As filed with the Securities and Exchange Commission on March 20, 1996
File No. 811-6469
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
SHORT-TERM WORLD INCOME PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
Elizabethan Square, Shedden Road
George Town, Grand Cayman, Cayman Islands
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 809-945-1824
Philip W. Coolidge
6 St. James Avenue, Suite 900
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Steven R. Howard, Esq.
Baker & McKenzie
805 Third Avenue
New York, New York 10022
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EXPLANATORY NOTE
This Registration Statement of Short-Term World Income Portfolio has
been filed by the Registrant pursuant to Section 8(b) of the Investment Company
Act of 1940, as amended (the "1940 Act"). However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), since such interests will be offered solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" as defined in Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any beneficial interests in the Registrant.
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SWK292
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Short-Term World Income Portfolio (the "Portfolio") is a
non-diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York on October 1, 1991.
Beneficial interests in the Portfolio are offered solely in private
placement transactions which 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 only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities which are "accredited investors" as defined in
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 Portfolio has licensed certain proprietary rights, know-how and
financial services referred to as Hub and Spoke(R) from Signature Financial
Group, Inc. ("Signature"), of which the Administrator is a wholly owned
subsidiary. Hub and Spoke(R) is a registered service mark of Signature.
The Portfolio may sell beneficial interests to mutual funds and other
institutional investors. Such investors will invest in the Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. Information concerning holders of interests in the Portfolio is
available from the Administrator at (617) 423-0800.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility exists as well for traditionally structured funds
which have large or institutional investors.) Also, funds with a greater pro
rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio.
The Portfolio seeks to provide the highest level of current income,
consistent with prudent investment risk, that is available from a portfolio
consisting primarily of global debt securities having a dollar-weighted average
maturity of not more than three years and a minimum dollar-weighted average
credit quality of A or better. The Portfolio's investment adviser (the
"Adviser") is Brinson Partners, Inc. ("Brinson Partners"), an indirect wholly
owned subsidiary of Swiss Bank Corporation.
The Portfolio seeks high current yields by investing in a portfolio of
debt securities denominated either in the U.S. Dollar or in a range of foreign
currencies. Accordingly, the Portfolio will seek investment opportunities in
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foreign, as well as domestic, securities markets. The Portfolio normally will
maintain a substantial portion of its assets in debt securities denominated in
foreign currencies. The Portfolio is designed for the investor who seeks a
higher yield than a money market fund or certificate of deposit and less
fluctuation in net asset value than a bond fund with a portfolio of longer term
debt securities.
In pursuing its investment objective, the Portfolio seeks to minimize
credit risk and fluctuations in net asset value by investing only in shorter
term debt securities. A high proportion of the Portfolio's investment in foreign
debt obligations may consist of money market instruments. The Portfolio's
Adviser will actively manage the Portfolio's investment portfolio in accordance
with a global investment strategy, allocating the Portfolio's investments among
securities denominated either in the U.S. Dollar or in the currencies of a
number of foreign countries. The Adviser may adjust the Portfolio's exposure to
each currency based on its perception of the most favorable markets and issuers.
In this regard, the percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with the
Adviser's assessment of the relative yield and appreciation potential of such
securities and the relationship of a country's currency to the U.S. Dollar. The
Portfolio will, under normal market conditions, invest in the securities of
issuers in at least three countries, one of which may be the United States.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular type of security or industry
sector within the Portfolio's investment portfolio. The Portfolio will neither
invest more than 25% of its net assets in debt securities denominated in a
single currency other than the U.S. Dollar, nor invest more than 25% of its net
assets in debt securities issued by a single foreign government or supranational
organization.
The returns available from short-term foreign currency denominated debt
instruments can be adversely affected by changes in exchange rates. The Trustees
of the Portfolio believe that the use of foreign currency hedging techniques,
including "cross-hedges" (see "Forward Foreign Currency Exchange Contracts"
below), can help protect against declines in the U.S. Dollar value of income
available for distribution to investors and declines in the net asset value of
beneficial interests in the Portfolio resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated in
a particular foreign currency would diminish in the event the value of the U.S.
Dollar increased against such currency. Such a decline could be partially or
completely offset by an increase in value of a cross-hedge involving a forward
exchange contract to sell a different foreign currency, where such contract is
available on terms more advantageous to the Portfolio than a contract to sell
the currency in which the position being hedged is denominated. Cross-hedges can
therefore provide significant protection of net asset value in the event of a
general rise in the U.S. Dollar against foreign currencies. However, a cross-
hedge can neither protect against exchange rate risks perfectly nor protect
against currency devaluations. Also, should the Adviser be incorrect in its
judgment of future exchange rate relationships, the Portfolio could be in a less
advantageous position than if such a hedge had not been established.
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The Portfolio invests in debt securities issued by entities located in
and denominated in the currencies of various countries. In addition to the U.S.
Dollar, such countries' currencies include, among others, the Australian Dollar,
Austrian Schilling, British Pound Sterling, Canadian Dollar, Dutch Guilder,
French Franc, German Mark, Japanese Yen, New Zealand Dollar, Spanish Peseta,
Swedish Krona and Swiss Franc. An issuer of debt securities purchased by the
Portfolio may be domiciled in a country other than the country in whose currency
the instrument is denominated. The Portfolio will invest in no fewer than three
countries. Country selection will vary over time based on several factors,
including economic factors which may affect a particular country or region of
the world and anticipated currency price movements for specific countries.
The Portfolio is a "non-diversified" investment company, which means
the Portfolio is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Portfolio intends to
conduct its operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), which
will relieve the Portfolio of any liability for Federal income tax to the extent
its earnings are distributed to its investors. The Portfolio will not own more
than 10% of the outstanding voting securities of a single issuer.
DEBT SECURITIES CREDIT QUALITY
The Portfolio seeks to minimize investment risk by maintaining a dollar
average weighted credit quality of A or better and limiting its portfolio
investments to investment grade debt securities. Accordingly, the Portfolio's
investment portfolio consists only of: (i) debt securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities ("U.S. Government
Securities"); (ii) obligations issued or guaranteed by a foreign government or
any of its political subdivisions, authorities, agencies or instrumentalities,
or by supranational entities, all of which are rated BBB or higher by Standard &
Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's") ("Ratings") or, if unrated, determined by the Adviser to be of
equivalent quality; (iii) corporate debt securities having at least one Rating
or, if unrated, determined by the Adviser to be of equivalent quality; (iv)
certificates of deposit and bankers' acceptances issued or guaranteed by, or
time deposits maintained at, banks (including foreign branches of U.S. banks or
U.S. or foreign branches of foreign banks) having total assets of more than $500
million and determined by the Adviser to be of high quality; and (v) commercial
paper rated A1 or A2 by S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2
by Fitch Investors Service, Inc., or Duff 1 or Duff 2 by Duff and Phelps Inc.
or, if not rated, issued by U.S. or foreign companies having outstanding debt
securities rated BBB or higher by S&P, or Baa or higher by Moody's or determined
by the Adviser to be of high quality.
U.S. GOVERNMENT SECURITIES: U.S. Government Securities include (1) U.S.
Treasury obligations, which differ in their interest rates, maturities and times
of issuance: U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years) and (2) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities which are supported by any of
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the following: (a) the full faith and credit of the U.S. Treasury, (b) the right
of the issuer to borrow any amount limited to a specific line of credit from the
U.S. Treasury, (c) discretionary authority of the U.S. Government to purchase
certain obligations of the U.S. Government agency or instrumentality or (d) the
credit of the agency or instrumentality. The Portfolio may also invest in any
other security or agreement collateralized or otherwise secured by U.S.
Government Securities. Agencies and instrumentalities of the U.S. Government
include but are not limited to: Federal Land Banks, Federal Financing Banks,
Banks for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, Student Loan Marketing Association, United States
Postal Service, Chrysler Corporate Loan Guarantee Board, Small Business
Administration, Tennessee Valley Authority and any other enterprise established
or sponsored by the U.S. Government.
Certain U.S. Government Securities purchased by the Portfolio,
including U.S. Treasury bills, notes and bonds, Government National Mortgage
Association ("GNMA") certificates and Federal Housing Administration debentures,
are supported by the full faith and credit of the United States. Other U.S.
Government Securities are issued or guaranteed by Federal agencies or government
sponsored enterprises and are not supported by the full faith and credit of the
United States. These securities include obligations that are supported by the
right of the issuer to borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations that are supported by the
creditworthiness of the particular instrumentality, such as obligations of
Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.
MORTGAGE-BACKED SECURITIES: The Portfolio may purchase mortgage-backed
securities which are securities which represent an ownership interest in a pool
of mortgage loans issued by lenders such as mortgage bankers, commercial banks
and savings and loan associations. Mortgage loans included in the pool may be
insured by GNMA or the Federal Housing Administration or guaranteed by the
Veterans Administration. Mortgage-backed securities provide investors such as
the Portfolio with payments consisting of both interest and principal as the
mortgages in the underlying mortgage pools are paid off. The average life of a
mortgage-backed security is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities. Prepayments of
principal by mortgagors and mortgage foreclosures will usually result in the
return of the greater part of the principal invested far in advance of the
maturity of the mortgages in the pool. The actual yield of a mortgage-backed
security may be affected by the prepayment of mortgages included in the mortgage
pool underlying the security. Principal which is so prepaid will be invested,
although possibly at a lower rate. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable.
The Portfolio may also invest in securities representing interests in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and in pools of certain other asset-backed loans, such as
automobile and credit card loans. A CMO is a hybrid between a mortgage-backed
bond and a mortgage pass-through security. Similar to a bond, interest and
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prepaid principal are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by U.S. Government, or
U.S. Government-related, entities and their income streams. CMOs are not
necessarily guaranteed and should the CMO collateral prove insufficient to meet
payments, holders may sustain a loss. The Portfolio may invest in CMOs rated Baa
or higher by Moody's or BBB or higher by S&P or which, if unrated, are
determined by the Adviser pursuant to criteria established by the Board of
Trustees of the Portfolio to be of comparable quality.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a DE FACTO breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially protected against a sooner than desired return
of principal because of the sequential payments.
REMICs, which were authorized under the Tax Reform Act of 1986, include
governmental and/or private entities that issue a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities. REMICs issued by private entities are not
U.S. Government Securities and are not directly guaranteed by any government
agency. They are secured by the underlying collateral of the private issuer. The
Portfolio may invest in privately issued REMICs only if they meet the quality
criteria described above for CMOs.
ZERO COUPON AND STRIPPED GOVERNMENT OBLIGATIONS: The Portfolio may
invest in zero coupon bonds, deferred interest bonds, and U.S. Treasury bonds or
notes and their unmatured interest coupons which have been separated or
stripped. Stripped obligations not issued by the U.S. Treasury are not
considered U.S. Government obligations. Zero coupon and deferred interest bonds
are debt obligations which are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity or the first interest accrual date at a
rate of interest reflecting the market rate of the security at the time of
issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins. Although this period of delay is different
for each deferred interest bond, a typical period is approximately one-third of
the bond's term to maturity. Such investments experience greater volatility in
market value due to changes in interest rates than debt obligations which
provide for regular payments of interest. The Portfolio will accrue income on
such investments for tax and accounting purposes, as required, which is
distributable to investors and which because no cash is received at the time of
accrual, may require the liquidation of other portfolio securities to satisfy
the Portfolio's distribution obligations. Stripped obligations are created when
the holder of U.S. Treasury bonds or notes, typically a custodian bank or
investment brokerage firm, strips their unmatured interest coupons and resells
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each component separately. Stripped interest coupons have been marketed in
custodial receipt programs under such names as "TIGRS" and "CATS." The
underlying bonds and notes are sold and either held in book-entry form at a
Federal Reserve Bank or, in the case of bearer securities, in trust on behalf of
the owners thereof.
NON-U.S. SECURITIES: Investing in securities issued by foreign
governments and corporations involves considerations and possible risks not
typically associated with investing in obligations issued by the U.S. Government
and domestic corporations. The values of foreign investments are affected by
changes in currency rates or exchange control regulations, application of
foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or other countries)
or changed circumstances in dealings between countries. Costs are incurred in
connection with conversions between various currencies. In addition, foreign
brokerage commissions are generally higher than in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing contractual
obligations and could be subject to extended settlement periods.
The Portfolio may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
member states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community. The specific amounts of currencies comprising the ECU may be adjusted
by the Council of Ministers of the European Community to reflect changes in
relative values of the underlying currencies. The Portfolio's Trustees do not
believe that such adjustments will adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European governments and
supranational organizations (discussed below), in particular, issue ECU-
denominated obligations.
The Portfolio may invest in debt securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions.
CONCENTRATION IN THE BANKING INDUSTRY: The Portfolio may concentrate
25% or more of its total assets in obligations of domestic and foreign companies
in the banking industry. Companies in the banking industry include U.S. and
foreign commercial banking institutions (including their parent holding
companies). As a result of any such concentration, the Portfolio's investment
portfolio might be affected by economic or regulatory developments in or related
to such industry. Sustained increases in interest rates can adversely affect the
availability and cost of funds for an institution's lending activities, and a
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deterioration in general economic conditions could increase the institution's
exposure to credit losses.
Investments in foreign commercial banks are subject to additional risks
due to the securities trading and underwriting activities of such banks. Since
it is common for foreign banks to acquire equity participations in other
companies, such banks are more likely than U.S. banks to have substantial
investments in equity securities. As a result, a general decline in the market
for equity securities may require such banks to raise additional capital or
curtail some of their activities. On the other hand, foreign banks tend to be
less leveraged than U.S. institutions. In addition, because the banking industry
in most countries is more concentrated and has fewer participants than in the
United States, a foreign bank is more likely to have a dominant position in its
home country's banking market.
CHANGES IN INTEREST RATES: The net asset value of the Portfolio will
change in response to interest rate fluctuations. When interest rates decline,
the value of a portfolio primarily invested in debt securities can be expected
to rise. Conversely, when interest rates rise, the value of a portfolio
primarily invested in debt securities can be expected to decline. However, a
shorter maturity is generally associated with a lower level of market value
volatility. Accordingly, it is expected by the Adviser that the net asset value
of the Portfolio normally will fluctuate less than that of a longer-term global
bond fund. In addition, since interest rate trends are different for each
country, it is likely that interest rate changes affecting the value of the
Portfolio's investments in one country may be offset by countervailing changes
affecting the Portfolio's investments in another country. Thus, the Portfolio's
policy of diversifying its investments among several countries is likely to
reduce its susceptibility to interest rate volatility.
INDEXED INVESTMENTS: The Portfolio may invest in instruments which are
indexed to certain specific foreign currency exchange rates. The terms of such
instruments may provide that their principal amounts or just their coupon
interest rates are adjusted upwards or downwards (but not below zero) at
maturity or on established coupon payment dates to reflect changes in the
exchange rate between two or more currencies while the obligation is
outstanding. While such indexed investments entail the risk of loss of principal
and/or interest payments, the potential for realizing gains as a result of
changes in foreign currency exchange rates enables the Portfolio to hedge
against a decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive current return. The Portfolio will
purchase such indexed investments for hedging purposes only, not for
speculation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: A change in the
level of currency exchange rates or interest rates may affect the value of the
Portfolio's investments (or of investments that the Portfolio expects to make).
To hedge against such changes, the Portfolio may purchase and sell various kinds
of futures contracts and write and purchase call and put options on such futures
contracts; it may also enter into closing purchase and sale transactions with
respect to any of such contracts and options. The futures contracts may be based
on various securities in which the Portfolio may invest, foreign currencies,
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certificates of deposit, Eurodollar time deposits, securities indices, economic
indices (such as the Consumer Price Indices compiled by the U.S. Department of
Labor) and other financial instruments and indices. The Portfolio will engage in
futures and related options transactions only for bona fide hedging or other
appropriate risk management purposes as defined in regulations of the Commodity
Futures Trading Commission ("CFTC"). The Portfolio may engage in cross-hedging
by purchasing or selling futures or options on a security or currency different
from the security or currency position being hedged if the Adviser determines
that there is an historical correlation between the two securities or
currencies.
A "purchase" of a futures contract means the incurring of a contractual
obligation to acquire the securities or foreign currencies called for by the
contract at a specified price on a specified date. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount of cash equal
to the difference between a specific dollar multiple of the value of the index
on the expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of the
securities underlying the index is made. Options on futures contracts to be
written or purchased by the Portfolio will be traded on U.S. or foreign
exchanges or over the counter. These investment techniques will be used only to
hedge against anticipated future changes in interest or exchange rates which
otherwise might either adversely affect the value of the Portfolio's portfolio
securities or adversely affect the prices of securities which the Portfolio
intends to purchase at a later date. See Part B for further discussion on the
use, risks and costs of futures contracts and options on futures contracts.
The Portfolio may enter into futures contracts or options on futures
contracts either (i) as a hedge without regard to quantitative limitations, or
(ii) for other purposes so long as aggregate initial margins and premiums
required in connection with non-hedging positions do not exceed five percent of
the market value of the total assets of the Portfolio. In addition, the
Portfolio may not enter into any futures contracts or options on futures
contracts if the aggregate of the market value of the outstanding futures
contracts of the Portfolio and the market value of the currencies and futures
contracts subject to outstanding options written by the Portfolio would exceed
50% of the market value of the total assets of the Portfolio. See Part B for
further discussion on the use, risks and costs of futures contracts and options
on futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Portfolio may purchase
or sell forward foreign currency exchange contracts ("forward contracts") to
attempt to minimize the risk to the Portfolio from adverse changes in the
relationship between the U.S. Dollar and foreign currencies. A forward contract
is an obligation to purchase or sell a specific currency for an agreed price at
a future date which is individually negotiated and privately traded by currency
traders and their customers. The Portfolio may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. Dollar
price of the security ("transaction hedge"). Additionally, for example, when the
Portfolio believes that a foreign currency may suffer a substantial decline
against the U.S. Dollar, it may enter into a forward sale contract to sell an
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amount of that foreign currency approximating the value of some or all of the
Portfolio's portfolio securities denominated in such foreign currency, or when
the Portfolio believes that the U.S. Dollar may suffer a substantial decline
against foreign currency, it may enter into a forward purchase contract to buy
that foreign currency for a fixed dollar amount ("position hedge"). In this
situation the Portfolio may, in the alternative, enter into a forward contract
to sell a different foreign currency for a fixed U.S. Dollar amount where the
Adviser believes that the U.S. Dollar value of the currency to be sold pursuant
to the forward contract will fall whenever there is a decline in the U.S. Dollar
value of the currency in which portfolio securities of the Portfolio are
denominated ("cross-hedge"). The Portfolio's Custodian will place cash not
available for investment or U.S. Government Securities or other liquid high
quality debt securities in a separate account of the Portfolio having a value
equal to the aggregate amount of the Portfolio's net commitments in each
currency under forward contracts entered into with respect to position hedges
and cross- hedges. If the value of the securities placed in a separate account
declines, additional cash or high quality securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Portfolio's commitments with respect to such contracts. As an alternative
to maintaining all or part of the separate account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the forward
contract price or the Portfolio may purchase a put option permitting the
Portfolio to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the forward contract price.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
OPTIONS ON FOREIGN CURRENCIES: The Portfolio may write covered put and
call options and purchase put and call options on foreign currencies for the
purpose of protecting against declines in the dollar value of portfolio
securities and against increases in the dollar cost of securities to be
acquired. The Portfolio may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different, but related currency. As with other types of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge up to the amount of the premium received, and the Portfolio
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may be used to hedge against fluctuations in exchange rates although,
in the event of exchange rate movements adverse to the Portfolio's position, it
may forfeit the entire amount of the premium plus related transaction costs. In
addition, the Portfolio may purchase call options on currency when the Adviser
anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire or are exercised. Similarly, if the Portfolio is unable to effect
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a closing sale transaction with respect to options it has purchased, it would
have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying currency. The
Portfolio pays brokerage commissions or spreads in connection with its options
transactions.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. The
Portfolio's ability to terminate over-the-counter options will be more limited
than with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the Securities and Exchange
Commission changes its position, the Portfolio will treat purchased
over-the-counter options and assets used to cover written over-the-counter
options as illiquid securities. With respect to options written with primary
dealers in U.S. Government Securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the repurchase formula.
INTEREST RATE AND CURRENCY SWAPS: The Portfolio may enter into interest
rate and currency swaps for hedging purposes and not for speculation. The
Portfolio will typically use interest rate swaps to shorten the effective
maturity of its portfolio. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of fixed rate payments for floating rate payments.
Currency swaps involve the exchange of their respective rights to make or
receive payments in specified currencies.
The Portfolio will only enter into interest rate and currency swaps on
a net basis, I.E., the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and currency swaps do not involve the delivery of
securities, the underlying currency, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and currency swaps
is limited to the net amount of interest or currency payments that the Portfolio
is contractually obligated to make. If the other party to an interest rate or
currency swap defaults, the Portfolio's risk of loss consists of the net amount
of interest or currency payments that the Portfolio is contractually entitled to
receive. Since interest rate and currency swaps are individually negotiated, the
Portfolio expects to achieve an acceptable degree of correlation between its
portfolio investments and its interest rate or currency swap positions.
OPTIONS ON INTEREST RATE AND CURRENCY SWAPS: The Portfolio may write
put and call options and purchase put and call options on interest rate swaps
and currency swaps. The Portfolio may use options on interest rate swaps to
protect against any adverse effect on the Portfolio's anticipated income
resulting from changes in the level of interest rates. The Portfolio may use
options on currency swaps to protect against an adverse change in the currency
values in which the Portfolio may make or receive payments in the future. The
Portfolio will use options on interest rate swaps and currency swaps for hedging
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purposes only. It will only enter into such options for swaps which are settled
on a net basis.
CERTAIN INVESTMENT POLICIES: The Portfolio will not invest in illiquid
securities if immediately after such investment more than 10% of the Portfolio's
net assets (taken at market value) would be invested in such securities. For
this purpose, illiquid securities include (a) private placements other than Rule
144A securities (Rule 144A securities may not, however, be as liquid as similar
securities registered under the 1933 Act if, for example, qualified Rule 144A
purchasers are not interested in purchasing particular Rule 144A securities from
the Portfolio), (b) other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers), (c) options
purchased by the Portfolio over-the-counter and the cover for options written by
the Portfolio over-the-counter, except with respect to such transactions entered
into with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, and (d) repurchase
agreements not terminable within seven days. See "Repurchase Agreements" below.
SECURITIES LENDING: The Portfolio may seek to increase its income by
lending securities held by it. Securities loans may be made to banks,
broker-dealers and other recognized institutional borrowers of securities and
are required to be secured continuously by collateral consisting of cash, U.S.
Government securities and high quality debt obligations or an irrevocable letter
of credit in favor of the Portfolio, each to be maintained on a current basis at
an amount at least equal to the market value and accrued interest of the
securities loaned. The Portfolio would have the right to call a loan and obtain
the securities loaned on no more than five days' notice. During the existence of
a loan, the Portfolio would continue to receive the equivalent of the interest
paid by the issuer on the securities loaned and would also receive compensation
based on investment of the collateral. As with other extensions of credit there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. However, the loans would be
made only to firms deemed by the Adviser to be of good standing and when, in the
judgment of the Adviser, the consideration which can be earned currently from
securities loans of this type justifies the attendant risk. The value of the
securities loaned by the Portfolio will not exceed 30% of the value of the
Portfolio's total assets at the time any loan is made.
REPURCHASE AGREEMENTS: The Portfolio may enter into "repurchase
agreements" pertaining to debt securities with domestic banks or broker-dealers.
There is no percentage restriction on the Portfolio's ability to enter into
repurchase agreements. A repurchase agreement arises when a buyer such as the
Portfolio purchases a security and simultaneously agrees to resell it to the
vendor at an agreed upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an agreed upon
interest rate which is effective for the period of time the buyer's money is
invested in the security and which is related to the current market rate rather
than the coupon rate on the purchased security. Such agreements permit the
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Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. In the event a
vendor defaulted on its repurchase obligation, the Portfolio might suffer a loss
to the extent that the proceeds from the sale of the collateral were less than
the repurchase price. In the event of a vendor's bankruptcy, the Portfolio might
be delayed in, or prevented from, selling the collateral for the Portfolio's
benefit. The Portfolio's Board of Trustees has established procedures, which are
periodically reviewed by the Board, pursuant to which the Portfolio's Adviser
monitors the creditworthiness of the entities with which the Portfolio enters
into repurchase agreement transactions.
REVERSE REPURCHASE AGREEMENTS: The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio may engage in such borrowing
provided that immediately after any such borrowing there is an asset coverage of
at least 300% for all borrowings; and provided further, that in the event that
such asset coverage shall at any time fall below 300% the Portfolio shall,
within three business days, reduce the amount of its borrowings to an extent
that the asset coverage of such borrowings shall be at least 300%. Pursuant to
reverse repurchase agreements, the Portfolio would sell portfolio securities to
financial institutions such as banks and broker-dealers, and agree to repurchase
them at a mutually agreed upon date and price. The Portfolio enters into reverse
repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions or to hedge currency risks
associated with portfolio securities or securities to be acquired by the
Portfolio.
PORTFOLIO TURNOVER
Portfolio turnover will not be a limiting factor in making investment
decisions for the Portfolio. The annual portfolio turnover rates of the
Portfolio for the fiscal years ended October 31, 1994 and October 31, 1995 were
192% and 264%, respectively. A rate of 100% indicates that the equivalent of all
of a Portfolio's assets have been sold and reinvested in a calendar year. A high
rate of portfolio turnover may involve correspondingly greater brokerage
commission expenses and other transaction costs, which must be borne directly by
the Portfolio and ultimately by the Fund's shareholders. High portfolio turnover
rate may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for federal income tax purposes.
INVESTMENT RESTRICTIONS
The Portfolio is subject to certain investment restrictions which
constitute fundamental policies. Fundamental policies cannot be changed without
the approval of the holders of a majority of the Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940 (the "1940 Act").
See "Investment Restrictions" in Item 13 of Part B.
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ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Portfolio's Board of Trustees provides broad supervision over the
affairs of the Portfolio. The address of Brinson Partners is 209 South LaSalle
Street, Suite 120, Chicago, Illinois 60604-1295. A majority of the Portfolio's
Trustees are not affiliated with the Adviser. Brown Brothers Harriman & Co. is
the Portfolio's custodian and Fund/Plan Services, Inc. is the Portfolio's
transfer agent and dividend paying agent. The address of the Custodian is 40
Water Street, Boston, Massachusetts 02109 and the address of the Transfer Agent
is 2 West Elm Street, P.O. Box 874, Conshohocken, Pennsylvania 19428.
The Portfolio has not retained the services of a principal underwriter
or distributor, as interests in the Portfolio are offered solely in private
placement transactions. SwissKey Fund Services, Inc. ("SFS") serves as exclusive
placement agent of interests in the Portfolio.
INVESTMENT ADVISER
Brinson Partners manages the Portfolio on a day-to-day basis pursuant
to an investment advisory agreement (the "Advisory Agreement"). Subject to such
policies as the Board of Trustees of the Portfolio may determine, the Adviser
makes investment decisions for the Portfolio. For its services under the
Advisory Agreement, the Adviser receives from the Portfolio a fee accrued daily
and paid monthly at an annual rate equal to 0.25% of the Portfolio's average
daily net assets, on an annualized basis for the Portfolio's then-current fiscal
year.
Prior to July 28, 1995, the investment adviser of the Portfolio was SBC
Portfolio Management International, Inc. The Board of Trustees of the Portfolio
authorized the Portfolio to enter into the current Advisory Agreement with
Brinson Partners, pursuant to which Brinson Partners assumed responsibilities
for the management of the Portfolio's assets on July 28, 1995, on the same terms
and conditions (including the amount of the investment management fee) as were
set forth under the advisory agreement with the former investment manager. The
investors in the Portfolio approved the current Advisory Agreement with Brinson
Partners at a special meeting of investors held on July 26, 1995.
Brinson Partners is a global investment management firm managing, as of
December 31, 1995, approximately $53 billion in assets under a wide array of
active institutional client mandates. The firm's clients are primarily employee
benefit plan sponsors (corporate and public), endowments and foundations. These
include 40 of the 100 largest plan sponsors in the United States and 25 of the
Fortune 100 companies. Brinson Partners (and its predecessor organization, First
Chicago Investment Advisors) have been managing non-U.S. portfolios since 1974
and global portfolios since 1981 using the same investment approach and under
the same senior investment management. Brinson Partners, Inc. is an indirect
wholly owned subsidiary of Swiss Bank Corporation.
Brinson Partners currently serves as investment adviser to the
following open-end funds: Brinson Global Fund, Brinson Global Equity Fund,
Brinson Global Bond Fund, Brinson U.S. Balanced Fund, Brinson U.S. Equity Fund,
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Brinson Non-U.S. Equity Fund, Enterprise International Growth Portfolio and
Enterprise Accumulation Trust. Brinson Partners also serves as the investment
adviser to one closed-end fund, Fort Dearborn Securities, Inc.
MANAGEMENT OF THE PORTFOLIO
Investment decisions for the Portfolio are made by an investment team
at Brinson Partners. No member of the investment management team is primarily
responsible for making recommendations for portfolio securities.
ADMINISTRATOR
Pursuant to an administrative services agreement (the "Administrative
Services Agreement"), SFS as administrator (the "Administrator") provides the
Portfolio with general office facilities and supervises the overall
administration of the Portfolio, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Portfolio; the
preparation and filing of all documents required for compliance by the Portfolio
with applicable laws and regulations; providing equipment and clerical personnel
necessary for maintaining the organization of the Portfolio; preparation of
certain documents in connection with meetings of Trustees and investors in the
Portfolio; and the maintenance of books and records of the Portfolio. SFS
provides persons satisfactory to the Board of Trustees of the Portfolio to serve
as officers of the Portfolio. Such officers, as well as certain other employees
and Trustees of the Portfolio, may be directors, officers or employees of SFS or
its affiliates. For providing these services and facilities and for bearing the
related expenses, SFS as Administrator receives from the Portfolio a fee accrued
daily and paid monthly at an annual rate equal to 0.05% of the average daily net
assets of the Portfolio.
TRANSFER AGENT AND CUSTODIAN
The Portfolio has entered into a Transfer Agency Agreement with
Fund/Plan Services, Inc., which acts as transfer agent for the Portfolio (the
"Transfer Agent"). The Transfer Agent maintains an account for each investor in
the Portfolio and performs other transfer agency functions. Pursuant to a
Custodian Agreement dated as of October 1, 1991, Brown Brothers Harriman & Co.
acts as the custodian of the Portfolio's assets. See Part B for more detailed
information concerning custodial arrangements.
EXPENSES
The expenses of the Portfolio include the compensation of its Trustees
who are not affiliated with the Adviser or SFS; governmental fees; interest
charges; taxes; fees and expenses of independent auditors, of legal counsel and
of any transfer agent, custodian, registrar or dividend disbursing agent of the
Portfolio; insurance premiums; expenses of calculating the net asset value of,
and the net income on, the Portfolio; all fees under its Administrative Services
Agreement; the expenses connected with the execution, recording and settlement
of security transactions; fees and expenses of the Portfolio's custodian for all
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services to the Portfolio, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of preparing and mailing
reports to investors and to governmental officers and commissions; expenses of
meetings of investors and Trustees; and the advisory fees payable to the Adviser
under the Advisory Agreement.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of
New York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (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 existed and the Portfolio itself was unable to meet
its obligations.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention of holding 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. Investors have the right to communicate with other investors to
the extent provided in Section 16(c) of the 1940 Act in connection with
requesting a meeting of investors for the purpose of removing one or more
Trustees, which removal requires a two-thirds vote of the Portfolio's beneficial
interests. Investors also have under certain circumstances the right to remove
one or more Trustees without a meeting. 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.
The Portfolio does not intend to distribute to its investors its net
investment income or its net realized capital gains, if any. The end of the
Portfolio's fiscal year is October 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any 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 taxable income, gain,
loss, deductions and credits in determining its income tax liability. The
determination of such share will be made in accordance with the Internal Revenue
Code of 1986, as amended, and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended, assuming that the investor invested all of its assets in the
Portfolio.
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Investor inquiries may be directed to SFS, in care of Signature
Financial Group (Grand Cayman) Ltd., at Elizabethan Square, Shedden Road, George
Town, Grand Cayman, Cayman Islands (809-945-1824).
ITEM 7. PURCHASE OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" as defined in 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 at the
net asset value next determined after an order is received in "good order" by
the Portfolio.
There is no minimum initial or subsequent investment in the Portfolio.
However, since the Portfolio intends to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on its assets, investments
must be made in federal funds (I.E., monies credited to the account of the
Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day the New York Stock Exchange is open for trading. At
4:00 p.m., New York time, on each such day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or reductions, which are to be effected as of 4:00
p.m., New York time, on such day, will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00 p.m., New
York time, on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected as of 4:00 p.m., New York time, on such day, and (ii) the denominator
of which is the aggregate net asset value of the Portfolio as of 4:00 p.m., New
York time, on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in 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 4:00 p.m.,
New York time, on the following day the New York Stock Exchange is open for
trading.
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ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce any portion or all of its
investment at any time at the net asset value next determined after a request in
"good order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
business day after the reduction 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
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock 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, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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SWK292
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
Page
General Information and History . . . . . . . . . . . . . . . B-1
Investment Objective and Policies . . . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . . . . B-17
Control Persons and Principal Holders of Securities . . . . . B-18
Investment Advisory and Other Services . . . . . . . . . . . B-19
Brokerage Allocation and Other Practices . . . . . . . . . . B-22
Capital Stock and Other Securities . . . . . . . . . . . . . B-23
Purchase, Redemption and Pricing of Securities . . . . . . . B-25
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . B-26
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . B-27
Calculation of Performance Data . . . . . . . . . . . . . . . B-27
Financial Statements . . . . . . . . . . . . . . . . . . . . B-27
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
Part A contains additional information about the investment objective
and policies of Short-Term World Income Portfolio (the "Portfolio"). This Part B
should only be read in conjunction with Part A.
U.S. GOVERNMENT OBLIGATIONS
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS are bonds issued by a
cooperatively owned nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
These bonds are not guaranteed by the U.S. Government.
MARITIME ADMINISTRATION BONDS are bonds issued and provided by the
Department of Transportation of the U.S. Government and are guaranteed by the
U.S. Government.
FHA DEBENTURES are debentures issued by the Federal Housing
Administration of the U.S. Government and are guaranteed by the U.S. Government.
GNMA CERTIFICATES are mortgage-backed securities which represent a
partial ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
<PAGE>
Administration or guaranteed by the Veterans Administration and therefore
guaranteed by the U.S. Government.
FHLMC BONDS are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation. These bonds are not guaranteed by the U.S. Government.
FNMA BONDS are bonds issued and guaranteed by the Federal National
Mortgage Association. These bonds are not guaranteed by the U.S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS are notes and bonds issued by
the Federal Home Loan Bank System and are not guaranteed by the U.S. Government.
STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES AND BONDS are
notes and bonds issued by the Student Loan Marketing Association and are not
guaranteed by the U.S. Government.
Although this list includes a description of the primary types of U.S.
Government agency or instrumentality obligations in which the Portfolio intends
to invest, the Portfolio may invest in obligations of U.S. Government agencies
or instrumentalities other than those listed above.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
Certificates of deposit are receipts issued by a depository institution
in exchange for the deposit of funds. The issuer agrees to pay the amount
deposited plus interest to the bearer of the receipt on the date specified on
the certificate. The certificate usually can be traded in the secondary market
prior to maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptance can be as
long as 270 days, most acceptances have maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of certain bond and commercial paper ratings, see
Appendix A.
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MORTGAGE-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES. The Portfolio may also invest in
mortgage-backed securities, which are interests in pools of mortgage loans,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations (see "Mortgage Pass-Through Securities"). The Portfolio
may also invest in debt securities which are secured with collateral consisting
of mortgage-backed securities (see "Collateralized Mortgage Obligations") and in
other types of mortgage-related securities (see "Other Mortgage-Backed
Securities" and "Other Asset-Backed Securities") but not including stripped
mortgage-backed securities. Not more than 25% of the Portfolio's assets will be
invested in such debt securities.
Prepayments of principal by mortgagors and mortgage foreclosures will
usually result in the return of a greater part of principal invested far in
advance of the maturity of the mortgages in the pool. A decline in interest
rates may lead to a faster rate of repayment of the underlying mortgages and
expose the Portfolio to a lower rate of return upon reinvestment. To the extent
that such mortgage-backed securities are held by the Portfolio, the prepayment
right will tend to limit to some degree any potential increase in net asset
value of the Portfolio because the value of the mortgage-backed securities held
by the Portfolio may not appreciate as rapidly as the price of noncallable debt
securities.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-backed
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by GNMA) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage-backed securities or to the
beneficial interests of the Portfolio. Also, the GNMA securities often are
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purchased at a premium over the maturity value of the underlying mortgages. This
premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (I.E., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (I.E., not insured or guaranteed by any government
agency) mortgages from a list of approved sellers which include state- and
federal-chartered savings and loan associations, mutual savings banks,
commercial banks, credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the 12 Federal
Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans ("Private
Certificates"). Such issuers may in addition be the originators and/or servicers
of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are no direct or indirect government or agency guarantees of
payments. However, timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Portfolio's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. The Portfolio may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Adviser determines that the securities' quality standards are
equivalent to the Portfolio's quality standards applicable to corporate debt
obligations. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable.
The Portfolio invests in mortgage-backed securities rated Baa or higher
by Moody's or BBB or higher S&P or which, if unrated, are determined by the
Adviser pursuant to criteria established by the Board of Trustees of the
Portfolio to be of comparable quality.
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COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The Portfolio may invest
in CMOs, including, with respect to up to 5% of total assets, "interest only"
and "principal only" classes thereof issued by the U.S. Government or its
agencies and instrumentalities. In a typical CMO transaction, a corporation
issues multiple series (E.G., A, B, C, through Z) of CMO bonds ("Bonds").
Proceeds of the offering of the Bonds are used to purchase mortgages or mortgage
pass-through certificates ("Collateral"). The Collateral is pledged to a third
party trustee as security for the Bonds. Principal and interest payments from
the Collateral are used to pay principal on the Bonds in the order A, B, C
through Z. The Series A, B and C Bonds (I.E., all Bonds other than Series Z) all
bear current interest. Interest on the Series Z Bond is accrued and added to
principal, and a like amount is paid as principal on the Series A, B or C Bond
currently being paid off. When the Series A, B and C Bonds (I.E., all Bonds
other than Series Z) are paid in full, interest and principal on the Series Z
Bond begins to be paid currently.
FHLMC COLLATERALIZED MORTGAGE OBLIGATIONS ("FHLMC CMOS"). FHLMC CMOs
are debt obligations of FHLMC issued in multiple classes having different
maturity dates which are secured by the pledge of a pool of conventional
mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of principal and
interest on the CMOs are made semiannually, as opposed to monthly. The amount of
principal payable on each semiannual payment date is determined in accordance
with FHLMC's mandatory sinking fund schedule, which, in turn, is equal to
approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date is made to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
OTHER MORTGAGE-BACKED SECURITIES. The Adviser expects that
governmental, government-related or private entities may create mortgage loan
pools and other mortgage-related securities offering mortgage pass-through and
mortgage- collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term
fixed-rate mortgages. The Portfolio will not purchase mortgage-backed securities
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or any other assets which, in the opinion of the Adviser, are not readily
marketable if, as a result, more than 10% of the value of the Portfolio's net
assets will be not readily marketable. The Portfolio may also invest in
debentures and other securities of real estate investment trusts. As new types
of mortgage-related securities are developed and offered to investors, the
Adviser will, consistent with that Portfolio's investment objective, policies
and quality standards, consider making investments in such new types of
mortgage-related securities.
OTHER ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities, including conditional sales contracts, equipment lease certificates
and equipment trust certificates. The Adviser expects that other asset-backed
securities (unrelated to mortgage loans) will be offered to investors in the
future. Several types of asset-backed securities already exist, including, for
example, "Certificates for Automobile ReceivablesSM" or "CARSSM" ("CARS").
CARSSM represent undivided fractional interests in a trust whose assets consist
of a pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. Payments of principal and
interest on CARS are passed-through monthly to certificate holders, and are
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the CARS trust. An investor's return on CARS may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the CARS trust may be prevented from realizing
the full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, the failure of servicers to take appropriate steps to perfect
the CARS trust's rights in the underlying loans and the servicer's sale of such
loans to BONA FIDE purchasers, giving rise to interests in such loans superior
to those of the CARS trust, or other factors. As a result, certificate holders
may experience delays in payments or losses if the letter of credit is
exhausted. Consistent with its investment objective and policies, the Portfolio
also may invest in other types of asset-backed securities. In the selection of
other asset-backed securities, the Adviser will attempt to assess the liquidity
of the security giving consideration to the nature of the security, the
frequency of trading in the security, the number of dealers making a market in
the security and the overall nature of the marketplace for the security.
The limitations on the net assets of the Portfolio which may be
invested in mortgage-backed securities, including CMOs, real estate mortgage
investment conduits and other mortgage-backed securities, do not apply where the
obligations involved are issued or guaranteed as to the payment of principal or
interest by the U.S. Government, its agencies authorities or instrumentalities.
The Board of Trustees of the Portfolio will monitor the Adviser's
assessment of the liquidity of asset-backed securities and the Adviser will make
its assessments pursuant to guidelines approved by the Board of Trustees.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
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have not been registered under the Securities Act of 1933, as amended
("Securities Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Portfolio may invest up to 5% of its total assets in restricted
securities issued under Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public offering".
Section 4(2) instruments are restricted in the sense that they can only be
resold through the issuing dealer and only to institutional investors; they
cannot be resold to the general public without registration. Restricted
securities issued under Section 4(2) of the Securities Act will be treated as
illiquid and subject to the Portfolio's overall 10% limitation on illiquid
securities.
The Securities and Exchange Commission has recently adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers. The
Adviser anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this new
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Board of Trustees of the Portfolio, which has the ultimate
responsibility for determinations as to liquidity of portfolio securities, has
adopted guidelines and procedures for determining the liquidity of Rule 144A
securities and monitoring the Adviser's implementation thereof.
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FUTURES CONTRACTS
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The successful use
of such instruments draws upon the Adviser's skill and experience with respect
to such instruments and usually depends on the Adviser's ability to forecast
interest rate and currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, the Portfolio may not achieve the
anticipated benefits of futures contracts or options on futures contracts or may
realize losses and thus will be in a worse position than if such strategies had
not been used. In addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements in the price of
the securities and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses.
The Board of Trustees of the Portfolio has adopted the requirement that
futures contracts and options on futures contracts be used either (i) as a hedge
without regard to any quantitative limitation, or (ii) for other purposes to the
extent that immediately thereafter the aggregate amount of margin deposits on
all (non-hedge) futures contracts of the Portfolio and premiums paid on
outstanding (non-hedge) options on futures contracts owned by the Portfolio does
not exceed 5% of the market value of the total assets of the Portfolio. In
addition, the aggregate market value of the outstanding futures contracts
purchased by the Portfolio may not exceed 50% of the market value of the total
assets of the Portfolio. Neither of these restrictions will be changed by the
Portfolio's Board of Trustees without considering the policies and concerns of
the various applicable federal and state regulatory agencies.
FUTURES CONTRACTS. The Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any index of U.S.
Government securities, foreign government securities or corporate debt
securities. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission merchant, or
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the contracts as between
the clearing members of the exchange. The Portfolio may enter into futures
contracts which are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. The Portfolio
may also enter into futures contracts which are based on bonds issued by
entities other than the U.S. Government.
At the same time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
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At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the acquisition or sale of a futures contract, in the
case of the Portfolio, which holds or intends to acquire fixed-income
securities, is to attempt to protect the Portfolio from fluctuations in interest
or foreign exchange rates without actually buying or selling fixed-income
securities or foreign currencies. For example, if interest rates were expected
to increase, the Portfolio might enter into futures contracts for the sale of
debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt security in the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling debt securities and investing in bonds
with short maturities when interest rates are expected to increase. However,
since the futures market is more liquid than the cash market, the use of futures
contracts as an investment technique allows the Portfolio to maintain a
defensive position without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, the Portfolio could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Portfolio could then buy debt securities
on the cash market. To the extent the Portfolio enters into futures contracts
for this purpose, the assets in the segregated asset account maintained to cover
the Portfolio's obligations with respect to such futures contracts will consist
of cash, cash equivalents or high quality liquid debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to such futures
contracts.
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The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Portfolio, if the Adviser's
investment judgment about the general direction of interest rates is incorrect,
the Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which 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 debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Portfolio intends to purchase and
write options on futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Portfolio is not fully invested it
may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
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deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio will incur a loss which will be reduced by the amount of the premium
it receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions,
the Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Portfolio may purchase a put option on a futures contract to hedge
the Portfolio's portfolio against the risk of rising interest rates.
The amount of risk the Portfolio assumes when it purchases an option on
a futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
For additional information on the use, risks and costs of futures
contracts and options on futures contracts, see below.
OPTIONS ON FOREIGN CURRENCIES
The Portfolio may purchase and write options on foreign currencies for
hedging purposes in a manner similar to that in which futures contracts on
foreign currencies, or forward contracts, will be utilized. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may purchase put
options on the foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed amount in
dollars and will thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
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The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where the Portfolio anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
The Portfolio intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the Portfolio is
"covered" if the Portfolio owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Portfolio in cash, U.S. Government securities and other high quality liquid
debt securities in a segregated account with its custodian.
The Portfolio also intends to write call options on foreign currencies
that are not covered for cross-hedging purposes. A call option on a foreign
currency is for cross-hedging purposes if it is not covered, but is designed to
provide a hedge against a decline in the U.S. dollar value of a security which
the Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by the Portfolio
in futures contracts, options on foreign currencies and forward contracts are
not traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the Securities and Exchange Commission (the
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"SEC"). To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency options are also
traded on certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter. In an
over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer and a
trader of forward contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting the
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States, (iv) the imposition of different
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exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Portfolio may purchase or sell forward foreign currency exchange
contracts. While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event the Portfolio's ability to utilize
forward contracts in the manner set forth in this registration statement may be
restricted. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. Dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The use of foreign currency forward contracts will not eliminate fluctuations in
the underlying U.S. dollar equivalent value of the prices of or rates of return
on the Portfolio's foreign currency denominated portfolio securities and the use
of such techniques will subject the Portfolio to certain risks.
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit the Portfolio's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to the Portfolio's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying the Portfolio's cross-hedges and the movements in the exchange rates
of the foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
INTEREST RATE AND CURRENCY SWAPS. The Portfolio will only enter into
interest rate and currency swaps on a net basis, I.E., the two payment streams
are netted out with the Portfolio receiving or paying, as the case may be, only
the net amount of the two payments. Inasmuch as these transactions are entered
into for good faith hedging purposes, the Portfolio and the Adviser believe that
such obligations do not constitute senior securities (as defined in the
Investment Company Act of 1940 (the "1940 Act")) and, accordingly, will not
treat them as being subject to the Portfolio's borrowing restrictions. The net
amount of the excess, if any, of the Portfolio's obligations over its
entitlements with respect to each interest rate or currency swap will be accrued
on a daily basis and an amount of cash or liquid high grade debt securities
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. The Portfolio
will not enter into any interest rate or currency swap unless the credit quality
of the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Adviser. If there is a
default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transaction. The
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swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy,"
may not be changed with respect to the Portfolio without the approval of a
"majority of the outstanding voting securities" of the Portfolio, which, under
the 1940 Act and the rules thereunder and as used in this registration
statement, means, with respect to the Portfolio, the lesser of (i) 67% or more
of the total beneficial interests of the Portfolio present at a meeting, if the
holders of more than 50% of the total beneficial interests of the Portfolio are
present or represented by proxy, or (ii) more than 50% of the total beneficial
interests of the Portfolio.
As a matter of fundamental policy, the Portfolio may not:
(1) Invest 25% or more of its total assets in any one industry other
than the banking industry. This restriction does not apply to U.S. Government
securities. In addition, and while subject to changing interpretations, so long
as a single foreign government or supranational organization is considered to be
an "industry" for the purposes of this 25% limitation, the Portfolio will comply
therewith. The staff of the SEC considers all supranational organizations (as a
group) to be a single industry for concentration purposes.
(2) Make short sales of securities or maintain a short position,
including short sales "against the box."
(3) Issue senior securities, borrow money or pledge its assets. For
purposes of this restriction, the purchase or sale of securities on a
when-issued or delayed delivery basis, the purchase of securities subject to
repurchase agreements, collateral arrangements with respect to the purchase or
sale of options and futures contracts or options thereon, are not deemed to be a
pledge of assets or the issuance of a senior security; and neither such
arrangements nor the purchase or sale of options, futures contracts or related
options are deemed to be the issuance of a senior security.
(4) Buy or sell commodities, commodity contracts, real estate or
interests in real estate (including mineral leases or rights), except that the
Portfolio may purchase and sell futures contracts, options on futures contracts
and securities secured by real estate or interests therein or issued by
companies that invest therein. Transactions in foreign currencies and forward
contracts and options on foreign currencies are not considered to be
transactions in commodities or commodity contracts.
(5) Make loans except through repurchase agreements or loan
participations and through lending portfolio securities. Loan participations
will not exceed 5% of the Portfolio's total assets when entered into. The value
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of the securities loaned by the Portfolio will not exceed 30% of the value of
the Portfolio's total assets at the time any loan is made.
(6) Make investments for the purpose of exercising control or
management over the issuers of any security.
(7) Act as an underwriter except to the extent that, in connection with
the disposition of portfolio securities, the Portfolio may be deemed to be an
underwriter under certain federal securities laws.
Whenever any investment policy or restriction states a minimum or
maximum percentage of the Portfolio's assets which may be invested in any
security or other asset, it is intended that such minimum or maximum percentage
limitation be determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any later increase or
decrease in percentage beyond the specified limitations resulting from a change
in values or net assets will not be considered a violation.
In order to comply with certain state "blue sky" restrictions, the
Portfolio will not as a matter of operating policy:
(a) Invest in oil, gas or mineral leases or programs.
(b) Purchase any interests in real estate including real estate limited
partnerships which are not readily marketable.
(c) Invest in securities of any issuer if, to the knowledge of the
Portfolio, any officer, trustee or director of the Portfolio, SwissKey Funds or
the Adviser owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such persons who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
(d) Purchase warrants if as a result the Portfolio would then have more
than 5% of its net assets (determined at the time of investment) invested in
warrants. Warrants will be valued at the lower of cost or market and investment
in warrants which are not listed on the New York Stock Exchange or American
Stock Exchange will be limited to 2% of the Portfolio's net assets determined at
the time of investment. For the purpose of this limitation, warrants acquired in
units or attached to securities are deemed to be without value.
(e) Purchase more than 10% of the voting securities or more than 10% of
any class of securities of any issuer. For purposes of this restriction, all
outstanding debt securities of an issuer are considered as one class, and all
preferred stocks of an issuer are considered as one class.
(f) Invest more than 5% of its total assets in securities of companies
having a record, together with predecessors, of less than three years of
continuous operation. This limitation shall not apply to U.S. Government
securities.
(g) Purchase securities of other investment companies, except in
connection with a merger, reorganization or acquisition of assets.
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(h) With respect to 50% of the Portfolio's assets, the Portfolio will
not invest more than 5% of its assets in the securities of any one issuer and
with respect to the remaining 50% of the Portfolio's total assets the Portfolio
will not invest more than 25% of its total assets in the securities of any one
issuer. This limitation will not apply to U.S. Government securities.
(i) Purchase put or call options on securities if after such purchase
more than 5% of the Portfolio's net assets, as measured by the aggregate of the
premiums paid for such options, would be invested in such options.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Trustees who are
"interested persons" (as defined in the 1940 Act) of the Portfolio. Unless
otherwise indicated, the address of each Trustee and officer is 6 St. James
Avenue, Boston, Massachusetts.
TRUSTEES AND OFFICERS
PETER H. HUGENTOBLER--Trustee; Vice President and Director, Swiss Benevolent
Society of New York, a not-for-profit organization (since 1984), and Chairman of
its Pellegrini Scholarship Fund Committee; retired (since 1988) Vice President,
Swiss Bank Corporation. Mr. Hugentobler's address is 954 Nugent Avenue, Staten
Island, New York 10306.
WILLIAM HUWYLER*--Trustee; Honorary Director and former President and Director,
The Swiss Center, Inc.; retired (since 1987) Senior Vice President, Swiss Bank
Corporation. Mr. Huwyler's address is 110 Lowell Road, Glen Rock, New Jersey
07452.
ANTHONY M. LASZLO--Trustee; Retired; Consultant to Swiss Bank Corporation
Investment Banking, Inc. (1989 to 1991); Vice President and Inspector, Swiss
Bank Corporation (retired 1988). Mr. Laszlo's address is 9701 Admiral Emerson
Avenue, N.E., Albuquerque, New Mexico 87111.
PHILIP W. COOLIDGE--President; Chairman and Chief Executive Officer, Signature
Financial Group, Inc. (since prior to 1990); Chairman and Chief Executive
Officer, SwissKey Fund Services, Inc. (since prior to 1990).
JOHN R. ELDER--Treasurer; Vice President, Signature Financial Group, Inc. (since
April 1995); Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual
Insurance Company) (from 1983 to March 1995).
SUSAN JAKUBOSKI--Vice President, Assistant Secretary and Assistant Treasurer;
Manager and Senior Fund Administrator, SwissKey Fund Services (since August
1994); Fund Compliance Administrator, Concord Financial Group, Inc. (from
November 1990 to August 1994); Senior Fund Accountant, Neuberger & Berman
Management Incorporated (from since prior to November 1990). Ms. Jakuboski's
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address is P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.
THOMAS M. LENZ--Secretary; Senior Vice President and Associate General Counsel,
Signature Financial Group, Inc. (since prior to 1990); Assistant Secretary,
SwissKey Fund Services, Inc. (since May 1991).
MOLLY S. MUGLER--Assistant Secretary; Legal Counsel and Assistant Secretary,
Signature Financial Group, Inc. (since prior to 1990); Assistant Secretary,
SwissKey Fund Services, Inc. (since prior to 1990).
LINDA T. GIBSON -- Assistant Secretary; Legal Counsel, Signature (since June
1991); Assistant Secretary, SBDS (since October 1992); law student, Boston
University School of Law (from September 1989 to May 1992).
ANDRES E. SALDANA -- Assistant Secretary; Legal Counsel, Signature (since
November 1992); Attorney, Ropes & Gray (law firm) (September 1990 to November
1992); law student, Yale Law School (since prior to 1990).
DAVID G. DANIELSON -- Assistant Treasurer; Assistant Manager, Signature
Financial Group, Inc. (since May 1991); Graduate Student, Northeastern
University (from April 1990 to March 1991); Tax Accountant and Systems Analyst,
Putnam Companies (since prior to March 1990).
BARBARA M. O'DETTE--Assistant Treasurer; Assistant Treasurer, Signature
Financial Group, Inc. (since prior to 1990); Assistant Treasurer, SwissKey Fund
Services, Inc. (since prior to 1990).
The officers of the Portfolio also hold similar positions with other
investment companies for which SFS or an affiliate serves as administrator or
distributor.
For the fiscal year ended October 31, 1995, the Portfolio accrued
$14,223 in Trustee fees and expenses.
The Declaration of Trust provides that the Portfolio will indemnify its
Trustees and officers as described below under Item 18.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of March 19, 1996, Signature Financial Group, Inc. owned less than
0.01% and SBC Short-Term World Income Fund Ltd. owned 99.99% of the value of the
outstanding interests in the Portfolio. Because SBC Short-Term World Income Fund
Ltd. controls the Portfolio, SBC Short-Term World Income Fund Ltd. may take
actions without the approval of any other investor.
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ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
ADVISER
Brinson Partners manages the assets of the Portfolio pursuant to an
investment advisory agreement dated as of July 28, 1995 (the "Advisory
Agreement") and the investment policies described herein. Subject to such
further policies as the Portfolio's Board of Trustees may determine, the Adviser
makes investment decisions for the Portfolio. The Adviser furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the Portfolio's investments and effecting securities transactions for
the Portfolio.
The Adviser manages the investments of the Portfolio from day to day in
accordance with the Portfolio's investment objective and policies. The selection
of investments for the Portfolio and the way they are managed depend on the
conditions and trends in the economy and the financial marketplaces.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than 60
days' nor less than 30 days' written notice by the Portfolio when authorized
either by majority vote of the investors in the Portfolio (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of its Board of Trustees, or by the Adviser on not more than 60 days'
nor less than 30 days' written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its or their
obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives
from the Portfolio a fee accrued daily and paid monthly at an annual rate equal
to 0.25% of the Portfolio's average daily net assets. The Advisory Agreement
requires the Adviser to reimburse the Portfolio up to, but not exceeding, the
management fee for the annual expenses of the Portfolio which exceed the lowest
expense limitation prescribed by any state in which the Portfolio is qualified
for offer or sale. Management of the Portfolio has been advised that the lowest
state limitation is currently 2 1/2% of net assets up to $30,000,000, 2% of the
next $70,000,000 of net assets and 1 1/2% of net assets in excess of that
amount. Prior to July 28, 1995, SBC Portfolio Management International, Inc.
(the "Former Adviser") served as investment adviser to the Portfolio. For the
fiscal year ended October 31, 1993, the Portfolio accrued advisory fees
aggregating $286,858 from the Former Adviser. For the fiscal year ended October
31, 1994, the Portfolio accrued advisory fees aggregating $456,115 from the
Former Adviser. For the fiscal year ended October 31, 1995, the Portfolio
accrued advisory fees aggregating $156,090 from the Former Adviser and $34,391
from Brinson Partners.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
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companies, such as the Portfolio. Based on advice of its counsel, it is Swiss
Bank Corporation's position that the investment advisory services performed by
the Adviser under the Advisory Agreement with the Portfolio do not constitute
underwriting activities and are consistent with the requirements of the Glass-
Steagall Act. In addition, counsel has advised that the combination of
individually permissible activities in different entities is consistent with the
Glass-Steagall Act and other relevant legal and regulatory precedent. There is
presently no controlling precedent regarding the performance of the combination
of investment advisory and administrative activities by banks and their
affiliates. Future changes in either federal statutes or regulations relating to
the permissible activities of banks, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Swiss Bank Corporation or its affiliates from
continuing to perform such activities for the Portfolio. If Swiss Bank
Corporation or its affiliates were to be prevented from rendering investment
advisory services or acting as subadministrator, the Portfolio, would seek
alternative means for providing such services, and the Portfolio does not expect
that its investors would suffer any adverse financial consequences as a result
of any such occurrence.
Swiss Bank Corporation and its affiliates may have deposit, loan and
other commercial banking relationships with the issuers of securities purchased
on behalf of the Portfolio, including outstanding loans to such issuers which
may be repaid in whole or in part with the proceeds of securities so purchased.
The Adviser has informed the Portfolio that, in making its investment decisions,
it does not obtain or use material inside information in the possession of any
division or department of Swiss Bank Corporation or in the possession of any
affiliate of Swiss Bank Corporation.
ADMINISTRATOR
The Administrative Services Agreement between SFS and the Portfolio is
described under "Administrator" in Part A. The fee arrangement described therein
shall be subject to the provisions of the 1940 Act and to the rules,
regulations, applicable orders and formal written positions of the Securities
and Exchange Commission. For the fiscal year ended October 31, 1993, the
Portfolio accrued administrative fees aggregating $57,372. For the fiscal year
ended October 31, 1994, the Portfolio accrued administrative fees aggregating
$91,223. For the fiscal year ended October 31, 1995, the Portfolio accrued
administrative fees aggregating $38,096.
The Administrative Services Agreement provides that SFS may render
services to others, terminates automatically if it is assigned and may be
terminated without penalty, in the case of the Portfolio, by majority vote of
the investors in the Portfolio (with the vote of each being in proportion to the
amount of its investment) or by either party on not more than 60 days' nor less
than 30 days' written notice. The Administrative Services Agreement also
provides that neither SFS nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in connection with the
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
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performance of its or their duties or by reason of reckless disregard of its or
their duties or obligations under the Administrative Services Agreement.
Swiss Bank Corporation may perform such sub-administrative duties for
the Portfolio as Swiss Bank Corporation and SFS may agree upon (including, to
the extent from time to time so agreed, providing equipment and clerical
personnel necessary for maintaining the organization of the Portfolio,
participation in the preparation of documents required for compliance by the
Portfolio with applicable laws and regulations, preparation of certain documents
in connection with meetings of Trustees of and investors in the Portfolio, and
other functions which would otherwise be performed by the Administrator as set
forth above). Swiss Bank Corporation receives such compensation as SFS and Swiss
Bank Corporation may agree upon, such compensation to be paid by SFS.
TRANSFER AGENT AND CUSTODIAN
The Portfolio has entered into a Transfer Agency Agreement with
Fund/Plan Services, Inc., which acts as transfer agent for the Portfolio (the
"Transfer Agent"). The Transfer Agent maintains an account for each investor in
the Portfolio and performs other transfer agency functions. Pursuant to a
Custodian Agreement, dated as of October 1, 1991, Brown Brothers Harriman & Co.
acts as the custodian of the Portfolio's assets (the "Custodian"). The
Custodian's responsibilities include safeguarding and controlling the
Portfolio's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest on the Portfolio's
investments, maintaining books of original entry for Portfolio accounting and
other required books and accounts, and calculating the daily net asset value of
beneficial interests in the Portfolio. Securities held by the Portfolio may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company and may be held by a sub-custodian bank if such
arrangements are reviewed and approved by the Trustees of the Portfolio. The
Trustees of the Portfolio have reviewed and approved the custodial arrangements
for securities of the Portfolio held outside the United States. Such securities
will be held in accordance with the requirements of Rule 17f-5 under the 1940
Act. The Custodian does not determine the investment policies of the Portfolio
or decide which securities the Portfolio will buy or sell. The Portfolio may,
however, invest in securities of the Custodian and may deal with the Custodian
as principal in securities and foreign exchange transactions. For its services,
the Custodian will receive such compensation as may from time to time be agreed
upon by it and the Portfolio.
INDEPENDENT AUDITORS
Ernst & Young serves as the Portfolio's independent auditors, providing
audit and accounting services including (i) examination of the annual financial
statements, (ii) assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission and (iii) preparation of
annual income tax returns.
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ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Adviser is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Portfolio,
the selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any. Broker-
dealers may receive brokerage commissions on portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon the exercise of options. Orders may be directed to
any broker-dealer or futures commission merchant, including to the extent and in
the manner permitted by applicable law, Swiss Bank Corporation or its
subsidiaries or affiliates. Purchases and sales of portfolio securities on
behalf of the Portfolio are generally placed by the Adviser with the issuer or a
market-maker for these securities on a net basis, without any brokerage
commission being paid by the Portfolio. Trading does, however, involve
transaction costs. Transactions with dealers serving as secondary market-makers
reflect the spread between the bid and asked prices. Transaction costs may also
include fees paid to third parties for information as to potential purchasers or
sellers of securities. Purchases of underwritten issues may be made which will
include an underwriting fee paid to the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer. The Adviser makes this evaluation based
on its familiarity with commissions charged on comparable transactions, and,
with respect to any transactions made through any broker-dealer which is an
affiliate of the Portfolio, by comparing commissions paid by the Portfolio to
reported commissions paid by others. The Adviser reviews commission rates,
execution and settlement services performed, making internal and external
comparisons.
The Adviser is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, when placing portfolio transactions for the
Portfolio with a broker to pay a brokerage commission (to the extent applicable)
in excess of that which another broker might have charged for effecting the same
transaction on account of the receipt of research, market or statistical
information. The term "research, market or statistical information" includes
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, securities
valuations and current market information, portfolio strategy and the
performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of investment companies that invest in the Portfolio and of other
investment company clients of the Adviser as a factor in the selection of
broker-dealers to execute portfolio transactions.
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Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to the Adviser, it is the
opinion of the management of the Portfolio that such information is only
supplementary to the Adviser's own research effort, since the information must
still be analyzed, weighed and reviewed by the Adviser's staff. Such information
may be useful to the Adviser in providing services to clients other than the
Portfolio, and not all such information is used by the Adviser in connection
with the Portfolio. Conversely, such information provided to the Adviser by
brokers and dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the
Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio is concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
The Trustees of the Portfolio review from time to time whether the
recapture for the benefit of each Portfolio of some portion of the brokerage
commissions or similar fees paid on behalf of such Portfolio on portfolio
transactions is legally permissible and advisable. At present, no recapture
arrangements are in effect. The portfolio turnover rate for the fiscal year
ended October 31, 1994 was 192%. The portfolio turnover rate for the fiscal year
ended October 31, 1995 was 264%. The higher turnover rate for the second fiscal
year noted above is a result of trading activities responsive to conditions in
the fixed income securities markets.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate PRO
RATA in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
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share PRO RATA in the Portfolio's net assets available for distribution to its
investors. 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. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a 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 beneficial
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 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. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative majority vote of
investors (with the vote of each being in proportion to the amount of their
investment).
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 amount of their
investment), 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 vote of
each being in proportion to the amount of their investment) will be sufficient.
The Portfolio may also be terminated (i) upon liquidation and distribution of
its assets, if approved by the vote of two-thirds of its investors (with the
vote 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 Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial 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 existed and the Portfolio itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Declaration of Trust provides
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that the trustees and officers will be indemnified by the Portfolio against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Portfolio, unless, as to
liability to the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which 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 only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities which are "accredited investors" as defined in
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 Portfolio determines its net asset value as of 4:00 p.m., New York
time, each day that the New York Stock Exchange is open for business by dividing
the value of the Portfolio's net assets by the value of the investment of the
investors in the Portfolio at the time the determination is made. Additions or
reductions will be effected at the time of determination of net asset value next
following the receipt of an order.
Debt securities (other than short-term obligations maturing in 60 days
or less), including listed securities and securities for which price quotations
are available, will normally be valued on the basis of market valuations
furnished by a pricing service. Short-term obligations and money market
securities maturing in 60 days or less are valued at amortized cost, which
approximates market. Other assets are valued at fair value using methods
determined in good faith by the Portfolio's Board of Trustees.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Portfolio and valued as they are for purposes of computing the Portfolio's
net asset value (a redemption in kind). If payment is made in securities, an
investor may incur transaction expenses in converting these securities into
cash. The Portfolio has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Portfolio is obligated to redeem beneficial
interests with respect to any one investor during any 90 day period, solely in
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cash up to the lesser of $250,000 or 1% of the net asset value of the Portfolio
at the beginning of the period.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day that the New York Stock Exchange is open for business.
As of 4:00 p.m. (New York time) on each such day, the value of each investor's
interest in the Portfolio will be determined by multiplying the net asset value
of the Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the Portfolio effected on such day,
and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of the net additions to or reductions in 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 4:00 p.m. on the following day the New York Stock Exchange is
open for trading.
ITEM 20. TAX STATUS.
TAXATION OF THE PORTFOLIO
The Portfolio is not subject to federal income taxation. Instead, the
investors in the Portfolio must take into account, in computing their federal
income tax liability, their share of the Portfolio's income, gains, losses,
deductions, credits and tax preference items, without regard to whether they
have received any cash distributions from the Portfolio. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts.
Distributions received by investors in the Portfolio generally will not
result in the investor's recognizing any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent that any cash
distributed exceeds the investor's basis in its interest in the Portfolio prior
to the distribution, (2) income or gain may be realized if the distribution is
made in liquidation of the investor's entire interest in the Portfolio and
includes a disproportionate share of any unrealized receivables held by the
Portfolio, and (3) loss may be recognized if the distribution is made in
liquidation of the investor's entire interest in the Portfolio and consists
solely of cash and/or unrealized receivables. The investor's basis in its
interest in the Portfolio generally will equal the amount of cash and the basis
of any property which the investor invests in the Portfolio, increased by the
investor's share of income from the Portfolio, and decreased by the amount of
any cash distributions and the basis of any property distributed from the
Portfolio.
The Portfolio will not be required to pay any federal income or excise
tax.
B-26
<PAGE>
Income received by the Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Portfolio's assets to be invested
in various countries will vary.
If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of securities of foreign corporations, it may make an election pursuant
to which certain foreign taxes paid by it would be treated as having been paid
directly by shareholders of the entities which have invested in the Portfolio.
Pursuant to such election, the amount of foreign taxes paid will be included in
the income of such shareholders, and such shareholders (except tax-exempt
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes.
The amount of foreign taxes for which an investor may claim a credit in
any year will generally be subject to a separate limitation for "passive
income", which includes, among other items of income, dividends, interest and
certain foreign currency gains. Because capital gains realized by the Portfolio
on the sale of foreign securities will be treated as U.S.-source income, the
available credit of foreign taxes paid with respect to such gains may be
restricted by this limitation.
FOREIGN WITHHOLDING TAXES
Income received by the Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries.
FOREIGN INVESTORS
The tax consequences to a foreign investor of an investment in the
Portfolio may be different from those described herein. Foreign investors are
advised to consult their own tax advisers with respect to the particular tax
consequences to a foreign investor of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The financial statements as of and for the period ended October 31,
1995, included herein has been so included in reliance on the report of Ernst &
Young, independent auditors, given on the authority of said firm as experts in
auditing and accounting.
B-27
<PAGE>
Short-Term World Income Portfolio
Annual Report
October 31, 1995
<PAGE>
Short-Term World Income Portfolio
Portfolio of Investments
October 31, 1995
- --------------------------------------------------------------------------------
Principal Value
Amount* (Note 1)
(Local Currency) (U.S. $)
---------------- ------------
BONDS & NOTES - 61.2%
Canada - 4.8%
Government of Canada,
8.00%, due 3/15/97 ................ CAD 3,180,000 $2,421,217
-------------
Netherlands - 4.9%
Government of The Netherlands,
6.25%, due 7/15/98 ................ NLG 3,810,000 2,499,503
-------------
United States - 51.5%
Federal Home Loan Bank
6.10%, due 9/18/00 ................ USD 5,000,000 5,010,938
U. S. Treasury Notes,
5.875%, due 7/31/97 ............... USD 5,000,000 5,018,750
7.25%, due 2/15/98 ................ USD 5,000,000 5,163,281
7.75%, due 11/30/99 ............... USD 3,500,000 3,742,266
6.875%, due 3/31/00 ............... USD 7,000,000 7,283,280
-------------
26,218,515
-------------
TOTAL BONDS AND NOTES (Identified Cost $30,772,883).............. 31,139,235
-------------
COMMERCIAL PAPER - 37.9%
Columbia/HCA Healthcare
due 11/7/95 ....................... USD 2,000,000 1,998,033
Conagra Holdings
due 11/27/95 ...................... USD 2,000,000 1,991,806
Crown, Cork & Seal
due 11/1/95 ....................... USD 2,000,000 2,000,000
See notes to financial statements.
<PAGE>
Short-Term World Income Portfolio
Portfolio of Investments (continued)
October 31, 1995
- --------------------------------------------------------------------------------
Principal Value
Amount* (Note 1)
(Local Currency) (U.S. $)
---------------- ------------
Mattel, Inc. ..........................
due 11/14/95 ...................... USD 2,000,000 $1,995,768
RJR-Nabisco
due 12/1/95 ....................... USD 1,000,000 995,083
Ralston Purina
due 11/1/95 ....................... USD 3,092,000 3,092,000
Reynolds Metal Co. ....................
due 11/2/95 ....................... USD 2,000,000 1,999,675
Texas Electric Utilities
due 11/9/95 ....................... USD 1,205,000 1,203,420
Unocal
due 11/3/95 ....................... USD 2,000,000 1,999,348
Whitman Corporation
due 11/13/95 ...................... USD 2,000,000 1,996,087
----------
TOTAL COMMERCIAL PAPER (Identified Cost $19,270,381)............ 19,271,220
----------
TOTAL INVESTMENTS - 99.1%
(Identified Cost $50,043,264) .................................. 50,410,455
-----------
Other Assets less Liabilities - 0.9% ........................... 473,758
-----------
NET ASSETS - 100% .............................................. $50,884,213
===========
* Principal amount is stated in the currency in which the security is
denominated.
CAD: Canadian Dollars
NLG: Netherlands Guilder
USD: United States Dollar
See notes to financial statements.
<PAGE>
Short-Term World Income Portfolio
Statement of Assets and Liabilities
October 31, 1995
- --------------------------------------------------------------------------------
Assets:
Investments in securities, at market value (cost $50,043,264)
(Notes 1 and 3) - see Portfolio of Investments $50,410,455
Cash 10,495
Net unrealized appreciation on forward foreign currency contracts
purchased (Notes 1 and 4) 38,121
Foreign currency (cost $153,957) 153,957
Interest receivable 413,376
Deferred organization expenses (Note 1) 28,450
-----------
Total assets 51,054,854
-----------
Liabilities:
Fund accounting and custody fees payable 23,334
Advisory fee payable (Note 2) 11,112
Administration fee payable (Note 2) 2,222
Other liabilities 133,973
-----------
Total liabilities 170,641
-----------
Net assets applicable to investors'
beneficial interests $50,884,213
============
See notes to financial statements.
<PAGE>
Short-Term World Income Portfolio
Statement of Operations
For the year ended
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
Interest income (Note 1) $ 5,092,472
Foreign taxes withheld (61,976)
---------------
Total investment income 5,030,496
---------------
Expenses:
Advisory fees (Note 2) 190,481
Custody fees 114,017
Audit fees 66,230
Fund accounting fees (Note 2) 44,921
Administration fees (Note 2) 38,096
Legal fees 22,910
Insurance fees 19,469
Amortization of organization expenses (Note 1) 16,483
Trustees' fees and expenses (Note 2) 14,223
Other expenses 60,752
---------------
Total expenses 587,582
---------------
Net investment income 4,442,914
---------------
Realized and Unrealized Gain (Loss) on Investments (Notes 1, 3, and 4):
Net realized gain (loss) on:
Investment securities $ 89,311
Foreign currency contracts and transactions 1,754,659 1,843,970
--------------
Net unrealized appreciation (depreciation) on:
Investment securities (993,071)
Foreign currency contracts and translations 623,430 (369,641)
-------------- ---------------
Net realized and unrealized gain on investments and
foreign currency transactions 1,474,329
---------------
Net increase in net assets resulting from operations $ 5,917,243
===============
</TABLE>
See notes to financial statements.
<PAGE>
Short-Term World Income Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended October 31,
-------------------------------------------------
Increase (Decrease) in Net Assets: 1995 1994
------------------- -----------------------
<S> <C> <C>
Operations:
Net investment income $4,442,914 $12,047,475
Net realized gain (loss) from investments and
foreign currency transactions 1,843,970 (17,548,040)
Net unrealized depreciation on investments and
foreign currency translations (369,641) (382,899)
------------------- -----------------------
Net increase (decrease) in net assets resulting
from operations 5,917,243 (5,883,464)
------------------- -----------------------
Transactions in Investors' Beneficial Interests:
Additions 670,918 89,193,871
Reductions (64,527,159) (157,778,942)
------------------- -----------------------
Net decrease in net assets resulting from
transactions in investors' beneficial interests (63,856,241) (68,585,071)
------------------- -----------------------
Net decrease in net assets (57,938,998) (74,468,535)
Net Assets:
Beginning of year 108,823,211 183,291,746
------------------- -----------------------
End of year $50,884,213 $108,823,211
=================== =======================
</TABLE>
See notes to financial statements.
<PAGE>
Short-Term World Income Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
ended
For the year ended October 31, October 31,
----------------------------------------------
1995 1994 1993 1992 (a)
------------- ------------- -------------- --------------------
<S> <C> <C> <C> <C>
Ratios/Supplementary data:
Net investment income to
average net assets 5.83% 6.60% 5.99% 6.51%(b)
Expenses to average net assets 0.77% 0.48% 0.60% 0.60%(b)
Portfolio turnover 264% 192% 37% 10%
<FN>
(a) Comencement of operations, July 20, 1992.
(b) Annualized.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Short-Term World Income Portfolio
Notes to Financial Statements
October 31, 1995
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies. Short-Term World Income
Portfolio (the "Portfolio") is registered under the Investment Company Act of
1940, as amended (the "Act"), as a non-diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York. The following is a summary of the significant accounting policies of
the Portfolio.
A. Valuation of Investments. Debt securities (other than short-term
obligations maturing in sixty days or less) for which price quotations are
available will normally be valued on the basis of market valuations furnished by
brokers. Short-term obligations and money market securities maturing in sixty
days or less are valued at amortized cost, which approximates market value.
B. Foreign Currency Translation. The accounting records of the
Portfolio are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the current rate of exchange of such currency
against the U.S. dollar to determine the value of investments, other assets and
liabilities. Purchases and sales of securities, and income and expenses are
translated at the prevailing rate of exchange on the respective dates of such
transactions.
C. Forward Foreign Currency Contracts. The Portfolio may enter into
forward foreign currency contracts ("contracts") in connection with planned
purchases or sales of securities, to hedge the U.S. dollar value of portfolio
securities denominated in a foreign currency, or to increase or decrease its
currency exposure. The Portfolio has no specific limitation on the percentage of
assets which may be committed to these types of contracts. The Portfolio could
be exposed to risks if a counterparty to the contracts is unable to meet the
terms of its contracts or if the value of the foreign currency changes
unfavorably. The U.S. dollar value of the foreign currency underlying all
contractual commitments held by the Portfolio is determined using forward
foreign currency exchange rates supplied by a quotation service.
D. Repurchase Agreements. The Portfolio may invest in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Portfolio from a third party with the commitment that they will be
repurchased by the seller at a fixed price on an agreed upon date.
<PAGE>
Short-Term World Income Portfolio
Notes to Financial Statements (continued)
October 31, 1995
- --------------------------------------------------------------------------------
The Portfolio may enter into repurchase agreements with banks or lenders meeting
the creditworthiness standards established by the Portfolio's Board of Trustees.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or date of maturity of the
purchased security.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, the Portfolio will seek to dispose of such
securities, which action could involve costs or delays. To minimize this risk,
securities collateralizing the repurchase agreement will be held by the
custodian at all times in an amount at least equal to the repurchase price,
including accrued interest.
E. Futures Contracts and Options. The Portfolio may invest in futures
contracts and write options. These investments involve to varying degrees,
elements of market risk and risks in excess of the amount recognized in the
Statement of Assets and Liabilities. The face or contract amounts reflect the
involvement the Portfolio has in the particular classes of instruments. Risks
may be caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities and interest rates. Risks
also may arise if there is an illiquid secondary market for the instruments, or
due to the inability of counterparties to perform.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded. Options traded on an
exchange are valued using the last sale price or, in the absence of a sale, the
last offering price. Options traded over-the-counter are valued using dealer
supplied valuations. There were no open futures contracts at October 31, 1995.
F. Interest Income. Interest income is accrued as earned. Interest
income is recorded net of foreign taxes withheld where recovery of such taxes is
not assured.
G. Income Taxes. The Portfolio will be treated as a partnership for
federal income tax purposes. As such, each investor in the Portfolio will be
taxed on its share of the Portfolio's ordinary income and capital gains. It is
intended that the Portfolio's assets 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 Internal Revenue Code. Accordingly, no provision for United States
federal income or excise tax is necessary.
<PAGE>
Short-Term World Income Portfolio
Notes to Financial Statements (continued)
October 31, 1995
- --------------------------------------------------------------------------------
H. Deferred Organization Expenses. Expenses incurred by the Portfolio
in connection with its organization are being amortized by the Portfolio on a
straight-line basis over a five year period.
I. Security Transactions. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. Transactions with Affiliates.
A. Investment Advisory Fee Pursuant to an Investment Advisory Agreement
approved by the Trustees of the Portfolio on May 17, 1995, the Portfolio has
retained Brinson Partners, Inc. ("Brinson"), a wholly-owned investment advisory
subsidiary of Swiss Bank Corporation, to make investment decisions for the
Portfolio effective July 29, 1995. For its services under the Investment
Advisory Agreement, Brinson receives a fee from the Portfolio, computed daily
and paid monthly, at an annual rate not to exceed 0.25% of the Portfolio's
average daily net assets. For the period July 29, 1995 through October 31, 1995,
Brinson received $34,391 in advisory fees. Prior to July 29, 1995 the Portfolio
had retained SBC Portfolio Management International, Inc. ("SBC"), a
wholly-owned investment advisory subsidiary of Swiss Bank Corporation, as the
Portfolio's adviser. For the period November 1, 1994 through July 28, 1995, SBC
received $156,090 in advisory fees.
B. Administration Fee. Pursuant to an Administrative Services
Agreement, the Portfolio has retained SwissKey Fund Services, Inc. ("SFS") to
serve as Administrator and exclusive placement agent. SFS provides
administrative services necessary for the operation of the Portfolio, furnishes
office space and facilities required for conducting the business of the
Portfolio and pays the compensation of the Portfolio's officers affiliated with
SFS. For its services under the Administrative Services Agreement, SFS receives
a fee from the Portfolio, computed daily and paid monthly, at an annual rate not
to exceed 0.05% of the Portfolio's average daily net assets.
C. Trustee Fees. Each Trustee who is not an "interested person" (as
defined in the Act) of the Fund receives an annual retainer prorated by the net
assets of the Short-Term World Income Portfolio, and its respective feeder
<PAGE>
Short-Term World Income Portfolio
Notes to Financial Statements (continued)
October 31, 1995
- --------------------------------------------------------------------------------
funds. Each Trustee is also reimbursed for out-of-pocket expenses incurred in
connection with committee or board meetings. For the fiscal year ended October
31, 1995, the Portfolio accrued $14,223 in Trustee fees and expenses.
D. Fund Accounting Fees. On December 15, 1994, the Trustees of the
Portfolio, retroactively to September 19, 1994, approved a Fund Accounting
Agreement with Signature Financial Services, Inc. ("SFSI"). For its services
SFSI will receive $40,000 per year plus expenses. For the fiscal year ended
October 31, 1995, the Portfolio accrued $44,921 in fund accounting fees and
expenses.
3. Investment in Securities. Purchases and sales of securities (other than
short-term obligations) including maturities, foreign currencies and forward
currency contracts were as follows:
Purchases Sales
--------- -----
Investments $25,591,984 $74,521,399
U.S. Government
Obligations $76,184,698 $57,982,781
For United States federal income tax purposes, the cost of securities owned at
October 31, 1995 was $50,043,264. At October 31, 1995, the components of net
unrealized appreciation of investments were as follows:
Gross appreciation $ 370,942
Gross depreciation (3,751)
---------
Net appreciation on investments $ 367,191
=========
<PAGE>
Short-Term World Income Portfolio
Notes to Financial Statements (continued)
October 31, 1995
- --------------------------------------------------------------------------------
4. Commitments. During the fiscal year ended October 31, 1995 the Portfolio
entered into various forward contracts which obligate the Portfolio to deliver
or receive currencies at specified future dates. Open contracts at October 31,
1995 were as follows:
Net Unrealized
Contracts In Settlement Appreciation
to Deliver* Exchange for Date Value (Depreciation)
----------- ------------ ---- ----- --------------
Sale
- ----
NLG 3,885,000 $2,499,517 11/7/95 $2,464,319 $35,198
NLG** 265,000 170,495 11/7/95 167,298 3,197
NLG** 200,000 128,675 11/7/95 128,949 (274)
------- ------- ----
$2,798,687 $2,760,566 $38,121
========== ========== =======
* In local currency.
** Value represents amount to be delivered from offsetting forward contract on
settlement date.
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Investors and Board of Trustees.
Short-Term World Income Portfolio
We have audited the accompanying statement of assets and liabilities of
Short-Term World Income Portfolio, including the portfolio of investments, as of
October 31, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the supplementary data for each of the periods indicated
therein. These financial statements and supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1995 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of
Short-Term World Income Portfolio at October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the supplementary data for each of
the indicated periods, in conformity with accounting principles generally
accepted in the United States of America.
ERNST & YOUNG
George Town, Grand Cayman
December 27, 1995
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a small
degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated categories.
BB -- Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
Plus (+) or Minus (-) -- The ratings from "AA" to "BB" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A -- Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
Appendix-1
<PAGE>
A-3 -- Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Note -- Moody's applies numerical modifiers, 1,2, and 3 in each generic
rating classification from Aa through Bb in its corporate bond rating system.
The modifier 1 indicates that the security rates in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category. Those municipal bonds within the Aa, A, Baa, and Ba categories that
Moody's believes possess the strongest credit attributes within those categories
are designated by the symbols Aa1, A1, Baa1, and Ba1.
Appendix-2
<PAGE>
COMMERCIAL PAPER
Prime-1 -- Issuers rated P-1 (or supporting institutions) have a
superior ability for repayment of short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 -- Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 -- Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime -- Issuers rated "Not Prime" do not fall within any of the
Prime rating categories.
FITCH INVESTORS SERVICE
CORPORATE BOND RATINGS
AAA -- Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, and liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.
Appendix-3
<PAGE>
AA -- Securities in this group are of safety virtually beyond question,
and as a class are readily salable while many are highly active. Their merits
are not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien - in many cases directly following an AAA security or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.
A -- Securities of this rating are considered to be investment grade
and of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher ratings.
BBB -- Securities of this rating are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact on
these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
Plus (+) or Minus (-) -- Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "AAA" category.
COMMERCIAL PAPER RATINGS
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than the strongest
issue.
F-2 -- Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and F-1" ratings.
F-3 -- Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade.
DUFF & PHELPS RATINGS
CORPORATE BOND RATINGS
AAA -- Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury Funds.
AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
Appendix-4
<PAGE>
A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
COMMERCIAL PAPER RATINGS
Duff 1+ -- Highest certainty of timely payment. Short term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S. Treasury short
term obligations.
Duff 1 -- Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- -- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small.
Duff 2 -- Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3 -- Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
Appendix-5
<PAGE>
SWK292
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The following financial statements are included in Part B:
Portfolio of Investments as of October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the year ended October 31, 1995
Statement of Changes in Net Assets
Notes to Financial Statements as of October 31, 1995
Report of Ernst & Young
(B) EXHIBITS
***1. Declaration of Trust of the Registrant.
***2. By-Laws of the Registrant.
***5. Form of Investment Advisory Agreement between the
Registrant and Brinson Partners, Inc.
*8. Form of Custodian Agreement between the Registrant and Brown
Brothers Harriman & Co.
*9. Form of Administrative Services Agreement between the
Registrant and SwissKey Fund Services, Inc.
**13. Investment representation letters of initial investors.
***17. Financial Data Schedule.
- -------------------
* Incorporated herein by reference from the Registrant's initial
Registration Statement on Form N-1A, as filed with the Securities
and Exchange Commission (the "Commission") on November 12, 1991.
** Incorporated herein by reference from Amendment No. 1 to this
Registration Statement as filed with the Commission on July 7,
1992.
*** Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
C-1
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class Number of Record Holders
-------------- ------------------------
Beneficial Interests 2 (as of March 19, 1996)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant are insured under an errors
and omissions liability insurance policy and under the fidelity bond required by
Rule 17g-1 under the Investment Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Brinson Partners, Inc. provides investment advisory services consisting
of portfolio management for a variety of individuals and institutions and as of
December 31, 1995 had approximately $53 billion in assets under management. It
presently acts as investment adviser to Brinson Funds, Inc., Brinson
Relationship Funds, which includes six investment portfolios(series), Enterprise
Accumulation Trust, Enterprise International Growth Portfolio, Fort Dearborn
Income Securities, Inc. and PACE Large Company Value Equity Investments.
For information as to any other business, vocation or employment of a
substantial nature in which each Trustee or officer of the Registrant's
investment adviser is or has been engaged for his own account or in the capacity
of Trustee, officer, employee, partner or trustee, reference is made to the Form
ADV (file #34910) filed by Brinson Partners, Inc. under the Investment Advisers
Act of 1940, as amended.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and at the following locations:
NAME ADDRESS
SwissKey Fund Services, Inc. 6 St. James Avenue, Suite 900
(administrator and Boston, Massachusetts 02116
exclusive placement agent)
Elizabethan Square, Shedden Road
George Town, Grand Cayman
Cayman Islands
C-2
<PAGE>
Brinson Partners, Inc. 209 South LaSalle Street
(investment adviser) Suite 120
Chicago, Illinois 60604-1295
Brown Brothers Harriman & Co. 40 Water Street
(custodian) Boston, Massachusetts 02109
Fund/Plan Services, Inc. 2 West Elm Street
(transfer agent) P.O. Box 874
Conshohocken, Pennsylvania 19428
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this amendment to its Registration Statement on Form
N-1A to be signed on its behalf by the undersigned, thereto duly authorized, in
George Town, Grand Cayman, on the 18th day of March, 1996.
SHORT-TERM WORLD INCOME PORTFOLIO
By /S/SUSAN JAKUBOSKI
------------------------------
Susan Jakuboski
Vice President, Assistant
Secretary and Assistant
Treasurer
SWK292
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
1 Declaration of Trust of the Registrant
2 By-laws of the Registrant
5 Investment Advisory Agreement between the Registrant
and Brinson Partners, Inc.
17 Financial Data Schedule
SWK003
SHORT-TERM WORLD INCOME PORTFOLIO
-----------------------------------
DECLARATION OF TRUST
Dated as of October 1, 1991
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I--THE TRUST ...................................................... 1
Section 1.1 Name ............................................. 1
Section 1.2 Definitions ...................................... 1
ARTICLE II--TRUSTEES ...................................................... 3
Section 2.1 Number and Qualification ......................... 3
Section 2.2 Term and Election ................................ 3
Section 2.3 Resignation, Removal and Retirement .............. 3
Section 2.4 Vacancies ........................................ 4
Section 2.5 Meetings ......................................... 4
Section 2.6 Officers; Chairman of the Board .................. 5
Section 2.7 By-Laws .......................................... 5
ARTICLE III--POWERS OF TRUSTEES ........................................... 5
Section 3.1 General .......................................... 5
Section 3.2 Investments ...................................... 6
Section 3.3 Legal Title ...................................... 6
Section 3.4 Sale and Increases of Interests .................. 7
Section 3.5 Decreases and Redemptions of Interests ........... 7
Section 3.6 Borrow Money ..................................... 7
Section 3.7 Delegation; Committees ........................... 7
Section 3.8 Collection and Payment ........................... 7
Section 3.9 Expenses ......................................... 7
Section 3.10 Miscellaneous Powers ............................. 7
Section 3.11 Further Powers ................................... 8
ARTICLE IV--INVESTMENT ADVISORY, ADMINISTRATION AND PLACEMENT
AGENT ARRANGEMENTS ............................................ 8
Section 4.1 Investment Advisory and Other Arrangements ....... 8
Section 4.2 Parties to Contract .............................. 9
ARTICLE V--LIABILITY OF HOLDERS; LIMITATIONS OF LIABILITY OF TRUSTEES,
OFFICERS, ETC .................................................. 9
Section 5.1 Liability of Holders; Indemnification ............ 9
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Third Parties ................................. 10
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc ........................... 10
i
<PAGE>
PAGE
----
Section 5.4 Mandatory Indemnification ........................ 10
Section 5.5 No Bond Required of Trustees ..................... 11
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc ................................. 11
Section 5.7 Reliance on Experts, etc ......................... 11
ARTICLE VI--INTERESTS ..................................................... 12
Section 6.1 Interests ........................................ 12
Section 6.2 Non-Transferability .............................. 12
Section 6.3 Register of Interests ............................ 12
ARTICLE VII--INCREASES, DECREASES AND REDEMPTIONS OF INTERESTS ............ 12
ARTICLE VIII--DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
AND DISTRIBUTIONS ........................................... 13
Section 8.1 Book Capital Account Balances .................... 13
Section 8.2 Allocations and Distributions to Holders ......... 13
Section 8.3 Power to Modify Foregoing Procedures ............. 13
ARTICLE IX--HOLDERS ....................................................... 13
Section 9.1 Rights of Holders ................................ 13
Section 9.2 Meetings of Holders .............................. 13
Section 9.3 Notice of Meetings ............................... 14
Section 9.4 Record Date for Meetings, Distributions, etc ..... 14
Section 9.5 Proxies, etc ..................................... 14
Section 9.6 Reports .......................................... 15
Section 9.7 Inspection of Records ............................ 15
Section 9.8 Holder Action by Written Consent ................. 15
Section 9.9 Notices .......................................... 15
ARTICLE X--DURATION; TERMINATION; AMENDMENT; MERGERS; ETC ................. 15
Section 10.1 Duration ......................................... 15
Section 10.2 Termination ...................................... 16
Section 10.3 Dissolution ...................................... 17
Section 10.4 Amendment Procedure .............................. 17
Section 10.5 Merger, Consolidation and Sale of Assets ......... 18
Section 10.6 Incorporation .................................... 18
ARTICLE XI--MISCELLANEOUS ................................................. 19
Section 11.1 Certificate of Designation; Agent for
Service of Process ............................... 19
Section 11.2 Governing Law .................................... 19
Section 11.3 Counterparts ..................................... 19
Section 11.4 Reliance by Third Parties ........................ 19
Section 11.5 Provisions in Conflict With Law or Regulations ... 19
ii
<PAGE>
SWK003
DECLARATION OF TRUST
OF
SHORT-TERM WORLD INCOME PORTFOLIO
-----------------------------------
This DECLARATION OF TRUST of the Short-Term World Income Portfolio is
made as of the 1st day of October, 1991 by the parties signatory hereto, as
trustees (each such individual, so long as such individual shall continue in
office in accordance with the terms of this Declaration of Trust, and all other
individuals who at the time in question have been duly elected or appointed and
have qualified as trustees in accordance with the provisions of this Declaration
of Trust and are 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 the
State of New York for the investment and reinvestment of its assets; and
WHEREAS, it is proposed that the trust assets be composed of money and
property contributed thereto by the holders of interests in the trust entitled
to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund and will manage and
dispose of the same for the benefit of the holders of interests in the Trust and
subject to the provisions hereof, to wit:
ARTICLE I
The Trust
---------
1.1. NAME. The name of the trust created hereby (the "Trust") shall be
the Short-Term World Income Portfolio and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever hereinafter
used) shall refer to the Trustees as Trustees, and not individually, and shall
not refer to the officers, employees, agents or independent contractors of the
Trust or holders of interests in the Trust.
1.2. DEFINITIONS. As used in this Declaration, the following terms
shall have the following meanings:
The term "Interested Person" shall have the meaning given it in the
1940 Act.
"ADMINISTRATOR" shall mean any party furnishing services to the Trust
pursuant to any administrative services contract described in Section 4.1
hereof.
<PAGE>
"BOOK CAPITAL ACCOUNT" shall mean, for any Holder at any time, the Book
Capital Account of the Holder for such day, determined in accordance with
Section 8.1 hereof.
"CODE" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time, as well as any non-superseded provisions of the
Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"DECLARATION" shall mean this Declaration of Trust as amended from time
to time. References in this Declaration to "DECLARATION", "HEREOF", "HEREIN" and
"HEREUNDER" shall be deemed to refer to this Declaration rather than the article
or section in which any such word appears.
"FISCAL YEAR" shall mean an annual period determined by the Trustees
which ends on December 31 of each year or on such other day as is permitted by
the Code.
"HOLDERS" shall mean as of any particular time all holders of record of
Interests in the Trust.
"INSTITUTIONAL INVESTOR(S)" shall mean any regulated investment
company, segregated asset account, foreign investment company, common trust
fund, group trust or other investment arrangement, whether organized within or
without the United States of America, other than an individual, S corporation,
partnership or grantor trust beneficially owned by any individual, S corporation
or partnership.
"INTEREST(S)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Holders whose combined
Book Capital Account balances represent such specified percentage or fraction of
the combined Book Capital Account balances of all, or a specified group of,
Holders.
"INVESTMENT ADVISER" shall mean any party furnishing services to the
Trust pursuant to any investment advisory contract described in Section 4.1
hereof.
"MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting of Holders,
of (A) 67% or more of the Interests present or represented at such meeting, if
Holders of more than 50% of all Interests are present or represented by proxy,
or (B) more than 50% of all Interests, whichever is less.
2
<PAGE>
"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.
"REDEMPTION" shall mean the complete withdrawal of an Interest of a
Holder the result of which is to reduce the Book Capital Account balance of that
Holder to zero.
"TRUSTEES" shall mean each signatory to this Declaration, so long as
such signatory shall continue in office in accordance with the terms hereof, and
all other individuals who at the time in question have been duly elected or
appointed and have qualified as Trustees in accordance with the provisions
hereof and are then in office, and reference in this Declaration to a Trustee or
Trustees shall refer to such individual or individuals in their capacity as
Trustees hereunder.
"TRUST PROPERTY" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees.
The "1940 ACT" shall mean the United States Investment Company Act of
1940, as amended from time to time, and the rules and regulations thereunder.
ARTICLE II
Trustees
--------
2.1. NUMBER AND QUALIFICATION. The number of Trustees shall be fixed
from time to time by action of the Trustees taken as provided in Section 2.5
hereof; provided, however, that the number of Trustees so fixed shall in no
event be less than three or more than 15. Any vacancy created by an increase in
the number of Trustees may be filled by the appointment of an individual having
the qualifications described in this Section 2.1 made by action of the Trustees
taken as provided in Section 2.5 hereof. Any such appointment shall not become
effective, however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy occurs, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
2.2. TERM AND ELECTION. Each Trustee named herein, or elected or
appointed prior to the first meeting of Holders, shall (except in the event of
resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required under
the 1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and
3
<PAGE>
except as provided in Section 2.3 hereof, each Trustee shall hold office during
the lifetime of the Trust and until its termination as hereinafter provided.
2.3. RESIGNATION, REMOVAL AND RETIREMENT. Any Trustee may resign his or
her trust (without need for prior or subsequent accounting) by an instrument in
writing executed by such Trustee and delivered or mailed to the Chairman, if
any, the President or the Secretary of the Trust and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any Trustee may be removed by the affirmative vote of Holders of
two-thirds of the Interests or (provided the aggregate number of Trustees, after
such removal and after giving effect to any appointment made to fill the vacancy
created by such removal, shall not be less than the number required by Section
2.1 hereof) with cause, by the action of two-thirds of the remaining Trustees.
Removal with cause includes, but is not limited to, the removal of a Trustee due
to physical or mental incapacity or failure to comply with such written policies
as from time to time may be adopted by at least two-thirds of the Trustees with
respect to the conduct of the Trustees and attendance at meetings. Any Trustee
who has attained a mandatory retirement age, if any, established pursuant to any
written policy adopted from time to time by at least two-thirds of the Trustees
shall, automatically and without action by such Trustee or the remaining
Trustees, be deemed to have retired in accordance with the terms of such policy,
effective as of the date determined in accordance with such policy. Any Trustee
who has become incapacitated by illness or injury as determined by a majority of
the other Trustees, may be retired by written instrument executed by a majority
of the other Trustees, specifying the date of such Trustee's retirement. Upon
the resignation, retirement or removal of a Trustee, or a Trustee otherwise
ceasing to be a Trustee, such resigning, retired, removed or former Trustee
shall execute and deliver such documents as the remaining Trustees shall require
for the purpose of conveying to the Trust or the remaining Trustees any Trust
Property held in the name of such resigning, retired, removed or former Trustee.
Upon the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of such
deceased, removed, retired or resigning Trustee shall execute and deliver on
behalf of such deceased, removed, retired or resigning Trustee such documents as
the remaining Trustees shall require for the purpose set forth in the preceding
sentence.
2.4. VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, retirement,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. In the case of a vacancy, Holders of at least a majority of
the Interests entitled to vote, acting at any meeting of Holders held in
accordance with Section 9.2 hereof, or, to the extent permitted by the 1940 Act,
a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
2.5. MEETINGS. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary, an
Assistant Secretary or any two Trustees. Regular meetings of the Trustees may be
4
<PAGE>
held without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be mailed or
otherwise given not less than 24 hours before the meeting but may be waived in
writing by any Trustee either before or after such meeting. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting except
in the situation in which a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened. The Trustees may act with or without a meeting.
A quorum for all meetings of the Trustees shall be a majority of the Trustees.
Unless provided otherwise in this Declaration, any action of the Trustees may be
taken at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all individuals participating in the
meeting can hear each other and participation in a meeting by means of such
communications equipment shall constitute presence in person at such meeting.
2.6. OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall, from time to
time, elect a President, a Secretary and a Treasurer. The Trustees may elect or
appoint, from time to time, a Chairman of the Board who shall preside at all
meetings of the Trustees and carry out such other duties as the Trustees may
designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each other officer may, but need not, be a Trustee.
2.7. BY-LAWS. The Trustees may adopt and, from time to time, amend or
repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
------------------
3.1. GENERAL. The Trustees shall have exclusive and absolute control
over the Trust Property and over the business of the Trust to the same extent as
if the Trustees were the sole owners of the Trust Property and such business in
5
<PAGE>
their own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion they
deem proper for conducting the business of the Trust. The enumeration of or
failure to mention any specific power herein shall not be construed as limiting
such exclusive and absolute control. The powers of the Trustees may be exercised
without order of or resort to any court.
3.2. INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank, savings institution, corporation
or other business entity organized under the law of the United States or under
any foreign law; and to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of any kind and
description, including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of such rights, powers and privileges in respect of any of such
investments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional instruments in which the Trustees may determine to
invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. LEGAL TITLE. Legal title to all Trust Property shall be vested in
the Trustees as joint tenants except that the Trustees shall have the power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name or nominee
name of any other Person on behalf of the Trust, on such terms as the Trustees
may determine.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each individual who may hereafter become a Trustee
upon his due election and qualification. Upon the resignation, removal or death
of a Trustee, such resigning, removed or deceased Trustee shall automatically
cease to have any right, title or interest in any Trust Property, and the right,
6
<PAGE>
title and interest of such resigning, removed or deceased Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
3.4. SALE AND INCREASES OF INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit any
Institutional Investor to purchase an Interest, or increase its Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals, S corporations, partnerships and
grantor trusts that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. A Holder who has redeemed its Interest
may not be permitted to purchase an Interest until the later of 60 calendar days
after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 DECREASES AND REDEMPTIONS OF INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit a
Holder to redeem its Interest, or decrease its Interest, for either cash or
property, at such time or times (including, without limitation, each business
day), and on such terms as the Trustees may deem best.
3.6. BORROW MONEY. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee, or undertake the performance
of any obligation, contract or engagement of any other Person.
3.7. DELEGATION; COMMITTEES. The Trustees shall have power, consistent
with their continuing exclusive and absolute control over the Trust Property and
over the business of the Trust, to delegate from time to time to such of their
number or to officers, employees, agents or independent contractors of the Trust
the doing of such things and the execution of such instruments in either the
name of the Trust or the names of the Trustees or otherwise as the Trustees may
deem expedient.
3.8. COLLECTION AND PAYMENT. The Trustees shall have power to collect
all property due to the Trust; and to pay all claims, including taxes, against
the Trust Property; to prosecute, defend, compromise or abandon any claims
relating to the Trust or the Trust Property; to foreclose any security interest
securing any obligation, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
3.9. EXPENSES. The Trustees shall have power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust Property to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
7
<PAGE>
brokerage services, as they in good faith may deem reasonable, and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust.
3.10. MISCELLANEOUS POWERS. The Trustees shall have power to: (a)
employ or contract with such Persons as the Trustees may deem appropriate for
the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies insuring the Investment
Adviser, Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not the Trust would have the
power to indemnify such Person against such liability; (d) establish pension,
profit-sharing and other retirement, incentive and benefit plans for the
Trustees, officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any Person with whom the Trust has dealings, including the Investment
Adviser, Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the Fiscal Year of the Trust and the method by
which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such a seal shall not impair the validity of any instrument executed
on behalf of the Trust.
3.11. FURTHER POWERS. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices, whether within or without the State of New York, in any
and all states of the United States of America, in the District of Columbia, and
in any and all commonwealths, territories, dependencies, colonies, possessions,
agencies or instrumentalities of the United States of America and of foreign
governments, and to do all such other things and execute all such instruments as
they deem necessary, proper, appropriate or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust which
is made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees. The Trustees shall not be required to obtain any court
order in order to deal with Trust Property.
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
--------------------------------
4.1. INVESTMENT ADVISORY AND OTHER ARRANGEMENTS. The Trustees may in
their discretion, from time to time, enter into investment advisory and
administration contracts or placement agent agreements whereby the other party
to such contract or agreement shall undertake to furnish the Trustees such
investment advisory, administration, placement agent and/or other services as
8
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the Trustees shall, from time to time, consider appropriate or desirable and all
upon such terms and conditions as the Trustees may in their sole discretion
determine. Notwithstanding any provision of this Declaration, the Trustees may
authorize any Investment Adviser (subject to such general or specific
instructions as the Trustees may, from time to time, adopt) to effect purchases,
sales, loans or exchanges of Trust Property on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of any such Investment Adviser
(all without any further action by the Trustees). Any such purchase, sale, loan
or exchange shall be deemed to have been authorized by the Trustees.
4.2. PARTIES TO CONTRACT. Any contract of the character described in
Section 4.1 hereof or in the By-Laws of the Trust may be entered into with any
corporation, firm, trust or association, although one or more of the Trustees or
officers of the Trust may be an officer, director, Trustee, shareholder or
member of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of any such contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the ByLaws of the Trust. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with Persons who are parties to any or all of the contracts mentioned in this
Section 4.2 or in the By-Laws of the Trust.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
-------------------------------------
5.1. LIABILITY OF HOLDERS; INDEMNIFICATION. Each Holder shall be
jointly and severally liable (with rights of contribution INTER SE in proportion
to their respective Interests in the Trust) for the liabilities and obligations
of the Trust in the event that the Trust fails to satisfy such liabilities and
obligations; provided, however, that, to the extent assets are available in the
Trust, the Trust shall indemnify and hold each Holder harmless from and against
any claim or liability to which such Holder may become subject by reason of
being or having been a Holder to the extent that such claim or liability imposes
on the Holder an obligation or liability which, when compared to the obligations
and liabilities imposed on other Holders, is greater than such Holder's Interest
(proportionate share), and shall reimburse such Holder for all legal and other
expenses reasonably incurred by such Holder in connection with any such claim or
liability. The rights accruing to a Holder under this Section 5.1 shall not
exclude any other right to which such Holder may be lawfully entitled, nor shall
anything contained herein restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein. Notwithstanding the indemnification procedure described above,
it is intended that each Holder shall remain jointly and severally liable to the
Trust's creditors as a legal matter.
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5.2. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS, EMPLOYEES, AGENTS,
INDEPENDENT CONTRACTORS TO THIRD PARTIES. No Trustee, officer, employee, agent
or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust
shall be subject to any personal liability whatsoever to any Person, other than
the Trust or the Holders, in connection with Trust Property or the affairs of
the Trust; and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature against a Trustee, officer, employee, agent
or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust
arising in connection with the affairs of the Trust.
5.3. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS, EMPLOYEES, AGENTS,
INDEPENDENT CONTRACTORS TO TRUST, HOLDERS, ETC. No Trustee, officer, employee,
agent or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust
shall be liable to the Trust or the Holders for any action or failure to act
(including, without limitation, the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for such Person's own bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
5.4. MANDATORY INDEMNIFICATION. The Trust shall indemnify, to the
fullest extent permitted by law (including the 1940 Act), each Trustee, officer,
employee, agent or independent contractor (except in the case of an agent or
independent contractor to the extent expressly provided by written contract) of
the Trust (including any Person who serves at the Trust's request as a director,
officer or trustee of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as fines
and penalties, and as counsel fees) reasonably incurred by such Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such Person may be involved or
with which such Person may be threatened, while in office or thereafter, by
reason of such Person being or having been such a Trustee, officer, employee,
agent or independent contractor, except with respect to any matter as to which
such Person shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of such Person's duties;
provided, however, that as to any matter disposed of by a compromise payment by
such Person, pursuant to a consent decree or otherwise, no indemnification
either for such payment or for any other expenses shall be provided unless there
has been a determination that such Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Person's office by the court or other body approving the
settlement or other disposition or by a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type inquiry),
that such Person did not engage in such conduct by written opinion from
independent legal counsel approved by the Trustees. The rights accruing to any
Person under these provisions shall not exclude any other right to which such
Person may be lawfully entitled; provided that no Person may satisfy any right
of indemnity or reimbursement granted in this Section 5.4 or in Section 5.2
hereof or to which such Person may be otherwise entitled except out of the Trust
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Property. The Trustees may make advance payments in connection with
indemnification under this Section 5.4, provided that the indemnified Person
shall have given a written undertaking to reimburse the Trust in the event it is
subsequently determined that such Person is not entitled to such
indemnification.
5.5. NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of such Trustee's duties hereunder.
5.6. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender or other Person dealing with any Trustee, officer, employee,
agent or independent contractor of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by such
Trustee, officer, employee, agent or independent contractor or be liable for the
application of money or property paid, loaned or delivered to or on the order of
such Trustee, officer, employee, agent or independent contractor. Every
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust, and every other act or thing whatsoever executed in connection
with the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the Trust
made or sold by any Trustee, officer, employee, agent or independent contractor
of the Trust, in such capacity, shall contain an appropriate recital to the
effect that the Trustee, officer, employee, agent or independent contractor of
the Trust shall not personally be bound by or liable thereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any Trustee, officer, employee, agent or independent
contractor of the Trust. Subject to the provisions of the 1940 Act, the Trust
may maintain insurance for the protection of the Trust Property, the Holders,
and the Trustees, officers, employees, agents and independent contractors of the
Trust in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
5.7. RELIANCE ON EXPERTS, ETC. Each Trustee, officer, employee, agent
or independent contractor of the Trust shall, in the performance of such
Person's duties, be fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good faith upon the
books of account or other records of the Trust (whether or not the Trust would
have the power to indemnify such Persons against such liability), upon an
opinion of counsel, or upon reports made to the Trust by any of its officers or
employees or by any Investment Adviser or Administrator, accountant, appraiser
or other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or expert
may also be a Trustee.
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ARTICLE VI
Interests
---------
6.1. INTERESTS. The beneficial interest in the Trust Property shall
consist of non-transferable Interests. The Interests shall be personal property
giving only the rights in this Declaration specifically set forth. The value of
an Interest shall be equal to the Book Capital Account balance of the Holder of
the Interest.
6.2. NON-TRANSFERABILITY. A Holder may not transfer, sell or exchange
its Interest.
6.3. REGISTER OF INTERESTS. A register shall be kept at the Trust under
the direction of the Trustees which shall contain the name, address and Book
Capital Account balance of each Holder. Such register shall be conclusive as to
the identity of the Holders. No Holder shall be entitled to receive payment of
any distribution, nor to have notice given to it as herein provided, until it
has given its address to such officer or agent of the Trust as is keeping such
register for entry thereon.
ARTICLE VII
Increases, Decreases and Redemptions of Interests
-------------------------------------------------
Subject to applicable law and to such restrictions as may from time to
time be adopted by the Trustees, each Holder shall have the right to vary its
investment in the Trust at any time without limitation by increasing (through a
capital contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the investment of a Holder in the
Trust shall be reflected as an increase in the Book Capital Account balance of
that Holder and a decrease in the investment of a Holder in the Trust or the
Redemption of the Interest of a Holder shall be reflected as a decrease in the
Book Capital Account balance of that Holder. The Trust shall, upon appropriate
and adequate notice from any Holder increase, decrease or redeem such Holder's
Interest for an amount determined by the application of a formula adopted for
such purpose by resolution of the Trustees; provided that (a) the amount
received by the Holder upon any such decrease or Redemption shall not exceed the
decrease in the Holder's Book Capital Account balance effected by such decrease
or Redemption of its Interest, and (b) if so authorized by the Trustees, the
Trust may, at any time and from time to time, charge fees for effecting any such
decrease or Redemption, at such rates as the Trustees may establish, and may, at
any time and from time to time, suspend such right of decrease or Redemption.
The procedures for effecting decreases or Redemptions shall be as determined by
the Trustees from time to time.
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ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
--------------------------
8.1. BOOK CAPITAL ACCOUNT BALANCES. The Book Capital Account balance of
each Holder shall be determined on such days and at such time or times as the
Trustees may determine. The Trustees shall adopt resolutions setting forth the
method of determining the Book Capital Account balance of each Holder. The power
and duty to make calculations pursuant to such resolutions may be delegated by
the Trustees to the Investment Adviser or Administrator, custodian, or such
other Person as the Trustees may determine. Upon the Redemption of an Interest,
the Holder of that Interest shall be entitled to receive the balance of its Book
Capital Account. A Holder may not transfer, sell or exchange its Book Capital
Account balance.
8.2. ALLOCATIONS AND DISTRIBUTIONS TO HOLDERS. The Trustees shall, in
compliance with the Code, the 1940 Act and generally accepted accounting
principles, establish the procedures by which the Trust shall make (i) the
allocation of unrealized gains and losses, taxable income and tax loss, and
profit and loss to each Holder, (ii) the payment of distributions, if any, to
Holders, and (iii) upon liquidation, the final distribution of items of taxable
income and expense. Such procedures shall be set forth in writing and be
furnished to the Trust's accountants. The Trustees may amend the procedures
adopted pursuant to this Section 8.2 from time to time. The Trustees may retain
from the net profits such amount as they may deem necessary to pay the
liabilities and expenses of the Trust, to meet obligations of the Trust, and as
they may deem desirable to use in the conduct of the affairs of the Trust or to
retain for future requirements or extensions of the business.
8.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the net income
of the Trust, the allocation of income of the Trust, the Book Capital Account
balance of each Holder, or the payment of distributions to the Holders as they
may deem necessary or desirable to enable the Trust to comply with any provision
of the 1940 Act or any order of exemption issued by the Commission.
ARTICLE IX
Holders
-------
9.1. RIGHTS OF HOLDERS. The ownership of the Trust Property and the
right to conduct any business described herein are vested exclusively in the
Trustees, and the Holders shall have no right or title therein other than the
beneficial interest conferred by their Interests and they shall have no power or
right to call for any partition or division of any Trust Property.
9.2. MEETINGS OF HOLDERS. Meetings of Holders may be called at any time
by a majority of the Trustees and shall be called by any Trustee upon written
request of Holders holding, in the aggregate, not less than 10% of the
Interests, such request specifying the purpose or purposes for which such
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<PAGE>
meeting is to be called. Any such meeting shall be held within or without the
State of New York and within or without the United States of America on such day
and at such time as the Trustees shall designate. Holders of one-third of the
Interests, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. NOTICE OF MEETINGS. Notice of each meeting of Holders, stating the
time, place and purposes of the meeting, shall be given by the Trustees by mail
to each Holder, at its registered address, mailed at least 10 days and not more
than 60 days before the meeting. Notice of any meeting may be waived in writing
by any Holder either before or after such meeting. The attendance of a Holder at
a meeting shall constitute a waiver of notice of such meeting except in the
situation in which a Holder attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened. At any meeting, any business properly before
the meeting may be considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further notice.
9.4. RECORD DATE FOR MEETINGS, DISTRIBUTIONS, ETC. For the 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 90 days
prior to the date of any meeting of Holders or the payment of any distribution
or the taking of any other action, as the case may be, as a record date for the
determination of the Persons to be treated as Holders for such purpose.
9.5. PROXIES, ETC. At any meeting of Holders, any Holder entitled to
vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote is to be taken. A proxy may be
revoked by a Holder at any time before it has been exercised by placing on file
with the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, a later dated proxy or written revocation. Pursuant to a
resolution of a majority of the Trustees, proxies may be solicited in the name
of the Trust or of one or more Trustees or of one or more officers of the Trust.
Only Holders on the record date shall be entitled to vote. Each such Holder
shall be entitled to a vote proportionate to its Interest. When an Interest is
held jointly by several Persons, any one of them may vote at any meeting in
person or by proxy in respect of such Interest, but if more than one of them is
present at such meeting in person or by proxy, and such joint owners or their
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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.
9.6. REPORTS. The Trustees shall cause to be prepared and furnished to
each Holder, at least annually as of the end of each Fiscal Year, a report of
operations containing a balance sheet and a statement of income of the Trust
prepared in conformity with generally accepted accounting principles and an
opinion of an independent public accountant on such financial statements. The
Trustees shall, in addition, furnish to each Holder at least semi-annually
interim reports of operations containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection by Holders during normal business hours for any purpose not harmful
to the Trust.
9.8. HOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by
Holders may be taken without a meeting if Holders holding more than 50% of all
Interests entitled to vote (or such larger proportion thereof as shall be
required by any express provision of this Declaration) consent to the action in
writing and the written consents are filed with the records of the meetings of
Holders. Such consents shall be treated for all purposes as a vote taken at a
meeting of Holders. Each such written consent shall be executed by or on behalf
of the Holder delivering such consent and shall bear the date of such execution.
No such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written consents
executed by a sufficient number of Holders to take such action are filed with
the records of the meetings of Holders.
9.9. NOTICES. Any and all communications, including any and all notices
to which any Holder may be entitled, shall be deemed duly served or given if
mailed, postage prepaid, addressed to a Holder at its last known address as
recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
Amendment; Mergers; etc.
------------------------
10.1. DURATION. Subject to possible termination or dissolution in
accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
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<PAGE>
<TABLE>
<CAPTION>
Date of
Name Address Birth
---- ------- -----
<S> <C> <C>
Nelson Stewart Ruble 65 Duck Pond Road 04/10/91
Glen Cove, NY 11542
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 400 South Pointe Drive, #803 08/16/89
Miami Beach, FL 33139
David Cornelius Johnson 752 West End Avenue, Apt. 10J 05/02/89
New York, NY 10025
Conner Leahy McCabe 100 Parkway Road, Apt. 3C 02/22/89
Bronxville, NY 10708
Andrea Hellegers 530 East 84th Street, Apt. 5H 12/22/88
New York, NY 10028
Emilie Blair Ruble 65 Duck Pond Road 02/24/89
Glen Cove, NY 11542
Brian Patrick Lyons 152-48 Jewel Avenue 01/20/89
Flushing, NY 11367
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
</TABLE>
10.2. TERMINATION.
(a) The Trust may be terminated (i) by the affirmative vote of
Holders of not less than two-thirds of all Interests at any meeting of Holders
or by an instrument in writing without a meeting, executed by a majority of the
Trustees and consented to by Holders of not less than two-thirds of all
Interests, or (ii) by the Trustees by written notice to the Holders. Upon any
such termination,
(i) the Trust shall carry on no business except for the
purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect the assets of the Trust, sell, convey, assign, exchange or
otherwise dispose of all or any part of the Trust Property to one or
more Persons at public or private sale for consideration which may
consist in whole or in part of cash, securities or other property of
any kind, discharge or pay the liabilities of the Trust, and do all
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<PAGE>
other acts appropriate to liquidate the business of the Trust; provided
that any sale, conveyance, assignment, exchange or other disposition of
all or substantially all the Trust Property shall require approval of
the principal terms of the transaction and the nature and amount of the
consideration by the vote of Holders holding more than 50% of all
Interests; and
(iii) after paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the
Trustees shall distribute the remaining Trust Property, in cash or in
kind or partly each, among the Holders according to their respective
rights.
(b) Upon termination of the Trust and distribution to the Holders
as herein provided, a majority of the Trustees shall execute and file with the
records of the Trust an instrument in writing setting forth the fact of such
termination and distribution. Upon termination of the Trust, the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Holders shall thereupon cease.
10.3. DISSOLUTION. Upon the bankruptcy of any Holder, or upon the
Redemption of any Interest, the Trust shall be dissolved effective 120 days
after the event. However, the Holders (other than such bankrupt or redeeming
Holder) may, by a unanimous affirmative vote at any meeting of such Holders or
by an instrument in writing without a meeting executed by a majority of the
Trustees and consented to by all such Holders, agree to continue the business of
the Trust even if there has been such a dissolution.
10.4. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by the vote of Holders of more
than 50% of all Interests at any meeting of Holders or by an instrument in
writing without a meeting, executed by a majority of the Trustees and consented
to by the Holders of more than 50% of all Interests. Notwithstanding any other
provision hereof, this Declaration may be amended by an instrument in writing
executed by a majority of the Trustees, and without the vote or consent of
Holders, for any one or more of the following purposes: (i) to change the name
of the Trust, (ii) to supply any omission, or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations or the
requirements of the applicable provisions of the Code, (iv) to change the state
or other jurisdiction designated herein as the state or other jurisdiction whose
law shall be the governing law hereof, (v) to effect such changes herein as the
Trustees find to be necessary or appropriate (A) to permit the filing of this
Declaration under the law of such state or other jurisdiction applicable to
trusts or voluntary associations, (B) to permit the Trust to elect to be treated
as a "regulated investment company" under the applicable provisions of the Code,
or (C) to permit the transfer of Interests (or to permit the transfer of any
other beneficial interest in or share of the Trust, however denominated), and
(vi) in conjunction with any amendment contemplated by the foregoing clause (iv)
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or the foregoing clause (v) to make any and all such further changes or
modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause (v)
or the foregoing clause (vi) to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that unless
effected in compliance with the provisions of Section 10.4(b) hereof, no
amendment otherwise authorized by this sentence may be made which would reduce
the amount payable with respect to any Interest upon liquidation of the Trust
and; provided, further, that the Trustees shall not be liable for failing to
make any amendment permitted by this Section 10.4(a).
(b) No amendment may be made under Section 10.4(a) hereof which
would change any rights with respect to any Interest by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of Holders
of two-thirds of all Interests.
(c) A certification in recordable form executed by a majority of
the Trustees setting forth an amendment and reciting that it was duly adopted by
the Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when filed with the records of the
Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of the Trust Property,
including good will, upon such terms and conditions and for such consideration
when and as authorized at any meeting of Holders called for such purpose by the
affirmative vote of Holders of not less than two-thirds of all Interests, or by
an instrument in writing without a meeting, consented to by Holders of not less
than two-thirds of all 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 State of New York.
10.6. INCORPORATION. Upon a Majority Interests Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the law of any jurisdiction or a trust, partnership, association or other
organization to take over the Trust Property or to carry on any business in
which the Trust directly or indirectly has any interest, and to sell, convey and
transfer the Trust Property to any such corporation, trust, partnership,
association or other organization in exchange for the equity interests thereof
or otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contract with any such corporation, trust, partnership,
association or other organization, or any corporation, trust, partnership,
association or other organization in which the Trust holds or is about to
acquire equity interests. The Trustees may also cause a merger or consolidation
18
<PAGE>
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted by
law. Nothing contained herein shall be construed as requiring approval of the
Holders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to one or
more of such organizations or entities.
ARTICLE XI
Miscellaneous
-------------
11.1. CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF PROCESS. The
Trust shall file, with the Department of State of the State of New York, a
certificate, in the name of the Trust and executed by an officer of the Trust,
designating the Secretary of State of the State of New York as an agent upon
whom process in any action or proceeding against the Trust may be served.
11.2. GOVERNING LAW. This Declaration is executed by the Trustees and
delivered in the State of New York and with reference to the law thereof, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed in accordance with the law of the State
of New York and reference shall be specifically made to the trust law of the
State of New York as to the construction of matters not specifically covered
herein or as to which an ambiguity exists.
11.3. COUNTERPARTS. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any one such original counterpart.
11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust or of any recording office
in which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Holders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of any
vote passed at a meeting of Trustees or Holders, (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officer elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees.
11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, or with other applicable law and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
19
<PAGE>
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the day and year first above written.
/S/ PHILIP W. COOLIDGE
-------------------------------
As Trustee and not Individually
/S/ JAMES B. CRAVER
-------------------------------
As Trustee and not Individually
/S/ THOMAS M. LENZ
-------------------------------
As Trustee and not Individually
SWK003
20
SWK027
091991
SHORT-TERM WORLD INCOME PORTFOLIO
---------------------------------
BY-LAWS
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing the SHORT-TERM WORLD INCOME PORTFOLIO (the
"Trust"), dated as of October 1, 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 1.1. CHAIRMAN. The President shall act as chairman at all
meetings of the Holders, or the Trustee or Trustees present at each meeting may
elect a temporary chairman for the meeting, who may be one of themselves.
Section 1.2. 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 1.3. 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 9.3 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 1.4. 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
<PAGE>
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 or more Inspectors of Election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the chairman, if any, of the
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 1.5. 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.
Holders shall have the right to inspect books and records of the Trust during
normal business hours and for any purpose not harmful to the Trust.
ARTICLE II
----------
Trustees
--------
Section 2.1. ANNUAL AND REGULAR MEETINGS. The Trustees shall hold an
annual meeting for the election of officers and the transaction of other
business which may come before such meeting. Regular meetings of the Trustees
may be held without call or notice at such place or places and times as the
Trustees may by resolution provide from time to time.
Section 2.2. 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 2.3. 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.
<PAGE>
Section 2.4. 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 3.1. OFFICERS OF THE TRUST. The officers of the Trust shall
consist of a Chairman, if any, a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person. The Trustees may designate a Vice President as an Executive Vice
President and may designate the order in which the other Vice Presidents may
act. The Chairman shall be a Trustee, but no other officer of the Trust,
including the President, need be a Trustee.
Section 3.2. ELECTION AND TENURE. At the initial organization meeting
and thereafter at each annual meeting of the Trustees, the Trustees shall elect
the Chairman, if any, 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 3.3. REMOVAL OF OFFICERS. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, 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 3.4. BONDS AND SURETY. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees may determine.
Section 3.5. CHAIRMAN, PRESIDENT AND VICE PRESIDENTS. The Chairman, if
any, shall, if present, preside at all meetings of the Holders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees. Subject to such supervisory
powers, if any, as may be given by the Trustee to the Chairman, if any,
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
<PAGE>
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 3.6. SECRETARY. The Secretary (or any Assistant 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 which would be sealed by a New York corporation
executing the same or a similar instrument and shall attest the seal and the
signature or signatures of the officer or officers executing such instrument on
behalf of the Trust. The Secretary (or any Assistant Secretary) shall also
perform any other duties commonly incident to such office in a New York
corporation, and shall have such other authorities and duties as the Trustees
shall from time to time determine.
Section 3.7. TREASURER. Except as otherwise directed by the Trustees,
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President all powers and duties normally incident to his office. 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,
<PAGE>
administrator or manager to maintain bank accounts and deposit and disburse
funds on behalf of the Trust.
Section 3.8. OTHER OFFICERS AND DUTIES. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
----------
Miscellaneous
-------------
Section 4.1. DEPOSITORIES. In accordance with Section 7.1 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 4.2. SIGNATURES. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
provide.
Section 4.3. SEAL. The seal of the Trust, if any, may be affixed to any
document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a New York corporation.
Section 4.4. INDEMNIFICATION. Insofar as the conditional advancing of
indemnification monies under Section 5.3 of the Declaration of Trust for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds that
amount to which it is ultimately determined that he is entitled to receive from
the Trust by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Trust without
delay or litigation, which bond, insurance or other form of security must be
provided by the recipient of the advance, or (b) a majority of a quorum of the
Trust's disinterested, non-party Trustees, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily available
facts, that the recipient of the advance ultimately will be found entitled to
indemnification.
ARTICLE V
---------
Non-transferability of Interests
--------------------------------
<PAGE>
Section 5.1. 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 5.2. 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 5.3. 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 6.1. AMENDMENT AND REPEAL OF BY-LAWS. In accordance with
Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. Action by the
Trustees with respect to the By-Laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-Laws which are
in conflict with the Declaration.
The Declaration refers to the Trustees as Trustees, but not as
individuals or personally; and no Trustee, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of July 28, 1995 by and between SHORT-TERM WORLD
INCOME PORTFOLIO, a New York trust (herein called the "Portfolio"), and Brinson
Partners, Inc., an Illinois corporation (herein called the "Adviser").
WHEREAS, the Portfolio is registered as an open-end, non-diversified,
management investment company under the Investment Company Act of 1940 (the
"1940 Act"); and
WHEREAS, the Portfolio desires to retain the Adviser to render
investment advisory services, and the Adviser is willing to so render such
services on the terms hereinafter set forth;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. The Portfolio hereby appoints the Adviser to act as investment
adviser to the Portfolio for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this Agreement and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Agreement.
(b) The Portfolio shall be responsible for all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Portfolio's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and securities,
maintenance of books and accounts and calculation of the net asset value of the
Portfolio), transfer agent, registrar and dividend disbursing agent of the
Portfolio; expenses of preparing and mailing reports to investors and to
regulatory agencies; the cost of office supplies, including stationery; travel
expenses of all officers, Trustees and employees; insurance premiums; brokerage
and other expenses of executing portfolio transactions; expenses of investors'
and Trustees' meetings; organization expenses; and extraordinary expenses.
3. (a) The Adviser shall provide to the Portfolio investment guidance
and policy direction in connection with the management of the Portfolio,
including research, analysis, advice, statistical and economic data and
information and judgments of both a macroeconomic and microeconomic character.
The Adviser will determine the securities to be purchased, sold or lent
by the Portfolio and will place orders pursuant to its determinations either
directly with the issuer or with any broker or dealer who deals in such
securities. In placing orders with brokers and dealers, the Adviser will use its
reasonable best efforts to obtain the best net price and the most favorable
execution of its orders, after taking into account all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
1
<PAGE>
transaction and on a continuing basis. Consistent with this obligation, the
Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers and dealers who provide brokerage and research
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934) to or for the benefit of the Portfolio and/or other accounts over which
the Adviser or any of its affiliates exercises investment discretion. Subject to
the review of the Portfolio's Board of Trustees from time to time with respect
to the extent and continuation of the policy, the Adviser is authorized to pay
to a broker or dealer who provides such brokerage and research services a
commission for effecting a securities transaction for the Portfolio which is in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Adviser with
respect to the accounts as to which it exercises investment discretion.
In placing orders with brokers and/or dealers, the Adviser intends to
seek best price and execution for purchases and sales and may effect
transactions through itself and its affiliates on a securities exchange provided
that the commissions paid by the Portfolio are "reasonable and fair" compared to
commissions received by other broker-dealers having comparable execution
capability in connection with comparable transactions involving similar
securities and provided that the transactions in connection with which such
commissions are paid are effected pursuant to procedures established by the
Board of the Trustees of the Portfolio.
The Adviser shall determine from time to time the manner in which
voting rights, rights to consent to corporate action and any other rights
pertaining to the Portfolio's portfolio securities shall be exercised, provided,
however, that should the Board of Trustees at any time make any definite
determination as to investment policy and notify the Adviser thereof in writing,
the Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked. The Adviser will determine what portion of securities owned by the
Portfolio shall be invested in securities described by the policies of the
Portfolio and what portion, if any, should be invested otherwise or held
uninvested. The Adviser will determine whether and to what extent to employ
various investment techniques available to the Portfolio, including, among other
things, implementation of a global investment strategy, engaging in hedging
transactions, selection of derivative securities and entering into foreign
currency transactions. In effecting transactions with respect to securities or
other property for the account of the Portfolio, the Adviser may deal with
itself and its affiliates, with the Trustees of the Portfolio or with other
persons to the extent such actions are permitted by the 1940 Act.
(b) The Adviser also shall provide to the Portfolio's officers
administrative assistance in connection with the operation of the Portfolio,
which shall include compliance with all reasonable requests of the Portfolio for
information, including information required in connection with the Portfolio's
filings with the Securities and Exchange Commission and state securities
commissions.
(c) As manager of the assets of the Portfolio, the Adviser shall make
investments for the account of the Portfolio in accordance with the Adviser's
best judgment and within the Portfolio's investment objectives and restrictions,
the 1940 Act and the provisions of the Internal Revenue Code of 1986 relating to
regulated investment companies subject to policy decisions adopted by the Board
of Trustees.
(d) The Adviser shall furnish to the Board of Trustees periodic reports
on the investment performance of the Portfolio and on the performance of its
obligations under this Agreement and shall supply such additional reports and
information as the Portfolio's officers or Board of Trustees shall reasonably
request.
(e) On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other customers,
the Adviser, to the extent permitted by applicable law, may aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions, if any. The Adviser may also on occasions purchase
or sell a particular security for one or more customers in different amounts. On
2
<PAGE>
either occasion, and to the extent permitted by applicable law and regulations,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to such other customers.
4. The Adviser shall give the Portfolio the benefit of the Adviser's
best judgment and efforts IN rendering services under this Agreement. As an
inducement to the Adviser's undertaking to render these services, the Portfolio
agrees that the Adviser shall not be liable under this Agreement for any mistake
in judgment or in any other event whatsoever provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Portfolio or its investors to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this Agreement or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
5. In consideration of the services to be rendered by the Adviser under
this Agreement, the Portfolio shall pay the Adviser a fee accrued daily and paid
monthly at an annual rate equal to 0. 25 % of the Portfolio's average daily net
assets. If the fees payable to the Adviser pursuant to this paragraph 5 begin to
accrue before the end of any month or if this Agreement terminates before the
end of any month, the fees for the period from that date to the end of that
month or from the beginning of that month to the date of termination, as the
case may be, shall be prorated according to the proportion which the period
bears to the FRILL month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Portfolio shall be computed in the manner specified in its Registration
Statement on Form N-IA for the computation of net asset value. For purposes of
this Agreement, a "business day" is any day the New York Stock Exchange is open
for trading.
6. This Agreement shall be effective as to the Portfolio as of the date
this Agreement shall have been approved by the investor(s) in both the Portfolio
and the SBC Short-Term World Income Fund ("SBC Fund") of SwissKey Funds in the
manner contemplated by Section 15 of the 1940 Act and, unless sooner terminated
as provided herein, shall continue until the earlier of (a) the consummation of
the transaction that provides for the acquisition of substantially all of the
assets of the SBC Fund in exchange for the SwissKey Class shares of the Brinson
Short-Term Global Income Fund of The Brinson Funds, as described in the
Registration Statement of The Brinson Funds filed on Form N-14 with the
Securities and Exchange Commission on June 27, 1995, or (b) the second
anniversary of such date. Thereafter, if not terminated, this Agreement shall
continue in effect as to the Portfolio for successive periods of 12 months each,
provided such continuance is specifically approved at least annually (a) by the
vote of a majority of those members of the Board of Trustees of the Portfolio
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Board of Trustees of the Portfolio by vote of A majority of the
outstanding voting securities of the Portfolio; provided, however, that this
Agreement may be terminated by the Portfolio at any time, without the payment of
any penalty, by the Board of Trustees of the Portfolio or by vote of a majority
of the outstanding voting securities of the Portfolio on 60 days' written notice
to the Adviser, or by the Adviser as to the Portfolio at any time, without
payment of any penalty, on 90 days' written notice to the Portfolio. This
Agreement will immediately terminate in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting securities",
"interested person" and "assignment" shall have the same meanings as such terms
have in the 1940 Act and the rules and regulatory constructions thereunder.)
7. Except to the extent necessary to perform the Adviser's obligations
under this Agreement, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other trust,
corporation, firm, individual or association.
3
<PAGE>
8. The investment management services of the Adviser to the Portfolio
under this Agreement are not to be deemed exclusive as to the Adviser and the
Adviser will be free to render similar services to others.
9. This Agreement shall be construed in accordance with the laws of the
State of New York provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
SWISSKEY FUNDS
Attest:
/s/James B. Craver By: /s/Philip W. Coolidge
- ---------------------- -------------------------
James B. Craver Philip W. Coolidge
Secretary President
THE BRINSON FUNDS
Attest:
/s/Debra L. Nichols By: /s/E. Thomas McFarian
- ---------------------- -------------------------
Debra L. Nichols E. Thomas McFarian
Assistant Secretary President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Short-Term World Income Portfolio Annual Report dated October 31, 1995 and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000880455
<NAME> SHORT-TERM WORLD INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 50043264
<INVESTMENTS-AT-VALUE> 50410455
<RECEIVABLES> 413376
<ASSETS-OTHER> 231023
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51054854
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170641
<TOTAL-LIABILITIES> 170641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 50884213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5030496
<OTHER-INCOME> 0
<EXPENSES-NET> 587582
<NET-INVESTMENT-INCOME> 4442914
<REALIZED-GAINS-CURRENT> 1843970
<APPREC-INCREASE-CURRENT> (369641)
<NET-CHANGE-FROM-OPS> 1474329
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (57938998)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 190481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 587582
<AVERAGE-NET-ASSETS> 76192459
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
