
Stein Roe Investment Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
David P. Brady Vice President
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Alfred F. Kugel Trustee Emeritus Trustee
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Bruno Bertocci Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Stein Roe Municipal Trust
Gary A. Anetsberger Sr. V.P. Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Joanne T. Costopoulos Vice President
Philip J. Crosley Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
M. Jane McCart Vice President
Thomas P. Sorbo Vice President
Shary Risting Stadler Vice President
Hans P. Ziegler Executive Vice President
Anthony G. Zulfer, Jr. Trustee Emeritus Trustee
SteinRoe Variable
Investment Trust
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Eric P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
Stein Roe Trust and Stein
Roe Adviser Trust
Gary A. Antesberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Bruno Bertocci Vice President
David P. Brady Vice President
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Daniel K. Cantor Vice President
Philip J. Crosley Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
David P. Harris Vice President
Harvey B. Hirschhorn Vice President
Eric S. Maddix Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Richard B. Peterson Vice President
Gloria J. Santella Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
Stein Roe Institutional
Trust
Gary A. Antesberger Senior Vice President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice President; Secretary
Ann H. Benjamin Vice President
Thomas W. Butch Vice President
N. Bruce Callow Executive Vice President
Philip J. Crosley Vice President
Michael T. Kennedy Vice President
Steven P. Luetger Vice President
Lynn C. Maddox Vice President
Anne E. Marcel Vice President
Jane M. Naeseth Vice President
Thomas P. Sorbo Vice President
Hans P. Ziegler Executive Vice President
</TABLE>
<PAGE>
Item 29. Principal Underwriters
Inapplicable
Item 30. Location of Accounts and Records
The journals and records required by items (1), (2)(i), (ii) and (iii), (3),
(5), (6), (7) and (8) and the ledger required by item 2(iv) of paragraph b of
Rule 31a-1 under the Investment Company Act of 1940 are maintained at Colonial
Management Associates, Inc., One Financial
Center, Boston, MA 02111.
Item 31. Management Services
See Item 5 under Part A and Item 16 under Part B of this Registration Statement.
Item 32. Undertakings
Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1940 Act, the Registrant has duly caused
this Amendment No. 8 to its Registration Statement on Form N-1A to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston
and the Commonwealth of Massachusetts on the 30th day of August, 1996.
LFC UTILITIES TRUST
By: ARTHUR O. STERN
Secretary
DECLARATION OF TRUST
LFC UTILITIES TRUST
August 14, 1991
TABLE OF CONTENTS
ARTICLE I. The Trust 1
1.01 Name 1
1.02 Definitions 2
ARTICLE II. Trustees 4
2.01 Number and Qualification 4
2.02 Term and Election 5
2.03 Resignation and Removal 5
2.04 Vacancies 6
2.05 Manner of Acting; By-laws 6
ARTICLE III. Powers of Trustees 7
3.01 General 7
3.02 Investments 7
3.03 Legal Title 9
3.04 Sale of Interests 9
3.05 Borrow Money 9
3.06 Delegation; Committees 10
3.07 Collection and Payment 10
3.08 Expenses 10
3.09 Miscellaneous Powers 10
3.10 Further Powers 11
ARTICLE IV. Investment Advisory, Administrative
Services and Placement Agent Arrangements 12
4.01 Investment Advisory and Other Arrangements 12
4.02 Parties to Contract 12
ARTICLE V. Limitations of Liability 14
5.01 No Personal Liability of Trustees, Officers,
Employees, Agents; Liability of Holders;
Indemnification 14
5.02 Non-liability of Trustees, etc. 15
5.03 Mandatory Indemnification 15
5.04 No Bond Required of Trustees 17
5.05 No Duty of Investigation; Notice in Trust
Instruments, etc. 17
5.06 Reliance on Experts, etc. 18
ARTICLE VI. Interests of the Trust 19
6.01 Interests19
6.02 Rights of Holders 19
6.03 Issuance of Interests 20
6.04 Register of Interests 20
6.05 Non-Transferability 20
6.06 Notices21
6.07 Series or Class Designation 21
ARTICLE VII. Decreases and Withdrawals 26
7.01 Decreases and Withdrawals 26
ARTICLE VIII. Determination of Book Capital Account
Balances, Net Income and Distributions 27
8.01 Book Capital Account Balances 27
8.02 Distributions and Allocations to Holders 27
8.03 Power to Modify Foregoing Procedures 27
ARTICLE IX. Holders 28
9.01 Meetings of Holders 28
9.02 Notice of Meetings 28
9.03 Record Date for Meetings 29
9.04 Proxies, etc. 29
9.05 Reports 29
9.06 Inspection of Records 30
9.07 Holder Action by Written Consent 30
ARTICLE X. Duration; Termination of Trust; Amendment;
Mergers, Etc. 30
10.1 Duration 30
10.2 Termination of Trust or a Series or a Class 30
10.3 Dissolution 32
10.4 Amendment Procedure 32
10.5 Merger, Consolidation and Sale of Assets 33
10.6 Incorporation 34
10.7 Massachusetts Business Trust 35
ARTICLE XI. Miscellaneous 35
11.1 Certificate of Designation; Agent
for Service of Process 35
11.2 Governing Law 35
11.3 Counterparts 35
11.4 Reliance by Third Parties 36
11.5 Provisions in Conflict with Law or
Regulations 36
<PAGE>
DECLARATION OF TRUST
OF
LFC UTILITIES TRUST
This is a DECLARATION OF TRUST of LFC Utilities Trust made on the 14th day
of August, 1991 by John L. Davenport, as trustee (such person, so long as he
shall continue in office in accordance with the terms of this Declaration of
Trust, and all other persons from time to time duly elected or appointed as
trustees in accordance with the provisions of this Declaration of Trust and then
in office, being hereinafter called the "Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the law of
Massachusetts for the investment and reinvestment of its assets; and
WHEREAS, it is proposed that the trust assets be composed of funds
contributed thereto by the holders of interests in the trust entitled to
ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust
all money and property contributed to the trust fund to manage and dispose of
the same for the benefit of the holders of the interests in the Trust and
subject to the provisions hereof, to wit:
ARTICLE I.
The Trust
1.01 Name. The name of the trust created hereby (the "Trust") shall be
"LFC Utilities 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 hereinafter used) shall
refer to the Trustees as Trustees, and not individually, and shall not refer to
the officers, agents, employees or holders of interests in the Trust.
1.02 Definitions. As used in this Declaration, the following terms shall
have the following meanings:
The terms "Affiliated Person," "Assignment" and "Interested Person" shall
have the meanings given them in the 1940 Act, as amended from time to time.
"Administrator" shall mean any party furnishing services to the Trust
pursuant to any administrative services contract described in Section 4.01
hereof.
"Book Capital Account" shall mean, for any Holder at any time, the Book
Capital Account of the Holder for such day, determined in accordance with
generally accepted accounting principles and the provisions of the 1940 Act.
"Class" means any division of Interests within a Series, which Class is or
has been established within such Series in accordance with the provisions of
Article VI.
"Commission" and "Interested Person" have the meanings given them in the
1940 Act. Except as otherwise defined by the Trustees in conjunction with the
establishment of any Series or Class thereof of Interests, the term Majority
Interests Vote shall have the same meaning as is assigned to the term "vote of a
majority of the outstanding voting securities" in the 1940 Act.
"Declaration" shall mean this Declaration of Trust as amended from time to
time. References in this Declaration to "Declaration", "hereof," "herein," and
"hereunder" shall be deemed to refer to the Declaration rather than the article
or section in which such words appear.
"Fiscal Year" shall mean an annual period as determined by the Trustees.
"Holders" shall mean as of any particular time all holders of record of
Interests of the Trust at such time.
"Institutional Investor(s)" shall mean any regulated investment company,
segregated asset account, foreign investment company, common and commingled
trust Funds, insurance company separate account, group trust or similar
investment arrangement other than an individual, S corporation, partnership or
grantor trust beneficially owned by any individual, S corporation or
partnership.
"Interest(s)" shall mean the interest of a Holder in the Trust, including
the Interests of any and all Series or of any Class within any Series (as the
context may require) which may be established by the Trustees, and including all
rights, powers and privileges accorded to Holders in this Declaration, which
Interest may be expressed as a percentage, determined by calculating, at such
times and on such basis, as the Trustees shall from time to time determine, the
ratio of each Holders' Book Capital Account balance to the total of all Holders'
Book Capital Account balances. Reference herein to a specified percentage in, or
fraction of, Interests of the Holders, means Holders whose combined Book Capital
Accounts represent such specified percentage or fraction of the Book Capital
Accounts of all Holders. "Outstanding Interests" mean those Interests shown from
time to time on the books of the Trust or its transfer agent as then issued and
outstanding, but shall not include Interests which have been decreased or
withdrawn by the Trust and which are at the time held by the Trust.
"Investment Adviser" shall mean any party furnishing services to the Trust
pursuant to any investment advisory contract described in Section 4.01 hereof.
"The 1940 Act" refers to the Investment Company Act of 1940, as amended
from time to time, and the rules and regulations thereunder.
"Person" shall mean and include individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Placement Agent" shall mean any party furnishing placement agency
services to the Trust pursuant to any placement agency contract described in
Section 4.01 hereof.
"Registration Statement" shall mean the Registration Statement of the
Trust under the 1940 Act in effect from time to time.
"Series", individually or collectively, means the separately managed
component(s) of the Trust (or, if the Trust shall have only one such component,
then that one) as may be established and designated from time to time by the
Trustees pursuant to Section 6.01 hereof.
"Trustees" shall mean the signatories to this Declaration, so long as they
shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office, who are herein referred to as the "Trustees," and reference in this
Declaration to a Trustee or Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees, including any and
all assets of or allocated to any Series or Class, as the context may require.
ARTICLE II.
Trustees
2.01 Number and Qualification. The number of Trustees shall initially be
one and the number thereafter shall be fixed from time to time by written
instrument signed by a majority of the Trustees so fixed then in office,
provided, however, that the subsequent number of Trustees shall in no event be
less than three or more than fifteen. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
Section 2.04 hereof, the Trustees in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
2.02 Term and Election. Except for the Trustees named herein or appointed
to fill vacancies pursuant to Section 2.04 hereof, the Trustees may succeed
themselves and shall be elected by the Holders owning of record a plurality of
the Interests voting at a meeting of Holders on a date fixed by the Trustees.
Except in the event of resignation or removal pursuant to Section 2.03 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Holders. In such event the Trustees
then in office will call a Holders' meeting for the election of Trustees. Except
for the foregoing circumstances, the Trustees shall continue to hold office and
may appoint successor Trustees.
2.03 Resignation and Removal. Any Trustee may resign his trust (without
need for prior or subsequent accounting) by an instrument in writing signed by
him and delivered or mailed to the Chairman, if any, the President or the
Secretary and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument. Any of the Trustees may be
removed by the affirmative vote of the Holders of two-thirds of the Interests or
with cause, by the action of two-thirds of the remaining Trustees (provided the
aggregate number of Trustees, after such removal and after giving effect to any
appointment made to fill the vacancy created by such removal, shall not be less
than the number required by Section 2.01 hereof). Removal with cause includes,
but is not limited to, the removal of a Trustee due to physical or mental
incapacity. 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 death of any Trustee or upon removal or resignation
due to any Trustee's incapacity to serve as 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.
2.04 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of his death, retirement, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.04, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
2.05 Manner of Acting; By-laws. Except as otherwise provided herein or in
the By-laws, any action to be taken by the Trustees may be taken by a majority
of the Trustees present at a meeting of Trustees (a quorum being present),
including any meeting held by means of a conference telephone circuit or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, or by written consents of the entire number of
Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend, alter or repeal such By-laws to the extent such power is not reserved to
the Holders.
Notwithstanding the foregoing provisions of this Section 2.05 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
ARTICLE III.
Powers of Trustees
3.01 General. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust and any Series or Class
thereof to the same extent as if the Trustees were the sole owners of the Trust
Property and business in their own right, but with such powers of delegation as
may be permitted by this Declaration. The Trustees may perform such acts as in
their sole discretion are proper for conducting the business of the Trust. The
enumeration of any specific power herein shall not be construed as limiting the
aforesaid power. Such powers of the Trustees may be exercised without order of
or resort to any court.
3.02 Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an investment
company; and
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of United States and foreign currencies and
related instruments including options and futures contracts, and forward
foreign currency exchange contracts; securities, including common, preferred
and preference stocks,warrants, when-issued and delayed securities, when,
as and if securities, subscription rights, profit-sharing interests or
participations and all other contracts for or evidence of equity interests;
bonds, debentures, time notes and all other evidences of indebtedness;
negotiable or non-negotiable instruments, obligations, certificates of deposit
or indebtedness, Eurodollar certificates of deposit, finance paper, bankers'
acceptances, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, options on futures contracts, and other securities, including,
without limitation, those issued, guaranteed or sponsored by any state,
territory or possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, or by the United
States Government, any foreign government, or any agency,
instrumentality or political subdivision of the United States Government or any
foreign government, or international instrumentalities, or by any bank, savings
institution, corporation or other business entity organized under the laws of
any State or of the United States or under foreign laws; and to exercise any and
all rights, powers and privileges of ownership or interest in respect of any and
all such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more persons, firms, associations, or corporations to
exercise any of said rights, powers and privileges in respect of any of said
instruments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional securities in which the Trustees may determine to
invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.03 Legal Title. Legal title to all the Trust Property shall be vested in
the Trustees as joint tenants except that the Trustees shall have the power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust or any Series of the Trust, or
in the name of any other Person on behalf of the Trust, on such terms as the
Trustees may determine.
The right, title and interest of the Trustees in the Trust Property and
the Trust Property of each Series of the Trust shall vest automatically in each
person who may hereafter become a Trustee upon his due election and
qualification. Upon the resignation, removal or death of a Trustee he shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the Trust Property of each Series and the right, title and
interest of such Trustee in the Trust Property and the Trust Property of each
Series shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
3.04 Sale of Interests. Subject to the more detailed provisions set forth
in Articles VI and VII, the Trustees shall have the power to permit persons to
purchase Interests and to add to or reduce, in whole or in part, their Interest
in the Trust.
3.05 Borrow Money. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee, or undertake the performance
of any obligation, contract or engagement of any other person, firm, association
or corporation.
3.06 Delegation; Committees. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or any Series or
Class of the Trust or the names of the Trustees or otherwise as the Trustees may
deem expedient.
3.07 Collection and Payment. The Trustees shall have power to collect all
property due to the Trust or any Series thereof; and to pay all claims,
including taxes, against the trust Property; to prosecute, defend, compromise or
abandon any claims relating to the Trust Property; to foreclose any security
interest securing any obligations, by virtue of which any property is owed to
the Trust; and to enter into releases, agreements and other instruments.
3.08 Expenses. Subject to Section 6.07 hereof, the Trustees shall have
power to incur and pay any expenses which in the opinion of the Trustees are
necessary or incidental to carry out any of the purposes of this Declaration,
and to pay reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers, employees and
Trustees.
3.09 Miscellaneous Powers. The Trustees shall have the power to: (a)
employ or contract with such persons as the Trustees may deem desirable for the
transaction of the business of the Trust or any Series thereof and terminate
such employees or contractual relationships as they consider appropriate; (b)
enter into joint ventures, partnerships and any other combinations or
associations; (c) purchase, and pay for out of Trust Property or the Trust
Property of the appropriate Series of the Trust, insurance policies insuring the
Investment Adviser, Administrator, Placement Agent, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such person in such capacity, whether or not the Trust would
have the power to indemnify such person against such liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any person with whom the Trust or any Series thereof has dealings,
including the Investment Adviser, Administrator, placement agent, Holders,
Trustees, officers, employees, agents of independent contractors of the Trust or
any Series thereof, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the Fiscal Year of the Trust or any Series thereof and the method in
which its accounts shall be kept; (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust; (j) enter into a plan of distribution and any related
agreements whereby the Trust may finance directly or indirectly any activity
which is primarily intended to result in sale of Interests; (k) adopt on behalf
of the Trust or any Series thereof any plan providing for the issuance of
multiple Classes of Interests (as authorized herein at Section 6.01); and (l)
determine, in their sole discretion, whether it is desirable for the Trust to be
treated as a regulated investment company, as that term is defined in subchapter
M of the Internal Revenue Code of 1986, as amended, and if so determined, to
make such changes to the organization and operation of the Trust as are
necessary to enable the Trust to qualify as a regulated investment company, and
to elect such status on behalf of the Trust, without any further action by the
Holders.
3.10 Further Powers. The Trustees shall have power to conduct the business
of the Trust and carry on its operations in any and all of its branches and
maintain offices, whether within or without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust and any Series thereof although such things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration, 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 Trust Property.
ARTICLE IV.
Investment Advisory, Administrative Services
and Placement Agent Arrangements
4.01 Investment Advisory and Other Arrangements. The Trustees may in their
discretion, from time to time, enter into investment advisory, administrative
services and custodial contracts or placement agent agreements or, if the
Trustees establish multiple Series, separate investment advisory,
administrative, custodial or placement agency agreements with respect to one or
more Series, whereby the other party to such contract or agreement shall
undertake to furnish the Trust or such Series such investment advisory,
administrative, custodial, placement agent and/or other services as the Trustees
shall, from time to time, consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provisions of this Declaration, the Trustees may authorize any Investment
Adviser (subject to such general or specific instructions as the Trustees may,
from time to time, adopt) to effect purchases, sales, loans or exchanges of
Trust Property on behalf of the Trustees, or may authorize any officer, employee
or Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of any such Investment Adviser (and all without further action
by the Trustees). Any such purchases, sales, loans and exchanges shall be deemed
to have been authorized by all of the Trustees. The Trustees may, in their sole
discretion, call a meeting of Holders in order to submit to a vote of Holders at
such meeting the approval or continuance of any investment advisory contract. If
the Holders of any one or more of the Series of the Trust should fail to approve
any such investment advisory contract, the Investment Adviser may nonetheless
serve as Investment Adviser with respect to any Series whose Holders approve
such contract.
4.02 Parties to Contract. Any contract of the character described in
Section 4.01 of this Article IV or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust or a Series thereof may be an officer,
director, Trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust or a Series thereof under or by reason of said contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was reasonable and fair and not inconsistent
with the provisions of this Article IV or the By-Laws. The same person
(including a firm, corporation, trust, or association) may be the other party to
contracts entered into pursuant to Section 4.01 above or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with persons who are parties to any or all of the contracts mentioned in this
Section 4.02.
ARTICLE V.
Limitations of Liability
5.01 No Personal Liability of Trustees, Officers, Employees, Agents;
Liability of Holders; Indemnification. No Trustee, officer, employee or agent of
the Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than the Trust or its Holders, in connection
with Trust Property or the affairs of the Trust or any Series thereof, save only
that arising from his bad faith, willful misfeasance, gross negligence or
reckless disregard of his duty to such Person; and all such Persons shall look
solely to the Trust Property, or to the Trust Property of one or more specific
Series of the Trust if the claim arises from the conduct of such Trustee,
officer, employee or agent with respect to only such Series, for satisfaction of
claims of any nature against a Trustee, officer, employee or agent of the Trust
arising in connection with the affairs of the Trust. Each Holder shall be
jointly and severally liable (with rights of contribution inter se in proportion
to their respective Interests in the Trust) for the liabilities and obligations
of the Trust or any Series thereof in the event that the Trust or the Series
fails to satisfy such liabilities and obligations; provided, however, that, to
the extent assets are available in the Trust or the Series, the Trust or the
Series shall indemnify and hold each Holder harmless from and against any claim
or liability to which such Holder may become subject by reason of its being or
having been a Holder to the extent that such claim or liability imposes on the
Holder an obligation or liability which, when compared to the obligations and
liabilities imposed on other Holders, is greater than its Interest
(proportionate share), and shall reimburse such Holder for all legal and other
expenses reasonably incurred by it in connection with any such claim or
liability. The rights accruing to a Holder under this Section 5.01 shall not
exclude any other right to which such Holder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust or any Series thereof
to indemnify or reimburse a Holder in any appropriate situation even though not
specifically provided herein. Notwithstanding the indemnification procedure
described above, it is intended that each Holder shall remain jointly and
severally liable to the Trust's or any Series' creditors as a legal matter.
5.02 Non-liability of Trustees, etc. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, to any Series thereof, its
Holders, or to any Trustee, officer, employee, or agent thereof for any action
or failure to act (including, without limitation, the failure to compel in any
way any former or acting Trustee to redress any breach of trust) except for his
own bad faith, willful misfeasance, gross negligence or reckless disregard of
his duties.
5.03 Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee, officer, employee or
agent of the Trust (including any individual who serves at its request as
director, officer, partner, trustee or the like of another organization in which
it has any interest as a shareholder, creditor or otherwise) shall be
indemnified by the Trust, or by one or more Series thereof if the claim arises
from his or her conduct with respect to only such Series, to the fullest extent
permitted by law against all liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred by him in
the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof or the
Holders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust or a Series thereof;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination that such
Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving the settlement or
other disposition;
(B) based upon a review of readily available facts (as opposed
to a full trial-type inquiry) by (x) vote of a majority of the Non-interested
Trustees (as defined below) acting on the matter (provided that a majority of
the Non-interested Trustees then in office act on the matter) or (y) written
opinion of independent legal counsel; or
(C) a Majority Interests Vote (excluding Interests owned of
record or beneficially by such individual).
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and assigns
of such a person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust or any Series thereof other than
Trustees and officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 5.03 may be advanced by the Trust or a Series thereof prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 5.03, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series thereof
shall be insured against losses arising out of any such advances; or
(ii) a majority of the Non-interested Trustees acting on the matter
provided that a majority of the Non-interested Trustees act on the matter) or an
independent legal counsel in a written opinion shall determine, based upon a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 5.03, a "Non-interested Trustee" is one who (i) is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) is not involved in the claim, action, suit or proceeding.
5.04 No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of his duties hereunder.
5.05 No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, or other person dealing with the Trustees or any officer,
employee or agent of the Trust or a Series thereof shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate or other interest or undertaking of the Trust or a
Series or Class thereof, and every other act or thing whatsoever executed in
connection with the Trust shall be conclusively taken to have been executed or
done by the executors thereof only in their capacity as Trustees, officers,
employees or agents of the Trust or a Series or Class thereof. Every written
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust or a Series or Class thereof made or sold by the Trustees or by any
officer, employee or agent of the Trust or a Series or Class thereof, in his
capacity as such, shall contain an appropriate recital to the effect that the
Trustee, officer, employee and agent of the Trust or a Series or Class thereof
shall not personally be bound by or liable thereunder, nor shall resort be had
to their private property for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the Declaration,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, officers, employees or agents of the Trust or any Series or
Class thereof. The Trustees may maintain insurance for the protection of the
Trust Property or the rust Property of the applicable Series, its Holders,
Trustees, officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
5.06 Reliance on Experts, etc. Each Trustee and officer or employee of the
Trust or any Series thereof 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 or any Series or Class thereof, upon an opinion of counsel,
or upon reports made to the Trust or any Series or Class thereof by any of its
officers or employees or by any Investment Adviser, Administrator, accountant,
appraiser or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
ARTICLE VI.
Interests of the Trust
6.01 Interests. The beneficial interest in the property of the Trust shall
consist of non-transferable Interests. The number of such Interests authorized
hereunder is unlimited although the number of Holders shall never exceed 500
unless the Trust receives an opinion of legal counsel to the effect that a
higher number of Holders will not cause the Trust to be treated as an
association taxable as a corporation for Federal income tax purposes. The
Trustees may permit the purchase of Interests but only if the purchaser is an
Institutional Investor. Subject to applicable law and to such restrictions as
may be adopted by the Trustees, a Holder may increase or decrease its Interest
without limitation. The Trustees shall have the authority to establish and
designate one or more Series of Interests and one or more Classes thereof. Each
Interest in any Series shall represent an equal proportionate Interest in the
assets of that Series with each other Interest in that Series. Subject to the
provisions of Section 6.07 hereof, the Trustees may also authorize the creation
of additional Series of Interests (the proceeds of which may be invested in
separate, independently managed portfolios) and additional Classes of Interests
within any Series.
6.02 Rights of Holders. 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 Holders shall have no right or title
therein other than the beneficial interest conferred by their Interests and they
shall have no right to call for any partition or division of any property,
profits or rights of the Trust or a Series thereof. The Interests shall be
personal property giving only the rights in this Declaration specifically set
forth.
6.03 Issuance of Interests. The Trustees in their discretion may, from
time to time, without vote of the Holders, issue Interests, in addition to the
then issued and outstanding Interests and Interests held by the Trust, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of, liabilities) and
businesses. In connection with any issuance of Interests, the Trustees may issue
fractional Interests and Interests held by the Trust. The Trustees may from time
to time divide or combine the Interests of the Trust or, if the Interests be
divided into Series or Classes, of any Series or any Class thereof of the Trust,
into a greater or lesser number without thereby changing the proportionate
beneficial interests in the Trust or in the Trust Property allocated or
belonging to such Series or Class. Contributions to the Trust or Series thereof
may be accepted for, and Interests shall be redeemed as, whole Interests and/or
1/1,000ths of a Interest or integral multiples thereof.
6.04 Register of Interests. A register shall be kept at the Trust under
the direction of the Trustees which shall contain the names and addresses of the
Holders and the Book Capital Account balances of each Holder. Each such register
shall be conclusive as to who are the Holders of the Trust and who shall be
entitled to payments of distributions or otherwise to exercise or enjoy the
rights of Holders. No Holder shall be entitled to receive payment of any
distribution, nor to have notice given to it as herein provided, until it has
given its address to such officer or agent of the Trustees as shall keep the
said register for entry thereon.
6.05 Non-Transferability. Interests shall not be transferable.
6.06 Notices. Any and all notice to which any Holder hereunder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Holder of record at its last known
address as recorded on the register of the Trust.
6.07 Series or Class Designation. (a) Without limiting the authority of
the Trustees set forth in Section 6.01 to establish and designate any further
Series, it is hereby confirmed that the Trust consists of the presently
Outstanding Interests of a single Series: LFC Utilities Trust.
(b) Without limiting the authority of the Trustees set forth in Section
6.01 to establish and designate any further Classes, it is hereby confirmed that
the Trust presently consists of one Class of Interests: the Outstanding
Interests of LFC Utilities Trust. Each Outstanding Interest of any Series shall
be of the existing Class unless the Trustees, with the consent of the holder of
the Interest (which consent shall be evidenced by the holder's subscription of
Interests of a specified Class or by any other action prescribed by the
Trustees), determines that such Interest is or shall be of some other Class.
(c) The Interests of the existing Series and such Classes thereof herein
established and designated and any Interests of any further Series and Classes
thereof that may from time to time be established and designated by the Trustees
shall be established and designated, and the variations in the relative rights
and preferences as between the different Series shall be fixed and determined,
by the Trustees (unless the Trustees otherwise determine with respect to further
Series or Classes at the time of establishing and designating the same);
provided, that all Interests shall be identical except that there may be
variations so fixed and determined between different Series or Classes thereof
as to investment objective, policies and restrictions, purchase price, payment
obligations, distribution expenses, right of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, exchange rights,
and conditions under which the several Series or Classes thereof shall have
separate voting rights, all of which are subject to the limitations set forth
below. All references to Interests in this Declaration shall be deemed to be
Interests of any or all Series or Classes as the context may require.
(d) As to any existing Series and Classes, both heretofore and herein
established and designated, and any further division of Interests of the Trust
into additional Series or Classes, the following provisions shall be applicable:
(i) The number of authorized Interests and the number of Interests
of each Series or Class thereof that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Interests or any Interests
previously issued and reacquired of any Series or Class into one or more Series
or one or more Classes that may be established and designated from time to time.
The Trustees may hold as Interests (of the same or some other Series or Class),
reissue for such consideration and on such terms as they may determine, or
cancel any Interests of any Series or Class reacquired by the Trust at their
discretion from time to time.
(ii) All consideration received by the Trust for the issue or sale
of Interests of a particular Series or Class, together with all assets in which
such consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series or Class for all purposes, subject only to the
rights of creditors of such Series or Class and except as may otherwise be
required by applicable tax laws, and shall be so recorded upon the books of
account of the Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Series or Class, the Trustees shall
allocate them among any one or more of the Series or Classes established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Holders of all Series or Classes for
all purposes. No Holder of Interests of any Series shall have any claim on or
right to any assets allocated or belonging to any other Series.
(iii) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series or the appropriate Class
or Classes thereof and all expenses, costs, charges and reserves attributable to
that Series or Class or Classes thereof, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series or Class or Classes thereof shall be
allocated and charged by the Trustees to and among any one or more of the Series
or Class or Classes thereof established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Holders of all Series
and Classes for all purposes. The Trustees shall have full discretion, to the
extent not inconsistent with the 1940 Act, to determine which items are capital;
and each such determination and allocation shall be conclusive and binding upon
the Holders. The assets of a particular Series or Class of the Trust shall,
under no circumstances, be charged with liabilities attributable to any other
Series or Class of the Trust. All persons extending credit to, or contracting
with or having any claim against a particular Series or Class of the Trust shall
look only to the assets of that particular Series or Class for payment of such
credit, contract or claim.
(iv) The power of the Trustees to allocate income and pay distributions
shall be governed by Section 8.02 of this Declaration with respect to any one or
more Series or Classes which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more Series or Classes. With
respect to any other Series or Class, allocations may be made and distributions
on Interests of a particular Series or Class may be paid with such frequency as
the Trustees may determine, which may be daily or otherwise, pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine, to the holders of Interests of that Series or Class,
from such of the income and capital gains, accrued or realized, from the assets
belonging to that Series or Class, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Series or Class.
All distributions on Interests of a particular Series or Class shall be made pro
rata to the Holders of that Series or Class in proportion to the number of
Interests of that Series or Class held by such Holders at the time of record
established for the payment of such distribution unless another sharing method
is required for Federal income tax reasons in accordance with the method
selected by the Trustees pursuant to Section 8.02 hereof.
(v) Each Interest of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each Holder of Interests of a Series
or Class thereof shall be entitled to receive his pro rata share of
distributions of income and capital gains made with respect to such Series or
Class. Upon redemption of his Interests or indemnification for liabilities
incurred by reason of his being or having been a Holder of a Series or Class,
such Holder shall be paid solely out of the funds and property of such Series or
Class of the Trust. Upon liquidation or termination of a Series or Class of the
Trust, Holders of such Series or Class shall be entitled to receive a pro rata
share of the net assets of such Series or Class unless another sharing method is
required for Federal income tax reasons in accordance with the method selected
by the Trustees pursuant to Section 8.02 hereof. A Holder of a particular Series
of the Trust shall not be entitled to participate in a derivative or class
action on behalf of any other Series or the Holders of any other Series of the
Trust.
(vi) On each matter submitted to a vote of Holders, all Interests of all
Series and Classes shall vote as a single class; provided, however, that (1) as
to any matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act or is required by attributes applicable to any Class,
such requirements as to a separate vote by that Series or Class shall apply, (2)
to the extent that a matter referred to in (1) above, affects more than one
Class or Series and the interests of each such Class or Series in the matter are
identical, then, subject to (3) below, the Interests of all such affected
Classes or Series shall vote as a single Class; (3) as to any matter which does
not affect the interests of a particular Series or Class, only the holders of
Interests of the one or more affected Series or Classes shall be entitled to
vote; and (4) the provisions of the following sentence shall apply. On any
matter that pertains to a Rule 12b-1 distribution plan, which matter is
submitted to a vote of Holders, Holders of a Class of a Series shall have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
applicable to their respective Classes of Interests and to the extent that such
matter does not affect Interests of a particular Class of such Series, said
Interests shall not be entitled to vote (except where otherwise required by law
or permitted by the Board of Trustees acting in its sole discretion) even though
the matter is submitted to a vote of the Holders of any other Class or Series.
(vii) Except as otherwise provided in this Article VI, the Trustees shall
have the power to determine the designations, preferences, privileges, payment
obligations, limitations and rights, including voting and dividend rights, of
each Class and Series of Interests. Subject to compliance with the requirement
of the 1940 Act, the Trustees shall have the authority to provide that the
Holders of Interests of any Series or Class shall have the right to convert or
exchange said Interests into Interests of one or more Series or Classes of
Interests in accordance with such requirements and procedures as may be
established by the Trustees; provided however, that any conversion of Interests
is subject to the continuing availability of an opinion of counsel or an
Internal Revenue Service ruling that such conversion is a non-taxable event.
(viii) The establishment and designation of any Series or Classes of
Interests shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation and
the relative rights and preferences of such Series or Classes, or as otherwise
provided in such instrument. At any time that there are no Outstanding Interests
of any particular Series or Class previously established and designated, the
Trustees may by an instrument executed by a majority of their number abolish
that Series or Class and the establishment and designation thereof. Each
instrument referred to in this section shall have the status of an amendment to
this Declaration.
ARTICLE VII.
Decreases And Withdrawals
7.01 Decreases and Withdrawals. A Holder shall have the authority to
decrease or withdraw its Interest in the Trust or a Series thereof, at such
Holder's option, subject to the terms and conditions provided in this Article
VII. The Trust shall, upon application of any Holder or pursuant to
authorization from any Holder, and subject to this Section 7.01, decrease or
withdraw such Holder's Interest in an amount determined by the application of a
formula adopted for such purpose by resolution of the Trustees; provided that
(a) such amount shall not exceed the reduction in a Holder's Book Capital
Account effected by such decrease or withdrawal of its Interest and (b) if so
authorized by the Trustees, the Trust may, at any time and from time to time,
charge fees for effecting such decrease or withdrawal, at such rates as the
Trustees may establish, and may, at any time and from time to time, suspend such
right of decrease or withdrawal. The procedures for effecting decreases or
withdrawals shall be as determined by the Trustees from time to time.
<PAGE>
ARTICLE VIII.
Determination of Book Capital Account
Balances, Net Income and Distributions
8.01 Book Capital Account Balances. The Book Capital Account balances of
Holders of the Trust or a Series thereof shall be determined daily at such time
or times as the Trustees may determine. The Trustees shall adopt resolutions
setting forth the method of determining the Book Capital Account balances for
each Holder. The power and duty to make calculations pursuant to such
resolutions may be delegated by the Trustees to the Investment Adviser,
Administrator, custodian, or such other person as the Trustees may determine.
8.02 Distributions and Allocations to Holders. The Trustees shall, in
compliance with the regulations promulgated under applicable provisions of the
Internal Revenue Code of 1986, as amended (herein the "Code"), agree to (i) the
daily allocation of income or loss to each Holder of the Trust or a Series or
Class thereof, (ii) the payment of distributions to Holders and (iii) upon
liquidation, the final allocation of items of taxable income and expense. Such
agreement shall be set forth in written instructions directed to the custodian
for the assets of the Trust or the Series specifying the method by which the
Trust or the Series will comply with the Code. The Trustees may amend the
instructions adopted pursuant to this Section 8.02 from time to time to the
extent necessary to comply with the Code or any regulations promulgated
thereunder. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or any Series
or Class thereof or to meet obligations of the Trust or a Series or Class, 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.
8.03 Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the net income
and net assets of the Trust or any Series or Class thereof, the allocation of
income or the payment of distributions to the Holders of the Trust or any Series
or Class thereof as they may deem necessary or desirable to enable the Trust or
the Series or Class thereof to comply with any provision of the 1940 Act, any
rule or regulation thereunder, or any order of exemption issued by said
Commission, all as in effect now or hereafter amended or modified.
ARTICLE IX.
Holders
9.01 Meetings of Holders. Meetings of the Holders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests of the Trust, such request specifying the purpose or purposes for
which such meeting is to be called. Meetings of the Holders of any Series of the
Trust shall be called by the President or the Secretary at the written request
of the Holder or Holders of ten percent (10%) or more of the total number of
Interests then issued and outstanding of such Series of the Trust entitled to
vote at such meeting. 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. Holders of a majority of the Interests of the Trust or a Series
thereof, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940 Act
or other applicable law or by this Declaration or the By-Laws of the Trust.
9.02 Notice of Meetings. Notice of all meetings of the Holders, stating
the time, place and purposes of the meeting, shall be given by the Trustees by
mail to each Holder, at his registered address, mailed at least 10 days and not
more than 60 days before the meeting. At any such meeting, any business properly
before the meeting may be considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further notice.
9.03 Record Date for Meetings. For the purpose of determining the Holders
who are entitled to notice of and to vote at any meeting, or to participate in
any distribution, or for the purpose of any other action, the Trustees may from
time to time fix a date, not more than 60 days prior to the date of any meeting
of the Holders or payment of distributions or other action, as the case may be,
as a record date for the determination of the Persons to be treated as Holders
of record for such purposes.
9.04 Proxies, etc. At any meeting of Holders, any Holder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at a meeting
unless it shall have been placed on file with the Secretary, or with such other
officer or agent of the Trust or a Series thereof as the Secretary may direct,
for 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 or a
Series thereof. Only Holders of record shall be entitled to vote. Each Holder
shall be entitled to a vote proportionate to its Interest in the Trust or
Series. When Interests are held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Interest, but if
more than one of them 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 Interest. A proxy
purporting to be executed by or on behalf of a Holder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger.
9.05 Reports. The Trustees shall cause to be prepared, at least annually,
a report of operations containing a balance sheet and statement of income and
undistributed income of the Trust or a Series thereof prepared in conformity
with generally accepted accounting principles and an opinion of an independent
public accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually interim reports containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current Fiscal
Year to the end of such period.
9.06 Inspection of Records. The books and records of the Trust or a Series
thereof shall be open to inspection by Holders during normal business hours to
the extent as is permitted shareholders of a Massachusetts business corporation.
9.07 Holder Action by Written Consent. Any action which may be taken by
Holders may be taken without a meeting if Holders holding more than 50% of the
total Interests entitled to vote (or such larger proportion thereof as shall be
required by any express provisions of this Declaration) shall consent to the
action in writing and the written consents are filed with the records of the
meetings of Holders. Such consent shall be treated for all purposes as a vote
taken at a meeting of Holders.
ARTICLE X.
Duration; Termination of Trust;
Amendment; Mergers; Etc.
10.01 Duration. Subject to possible termination or dissolution in
accordance with the provisions of Sections 10.02 and 10.03 respectively, the
Trust created hereby shall continue until December 31, 2080.
10.02 Termination of Trust or a Series or a Class. (a) The Trust or any
Series or Class thereof may be terminated (i) by the affirmative vote of the
Holders of the Trust or the appropriate Series or a Class thereof, of not less
than two-thirds of the Interests of the Trust or of such Series or Class at any
meeting of the Holders or by an instrument in writing, without a meeting, signed
by a majority of the Trustees and consented to by the Holders of the Trust or
the appropriate Series or Class thereof of not less than a majority of such
Interests, (ii) by a majority of the Trustees by written notice to such Holders
stating that a majority of the Trustees has determined that the continuation of
the Trust or a Series or a Class thereof is not in the best interest of such
Series or a Class, the Trust or their respective Holders as a result of such
factors or events adversely affecting the ability of such Series or a Class or
the Trust to conduct its business and operations in an economically viable
manner (such factors and events may include the inability of a Series or Class
or the Trust to maintain its assets at an appropriate size, changes in laws or
regulations governing the Series or Class or the Trust or affecting assets of
the type in which such Series or Class or the Trust invests or economic
developments or trends having a significant adverse impact on the business or
operations of such Series or Class or the Trust), or (iii) following the
dissolution of the Trust as provided in Section 10.03 hereof if the Holders do
not elect to continue the business of the Trust as provided in said Section
10.03. Upon any such termination,
(i) The Trust or the Series or Class shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust,
Series or Class and all of the powers of the Trustees under this Declaration
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, Series
or Class, collect its assets, sell, convey, assign, exchange, or otherwise
dispose of all or any part of the remaining Trust Property or Trust Property
allocated or belonging to such Series or Class 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, or other disposition of all or substantially
all the Trust Property or Trust Property allocated or belonging to such Series
or Class shall require approval of the principal terms of the transaction and
the nature and amount of the consideration by the vote of Holders holding more
than 50% of the total Interests entitled to vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, or the remaining Trust Property of the
terminated Series or Class in cash or in kind or partly each, among the Holders
of the Trust, Series or Class according to their respective rights.
(b) Upon termination of the Trust, Series or Class and distribution
to the Holders 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. Upon termination of the Trust, Series or Class the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Holders of the Trust or the
terminated Series or Class shall thereupon cease.
10.03 Dissolution. Upon the withdrawal, resignation, retirement,
bankruptcy or expulsion of any Holder, the Trust shall be dissolved effective
120 days after the event. However, the remaining Holders may, by a unanimous
affirmative vote at any meeting of the remaining Holders held prior to 120 days
after such event or by an instrument in writing without a meeting signed by a
majority of the Trustees and consented to by all of the remaining Holders prior
to 120 days after such event, agree to continue the business of the Trust even
if there has been a prior dissolution.
10.04 Amendment Procedure.
(a) This Declaration may be amended by the vote of Holders holding
more than 50% of the total Interests entitled to vote or by an instrument in
writing, without a meeting, signed by a majority of the Trustees and consented
to by the vote of Holders holding more than 50% of the total Interests entitled
to vote. The Trustees may also amend this Declaration without the vote or
consent of Holders to change the name of the Trust, to supply any omission, to
cure, correct or supplement any ambiguous, defective or inconsistent provision
hereof, or to conform this Declaration to the requirements of applicable federal
laws or regulations or the requirements of the applicable provisions of the
Internal Revenue Code of 1986, as amended, but the Trustees shall not be liable
for failing so to do. The Trustees may also amend this Declaration without the
vote or consent of the Holders if they deem it necessary or desirable to make
any other changes in the Declaration which do not adversely affect the rights of
the Holders thereunder.
(b) No amendment may be made, under Section 10.04(a) above, which would
change any rights with respect to any Interest in the Trust or a Series or Class
thereof by reducing the amount payable thereon upon liquidation of the Trust or
a Series or Class thereof or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of the Holders of two-thirds
of the Interests of the Trust or such Series or Class outstanding and entitled
to vote.
(c) 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
Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.
(d) All amendments shall be effective upon execution. Notwithstanding any
other provision hereof, until such time as Interests are first sold, this
Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the
Trustees.
10.05 Merger, Consolidation and Sale of Assets. The Trust, or any Series
thereof, may merge or consolidate with any other corporation, association, trust
or other organization or may sell, lease or exchange all or substantially all of
the Trust Property or Trust Property allocated or belonging to such Series,
including its good will, upon such terms and conditions and for such
consideration when and as authorized (a) at any meeting of Holders called for
the purpose by the affirmative vote of the Holders of not less than two-thirds
of the Interests of the Trust or such Series; (b) by an instrument or
instruments in writing without a meeting, consented to by the Holders of not
less than two-thirds of such Interests; or (c) by any instrument in writing
without a meeting, signed by a majority of the Trustees and consented to by the
Holders of the Trust or such Series of not less than a majority of such
Interests, and any such merger, consolidation, sale, lease or exchange shall be
deemed for all purposes to have been accomplished under and pursuant to the
statutes of The Commonwealth of Massachusetts.
10.06 Incorporation. Upon a Majority Interests Vote of the Trust or a
Series thereof, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or Trust Property allocated or belonging to such Series or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property or Trust Property
allocated or belonging to such Series to any such corporation, trust,
association or organization in exchange for the equity interest thereof or
otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust or such Series holds or is about to acquire
equity interests. The Trustees may also cause a merger or consolidation between
the Trust or any Series or any successors thereto and any such corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of the Holders of the Trust or
any Series thereof for the Trustees to organize or assist in organizing one or
more corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property or Trust
Property allocated to such Series to such organizations or entities.
10.07 Massachusetts Business Trust. A majority of the trustees may, in
their sole discretion, amend the Declaration so as to, or otherwise, adopt the
form of organization of a trust with transferrable shares organized under the
laws of The Commonwealth of Massachusetts, without any further action by the
Holders.
ARTICLE XI.
Miscellaneous
11.01 Certificate of Designation; Agent for Service of Process. The Trust
shall file with the Secretary of State of Massachusetts a certificate, in the
Trust name and signed by an officer of the Trust, designating the Secretary of
The Commonwealth of Massachusetts as an agent upon whom process in any action or
proceeding against the Trust may be served.
11.02 Governing Law. This Declaration is executed by the Trustees and
delivered in The Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of The Commonwealth of Massachusetts and reference shall be specifically made to
the trust law of The Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
11.03 Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
11.04 Reliance by Third Parties. Any certificate executed by an individual
who, according to the records of the Trust or of any recording office in which
this Declaration may be recorded, appears to be a Trustee hereunder, certifying
to: (a) the number or identity of Trustees or Holders, (b) the due authorization
of the execution of any instrument or writing, (c) the form of any vote passed
at a meeting of Trustees or Holders, (d) the fact that the number of Trustees or
Holders present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any 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 and their successors.
11.05 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, or with other applicable laws and
regulations, the conflicting provisions shall be deemed never to have
constituted a part of his Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
------------------------------------
John L. Davenport, as Trustee
and not individually
S:\FUNDS\TRUSTIII\LFC\DECTRUST.DOC
BY-LAWS
of
LFC UTILITIES TRUST
Dated August 14, 1991
LFC UTILITIES TRUST
BY-LAWS
These By-Laws are made and adopted pursuant to Section 2.05 of the
Declaration of Trust establishing the LFC UTILITIES TRUST (the "Trust"), dated
August 14, 1991, as from time to time amended (hereinafter called the
"Declaration"). All words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I.
Holders' Meetings
Section A.. Chairman. The President shall act as chairman at all
meetings of the Holders and, in his absence, the Trustee or Trustees present
at each meeting may elect a temporary chairman for the meeting, who may be
one of themselves.
Section B.. Proxies; Voting. Holders may vote either in person or by duly
executed proxy and each Holder shall be entitled to a vote proportionate to his
Interest in the Trust, all as provided in Article IX of the Declaration. No
proxy shall be valid after eleven (11) months from the date of its execution,
unless a longer period is expressly stated in such proxy.
Section C.. Fixing Record Dates. For the purpose of determining the
Holders who are entitled to notice of or to vote or act at a meeting, including
any adjournment thereof, or who are entitled to participate in any
distributions, or for any other proper purpose, the Trustees may from time to
time fix a record date in the manner provided in Section 9.03 of the
Declaration. If the Trustees do not, prior to any meeting of the Holders, so fix
a record date, then the date of mailing notice of the meeting shall be the
record date.
Section D.. Inspectors of Election. In advance of any meeting of the
Holders, the Trustees may appoint Inspectors of Election to act at the meeting
or any adjournment thereof. If Inspectors of Election are not so appointed, the
chairman, if any, of any meeting of the Holders may, and on the request of any
Holder or his proxy shall, appoint Inspectors of Election of the meeting. The
number of Inspectors shall be either one or three. If appointed at the meeting
on the request of one or more Holders or proxies, a Majority Interests Vote
shall determine whether one or three Inspectors are to be appointed, but failure
to allow such determination by the Holders shall not affect the validity of the
appointment of Inspectors of Election. In case any person appointed as Inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment made by the Trustees in advance of the convening of the meeting or
at the meeting by the person acting as chairman. The Inspectors of Election
shall determine the Interests owned by Holders, the Interests represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results, and
do such other acts as may be proper to conduct the election or vote with
fairness to all Holders. If there are three Inspectors of Election, the
decision, act or certificate of two is effective in all respects as the
decision, act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them and
shall execute a certificate of any facts found by them.
Section E. Records at Holder Meetings. At each meeting of the Holders
there shall be open for inspection the minutes of the last previous meeting of
Holders of the Trust and a list of the Holders of the Trust, certified to be
true and correct by the Secretary or other proper agent of the Trust, as of the
record date of the meeting. Such list of Holders shall contain the name of each
Holder in alphabetical order and the address and Interests owned by such Holder.
ARTICLE II.
Trustees
Section A.. Annual and Regular Meetings. The Trustees shall hold an annual
meeting of Trustees for the election of officers and the transaction of other
business which may come before such meeting. Regular meetings of the Trustees
may be held without call or notice at such place or places and times as the
Trustees may by resolution provide from time to time.
Section B.. Special Meetings. Special Meetings of the Trustees shall be
held upon the call of the chairman, if any, the President, the Secretary or any
two Trustees, at such time, on such day and at such place, as shall be
designated in the notice of the meeting.
Section C.. Quorum and Manner of Acting. A majority of the Trustees shall
be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these By-laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
Section D.. Notice. Notice of a meeting shall be given by mail or by
telegram (which term shall include a cablegram) or delivered personally. If
notice is given by mail, it shall be mailed not later than 48 hours preceding
the meeting and if given by telegram, telecopier or personally, such notice
shall be sent or delivery made not later than 24 hours preceding the meeting.
Notice by telephone shall constitute personal delivery for these purposes.
Notice of a meeting of Trustees may be waived before or after any meeting by
signed written waiver. Neither the business to be transacted at, nor the purpose
of, any meeting of the Board of Trustees need be stated in the notice or waiver
of notice of such meeting, and no notice need be given of action proposed to be
taken by written consent. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting, at the commencement of such
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section E. Chairman; Records. The Chairman, if any, shall act as chairman
at all meetings of the Trustees; in his absence the President shall act as
chairman; and, in the absence of the Chairman of the Board and the President,
the Trustees present shall elect one of their number to act as temporary
chairman. The results of all actions taken at a meeting of the Trustees, or by
written consent of the Trustees, shall be recorded by the Secretary.
ARTICLE III.
Officers
Section A.. Officers of the Trust. The officers of the Trust shall consist
of a Chairman, if any, a President, a Secretary, a Treasurer and such other
officers or assistant Officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person,
except that the same person may not be both President and Secretary. The
Trustees may designate a Vice President as an Executive Vice President and may
designate the order in which the other Vice Presidents may act. The Chairman
shall be a Trustee, but no other officer of the Trust need be a Trustee.
Section B.. Election and Tenure. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
Section C.. Removal of Officers. Any officer may be removed at any time,
with or without cause, by action of a majority of the Trustees. This provision
shall not prevent the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of action which any
officer may have as a result of removal in breach of a contract of employment.
Any officer may resign at any time by notice in writing signed by such officer
and delivered or mailed to the Chairman, if any, President, or Secretary, and
such resignation shall take effect immediately, or at a later date according to
the terms of such notice in writing.
Section D.. Bonds and Surety. Any officer may be required by the Trustees
to be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
Section E.. Chairman, President and Vice Presidents. The Chairman, if any,
shall, if present, preside at all meetings of the Holders and of the Trustees
and shall exercise and perform such other powers and duties as may be from time
to time assigned to him by the Trustees. Subject to such supervisory powers, if
any, as may be given by the Trustees to the Chairman, if any, the President
shall be the chief executive officer of the Trust and, subject to the control of
the Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall preside
at all meetings of the Holders and, in the absence of the Chairman of the Board,
the President shall preside at all meetings of the Trustees. The President shall
be, ex officio, a member of all standing committees. Subject to direction of the
Trustees, the President shall have the power, in the name and on behalf of the
Trust, to execute any and all loan documents, contracts, agreements, deeds,
mortgages, and other instruments in writing, and to employ and discharge
employees and agents of the Trust. Unless otherwise directed by the Trustees,
the President shall have full authority and power, on behalf of all of the
Trustees, to attend and to act and to vote, on behalf of the Trust at any
meetings of business organizations in which the Trust holds an interest, or to
confer such powers upon any other persons, by executing any proxies duly
authorizing such persons. The President shall have such further authorities and
duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice Presidents in order of their rank or the
Vice President designated by the Trustees, shall perform all of the duties of
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the
President, each Vice President shall have the power in the name and on behalf of
the Trust to execute any and all loan documents, contracts, agreements, deeds,
mortgages and other instruments in writing, and, in addition, shall have such
other duties and powers as shall be designated from time to time by the Trustees
or by the President.
Section F.. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Holders, Trustees and the Executive
Committee, if any. He shall be custodian of the seal of the Trust, if any, and
he (and any other person so authorized by the Trustees) shall affix the seal or,
if permitted, a facsimile thereof, to any instrument executed by the Trust and
shall attest the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall also
perform any other duties and shall have such other authorities and duties as the
Trustees shall from time to time determine.
Section G.. Treasurer. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the Trustees and of the President all
powers and duties normally incident to his office. He may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or to
its order. He shall deposit all funds of the Trust as may be ordered by the
Trustees or the President. He shall keep accurate account of the books of the
Trust's transactions which shall be the property of the Trust, and which
together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees. Unless the
Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. He shall have such other duties and authorities as the
Trustees shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Trustees may authorize any adviser, administrator
or manager to maintain bank accounts and deposit and disburse funds on behalf of
the Trust.
Section H.. Other Officers and Duties. The Trustees may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV.
Depositories; Signatures; Seal
Section A.. Depositories. In accordance with Section 7.01 of the
Declaration, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser,
administrator or manager), as the Trustees may from time to time authorize.
Section B.. Signatures. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
provide.
Section C.. Seal. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document.
ARTICLE V.
Non-Transferability of Interests
Section A.. Non-Transferability of Interests. Interests shall not be
transferable. Except as otherwise provided by law, the Trust shall be entitled
to recognize the exclusive right of a person in whose name Interests stand on
the record of Holders as the owner of such Interests for all purposes,
including, without limitation, the rights to receive distributions, and to vote
as such owner, and the Trust shall not be bound to recognize any equitable or
legal claim to or interest in any such Interests on the part of any other
person.
Section B.. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
Section C.. Distribution Disbursing Agents and the Like. The Trustees
shall have the power to employ and compensate such distribution disbursing
agents, warrant agents and agents for the reinvestment of distributions as they
shall deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustee.
ARTICLE VI.
Amendment of By-Laws
Section A.. Amendment and Repeal of By-Laws. In accordance with Section
2.05 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time. Action by the Trustees with
respect to the By-Laws shall be taken by an affirmative vote of a majority of
the Trustees. The Trustees shall in no event adopt By-Laws which are in conflict
with the Declaration.
The Declaration refers to the Trustees as Trustees, but not as individuals
or personally; and no Trustee, officer, employee or agent of the Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust.
ARTICLE VII.
Custody of Securities
Section A.. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of one or more Custodians (including any
sub-custodian for the Custodian) all funds, securities and similar investments
included in the Trust Property or the Trust Property allocated or belonging to a
Series thereof. The Custodian (and any sub-custodian) shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and undivided
profits and shall be appointed from time to time by the Trustees, who shall fix
its remuneration.
Section B.. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Holders of the Trust or a Series thereof to
determine whether the Trust or Series thereof shall function without a custodian
or shall be liquidated. If so directed by vote of the holders of a majority of
the outstanding voting securities, the Custodian shall deliver and pay over all
Trust Property or the Trust Property allocated or belonging to a Series thereof
held by it as specified in such vote.
Section C.. Provisions of Custodian Contract. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or the Trust Property allocated or belonging to a
Series thereof-or to which the Trust or such Series may become entitled, and
shall order the same to be delivered by the Custodian only in completion of a
sale, exchange, transfer, pledge, loan of securities to another person, or other
disposition thereof, all as the Trustees may generally or from time to time
require or approve or to a successor Custodian; and the Trustees shall cause all
funds included in the Trust Property or the Trust Property allocated or
belonging to a Series thereof or to which it may become entitled to be paid to
the Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired, or the return of cash held as collateral
for loans of fund securities, or in payment of expenses, including management
compensation, and liabilities of the Trust or Series thereof, including
distributions to shareholders, or for other proper Trust purposes, or to a
successor Custodian.
Section D.. 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 or Series thereof
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or Series thereof.
Section E.. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE VIII.
Miscellaneous
Section A.. Long or Short Positions. Except as hereinafter provided, no
officer or Trustee of the Trust and no partner, officer, director or shareholder
of the Investment Adviser of the Trust (as that term is defined in the 1940 Act)
or of the Placement Agent of the Trust, and no Investment Adviser or placement
agent of the Trust, shall take long or short positions in the securities issued
by the Trust or any Series thereof.
(1) The foregoing provision shall not prevent the placement agent from
purchasing Interests from the Trust or any Series or Class thereof if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for such Interests received by the placement
agent, and provided that orders to purchase from the Trust or any Series thereof
are entered with the Trust or any Series thereof or the Custodian promptly upon
receipt by the placement agent of purchase orders for such Interests, unless the
placement agent is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent the placement agent from
purchasing Interests of the Trust or any Series or Class thereof as agent for
the account of the Trust or any Series thereof.
Section B.. Lending Trust Assets. Neither the Trust nor any Series thereof
shall lend assets of the Trust or of such Series to any officer or Trustee of
the Trust or Series, or to any partner, officer, director or shareholder of, or
person financially interested in, the Investment Adviser of the Trust or Series
or the underwriter of the Trust.
Section C.. Self-Dealing. The Trust shall not permit any officer or
Trustee of the Trust, or any partner, officer or director of the Investment
Adviser or Administrator of the Trust or any Series thereof or placement agent
of the Trust to deal for or on behalf of the Trust or a Series thereof with
himself as principal or agent, or with any partnership, association or
corporation in which he has a financial interest; provided that the foregoing
provisions shall not prevent (a) officers and Trustees of the Trust or partners,
officers or directors of the Investment Adviser or Administrator of the Trust or
any Series thereof or placement agent of the Trust from being partners, officers
or directors or otherwise financially interested in the Investment Adviser or
Administrator of the Trust or any Series thereof or any placement agent of the
Trust; (b) purchases or sales of securities or other property by the Trust or a
Series thereof from or to an affiliated person or to the Investment Adviser or
Administrator of the Trust or any Series thereof or underwriter of the Trust if
such transaction is not prohibited by or is exempt from the applicable
provisions of the 1940 Act; (c) purchases of investments by the Series of the
Trust or sales of investments owned by the Trust or a Series thereof through a
security dealer who is, or one or more of whose partners, shareholders, officers
or directors is, an officer or Trustee of the Trust, or a partner, officer or
director of the Investment Adviser or Administrator of the Trust or any Series
thereof or underwriter of the Trust, if such transactions are handled in the
capacity of broker only and commissions charged do not exceed customary
brokerage charges for such services; (d) employment of legal counsel, registrar,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser or Administrator of the Trust or
any Series thereof or placement agent of the Trust, if only customary fees are
charged for services to the Trust or Series thereof; (e) sharing statistical
research, legal and management expenses and office hire and expenses with any
other investment company in which an officer or Trustee of the Trust, or a
partner, officer or director of the Investment Adviser or Administrator of the
Trust or a Series thereof or underwriter of the Trust, is an officer or director
or otherwise financially interested.
August 14, 1991
TABLE OF CONTENTS
PAGE
ARTICLE I 2
Section A. Chairman 2
Section B. Proxies; Voting 2
Section C. Fixing Record Dates 2
Section D. Inspections of Election 2
Section E. Records at Holder Meetings 2
ARTICLE II 3
Section A. Annual and Regular Meetings 3
Section B. Special Meetings 3
Section C. Quorum and Manner of Acting 3
Section D. Notice 3
Section E. Chairman; Records 3
ARTICLE III 3
Section A. Officers of the Trust 4
Section B. Election and Tenure 4
Section C. Removal of Officers 4
Section D. Bonds and Surety 4
Section E. Chairman, President and Presidents 4
Section F. Secretary 4
Section G. Treasurer 5
Section H. Other Officers and Duties 5
ARTICLE IV 5
Section A. Depositories 5
Section B. Signatures 5
Section C. Seal 5
ARTICLE V 6
Section A. Non-Transferability of Interests 6
Section B. Regulations 6
Section C. Distribution Disbursing Agents
and the Like 6
ARTICLE VI 7
Section A. Amendment and Repeal of By-Laws 7
ARTICLE VII 7
Section A. Employment of a Custodian 7
Section B. Action Upon Termination of
Custodian Agreement 7
Section C. Provisions of Custodian Contract 7
Section D. Central Certificate System 7
Section E. Acceptance of Receipts in Lieu of
Certificates 8
ARTICLE VIII 8
Section A. Long or Short Positions 8
Section B. Lending Trust Assets 8
Section C. Self-Dealing 8
S:\FUNDS\TRUSTIII\LFC\BY-LAWS.DOC
CUSTODIAN CONTRACT
Between
LFC UTILITIES TRUST
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It l
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States 2
2.1 Holding Securities 2
2.2 Delivery of Securities 3
2.3 Registration of Securities 8
2.4 Bank Accounts 8
2.5 Availability of Federal Funds 9
2.6 Collection of Income 9
2.7 Payment of Fund Monies 10
2.8 Liability for Payment in Advance of Receipt of Securities 14
Purchased
2.9 Appointment of Agents 14
2.10 Deposit of Securities in Securities System 14
2.10 A Fund Assets Held in the Custodian's Direct Paper System 17
2.11 Segregated Account l9
2.12 Ownership Certificates for Tax Purposes 20
2.13 Proxies 20
2.14 Communications Relating to Fund Portfolio Securities 21
2.15 Reports to Fund by Independent Public Accountants 21
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States 22
3.1 Appointment of Foreign Sub-Custodians 22
3.2 Assets to be Held 23
3.3 Foreign Securities Depositories 23
3.4 Segregation of Securities 23
3.5 Agreements with Foreign Banking Institutions 24
3.6 Access of Independent Accountants of the Fund 25
3.7 Reports by Custodian 25
3.8 Transactions in Foreign Custody Account 25
3.9 Liability of Foreign Sub-Custodians 26
3.10 Liability of Custodian 27
3.11 Reimbursement for Advances 28
3.12 Monitoring Responsibilities 28
3.13 Branches of U.S. Banks 29
3.14 Tax Law 30
4. Payments for Repurchases or Redemptions and Sales of Shares of the 31
Fund
5. Proper Instructions 31
6. Actions Permitted Without Express Authority 32
7. Evidence of Authority 32
8. Duties of Custodian with Respect to the Books of Account
and Calculations of Net Asset Value and Net Income 33
9. Records 34
10. Opinion of Fund's Independent Accountant 34
11. Reports to Fund by Independent Public Accountants 34
12. Compensation of Custodian 35
13. Responsibility of Custodian 35
14. Effective Period, Termination and Amendment 37
15. Successor Custodian 39
16. Interpretive and Additional Provisions 40
17. Massachusetts Law to Apply 41
18. Prior Contracts 41
CUSTODIAN CONTRACT
This Contract between LFC Utilities Trust, a trust organized and
existing under the laws of the Commonwealth of Massachusetts, having its
principal place of business at 600 Atlantic Avenue, Boston, Massachusetts,
02210, hereinafter called the "Fund", and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside
the United States ("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Fund from time to time, and the cash consideration
received by it for interests in the Fund ("Shares") as may be issued from
time to time. The Custodian shall not be responsible for any property of the
Fund held or received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote
by the Board of Trustees of the Fund, and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as
sub-custodians for the Fund's securities and other assets the foreign
banking institutions and foreign securities depositories designated in
Schedule ~A~' hereto but only in accordance with the provisions of Article
3.
2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property, to
be held by it in the United States, including all domestic
securities owned by the Fund, other than (a) securities which
are maintained pursuant to Section 2.10 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or
in a Securities System account of the Custodian or in the
Custodian's Direct Paper book-entry system account ("Direct
Paper System Account") only upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Fund and receipt of payment therefor;
2) Upon the receipt by the Custodian, as Custodian and
not as the other party to the repurchase agreement,
of payment in connection with any repurchase
agreement related to such securities entered into
by the Fund;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.10 hereof;
4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in any such
case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer
into the name of the Fund or into the name of any
nominee or nominees of the Custodian or into the
name or nominee name of any agent appointed pursuant
to Section 2.9 or into the name or nominee name of
any sub-custodian appointed pursuant to Article l;
or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of
the Fund, to the broker or its clearing agent,
against a receipt, for examination in accordance
with "street delivery" custom; provided that in any
such case, the Custodian shall have no
responsibility or liability for any loss arising
from the delivery of such securities prior to
receiving payment for such securities except as may
arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise of
such warrants, rights or similar securities or the
surrender of interim receipts or temporary
securities for definitive securities; provided that,
in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against
receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Fund, which
may be in the form of cash or obligations issued by
the United States government, its agencies or
instrumentalities, except that in connection with
any loans for which collateral is to be credited to
the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible
for the delivery of securities owned by the Fund
prior to the receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets
by the Fund, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of
any agreement among the Fund, the Custodian and a
broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of
any similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of
any agreement among the Fund, the Custodian, and a
Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any
similar organization or organizations, regarding
account deposits in connection with transactions by
the Fund;
14) Upon receipt of instructions from the investor
accounting agent ("Investor Accounting Agent") for
the Fund, for delivery to such Investor Accounting
Agent or to the holders of shares in connection
with distributions in kind, as may be described
from time to time in the Fund's currently effective
registration statement, in satisfaction of requests
by holders of Shares for a withdrawal of all or a
portion of their interests in the Fund; and
15) For any other proper corporate purpose, but only
upon receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary
or an Assistant Secretary, specifying the
securities to be delivered, setting forth the
purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in
the name of the Fund or in the name of any nominee of the Fund
or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Fund, unless the Fund has authorized
in writing the appointment of a nominee to be used in common
with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name
or nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf of
the Fund under the terms of this Contract shall be in "street
name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name', the
Custodian shall utilize its best efforts only to timely collect
income due the Fund on such securities and to notify the Fund on
a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities,
tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of the
Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund, other than
cash maintained by the Fund in a bank account established and
used in accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for the Fund may be
deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or
desirable; Provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the
Fund and the Custodian, the Custodian shall, upon the receipt of
Proper Instructions, make federal funds available to the Fund as
of specified times agreed upon from time to time by the Fund and
the Custodian in the amount of checks received in payment for
Shares of the Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3,
the Custodian shall collect on a timely basis all income and
other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled
either by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other
payments with respect to United States bearer securities if, on
the date of payment by the issuer, such securities are held by
the Custodian or its agent thereof and shall credit such income,
as collected, to the Fund's custodian account. Without limiting
the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items
requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income
due the Fund on United States securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of
the Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income
to which the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out monies of the Fund in
the following cases only:
1) Upon the purchase of domestic securities, options,
futures contracts or options on futures contracts
for the account of the Fund but only (a) against the
delivery of such securities, or evidence of title to
such options, futures contracts or options on
futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the
Custodian as its agent for this purpose) registered
in the name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in
accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving
the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the
case of repurchase agreements entered into between
the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, against (i)
receipt by the Custodian, as Custodian and not as
the other party to the repurchase agreement, of
written evidence in form satisfactory to the Fund
of the obligation of the Custodian, as the other
party to the repurchase agreement and not as
Custodian, or other bank or broker-dealer to
repurchase the underlying securities from the Fund;
(ii) receipt of the underlying securities if not
already held by the Custodian or appropriate notice
from the Securities System that the underlying
securities have been transferred to the Custodian's
customer account with the Securities System; (iii)
recordation on the Custodian's records of the Fund's
interest in the underlying securities; and (iv)
transmission of a written notice to the Fund that
the Custodian, as Custodian and not as the other
party to the repurchase agreement, is holding the
underlying securities on the Fund's behalf pursuant
to the terms of the repurchase agreement, or (e) for
transfer to a time deposit account of the Fund in
any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund
as defined in Article 5;
2) In connection with conversion, exchange or surrender
of securities owned by the Fund as set forth in
Section 2.2 hereof;
3) For the withdrawal of all or a portion of an
interest in the Fund as set forth in Article 4
hereof;
4) For the payment of any expense or liability incurred
by or allocable to the Fund, including but not
limited to the following payments for the account of
the Fund: interest, taxes, management,
administrative, accounting, custodial, transfer
agent and legal fees, and operating expenses of the
Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred
expenses;
5) For the payment of any distributions declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt
of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Trustees or of
the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or
an Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to
whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of the Fund is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so
pay in advance, the Custodian shall be absolutely liable to the
Fund for such securities to the same extent as if the
securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Securities in Securities Systems. The custodian may
deposit and/or maintain domestic securities owned by the Fund in
a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the
Fund in a Securities System provided that such
securities are represented in an account ("Account")
of the Custodian in the Securities System which
shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to
domestic securities of the Fund which are maintained
in a Securities System shall identify by book-entry
those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities
purchased for the account of the Fund upon (i)
receipt of advice from the Securities System that
such securities have been transferred to the
Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment
and transfer for the account of the Fund. The
Custodian shall transfer domestic securities sold
for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for
such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from
the Securities System of transfers of domestic
securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account
of the Fund in the form of a written advice or
notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's
transactions in the Securities System for the
account of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding domestic securities
deposited in the Securities System;
5) The Custodian shall have received the initial or
annual certificate, as the case may be, required by
Article 13 hereof
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to
the Fund for any loss or damage to the Fund
resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct
of the Custodian or any of its agents or of any of
its or their employees or from failure of the
Custodian or any such agent to enforce effectively
such rights as it may have against the Securities
System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the
Custodian may have as a consequence of any such loss
or damage if and to the extent that the Fund has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System.
The Custodian may deposit and/or maintain securities owned by
the Fund in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of
Proper Instructions;
2) The Custodian may keep securities of the Fund in the
Direct Paper System only if such securities are
represented in an account ("Account") of the
Custodian in the Direct Paper System which shall not
include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to
securities of the Fund which are maintained in the
Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for
the account of the Fund upon the making of an entry
on the records of the Custodian to reflect such
payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of
an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account
of the Fund;
5) The Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund, in
the form of a written advice or notice, of Direct
Paper on the next business day following such
transfer and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transaction in the Securities System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report
on its system of internal accounting control as the
Fund may reasonably request from time to time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of
any agreement among the Fund, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or
any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii)
for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or
sold by the Fund, (iii) for the purposes of compliance by the
Fund with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance
of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case
of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper
corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to domestic securities of
the Fund held by it and in connection with transfers of such
securities.
2.13 Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the
registered holder of such securities, if the securities are
registered otherwise than in the name of the Fund or a nominee of
the Fund, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the
Fund such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.14 Communications Relating to Fund Portfolio Securities. Subject
to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund all written information (including, without
limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund
and the maturity of futures contracts purchased or sold by the
Fund) received by the Custodian from issuers of the domestic
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the
Fund all written information received by the Custodian from
issuers of the domestic securities whose tender or exchange is
sought and from the party (or his agents) making the tender or
exchange offer. If the Fund desires to take action with respect
to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to
take such action.
2.15 Reports to Fund by Independent Public Accountants. The
Custodian shall provide the Fund, at such times as the Fund
may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting
control and procedures for safeguarding securities,
futures contracts and options on futures contracts,
including domestic securities deposited and/or maintained
in a Securities System, relating to the services provided
by the Custodian under this Contract; such reports shall
be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets
maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on
Schedule A hereto ("foreign sub-custodians"). Upon receipt of
"Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule
A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act
as sub-custodian. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or
more such sub-custodians for maintaining custody of the Fund's
assets.
3.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as defined in
paragraph (c)(l) of Rule 17f-5 under the Investment Company Act
of 1940, and (b) cash and cash equivalents in such amounts as
the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Custodian and the Fund, assets of
the Fund shall be maintained in foreign securities depositories
only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms
hereof. Where possible, such arrangements shall include entry
into agreements containing the provisions set forth in Section
3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its
books as belonging to the Fund, the foreign securities of the
Fund held by each foreign sub-custodian. Each agreement pursuant
to which the Custodian employs a foreign banking institution
shall require that such institution establish a custody account
for the Custodian on behalf of the Fund and physically segregate
in that account, securities and other assets of the Fund, and,
in the event that such institution deposits the Fund's
securities in a foreign securities depository, that it shall
identify on its books as belonging to the Custodian, as agent
for the Fund, the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement
with a foreign banking institution shall be substantially in the
form set forth in Exhibit 1 hereto and shall provide that: (a)
the Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b)
beneficial ownership of the Fund's assets will be freely
transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to the Fund; (d)
officers of or auditors employed by, or other representatives of
the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of
the Fund, the Custodian will use its best efforts to arrange for
the independent accountants of the Fund to be afforded access to
the books and records of any foreign banking institution
employed as a foreign sub-custodian insofar as such books and
records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund
from time to time, as mutually agreed upon, statements in
respect of the securities and other assets of the Fund held by
foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian on
behalf of the Fund indicating, as to securities acquired for the
Fund, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis
mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians. (b) Notwithstanding
any provision of this Contract to the contrary, settlement and
payment for foreign securities received for the account of the
Fund and delivery of foreign securities maintained for the
account of the Fund may be effected in accordance with the
customary established securities trading or securities
processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to
a dealer therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer. (c)
Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the
same extent as set forth in Section 2.3 of this Contract, and
the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to
which the Custodian employs a foreign banking institution as a
foreign sub-custodian shall require the institution to exercise
reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Custodian and the Fund from
and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund
has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the
acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally in
this Contract and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated
by paragraph 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian
has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating
custody duties to State Street London Ltd., the Custodian shall
not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other
losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God,
nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable
care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian
to advance cash or securities for any purpose including the
purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its
or its nominee's own negligent action, negligent failure to act
or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall
be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the Custodian.
Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of
this Contract or the amendment thereto initially designating
foreign sub-custodians on Schedule A hereto. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian
not the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian
that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth
in this Contract, the provisions hereof shall not apply
where the custody of the Fund assets are maintained in a
foreign branch of a banking institution which is a "bank"
as defined by Section 2(a)(5) of the Investment Company
Act of 1940 meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as
a sub-custodian shall be governed by paragraph 1 of this
Contract. (b) Cash held for the Fund in the United Kingdom
shall be maintained in an interest bearing account
established for the Fund with the Custodian's London
branch, which account shall be subject to the direction of
the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on
the Fund or the Custodian as custodian of the Fund by the
tax law of the United States of America or any state or
political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence,
including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications
and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any
claim for exemption or refund under the tax law of
jurisdictions for which the Fund has provided such
information.
4. Payments for Repurchases or Redemptions and Sales of Shares of the Fund
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt
of instructions from the Investor Accounting Agent, make funds available for
payment to holders of Shares who have delivered to the Investor Accounting
Agent a request for withdrawal of all or a portion of their interests in the
Fund. In connection with such withdrawals, the Custodian is authorized upon
receipt of instructions from the Investor Accounting Agent to wire funds to
or through a commercial bank designated by the withdrawing shareholders.
The Custodian shall receive from the Investor Accounting Agent of the
Fund and deposit into the Fund's account such payments as are received for
Shares of the Fund issued from time to time by the Fund. The Custodian will
provide timely notification to the Fund and the Investor Accounting Agent of
any receipt by it of payments for Shares of the Fund.
5. Proper Instruction
Proper Instructions as used herein means a writing signed or initialed
by one or more person or persons as the Board of Trustees shall have from
time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement
of the purpose for which such action is requested. Oral instructions will
be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of
the Secretary or an Assistant Secretary as to the authorization by the
Board of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Fund's assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which
requires a segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund:
l) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Fund except as otherwise directed by
the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed
by it to be genuine and to have been properly executed by or on behalf of
the Fund. The Custodian may receive and accept a certified copy of a vote of
the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do
so by the Fund, shall itself keep such books of account and/or compute such
net asset value per share. If so directed, the Custodian shall also
calculate daily the net income of the Fund as described in the Fund's
currently effective registration statement and shall advise the Fund and the
Fund's Investor Accounting Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so,
shall advise the Fund's Investor Accounting Agent periodically of the
division of such net income among its various components. The calculations
of the net asset value per share and the daily income of the Fund shall be
made at the time or times described from time to time in the Fund's
currently effective registration statement.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund,
auditors employed by the Fund, and employees and agents of the Securities
and Exchange Commission. The Custodian shall, at the Fund's request, supply
the Fund with a tabulation of securities owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from
the Fund's independent accountants with respect to its activities hereunder
in connection with the preparation of the Fund's Form N-lA, and Form N-SAR
or other annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this Contract;
such reports shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination and, if there
are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper
party or parties, including any futures commission merchant acting pursuant
to the terms of a three-party futures or options agreement. The Custodian
shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.11 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from, or caused by, the
direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not
limited to, losses resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money (other than Fund
assets) or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund being liable for the payment
of money or incurring liability of some other form, the Fund, as a
prerequisite to requiring the Custodian to take such action, shall provide
indemnity to the Custodian in an amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such
as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of the Fund assets to the extent necessary to
obtain reimbursement.
14. Effective Period. Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided,
may be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such delivery or
mailing, provided, however that the Custodian shall not act under Section
2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund
has approved the initial use of a particular Securities System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall not
act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has reviewed the use by the Fund of the Direct
Paper System; provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund may at any time by action of its Board of Trustees
(i) substitute another bank or trust company for the Custodian by giving
notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver
for the Custodian by the Comptroller of the Currency or upon the happening
of a like event at the direction of an appropriate regulatory agency or
court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees
of the Fund, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's
securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the
Board of Trustees of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the Investment
Company Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other property
held by it under this Contract and to transfer to an account of such
successor custodian all of the Fund's securities held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period
as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint opinion
be consistent with the general tenor of this Contract. Any such interpretive
or additional provisions shall be in a writing signed by both parties and
shall be annexed hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state regulations or
any provision of the Declaration of Trust of the Fund. No interpretive or
additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
17. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of the Commonwealth of
Massachusetts.
18. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody
of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 23rd day of August, 1991.
ATTEST LFC UTILITIES TRUST
By:
ATTEST STATE STREET BANK AND TRUST COMPANY
By:
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of LFC Utilities
Trust for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
S:\FUNDS\TRUSTIII\LFC\CUSTODN.DOC
EXHIBIT I
CUSTODIAN AGREEMENT
TO :
Gentlemen:
The undersigned ("State Street") hereby requests that you (the
"Bank") establish a custody account and a cash account for each State Street
client whose account is identified to this Agreement Each such custody or
cash account as applicable will be referred to herein as the "account" and
will be subject to the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall
physically segregate in the Account such cash, bullion, coin, stocks, shares,
bonds, debentures, notes and other securities and other property which is
delivered to the Bank for that State Street account (the "Property").
2. (a) Without the prior approval of State Street it will not
deposit securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, unless such depository or clearing house operates the central system
for handling of securities or equivalent book-entries in that country or
operates a transnational system for the central handling of securities or
equivalent book-entries.
(b) When Securities held for an account are deposited in a
securities depository or clearing agency by the Bank, the Bank shall identify
on its books as belonging to State Street as agent for such Account, the
Securities so deposited.
The Bank represents that either:
3. (a) It currently has stockholders' equity in excess of $200
million (US dollars or the equivalent of US dollars computed in accordance
with generally accepted US accounting principles) and will promptly inform
State Street in the event that there appears to be a substantial likelihood
that its stockholders' equity will decline below $200 million, or in any
event, at such time as its stockholders' equity in fact declines below $200
million; or
(b) It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order permits State
Street to employ the Bank as a subcustodian, notwithstanding the fact that
the Bank's stockholders' equity is currently below $200 million or may in the
future decline below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street as permitted by
Section 8, the Bank is authorized to pay out cash from the account and to
sell, assign, transfer, deliver or exchange, or to purchase for the account,
any and all stocks, shares, bonds, debentures, notes and other securities
("Securities"), bullion, coin and other property, but only as provided in
such written instructions. The Bank shall not be held liable for any act or
omission to act on instructions given or purported to be given should there
be any error in such instructions.
5. Unless the Bank receives written instructions of State Street to
the contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the
Account;
b. To promptly exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary Securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
Securities, for the Securities themselves);
c. To promptly surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the Bank will
endeavor to obtain State Street's instructions, but should these
not be received in time for the Bank to take timely action, the
Bank is authorized to sell such rights entitlement or fractional
interest and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the
Bank deems it appropriate, such ownership and other certificates
as may be required to obtain the payment of income from the
Property; and
g. To pay or cause to be paid from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority, and shall use reasonable efforts to
promptly reclaim any foreign withholding tax relating to the
account.
6. If the Bank shall receive any proxies, notices, reports, or other
communications relative to any of the Securities of the Account in connection
with tender offers, reorganizations, mergers, consolidations, or similar
events which may have an impact upon the issuer thereof, the Bank shall
promptly transmit any such communication to State Street by means as will
permit State Street to take timely action with respect thereto.
7. The Bank is authorized In its discretion to appoint brokers and
agents in connection with the Bank's handling of transactions relating to the
Property provided that any such appointment shall not relieve the Bank of any
of its responsibilities or liabilities hereunder.
8. Written instructions shall include (i) instructions in writing
signed by such persons as are designated in writing by State Street (ii)
telex or tested telex instructions of State Street, (iii) other forms of
instruction in computer readable form as shall be customarily utilized for
the transmission of like information and (iv) such other forms of
communication as from time to time shall be agreed upon by State Street and
the bank.
9. The Bank shall supply periodic reports with respect to the
safekeeping of assets held by it under this Agreement. The content of such
reports shall include but not be limited to any transfer to or from any
Account held by the Bank hereunder and such other information as State Street
may reasonably request.
10. In addition to its obligations under Section 2 hereof, the Bank
shall maintain such other records as may be necessary to identify the assets
hereunder as belonging to each State Street client identified to this
Agreement from time to time.
11. The Bank agrees that its books and records relating to its
actions under this Agreement shall be opened to the physical, on-premises
inspection and audit at reasonable times by officers of, auditors employed by
or other representatives of State Street (including to the extent permitted
under law the independent public accountants for any entity whose property is
being held hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its
services and expenses as custodian under this Agreement, as agreed upon from
time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties as are set forth or contemplated herein or contained in instructions
given to the Bank which are not contrary to this Agreement, and shall
maintain adequate insurance and agrees to indemnify and hold State Street and
each Account from and against any 105s, damage, cost, expense, liability or
claim arising out of or in connection with the Bank's performance of its
obligations hereunder.
14. The Bank agrees that (i) the Property is not subject to any
right, charge, security interest, lien or claim of any kind in favor of the
Bank or any of its agents or its creditors except a claim of payment for
their safe custody and administration and (ii) the beneficial ownership of
the Property shall be freely transferable without the payment of money or
other value other than for safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by
at least 60 days' written notice to the other, sent by registered mail or
express courier. The Bank, upon the date this Agreement terminates pursuant
to notice which has been given in a timely fashion, shall deliver the
Property in accordance with written instructions of State Street specifying
the name(s) of the person(s) to whom the Property shall be delivered.
16. The Bank and State Street shall each use its best efforts to
maintain the confidentiality of the Property in each Account, subject,
however, to the provisions of any laws requiring the disclosure of the
Property.
17. The Bank agrees to follow such Operating Requirements as State
Street may require. from time to time. A copy of the current State Street
Operating Requirements is attached as an exhibit to this Agreement.
18. Unless otherwise specified in this Agreement, all notices with
respect to matters contemplated by this Agreement shall be deemed duly given
when received in writing or by tested telex by the Bank or State Street at
their respective addresses set forth below, or at such other address as
specified in each case in a notice similarly given:
To State Street: Global Custody Services Division
STATE STREET BANK AND TRUST
COMPANY
P. O. Box 470
Boston, Massachusetts 02102
To the Bank:
19. This Agreement shall be governed by and construed in accordance
with the laws of
Please acknowledge your agreement to the foregoing by executing a copy
of this letter .
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY
By:
Agreed to by:
By:
Date:
S:\FUNDS\TRUSTIII\LFC\CUSTODN.DOC
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
LFC UTILITIES TRUST
(Base Fund)
I. Administration
A. Custody Service - Maintain custody of fund assets. Settle portfolio
purchases and sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash
transactions. Monitor corporate actions.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets Annual Fees
First $20 Million 1/ 20 of 1%
Next $80 Million 1/ 30 of 1%
Excess 1/ 100 of 1%
Minimum Monthly Charges $1,000.00
Fund Accounting Services - Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial
balance. Calculate net asset value daily. Provide selected general
ledger reports.
The administration fee shown above is an annual charge, billed and
payable monthly.
Annual Fund Accounting
II. Portfolio Trades - For each line item processed
State Street Bank Repos $7.00
DTC or Fed Book Entry $12.00
New York Physical Settlements $25.00
Maturity Collections $8.00
All other trades $16.00
III. Options
Options charge for each option written or
closing contract, per issue, per broker $25.00
Options expiration charge, per issue, per broker$15.00
Option exercised charge, per issue, per broker $15.00
IV. Lending of Securities
Deliver loaned securities versus cash
collateral $20.00
Deliver loaned securities versus securities
collateral $30.00
Receive/deliver additional cash collateral $6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of
loaned securities $15.00
Deliver securities collateral versus receipt
of loaned securities $25.00
Loan administration -- mark-to-market per
day, per loan $3.00
V. Interest Rate Futures
Transactions -- no security movement $8.00
VI. Holdings Charge
For each issue maintained -- monthly charge $5.00
VII. Automated Pricing
Base Charge - monthly $375.00
Quote Charges - monthly:
Municipal Bonds via Mullen Data $21.00
Municipal Bonds via Kenny Information Systems $18.00
Government Corporate and Convertible Bonds $11.00
All Others $6.00
VIII. Principal Reduction Payments
Per Paydown $5.00
IX. Dividend Charges (For items held at the Request
of Traders over record date in street form) $50.00
X. Special Services
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments and
the preparation of special reports will be subject to negotiation.
Fees for automated pricing, yield calculation and other special items
will be negotiated separately.
XI. Earnings Credit
The balance credit equal to 75% of the 90-day Treasury Bill rate in
effect the last business day of each month will be applied to the
Custodian Demand Deposit Account balance, net of check redemption
service overdrafts, on a pro-rated basis against the Fund's Custodian
Fees, excluding out of pocket expense. The balance credit will be
cumulative and carried forward each month. Any excess credit remaining
at year-end (December 31) will not be carried forward.
XII. Out-Of-Pocket
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but
are not limited to the following:
Telephone
Wire Charges ($5.25 per wire in and $5.00 out)
Postage and Insurance
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over $2,500 -
$4.25
GNMA Transfer - $15 each
PTC Deposit/Withdrawal for same day turnarounds - $50.00
S:\FUNDS\TRUSTIII\LFC\CUSTODN.DOC
MANAGEMENT AGREEMENT
Between
LFC UTILITIES TRUST
and
STEIN ROE & FARNHAM INCORPORATED
MANAGEMENT AGREEMENT dated August, 1991 between LFC UTILITIES TRUST,
a Massachusetts trust (the "Portfolio"), and STEIN ROE & FARNHAM INCORPORATED, a
corporation organized and existing under the laws of the State of Delaware
(hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Portfolio is engaged in business as an open-end management
investment company and has registered as such under the federal Investment
Company Act of 1940, as amended (the "Act") ;
WHEREAS, the Manager is engaged principally in the business of rendering
investment management and administrative services and is registered as an
investment adviser under the federal Investment Advisers Act of 1940, as
amended;
WHEREAS, the Portfolio has entered into a service agreement (the "Service
Agreement") with Liberty Investment Services, Inc. ("Liberty Services")
providing for certain fund accounting and investor accounting services to the
Portfolio other than investment management services; and
WHEREAS, the Portfolio wishes to engage the Manager to provide certain
investment management and administrative services, and the Manager is willing to
provide such services, all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Duties and Responsibilities of Manager.
A. Investment Advisory Services. The Manager shall act as investment
adviser to and shall supervise and direct the investments of the Portfolio in
accordance with the Portfolio's investment objectives, program and restrictions
as provided in the Portfolio's then current Registration Statement under the
Act, and such other directions or limitations as the Portfolio may impose by
notice in writing to the Manager. The Manager shall obtain and evaluate such
information relating to the economy, industries, businesses, securities markets
and securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Portfolio in a manner
consistent with its investment objective. The Manager shall for all purposes be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Portfolio in any way or otherwise be deemed an agent of the
Portfolio.
In furtherance of its duties hereunder, the Manager is authorized, in its
discretion and without prior consultation with the Portfolio, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) directly or through the trading desks of the Manager and its
affiliates place orders and negotiate the commissions (if any) for the execution
of transactions in securities with or through such brokers, dealers,
underwriters or issuers as the Manager may select.
B. Administrative Services. Subject to the overall authority of the Board
of Trustees of the Portfolio, the Manager shall provide general administrative
services and oversee the operation of the Portfolio ("Administrative Services").
Such Administrative Services shall not include investment advisory, custodial,
underwriting and distribution, transfer agency, shareholder or accounting
services, but shall include, without limitation:
(i) the provision of office space and equipment necessary in
connection with the maintenance of the headquarters of the Portfolio;
(ii) the maintenance of the books and records of the Portfolio, other than
its accounting books and records and those of its records maintained by the
custodian of the Portfolio or by Liberty Services pursuant to the Service
Agreement, and making arrangements for the meetings of the Trustees of the
Portfolio including the preparation of agendas and supporting materials
therefor;
(iii) the preparation of communications and reports to investors in the
Portfolio and making arrangements for meetings of such investors;
(iv) the preparation and filing of all required reports and all updating
and other amendments to the Portfolio's registration statement under the Act and
the rules and regulations thereunder;
(v) the preparation and filing of the Portfolio's tax returns;
(vi) the periodic computation and, as necessary, reporting to the Trustees
of the Portfolio of the Portfolio's compliance with its investment objective and
policies with the portfolio diversification and other portfolio requirements of
the Act and, to the extent required, the Internal Revenue Code; and
(vii) the negotiation of agreements or other arrangements with, and
general oversight and coordination of the activities of, agents and others
retained by the Portfolio to provide custodial, net asset value computation,
portfolio accounting, legal, tax and accounting services.
It is understood that the Manager may, in its discretion and at its
expense, delegate some or all of its administrative duties and responsibilities
under this Paragraph 1.B to Liberty Services or other affiliates of the Manager.
.
C. Reports to Fund. The Manager shall furnish to or place at the disposal
of the Portfolio such information, reports, evaluations, analyses and opinions
relating to the Manager and its investment management of the Portfolio's
portfolio securities as the Portfolio may, at any time or from time to time,
reasonably request or as the Manager may deem helpful.
D. Reports and Other Communications to Investors. The Manager shall
assist the Portfolio in providing communications to investors as may
reasonably be necessary.
E. Portfolio Personnel. The Manager will permit individuals who are
officers or employees of the Manager to serve (if duly elected or appointed) as
officers, trustees, members of any committee of trustees, members of any
advisory board, or members of any other committee of the Portfolio, without
renumeration or other cost to the Portfolio.
F. Personnel, Office Space, and Facilities of Manager. The Manager at its
own expense shall furnish or provide and pay the cost of such office space,
office equipment, office personnel, and office services as the Manager requires
in the performance of its investment advisory, administrative and other
obligations under this Agreement.
2. Allocation of Expenses.
A. Expenses Paid by Manager.
(1) Expenses Paid by Manager. The Manager shall pay all salaries,
expenses, and fees of the officers and trustees of the Portfolio who are
employees of the Manager. The Manager is not obligated to bear any other
expenses incidental to the operations and business of the Portfolio.
(2) Assumption of Expenses by Manager. The payment or assumption by the
Manager of any expense of the Portfolio that the manager is not required by this
Agreement to pay or assume shall not obligate the Manager to pay or assume the
same or any similar expense on any subsequent occasion.
B. Expenses Paid by Portfolio. The Portfolio shall bear all
expenses of its organization, operations, and business not specifically
assumed or agreed to be paid by the Manager as provided in this Agreement or
in the Service Agreement. In particular, but without limiting the generality
of the foregoing, the Portfolio shall pay:
(1) Management and Service Fees. The fees of the Manager as provided
in paragraph 3 below and of Liberty Services under the Service Agreement;
(2) Distribution Fees. The fees, if any, payable pursuant to any
plan heretofore or hereafter adopted by the Portfolio pursuant to Rule 12b-1
under the Act;
(3) Custody and Accounting Services. All expenses of the transfer,
receipt, safekeeping, servicing and accounting for the cash, securities, and
other property of the Portfolio, including all charges of depositories,
custodians, and other agents, if any;
(4) Investor Servicing. All expenses of establishing, maintaining
and servicing investor accounts, including all charges of agents for account
transfers, account recordkeeping, and account distribution or disbursement;
(5) Investor Meetings. All expenses incidental to holding meetings of
the Portfolio's investors;
(6) Pricing. All expenses of computing the Portfolio's net asset value,
including the cost of any equipment or services used for obtaining price
quotations and the fees of any independent pricing service authorized by the
Trustees of the Portfolio;
(7) Communication Equipment. All charges for equipment or services
used for communication between the Manager or the Portfolio and the
custodian, transfer agent or any other agent selected by the Portfolio;
(8) Legal and Accounting Fees and Expenses. All charges for services
and expenses of the Portfolio's legal counsel and independent auditors;
(9) Trustees' Fees and Expenses. All compensation of Trustees of the
Portfolio, other than those who are interested persons of the Portfolio, and
all expenses (including fees and disbursements of their legal counsel)
incurred in connection with their service;
(10) Federal Registration Fees. All fees and expenses of registering and
maintaining the registration of the Portfolio under the Act, including all fees
and expenses incurred in connection with the preparation and filing of any
registration statement under the Act, and any amendments or supplements that may
be made from time to time;
(11) Bonding and Insurance. All expenses of bond, liability, and
other insurance coverage required by law or deemed advisable by the Trustees
of the Portfolio;
(12) Brokerage Commissions. All brokers' commissions and other
charges incident to the purchase, sale, or lending of the Portfolio's
portfolio securities;
(13) Interest and Taxes. Interest on borrowed money and all taxes or
governmental fees payable by or with respect to the Portfolio to federal, state,
or other governmental agencies, domestic or foreign, including stamp or other
transfer taxes;
(14) Trade Association Fees. All fees, dues, and other expenses
incurred in connection with the membership of the Portfolio in the Investment
Company Institute or any other trade association or other investment
organization; and
(15) Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses
as may arise, including the costs of actions, suits, or proceedings to which the
Portfolio is a party and the expenses that the Portfolio may incur as-a result
of its legal obligation to provide indemnification to its officers, trustees,
employees and agents.
3. Management Fees. The Portfolio shall pay the Manager a fee at an
annual rate computed as follows based on the value of the net assets of the
Portfolio.
A. Method of Computation. The fee shall be accrued for each calendar day
and the sum of the daily fee accruals shall be paid monthly to the Manager on
the first business day of the next succeeding calendar month. The daily fee
accruals will be computed by multiplying the fraction of one over the number of
calendar days in the year by 0.55%, and multiplying the resulting product by the
net assets of the Portfolio as determined in accordance with the Portfolio's
Registration Statement under the Act as of the close of business on the previous
business day on which the Portfolio was open for business.
B. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any calendar month, the fee for the period from the effective
date to the end of such calendar month or from the beginning of such calendar
month to the date of termination, as the case may be, shall be prorated
according to the proportion which such period bears to the full month in which
such effectiveness or termination occurs.
4. Brokerage. The Manager, in carrying out its duties under Paragraph
l.A., may negotiate the terms of the Portfolio's portfolio transactions,
including brokerage commissions on brokerage transactions, as permitted by law,
including but not limited to Section 28(e) of the Securities Exchange Act of
1934, as amended (the "34 Act"), and in doing so the Manager shall not be
required to make any reduction of its advisory fee hereunder.
5. Manager's Use of the Services of Others. The Manager may (at its cost
except as contemplated by Paragraph 4 of this Agreement) employ, retain or
otherwise avail itself of the services or facilities of other persons or
organizations for the purpose of providing the Manager or the Portfolio with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advise or assistance as the Manager may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to the Portfolio or in the discharge of the
Manager's overall responsibilities with respect to other accounts which it
serves as investment adviser or manager.
6. Ownership of Records. All records required to be maintained and
preserved by the Portfolio pursuant to the rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and maintained
and preserved by the Manager on behalf of the Portfolio ate the property of the
Portfolio, and will be surrendered by the Manager promptly on request by the
Portfolio. The Manager may retain, for itself, copies of all such records.
7. Reports to Manager. The Portfolio shall furnish or otherwise make
available to the Manager such prospectuses, financial statements, proxy
statements, reports, and other information relating to the business and affairs
of the Portfolio as the Manager may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
8. Services to Other Clients. Nothing herein contained shall limit the
freedom of the Manager or any affiliated person of the Manager to render
investment supervisory and corporate administrative services to other investment
companies, to act as investment adviser or investment counselor to other
persons, firms or corporations, or to engage in other business activities.
9. Limitation of Liability of Manager. Neither the Manager nor any of its
officers, directors, stockholders (or partners of stockholders), agents or
employees, nor any person performing executive, administrative, trading, or
other functions for the Portfolio (at the direction or request of the Manager)
or the Manager in connection with the Manager's discharge of its obligations
undertaken or reasonably assumed with respect to this Agreement, shall be liable
for any error of judgment or mistake of law or for any loss suffered by the
Portfolio in connection with the matters to which this Agreement relates, except
for loss resulting from willful misfeasance, bad faith, or gross negligence in
the performance of its or his duties on behalf of the Portfolio or from reckless
disregard by the Manager or any such person of the duties of the Manager under
this Agreement.
10. Limitation of Liability of Portfolio. The term "LFC Utilities Trust"
means and refers to the trustees from time to time serving under the Declaration
of Trust of the Portfolio dated August , 1991, as the same may subsequently
thereto have been, or subsequently hereto be, amended. It is expressly agreed
that the obligations of the Portfolio hereunder shall not be binding upon any of
the trustees, shareholders, nominees, officers, agents or employees of the
Portfolio personally, but shall bind only the trust property of the Portfolio,
as provided in the Declaration of Trust of the Portfolio. The execution and
delivery of this Agreement have been authorized by the trustees and shareholders
of the Portfolio and this Agreement has been signed by an authorized officer of
the Portfolio, acting as such, and neither such authorization by such trustees
and shareholders nor such execution and delivery by such officer shall be deemed
to have been made by any of them but shall bind only the trust property of the
Portfolio as provided in its Declaration of Trust.
11. Use of Name. The Portfolio may use the name "LFC", "Liberty" or
"Liberty Financial" only for so long as this Agreement or any extension, renewal
or amendment hereof remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of the Manager as
investment adviser.
12. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect through June 30, 1993. Thereafter, this
Agreement shall continue in effect from year to year, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either the
Board of Trustees of the Portfolio, or by vote of a majority of the outstanding
voting securities of the Portfolio; and (b) in either event by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Portfolio who are not parties to this Agreement
or interested persons of any such party; and (c) the Manager shall not have
notified the Portfolio, in writing, at least 60 days prior to June 30, 1993 or
prior to June 30 of any year thereafter, that it does not desire such
continuation. The Manager shall furnish to the Portfolio, promptly upon its
request, such information as may reasonably be necessary to evaluate the terms
of this Agreement or any extension, renewal or amendment hereof.
13. Amendment and Assignment of Agreement. This Agreement may not be
amended in any material respect or assigned without the affirmative vote of a
majority of the outstanding voting securities of the Portfolio, and this
Agreement shall automatically and immediately terminate in the event of its
assignment.
14. Termination of Agreement. This Agreement may be terminated by either
party hereto, without the payment of any penalty, upon 60 days, prior notice in
writing to the other party; provided, that in the case of termination by the
Portfolio, such action shall have been authorized by resolution of a majority of
the Trustees of the Portfolio who are not parties to this Agreement or
interested persons of any such party, or by vote of a majority of the
outstanding voting securities of the Portfolio.
15. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
B. Interpretation. Nothing herein contained shall be deemed to require the
Portfolio-to take any action contrary to its Declaration of Trust or By-Laws, or
any applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
Portfolio of its responsibility for and control of the conduct of the affairs of
the Portfolio. This Agreement shall be construed and enforced in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
C. Definitions. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission validly issued
pursuant to the Act. Specifically, the terms "vote of a majority of the
outstanding voting securities," "interested person," "assignment," and
"affiliated person," as used in Paragraphs 8, 13, and 14 hereof, shall have the
meanings assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this Agreement
is relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the date and year first
above written.
LFC UTILITIES TRUST
Attest____________________________ By:_______________________________
STEIN ROE & FARNHAM INCORPORATED
Attest____________________________ By:_______________________________
-10-
S:\FUNDS\TRUSTIII\LFC\MANAGE1.DOC
Amendment to
MANAGEMENT AGREEMENT
Between
LFC UTILITIES TRUST
and
STEIN ROE & FARNHAM INCORPORATED
AMENDMENT effective March 1, 1994 to the Management Agreement (the
"Agreement") dated August 31, 1991 between LFC UTILITIES TRUST, a Massachusetts
business trust (the Portfolio"), and STEIN ROE & FARNHAM INCORPORATED, a
corporation organized and existing under the law of the State of Delaware
(hereinafter called the "Manager").
WHEREAS, the parties hereto wish to amend the Agreement as hereinafter
provided, effective March 1, 1994;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
(A) The first two paragraphs of Section 3 of the Agreement are
hereby amended, effective March 1, 1994, to read in their entirety as
follows:
"3. Management Fees. The Portfolio shall pay the Manager a fee
at an annual rate computed as follows based on the value of the net
assets of the Portfolio.
A. Method of Computation. The fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid
monthly to the Manager on the first business day of the next
succeeding calendar month. The daily fee accruals will be computed
by (1) adding (a) the product of 0.55% multiplied by the net assets
of the Portfolio, as determined in accordance with the Portfolio's
Registration Statement under the Act as of the close of business on
the previous business day on which the Portfolio was open for
business, up to $400,000,000, plus (b) the product of 0.50%
multiplied by the net assets of the Portfolio, as so determined, on
such previous day in excess of $400,000,000, and (2) multiplying the
sum of (a) and (b) by the fraction of one over the number of
calendar days in the year."
(B) As so amended, the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the date and year first
above written.
LFC UTILITIES TRUST
Attest:______________________ By:_________________________
By:__________________________
STEIN ROE & FARNHAM,
INCORPORATED
Attest:_____________________ By:_________________________
By:_________________________
S:\FUNDS\TRUSTIII\LFC\MANAGE.DOC
SERVICE AGREEMENT
Between
LFC Utilities Trust
and
Stein Roe & Farnham Incorporated
SERVICE AGREEMENT dated February 1, 1995 between LFC UTILITIES TRUST, a
Massachusetts trust (the "Portfolio"),and STEIN ROE & FARNHAM INCORPORATED, a
Delaware corporation ("Stein Roe").
W I T N E S S E T H:
WHEREAS, the Portfolio is engaged in business as an open-end management
investment company and has registered as such under the federal Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, SteinRoe is engaged in the business of providing transfer agency
and shareholder servicing services to investment companies and others;
WHEREAS, the Portfolio has entered into a Management Agreement with
SteinRoe providing for investment management and administrative services to the
Portfolio; and
WHEREAS, the Portfolio wishes to engage SteinRoe to provide certain
investor accounting services, and SteinRoe is willing to provide such services,
all on the terms and conditions hereinafter set forth.
1. Investor Accounting Services
A. Services. The services to be performed by SteinRoe with respect
to the beneficial interests in the Portfolio are as follows:
(1) Establishing and maintaining investor accounts as
instructed and reporting thereon;
(2) Processing additions to and withdrawals of amounts in
investor accounts;
(3) Reporting the amount of each investor's beneficial interest
in the Portfolio to the Portfolio and such investors on a
daily basis;
(4) Preparing and mailing account statements to the investors
whenever transaction activity effecting account balances are
posted to an investor account that is of the type that should
receive such statement;
(5) Providing such assistance as may be required to enable the
Portfolio and its properly authorized auditors and examiners
and others designated by the Portfolio to properly understand
and examine all books, records, computer files, microfilm and
other items maintained pursuant to this Agreement, and to
assist as required in such examination.
B. Maintenance of records. SteinRoe shall maintain all records
relating to the accounts of holders of beneficial interest in the
Portfolio which the Portfolio is required to maintain pursuant to
Rules
31a-1 and 31a-2 under the Act.
C. Uncontrollable Events. SteinRoe shall not be liable for damage,
delays or errors occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military
authority , national emergencies, fires, flood or catastrophe, acts
of God, insurrection, war, riots or failure of transportation,
communication or power supply.
D. Fees and Charges. For the services rendered by SteinRoe pursuant
to this paragraph 2, the Portfolio will pay SteinRoe a fee in the
amount of $625 per month, payable on or before the 10th day of
each calendar month.
2. Ownership of Records
All records maintained by SteinRoe in connection with the performance of
its duties under this Agreement will remain the property of the Portfolio,
and will be preserved by SteinRoe for the periods prescribed in Rule 31a-2
under the Act. In the event of termination of this Agreement, such records
will be promptly delivered to the Portfolio. Such records may be inspected
by the Portfolio, at reasonable times.
3. Liability of SteinRoe
SteinRoe will at all times act in good faith in the performance of its
duties and obligations under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage unless caused by the
negligence, bad faith or willful or wanton misconduct of SteinRoe or its
employees. SteinRoe shall in no event be liable for consequential damages,
lost profits or other special damages, even if informed of the possibility
of such damage or loss.
4. Execution, Amendment and Termination
The term of this Agreement shall begin on the date hereof and unless
sooner terminated as herein provided, the Agreement shall remain in effect
through June 30, 1995 and thereafter from year to year if such
continuation is specifically provided at least annually by the Board of
Trustees of the Portfolio, including a majority of the independent
Trustees of the Portfolio and the Trust. This Agreement may be modified or
amended from time to time by mutual agreement between the parties hereto
and may be terminated by at least 60 days written notice given by one
party to the other. Upon termination hereof, the Portfolio shall pay to
SteinRoe such compensation as may be due as of the date of such
termination, and shall likewise reimburse SteinRoe for its costs, expenses
and disbursements payable under the Agreement to such date.
5. SteinRoe's Use of the Services of Others
SteinRoe may, at its cost, employ, retain or otherwise avail itself of the
services of facilities of other persons or organizations necessary ,
appropriate or convenient for the discharge of SteinRoe's duties and
obligations hereunder.
6. Assignment
This Agreement may not be assigned (as that term is defined in the Act) by
SteinRoe without the prior written consent of the Portfolio. The Agreement
shall automatically and immediately terminate in the event of its
assignment without the prior written consent of the Portfolio.
IN WITNESS WHEREOF, the parties have caused the Agreement to be executed
as of the day and year first above written.
LFC UTILITIES TRUST
By:______________________________
STEIN ROE AND FARNHAM INCORPORATED
By:______________________________
S:\FUNDS\TRUSTIII\LFC\SERVICE.DOC
LFC UTILITIES TRUST
ACCOUNTING AND BOOKKEEPING AGREEMENT
February 1, 1995
This Agreement is made as of this 1st day of February, 1995, by and between LFC
Utilities Trust, a Massachusetts trust (hereinafter referred to as the "Trust"),
and Stein Roe & Farnham Incorporated ("SteinRoe"), a Delaware corporation.
1. Appointment. The Trust hereby appoints SteinRoe to act as its agent to
perform the services described herein, as may be amended from time to time.
SteinRoe hereby accepts appointment as the Trust's agent and agrees to perform
the services described herein.
2. Accounting.
(a) Pricing. SteinRoe shall value all securities and other assets of
the Trust, and compute the net asset value of the Trust at such
times and dates and in the manner and by such methodology as is
specified in the then current registration statement of the Trust,
and pursuant to such other written procedures or instructions
furnished to Stein Roe by the Trust. To the extent procedures or
instructions used to value securities or other assets of the Trust
under this Agreement are at any time inconsistent with any
applicable law or regulation, the Trust shall provide SteinRoe with
written instructions for valuing such securities or assets in a
manner which the Trust represents to be consistent with applicable
law and regulation.
(b) Net income. Stein Roe shall calculate with such frequency as the
Trust shall direct the Trust's net income for dividend purposes.
Such calculation shall be at such times and dates and in such
manner as the Trust shall instruct SteinRoe in writing. For
purposes of such calculation, SteinRoe shall not be responsible for
determining whether any dividend or interest accruable to the Trust
is or will be actually paid, but will accrue such dividend and
interest unless otherwise instructed by the Trust.
(c) Capital Gains and Losses. SteinRoe shall calculate gains or losses
of the Trust from the sale or other disposition of assets as the
Trust shall direct.
(d) Communication of Information. SteinRoe shall provide the Trust, the
Trust's transfer agent and such other parties as directed by the
Trust with the net asset value, the net income and capital gains and
losses of the Trust at such time and in such manner and format and
with such frequency as the parties mutually agree.
(e) Information Furnished by the Trust. The Trust shall furnish
SteinRoe with any and all instructions, explanations, information,
specifications and documentation deemed necessary by SteinRoe in
the performance of its duties hereunder, including, without
limitation, the amounts and/or written formula for calculating the
amounts and times of accrual of liabilities and expenses of the
Trust. The Trust shall also at any time and from time to time
furnish SteinRoe with bid, offer and/or market values of securities
owned by the Trust if the same are not available to SteinRoe from a
pricing or similar service designated by the Trust for use by
SteinRoe to value securities or other assets. SteinRoe shall at no
time be required to commence or maintain any utilization of, or
subscriptions to, any such service which shall be the sole
responsibility and expense of the Trust.
3. Recordkeeping.
(a) Stein Roe shall, as agent for the Trust, maintain and keep current
and preserve the general ledger and other accounts, books, and
financial records of the Trust relating to activities and
obligations under this Agreement in accordance with the applicable
provisions of Section 31(a) of the Investment Company Act of 1940,
as amended, and the Rules and Regulations thereunder (the "Rules").
(b) All records maintained and preserved by Stein Roe pursuant to this
Agreement which the Trust is required to maintain and preserve in
accordance with the Rules shall be and remain the property of the
Trust and shall be surrendered to the Trust promptly upon request in
the form in which such records have been maintained and preserved.
(c) Stein Roe shall make available on its premises during regular
business hours all records of the Trust for reasonable audit, use
and inspection by the Trust, its agents and any regulatory agency
having authority over the Trust.
4. Instructions Opinion of Counsel and Signatures.
(a) At any time Stein Roe may apply to a duly authorized agent of the
Trust for instructions regarding the Trust, and may consult counsel
for such Trust or its own counsel, in respect of any matter arising
in connection with this Agreement, and it shall not be liable for
any action taken or omitted by it in good faith in accordance with
such instructions or with the advice or opinion of such counsel.
Stein Roe shall be protected in acting upon any such instruction,
advice, or opinion and upon any other paper or document delivered
by the Trust or such counsel believed by SteinRoe to be genuine and
to have been signed by the proper person or persons and shall not
be held to have notice of any change of authority of any officer or
agent of the Trust, until receipt of written notice thereof from
the Trust.
(b) SteinRoe may receive and accept a certified copy of a vote of the
Board of Trustees of the Trust as conclusive evidence of (i) the
authority of any person to act in accordance with such vote or (ii)
any determination or any action by the Board of Trustees pursuant to
the Declaration of Trust of the Trust as described in such vote, and
such vote may be considered as in full force and effect until
receipt by SteinRoe of written notice to the contrary.
5. Compensation. The Trust shall reimburse SteinRoe from the assets of the
Trust, for any and all out-of-pocket expenses and charges in performing services
under this Agreement and such compensation as is provided in the Appendix to
this Agreement, as amended from time to time. SteinRoe shall invoice the Trust
as soon as practicable after the end of each calendar month and the Trust shall
promptly pay Stein Roe the invoiced amount.
6. Confidentiality of Records. SteinRoe agrees not to disclose any information
received from the Trust to any other client of SteinRoe or to any other person
except its employees and agents, and shall use its best efforts to maintain such
information as confidential. Upon termination of this Agreement, SteinRoe shall
return to the Trust all records in the possession and control of SteinRoe
related to the Trust's activities, other than Stein Roe's own business records,
it being also understood and agreed that any programs and systems used by
SteinRoe to provide the services rendered hereunder will not be given to the
Trust.
7. Liability and Indemnification.
(a) SteinRoe shall not be liable to the Trust for any action taken or
thing done by it or its employees or agents on behalf of the Trust
in carrying out the terms and provisions of this Agreement if done
in good faith and without negligence or misconduct on the part of
SteinRoe, its employees or agents.
(b) The Trust shall indemnify and hold SteinRoe and its controlling
persons harmless from any and all claims, actions, suits, losses,
costs, damages, and expenses, including reasonable expenses for
counsel, incurred by it in connection with its acceptance of this
Agreement, in connection with any action or omission by it or its
employees or agents in the performance of its duties hereunder to
the Trust, or as a result of acting upon instructions believed by
it to have been executed by a duly authorized agent of the Trust or
as a result of acting upon information provided by the Trust in
form and under policies agreed to by Stein Roe and the Trust,
provided that (i) this indemnification shall not apply to actions
or omissions constituting negligence or misconduct on the part of
SteinRoe or its employees or agents, including but not limited to
willful misfeasance, bad faith, or gross negligence in the
performance of their duties, or reckless disregard of their
obligations and duties under this Agreement, and (ii) SteinRoe
shall give the Trust prompt notice and reasonable opportunity to
defend against any such claim or action in its own name or in the
name of Stein Roe.
(c) Stein Roe shall indemnify and hold harmless the Trust from and
against any and all claims, demands, expenses and liabilities which
the Trust may sustain or incur arising out of, or incurred because
of, the negligence or misconduct of SteinRoe or its agents or
contractors, or the breach by SteinRoe of its obligations under
this Agreement, provided that: (i) this indemnification shall not
apply to actions or omissions constituting negligence or misconduct
on the part of the Trust or its other agents or contractors, and
(ii) the Trust shall give SteinRoe prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of the Trust.
8. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
9. Dual Interests. It is understood and agreed that same person or persons
may be trustees, officers, or shareholders of both the Trust and Stein Roe, and
that the existence of any such dual interest shall not effect the validity
hereof or of any transactions hereunder except as otherwise provided by specific
provision of applicable law.
10. Amendment and Termination. This Agreement may be modified or amended from
time to time, or terminated, by mutual agreement between the parties hereto and
may be terminated by at least one hundred eighty (180) days' written notice
given by one party to the other. Upon termination hereof, the Trust shall pay to
SteinRoe such compensation as may be due from it as of the date of such
termination, and shall reimburse SteinRoe for its costs, expenses, and
disbursements payable under this Agreement to such date. In the event that, in
connection with termination, a successor to any of the duties or
responsibilities of SteinRoe hereunder is designated by the Trust by written
notice to SteinRoe, Stein Roe shall promptly upon such termination, and at the
expense of the Trust, deliver to such successor all relevant books, records, and
data established or maintained by SteinRoe under this Agreement and shall
cooperate in the transfer of such duties and responsibilities, including
provision, at the expense of the Trust, for assistance from SteinRoe personnel
in the establishment of books, records, and other data by such successor.
11. Assignment. Any interest of SteinRoe under this Agreement shall not be
assigned or transferred either voluntarily or involuntarily, by operation of
law or otherwise, without prior written notice to the Trust.
12. Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or sent by registered mail, postage prepaid to the other party at such
address as such other party may designate for the receipt of such notices. Until
further notice to the other parties, it is agreed that the address of the Trust
and SteinRoe is One South Wacker Drive, Chicago, Illinois 60606, Attention:
Secretary.
13. Non-Liability of Trustees and Shareholders. Any obligation of the Trust
hereunder shall be binding only upon the assets of the Trust, as provided in the
Declaration of Trust of the Trust, and shall not be binding upon any Trustee,
officer, employee, agent or shareholder of the Trust or upon any other Trust.
Neither the authorization of any action by the Trustees or the holders of voting
interests in the Trust, nor the execution of this Agreement on behalf of the
Trust shall impose any liability upon any Trustee or any such holder. Nothing in
this Agreement shall protect any Trustee against any liability to which such
Trustee would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of his duties, or reckless disregard of
his obligations and duties under this Agreement
14. References and Headings. In this Agreement and in any such amendment,
references to this Agreement and all expressions such as "herein," "hereof," and
"hereunder," shall be deemed to refer to this Agreement as amended or affected
in any such amendments. Headings are placed herein for convenience of reference
only and shall not be taken as part hereof or control or affect the meaning,
construction or effect of this Agreement. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
15. Government Law. This Agreement shall be governed by the laws of the State
of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day and year first above written.
LFC UTILITIES TRUST
By:__________________________________
Thomas J. Simpson
Controller
Attest:
- -------------------------------
John L. Davenport
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: _____________________________
Timothy K. Armour
President-Fund Division
Attest:
- -------------------------------
<PAGE>
APPENDIX
For the services provided under the Accounting Agreement (the "Agreement") the
Trust shall pay SteinRoe an annual fee, calculated and paid monthly, equal to
$25,000 plus .0025 percent per annum of the average daily net assets of the
Trust in excess of $50 million. Such fee shall be paid within thirty days after
receipt of monthly invoice.
S:\FUNDS\TRUSTIII\LFC\ACCTBKKP.DOC
