As filed with the Securities and Exchange Commission on October 3, 1995
File No. 811-7854
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2
THE U.S. STOCK PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
P.O. Box 2494, Elizabethan Square - 2nd Floor, George Town,
Grand Cayman, Cayman Islands, B.W.I.
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(809) 945-1824
Philip W. Coolidge, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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JPM478.EDG
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933 (the "1933 Act") because such interests will be issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act. Investments in the
Registrant may only be made by other investment companies, insurance company
separate accounts, common or commingled trust funds or similar organizations or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any beneficial interests in the
Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to paragraph
4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
The U.S. Stock Portfolio (the "Portfolio") is a no-load, diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York on January 29, 1993. Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by investment companies, insurance company separate
accounts, common or commingled trust funds or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D under the
1933 Act. This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan Guaranty" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan
Guaranty" or the "Advisor") or any other bank. Interests in the Portfolio are
not federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other governmental agency. An investment in the Portfolio
is subject to risk, as the net asset value of the Portfolio will fluctuate with
changes in the value of the Portfolio's holdings. There can be no assurance that
the investment objective of the Portfolio will be achieved.
Part B contains more detailed information about the Portfolio, including
information related to (i) the investment policies and restrictions of the
Portfolio, (ii) the Trustees, officers, Advisor and administrator of the
Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors, and (v) the audited financial statements of the Portfolio at May 31,
1995.
The investment objective of the Portfolio is described below, together with
the policies employed to attempt to achieve this
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objective. Additional information about the investment policies of
the Portfolio appears in Part B, under Item 13.
The Portfolio's investment objective is to provide a high total return from a
broadly diversified portfolio of equity securities. Total return will consist of
realized and unrealized capital gains and losses plus income. The Portfolio
invests primarily in the common stock of large and medium sized U.S.
corporations with market capitalizations above $1.5 billion.
The Portfolio is designed for investors who want to invest in the common
stocks of large and medium sized corporations through a portfolio broadly
diversified across sectors, industries and issuers. It is appropriate for
investors who seek a modestly enhanced return relative to that of large and
medium sized U.S. companies, typically represented by the Standard & Poor's 500
Stock Index (the "S&P 500 Index"), with a volatility of return similar to that
of the S&P 500 Index.
The Portfolio seeks to achieve its investment objective through fundamental
analysis, systematic stock valuation and disciplined portfolio construction.
Based on internal fundamental research, the Advisor uses a dividend discount
model to value securities and to rank a universe of large capitalization
companies within economic sectors according to their relative value. The Advisor
then buys and sells securities within each economic sector based on this
valuation process to seek to enhance the Portfolio's return.
In addition, the Advisor uses this disciplined portfolio construction process
to seek to reduce the Portfolio's volatility. The Advisor attempts to match the
Portfolio to various characteristics of the S&P 500 Index. For instance, the
Advisor keeps the economic sector weightings, the average market capitalization
and other broad characteristics of the Portfolio comparable to those of the S&P
500 Index. Finally, the Portfolio holds a large number of stocks to enhance its
diversification.
In normal circumstances, the Advisor intends to keep the Portfolio
essentially fully invested with at least 65% of the Portfolio's net assets
invested in equity securities consisting of common stocks and other securities
with equity characteristics such as preferred stocks, warrants, rights and
convertibles. The Portfolio's primary equity investments will be the common
stock of large and medium sized U.S. companies with market capitalizations above
$1.5 billion.
The Portfolio may invest to a limited extent in similar securities of foreign
corporations.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short term market fluctuations or
to acquire securities for the purpose of short term trading; however, it may
take advantage of short term trading opportunities that are consistent with its
objective. To the extent the Portfolio engages in short term trading, it may
incur increased transaction costs.
EQUITY INVESTMENTS. During ordinary market conditions, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's net assets invested in equity securities consisting of common stocks
and other securities with equity characteristics such as preferred stocks,
warrants, rights and convertible securities. The Portfolio's primary equity
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investments are the common stocks of large and medium sized U.S. corporations
and, to a limited extent, similar securities of foreign corporations. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests in securities listed on a
securities exchange or traded in an over-the-counter market, and may invest in
certain restricted or unlisted securities.
FOREIGN INVESTMENTS. Although the Portfolio invests primarily in U.S. equity
securities, it may invest in equity securities of foreign corporations. However,
the Portfolio does not expect to invest more than 30% of its assets at the time
of purchase in securities of foreign issuers, nor does it expect more than 10%
of its assets to be in securities of foreign issuers not listed on a national
securities exchange or not denominated or principally traded in U.S. dollars.
For further information on foreign investments and foreign currency exchange
transactions, see "Additional Investment Information and Risk Factors".
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, and purchase certain privately placed securities and
money market instruments. In addition, the Portfolio may use options on
securities and indexes of securities, futures contracts and options on futures
contracts for hedging and risk management purposes. For a discussion of these
investments and investment techniques, see "Additional Investment Information
and Risk Factors".
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's restrictions, foreign issuers. The
convertible securities in which the Portfolio may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income investments no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase
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agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the term
of the agreement. The term of these agreements is usually from overnight to one
week. A repurchase agreement may be viewed as a fully collateralized loan of
money by the Portfolio to the seller. The Portfolio always receives securities
as collateral with a market value at least equal to the purchase price plus
accrued interest and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, the Portfolio might
incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Portfolio's realization upon the disposition of collateral may be
delayed or limited. Investments in certain repurchase agreements and certain
other investments which may be considered illiquid are limited. See "Illiquid
Investments; Privately Placed and other Unregistered Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest.
While such securities are on loan, the borrower will pay the Portfolio any
income accruing thereon. Loans will be subject to termination by the Portfolio
in the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio and
its investors. The Portfolio may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Portfolio will consider all facts and
circumstances, including the creditworthiness of the borrowing financial
institution, and the Portfolio will not make any loans in excess of one year.
The Portfolio will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolio, Advisor , Administrator or
Placement Agent, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. For
purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), is
considered a form of borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Item 13 in Part B.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain foreign
securities. Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those
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applicable to domestic companies. Dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such
institutions issuing ADRs may not be sponsored by the issuer of the underlying
foreign securities. A non-sponsored depository may not provide the same
shareholder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign
securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
Since investments in foreign securities involve foreign currencies, the value
of their assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
including currency
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blockage. See "Foreign Currency Exchange Transactions".
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the U.S.
dollar, the Portfolio may from time to time enter into foreign currency exchange
transactions. The Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
cost of the Portfolio's spot currency exchange transactions is generally the
difference between the bid and offer spot rate of the currency being purchased
or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement, and is traded at a net price without
commission. The Portfolio will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolio may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Portfolio would enter
into a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward
contracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of
fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
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SECURITIES. The Portfolio may not acquire any illiquid securities if, as a
result thereof, more than 15% of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the 1933 Act and
cannot be offered for public sale in the United States without first being
registered under the 1933 Act. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Portfolio. The price the
Portfolio pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS
The Portfolio is permitted to enter into the futures and options transactions
described below for both hedging and risk management purposes, although not for
speculation. For more information, see Item 13 in Part B.
The Portfolio may (a) purchase exchange traded and over-the-counter ("OTC")
put and call options on equity securities or indexes of equity securities, (b)
purchase and sell futures contracts on indexes of equity securities, and (c)
purchase put and call options on futures contracts on indexes of equity
securities. In addition, the Portfolio may sell (write) exchange traded and OTC
put and call options on equity securities and indexes of equity securities and
on futures contracts on indexes of equity securities.
The Portfolio may use futures contracts and options for hedging purposes. The
Portfolio may also use futures contracts and options for risk management
purposes. See Item 13 in part B. The Portfolio may not use futures contracts and
options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in
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higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Advisor applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's possibilities to
realize gains as well as limiting its exposure to losses. The Portfolio could
also experience losses if the prices of its options and futures positions were
poorly correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market. In addition, the Portfolio
will incur transaction costs, including trading commissions and option premiums,
in connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put
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buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. The Portfolio may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. If the market is not
liquid for a put option the Portfolio has written, however, the Portfolio must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index
of securities or a futures contract is required to deposit cash or securities or
a letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase put and call options on any
securities index based on securities in which the Portfolio may invest. The
Portfolio may also sell (write) put and call options on such indexes. Options on
securities indexes are similar to options on securities, except that the
exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group
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of securities or segment of the securities market rather than price fluctuations
in a single security. The Portfolio, in purchasing or selling index options, is
subject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it agrees
to purchase a specified quantity of an underlying instrument at a specified
future date or to make a cash payment based on the value of a securities index.
When the Portfolio sells a futures contract, it agrees to sell a specified
quantity of the underlying instrument at a specified future date or to receive a
cash payment based on the value of a securities index. The price at which the
purchase and sale will take place is fixed when the Portfolio enters into the
contract. Futures can be held until their delivery dates or the position can be
(and normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting
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in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with
its use of options and futures contracts to the extent required by the staff of
the Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and
a more detailed discussion of associated risks, see Item 13 in Part B.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money
market instruments, although the Portfolio intends to stay invested in equity
securities to the extent practical in light of its objective and long-term
investment perspective. The Portfolio may make money market investments pending
other investment or settlement, for liquidity or in adverse markets. The money
market investments permitted for the Portfolio include obligations of the U.S.
Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. For more detailed
information about these money market instruments, see Item 13 in Part B.
INVESTMENT RESTRICTIONS
The investment objective of the Portfolio, together with the investment
restrictions described below and in Part B, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval of a
majority of the outstanding voting securities of the Portfolio, as defined in
the 1940 Act.
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except government securities, and (b) the Portfolio may not own more than 10% of
the outstanding voting securities of any one issuer.
The Portfolio may not (i) purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its
investments in such industry would exceed 25% of the value of the Portfolio's
total assets, except this limitation shall not apply to investments in U.S.
Government securities; (ii) borrow money (not including reverse repurchase
agreements), except from banks for temporary or extraordinary or emergency
purposes and then only in amounts up to 30% of the value of its total assets,
taken at cost at the time of borrowing (and provided that such borrowings and
reverse repurchase agreements do not exceed in the aggregate one-third of the
market value of the Portfolio's total assets less liabilities other than the
obligations represented by the bank borrowings and reverse repurchase
agreements), or purchase securities while borrowings exceed 5% of its total
assets; or mortgage, pledge or hypothecate any assets except in connection with
any such borrowings in amounts not to exceed 30% of the value of the Portfolio's
net assets at the time of borrowing; or (iii) enter into
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reverse repurchase agreements and other permitted borrowings which constitute
senior securities under the 1940 Act, exceeding in the aggregate one-third of
the market value of the Portfolio's total assets, less certain liabilities.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Board of Trustees provides broad supervision over the affairs of the
Portfolio. The Portfolio has retained the services of Morgan Guaranty as
investment adviser. The Portfolio has retained the services of Signature
Broker-Dealer Services, Inc. ("SBDS") as administrator (the "Administrator").
The Portfolio has not retained the services of a principal underwriter or
distributor, since interests in the Portfolio are offered solely in private
placement transactions. SBDS, acting as agent for the Portfolio, serves as
exclusive placement agent of interests in the Portfolio. SBDS receives no
additional compensation for serving as exclusive placement agent to the
Portfolio.
The Portfolio has entered into a Fund Services Agreement with
Pierpont Group, Inc. to assist the Trustees in exercising their
overall supervisory responsibilities for the Portfolio. The fees to
be paid under the agreements approximate the reasonable cost of
Pierpont Group, Inc. in providing these services. Pierpont Group,
Inc. was organized in 1989 at the request of the Trustees of the
Pierpont Family of Funds for the purpose of providing these services
at cost to these funds. See Item 14 in Part B. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
Guaranty as investment advisor. Morgan Guaranty, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which
conducts a general banking and trust business. Morgan Guaranty is a wholly owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding
company organized under the laws of Delaware. Through offices in New York City
and abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a
wide range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional clients
with combined assets under management of over $165 billion (of which the Advisor
advises over $26 billion). Morgan Guaranty provides investment advice and
portfolio management services to the Portfolio. Subject to the supervision of
the Portfolio's Trustees, Morgan Guaranty makes the Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. See Item 16 in Part B.
Morgan Guaranty uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection and disciplined portfolio
construction. Morgan Guaranty has managed portfolios of equity securities of
U.S. equity securities on behalf of its clients since the 1960s. The portfolio
managers making investments in U.S. equity securities work in conjunction with
Morgan Guaranty's domestic equity analysts, as well as capital market, credit
and economic research analysts, traders and administrative officers. The U.S.
equity analysts each cover a
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different industry, monitoring a universe of 700 predominantly large
and medium-sized U.S. companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan Guaranty's process for the Portfolio (the inception
date of each person's responsibility for the Portfolio and his or her business
experience for the past five years are indicated parenthetically): Kevin R.
Alger, Vice President (since July, 1993, employed by Morgan since prior to 1989)
and James C. Wiess, Assistant Vice President (since July, 1993, employed by
Morgan since July, 1992, previously Oppenheimer & Co.).
As compensation for the services rendered and related expenses borne by
Morgan Guaranty under the Investment Advisory Agreement with the Portfolio, the
Portfolio has agreed to pay Morgan Guaranty a fee which is computed daily and
may be paid monthly at the annual rate of 0.20% of the Portfolio's average daily
net assets.
Morgan Guaranty provides certain accounting and operations services to the
Portfolio , including services related o Portfolio tax returns.
ADMINISTRATOR. Under an Administration Agreement with the Portfolio, SBDS
serves as the Administrator for the Portfolio and in that capacity supervises
the Portfolio's day-to-day operations other than management of the Portfolio's
investments. In this capacity, SBDS administers and manages all aspects of the
Portfolio's day-to-day operations subject to the supervision of the Trustees,
except as set forth under "Investment Advisor" and "Custodian." In connection
with its responsibilities as Administrator, SBDS (i) furnishes ordinary clerical
and related services for day-to-day operations including certain recordkeeping
responsibilities; (ii) takes responsibility for compliance with all applicable
federal and state securities and other regulatory requirements; and (iii)
performs such administrative and managerial oversight of the activities of the
Portfolio's custodian and transfer agent, as the Trustees may direct from time
to time.
Under the terms of the Portfolio's Financial and Fund Accounting Services
Agreement with Morgan Guaranty, the fees of the Administrator are covered by
Morgan Guaranty's expense undertaking described under "Services Agent" below.
Under the Portfolio's Administration Agreement, the annual administration fee
rate is calculated based on the aggregate average daily net assets of the
Portfolio, as well as all of the other portfolios (the "Master Funds") in which
series of The Pierpont Funds, The JPM Institutional Funds or The JPM Advisor
Funds invest. The fee is calculated in accordance with the following schedule:
0.01% of the first $1 billion of these Portfolios' aggregate average daily net
assets, 0.008% of the next $2 billion of these Portfolios' aggregate average
daily net assets, 0.006% of the next $2 billion of these Portfolios' aggregate
average daily net assets, and 0.004% of these Portfolios' aggregate average
daily net assets in excess of $5 billion. This fee rate is then applied to the
net assets of the Portfolio and the Master Funds. The Administrator may
voluntarily waive a portion of its fees.
SBDS, a registered broker-dealer, also serves as exclusive
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placement agent for the Portfolio. SBDS is a wholly owned
subsidiary of Signature Financial Group, Inc. ("Signature").
Signature and its affiliates currently provide administration and
distribution services for a number of registered investment
companies through offices located in Boston, New York, London,
Toronto and George Town, Grand Cayman . The principal
business address of SBDS is 6 St. James Avenue, Boston,
Massachusetts 02116.
EXPENSES. In addition to the fees payable to Pierpont Group, Inc., Morgan
Guaranty and SBDS (under the various agreements discussed under Trustees,
Advisor and Administrator above), the Portfolio is responsible for usual and
customary expenses associated with its operations. Such expenses include
organization expenses, legal fees, accounting expenses, insurance costs,
expenses applicable to the Portfolio. Such expenses also include registration
fees under foreign securities laws, custodian fees and brokerage expenses.
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<PAGE>
CUSTODIAN. State Street Bank and Trust Company, 40 King Street
West, Toronto, Ontario, Canada M5H 3Y8 serves as the Portfolio's
custodian and transfer agent (the "Custodian").
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.
Changes in fundamental policies will be submitted to investors for approval.
Investors have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified
percentage of the outstanding interests in the Portfolio) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day other
than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income accrued,
less the amortization of any premium, on the assets of the Portfolio, less (ii)
all actual and accrued expenses of the
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Portfolio determined in accordance with generally accepted accounting
principles. Interest income includes discount earned (including both original
issue and market discount) on discount paper accrued ratably to the date of
maturity and any net realized gains or losses on the assets of the Portfolio.
All the net income of the Portfolio is allocated pro rata among the investors in
the Portfolio.
The end of the Portfolio's fiscal year is May 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 ordinary income and capital
gain 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
(the "Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to SBDS, 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 that 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 Rule 501 under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because 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 Custodian by a Federal Reserve Bank).
Each Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interest. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for shares only if they are, in the judgment of Morgan Guaranty,
appropriate investments for the Portfolio. In addition, securities accepted in
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<PAGE>
payment for shares must: (i) meet the investment objective and policies of the
acquiring Portfolio; (ii) be acquired by the applicable Portfolio for investment
and not for resale; (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
over-the-counter market or by readily available market quotations from a dealer
in such securities. Each Portfolio reserves the right to accept or reject at its
own option any and all securities offered in payment for beneficial interests.
The Portfolio and SBDS reserve 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 Portfolio Business Day. At the Valuation 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 the Valuation 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 the Valuation 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 the Valuation Time, and
(ii) the denominator of which is the aggregate net asset value of the Portfolio
as of the Valuation 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 the Valuation Time on the following Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce all or any portion of its investment
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 Portfolio 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 (the "NYSE") is closed (other than
weekends or holidays) or trading on the NYSE is restricted or, to the extent
otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio or
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the investor's portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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<PAGE>
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-13
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . . B-16
Investment Advisory and Other Services . . . . . . . B-16
Brokerage Allocation and Other Practices . . . . . . B-20
Capital Stock and Other Securities . . . . . . . . . B-22
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . B-23
Tax Status . . . . . . . . . . . . . . . . . . . . . B-24
Underwriters . . . . . . . . . . . . . . . . . . . . B-26
Calculations of Performance Data . . . . . . . . . . B-26
Financial Statements . . . . . . . . . . . . . . . . B-26
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
The investment objective of The U.S. Stock Portfolio (the "Portfolio") is to
provide a high total return from a broadly diversified portfolio of U.S. equity
securities. The Portfolio seeks to achieve its investment objective by investing
in the common stocks of large and medium sized corporations.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan Guaranty" or the "Advisor").
The following discussion supplements the information regarding the investment
objective of the Portfolio and the policies to be employed to achieve this
objective as set forth above and in Part A.
MONEY MARKET INSTRUMENTS
As discussed in Part A, the Portfolio may invest in money market instruments
to the extent consistent with its investment objective and policies. A
description of the various types of money market instruments that may be
purchased by the Portfolio appears below. See "Quality and Diversification
Requirements".
U.S. TREASURY SECURITIES. The Portfolio may invest in direct
obligations of the U.S. Treasury, including Treasury
<PAGE>
bills, notes and bonds, all of which are backed as to principal and interest
payments by the full faith and credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Portfolio must look principally
to the federal agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities in which the Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, both of whose obligations
may be satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. The Portfolio, subject to its
applicable investment policies, may also invest in short-term
obligations of foreign sovereign governments or of their agencies,
instrumentalities, authorities or political subdivisions. These
securities may be denominated in the U.S. dollar or in
another currency. See "Foreign Investments".
BANK OBLIGATIONS. The Portfolio, unless otherwise noted in Part A or below,
may invest in negotiable certificates of deposit, time deposits and bankers'
acceptances of (i) banks, savings and loan associations and savings banks which
have more than $2 billion in total assets and are organized under the laws of
the United States or any state, (ii) foreign branches of these banks or of
foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Portfolio will not invest in obligations
for which the Advisor, or any of its affiliated persons, is the ultimate obligor
or accepting bank. The Portfolio may also invest in obligations of international
banking institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the
European Investment Bank, the Inter-American Development Bank, or the World
Bank).
COMMERCIAL PAPER. The Portfolio may invest in commercial paper including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty acting as agent, for no
additional fee, in its capacity as investment advisor to the Portfolio and as
fiduciary for other clients for whom it exercises investment discretion. The
monies loaned to the borrower come from accounts managed by the Advisor or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. The Advisor, acting as a fiduciary on
behalf of its clients, has the right to increase or decrease the
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<PAGE>
amount provided to the borrower under an obligation. The borrower has the right
to pay without penalty all or any part of the principal amount then outstanding
on an obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligation on demand which is continuously monitored by the
Portfolio's Advisor. Since master demand obligations typically are not rated by
credit rating agencies, the Portfolio may invest in such unrated obligations
only if at the time of an investment the obligation is determined by the Advisor
to have a credit quality which satisfies the Portfolio's quality restrictions.
See "Quality and Diversification Requirements". Although there is no secondary
market for master demand obligations, such obligations are considered by the
Portfolio to be liquid because they are payable upon demand. The Portfolio does
not have any specific percentage limitation on investments in master demand
obligations.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trustees. In a repurchase agreement, the Portfolio buys a security from a seller
that has agreed to repurchase the same security at a mutually agreed upon date
and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time the Portfolio is invested in the agreement and is not related to
the coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by the Portfolio to the seller.
The period of these repurchase agreements will usually be short, from overnight
to one week, and at no time will the Portfolio invest in repurchase agreements
for more than 13 months. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of 13 months from the
effective date of the repurchase agreement. The Portfolio will always receive
securities as collateral whose market value is, and during the entire term of
the agreement remains, at least equal to 100% of the dollar amount invested by
the Portfolio in each agreement plus accrued interest, and the Portfolio will
make payment for such securities only upon physical delivery or upon evidence of
book entry transfer to the account of the Portfolio's custodian (the
"Custodian"). If the seller defaults, the Portfolio might incur a loss if the
value of the collateral securing the repurchase agreement declines and might
incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, realization upon the collateral by the Portfolio may be delayed or
limited.
The Portfolio may make investments in other debt securities with remaining
effective maturities of not more than 13 months, including without limitation
corporate and foreign bonds, asset-backed securities and other obligations
described in Part A or this Part B.
EQUITY INVESTMENTS
As discussed in Part A, the Portfolio invests primarily in equity securities
consisting of common stock and other securities with equity characteristics. The
securities in which the Portfolio
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invests include those listed on any domestic or foreign securities exchange or
traded in the over-the-counter market as well as certain restricted or unlisted
securities. A discussion of the various types of equity investments which may be
purchased by the Portfolio appears in Part A and below.
EQUITY SECURITIES. The common stock in which the Portfolio may invest include
the common stock of any class or series of domestic or foreign corporations or
any similar equity interest, such as trust or partnership interests. The
Portfolio's equity investments may also include preferred stock, warrants,
rights and convertible securities. These investments may or may not pay
dividends and may or may not carry voting rights. Common stock occupies the most
junior position in a company's capital structure.
The convertible securities in which the Portfolio may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
FOREIGN INVESTMENTS
The Portfolio may invest in certain foreign securities. The Portfolio does
not expect to invest more than 30% of its total assets at the time of purchase
in securities of foreign issuers. The Portfolio does not expect more than 10% of
its foreign investments to be in securities which are not listed on a national
securities exchange or which are not denominated or principally traded in the
U.S. dollar. Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts and European Depositary
Receipts. Generally, ADRs and EDRs are receipts issued by a bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation and that are designed for use in the domestic, in the case of ADRs,
or European, in the case of EDRs, securities markets.
Since investments in foreign securities may involve foreign currencies, the
value of the Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Portfolio may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Portfolio's
underlying currency exposure related to foreign investments. The Portfolio will
not enter into such commitments for speculative purposes.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
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purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to the Portfolio until
settlement takes place. At the time the Portfolio makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction, reflect the value each day of such securities in determining
its net asset value and, if applicable, calculate the maturity for the purposes
of average maturity from that date. At the time of settlement a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, the Portfolio will maintain with the Custodian a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, the Portfolio will meet its obligations
from maturities or sales of the securities held in the segregated account and/or
from cash flow. If the Portfolio chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other portfolio obligation, incur a gain or loss due to market
fluctuation. It is the current policy of the Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Portfolio's total assets, less liabilities other than the obligations
created by when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may
be acquired by the Portfolio to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). These limits require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of the Portfolio's total assets will be invested in the securities of any
one investment company, (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group, and (iii) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Portfolio. As a shareholder of another
investment company, the Portfolio would bear, along with other shareholders, its
PRO RATA portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Portfolio bears directly in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act is considered a form of borrowing
of money by the Portfolio and, therefore, is a form of leverage. The Portfolio
will invest the proceeds of borrowings under reverse repurchase agreements. In
addition, the Portfolio will enter into a reverse repurchase agreement only when
the interest income to be earned from the investment of the proceeds is greater
than the interest expense of the transaction. The Portfolio will not invest the
proceeds of a reverse repurchase agreement for a period which exceeds the
duration of the reverse repurchase agreement. The Portfolio may not enter into
reverse repurchase agreements exceeding in the aggregate one-third of the market
value of its total assets, less liabilities other than the obligations
B-5
<PAGE>
created by reverse repurchase agreements. The Portfolio will establish and
maintain with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements.
See "Investment Restrictions".
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities if such
loans are secured continuously by cash or equivalent collateral or by a letter
of credit in favor of the Portfolio at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. The Portfolio may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Portfolio will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Portfolio will not make any loans in excess of one year.
The Portfolio will not lend their securities to any officer, Trustee, Director,
employee, or other affiliate of the Portfolio, Advisor, Administrator or Private
Placement Agent , unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolio may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in Part A.
As to illiquid investments, the Portfolio is subject to a risk that should
the Portfolio decide to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely affected. Where an illiquid security must be
registered under the Securities Act of 1933, as amended (the "1933 Act"), before
it may be sold, the Portfolio may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Portfolio intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Portfolio is subject
to the following fundamental limitations: (1) the Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. As for the other 25% of the Portfolio's assets not subject to
the limitation described above, there is no limitation on investment of these
assets under the 1940 Act, so that all of such assets may be invested in
securities of any one issuer, subject to the limitation of any applicable state
securities laws. Investments not subject to the limitations described above
could involve an increased risk to the Portfolio
B-6
<PAGE>
should an issuer, or a state or its related entities, be unable to make interest
or principal payments or should the market value of such securities decline.
The Portfolio may invest in convertible debt securities, for which there are
no specific quality requirements. In addition, at the time the Portfolio invests
in any commercial paper, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard & Poor's"), the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time the Portfolio invests in any other short-term debt
securities, they must be rated A or higher by Moody's or Standard & Poor's, or
if unrated, the investment must be of comparable quality in the Advisor's
opinion. A description of illustrative credit ratings is set forth in Appendix A
attached to this Part B.
In determining suitability of investment in a particular unrated security,
the Advisor takes into consideration asset and debt service coverage, the
purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased or sold
by the Portfolio will be traded on a securities exchange or will be purchased or
sold by securities dealers (over-the-counter or OTC options) that meet
creditworthiness standards approved by the Board of Trustees. While
exchange-traded options are obligations of the Options Clearing Corporation, in
the case of OTC options, the Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when the
Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as loss of the expected benefit of the transaction.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that, in general, purchased OTC options and the underlying securities
used to cover written OTC options are illiquid securities. However, the
Portfolio may treat as liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain qualified dealers who
agree that the Portfolio may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula. In these cases, the OTC option
itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into futures
and options transactions the Portfolio may purchase or sell (write) futures
contracts and purchase put and call options , including put and call options on
futures contracts. The Portfolio may also sell (write) uncovered put and call
options on futures. Futures contracts obligate the buyer to take and the seller
to make delivery at a future date of a specified quantity of a financial
instrument or an amount of cash based on the
B-7
<PAGE>
value of a securities index. Currently, futures contracts are available on
various types of fixed income securities, including but not limited to U.S.
Treasury bonds, notes and bills, Eurodollar certificates of deposit and on
indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon.
The purchaser of an option on a futures contract pays a premium for the option
but makes no initial margin payments or daily payments of cash in the nature of
"variation" margin payments to reflect the change in the value of the underlying
contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid by
the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the Securities and Exchange Commission's interpretations thereunder.
COMBINED POSITIONS. The Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the
Portfolio's current or anticipated investments exactly. The Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities
B-8
<PAGE>
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
halts. The Portfolio may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Portfolio's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require the Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and Over-the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The Portfolio
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which the Portfolio can commit assets
to initial margin deposits and option premiums. In addition, the Portfolio will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of the Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
RISK MANAGEMENT
The Portfolio may employ non-hedging risk management techniques. Examples of
such strategies include synthetically altering the duration of the Portfolio or
the mix of securities in the Portfolio.
For example, if Morgan Guaranty wishes to extend the maturities in a fixed
income portfolio in order to take advantage of an
B-9
<PAGE>
anticipated decline in interest rates, but does not wish to purchase the
underlying long-term securities, it might cause the portfolio to purchase
futures contracts on long-term debt securities. Similarly, if Morgan Guaranty
wished to decrease fixed income securities or purchase equities, it could cause
the portfolio to sell futures contracts on debt securities and purchase futures
contracts on a stock index. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Portfolio. Except
where otherwise noted, these investment restrictions are "fundamental" policies
which, under the 1940 Act, may not be changed without the vote of a "majority of
the outstanding voting securities" (as defined in the 1940 Act) of the
Portfolio. A "majority of the outstanding voting securities" is defined in the
1940 Act as the lesser of (a) 67% or more of the voting securities present at a
security holders meeting if the holders of more than 50% of the outstanding
voting securities are present and represented by proxy, or (b) more than 50% of
the outstanding voting securities. The percentage limitations contained in the
restrictions below apply at the time of the purchase of securities.
The Portfolio may not:
1. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Portfolio's total assets. For purposes of industry
concentration, there is no percentage limitation with respect
to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Portfolio's total assets would be invested
in securities or other obligations of any one such issuer.
This limitation shall not apply to issuers of the U.S.
Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Portfolio's total
assets;
3. Purchase the securities of an issuer if, immediately after
such purchase, the Portfolio owns more than 10% of the
outstanding voting securities of such issuer. This
limitation shall not apply to permitted investments of up to
25% of the Portfolio's total assets;
4. Borrow money (not including reverse repurchase agreements),
except from banks for temporary or extraordinary or emergency
purposes and then only in amounts up to 30% of the value of
the Portfolio's total assets, taken at cost at the time of
such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate
one-third of the market value of the Portfolio's total assets
less liabilities other than the obligations represented by
B-10
<PAGE>
the bank borrowings and reverse repurchase agreements). The
Portfolio will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to
exceed 30% of the value of the Portfolio's net assets at the time of
such borrowing. The Portfolio will not purchase securities while
borrowings exceed 5% of the Portfolio's total assets. This borrowing
provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption
requests, and is not for investment purposes. Collateral
arrangements for premium and margin payments in connection with the
Portfolio's use of futures contracts and options activities are not
deemed to be a pledge of assets;
5. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which
the Portfolio is permitted to incur pursuant to Investment
Restriction No. 4 and except that the Portfolio may enter
into reverse repurchase agreements, provided that the
aggregate of senior securities, including reverse repurchase
agreements, shall not exceed one-third of the market value of
the Portfolio's total assets, less liabilities other than
obligations created by reverse repurchase agreements. The
Portfolio's arrangements in connection with its use of
futures contracts and options shall not be considered senior
securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the entering
into of repurchase agreements, or loans of portfolio securities in
accordance with the Portfolio's investment objective and policies;
7. Purchase or sell commodities, or commodity contracts, but
this restriction shall not prohibit the Portfolio from
purchasing or selling futures contracts or options (including
options on futures contracts, but excluding options or
futures contracts on physical commodities) or entering into
foreign currency forward contracts; or purchase or sell real
estate or interests in oil, gas, or mineral exploration or
development programs. However, the Portfolio may purchase
securities or commercial paper issued by companies which
invest in real estate or interests therein, including real
estate investment trusts, and purchase instruments secured by
real estate or interests therein;
8. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except to obtain such short term credit as necessary for the
clearance of purchases and sales of securities; provided that
this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued or delayed delivery
securities or to restrict the Portfolio use of futures
contracts or options;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an
offer of exchange; or
10. Act as an underwriter of securities.
B-11
<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment
restrictions described below are not fundamental policies of the
Portfolio and may be changed by the Trustees. These non-fundamental
investment policies require that the Portfolio may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a
duration of over seven calendar days, if as a result thereof, more
than 15% of the market value of the Portfolio's total assets would
be in investments that are illiquid;
(ii) purchase any equity security, if as a result, the Portfolio would
have more than 5% of its total assets invested in securities or
companies (including predecessors) that have been in continuous
operation for fewer than three years;
(iii) invest in warrants (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at
the time of purchase) if, as a result, the investments
(valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets or if, as a
result, more than 2% of the Portfolio's net assets would
be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent
permitted by applicable state securities laws;
(iv) invest in any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Portfolio, or is an officer of the
Advisor, if after the Portfolio's purchase of the securities
of such issuer, one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or
securities, or both, all taken at market value;
(v) invest in real estate limited partnership interests; or
(vi) invest in oil, gas or other mineral leases.
There will be no violation of any investment restriction if that restriction
is complied with at the time the relevant action is taken notwithstanding a
later change in market value of an investment, in net or total assets, in the
securities rating of the investment, or any other later change.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees of the Portfolio , their business addresses, and their principal
occupations during the past five years are set forth below.
B-12
<PAGE>
Frederick S. Addy -- Trustee; Retired; Executive Vice President and
Chief Financial Officer from January 1990 to April 1994, Amoco Corporation;
Director, Ensearch Corp. (natural gas), since 1994. His address is 19129 RR 2147
W. Horseshoe Bay, TX 78654 .
William G. Burns -- Trustee; Retired; Limited Partner, Galen Partners
L.P. and Vice Chairman, Galen Associates, since 1990; Chief Executive Officer,
Galen Associates and General Partner, Galen Partners L.P., until 1991. His
address is 4241 S.W. Parkgate Blvd., Palm City, FL 34990.
Arthur C. Eschenlauer -- Trustee; Retired; Senior Vice President,
Morgan Guaranty Trust Company of New York until 1987. His address is 14 Alta
Vista Drive, RD #2, Princeton, NJ 08540.
Matthew Healey(*) -- Trustee ; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since 1989; Chairman and Chief Executive
Officer, Execution Services, Inc. until October 1991 . His address is Pine Tree
Club Estates, 10286 Saint Andrew Road, Boynton Beach, FL 33436.
Michael P. Mallardi -- Trustee; Senior Vice President, Capital
Cities/ABC, Inc., President, Broadcast Group, since 1986. His address is 77 West
66th Street, New York, NY 10017.
- ------------------
(*) Mr. Healey is an "interested person" of the Portfolio as that term
is defined in the 1940 Act.
Each Trustee is paid an annual fee as follows for serving as Trustee of
The Portfolio, The Pierpont Funds, The JPM Institutional Funds, The Series
Portfolio and each registered investment company in which series of The Pierpont
Funds or The JPM Institutional Funds invest, and is reimbursed for expenses
incurred in connection with service as a Trustee. The compensation paid to the
Trustees in calendar 1994 is set forth below. The Trustees may hold various
other directorships unrelated to the Portfolio.
B-13
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE PENSION OR TOTAL COMPENSATION FROM
COMPENSATION RETIREMENT THE PORTFOLIO, THE JPM
FROM THE BENEFITS ESTIMATED INSTITUTIONAL FUND AND
PORTFOLIO ACCRUED AS PART ANNUAL BENEFITS THE PIERPONT FUNDS PAID
DURING 1994 OF FUND EXPENSES UPON RETIREMENT TO TRUSTEES DURING 1994
----------- ---------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Frederick S. Addy, Trustee $0 None None $55,000
William G. Burns, Trustee $0 None None $55,000
Arthur C. Eschenlauer, Trustee $0 None None $55,000
Matthew Healey, Trustee(*), $0 None None $55,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $0 None None $55,000
</TABLE>
(*) During 1994, Pierpont Group, Inc. paid Mr. Healey, in his
role as Chairman of Pierpont Group, Inc., compensation in the
amount of $130,000, contributed $19,500 to a defined contribution
plan on his behalf and paid $20,000 in insurance premiums for his
benefit.
As of April 1, 1995 the annual fee paid to each Trustee for serving as a Trustee
of the Portfolio, The Pierpont Funds, The JPM Institutional Funds, The Series
Portfolio and each of the registered investment companies in which series of The
JPM Institutional Funds or Pierpont Funds invest was adjusted to $65,000.
The Trustees of the Portfolio are the same as the Trustees of each of
the JPM Institutional Funds and The Pierpont Funds. In accordance with
applicable state requirements, a majority of the disinterested Trustees have
adopted written procedures reasonably appropriate to deal with potential
conflicts of interest arising from the fact that the same individuals are
Trustees of the Portfolio, The Pierpont Funds and The JPM Institutional Funds,
up to and including creating a separate board of trustees.
The Trustees of the Portfolio, in addition to reviewing actions of the
Portfolios' various service providers, decide upon matters of general policy.
The Portfolio has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio. Pierpont Group, Inc. was
organized in July 1989 to provide services for The Pierpont Family of Funds
(currently an investor in the Portfolio). The Portfolio has agreed to pay
Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services. These costs are periodically reviewed by the
Trustees. For the no fees were by the Portfolio to Pierpont Group, Inc. The
Portfolio has no employees; its officers (listed below) are provided and
compensated by Signature Broker-Dealer Services, Inc. ("SBDS"), a wholly owned
subsidiary of Signature Financial Group, Inc.
B-15
<PAGE>
("Signature"). The Portfolio's officers conduct and supervise
the business operations of the Portfolio.
The officers of the Portfolio and their principal occupations during
the past five years are set forth below. The business address of each of the
officers unless otherwise noted is Signature Broker-Dealer Services, Inc., 6 St.
James Avenue, Boston, Massachusetts 02116.
Matthew Healey; Chief Executive Officer; Chairman, Pierpont Group, Inc., since
1989; Chairman and Chief Executive Officer, Execution Services, Inc. until
October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrew Road,
Boynton Beach, FL 33436.
Philip W. Coolidge; President; Chairman, Chief Executive
Officer and President, Signature since December 1988 and SBDS
since April 1989.
James E. Hoolahan; Vice President;
Senior Vice President, Signature since
December 1989.
Thomas M. Lenz; Assistant Secretary; Vice President and Associate
General Counsel, Signature since November 1989; Assistant Secretary, SBDS since
February 1991 .
Molly S. Mugler; Assistant Secretary; Legal Counsel and
Assistant Secretary, Signature since December 1988; Assistant
Secretary, SBDS since April 1989.
Susan Jakuboski; Assistant Secretary and Assistant Treasurer of the
Portfolios only; Manager and Senior Fund Administrator, SFG and Signature
(Cayman) (since August 1994); Assistant Treasurer, SBDS (since September 1994);
Fund Compliance Administrator, Concord Financial Group, Inc. (from November 1990
to August 1994); Senior Fund Accountant, Neuberger & Berman Management
Incorporated (since prior to 1990). Her address is P.O. Box 2494, Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, B.W.I.
B-16
<PAGE>
Daniel E. Shea; Assistant Treasurer; Assistant Manager of Fund
Administration, Signature since November 1993; Supervisor and Senior Technical
Advisor, Putnam Investments since prior to 1990.
Messrs. Coolidge, Hoolahan, Lenz and Shea
and Mss. Mugler and Jakuboski hold similar positions for other
investment companies for which SBDS or an affiliate serves as
principal underwriter.
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in wilful 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 wilful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of September 29, 1995, there were no holders of outstanding
beneficial interests in the Portfolio.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR. The investment advisor to the Portfolio
is Morgan Guaranty, a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company
organized under the laws of the State of Delaware. Morgan
Guaranty, whose principal offices are at 60 Wall Street, New
B-17
<PAGE>
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan Guaranty is subject to regulation by the New
York State Banking Department and is a member bank of the Federal Reserve
System. Through offices in New York City and abroad, Morgan Guaranty offers a
wide range of services, primarily to governmental, institutional, corporate and
high net worth individual customers in the U.S. and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of $165 billion (of which the Advisor advises over $26 billion).
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of Morgan Guaranty's investment process is fundamental
investment research as the firm believes that fundamentals should determine an
asset's value over the long term. J.P. Morgan currently employs over 100 full
time research analysts, among the largest research staffs in the money
management industry, in its investment management divisions located in New York,
London, Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries
and countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
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Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See Item
17 below.
J.P. Morgan Investment Management Inc., a wholly-owned subsidiary of
J.P. Morgan , is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc., which provides securities trading and
investment research services for Morgan Guaranty's investment advisory and
fiduciary accounts. See Item 17 below for a description of services provided to
the Portfolio by J.P. Morgan Investment Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets.
For the period from July 8, 1993 (commencement of operations) through May 31,
1994, the Portfolio paid $180 in advisory fees. For the fiscal year ended May
31, 1995, the Portfolio paid $208.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
annually thereafter (i) by a vote of the holders of a majority of the
Portfolio's outstanding securities or by its Trustees and (ii) by a vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" as defined by the 1940 Act cast in person at a meeting
called for the purpose of voting on such approval. The Investment Advisory
Agreement will terminate automatically if
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assigned and is terminable at any time without penalty by a vote of a majority
of the Trustees of the Portfolio or by a vote of the holders of a majority of
the Portfolio's voting securities on 60 days' written notice to the Advisor and
by the Advisor on 90 days' written notice to the Portfolio.
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan Guaranty from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Portfolio. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. Morgan Guaranty believes that it may perform the services
for the Portfolio contemplated by the Advisory Agreement without violation of
the Glass-Steagall Act or other applicable banking laws or regulations. State
laws on this issue may differ from the interpretation of relevant federal law,
and banks and financial institutions may be required to register as dealers
pursuant to state securities laws. However, it is possible that future changes
in either federal or state statutes and regulations concerning the permissible
activities of banks or trust companies, as well as further judicial or
administrative decisions and interpretations of present and future statutes and
regulations, might prevent Morgan Guaranty from continuing to perform such
services for the Portfolio.
If Morgan Guaranty were prohibited from acting as investment advisor to
the Portfolio, it is expected that the Trustees of the Portfolio would recommend
to investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Morgan Guaranty also receives compensation from the Portfolio in its
capacity as Services Agent to the Portfolio.
ADMINISTRATOR. SBDS serves as the Portfolio's Administrator and in that
capacity administers and manages all aspects of the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth under
"Investment Advisor," "Services Agent" and "Custodian." In connection with its
responsibilities as Administrator, SBDS (i) furnishes ordinary clerical and
related services for day-to-day operations including certain record keeping
responsibilities; (ii) takes responsibility for compliance with all applicable
federal and state securities and other regulatory requirements including,
without limitation, preparing and mailing and filing (but not
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paying for) registration statements, and information statements and all required
reports to the Portfolio's investors, the SEC, and state securities commissions,
if any, (but not the Portfolio's federal and state tax returns); (iii) performs
such administrative and managerial oversight of the activities of the
Portfolio's custodian, as the Trustees may direct from time to time.
Under the Portfolio's Administration Agreement, the annual
administration fee rate is calculated based on the aggregate average daily net
assets of the Portfolio, as well as all of the other portfolios (the "Master
Funds") in which series of The Pierpont Funds, The JPM Institutional Funds or
The JPM Advisor Funds invest. The fee is calculated in accordance with the
following schedule: 0.01% of the first $1 billion of these Portfolios' aggregate
average daily net assets, 0.008% of the next $2 billion of these Portfolios'
aggregate average daily net assets, 0.006% of the next $2 billion of these
Portfolios' aggregate average daily net assets, and 0.004% of these Portfolios'
aggregate average daily net assets in excess of $5 billion. This fee is then
applied to the net assets of the Portfolio and the Master Funds. The
Administrator may voluntarily waive a portion of its fees. For the period from
July 8, 1994 (commencement of operations) through May 31, 1994, no
administrative fees were paid by the Portfolio. For the fiscal year ended May
31, 1995, no administrative fees were allocated to the Portfolio.
The Administration Agreement may be renewed or amended by the Trustees
without a investor vote. The Administration Agreement is terminable at any time
without penalty by a vote of a majority of the Trustees of the Portfolio, as
applicable, on not more than 60 days' written notice nor less than 30 days'
written notice to the other party. The Administrator may subcontract for the
performance of its obligations under the Administration Agreement only if the
Trustees approve such subcontract and find the subcontracting party to be
qualified to perform the obligations sought to be subcontracted, provided,
however, that unless the Portfolio, as applicable, expressly agrees in writing,
the Administrator shall be fully responsible for the acts and omissions of any
subcontractor as it would for its own acts or omissions.
SERVICES AGENT. The Portfolio had entered into a Financial and Fund
Accounting Services Agreement (the "Services Agreement") with Morgan Guaranty
pursuant to which Morgan Guaranty was responsible for certain financial and fund
accounting services provided to the Portfolio. The services to be provided by
Morgan Guaranty under this included, but were not limited to, monitoring the
fund accounting activities of the Custodian, assisting the Administrator in
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preparing tax returns, reviewing financial reports, coordinating annual audits,
assisting in the development of budgets, monitoring the fund accounting
activities and daily partnership allocation and providing other related
services.
Effective September 1, 1995, the Services Agreement terminated. As a
result, Morgan Guaranty will no longer assume the annual costs of certain
expenses incurred by the Portfolio , although Morgan Guaranty will continue to
provide financial and fund accounting services to the Portfolio.
For the period from July 8, 1994 (commencement of operations) through
May 31, 1994, no fees were paid by the Portfolio under the Services Agreement.
For the fiscal year ended May 31, 1995 Morgan Guaranty agreed to reimburse the
Portfolio $2,798 for excess expenses (*).
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(*) Reflects fees paid to Morgan Guaranty by the Portfolio, net of fee waivers
and reimbursements, under the Services Agreement
prior to its termination.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
Custodian and Transfer Agent. Pursuant to the Custodian Contract with the
Portfolio, State Street is responsible for maintaining the books and records of
portfolio transactions and holding the portfolio securities and cash. In the
case of foreign assets held outside the United States, the Custodian employs
various sub-custodians, who were approved by the Trustees of the Portfolio in
accordance with the regulations of the SEC. As Transfer Agent, State Street is
responsible for maintaining account records detailing the ownership of interests
in the Portfolio. The Portfolio is responsible for the fees of State Street as
custodian for the Portfolio.
INDEPENDENT ACCOUNTANTS. Price Waterhouse, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Portfolio's independent accountants
providing audit and accounting services including (i) conducting an annual audit
of the financial statements of the Portfolio, (ii) assisting in the preparation
and/or review of the Portfolio's federal and state income tax returns and (iii)
consulting with the Portfolio as to matters of accounting and federal and state
income taxation.
EXPENSES. In addition to the fees payable to Pierpont Group, Inc.,
Morgan Guaranty and SBDS under various agreements discussed under Trustees and
Officers, Investment Advisor, Administrator and Services Agent, the Portfolio is
responsible for certain usual and customary expenses associated with its
respective operations. Such expenses include organization expenses, legal fees,
accounting expenses, insurance costs, the compensation and expenses of the
Trustees, registration fees under federal securities laws, and extraordinary
expenses
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applicable to the Portfolio. Such expenses also include applicable registration
fees under foreign securities laws, custodian fees and brokerage expenses. Under
fee arrangements prior to September 1, 1995 that included higher fees for
financial and fund accounting services, Morgan Guaranty as Services Agent was
responsible for reimbursements to the Portfolio for SBDS's fees as Administrator
and the usual and customary expenses described above (excluding organization and
extraordinary expenses, custodian fees and brokerage expenses).
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
J.P. Morgan Investment Management Inc., acting as agent for Morgan
Guaranty, places orders for the Portfolio for all purchases and sales of
portfolio securities. Morgan Guaranty enters into repurchase agreements and
reverse repurchase agreements for the Portfolio and executes loans of portfolio
securities on behalf of the Portfolio. See Item 13 above.
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers.
In underwritten offerings, securities are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
In connection with portfolio transactions for the Portfolio, the
overriding objective is to obtain the best possible execution of purchase and
sale orders. For the fiscal year ended May 31, 1995 the Portfolio's portfolio
turnover rate was 0%.
In selecting a broker, J.P. Morgan Investment Management
Inc. considers a number of factors including: the price per unit
of the security; the broker's reliability for prompt, accurate
confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A
broker may be paid a brokerage commission in excess of that which
another broker might have charged for effecting the same
transaction if, after considering the foregoing factors, J.P.
Morgan Investment Management Inc. decides that the broker chosen
will provide the best possible execution. J.P. Morgan Investment
Management Inc. and Morgan Guaranty monitor the reasonableness of
the brokerage commissions paid in light of the execution
received. The Trustees of the Portfolio review regularly the
reasonableness of commissions and other transaction costs
incurred by the Portfolio in light of facts and circumstances
deemed relevant from time to time, and, in that connection, will
receive reports from the Advisor and published data concerning
transaction costs incurred by institutional investors generally.
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Research services provided by brokers to which J.P. Morgan Investment Management
Inc. has allocated brokerage business in the past include economic statistics
and forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of the Portfolio. The Advisor believes that the value of research
services received is not determinable and does not significantly reduce its
expenses. The Portfolio does not reduce its fee to the Advisor by any amount
that might be attributable to the value of such services. For the fiscal year
ended May 31, 1995 the Portfolio paid no brokerage commissions.
Subject to the overriding objective of obtaining the best possible
execution of orders, J.P. Morgan Investment Management Inc., or Morgan Guaranty
as the case may be, may allocate a portion of the Portfolio's portfolio
brokerage transactions to affiliates of Morgan Guaranty. In order for affiliates
of Morgan Guaranty to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
The Portfolio's securities will not be purchased from or through or
sold to or through the Portfolio's Administrator, Exclusive Placement Agent or
Advisor or any "affiliated person" (as defined in the 1940 Act), of the
Administrator, Exclusive Placement Agent or Advisor when such entities are
acting as principals, except to the extent permitted by law. In addition, the
Portfolio will not purchase securities during the existence of any underwriting
group relating thereto of which the Advisor or an affiliate of the Advisor is a
member, except to the extent permitted by law.
On those occasions when Morgan Guaranty deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
investors, J.P. Morgan Investment Management Inc., to the extent permitted by
applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
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transaction will be made by J.P. Morgan Investment Management Inc., or Morgan
Guaranty as the case may be, in the manner it considers to be most equitable and
consistent with Morgan Guaranty's fiduciary obligations to the Portfolio. In
some instances, this procedure might adversely affect the Portfolio.
If the Portfolio effects a closing purchase transaction with respect to
an option written by it, normally such transaction will be executed by the same
broker-dealer who executed the sale of the option. The writing of options by the
Portfolio will be subject to limitations established by each of the exchanges
governing the maximum number of options in each class which may be written by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges or are held or
written in one or more accounts or through one or more brokers. The number of
options which the Portfolio may write may be affected by options written by the
Advisor for other investment advisory clients. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
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
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 if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. 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
its investment).
The Portfolio may enter into a merger or consolidation, or
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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 its
percentage of the beneficial interests in the Portfolio), except that if the
Trustees recommend such sale of assets, the approval by vote of a majority of
the investors (with the vote of each being in proportion to its percentage of
the beneficial interests of the Portfolio) 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 its investment) or (ii) by the Trustees 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 Portfolio's 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 wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is based on the last sale prices on the New
York Stock Exchange at 4:00 P.M. or, in the absence of recorded sales, at the
average of readily available closing bid and asked prices on such exchange.
Securities listed on a foreign exchange are valued at the last quoted sale price
available before the time when net assets are valued. Unlisted securities are
valued at the average of the
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quoted bid and asked prices in the over-the-counter market. The value of each
security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for such security.
For purposes of calculating net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the prevailing market rates available at the time of
valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
P.M., New York time. Stock index futures and related options, which are traded
on commodities exchanges, are valued at their last sales price as of the close
of such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision and responsibility of the Trustees. Such procedures
include the use of independent pricing services which use prices based upon
yields or prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Short-term
investments which mature in 60 days or less are valued at amortized cost if
their original maturity was 60 days or less, or by amortizing their value on the
61st day prior to maturity, if their original maturity when acquired by the
Portfolio was more than 60 days, unless this is determined not to represent fair
value by the Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when the
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
If the Portfolio determines that it would be detrimental to the best
interest of the remaining investors in the Portfolio to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio, in lieu of cash, in
conformity with the applicable rule of the SEC. If interests are redeemed in
kind, the redeeming investor might incur transaction costs in converting the
assets into cash. The method of valuing portfolio securities is described above
and such valuation will be made as of the same time the redemption price is
determined. The Portfolio has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Portfolio is obligated to redeem interests solely
in cash up to the lesser of $250,000 or 1% of
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the net asset value of the Portfolio during any 90 day period for any one
investor. The Portfolio will not redeem in kind except in circumstances in which
an investor is permitted to redeem in kind.
ITEM 20. TAX STATUS.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. However each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolio) of the Portfolio's ordinary income and capital gain in
determining its income tax liability. The determination of such share will be
made in accordance with the Code, and regulations promulgated thereunder.
Although, as described above, the Portfolio will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that the Portfolio's assets will be managed in such a
way that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Code.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on securities will be treated as gains and
losses from the sale of securities. If an option written by the Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by the
Portfolio of the option from its holder, the Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Portfolio in the closing transaction. If securities
are purchased by the Portfolio pursuant to the exercise of a put option written
by it, the Portfolio will subtract the premium received from its cost basis in
the securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time the Portfolio accrues income or receivables or expenses or
other liabilities denominated in a foreign currency and the time the Portfolio
actually collects such income or pays such liabilities, are treated as ordinary
income or ordinary loss. Similarly, gains or losses on the disposition of debt
securities held by the Portfolio, if any, denominated in foreign currency, to
the extent attributable to fluctuations in exchange rates between the
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acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, the Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
The Portfolio may invest in equity securities of foreign issuers. If
the Portfolio purchases shares in certain foreign investment funds (referred to
as passive foreign investment companies under the Internal Revenue Code), the
Portfolio may be subject to federal income tax on a portion of an "excess
distribution" from such foreign investment fund or gain from the disposition of
such shares, even though such income may have to be allocated as taxable income
by the Portfolio to its investors.
In addition, certain interest charges may be imposed on the Portfolio or its
investors in respect of unpaid taxes arising from such income or gains.
Alternatively, the Portfolio may each year include in its income and allocate to
investors a pro rata portion of the foreign investment fund's income, whether or
not distributed to the Portfolio.
FOREIGN INVESTORS. Allocations of U.S. source dividend
income to an investor who, as to the United States, is a
foreign trust, foreign corporation or other foreign investor will
be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate). Allocations of Portfolio interest or short term or
net long term capital gains to foreign investors will not be
subject to U.S. tax.
STATE AND LOCAL TAXES. The Portfolio may be subject to state or local
taxes in jurisdictions in which the Portfolio is deemed to be doing business. In
addition, the treatment of the Portfolio and its investors in those states which
have income tax laws might differ from treatment under the federal income tax
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laws. Investors should consult their own tax advisors with
respect to any state or local taxes.
FOREIGN TAXES. The Portfolio may be subject to foreign
withholding taxes with respect to income received from sources
within foreign countries.
OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York. Investors are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio is SBDS, which receives no
additional compensation for serving in this capacity.
Investment companies, insurance company separate accounts, common and
commingled trust funds and similar organizations and entities may continuously
invest in the Portfolio.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The Portfolio's current report to Investors filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder is hereby
incorporated herein by reference.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA have the highest ratings assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues
only in a small degree.
A - Debt rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debts in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit 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
debts in this category than for debts in higher rated
categories.
BB - Debt rated BB is regarded as having 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.
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 designation indicates that the degree of safety
regarding timely payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
<PAGE>
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
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 edge". 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 risks 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.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
Appendix-2
<PAGE>
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures 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.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
Appendix-3
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements included in Part B, Item 23 of this
Registration Statement are as follows:
Schedule of Investments as May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the period ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements at May 31, 1995
(B) EXHIBITS
1 Declaration of Trust of the Registrant.3
2 By-Laws of the Registrant.3
5 Investment Advisory Agreement between the Registrant
and Morgan Guaranty Trust Company of New York ("Morgan
Guaranty").3
8 Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street").1
9(a) Administration Agreement between the Registrant and
Signature Broker-Dealer Services, Inc.1
9(b) Transfer Agency and Service Agreement between the
Registrant and State Street.2
9(c) Restated Financial and Fund Accounting Services
Agreement between the Registrant and Morgan Guaranty.2
9(d) Fund Services Agreement between the Registrant and
Pierpont Group, Inc.1
13 Investment representation letters of initial
investors.1
1Incorporated herein by reference from the Registrant's
registration statement on Form N-1A (the "Registration
Statement") as filed with the Securities and Exchange
Commission on July 6, 1993.
2Incorporated herein by reference from Amendment No. 1 to the
Registration Statement as filed with the Securities and
Exchange Commission on September 28, 1994.
3Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS: Beneficial Interests
NUMBER OF RECORD HOLDERS : 0 (as of September 25, 1995)
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 and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940,
as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Morgan Guaranty is a New York trust company which is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated. Morgan Guaranty conducts a general
banking and trust business.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of Morgan Guaranty is or has been during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain officers and directors
of Morgan Guaranty also hold various positions with, and engage in business for,
J.P. Morgan & Co. Incorporated, which owns all the outstanding stock of Morgan
Guaranty. Set forth below are the names, addresses, and principal business of
each director of Morgan Guaranty who is engaged in another business, profession,
vocation or employment of a substantial nature.
Martin Feldstein: President and Chief Executive Officer, National
Bureau of Economic Research, Inc.; Professor of Economics, Harvard University
Research Institution (Academic Institution). His address is 1050 Massachusetts
Ave, Cambridge, MA 02138.
Howard Goldfeder: Retired Chairman and Chief Executive Officer,
Federated Department Stores Inc. (Retailing). His address is 7 West 7th Street,
Cincinnati, OH 45202.
Hanna H. Gray: President, The University of Chicago (Academic
Institution). Her address is 5801 Ellis Avenue, Chicago, IL 60637.
James R. Houghton: Chairman and Chief Executive Officer, Corning
Incorporated (Glass products). His address is Corning, NY 14831.
James L. Ketelsen: Retired Chairman and Chief Executive Officer,
Tenneco Inc. ( Oil, pipe-lines, and manufacturing). His address is Tenneco
Building, P.O. Box 2511, Houston, TX 77001.
William S. Lee: Chairman, President and Chief Executive Officer, Duke
Power Company (Utility). His address is 422 South Church Street, Charlotte, NC
28242.
Lee R. Raymond: Chairman of the Board and Chief Executive Officer,
Exxon Corporation (Oil, natural gas, and other petroleum products). His address
is 1251 Avenue of the Americas, New York, NY 10020.
Richard D. Simmons: President, International Herald Tribune
(Newspaper). His address is 1150 Fifteenth Street NW, Washington, DC 20071.
John G. Smale: Chairman of the Board General Motors Corporation and
Retired Chairman of the Board and Executive Officer, The Proctor and Gamble
Company (Automobiles; Household Products). His address is P.O. Box 599,
Cincinnati, OH 54201.
Douglas C. Yearley: Chairman, President and Chief Executive Officer,
Phelps Dodge Corporation (Chemicals). His address is 2600 N. Central Avenue,
Phoenix, AZ 85007.
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 the following locations:
Pierpont Group, Inc., 461 Fifth Avenue , New York, New York 10017.
(records relating to its assisting the Trustees in carrying out their duties in
supervising the Trust's affairs).
Morgan Guaranty Trust Company of New YorK, 60 Wall Street, New York, NY
10260-0060 or 9 West 57th Street, New York, NY 10019. (records relating to its
functions as investment adviser and services agent).
State Street Bank and Trust Company, 40 King Street West, Toronto,
Ontario , Canada M5H 3Y8. (records relating to its functions as custodian and
transfer agent).
Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston, MA
02116. (records relating to its functions as administrator and exclusive
placement agent).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and Commonwealth of Massachusetts, on the 29th day of September,
1995.
THE U.S. STOCK EQUITY PORTFOLIO
By /s/SUSAN JAKUBOSKI
________________________________
Susan Jakuboski
Assistant Secretary and Assistant Treasurer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.: DESCRIPTION OF EXHIBIT
1 Declaration of Trust of the Registrant.
2 By-Laws of the Registrant.
5 Investment Advisory Agreement between the Registrant and Morgan Guaranty
Trust Company of New York.
THE U.S. STOCK PORTFOLIO
DECLARATION OF TRUST
Dated as of January 29, 1993
<PAGE>
TABLE OF CONTENTS
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...................................4
Section 2.3 Resignation, Removal and Retirement.................4
Section 2.4 Vacancies...........................................5
Section 2.5 Meetings............................................5
Section 2.6 Officers; Chairman of the Board.....................6
Section 2.7 By-Laws.............................................6
ARTICLE III--POWERS OF TRUSTEES..............................................6
Section 3.1 General.............................................6
Section 3.2 Investments.........................................6
Section 3.3 Legal Title.........................................7
Section 3.4 Sale and Increases of Interests.....................7
Section 3.5 Decreases and Redemptions of Interests..............8
Section 3.6 Borrow Money........................................8
Section 3.7 Delegation; Committees..............................8
Section 3.8 Collection and Payment..............................8
Section 3.9 Expenses............................................8
Section 3.10 Miscellaneous Powers................................9
Section 3.11 Further Powers......................................9
ARTICLE IV--INVESTMENT MANAGEMENT AND ADMINISTRATION AND PLACEMENT
AGENT ARRANGEMENTS.......................................9
Section 4.1 Investment Management and Other
Arrangements......................................10
Section 4.2 Parties to Contract.................................10
ARTICLE V--LIABILITY OF HOLDERS; LIMITATIONS OF LIABILITY OF
TRUSTEES, OFFICERS, ETC...........................10
Section 5.1 Liability of Holders; Indemnification...............11
Section 5.2 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Third Parties.....................11
Section 5.3 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Trust, Holders, etc..............11
Section 5.4 Mandatory Indemnification...........................11
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<PAGE>
PAGE
Section 5.5 No Bond Required of Trustees........................12
Section 5.6 No Duty of Investigation; Notice in
Trust Instruments, etc............................12
Section 5.7 Reliance on Experts, etc............................13
ARTICLE VI--INTERESTS........................................................14
Section 6.1 Interests...........................................14
Section 6.2 Non-Transferability.................................14
Section 6.3 Register of Interests...............................14
ARTICLE VII--INCREASES, DECREASES, AND REDEMPTIONS OF INTERESTS..............14
ARTICLE VIII--DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
AND DISTRIBUTIONS......................................15
Section 8.1 Book Capital Account Balances.......................15
Section 8.2 Allocations and Distributions to Holders............15
Section 8.3 Power to Modify Foregoing Procedures................15
ARTICLE IX--HOLDERS..........................................................15
Section 9.1 Rights of Holders...................................15
Section 9.2 Meetings of Holders.................................16
Section 9.3 Notice of Meetings..................................16
Section 9.4 Record Date for Meetings, Distributions, etc......16
Section 9.5 Proxies, etc........................................17
Section 9.6 Reports.............................................17
Section 9.7 Inspection of Records...............................17
Section 9.8 Holder Action by Written Consent....................17
Section 9.9 Notices.............................................18
ARTICLE X--DURATION; TERMINATION; AMENDMENT; MERGERS; ETC....................18
Section 10.1 Duration............................................18
Section 10.2 Termination.........................................19
Section 10.3 Dissolution........................................ 20
Section 10.4 Amendment Procedure.................................20
Section 10.5 Merger, Consolidation and Sale of Assets............21
Section 10.6 Incorporation.......................................21
ii
<PAGE>
PAGE
ARTICLE XI--MISCELLANEOUS....................................................22
Section 11.1 Certificate of Designation; Agent for
Service of Process................................22
Section 11.2 Governing Law.......................................22
Section 11.3 Counterparts........................................22
Section 11.4 Reliance by Third Parties...........................22
Section 11.5 Provisions in Conflict With Law or
Regulations......................................23
iii
<PAGE>
DECLARATION OF TRUST
OF
THE U.S. STOCK PORTFOLIO
This DECLARATION OF TRUST of the The U.S. Stock Portfolio is made as of
the 29th day of January, 1993 by the parties signatory hereto, as Trustees (as
defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the law of the
State of New York for the investment and reinvestment of its assets; and
WHEREAS, it is proposed that the trust assets be composed of money and
property contributed thereto by the holders of interests in the trust entitled
to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund and will manage and
dispose of the same for the benefit of the holders of interests in the Trust and
subject to the provisions hereof, to wit:
ARTICLE I
THE TRUST
1.1. NAME. The name of the trust created hereby (the "Trust") shall be
The U.S. Stock 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.
"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.
<PAGE>
"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 or
required by the Code.
"HOLDERS" shall mean as of any particular time all holders of record of
Interests in the Trust.
"INSTITUTIONAL INVESTOR(S)" shall mean any regulated investment
company, segregated asset account, foreign investment company, common trust
fund, group trust or other investment arrangement, whether organized within or
without the United States of America, other than an individual, S corporation,
partnership or grantor trust beneficially owned by any individual, S corporation
or partnership.
"INTEREST(S)" shall mean the interest of a Holder in the Trust,
including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Holders whose combined
Book Capital Account balances represent such specified percentage or fraction of
the combined Book Capital Account balances of all, or a specified group of,
Holders.
"INVESTMENT MANAGER AND ADMINISTRATOR" shall mean any party furnishing
services to the Trust pursuant to any investment management or administration
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, and the term "REDEEM" shall mean to effect a Redemption.
"TRUSTEES" shall mean each signatory to this Declaration, so long as
such signatory shall continue in office in accordance with the terms hereof, and
all other individuals who at the time in question have been duly elected or
appointed and have qualified as Trustees in accordance with the provisions
hereof and are then in office, and reference in this Declaration to a Trustee or
Trustees shall refer to such individual or individuals in their capacity as
Trustees hereunder.
"TRUST PROPERTY" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees.
The "1940 ACT" shall mean the 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.
3
<PAGE>
2.2. TERM AND ELECTION. Each Trustee named herein, or elected or
appointed prior to the first meeting of Holders, shall (except in the event of
resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required under
the 1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and
except as provided in Section 2.3 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.
4
<PAGE>
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
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
5
<PAGE>
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
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,
6
<PAGE>
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 laws of the United
States or under any foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of any kind and description, including, without limitation, the right to consent
and otherwise act with respect thereto, with power to designate one or more
Persons to exercise any of such rights, powers and privileges in respect of any
of such investments; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional instruments in which the Trustees may
determine to invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. LEGAL TITLE. Legal title to all Trust Property shall be vested in
the Trustees as joint tenants except that the Trustees shall have the power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name or nominee
name of any other Person on behalf of the Trust, on such terms as the Trustees
may determine.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each individual who may hereafter become a Trustee
upon his due election and qualification. Upon the resignation, removal or death
of a Trustee, such resigning, removed or deceased Trustee shall automatically
cease to have any right, title or interest in any Trust Property, and the right,
title and interest of such resigning, removed or deceased Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
3.4. SALE AND INCREASES OF INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit any
Institutional Investor to purchase an Interest, or increase its Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals,
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S corporations, partnerships and grantor trusts that are beneficially owned by
any individual, S corporation or partnership may not purchase Interests. A
Holder which has redeemed its Interest may not be permitted to purchase an
Interest until the later of 60 calendar days after the date of such Redemption
or the first day of the Fiscal Year next succeeding the Fiscal Year during which
such Redemption occurred.
3.5 DECREASES AND REDEMPTIONS OF INTERESTS. Subject to Article VII
hereof, the Trustees, in their discretion, may, from time to time, without a
vote of the Holders, permit a Holder to redeem its Interest, or decrease its
Interest, for either cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem best.
3.6. BORROW MONEY. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee, or undertake the performance
of any obligation, contract or engagement of any other Person.
3.7. DELEGATION; COMMITTEES. The Trustees shall have power, consistent
with their continuing exclusive and absolute control over the Trust Property and
over the business of the Trust, to delegate from time to time to such of their
number or to officers, employees, agents or independent contractors of the Trust
the doing of such things and the execution of such instruments in either the
name of the Trust or the names of the Trustees or otherwise as the Trustees may
deem expedient.
3.8. COLLECTION AND PAYMENT. The Trustees shall have power to collect
all property due to the Trust; and to pay all claims, including taxes, against
the Trust Property; to prosecute, defend, compromise or abandon any claims
relating to the Trust or the Trust Property; to foreclose any security interest
securing any obligation, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
3.9. EXPENSES. The Trustees shall have power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust Property to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
brokerage services, as they in good faith may deem reasonable, and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust.
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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
Manager and 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
Manager and 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.
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ARTICLE IV
Investment Management and Administration
AND PLACEMENT AGENT ARRANGEMENTS
4.1. INVESTMENT MANAGEMENT AND OTHER ARRANGEMENTS. The Trustees may in
their discretion, from time to time, enter into investment management and
administration contracts or placement agent agreements whereby the other party
to such contract or agreement shall undertake to furnish the Trustees such
investment management and administration, placement agent and/or other services
as 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 Manager and Administrator (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
Manager and Administrator (all without any further action by the Trustees). Any
such purchase, sale, loan or exchange shall be deemed to have been authorized by
the Trustees.
4.2. PARTIES TO CONTRACT. Any contract of the character described in
Section 4.1 hereof or in the By-Laws of the Trust may be entered into with any
corporation, firm, trust or association, although one or more of the Trustees or
officers of the Trust may be an officer, director, Trustee, shareholder or
member of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of any such contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws of the Trust. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with Persons who are parties to any or all of the contracts mentioned in this
Section 4.2 or in the By-Laws of the Trust.
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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.
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)
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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
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
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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 Manager and 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 except as provided in Section 6.2 hereof.
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 except as part of a merger or similar plan of reorganization of a
Holder as permitted by the Trustees.
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, to the provisions of this Declaration and to
such restrictions as may from time to time be adopted by the Trustees, each
Holder shall have the right to vary its investment in the Trust at any time
without limitation by increasing (through a capital contribution) or decreasing
(through a capital withdrawal) or by a Redemption of its Interest. An increase
in the investment of a Holder in the Trust shall be reflected as an increase in
the Book Capital Account balance of that Holder and a decrease in the investment
of a Holder in the Trust or the Redemption of the Interest of a Holder shall be
reflected as a decrease in the Book Capital Account balance of that Holder. The
Trust shall, upon appropriate and adequate notice from any Holder increase,
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 Manager and 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 in cash or in kind. Except as provided in Section 6.2, a holder
may not transfer, sell or exchange its Book Capital Account balance.
8.2. ALLOCATIONS AND DISTRIBUTIONS TO HOLDERS. The Trustees shall, in
compliance with the Code, the 1940 Act and generally accepted accounting
principles, establish the procedures by which the Trust shall make (i) the
allocation of unrealized gains and losses, taxable income and tax loss, and
profit and loss, or any item or items thereof, to each Holder, (ii) the payment
of distributions, if any, to Holders, and (iii) upon liquidation, the final
distribution of items of taxable income and expense. Such procedures shall be
set forth in writing and be furnished to the Trust's accountants. The Trustees
may amend the procedures adopted pursuant to this Section 8.2 from time to time.
The Trustees may retain from the net profits such amount as they may deem
necessary to pay the liabilities and expenses of the Trust, to meet obligations
of the Trust, and as they may deem desirable to use in the conduct of the
affairs of the Trust or to retain for future requirements or extensions of the
business.
8.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any of the
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the net income
of the Trust, the allocation of income of the Trust, the Book Capital Account
balance of each Holder, or the payment of distributions to the Holders as they
may deem necessary or desirable to enable the Trust to comply with any provision
of the 1940 Act or any order of exemption issued by the Commission or with the
Code.
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ARTICLE IX
HOLDERS
9.1. RIGHTS OF HOLDERS. The ownership of the Trust Property and the
right to conduct any business described herein are vested exclusively in the
Trustees, and the Holders shall have no right or title therein other than the
beneficial interest conferred by their Interests and they shall have no power or
right to call for any partition or division of any Trust Property.
9.2. MEETINGS OF HOLDERS. Meetings of Holders may be called at any time
by a majority of the Trustees and shall be called by any Trustee upon written
request of Holders holding, in the aggregate, not less than 10% of the
Interests, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
State of New York and within or without the United States of America on such day
and at such time as the Trustees shall designate. Holders of one-third of the
Interests, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. NOTICE OF MEETINGS. Notice of each meeting of Holders, stating the
time, place and purposes of the meeting, shall be given by the Trustees by mail
to each Holder, at its registered address, mailed at least 10 days and not more
than 60 days before the meeting. Notice of any meeting may be waived in writing
by any Holder either before or after such meeting. The attendance of a Holder at
a meeting shall constitute a waiver of notice of such meeting except in the
situation in which a Holder attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened. At any meeting, any business properly before
the meeting may be considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further notice.
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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
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
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of all Interests entitled to vote consent to the action in writing and the
written consents are filed with the records of the meetings of Holders. Such
consents shall be treated for all purposes as a vote taken at a meeting of
Holders. Each such written consent shall be executed by or on behalf of the
Holder delivering such consent and shall bear the date of such execution. No
such written consent shall be effective to take the action referred to therein
unless, within one year of the earliest dated consent, written consents executed
by a sufficient number of Holders to take such action are filed with the records
of the meetings of Holders.
9.9. NOTICES. Any and all communications, including any and all notices
to which any Holder may be entitled, shall be deemed duly served or given if
mailed, postage prepaid, addressed to a Holder at its last known address as
recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
AMENDMENT; MERGERS; ETC.
10.1. DURATION. Subject to possible termination or dissolution in
accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
Date of
NAME ADDRESS BIRTH
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
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
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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
Katherine Driscoll Cima 11 Beechwood Lane 04/05/92
Scarsdale, NY 10583
10.2. TERMINATION.
(a) The Trust may be terminated (i) by the affirmative vote of Holders
of not less than two-thirds of all Interests at any meeting of Holders or by an
instrument in writing without a meeting, executed by a majority of the Trustees
and consented to by Holders of not less than two-thirds of all Interests, or
(ii) by the Trustees by written notice to the Holders. Upon any such
termination,
(i) the Trust shall carry on no business except for the purpose of
winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration shall continue until
the affairs of the Trust have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect the assets of the Trust, sell,
convey, assign, exchange or otherwise dispose of all or any part of the Trust
Property to one or more Persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or other property of
any kind, discharge or pay the liabilities of the Trust, and do all other acts
appropriate to liquidate the business of the Trust; provided that any sale,
conveyance, assignment, exchange or other disposition of all or substantially
all the Trust Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by the vote of
Holders holding more than 50% of all Interests; and
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees shall
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Holders according to their respective rights as set forth in the
procedures established pursuant to Section 8.2 hereof.
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(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,
(C) to permit the Trust to comply with fiscal or other statutory or official
requirements of any government authority, or (D) 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) 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
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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,
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partnership, association or other organization in exchange for the equity
interests thereof or otherwise, and to lend money to, subscribe for the equity
interests of, and enter into any contract with any such corporation, trust,
partnership, association or other organization, or any corporation, trust,
partnership, association or other organization in which the Trust holds or is
about to acquire equity interests. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to one or more of such organizations or entities.
ARTICLE XI
MISCELLANEOUS
11.1. 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
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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
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/MATTHEW HEALEY /S/ARTHUR C. ESCHENLAUER
As Trustee and not individually As Trustee and not individually
/S/FREDERICK S. ADDY /S/MICHAEL P. MALLARDI
As Trustee and not individually As Trustee and not individually
/S/WILLIAM G. BURNS
As Trustee and not individually
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AMENDMENT NO. 1 TO DECLARATION OF TRUST OF THE U.S. STOCK PORTFOLIO
ADOPTED BY AFFIRMATIVE VOTE OF A MAJORITY OF THE TRUSTEES
JUNE 24, 1993, TORONTO, ONTARIO, CANADA
RESOLVED: That pursuant to the last paragraph of Section 10.4 of the
Declaration of Trust dated as of January 29, 1993 of The U.S. Stock Portfolio
(the "Trust"), the Trustees hereby amend in its entirety paragraph (a) of
Section 10.4 of the Trust's Declaration of Trust as follows:
(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, (C) to permit the Trust to comply with fiscal
or other statutory or official requirements of any government
authority, or (D) 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) 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).
JPM76A
<PAGE>
AMENDMENT NO. 2 TO DECLARATION OF TRUST OF THE U.S. STOCK PORTFOLIO
DATED AS OF APRIL 13, 1995
The undersigned, being all the Trustees of 93 of The U.S. Stock
Equity Portfolio, a trust organized under the laws of the State of New York (the
"Trust), acting pursuant to the last paragraph of Section 10.4 of the
Declaration of Trust dated as of January 29, 1993, as amended, hereby amend in
its entirety paragraph Section 6.2 of the Trust's Declaration of Trust as
follows:
6.2. NON-TRANSFERABILITY. A Holder may not transfer, sell or exchange
its Interest except as part of a merger or similar plan of reorganization of a
Holder that qualifies under Section 368 of the Code as permitted by the
Trustees.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 13th day of April, 1995. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by all of the
Trustees.
/S/FREDERICK S. ADDY /S/WILLIAM G. BURNS
Frederick S. Addy William G. Burns
/S/ARTHUR C. ESCHENLAUER /S/MATTHEW HEALEY
Arthur C. Eschenlauer Matthew Healey
/S/MICHAEL P. MALLARDI
Michael P. Mallardi
BY-LAWS
OF
EACH HUB TRUST LISTED ON SCHEDULE I
AND
EACH SPOKE TRUST LISTED ON SCHEDULE II
ARTICLE I
DEFINITIONS
Each Trust listed on Schedule I is referred to in these By-Laws as a
"HUB TRUST".* Each Trust listed on Schedule II is referred to in these By-Laws
as a "SPOKE TRUST".*
In the case of each Hub Trust and each Spoke Trust, unless otherwise
specified, capitalized terms have the respective meanings given them in the
Declaration of Trust of such Trust dated as of the date set forth in Schedule I
or II, as amended from time to time. In the case of each Spoke Trust, the term
"Holder" has the meaning given the term "Shareholder" in the Declaration.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. In the case of each Hub Trust, the
principal office of the Trust shall be in such place as the Trustees may
determine from time to time, PROVIDED THAT the principal office shall be outside
the United States of America if the Trustees determine that the Trust is
intended to be operated so that it is not engaged in United States trade or
business for United States federal income tax purposes. In the case of each
Spoke Trust, until changed by the Trustees, the principal office of the Trust in
the Commonwealth of Massachusetts shall be in the City of Boston, County of
Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the state of its organization and the United
States of America as the Trustees may from time to time determine.
- --------
*"Hub" and "Spoke" are service marks of Signature
Financial Group, Inc.
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ARTICLE III
HOLDERS
SECTION 1. 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 in the case of each Hub Trust or 10% of the Shares issued and
outstanding and entitled to vote thereat in the case of each Spoke Trust, such
request specifying the purpose or purposes for which such meeting is to be
called.
Any such meeting shall be held within or without the state of
organization of the Trust and within, or, if applicable, in the case of a Hub
Trust only 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 in the case
of each Hub Trust or one third of the Shares issued and outstanding and entitled
to vote thereat in the case of each Spoke Trust, 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, the Declaration or
these By-Laws. 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 in the case of each Hub Trust, or 50% of the total Shares issued and
outstanding and entitled to vote thereat in the case of each Spoke Trust,
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, the Declaration or these By-Laws.
All or any one or 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.
In the case of The Series Portfolio or any Spoke Trust, whenever a
matter is required to be voted by Holders of the Trust in the aggregate under
Section 9.1 and Section 9.2 of the Declaration of The Series Portfolio or
Section 6.8 and Section 6.9 and Section 6.9(g) of the Declaration of the Spoke
Trust, the Trust may either hold a meeting of Holders of all series, as defined
in Section 1.2 of the Declaration of The Series Portfolio or Section 6.9 of the
Declaration of the Spoke Trust, to vote on such matter, or hold separate
meetings of Holders of each of the individual series to vote
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on such matter, PROVIDED THAT (i) such separate meetings shall be held within
one year of each other, (ii) a quorum consisting of the Holders of one third of
the outstanding Interests or Shares, as the case may be, of the individual
series entitled to vote shall be present at each such separate meeting except as
may otherwise be required by the 1940 Act, other applicable law, the Declaration
or these ByLaws and (iii) a quorum consisting of the Holders of one third of all
Interests or Shares, as the,case may be, of the Trust entitled to vote, except
as may otherwise be required by the 1940 Act, other applicable law, the
Declaration or these By-Laws, shall be present in the aggregate at such separate
meetings, and the votes of Holders at all such separate meetings shall be
aggregated in order to determine if sufficient votes have been cast for such
matter to be voted.
SECTION 2. NOTICE OF MEETINGS. Notice of each meeting of Holders,
stating the time, place and purpose 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.
In the case of The Series Portfolio and each Spoke Trust, where
separate meetings are held for Holders of each of the individual series to vote
on a matter required to be voted on by Holders of the Trust in the aggregate, as
provided in Article III, Section 1 above, notice of each such separate meeting
shall be provided in the manner described above in this Section 2.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining the
Holders who are entitled to notice of and to vote at any meeting, the Trustees
may from time to time fix a date, not more than 90 days prior to the date of any
meeting of Holders as a record date for the determination of the Persons to be
treated as Holders for such purpose.
In the case of The Series Portfolio and each Spoke Trust, where
separate meetings are held for Holders of each of the individual series to vote
on a matter required to be voted on by Holders of the Trust in the aggregate, as
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provided in Article III, Section 1 above, the record date of each such separate
meeting shall be determined in the manner described above in this Section 3.
SECTION 4. VOTING, PROXIES, INSPECTORS OF ELECTION. 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. No proxy shall be valid after one year from the date
of its execution, unless a longer period is expressly stated in the proxy.
In the case of each Hub Trust, only Holders on the record date shall be
entitled to vote and each such Holder shall be entitled to a vote proportionate
to its Interest. In the case of each Spoke Trust, (i) only Holders on the record
date shall be entitled to vote; (ii) each whole Share shall be entitled to vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted; (iii) Shares shall be voted by
individual series on any matter submitted to a vote of the Holders of the Trust
except as provided in Section 6.9(g) of the Declaration; and (iv) at any meeting
of Holders of the Trust or of any series of the Trust, a Shareholder Servicing
Agent may vote any Shares as to which such Shareholder Servicing Agent is the
agent of record.
The Chairman of the meeting may, and upon the request of the Holders of
10% of the Interests or Shares, as the case may be, entitled to vote at such
election shall, appoint one or three inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election certify the result of the vote taken. No
candidate for Trustee shall be appointed such inspector. If there are three
inspectors of election, the decision, act or certification of a majority is
effective in all respects as the decision, act or certificate of all.
At every meeting of the Holders, all proxies shall be required and
taken in charge of and all ballots shall be
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required and canvassed by the Secretary of the meeting, who shall decide all
questions touching the qualification of voters, the validity of the proxies, the
acceptance or rejection of votes and any other questions related to the conduct
of the vote with fairness to all Holders, unless inspectors of election shall
have been appointed, in which event the inspectors of election shall decide all
such questions. On request of the Chairman of the meeting, or of any Holder or
his proxy, the Secretary shall make a report in writing of any question
determined and shall execute a certificate of facts found, unless inspectors of
election shall have been appointed, in which event the inspectors of election
shall do so.
When an Interest is held or Shares are held jointly by several Persons,
any one of them may vote at any meeting in person or by proxy in respect of such
Interest or Shares, but if more than one of them is present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Interest or Shares. 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.
SECTION 5. HOLDER ACTION BY WRITTEN CONSENT. In the case of each Hub
Trust, any action which may be taken by Holders may be taken without a meeting
if Holders of all Interests entitled to vote consent to the action in writing
and the written consents are filed with the records of the meetings of Holders.
In the case of each Spoke Trust, any action which may be taken by Holders may be
taken without a meeting if Holders holding a majority of Shares entitled to vote
on the matter (or such larger proportion thereof as shall be required by law,
the Declaration or these By-Laws for approval of such matter) consent to the
action in writing and the written consents are filed with the records of the
meetings of 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.
SECTION 6. CONDUCT OF MEETINGS. The meetings of the Holders shall be
presided over by the Chairman, or if he is
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not present, by a Chairman to be elected at the meeting. The Secretary of the
Trust, if present, shall act as secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act; if neither the Secretary nor any
Assistant Secretary is present, then the meeting shall elect its secretary.
ARTICLE IV
TRUSTEES
SECTION 1. PLACE OF MEETING, ETC. The Trustees may hold their meetings,
have one or more offices, and keep the books of the Trust, inside or outside the
state of organization of the Trust or the United States of America, at any
office of the Trust or at any other place as they may from time to time
determine, or in the case of meetings, as they may from time to time determine
or as shall be specified or fixed in the respective notices or waivers of notice
thereof.
SECTION 2. MEETINGS. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman or any two Trustees. The President, the
Secretary or an Assistant Secretary may call meetings only upon the written
direction of the Chairman or two Trustees. The Trustees shall hold an annual
meeting for the election of officers and transaction of other business which may
come before such meeting. Regular meetings of the Trustees may be held without
call or notice at a time and place fixed by 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. Notice shall be given of any proposed action to be taken by
written consent. Notice of a meeting or proposed action to be taken by written
consent may be given by telegram (which term shall include a cablegram), by
telecopier or delivered personally (which term shall include by telephone), as
well as by mail. 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.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Trustees need be stated in the notice or waiver of notice of such meeting.
SECTION 3. QUORUM. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in the Declaration, the 1940
Act or other applicable law, any action of the Trustees may be taken at a
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meeting by vote of a majority of the Trustees present (a quorum being present).
In the absence of a quorum, a majority of the Trustees present may adjourn the
meeting from time to time until a quorum shall be present. Notice of an
adjourned meeting need not be given.
With respect to actions 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 and shall be entitled to vote to the extent
permitted by the 1940 Act.
SECTION 4. COMMITTEES. The Trustees, by the majority vote of all the
Trustees then in office, may appoint from the Trustees committees which shall in
each case consist of such number of Trustees (not less than two) and shall have
and may exercise such powers as the Trustees may determine in the resolution
appointing them. Unless provided otherwise in the Declaration or by the
Trustees, a majority of all the members of any such committee may determine its
actions and fix the time and place of its meetings. With respect to actions of
any committee, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes and
shall be entitled to vote to the extent permitted by the 1940 Act. The Trustees
shall have power at any time to change the members and powers of any such
committee, to fill vacancies and to discharge any such committee. Each committee
shall keep regular minutes of its meetings and cause them to be filed with the
minutes of the proceedings of the Trustees.
SECTION 5. TELEPHONE MEETINGS. 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 participating
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting. Any conference telephone meeting shall be deemed to
have been held at a place designated by the Trustees at the meeting.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Trustees or any committee thereof may be taken
without a meeting, if a written consent to such action is signed either by all
the Trustees or all members of such committee then in office or by an 80%
majority of the Trustees or an 80% majority of members of such committee,
PROVIDED THAT no action by 80% majority consent shall be effective unless and
until (i) each Trustee or committee member signing such consent shall have been
advised in writing of the following
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information: the identity of any Trustee or committee member not signing such
consent and the reasons for his not signing; and (ii) after receiving such
information signing Trustees or committee members who represent an 80% majority
then in office indicate in writing that the consent shall become effective by
80% majority, rather than unanimous, consent. All such effective written
consents shall be filed with the minutes of the proceedings of the Trustees and
treated as a vote for all purposes.
SECTION 7. COMPENSATION. The Trustees shall be entitled to receive such
compensation from the Trust for their services as may from time to time be voted
by the Trustees.
SECTION 8. CHAIRMAN. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to serve until his successor
shall have been duly elected and qualified; the Chairman may serve on committees
of the Trustees. The Chairman shall not be an officer of the Trust solely by
virtue of his serving as Chairman. The Chairman shall preside at all meetings of
the Trustees at which he is present, shall serve as the liaison between the
Trustees and the officers of the Trust and between the Trustees and their staff
and shall have such other duties as from time to time may be assigned to him by
the Trustees.
SECTION 9. TRUSTEES' STAFF; COUNSEL FOR THE TRUST AND TRUSTEES, ETC.
The Trustees may employ or contract with one or more Persons to serve as their
staff and to provide such services related thereto as may be determined from
time to time. The Trustees may employ attorneys as counsel for the Trust and/or
the Trustees and may engage such other experts or consultants as may be
determined from time to time.
ARTICLE V
OFFICERS
SECTION 1. GENERAL PROVISIONS. The Trustees may elect or appoint such
officers or agents as the business of the Trust may require, including without
limitation a Chief Executive Officer, a President, one or more Vice Presidents,
a Treasurer, a Secretary, one or more Assistant Treasurers and one or more
Assistant Secretaries. The Trustees may delegate to any officer or committee the
power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these ByLaws, each of the principal
executive officer described in Section 4 below, the Treasurer and the Secretary
shall hold
8
<PAGE>
office until a successor shall have been duly elected and qualified, and any
other officers shall hold office at the pleasure of the Trustees. Any two or
more offices may be held by the same Person, PROVIDED THAT at least two
different individuals shall serve as officers. Any officer may be, but does not
need be, a Trustee.
SECTION 3. REMOVAL. The Trustees may remove any officer with or without
cause by a vote of a majority of the Trustees. Any subordinate officer or agent
appointed by any officer or committee may be removed with or without cause by
such appointing officer or committee.
SECTION 4. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER; PRESIDENT.
The Chief Executive Officer, if any, shall be the principal executive officer of
the Trust. Subject to the control of the Trustees, the Chief Executive Officer
shall (i) at all times exercise general supervision and direction over the
affairs of the Trust, (ii) have the power to grant, issue, execute or sign such
documents as may be deemed advisable or necessary in the ordinary course of the
Trust's business and (iii) have such other powers and duties as from time to
time may be assigned by the Trustees.
If there is no Chief Executive Officer, the President shall be the
principal executive officer of the Trust and shall have the powers and duties
set forth above in this Section 4. If there is a Chief Executive Officer and a
President, the President shall have such powers and duties as from time to time
may be assigned by the Trustees or the Chief Executive Officer.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, any Vice President designated by the Trustees or
the President shall perform all the duties, and may exercise any of the powers,
of the President. Each Vice President shall perform such other duties as from
time to time may be assigned to him by the Trustees or the Chief Executive
Officer.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to the Trust's
custodian. The Treasurer shall render a statement of condition of the finances
of the Trust to the Trustees as often as they shall require the same and shall
in general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Trustees.
9
<PAGE>
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Holders in proper books provided for that
purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust, if any; and shall have charge of the Holder
lists and records unless the same are in the charge of the Transfer Agent. The
Secretary shall attend to the giving and serving of notices by the Trust in
accordance with the provisions of these By-Laws and as required by law; and
subject to these By-Laws, shall in general perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS. Subject to any applicable law or
provision of the Declaration, any compensation of any officer may be fixed from
time to time by the Trustees. No officer shall be prevented from receiving any
such compensation as such officer by reason of the fact that he is also a
Trustee. If no such compensation is fixed for any officer, such officer shall
not be entitled to receive any compensation from the Trust.
SECTION 11. BOND AND SURETY. As provided in the Declaration, any
officer may be required by the Trustees to be bonded for the faithful
performance of his duties in the amount and with such sureties as the Trustees
may determine.
ARTICLE VI
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
10
<PAGE>
ARTICLE VII
FISCAL YEAR
The Trust may have different fiscal years for its separate and distinct
series, if applicable. The fiscal year(s) of the Trust shall be determined by
the Trustees, PROVIDED THAT the Trustees (or the Treasurer subject to
ratification by the Trustees) may from time to time change any fiscal year.
ARTICLE VIII
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ one or more banks or trust companies having a capital, surplus and
undivided profits of at least $50,000,000 as custodian with authority as the
Trust's agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Declaration, these By-Laws and
the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same upon
written order; (ii) to receive and receipt for any monies due to the
Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; (iii) to disburse such funds upon orders or
vouchers; (iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of the
Trust and the net asset value of the Trust or, in the case of each
Spoke Trust, Shares;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
11
<PAGE>
SECTION 2. SUCCESSOR CUSTODIAN. The Trust shall upon the resignation or
inability to serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian; (ii) require that the cash and
securities owned by the Trust be delivered directly to the successor
custodian; and (iii) in the event that no successor custodian can be
found, submit to the Holders before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor custodian,
the question whether the
Trust shall be liquidated or shall function without a custodian.
ARTICLE IX
INDEMNIFICATION
In the case of each Hub Trust, insofar as the conditional advancing of
indemnification monies under Section 5.4 of the Declaration for actions based
upon the 1940 Act may be concerned, such payments will be made only on the
following conditions:
(i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may
be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay the amount of the advance which exceeds the amount
to which it is ultimately determined that he is entitled to receive
from the Trust by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayment may be
obtained by the Trust without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient
of the advance, or (b) a majority of a quorum of the Trust's
disinterested, nonparty 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.
12
<PAGE>
ARTICLE X
AMENDMENTS, ADDITIONAL TRUSTS, ETC.
The Trustees shall have the power to alter, amend or repeal
these By-Laws or adopt new By-Laws at any time to the extent such power is not
reserved to the Holders by the 1940 Act, other applicable law or the
Declaration. Action by the Trustees with respect to these 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.
One or more additional trusts may be added to Schedule I or Schedule II
by resolution of the trustees of such trust(s), PROVIDED THAT the trustees of
such trust(s) are identical to the Trustees of the Hub Trusts and the Spoke
Trusts immediately prior to such addition.
In the case of each Hub Trust, 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. In
the case of each Spoke Trust, the Declaration refers to the Trustees not
individually, but as Trustees under the Declaration, and no Trustee, officer,
employee or agent of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or its Holders, in connection
with Trust Property or the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless disregard for his duty
to such Person; and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
13
<PAGE>
SCHEDULE I
HUB TRUSTS
<TABLE>
<CAPTION>
STATE OF DATE OF DATE
ORGANIZA- DECLARA- BY-LAWS
TRUST TION TION ADOPTED
<S> <C> <C> <C>
The Treasury Money Market New York 11/4/92 10/13/94
Portfolio
The Money Market Portfolio New York 1/29/93 10/13/94
The Tax Exempt Money Market New York 1/29/93 10/13/94
Portfolio
The Short Term Bond Portfolio New York 1/29/93 10/13/94
The U.S. Fixed Income Portfolio New York 1/29/93 10/13/94
The Tax Exempt Bond Portfolio New York 1/29/93 10/13/94
The Selected U.S. Equity Portfolio New York 1/29/93 10/13/94
The U.S. Stock Portfolio New York 1/29/93 10/13/94
The U.S. Small Company Portfolio New York 1/29/93 10/13/94
The Non-U.S. Equity Portfolio New York 1/29/93 10/13/94
The Diversified Portfolio New York 1/29/93 10/13/94
The Non-U.S. Fixed Income New York 6/13/93 10/13/94
Portfolio
The Emerging Markets Equity New York 6/13/93 10/13/94
Portfolio
The New York Total Return Bond New York 6/13/93 10/13/94
Portfolio (name changed)
The Series Portfolio New York 6/14/94 10/13/94
</TABLE>
14
<PAGE>
SCHEDULE II
SPOKE TRUSTS
STATE OF DATE OF DATE
ORGANIZATION DECLARA- BY-LAWS
TRUST TION ADOPTED
The Pierpont Funds Massachusetts 11/4/92 10/13/94
The JPM Institutional
Funds Massachusetts 11/4/92 10/13/94
The JPM Institutional
Plus Funds Massachusetts 11/4/92 10/13/94
THE U.S. STOCK PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
Agreement, made this 30th day of June, 1993, between The U.S. Stock
Portfolio, a trust organized under the law of the State of New York (the
"Portfolio") and Morgan Guaranty Trust Company of New York, a New York trust
company authorized to conduct a general banking business (the "Advisor"),
WHEREAS, the Portfolio is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Portfolio desires to retain the Advisor to render
investment advisory services to the Portfolio, and the Advisor is willing to
render such services;
W I T N E S S E T H:
NOW, THEREFORE, this Agreement that in consideration of the premises
and mutual promises hereinafter set forth, the parties hereto agree as follows:
1. The Portfolio hereby appoints the Advisor to act as investment
adviser to the Portfolio for the period and on the terms set forth in this
Agreement. The Advisor accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Subject to the general supervision of the Trustees of the Portfolio,
the Advisor shall manage the investment operations of the Portfolio and the
composition of the Portfolio's holdings of securities and investments, including
cash, the purchase, retention and disposition thereof and agreements relating
thereto, in accordance with the Portfolio's investment objectives and policies
as stated in the Registration Statement (as defined in paragraph 3(d) of this
Agreement) and subject to the following understandings:
(a) the Advisor shall furnish a continuous investment program for
the Portfolio and determine from time to time what
investments or securities will be purchased, retained, sold
or lent by the Portfolio, and what portion of the assets will
be invested or held uninvested as cash;
(b) the Advisor shall use the same skill and care in the
management of the Portfolio's investments as it uses in the
administration of other accounts for which it has investment
responsibility as agent;
1
<PAGE>
(c) the Advisor, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the
Declaration of Trust, By-Laws and Registration Statement of
the Portfolio and with the instructions and directions of the
Trustees of the Portfolio and will conform to and comply with
the requirements of the 1940 Act and all other applicable
federal and state laws and regulations;
(d) the Advisor shall determine the securities to be purchased,
sold or lent by the Portfolio and as agent for the Portfolio
will effect portfolio transactions pursuant to its
determinations either directly with the issuer or with any
broker and/or dealer in such securities; in placing orders
with brokers and/or dealers the Advisor intends to seek best
price and execution for purchases and sales; the Advisor
shall also determine whether or not the Portfolio shall enter
into repurchase or reverse repurchase agreements;
On occasions when the Advisor deems the purchase or sale of a
security to be in the best interest of the Portfolio as well
as other customers of the Advisor, the Advisor may, to the
extent permitted by applicable laws and regulations, but
shall not be obligated to, aggregate the securities to be so
sold or purchased in order to obtain best execution,
including lower brokerage commissions, if applicable. In such
event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be
made by the Advisor in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to
the Portfolio;
(e) the Advisor shall maintain books and records with respect to
the Portfolio's securities transactions and shall render to
the Portfolio's Trustees such periodic and special reports as
the Trustees may reasonably request; and
(f) the investment management services of the Advisor to the
Portfolio under this Agreement are not to be deemed
exclusive, and the Advisor shall be free to render similar
services to others.
3. The Portfolio has delivered copies of each of the following
documents to the Advisor and will promptly notify and deliver to it all future
amendments and supplements, if any:
(a) Declaration of Trust of the Portfolio (such Declaration of
Trust, as presently in effect and as amended from time to
time, is herein called the "Declaration of Trust");
(b) By-Laws of the Portfolio (such By-Laws, as presently in
effect and as amended from time to time, are herein called
the "By-Laws");
2
<PAGE>
(c) Certified resolutions of the Trustees of the Portfolio
authorizing the appointment of the Advisor and approving the
form of this Agreement;
(d) The Portfolio's Notification of Registration on Form N-8A and
Registration Statement on Form N-1A (No. 811-7880) each under
the 1940 Act (the "Registration Statement") as filed with the
Securities and Exchange Commission (the "Commission") on July
14, 1993, all amendments thereto.
4. The Advisor shall keep the Portfolio's books and records required to
be maintained by it pursuant to paragraph 2(e). The Advisor agrees that all
records which it maintains for the Portfolio are the property of the Portfolio
and it will promptly surrender any of such records to the Portfolio upon the
Portfolio's request. The Advisor further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such records
as are required to be maintained by the Advisor with respect to the Portfolio by
Rule 31a-1 of the Commission under the 1940 Act.
5. During the term of this Agreement the Advisor will pay all expenses
incurred by it in connection with its activities under this Agreement, other
than the cost of securities and investments purchased for the Portfolio
(including taxes and brokerage commissions, if any).
6. For the services provided and the expenses borne pursuant to this
Agreement, the Portfolio will pay to the Advisor as full compensation therefor a
fee at an annual rate equal to .40% of the Portfolio's average daily net assets.
This fee will be computed daily and payable as agreed by the Portfolio and the
Advisor, but no more frequently than monthly.
7. The Advisor shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Portfolio in connection with the matters
to which this Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
8. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Portfolio at any
time, without the payment of any penalty, by vote of a majority of all the
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 Advisor, or by the
Advisor at any time,
3
<PAGE>
without the payment of any penalty, on 90 days' written notice to the Portfolio.
This Agreement will automatically and immediately terminate in the event of its
assignment (as defined in the 1940 Act).
9. The Advisor shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Trustees of the Portfolio from time to time, have no authority
to act for or represent the Portfolio in any way or otherwise be deemed an agent
of the Portfolio.
10. This Agreement may be amended by mutual consent, but the consent of
the Portfolio must be approved (a) by vote of a majority of those 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
amendment, and (b) by vote of a majority of the outstanding voting securities of
the Portfolio.
11. Notices of any kind to be given to the Advisor by the Portfolio
shall be in writing and shall be duly given if mailed or delivered to the
Advisor at 9 West 57th Street, New York, New York 10019, Attention: Managing
Director, Funds Management Division, or at such other address or to such other
individual as shall be specified by the Advisor to the Portfolio. Notices of any
kind to be given to the Portfolio by the Advisor shall be in writing and shall
be duly given if mailed or delivered to the Portfolio c/o Signature Financial
Group (Cayman) Limited at P.O. Box 268, Elizabethan Square, George Town, Grand
Cayman BWI or at such other address or to such other individual as shall be
specified by the Portfolio to the Advisor.
12. The Trustees have authorized the execution of this Agreement in
their capacity as Trustees and not individually and the Advisor agrees that
neither the shareholders nor the Trustees nor any officer, employee,
representative or agent of the Portfolio shall be personally liable upon, or
shall resort be had to their private property for the satisfaction of,
obligations given, executed or delivered on behalf of or by the Portfolio, that
the shareholders, trustees, officers, employees, representatives and agents of
the Portfolio shall not be personally liable hereunder, and that it shall look
solely to the property of the Portfolio for the satisfaction of any claim
hereunder.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the 30th day of June, 1993.
THE U.S. STOCK PORTFOLIO
By:/S/LAURA R. YOUNG
Laura R. Young
Assistant Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:/S/KATHLEEN H. TRIPP
Kathleen H. Tripp
Vice President
SUSEQIAA
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE MAY 31, 1995
ANNUAL REPORT FOR THE U.S. STOCK PORTFOLIO AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000908938
<NAME> THE U.S. STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 115,505
<INVESTMENTS-AT-VALUE> 115,505
<RECEIVABLES> 5,604
<ASSETS-OTHER> 778
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121,887
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,424
<TOTAL-LIABILITIES> 3,424
<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> 118,463
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,073
<OTHER-INCOME> 0
<EXPENSES-NET> 374
<NET-INVESTMENT-INCOME> 4,699
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,703
<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> 17,958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 208
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,574
<AVERAGE-NET-ASSETS> 103,921
<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> .36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
