As filed with the Securities and Exchange Commission on March __, 1995
File No. 811-8012
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 2 [X]
GOVERNMENT OBLIGATIONS PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
The Bank of Nova Scotia Building
P.O. Box 501, George Town, Grand Cayman
Cayman Islands, British West Indies
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (809) 949-2001
H. Day Brigham, Jr.
24 Federal Street, Boston, Massachusetts 02110
(Name and Address of Agent for Service)
EXPLANATORY NOTE
This Registration Statement, as amended, has been filed by the
Registrant pursuant to Section 8(b) of the Investment Company Act of 1940,
as amended. However, interests in the Registrant have not been registered
under the Securities Act of 1933, as amended (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 be made only by
U.S. and foreign investment companies, common or commingled trust funds,
organizations or trusts described in Sections 401(a) or 501(a) of the
Internal Revenue Code of 1986, as amended, or similar organizations or
entities that are "accredited investors" within the meaning of Regulation
D under the 1933 Act. This Registration Statement, as amended, does not
constitute an offer to sell, or the solicitation of an offer to buy, any
interest in the Registrant.
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
Government Obligations Portfolio (the "Portfolio") is a diversified,
open-end management investment company that was organized as a trust under
the laws of the State of New York on May 1, 1992. 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 be made only by U.S. and foreign investment companies,
common or commingled trust funds, organizations or trusts described in
Sections 401(a) or 501(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), or similar organizations or entities that are "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement, as amended, does not constitute an offer to sell,
or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.
The Portfolio's investment objective is to realize a high current
return. In seeking high current return, the Portfolio invests in
securities issued, guaranteed or otherwise backed by the U.S. Government,
including Government National Mortgage Association ("GNMA")
mortgage-backed certificates and issues of federal agencies and federally
chartered corporations, and engages in active management strategies,
including futures transactions and related techniques for hedging
purposes. The Portfolio's investment objective is nonfundamental and may
be changed without obtaining the approval of the investors in the
Portfolio.
Additional information about the investment policies of the Portfolio
appears in Part B. The Portfolio is not intended to be a complete
investment program, and a prospective investor should take into account
its objectives and other investments when considering the purchase of an
interest in the Portfolio. The Portfolio cannot assure achievement of its
investment objective.
How the Portfolio Invests its Assets
The Portfolio's management believes that a high current return may be
derived from yields on U.S. Government securities, including market
discount accrued on obligations purchased below their stated redemption
value.
U.S. Government Securities. U.S. Government securities in which the
Portfolio may invest include (1) U.S. Treasury obligations, which differ
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in their interest rates, maturities and times of issuance: U.S. Treasury
bills (maturities of one year or less), U.S. Treasury notes (maturities of
one to ten years) and U.S. Treasury bonds (generally maturities of greater
than ten years) and (2) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities which are supported by any of
the following: (a) the full faith and credit of the U.S. Treasury, (b) the
right of the issuer to borrow any amount limited to a specific line of
credit from the U.S. Treasury, (c) discretionary authority of the U.S.
Government to purchase certain obligations of the U.S. Government agency
or instrumentality or (d) the credit of the agency or instrumentality. The
Portfolio may also invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities.
Agencies and instrumentalities of the U.S. Government include, but are not
limited to: Federal Land Banks, Federal Financing Banks, Banks for
Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, GNMA, Student Loan Marketing Association,
United States Postal Service, Small Business Administration, Tennessee
Valley Authority and any other enterprise established or sponsored by the
U.S. Government. Because the U.S. Government generally is not obligated
to provide support to its instrumentalities, the Portfolio will invest in
obligations issued by these instrumentalities only if the Portfolio's
investment adviser, Boston Management and Research ("BMR" or the
"Investment Adviser") determines that the credit risk with respect to such
obligations is minimal.
The principal of and/or interest on certain U.S. Government
securities that may be purchased by the Portfolio could be (a) payable in
foreign currencies rather than U.S. dollars or (b) increased or diminished
as a result of changes in the value of the U.S. dollar relative to the
value of foreign currencies. The value of such portfolio securities
denominated in foreign currencies may be affected favorably or unfavorably
by changes in the exchange rate between foreign currencies and the U.S.
dollar. In order to limit the risk inherent in this type of security, it
is the current policy of the Portfolio not to purchase any such security
if after such purchase (i) more than 5% of its net assets (taken at market
value) would be invested in securities denominated in foreign currencies
or (ii) more than 2% of its net assets (taken at market value) would be
invested in securities denominated in any one foreign currency.
Short-Term Trading. Securities may be sold in anticipation of a market
decline (a rise in interest rates) or purchased in anticipation of a
market rise (a decline in interest rates) and later sold. In addition, a
security may be sold and another purchased at approximately the same time
to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities.
Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for or supply of
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various types of fixed-income securities or changes in the investment
objectives of investors.
Repurchase Agreements. The Portfolio may enter into repurchase agreements
with respect to U.S. Government securities. Under a repurchase agreement,
the seller agrees to repurchase such securities at the Portfolio's cost
plus interest within a specified time (normally one day). While repurchase
agreements involve certain risks not associated with direct investments in
U.S. Government securities, the Portfolio follows procedures designed to
moderate such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized banks. In addition, the
Portfolio's repurchase agreements will provide that the value of the
collateral underlying the repurchase agreements will always be at least
equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a
selling bank, the Portfolio will seek to liquidate such collateral.
However, the exercise of the Portfolio's right to liquidate such
collateral would involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase are
less than the repurchase price, the Portfolio could suffer a loss.
Temporary Investments. The Portfolio may from time to time have temporary
investments in short-term debt obligations (including certificates of
deposit, bankers' acceptances and commercial paper) pending the making of
other investments or as a reserve to service redemptions and repurchases
of its shares.
Other Investments and Strategies. The Portfolio may also invest in
collateralized mortgage obligations ("CMOs") and various other
mortgage-backed securities. If such obligations or securities are
privately issued they will currently be considered by the Investment
Adviser as possible investments for the Portfolio only when the mortgage
collateral is insured, guaranteed or otherwise backed by the U.S.
Government or one or more of its agencies or instrumentalities.
The Portfolio may engage in several active management strategies,
including the lending of portfolio securities, forward commitment
purchases of securities and leverage through borrowing. The Portfolio may
write covered call and covered put options on U.S. Government securities,
purchase such call and put options, and enter into closing purchase and
sale transactions with respect thereto. The Portfolio may, for hedging or
permissible non-hedging purposes, purchase and sell forward foreign
currency exchange contracts, purchase and sell options on foreign
currencies, purchase and sell futures contracts on various debt securities
(including U.S. Government securities), foreign currencies, certificates
of deposit, Eurodollar time deposits, economic indices (e.g., the Consumer
Price Indices and the Commodity Research Bureau Futures Price Index) and
other financial instruments or indices, purchase and write call and put
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options on any of such futures contracts and enter into closing purchase
and sale transactions with respect to such contracts and options. Options,
futures contracts, forward contracts, and repurchase agreements involve
credit and other risks, which are discussed under "Active Management
Strategies". A discussion of the greater costs and risks that may result
from the Portfolio's investment policy with respect to leveraging through
borrowing is also set forth under "Active Management Strategies." The
Portfolio expects that various new types of investments, hedging
techniques and management strategies will be developed and made available
to institutional investors in the future. The Investment Adviser will
consider making such investments or adopting such techniques or strategies
if it determines that they are consistent with the Portfolio's investment
objective and policies.
Fluctuations in Value. Because interest yields on U.S. Government
securities and opportunities to realize net gains from options and futures
transactions may vary from time to time because of general economic and
market conditions and many other factors, it is anticipated that current
return will fluctuate, and there can be no assurance that the Portfolio's
objective will be achieved. As a result of their high credit quality and
market liquidity, U.S. Government securities generally provide a lower
current return than obligations of other issuers. As with other debt
securities, the value of U.S. Government securities changes as interest
rates fluctuate. Fluctuations in the value of securities held by the
Portfolio will not affect interest income on existing portfolio securities
but will be reflected in net asset value. Thus, a decrease in interest
rates will generally result in an increase in the value of Portfolio
interests. Conversely, during periods of rising interest rates, the value
of Portfolio interests will generally decline. The magnitude of these
fluctuations will generally be greater at times when the Portfolio's
average maturity is longer.
Investment Restrictions. The Portfolio has adopted certain fundamental
investment restrictions, which are enumerated in detail in Part B and
which may not be changed unless authorized by an investor vote. Except
for such enumerated restrictions, the investment objective and policies of
the Portfolio are not fundamental policies and accordingly may be changed
by the Trustees without obtaining the approval of the investors in the
Portfolio. The Portfolio's investors will receive written notice thirty
days prior to any change in the investment objective of the Portfolio. If
any changes were made, the Portfolio might have investment objectives
different from the objectives which an investor considered appropriate at
the time of its initial investment.
Active Management Strategies
Derivative Instruments. The Portfolio may purchase or enter into the
derivative instruments described below to enhance return, to hedge against
fluctuations in interest rates, securities prices or currency exchange
rates, to change the duration of the Portfolio's fixed income portfolio or
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as a substitute for the purchase or sale of securities or currency. The
Portfolio's investments in derivative securities may include certain
mortgage-backed and indexed securities. These securities will either be
issued by the U.S. Government or one of its agencies or instrumentalities
or, if privately issued, collateralized by mortgages that are insured,
guaranteed or otherwise backed by the U.S. Government or its agencies or
instrumentalities. The Portfolio's transactions in derivative contracts
may include the purchase or sale of futures contracts on securities,
indices or currency; options on futures contracts; options on securities,
indices or currency; and forward contracts to purchase or sell securities
or currency.
All of the Portfolio's transactions in derivative instruments involve
a risk of loss or depreciation due to unanticipated adverse changes in
interest rates, securities prices or currency exchange rates. The loss on
derivative contracts (other than purchased options) may exceed the
Portfolio's initial investment in these contracts. In addition, the
Portfolio may lose the entire premium paid for purchased options that
expire before they can be profitably exercised by the Portfolio.
Mortgaged-Backed Securities. Mortgage-backed securities represent
participation interests in pools of adjustable and fixed mortgage loans.
Unlike conventional debt obligations, mortgage-backed securities provide
monthly payments derived from the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans. The mortgage loans underlying mortgage-backed securities
are generally subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain
interest and prepayment rate scenarios, the Portfolio may fail to recover
the full amount of its investment in mortgage-backed securities,
notwithstanding any direct or indirect governmental or agency guarantee.
Since faster than expected prepayments must usually be invested in lower
yielding securities, mortgage-backed securities are less effective than
conventional bonds in "locking in" a specified interest rate. Conversely,
in a rising interest rate environment, a declining prepayment rate will
extend the average life of many mortgage-backed securities. This
possibility is often referred to as extension risk. Extending the average
life of a mortgage-backed security increases the risk of depreciation due
to future increases in market interest rates.
The Portfolio's investments in mortgage-backed securities may include
conventional mortgage passthrough securities, stripped mortgage-backed
securities ("SMBS") and certain classes of multiple class collateralized
mortgage obligations ("CMOs"). Examples of SMBS include interest only and
principal only securities. Senior CMO classes will typically have
priority over residual CMO classes as to the receipt of principal and/or
interest payments on the underlying mortgages.
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The CMO classes in which the Portfolio may invest include sequential
and parallel pay CMOs, including planned amortization class ("PAC") and
target amortization class ("TAC") securities. The Portfolio may also
invest in the floating rate mortgage-backed securities listed under
"Indexed Securities."
Indexed Securities. The Portfolio may invest in indexed securities. The
interest rate or, in some cases, the principal payable at the maturity of
an indexed security may change positively or inversely in relation to one
or more interest rates, financial indices, currency rates or other
financial indicators ("reference prices"). An indexed security may be
leveraged to the extent that the magnitude of any change in the interest
rate or principal payable on an indexed security is a multiple of the
change in the reference price. Thus, indexed securities may decline in
value due to adverse market changes in reference prices.
The indexed securities purchased by the Portfolio may include
interest only ("IO") and principal only ("PO") securities, floating rate
securities linked to the Cost of Funds Index ("COFI floaters"), other
"lagging rate" floating rate securities, floating rate securities that are
subject to a maximum interest rate ("capped floaters"), leveraged floating
rate securities ("super floaters"), leveraged inverse floating rate
securities ("inverse floaters"), dual index floaters, range floaters,
index amortizing notes and various currency indexed notes.
Risks of Mortgage-Backed and Indexed Securities. Different types of
derivative debt securities are subject to different combinations of
prepayment, extension, interest rate and/or other market risks.
Conventional mortgage pass-through securities and sequential pay CMOs are
subject to all of these risks, but are typically not leveraged. PACs, TACs
and other senior classes of sequential and parallel pay CMOs involve less
exposure to prepayment, extension and interest rate risk than other
mortgage-backed securities, provided that prepayment rates remain within
expected prepayment ranges or "collars."
The risk of early prepayments is the primary risk associated with
mortgage IOs, super floaters and other leveraged floating rate mortgage-
backed securities. The primary risks associated with COFI floaters, other
"lagging rate" floaters, capped floaters, inverse floaters, POs and
leveraged inverse IOs are the potential extension of average life and/or
depreciation due to rising interest rates. Although not mortgage-backed
securities, index amortizing notes and other callable securities are
subject to extension risk resulting from the issuer's failure to exercise
its option to call or redeem the notes before their stated maturity date.
The residual classes of CMOs are subject to both prepayment and extension
risk.
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Other types of floating rate derivative debt securities present more
complex types of interest rate risks. For example, range floaters are
subject to the risk that the coupon will be reduced to below market rates
if a designated interest rate floats outside of a specified interest rate
band or collar. Dual index or yield curve floaters are subject to
depreciation in the event of an unfavorable change in the spread between
two designated interest rates. The market values of currency linked
securities may be very volatile and may decline during periods of unstable
currency exchange rates.
Derivative Contracts. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices
or currency; options on futures contracts; options on securities, indices
or currency; and forward contracts to purchase or sell securities or
currency. The Portfolio incurs liability to a counterparty in connection
with transactions in futures contracts, forward contracts and in selling
options. The Portfolio pays a premium for purchased options. In
addition, the Portfolio incurs transaction costs in opening and closing
positions in derivative contracts.
Risks Associated with Derivative Securities and Contracts. The risks
associated with the Portfolio's transactions in derivative securities and
contracts may include some or all of the following: (1) market risk; (2)
leverage and volatility risk; (3) correlation risk; (4) credit risk; and
(5) liquidity and valuation risk.
Investments in mortgage-backed and indexed securities are subject to
the prepayment, extension, interest rate and other market risks described
above. Entering into a derivative contract involves a risk that the
applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than
purchased options, this loss may exceed the amount of the initial
investment made or the premium received by the Portfolio.
Derivative instruments may sometimes increase or leverage the
Portfolio's exposure to a particular market risk. Leverage enhances the
price volatility of derivative instruments held by the Portfolio. The
Portfolio may partially offset the leverage inherent in derivative
contracts by maintaining a segregated account consisting of cash and
liquid, high grade debt securities, by holding offsetting portfolio
securities or currency positions or by covering written options.
The Portfolio's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be
caused by several factors, including temporary price disparities among the
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trading markets for the derivative instrument, the assets underlying the
derivative instrument and the Portfolio's assets.
Derivative securities and over-the-counter derivative contracts
involve a risk that the issuer or counterparty will fail to perform its
contractual obligations.
Some derivative securities are not readily marketable or may become
illiquid under adverse market conditions. In addition, during periods of
extreme market volatility, a commodity or option exchange may suspend or
limit trading in an exchange-traded derivative contract, which may make
the contract temporarily illiquid and difficult to price. The staff of
the Securities and Exchange Commission ("SEC") takes the position that
privately issued IOs, POs and other SMBS and certain over-the-counter
options are subject to the Portfolio's 15% limit on illiquid investments.
The Portfolio's ability to terminate over-the-counter derivative contracts
may depend on the cooperation of the counterparties to such contracts.
For thinly traded derivative securities and contracts, the only source of
price quotations may be the selling dealer or counterparty.
Securities Lending. The Portfolio may seek to increase its income by
lending portfolio securities to broker-dealers or other institutional
borrowers. During the existence of a loan, the Portfolio will continue to
receive the equivalent of the interest paid by the issuer on the
securities loaned and will also receive a fee, or all or a portion of the
interest on investment of the collateral, if any. However, the Portfolio
may pay lending fees to such borrowers. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the
securities loaned if the borrower of the securities fails financially.
However, the loans will be made only to organizations deemed by the
Investment Adviser to be of good standing and when, in the Investment
Adviser's judgment, the consideration that can be earned from securities
loans of this type justifies the attendant risk. The financial condition
of the borrower will be monitored by the Investment Adviser on an ongoing
basis. If the Investment Adviser decides to make securities loans, it is
intended that the value of the securities loaned would not exceed 30% of
the Portfolio's total assets.
The Portfolio may enter into contracts to purchase securities for a
fixed price at a future date beyond the customary settlement time if the
Portfolio holds and maintains until the settlement date in a segregated
account cash or liquid high-grade debt obligations in an amount sufficient
to meet the purchase price, or if the Portfolio enters into offsetting
contracts for the forward sale of other securities it owns. Such contracts
are customarily referred to as "forward commitments" and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date.
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Mortgage Rolls. The Portfolio may enter into mortgage "dollar rolls" in
which the Portfolio sells mortgage-backed securities for delivery in the
current month and simultaneously contracts to repurchase substantially
similar (same type, coupon and maturity) securities on a specified future
date. During the roll period, the Portfolio foregoes principal and
interest paid on the mortgage-backed securities. The Portfolio is
compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the
dollar roll transaction. The Portfolio will only enter into covered rolls.
Covered rolls are not treated as a borrowing or other senior security and
will be excluded from the calculation of the Portfolio's borrowings and
other senior securities.
Leverage Through Borrowing. The Portfolio may borrow from banks to
increase its portfolio holdings of debt securities on which call options
may be written and to acquire U.S. Treasury bills which may be deposited
with the Portfolio's custodian or a broker-dealer in connection with
various Portfolio investments. Such borrowings will be unsecured. The
Investment Company Act of 1940, as amended (the "1940 Act"), requires the
Portfolio to maintain continuous asset coverage of not less than 300% with
respect to such borrowings. This allows the Portfolio to borrow for such
purposes an amount (when taken together with any borrowings for temporary
extraordinary or emergency purposes as described below) equal to as much
as 50% of the value of its net assets (not including such borrowings). If
such asset coverage should decline to less than 300% due to market
fluctuations or other reasons, the Portfolio may be required to sell some
of its portfolio holdings within three days in order to reduce the
Portfolio's debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at
that time. Leveraging will exaggerate any increase or decrease in the net
asset value of the securities held by Portfolio, and in that respect may
be considered a speculative practice. Money borrowed for leveraging will
be subject to interest costs which may or may not exceed the option
premiums and interest received from the securities purchased. The
Portfolio may also be required to maintain minimum average balances in
connection with such borrowings or to pay a commitment or other fee to
maintain a line of credit; either of these requirements would increase the
cost of borrowing over the stated interest rate.
The Portfolio and the other investment companies managed by BMR or
Eaton Vance Management participate in a Line of Credit Agreement (the
"Credit Agreement") with Citibank, N.A. ("Citibank"). Citibank agrees, in
the Credit Agreement, to consider requests from the Portfolio and such
other investment companies that Citibank make advances ("Advances") to
the Portfolio and such other investment companies from time to time. The
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aggregate amount of all such Advances to all such borrowers will not
exceed $120,000,000, $100,000,000 of which is a discretionary facility and
$20,000,000 of which is a committed facility. The Portfolio has currently
determined that its borrowings under the Credit Agreement will not exceed,
at any one time outstanding, the lesser of (a) 1/3 of the current market
value of the net assets of the Portfolio or (b) $7,500,000 (the "Amount
Available to the Portfolio"). The Portfolio is obligated to pay to
Citibank, in addition to interest on Advances made to it, a quarterly fee
on the average daily unused portion of the Amount Available to the
Portfolio at the rate of 1/4 of 1% per annum. The Credit Agreement may be
terminated by Citibank or the borrowers at any time upon 30 days' prior
written notice. The Portfolio expects to use the proceeds of the Advances
primarily for leveraging purposes. As at December 31, 1994 the Portfolio
had no outstanding loans pursuant to the Credit Agreement. The average
daily loan balance for the fiscal year ended December 31, 1994, was
$981,635 and the average daily interest rate was 5.87%.
The Portfolio, like many other investment companies, may also borrow
money for temporary extraordinary or emergency purposes. Such borrowings
may not exceed 5% of the value of the Portfolio's total assets at the time
of borrowing. The Portfolio may pledge up to 10% of the lesser of cost or
value of its total assets to secure such borrowings.
Item 5. Management of the Portfolio
The Portfolio was organized as a trust under the laws of the State of
New York on May 1, 1992. The Portfolio intends to comply with all
applicable Federal and state securities laws.
Investment Adviser. The Portfolio engages BMR, a wholly-owned subsidiary
of Eaton Vance Management ("Eaton Vance"), as its investment adviser.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931.
Acting under the general supervision of the Board of Trustees, BMR
manages the Portfolio's investments and affairs. Under its investment
advisory agreement with the Portfolio, BMR receives a monthly advisory fee
of 0.0625% (equal to 0.75% annually) of the average daily net assets of
the Portfolio up to $500 million. On net assets of $500 million and over
the annual fee is reduced as follows:
Annualized Fee Rate
Average Daily Net Assets for the Month (for each Level)
$500 million but less than $1 billion 0.6875%
$1 billion but less than $1.5 billion 0.6250%
$1.5 billion but less than $2 billion 0.5625%
$2 billion but less than $3 billion 0.5000%
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$3 billion and over 0.4375%
As of December 31, 1994, the Portfolio had net assets of
$515,669,513. For the fiscal year ended December 31, 1994, the Portfolio
paid BMR advisory fees equivalent to 0.74% of the Portfolio's average
daily net assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolio. The Portfolio is responsible for the payment
of all expenses other than those expressly stated to be payable by BMR
under the investment advisory agreement.
BMR places the portfolio security transactions of the Portfolio for
execution with many broker-dealer firms and uses its best efforts to
obtain execution of such transactions at prices which are advantageous to
the Portfolio and at reasonably competitive commission rates. Subject to
the foregoing, BMR may consider sales of shares of other investment
companies sponsored by BMR or Eaton Vance as a factor in the selection of
broker-dealer firms to execute portfolio transactions.
Susan M. Schiff has acted as the portfolio manager of the Portfolio
since it commenced operations. She has been a Vice President of Eaton
Vance and BMR since 1993 and an employee of Eaton Vance since 1985.
BMR or Eaton Vance acts as investment adviser to investment companies
and various individual and institutional clients with assets under
management of approximately $15 billion. Eaton Vance is a wholly-owned
subsidiary of Eaton Vance Corp., a publicly held holding company. Eaton
Vance Corp., through its subsidiaries and affiliates, engages in
investment management and marketing activities, fiduciary and banking
services, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Administrator. The Bank of Nova Scotia Trust Company (Cayman) Ltd., The
Bank of Nova Scotia Building, P.O. Box 501, George Town, Grand Cayman,
Cayman Islands, British West Indies, maintains the Portfolio's principal
office and certain of its records and provides administrative assistance
in connection with meetings of the Portfolio's Trustees and
interestholders, for which services the Portfolio pays $1,500 per annum.
Transfer Agent. IBT Fund Services (Canada) Inc., 1 First Canadian Place,
King Street West, Suite 2800, P.O. Box 231, Toronto, Ontario, Canada M5X
1C8, a subsidiary of Investors Bank & Trust Company, the Portfolio's
custodian, serves as transfer agent and dividend-paying agent of the
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Portfolio and computes the daily net asset value of interests in the
Portfolio.
Item 6. Capital Stock and Other Securities
The Portfolio is organized as a trust under the laws of the State of
New York and intends to be treated as a partnership for Federal tax
purposes. Under the Declaration of Trust, the Trustees are authorized to
issue 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 will each be liable for all obligations of the Portfolio.
However, the risk of an investor in the Portfolio incurring financial loss
on account of such liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
The Declaration of Trust of the Portfolio provides that the Portfolio
will terminate 120 days after the complete withdrawal of any investor in
the Portfolio unless either the remaining investors, by unanimous vote at
a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
the treatment of the Portfolio as a partnership for Federal income tax
purposes.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable by the Portfolio, except as set forth
above. The Portfolio is not required and has no current intention to hold
annual meetings of investors, but the Portfolio may 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 or restrictions will be submitted to investors for approval. The
investment objective and all nonfundamental investment policies of the
Portfolio may be changed by the Trustees of the Portfolio without
obtaining the approval of the investors in the Portfolio. Investors have
under certain circumstances (e.g., upon application and submission of
certain specified documents to the Trustees by a specified number of
investors) the right to communicate with other investors in connection
with requesting a meeting of investors for the purpose of removing one or
more Trustees. Any Trustee may be removed by the affirmative vote of
holders of two-thirds of the interests in the Portfolio.
Information regarding pooled investment entities or funds that invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc., 24 Federal Street, Boston, MA 02110 (617) 482-8260. Smaller
investors in the Portfolio may be adversely affected by the actions of
larger investors in the Portfolio. For example, if a large investor
withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
A-12
Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured funds
that have large or institutional investors.
As of February 22, 1995, EV Traditional Government Obligations Fund
controlled the Portfolio by virtue of owning more than 74.28% of the
outstanding voting securities of the Portfolio.
The Portfolio's net asset value is determined each day on which the
New York Stock Exchange (the "Exchange") is open for trading ("Portfolio
Business Day"). This determination is made each Portfolio Business Day as
of the close of regular trading on the Exchange (normally 4:00 p.m., New
York time) (the "Portfolio Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day as of the Portfolio Valuation
Time. The value of each investor's interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interest in the
Portfolio on such prior day. Any additions or withdrawals for the current
Portfolio Business Day will then be recorded. Each investor's percentage
of the aggregate interest in the Portfolio will then be recomputed as a
percentage equal to a fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the Portfolio Valuation
Time on the prior Portfolio Business Day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii)
the denominator of which is the aggregate net asset value of the Portfolio
as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day 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 for the current Portfolio Business
Day. See Item 7 regarding the pricing of investments in the Portfolio.
The Portfolio will allocate at least annually among its investors its
net investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit. The Portfolio's net investment
income consists of all income accrued on the Portfolio's assets, less all
actual and accrued expenses of the Portfolio, determined in accordance
with generally accepted accounting principles.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any Federal income tax. (See Part B, Item
A-13
20.) However, each investor in the Portfolio will take into account its
allocable share of the Portfolio's ordinary income and capital gain in
determining its Federal income tax liability. The determination of each
such share will be made in accordance with the governing instruments of
the Portfolio, which are intended to comply with the requirements of the
Code and the regulations promulgated thereunder.
It is intended that the Portfolio's assets and income will be managed
in such a way that an investor in the Portfolio that seeks to qualify as a
regulated investment company (a "RIC") under the Code will be able to
satisfy the requirements for such qualification.
Item 7. Purchase of Interests in the Portfolio
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. See "General Description of Registrant"
above.
An investment in the Portfolio will be made without a sales load. All
investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not determine its net
asset value on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
Portfolio's net asset value is computed in accordance with procedures
established by the Portfolio's Trustees.
The Portfolio's net asset value is determined by IBT Fund Services
(Canada) Inc. (as agent for the Portfolio) in the manner authorized by the
Trustees of the Portfolio. The net asset value is computed by subtracting
the liabilities of the Portfolio from the value of its total assets.
Except as described below, debt securities for which the over-the-counter
market is the primary market are normally valued at the mean between the
latest available bid and asked prices. Over-the-counter options are valued
at the mean between the bid and asked prices provided by dealers.
Financial futures contracts listed on commodity exchanges and
exchange-traded options are valued at closing settlement prices.
Short-term obligations having remaining maturities of less than 60 days
are valued at amortized cost, which approximates value, unless the
Trustees determine that under particular circumstances such method does
not result in fair value. As authorized by the Trustees, debt securities
(other than short-term obligations) may be valued on the basis of
valuations furnished by a pricing service which determines valuations
based upon market transactions for normal, institutional-size trading
units of such securities. Mortgage-backed "pass-through" securities are
valued through use of a matrix pricing system which takes into account
closing bond valuations, yield differentials, anticipated prepayments and
A-14
interest rates. Securities for which there is no such quotation or
valuation and all other assets are valued at fair value as determined in
good faith by or at the direction of the Trustees. For further information
regarding the valuation of the Portfolio's assets, see Part B.
There is no minimum initial or subsequent investment in the
Portfolio. The Portfolio reserves the right to cease accepting investments
at any time or to reject any investment order.
The placement agent for the Portfolio is Eaton Vance Distributors,
Inc. ("EVD"). The principal business address of EVD is 24 Federal Street,
Boston, Massachusetts 02110. EVD receives no compensation for serving as
the placement agent for the Portfolio.
Item 8. Redemption or Decrease of Interest
An investor in the Portfolio may withdraw all (redeem) or any portion
of (decrease) its interest in the Portfolio if a withdrawal request in
proper form is furnished by the investor to the Portfolio. All withdrawals
will be effected as of the next Portfolio Valuation Time. The proceeds of
a withdrawal will be paid by the Portfolio normally on the Portfolio
Business Day the withdrawal is effected, but in any event within seven
days. The Portfolio reserves the right to pay the proceeds of a withdrawal
(whether a redemption or decrease) by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be
valued at the same amount as that assigned to them in calculating the net
asset value for the interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
converting the securities to cash. The Portfolio has filed with the SEC a
notification of election on Form N-18F-1 committing to pay in cash all
requests for withdrawals by any investor, limited in amount with respect
to such investor during any 90 day period to the lesser of (a) $250,000 or
(b) 1% of the net asset value of the Portfolio at the beginning of such
period.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds
postponed during any period in which the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists, or
during any other period permitted by order of the SEC for the protection
of investors.
Item 9. Pending Legal Proceedings
Not applicable.
A-15
PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents.
Page
General Information and History . . . . . . . . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . . . . . . . B-19
Control Persons and Principal Holder of Securities . . . . . . . . . B-23
Investment Advisory and Other Services . . . . . . . . . . . . . . . B-23
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . B-27
Capital Stock and Other Securities . . . . . . . . . . . . . . . . . B-29
Purchase, Redemption and Pricing of Securities . . . . . . . . . . . B-32
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-32
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Calculation of Performance Data . . . . . . . . . . . . . . . . . . . B-36
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-36
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains additional information about the investment objective
and policies of the Government Obligations Portfolio (the "Portfolio").
This Part B should be read in conjunction with Part A. Capitalized terms
used in this Part B and not otherwise defined have the meanings given them
in Part A.
Mortgage-Backed Securities
GNMA Certificates are mortgage-backed securities representing part
ownership of a pool of mortgage loans. These loans -- issued by lenders
such as mortgage bankers, commercial banks and savings and loan
associations -- are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A "pool" or group or such
mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities dealers. Once such pool is approved by GNMA,
the timely payment of interest and principal on the Certificates issued
representing such pool is guaranteed by the full faith and credit of the
U.S. Government. As mortgage-backed securities, GNMA Certificates differ
from bonds in that the principal is paid back by the borrower over the
length of the loan rather than returned in a lump sum at maturity. GNMA
Certificates are called "pass-through" securities because a pro rata share
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of both regular interest and principal payments, as well as unscheduled
early prepayments, on the underlying mortgage pool is passed through
monthly to the holder of the Certificate (i.e., the Portfolio). As
indicated below, because the unscheduled prepayment rate of the underlying
mortgage pool covered by a "pass-through" security cannot be predicted
with accuracy, the average life of a particular issue of GNMA Certificates
cannot be accurately predicted. The Portfolio may purchase GNMA
Certificates and various other mortgage-backed securities on a when-issued
basis subject to certain limitations and requirements.
The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the U.S. Government created by Congress for the
purposes of increasing the availability of mortgage credit for residential
housing, issues participation certificates ("PCs") representing undivided
interests in FHLMC's mortgage portfolio. While FHLMC guarantees the timely
payment of interest and ultimate collection of the principal of its PCs,
its PCs are not backed by the full faith and credit of the U.S.
Government. FHLMC PCs differ from GNMA Certificates in that the mortgages
underlying the PCs are mostly "conventional" mortgages rather than
mortgages insured or guaranteed by a federal agency or instrumentality.
However, in several other respects, such as the monthly pass-through of
interest and principal (including unscheduled prepayments) and the
unpredictability of future unscheduled prepayments on the underlying
mortgage pools, FHLMC PCs are similar to GNMA Certificates.
The Federal National Mortgage Association ("FNMA"), a federally
chartered corporation owned entirely by private stockholders, purchases
both conventional and federally insured or guaranteed residential
mortgages from various entities, including savings and loan associations,
savings banks, commercial banks, credit unions and mortgage bankers, and
packages pools of such mortgages in the form of pass-through securities
generally called FNMA Mortgage-Backed Certificates, which are guaranteed
as to timely payment of principal and interest by FNMA, but are not backed
by the full faith and credit of the U.S. Government. Like GNMA
Certificates and FHLMC PCs, these pass-through securities are subject to
the unpredictability of unscheduled prepayments on the underlying mortgage
pools.
While it is not possible to accurately predict the life of a
particular issue of a mortgage-backed "pass-through" security held by the
Portfolio, the actual life of any such security is likely to be
substantially less than the average maturity of the mortgage pool
underlying the security. This is because unscheduled early prepayments of
principal on the security owned by the Portfolio will result from the
prepayment, refinancing or foreclosure of the underlying mortgage loans in
the mortgage pool. For example, mortgagors may speed up the rate at which
they prepay their mortgages when interest rates decline sufficiently to
encourage refinancing. The Portfolio, when the monthly payments (which may
include unscheduled prepayments) on such a security are passed through to
B-2
it, may be able to reinvest them only at a lower rate of interest. Because
of the regular scheduled payments of principal and the early unscheduled
prepayments of principal, the mortgage-backed "pass-through" security is
less effective than other types of obligations as a means of "locking-in"
attractive long-term interest rates. As a result, this type of security
may have less potential for capital appreciation during periods of
declining interest rates than other U.S. Government securities of
comparable maturities, although many issues of mortgage-backed
"pass-through" securities may have a comparable risk of decline in market
value during periods of rising interest rates. If such a security has been
purchased by the Portfolio at a premium above its par value, both a
scheduled payment of principal and an unscheduled prepayment of principal,
which would be made at par, will accelerate the realization of a loss
equal to that portion of the premium applicable to the payment or
prepayment and will reduce total return. If such a security has been
purchased by the Portfolio at a discount from its par value, both a
scheduled payment of principal and an unscheduled prepayment of principal
will increase current and total returns and will accelerate the
recognition of income, which, when distributed to investors, will be
taxable as ordinary income. The Portfolio intends to acquire the majority
of its holdings of mortgage-backed "pass-through" securities at a discount
from par value.
Collateralized Mortgage Obligations ("CMOs")
CMOs are debt securities issued by the FHLMC and by financial
institutions and other mortgage lenders which are generally fully
collateralized by a pool of mortgages held under an indenture. The key
feature of the CMO structure is the prioritization of the cash flows from
a pool of mortgages among the several classes of CMO holders, thereby
creating a series of obligations with varying rates and maturities
appealing to a wide range of investors. CMOs generally are secured by an
assignment to a trustee under the indenture pursuant to which the bonds
are issued of collateral consisting of a pool of mortgages. Payments with
respect to the underlying mortgages generally are made to the trustee
under the indenture. Payments of principal and interest on the underlying
mortgages are not passed through to the holders of the CMOs as such (that
is, the character of payments of principal and interest is not passed
through and therefore payments to holders of CMOs attributable to interest
paid and principal repaid on the underlying mortgages do not necessarily
constitute income and return of capital, respectively, to such holders),
but such payments are dedicated to payment of interest on and repayment of
principal of the CMOs. CMOs are issued in two or more classes or series
with varying maturities and stated rates of interest determined by the
issuer. Because the interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest to each class and to retire successive
maturities in sequence. CMOs are designed to be retired as the underlying
mortgages are repaid. In the event of sufficient early prepayments on such
B-3
mortgages, the class or series of CMO first to mature generally will be
retired prior to maturity. Therefore, although in most cases the issuer of
CMOs will not supply additional collateral in the event of such
prepayments, there will be sufficient collateral to secure CMOs that
remain outstanding. Currently, the Portfolio's investment adviser, Boston
Management and Research ("BMR" or the "Investment Adviser"), will consider
privately issued CMOs or other mortgage-backed securities as possible
investments for the Portfolio only when the mortgage collateral is
insured, guaranteed or otherwise backed by the U.S. Government or one or
more of its agencies or instrumentalities (e.g., insured by the Federal
Housing Administration or Farmers Home Administration or guaranteed by the
Administrator of Veterans Affairs or consisting in whole or in part of
U.S. Government securities).
Stripped Mortgage-Backed Securities ("SMBS")
The Portfolio may invest in SMBS, which are derivative multiclass
mortgage securities. The Portfolio may only invest in SMBS issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. SMBS
are usually structured with two classes that receive different proportions
of the interest and principal distributions from a pool of mortgages. A
common type of SMBS will have one class receiving all of the interest from
the mortgages, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest
and most of the principal while the other class will receive most of the
interest and the remainder of the principal. If the underlying mortgages
experience greater than anticipated prepayments of principal, the
Portfolio may fail to fully recoup its initial investment in these
securities. Although the market for such securities is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of the Portfolio's limitation on investments in
illiquid securities. The determination of whether a particular SMBS is
liquid will be made by the Investment Adviser under guidelines and
standards established by the Trustees. The market value of the class
consisting entirely of principal payments generally is unusually volatile
in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest from mortgages are generally
higher than prevailing market yields on other mortgage-backed securities
because their cash flow patterns are more volatile and there is a greater
risk that the initial investment will not be fully recouped. The
Investment Adviser will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and by using
certain hedging techniques.
When-Issued Securities and Forward Commitments
The Portfolio may purchase and sell securities on a "forward
commitment" or "when-issued" basis. Forward commitment or when-issued
B-4
transactions arise when securities are purchased or sold by the Portfolio
with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield to the Portfolio
at the time of entering into the transaction. However, the yield on a
comparable security when the transaction is consummated may vary from the
yield on the security at the time that the forward commitment or
when-issued transaction was made. When the Portfolio engages in forward
commitment or when-issued transactions, the Portfolio relies on the seller
or buyer, as the case may be, to consummate the sale. Failure to do so may
result in the Portfolio missing the opportunity of obtaining a price or
yield considered to be advantageous. Forward commitment or when-issued
transactions may be expected to occur a month or more before delivery is
due. However, no payment or delivery is made by the Portfolio until it
receives payment or delivery from the other party to the transaction. The
Portfolio will maintain in a segregated account with its custodian cash,
U.S. Government securities or other liquid high grade debt securities
having an aggregate value equal to the amount of such purchase commitments
until payment is made. To the extent the Portfolio engages in forward
commitment or when-issued transactions, it will do so for the purpose of
acquiring or disposing of securities held by the Portfolio consistent with
the Portfolio's investment objective and policies and not for the purpose
of investment leverage.
Lending Portfolio Securities
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission,
such loans are required to be secured continuously by collateral in cash,
cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to
the market value of the securities loaned, which will be marked to market
daily. Cash equivalents include certificates of deposit, commercial paper
and other short-term money market instruments. The Portfolio would have
the right to call a loan and obtain the securities loaned at any time on
up to five business days' notice. The Portfolio would not have the right
to vote any securities having voting rights during the existence of a
loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or the giving or withholding of
their consent on a material matter affecting the investment.
Writing and Purchasing Call and Put Options
A call option written by the Portfolio obligates the Portfolio to
sell specified securities to the holder of the option at a specified price
upon exercise of the option at any time before the expiration date. The
Portfolio will write a covered call option on a security for the purpose
of increasing its return on such security and/or to partially hedge
against a decline in the value of the security. In particular, when the
Portfolio writes an option which expires unexercised or is closed out by
the Portfolio at a profit, it will retain the premium paid for the option,
which will increase its gross income and will offset in part the reduced
value of the portfolio security underlying the option, or the increased
cost of acquiring the security for its portfolio. However, if the price of
B-5
the underlying security moves adversely to the Portfolio's position, the
option may be exercised and the Portfolio will be required to purchase or
sell the underlying security at a disadvantageous price, which may only be
partially offset by the amount of the premium, if at all. The Portfolio
does not intend to write a covered option on U.S. Government securities if
after such transaction more than 25% of its net assets, as measured by the
aggregate value of such securities underlying all covered calls and puts
written by the Portfolio, would be subject to such options.
The Portfolio will only write a put option on a security which it
intends to ultimately acquire for its investment portfolio. A put option
written by the Portfolio would obligate the Portfolio to purchase
specified securities from the option holder at a specified price upon
exercise of the option at any time before the expiration date.
The Portfolio may terminate its obligations under a call or put
option by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions."
The Portfolio may purchase put or call options on U.S. Government
securities in anticipation of changes in the value of its existing
portfolio securities or in the prices of securities that the Portfolio
intends to purchase at a later date. In the event that the expected
changes occur, the Portfolio may be able to offset adverse changes in the
value of its portfolio, in whole or in part, through the options
purchased. The premium paid for a put or call option plus any transaction
costs will reduce the benefit, if any, realized by the Portfolio upon
exercise or liquidation of the option. Unless the price of the underlying
security changes sufficiently, the option may expire without value to the
Portfolio. The Portfolio does not intend to purchase an option on any
security if after such transaction more than 5% of its net assets, as
measured by the aggregate of all premiums paid for all options held by the
Portfolio, would be so invested.
The Portfolio would normally purchase call options in anticipation of
an increase in the market value of securities of the type in which the
Portfolio may invest. The purchase of a call option would entitle the
Portfolio, in return for the premium paid, to purchase specified
securities at a specified price during the option period. The Portfolio
would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid
and transaction costs; otherwise the Portfolio would realize a loss on the
purchase of the call option.
The Portfolio would normally purchase put options in anticipation of
a decline in the market value of securities in its portfolio ("protective
puts") or securities of the type in which it is permitted to invest. The
purchase of a put option would entitle the Portfolio, in exchange for the
premium paid, to sell specified securities at a specified price during the
option period. The purchase of protective puts is designed merely to
offset or hedge against a decline in the market value of the securities
held by the Portfolio. The Portfolio would ordinarily realize a gain if,
B-6
during the option period, the value of the underlying securities decreased
below the exercise price sufficiently to cover the premium and transaction
costs; otherwise the Portfolio would realize a loss on the purchase of the
put option. Gains and losses on the purchase of protective put options
would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Portfolio would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options
purchased by the Portfolio.
The Portfolio would write and purchase put call options on securities
indices for the same purposes as the purchase of options on securities.
Options on securities indices are similar to options on securities, except
that the exercise of securities index options requires cash payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a
group of securities or segment of the securities market rather than price
fluctuations in a single security.
Options on Specific Securities
Treasury Bonds and Notes. Because trading interest in Treasury bonds and
notes tends to center on the most recently auctioned issues, the
securities exchanges on which the call and put options on U.S. Government
securities are traded will not continue indefinitely to introduce options
with new expiration dates to replace expiring options on particular
issues. Instead, the expirations introduced on the commencement of options
trading on a particular issue will be allowed to run their course, with
the possible addition of a limited number of new expirations as the
original ones expire. Options trading on such issue of bonds or notes will
thus be phased out as new options are listed on more recent issues, and a
full range of expirations will not ordinarily be available for every issue
on which options are traded.
Treasury Bills. Because the deliverable Treasury bill changes from week to
week, writers of Treasury bill call options cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Portfolio holds a long position
in Treasury bills with a principal amount corresponding to the amount of
the option, it will be in approximately the same position as if it held
the optioned securities. In addition, the Portfolio will maintain Treasury
bills maturing no later than those which would be deliverable, in the
event of the options exercise, in a segregated account with its custodian,
so that it will be treated as being covered for margin purposes.
Certain Mortgage-Backed Securities. Securities dealers make
over-the-counter markets in options on certain "pass-through"
mortgage-backed securities, such as GNMA Certificates, FHLMC PCs and FNMA
Mortgage-Backed Certificates. These dealers buy and sell call and put
options on such securities, and the Portfolio may enter into option
transactions with such dealers. Since the remaining principal balance of a
"pass-through" mortgage-backed security declines each month as a result of
B-7
regular scheduled payments and early unscheduled prepayments of principal,
the Portfolio, as a writer of a call option holding such a security as
"cover" to satisfy its delivery obligation in the event of exercise, may
find that the security it holds no longer has a sufficient remaining
principal balance for this purpose. Should this occur, the Portfolio will
purchase additional securities in order to maintain its "cover."
Special Risks Associated With Options. An exchange-traded option position
may be closed out only on an exchange which provides a secondary market
for an option of the same series. Although the Portfolio will generally
purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any
particular time. For some options no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing
transactions in particular options, with the result that the Portfolio
would have to exercise its options in order to realize any profit and
would incur transaction costs upon the sale of underlying securities
pursuant to the exercise of put options. If the Portfolio as a covered
call option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon
exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or the clearing corporation
may not at all times be adequate to handle current trading volume; or (vi)
one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had
been issued by the clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity
or other unforeseen events might not, at times, render certain of the
facilities of the clearing corporation inadequate, and thereby result in
the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders.
If the Portfolio writes (sells) an option in the over-the-counter
market, it may terminate its option position only by negotiating a
termination arrangement with the other party to the transaction, which
B-8
arrangement may involve additional costs to the Portfolio. There is no
assurance that the Portfolio would be able to negotiate a termination of
any written option position in the over-the-counter market. Option
transactions in the over-the-counter market also subject the Portfolio to
the additional risk that securities dealers participating in such
transactions may fail to meet their obligations to the Portfolio.
The amount of the premiums which the Portfolio may pay or receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option purchasing and
writing activities.
Futures Transactions
Futures Contracts. A change in the level of interest rates or the rate of
inflation may affect the value of the securities held by the Portfolio (or
of securities that the Portfolio expects to purchase). To hedge against
changes in any of such rates or for non-hedging purposes, the Portfolio
may enter into futures contracts for the purchase or sale of debt
securities and futures contracts on foreign currencies, certificates of
deposit, Eurodollar time deposits, economic indices (such as the Consumer
Price Indices compiled by the U.S. Department of Labor) and other
financial instruments and indices. All futures contracts entered into by
the Portfolio are traded on exchanges or boards of trade that are licensed
and regulated by the Commodity Futures Trading Commission ("CFTC") or on
foreign exchanges, if the Investment Adviser has determined that trading
on such an exchange does not subject the Portfolio to risks, including
credit and liquidity risks, that are materially greater than risks
associated with trading on exchanges regulated by the CFTC.
Futures Contracts on Debt Securities and Currencies. A futures contract on
a debt security or a currency is a binding contractual commitment which,
if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of securities having a standardized
face value and rate of return or of the specified currency. By purchasing
futures on securities or currencies, the Portfolio will legally obligate
itself to accept delivery of the underlying security or currency and pay
the agreed price; by selling futures on debt securities or currencies, it
will legally obligate itself to make delivery of the security or currency
against payment of the agreed price. Open futures positions on debt
securities or currencies are valued at the most recent settlement price,
unless such price does not reflect the fair value of the contract, in
which case the positions will be valued by or under the direction of the
Trustees of the Portfolio.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions which
may result in a profit or a loss. While the Portfolio's futures contracts
on debt securities or currencies will usually be liquidated in this
manner, it may instead make or take delivery of the underlying securities
B-9
whenever it appears economically advantageous for the Portfolio to do so.
A clearing corporation associated with the exchange on which futures on
debt securities are traded assumes responsibility for closing-out and
guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Other Futures Contracts. Futures contracts on certificates of deposit,
Eurodollar time deposits and economic or securities indices do not require
the physical delivery of securities, but merely provide for profits and
losses resulting from changes in the market value of a contract to be
credited or debited at the close of each trading day to the respective
accounts of the parties to the contract. On the contract's expiration date
a final cash settlement occurs and the futures positions are simply closed
out. Changes in the market value of a particular futures contract reflect
changes in the value or level of the instrument, deposit or index on which
the futures contact is based.
Hedging Strategies. Hedging by use of futures contracts seeks to establish
more certainly than would otherwise be possible the effective rate of
return on portfolio securities or securities that the Portfolio proposes
to acquire. The Portfolio may, for example, take a "short" position in the
futures market by selling futures contracts in order to hedge against an
anticipated rise in interest or inflation rates that would adversely
affect the value of the securities held by the Portfolio. Such futures
contracts may include contracts for the future delivery of securities held
by the Portfolio or securities with characteristics similar to those of
the securities held by the Portfolio. If, in the opinion of the Investment
Adviser, there is a sufficient degree of correlation between price trends
for the securities held by the Portfolio and futures contracts based on
certificates of deposit, Eurodollar time deposits, economic indices and
other financial instruments and indices, the Portfolio may also enter into
such other futures contracts as part of its hedging strategy. When hedging
of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the
value of the futures position.
On other occasions, the Portfolio may take a "long" position by
purchasing such futures contracts. This would be done, for example, when
the Portfolio anticipates the subsequent purchase of particular securities
when it has the necessary cash, but expects the rate of return then
available in the securities market to be less favorable than rates that
are currently available in the futures market.
Options on Futures Contracts
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States exchange or board of trade
or any foreign exchange on which the Portfolio is permitted to trade
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the option
period. Upon exercise of the option, the writer of the option is obligated
B-10
to convey the appropriate futures position to the holder of the option. If
an option is exercised on the last trading day before the expiration date
of the option, a cash settlement will be made in an amount equal to the
difference between the closing price of the futures contract and the
exercise price of the option.
The Portfolio may use options on futures contracts solely for bona
fide hedging purposes as defined below or for non-hedging purposes subject
to the limitations imposed by CFTC regulations. If the Portfolio purchases
a call (put) option on a futures contract it benefits from any increase
(decrease) in the value of the futures contract, but is subject to the
risk of decrease (increase) in value of the futures contract. The benefits
received are reduced by the amount of the premium and transaction costs
paid by the Portfolio for the option. If market conditions do not favor
the exercise of the option, the Portfolio's loss is limited to the amount
of such premium and transaction costs paid by the Portfolio for the
option.
If the Portfolio writes a call (put) option on a futures contract,
the Portfolio receives a premium but assumes the risk of a rise (decline)
in value in the underlying futures contract. If the option is not
exercised, the Portfolio gains the amount of the premium, which may
partially offset unfavorable changes in the value of securities held or to
be acquired for the Portfolio. If the option is exercised, the Portfolio
will incur a loss, which will be reduced by the amount of the premium it
receives. However, depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value of
futures positions, the Portfolio's losses from writing options on futures
may be partially offset by favorable changes in the value of portfolio
securities.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same
series. There is no guarantee that such closing transactions can be
effected. The Portfolio's ability to establish and close out positions on
such options will be subject to the development and maintenance of a
liquid market. The Portfolio will not purchase or write options on futures
contracts unless, in the opinion of the Portfolio's management, the market
for such options has developed sufficiently that the risks associated with
such options transactions are not greater than the risks associated with
futures transactions.
Limitations on the Use of Futures Contracts and Options on Futures
Contracts
The Portfolio will engage in futures and related options transactions
for bona fide hedging or non-hedging purposes as defined in or permitted
by CFTC regulations. To ensure that its futures and related options
transactions meet this standard, the Portfolio will enter into them for
the purposes or with the hedging intent specified in CFTC regulations. It
will further determine that the price fluctuations in the futures
B-11
contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. Except as stated below, the
Portfolio's futures transactions will be entered into for traditional
hedging purposes -- that is, futures contracts will be sold to protect
against a decline in the price of securities that the Portfolio owns, or
futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. As evidence of
this hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving
the purchase of futures contracts), the Portfolio will have purchased, or
will be in the process of purchasing, equivalent amounts of related
securities in the cash market at the time when the futures (or option)
position is closed out. However, in particular cases, when it is
economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the
corresponding purchase of securities. As an alternative to compliance with
the bona fide hedging definition, a CFTC regulation permits the Portfolio
to elect to comply with a different test, under which the aggregate
initial margin and premiums required to establish non-hedging positions in
futures contracts and options on futures will not exceed 5% of the
Portfolio's net asset value after taking into account unrealized profits
and losses on such positions and excluding the in-the-money amount of such
options. The Portfolio will engage in transactions in futures and related
options contracts only to the extent such transactions are consistent with
the requirements of the Internal Revenue Code for maintaining the
qualification of each of the Portfolio's investment company investors as a
regulated investment company for Federal income tax purposes (see "Tax
Status").
Futures contracts on U.S. Treasury bonds, U.S. Treasury notes and
GNMA Certificates are traded on the Chicago Board of Trade, futures
contracts on foreign currencies, U.S. Treasury bills, domestic
certificates of deposit and Eurodollar time deposits are traded on the
International Monetary Market at the Chicago Mercantile Exchange, futures
contracts on the Consumer Price Index for Urban Wage Earners and Clerical
Workers are traded on the Coffee, Sugar and Cocoa Exchange and futures
contracts on the Commodity Research Bureau Futures Price Index are traded
on the New York Futures Exchange. The Portfolio will incur brokerage fees
in connection with its futures and options transactions, and it will be
required to deposit and maintain funds with its brokers as margin to
guarantee performance of its futures and options obligations. In addition,
while futures contracts and options on futures will be traded to reduce
certain risks, such trading itself entails certain other risks. Thus,
while the Portfolio may benefit from the use of futures and options on
futures, unanticipated changes in interest or inflation rates may result
in a poorer overall performance for the Portfolio than if it had not
entered into any futures contracts or options transactions. Moreover, in
the event of an imperfect correlation between the futures position and
portfolio position which is intended to be protected, the desired
B-12
protection may not be obtained and the Portfolio may be exposed to risk of
loss.
To compensate for the imperfect correlation of movements in the price
of debt securities being hedged and movements in the price of futures
contracts, the Portfolio may buy or sell futures contracts in a greater
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the prices of such securities has been greater
than the historical volatility of the futures contracts. Conversely, the
Portfolio may buy or sell fewer futures contracts if the historical
volatility of the price of the securities being hedged is less than the
historical volatility of the futures contracts.
A futures contract involving the purchase of securities will be
offset by cash or high grade liquid debt securities assets in the
Portfolio held in a segregated account in an amount equal to the
underlying value of the futures contract.
Forward Foreign Currency Exchange Transactions
The Portfolio may enter into forward foreign currency exchange
contracts. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of entering into the contract.
These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept
or make delivery of the currency specified in the contract or, at or prior
to maturity, enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to
forward contracts are usually effected with the currency trader who is a
party to the original forward contract
The Portfolio may enter into forward foreign currency exchange
contracts in several circumstances. First, when the Portfolio enters into
a contract for the purchase or sale of a security denominated in a foreign
currency, or when the Portfolio anticipates the receipt in a foreign
currency of dividend or interest payments on such a security which it
holds, the Portfolio may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Portfolio will
attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which
B-13
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when management of the Portfolio believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating
the value of some or all of the securities held by the Portfolio
denominated in such foreign currency. 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 those securities between the date on which the contract is
entered into and the date it matures. The precise projection of short-term
currency market movements is not possible and short-term hedging provides
a means of fixing the dollar value of only a portion of the Portfolio's
foreign assets. The Portfolio will not enter into forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the securities held by the Portfolio or
other assets denominated in that currency.
The Portfolio's custodian will place cash or liquid high grade debt
securities in a segregated account of the Portfolio in an amount equal to
the value of the Portfolio's total assets committed to the consummation of
forward foreign currency exchange contracts requiring the Portfolio to
purchase foreign currencies. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed
in the account on a daily basis so that the value of the account will
equal the amount of the Portfolio's commitments with respect to such
contracts.
The Portfolio generally will not enter into a forward contract with a
term of greater than one year. It also should be realized that this method
of protecting the value of the securities held by the Portfolio against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of
exchange which the Portfolio can achieve at some future point in time.
While the Portfolio will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while the Portfolio may benefit from such
transactions, unanticipated changes in currency exchange rates may result
in a poorer overall performance for the Portfolio than if it had not
engaged in any such transactions. Moreover, there may be imperfect
correlation between the securities held by the Portfolio denominated in a
particular currency and forward contracts entered into by the Portfolio.
Such imperfect correlation may prevent the Portfolio from achieving a
complete hedge or expose the Portfolio to risk of foreign exchange loss.
B-14
Special Risks Associated With Forward Contracts, Foreign Currency Futures
Contracts and Options Thereon and Options on Foreign Currencies
Transactions in forward contracts, as well as futures and options on
foreign currencies, are subject to the risk of government actions
affecting trading in or the prices of currencies underlying such
contracts, which could restrict or eliminate trading and could have a
substantial adverse effect on the value of positions held by the
Portfolio. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies
Further, unlike trading in most other types of instruments, there is
no systematic reporting of last sale information with respect to the
foreign currencies underlying forward contracts, futures contracts and
options. As a result, the available information on which the Portfolio's
trading systems will be based may not be as complete as the comparable
data on which the Portfolio makes investment and trading decisions in
connection with securities and other transactions. Moreover, because the
foreign currency market is a global, twenty-four hour market, events could
occur on that market which will not be reflected in the forward, futures
or options markets until the following day, thereby preventing the
Portfolio from responding to such events in a timely manner.
Settlements of over-the-counter forward contracts or of an exercise
of foreign currency options generally must occur within the country
issuing the underlying currency, which in turn requires traders to accept
or make delivery of such currencies in conformity with any United States
or foreign restrictions and regulations regarding the maintenance of
foreign banking relationships, fees, taxes or other charges.
Unlike currency futures contracts and exchange-traded options,
options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) the Securities and Exchange Commission ("SEC").
To the contrary, such instruments are traded through financial
institutions acting as market-makers. (Foreign currency options are also
traded on the Philadelphia Stock Exchange subject to SEC regulation). In
an over-the-counter trading environment, many of the protections
associated with transactions on exchanges will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than the amount
of the premium plus related transaction costs, this entire amount could be
lost. Moreover, an option writer could lose amounts substantially in
excess of its initial investment due to the margin and collateral
requirements associated with such option positions. Similarly, there is no
limit on the amount of potential losses on forward contracts to which the
Portfolio is a party.
B-15
In addition, over-the-counter transactions can only be entered into
with a financial institution willing to take the opposite side, as
principal, of the Portfolio's position unless the institution acts as
broker and is able to find another counterparty willing to enter into the
transaction with the Portfolio. Where no such counterparty is available,
it will not be possible to enter into a desired transaction. There also
may be no liquid secondary market in the trading of over-the-counter
contracts, and the Portfolio may be unable to close out options purchased
or written, or forward contracts entered into, until their exercise,
expiration or maturity. This in turn could limit the Portfolio's ability
to realize profits or to reduce losses on open positions and could result
in greater losses.
Further, over-the-counter transactions are not backed by the
guarantee of an exchange clearing house, and the Portfolio will therefore
be subject to the risk of default by, or the bankruptcy of, the financial
institution serving as its counterparty. One or more such institutions
also may decide to discontinue their role as market-makers in a particular
currency, thereby restricting the Portfolio's ability to enter into
desired hedging transactions. The Portfolio will enter into
over-the-counter transactions only with parties whose creditworthiness has
been reviewed and found satisfactory by its Investment Adviser.
Over-the-counter options on foreign currencies, like exchange-traded
commodity futures contracts and commodity option contracts, are within the
exclusive regulatory jurisdiction of the CFTC, which currently permits the
trading of such options, but only subject to a number of conditions
regarding the commercial purpose of the purchaser of such option. The
Portfolio is not able to determine at this time whether or to what extent
the CFTC may impose additional restrictions on the trading of
over-the-counter options on foreign currencies at some point in the
future, or the effect that any such restrictions may have on the hedging
strategies to be implemented by the Portfolio.
CFTC regulations require that the Portfolio not enter into
transactions in commodity futures contracts or commodity option contracts
for which the aggregate initial margin and premiums exceed 5% of the fair
market value of the Portfolio's assets. Premiums paid to purchase
over-the-counter options on foreign currencies, and margin deposited in
connection with the writing of such options, are required to be included
in determining compliance with this requirement which could, depending
upon the Portfolio's existing positions in futures contracts and options
on futures contracts, limit the Portfolio's ability to purchase or write
options on foreign currencies. Conversely, the existence of open positions
in options on foreign currencies could limit the ability of the Portfolio
to enter into desired transactions in other options or futures contracts.
While forward contracts are not presently subject to regulation by
the CFTC, the CFTC may in the future assert or be granted authority to
regulate such instruments. In such event, the Portfolio's ability to
B-16
utilize forward contracts in the manner set forth above could be
restricted.
Options on foreign currencies traded on a national securities
exchange are within the jurisdiction of the SEC, as are other securities
traded on such exchanges. As a result, many of the protections provided to
traders on organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option positions entered
into on a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded
on a national securities exchange may be more readily available than in
the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign
currency market, possible intervention by governmental authorities and the
effects of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise and
settlement of such options must be made exclusively through the OCC, which
has established banking relationships in applicable foreign countries for
this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the
OCC or its clearing member, impose special procedures for exercise and
settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on
exercise.
Portfolio Turnover
If the Portfolio writes a substantial number of call options and the
market prices of the underlying securities appreciate, or if the Portfolio
writes a substantial number of put options and the market prices of the
underlying securities depreciate, there may be a very substantial turnover
of securities held by the Portfolio. Although it is not anticipated that
the annual portfolio turnover rate will exceed 200% under such
circumstances, portfolio turnover may be greater than 200%, but is not
expected to exceed 300%. A 200% turnover rate would occur if all of the
securities held by the Portfolio were sold and either repurchased or
replaced twice within one year. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs,
which will be borne directly by the Portfolio. The Portfolio pays
brokerage commissions in connection with futures transactions and the
writing of options and effecting of closing purchase or sale transactions,
B-17
as well as for purchases and sales of portfolio securities. Reference is
made to "Brokerage Allocation and Other Practices" for a discussion of the
Portfolio's brokerage practices.
Investment Restrictions
The Portfolio has adopted the following investment restrictions which
may not be changed without the approval of the holders of a "majority of
the outstanding voting securities" of the Portfolio which as used in this
Part B means the lesser of (a) 67% or more of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting
if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented at the meeting or (b) more than
50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in
the Investment Company Act of 1940 (the "1940 Act"). The Portfolio may
not:
(1) With respect to 75% of its total assets, invest more than 5% of
its total assets in the securities of a single issuer or purchase more
than 10% of the outstanding voting securities of a single issuer, except
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment companies; or
invest more than 25% of its total assets in any single industry (other
than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities);
(2) Borrow money or issue senior securities except as permitted by
the Investment Company Act of 1940;
(3) Purchase securities on margin (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The deposit or payment by the Portfolio of initial,
maintenance or variation margin in connection with all types of options
and futures contract transactions is not considered the purchase of a
security on margin;
(4) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances which may
require the registration of the same under the Securities Act of 1933;
(5) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies
which invest or deal in real estate;
(6) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities;
B-18
(7) Make loans to any person except by (a) the acquisition of debt
securities and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities; or
(8) Buy investment securities from or sell them to any of its
officers or Trustees, the investment adviser or placement agent, as
principal; however, any such person or concerns may be employed as a
broker upon customary terms.
The Portfolio has adopted the following nonfundamental investment
policies which may be changed by the Trustees of the Portfolio with or
without the approval of the Portfolio's investors. As a matter of
nonfundamental policy, the Portfolio may not: (a) purchase put or call
options on U.S. Government securities if after such purchase more than 5%
or its net assets, as measured by the aggregate of the premiums paid for
such options held by the Portfolio, would be so invested; (b) purchase any
put options, long futures contracts, or call options on a futures contract
if at the date of such purchase realized net losses from such transactions
during the fiscal year to date exceed 5% of its average net assets during
such period; (c) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities
of the same issue as, and equal in amount to, the securities sold short,
and unless not more than 25% of its net assets (taken at current value) is
held as collateral for such sales at any one time. (The Portfolio will
make such sales only for the purpose of deferring realization of gain or
loss for Federal income tax purposes and such sales would not be made of
securities subject to outstanding options); (d) purchase securities of any
issuer which, including predecessors, has not been in continuous operation
for at least three years, except that 5% of its total assets (taken at
market value) may be invested in certain issuers not in such continuous
operation but substantially all of whose assets are (i) securities of one
or more issuers which have had a record of three years' continuous
operation or (ii) assets of an independent division of an issuer which
division has had a record of three years' continuous operation; provided,
however, that exempted from this restriction are U.S. Government
securities, securities of issuers which are rated by at least one
nationally recognized statistical rating organization, municipal
obligations and obligations issued or guaranteed by any foreign government
or its agencies or instrumentalities; (e) invest more than 15% of net
assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do
not include securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 that the Board of Trustees, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security; (f) purchase or retain in its portfolio 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 a member, officer,
B-19
director or trustee of any investment adviser of the Portfolio, if after
the purchase of the securities of such issuer by the Portfolio 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); or (g) purchase oil, gas or other mineral leases
or purchase partnership interests in oil, gas or other mineral exploration
or development programs.
In order to permit the sale in certain states of shares of certain
open-end investment companies which are investors in the Portfolio, the
Portfolio may adopt policies more restrictive than the fundamental
policies described above. Should the Portfolio determine that any such
policy is no longer in the best interests of the Portfolio and its
investors, it will revoke such policy.
Item 14. Management of the Portfolio
The Trustees and officers of the Portfolio are listed below. Except
as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's
investment adviser, Boston Management and Research ("BMR" or the
"Investment Adviser"), which is a wholly-owned subsidiary of Eaton Vance
Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance Corp.
("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees and officers who are "interested persons" of the Portfolio, BMR,
Eaton Vance, EVC or EV, as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Portfolio, BMR, Eaton Vance, EVC
or EV, are indicated by an asterisk(*).
B-20
TRUSTEES OF THE PORTFOLIO
M. DOZIER GARDNER (61), President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and
a Director of EVC and EV. Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
DONALD R. DWIGHT (63), Trustee
President of Dwight Partners, Inc. (a corporate relations and
communications company) founded in 1988; Chairman of the Board of
Newspapers of New England, Inc. since 1983. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director
of EVC and EV. Director or Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (59), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University
Graduate School of Business Administration. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding
company owning institutional investment management firms. Chairman,
President and Director, The Regis Fund, Inc. (mutual fund). Director or
Trustee of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (64), Trustee
Investment Adviser and Consultant. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE PORTFOLIO
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SUSAN M. SCHIFF (34), Vice President*
Vice President of BMR, Eaton Vance and EV. Officer of various other
investment companies managed by Eaton Vance or BMR.
MARK S. VENEZIA (45), Vice President*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (49), Treasurer*
Vice President of BMR, Eaton Vance and EV. Officer of various other
investment companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary*
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JAMES F. ALBAN (33), Assistant Treasurer*
Assistant Vice President of BMR since August 11, 1992, and of Eaton Vance
and EV since January 17, 1992, and an employee of Eaton Vance since
September 23, 1991. Tax Consultant and Audit Senior with Deloitte & Touche
(1987-1991). Officer of various investment companies managed by Eaton
Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
CARMEN THOMPSON (41), Vice President
Trust Officer of The Bank of Nova Scotia Trust Company (Cayman) Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of
Nova Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman
Islands, British West Indies.
PAUL LAURET (53), Vice President
Senior Trust Officer of The Bank of Nova Scotia Trust Company (Cayman)
Limited.
Address: The Bank of Nova Scotia Trust Company (Cayman) Ltd., The Bank of
Nova Scotia Building, P.O. Box 501, George Town, Grand Cayman, Cayman
Islands, British West Indies.
RAYMOND O'NEILL (33), Vice President
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Managing Director of IBT Trust and Custodian Services (Ireland) Limited.
Address: Earlsfort Terrace, Dublin 2, Ireland
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the
Special Committee of the Board of Trustees. The Special Committee's
functions include a continuous review of the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the
Trustees regarding the compensation of those Trustees who are not members
of the Eaton Vance organization, and making recommendations to the
Trustees regarding candidates to fill vacancies, as and when they occur,
in the ranks of those Trustees who are not "interested persons" of the
Portfolio or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection of
the independent accountants, and reviewing with such accountants and the
Treasurer of the Portfolio matters relative to accounting and auditing
practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian and transfer agent
of the Portfolio.
The fees and expenses of those Trustees of the Portfolio who are not
members of the Eaton Vance organization are paid by the Portfolio. During
the fiscal year ended December 31, 1994, the Trustees of the Portfolio
earned the following compensation in their capacities as Trustees of the
Portfolio and the other funds in the Eaton Vance Fund Complex(1):
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Aggregate Retirement Total Compensation
Compensation Benefit Accrued from Trust and
Name from Portfolio from Fund Complex Fund Complex
----------------- --------------- ----------------- ------------------
Donald R. Dwight $4,119(2) $8,750 $135,000
Samuel L. Hayes, III $4,079(3) $8,865 $142,500
Norton H. Reamer $4,002 0 $135,000
John L. Thorndike $4,140 0 $140,000
Jack L. Treynor $4,247 0 $140,000
(1)The Eaton Vance Fund Complex consists of 201 registered investment
companies or series thereof.
(2)Includes $331 of deferred compensation.
(3)Includes $334 of deferred compensation.
Trustees of the Portfolio who are not affiliated with BMR may elect
to defer receipt of all or a percentage of their annual fees in accordance
with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustee under the Plan
will be determined based upon the performance of such investments.
Deferral of Trustees' fees in accordance with the Plan will have a
negligible effect on the Portfolio's assets, liabilities and net income
per share, and will not obligate the Portfolio to retain the services of
any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee.
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 willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
noninterested Trustees or in a written opinion of independent counsel,
B-24
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 February 22, 1995, EV Traditional Government Obligations Fund
(the "Traditional Fund"), EV Marathon Government Obligations Fund (the
"Marathon Fund") and EV Classic Government Obligations Fund (the "Classic
Fund"), each a series of Eaton Vance Government Obligations Trust (the
"Trust"), owned approximately 74.29%, 17.03% and 8.65%, respectively, of
the value of the outstanding interests in the Portfolio. Because the
Traditional Fund controls the Portfolio, the Traditional Fund may take
actions without the approval of any other investor. Each of the
Traditional, Marathon and Classic Funds has informed the Portfolio that
whenever it is requested to vote on matters pertaining to the fundamental
policies of the Portfolio, it will hold a meeting of shareholders and will
cast its vote as instructed by its shareholders. It is anticipated that
any other investor in the Portfolio which is an investment company
registered under the 1940 Act would follow the same or a similar practice.
The Trust, a Massachusetts business trust, is a mutual fund -- an open-end
management investment company.
Item 16. Investment Advisory and Other Services
Investment Adviser. The Portfolio engages BMR as investment adviser
pursuant to an Investment Advisory Agreement dated October 28, 1993. BMR
or Eaton Vance acts as investment adviser to investment companies and
various individual and institutional clients with combined assets under
management of approximately $15 billion.
BMR manages the investments and affairs of the Portfolio subject to
the supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an
investment program and will determine what securities will be purchased,
held or sold by the Portfolio and what portion, if any, of the Portfolio's
assets will be held uninvested. The Investment Advisory Agreement requires
BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities. The
Portfolio is responsible for all expenses not expressly stated to be
payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and
continuing its existence, (ii) registration of the Portfolio under the
1940 Act, (iii) commissions, fees and other expenses connected with the
acquisition, holding and disposition of securities and other investments,
(iv) auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale and redemption of
interests in the Portfolio, (viii) expenses of registering and qualifying
B-25
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or
other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering
and maintaining registrations of the Portfolio and of the Portfolio's
placement agent as broker-dealer or agent under state securities laws,
(ix) expenses of reports and notices to investors and of meetings of
investors and proxy solicitations therefor, (x) expenses of reports to
governmental officers and commissions, (xi) insurance expenses, (xii)
association membership dues, (xiii) fees, expenses and disbursements of
custodians and subcustodians for all services to the Portfolio (including
without limitation safekeeping for funds, securities and other
investments, keeping of books, accounts and records, and determination of
net asset values, book capital account balances and tax capital account
balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for
all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees
of the Portfolio, (xvii) compensation and expenses of Trustees of the
Portfolio who are not members of the BMR organization, and (xvii) such
non-recurring items as may arise, including expenses incurred in
connection with litigation, proceedings and claims and the obligation of
the Portfolio to indemnify its Trustees, officers and investors with
respect thereto.
The Investment Advisory Agreement between BMR and the Portfolio
provides for a monthly advisory fee of 0.0625% (equivalent to 0.75%
annually) of the average daily net assets of the Portfolio up to $500
million. On net assets of $500 million and over the annual fee is reduced
as follows:
Annualized Fee Rate
Average Daily Net Assets for the Month (for each Level)
$500 million but less than $1 billion 0.6875%
$1 billion but less than $1.5 billion 0.6250%
$1.5 billion but less than $2 billion 0.5625%
$2 billion but less than $3 billion 0.5000%
$3 billion and over 0.4375%
This fee is higher than that paid by most investment companies due to
the additional research and management efforts required in connection with
the writing and purchase of options, the formation and implementation of
option investment strategies, and the structuring of transactions in
futures contracts and related options.
As of December 31, 1994, the Portfolio had net assets of
$515,669,513. For the fiscal year ended December 31, 1994, BMR earned
advisory fees of $4,259,500 (equivalent to 0.74% of the Portfolio's
B-26
average daily net assets for such period). For the period from the start
of business, October 28, 1993, to the fiscal year ended December 31, 1993,
BMR earned advisory fees of $727,254 (equivalent to 0.75% (annualized) of
the Portfolio's average daily net assets for such period).
The Investment Advisory Agreement with BMR remains in effect until
February 28, 1996. It may be continued indefinitely thereafter so long as
such continuance after February 28, 1996 is approved at least annually (i)
by the vote of a majority of the Trustees who are not interested persons
of the Portfolio or of BMR cast in person at a meeting specifically called
for the purpose of voting on such approval and (ii) by the Board of
Trustees or by vote of a majority of the outstanding voting securities of
the Portfolio. The Agreement may be terminated at any time without penalty
on sixty (60) days' written notice by the Board of Trustees, or by vote of
the majority of the outstanding voting securities of the Portfolio, and
the Agreement will terminate automatically in the event of its assignment.
The Agreement provides that BMR may render services to others and engage
in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that
BMR shall not be liable for any loss incurred in connection with the
performance of its duties, or action taken or omitted under that
Agreement, in the absence of willful misfeasance, bad faith, gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or
other investment.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV
are both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton
Vance. The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M.
Dozier Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors
of EVC consist of the same persons and John G.L. Cabot and Ralph Z.
Sorenson. Mr. Clay is chairman and Mr. Gardner is president and chief
executive officer of EVC, BMR, Eaton Vance and EV. All of the issued and
outstanding shares of Eaton Vance and EV are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares
of the outstanding Voting Common Stock of EVC are deposited in a Voting
Trust which expires on December 31, 1996, the Voting Trustees of which are
Messrs. Clay, Brigham, Gardner, Hawkes and Rowland. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All
of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of BMR and Eaton Vance who are also
officers and Directors of EVC and EV. As of January 31, 1995, Messrs.
Clay, Gardner and Hawkes each owned 24% of such voting trust receipts, and
Messrs. Rowland and Brigham owned 15% and 13%, respectively, of such
voting trust receipts. Messrs. Gardner, Hawkes and Otis are officers or
B-27
Trustees of the Portfolio and are members of the EVC, BMR, Eaton Vance and
EV organizations. Messrs. Alban, Venezia and O'Connor and Ms. Schiff and
Ms. Sanders are officers of the Portfolio and are members of the BMR,
Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is
engaged in oil and gas operations. EVC owns all of the stock of
Marblehead Energy Corp. (which is engaged in oil and gas operations) and
77.3% of the stock of Investors Bank & Trust Company, custodian of the
Portfolio, which provides custodial, trustee and other fiduciary services
to investors, including individuals, employee benefit plans, corporations,
investment companies, savings banks and other institutions. In addition,
Eaton Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment, consulting and management. EVC owns
all of the stock of Fulcrum Management, Inc. and MinVen Inc., which are
engaged in the development of precious metal properties. EVC, the
Investment Adviser, Eaton Vance and EV may also enter into other
businesses.
EVC and its affiliates and their officers and employees from time to
time have transactions with various banks, including the custodian of the
Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not
be influenced by existing or potential custodial or other relationships
between the Portfolio and such banks.
Custodian. Investors Bank & Trust Company ("IBT"), 24 Federal Street,
Boston, Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian
for the Portfolio. IBT has the custody of all of the Portfolio's assets,
and its subsidiary, IBT Fund Services (Canada) Inc., maintains the general
ledger of the Portfolio and computes the daily net asset value of
interests in the Portfolio. In its capacity as custodian, IBT attends to
details in connection with the sale, exchange, substitution, transfer or
other dealings with the Portfolio's investments, receives and disburses
all funds and performs various other ministerial duties upon receipt of
proper instructions from the Portfolio. IBT charges fees that are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of
Portfolio net assets, and a portion of the fee relates to activity
charges, primarily the number of portfolio transactions. These fees are
then reduced by a credit for cash balances of the particular investment
company at the custodian equal to 75% of the 91-day, U.S. Treasury Bill
auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT,
the Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under
the 1940 Act, and the Portfolio's investments held by IBT as custodian are
B-28
thus subject to the additional examinations by the Portfolio's independent
accountants as called for by such Rule. For the fiscal year ended December
31, 1994, the Portfolio paid IBT $181,138 for its services as custodian.
Independent Accountants. Coopers & Lybrand Chartered Accountants,
Toronto, Canada, are the independent accountants of the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the
Securities and Exchange Commission.
Item 17. Brokerage Allocation and Other Practices
Decisions concerning the execution of portfolio security
transactions, including the selection of the market and the executing
firm, are made by BMR. BMR is also responsible for the execution of
transactions for all other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and
of all other accounts managed by it for execution with many firms. BMR
uses its best efforts to obtain execution of portfolio security
transactions at prices which are advantageous to the Portfolio and at
reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors,
including without limitation the size and type of the transaction, the
general execution and operational capabilities of the executing firm, the
nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction,
the reputation, reliability, experience and financial condition of the
firm, the value and quality of the services rendered by the firm in other
transactions, and the reasonableness of the commission or spread, if any.
The debt securities and obligations purchased and sold by the Portfolio
are generally traded in the domestic over-the-counter markets on a net
basis (i.e., without commission) through broker-dealers and banks acting
for their own accounts rather than as brokers, or otherwise involve
transactions with the issuer of such obligations. Such firms attempt to
profit from such transactions by buying at the bid price and selling at
the higher asked price of the market for such obligations, and the
difference between the bid and asked price is customarily referred to as
the spread. The Portfolio may also purchase such obligations from domestic
underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. Although spreads or commissions on
portfolio security transactions will, in the judgment of BMR, be
reasonable in relation to the value of the services provided, spreads or
commissions exceeding those which another firm might charge may be paid to
firms who were selected to execute transactions on behalf of the Portfolio
B-29
and BMR's other clients for providing brokerage and research services to
BMR.
As authorized in Section 28(e) of the Securities Exchange Act of
1934, a broker or dealer who executes a portfolio transaction on behalf of
the Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which
BMR and its affiliates have for accounts over which they exercise
investment discretion. In making any such determination, BMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include
advice as to the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the
next paragraph.
It is a common practice of the investment advisory industry and of
the advisers of investment companies, institutions and other investors to
receive research, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealer firms which execute portfolio transactions for the
clients of such advisers and from third parties with which such
broker-dealers have arrangements. Consistent with this practice, BMR
receives Research Services from many broker-dealer firms with which BMR
places the Portfolio's transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
data bases and services. Any particular Research Service obtained through
a broker-dealer may be used by BMR in connection with client accounts
other than those accounts which pay commissions to such broker-dealer. Any
such Research Service may be broadly useful and of value to BMR in
rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
B-30
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by
the Portfolio is not reduced because BMR receives such Research Services.
BMR evaluates the nature and quality of the various Research Services
obtained through broker-dealer firms and attempts to allocate sufficient
commissions to such firms to ensure the continued receipt of Research
Services which BMR believes are useful or of value to it in rendering
investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices
and at reasonably competitive spreads or commission rates, BMR is
authorized to consider as a factor in the selection of any firm with whom
portfolio orders may be placed the fact that such firm has sold or is
selling securities of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the National
Association of Securities Dealers, Inc., which rule provides that no firm
which is a member of the Association shall favor or disfavor the
distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its
affiliates. BMR will attempt to allocate equitably portfolio security
transactions among the Portfolio and the portfolios of its other
investment accounts whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be
considered are the respective investment objectives of the Portfolio and
such other accounts, the relative size of portfolio holdings of the same
or comparable securities, the availability of cash for investment by the
Portfolio and such accounts, the size of investment commitments generally
held by the Portfolio and such accounts and the opinions of the persons
responsible for recommending investments to the Portfolio and such
accounts. While this procedure could have a detrimental effect on the
price or amount of the securities available to the Portfolio from time to
time, it is the opinion of the Trustees of the Portfolio that the benefits
available from the BMR organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
For the fiscal year ended December 31, 1994, and for the period from
the start of business, October 28, 1993, to the fiscal year ended December
31, 1993, the Portfolio paid no brokerage commissions on portfolio
transactions.
B-31
Item 18. Capital Stock and Other Securities
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, the Trustees
shall liquidate the assets of the Portfolio and apply and distribute the
proceeds thereof as follows: (a) first, to the payment of all debts and
obligations of the Portfolio to third parties including, without
limitation, the retirement of outstanding debt, including any debt owed to
holders of record of interests in the Portfolio ("Holders") or their
affiliates, and the expenses of liquidation, and to the setting up of any
reserves for contingencies which may be necessary; and (b) second, in
accordance with the Holders' positive Book Capital Account balances after
adjusting Book Capital Accounts for certain allocations provided in the
Declaration of Trust and in accordance with the requirements described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the assets of the Portfolio would cause undue loss to the
Holders, the Trustees, in order to avoid such loss, may, after having
given notification to all the Holders, to the extent not then prohibited
by the law of any jurisdiction in which the Portfolio is then formed or
qualified and applicable in the circumstances, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Portfolio except those necessary to satisfy the Portfolio's debts and
obligations or distribute the Portfolio's assets to the Holders in
liquidation. Interests in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except
as set forth below. Interests in the Portfolio may not be transferred.
Certificates representing an investor's interest in the Portfolio are
issued only upon the written request of a Holder.
Each Holder is entitled to vote in proportion to the amount of its
interest in the Portfolio. Holders do not have cumulative voting rights.
The Portfolio is not required and has no current intention to hold annual
meetings of Holders but the Portfolio will hold meetings of Holders when
in the judgment of the Portfolio's Trustees it is necessary or desirable
to submit matters to a vote of Holders at a meeting. Any action which may
be taken by Holders may be taken without a meeting if Holders holding more
than 50% of all interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of the Declaration
of Trust of the Portfolio) consent to the action in writing and the
consents are filed with the records of meetings of Holders.
The Portfolio's Declaration of Trust may be amended by vote of
Holders of more than 50% of all interests in the Portfolio 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%
B-32
of all interests. The Trustees may also amend the Declaration of Trust
(without the vote or consent of Holders) to change the Portfolio's name or
the state or other jurisdiction whose law shall be the governing law, to
supply any omission or cure, correct or supplement any ambiguous,
defective or inconsistent provision, to conform the Declaration of Trust
to applicable Federal law or regulations or the requirements of the Code,
or to change, modify or rescind any provision, provided that such change,
modification or rescission is determined by the Trustees to be necessary
or appropriate and not to have a materially adverse effect on the
financial interests of the Holders. No amendment of the Declaration of
Trust which would change any rights with respect to any Holder's interest
in the Portfolio by reducing the amount payable thereon upon liquidation
of the Portfolio may be made, except with the vote or consent of the
Holders of two-thirds of all interests. References in the Declaration of
Trust and in Part A or this Part B to a specified percentage of, or
fraction of, interests in the Portfolio, means Holders whose combined Book
Capital Account balances represent such specified percentage or fraction
of the combined Book Capital Account balance of all, or a specified group
of, Holders.
In accordance with the Declaration of Trust, there normally will be
no meetings of the investors for the purpose of electing Trustees unless
and until such time as less than a majority of the Trustees holding office
have been elected by investors. In such an event, the Trustees of the
Portfolio then in office will call an investors' meeting for the election
of Trustees. Except for the foregoing circumstances, and unless removed
by action of the investors in accordance with the Portfolio's Declaration
of Trust, the Trustees shall continue to hold office and may appoint
successor Trustees.
The Declaration of Trust provides that no person shall serve as a
Trustee if investors holding two-thirds of the outstanding interests have
removed him from that office either by a written declaration or by votes
cast at a meeting called for that purpose. The Declaration of Trust
further provides that under certain circumstances, the investors may call
a meeting to remove a Trustee and that the Portfolio is required to
provide assistance in communicating with investors about such a meeting.
The Portfolio may merge or consolidate with any other corporation,
association, trust or other organization or may sell or exchange all or
substantially all of its assets upon such terms and conditions and for
such consideration when and as authorized by the Holders of (a) 67% or
more of the interests in the Portfolio present or represented at the
meeting of Holders, 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. The Portfolio 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,
B-33
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.
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 interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Therefore, the risk of an investor incurring financial loss
on account of investor liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Item 19. Purchase, Redemption and Pricing of Securities
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. See "Purchase of Interests
in the Portfolio" and "Redemption or Decrease of Interest" in Part A.
Item 20. Tax Status
The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Internal Revenue Code of 1986, as
amended (the "Code"), and it should not be a "publicly traded partnership"
within the meaning of Section 7704 of the Code. Consequently, the
Portfolio does not expect that it will be required to pay any Federal
income tax, and a Holder will be required to take into account in
determining its Federal income tax liability its share of the Portfolio's
income, gain, losses and deductions.
Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity, depending upon
the factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
B-34
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio
believes that, in the case of a Holder that seeks to qualify as a
regulated investment company ("RIC") under the Code, the aggregate
approach should apply, and each such Holder should accordingly be deemed
to own a proportionate share of each of the assets of the Portfolio and to
be entitled to the gross income of the Portfolio attributable to that
share. Tax counsel has advised the Portfolio that such an investor should
be treated as the owner of a proportionate share of the Portfolio's assets
and income for purposes of all requirements of Sections 851(b) and
852(b)(5) of the Code. Further, the Portfolio believes that each Holder
that seeks to qualify as a RIC should be deemed to hold its proportionate
share of the Portfolio's assets for the period the Portfolio has held the
assets or for the period the Holder has been an investor in the Portfolio,
whichever is shorter. Investors should consult their tax advisors
regarding whether the entity or the aggregate approach applies to their
investment in the Portfolio in light of their particular tax status and
any special tax rules applicable to them.
In order to enable a Holder that is otherwise eligible to qualify as
a RIC, the Portfolio intends to satisfy the requirements of Subchapter M
of the Code relating to sources of income and diversification of assets as
if they were applicable to the Portfolio and to allocate and permit
withdrawals in a manner that will enable a Holder that is a RIC to comply
with those requirements. The Portfolio will allocate at least annually to
each Holder such Holder's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit in a manner intended to comply
with the Code and applicable Treasury regulations. Tax counsel has advised
the Portfolio that the Portfolio's allocations of taxable income and loss
should have "economic effect" under applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal (or, under certain
circumstances, such proceeds plus the value of any marketable securities
distributed to an investor) ("liquid proceeds") exceed a Holder's adjusted
basis of his interest in the Portfolio, the Holder will generally realize
a gain for Federal income tax purposes. If, upon a complete withdrawal
(redemption of the entire interest), the Holder's adjusted basis of his
interest exceeds the liquid proceeds of such withdrawal, the Holder will
generally realize a loss for Federal income tax purposes. The tax
consequences of a withdrawal of property (instead of or in addition to
liquid proceeds) will be different and will depend on the specific factual
circumstances. A Holder's adjusted basis of an interest in the Portfolio
will generally be the aggregate prices paid therefor (including the
adjusted basis of contributed property and any gain recognized on such
contribution), increased by the amounts of the Holder's distributive share
of items of income (including interest income exempt from Federal income
B-35
tax) and realized net gain of the Portfolio, and reduced, but not below
zero, by (i) the amounts of the Holder's distributive share of items of
Portfolio loss, and (ii) the amount of any cash distributions (including
distributions of interest income exempt from Federal income tax and cash
distributions on withdrawals from the Portfolio) and the basis to the
Holder of any property received by such Holder other than in liquidation,
and (iii) the Holder's distributive share of the Portfolio's nondeductible
expenditures not properly chargeable to capital account. Increases or
decreases in a Holder's share of the Portfolio's liabilities may also
result in corresponding increases or decreases in such adjusted basis.
Distributions of liquid proceeds in excess of a Holder's adjusted basis in
its interest in the Portfolio immediately prior thereto generally will
result in the recognition of gain to the Holder in the amount of such
excess.
The Portfolio's transactions in foreign currency, foreign currency
denominated debt securities, payables and receivables, options and futures
on foreign currency and forward foreign currency exchange contracts are
subject to special tax rules that may convert capital gain or loss into
ordinary income or loss and may affect the amount, timing and character of
the Portfolio's income or loss and hence of allocations and/or
distributions to the Portfolio's investors.
Positions held by the Portfolio which consist of one or more debt
securities and one or more listed options or futures contracts which
substantially diminish the risk of loss of the Portfolio with respect to
such debt securities will be treated as "mixed straddles" for Federal
income tax purposes. Such straddles are ordinarily subject to the
provisions of Section 1092 of the Code, the operation of which can result
in deferral of losses, adjustments in the holding periods of the debt
securities and conversion of short-term capital losses into long-term
capital losses. The operation of these rules can be mitigated or
eliminated by means of various elections which are available to the
Portfolio for Federal income tax purposes.
To eliminate the application of these rules, the Portfolio has
elected mixed straddle accounting for one or more designated classes of
activities involving mixed straddles. Under this method of accounting,
figures are derived for aggregate short-term and long-term capital gains
and losses associated with all positions in a mixed straddle account on a
daily basis. Specifically, gains and losses are computed for all positions
disposed of on a given day, and all outstanding positions on such day are
marked to market (subject to subsequent adjustments to reflect the gain or
loss realized thereby). Gains and losses from all positions in debt
securities in the account are netted, as are gains and losses from all
positions in options and futures. If the two resulting figures both
represent net gains or net losses, the net gain or loss attributable to
the debt securities is treated as short-term capital gain or loss, and the
net gain or loss attributable to the options and futures contracts is
B-36
treated as 60% long-term and 40% short-term capital gain or loss.
Alternatively, if the resulting figures represent a net gain and a net
loss, the two figures are further netted to arrive at a single figure for
the day. This figure is treated as 60% long-term and 40% short-term
capital gain or loss unless it reflects the fact that the net gain or loss
from the debt securities outweighed the net gain or loss from the options
and futures, in which case this figure is treated as short-term capital
gain or loss.
On the last business day of the taxable year the annual account net
gain or loss for each mixed straddle account is determined by netting the
daily net gains or losses for each business day during the taxable year.
(The annual account net gain or loss is adjusted to take into account any
interest and carrying charges incurred in connection with positions in the
account which were required to be capitalized.) Annual account net gains
or losses are then netted for all mixed straddle accounts to yield the
total annual account net gain or loss. This figure is subject to an
overall limitation such that no more than 50% of it will be treated as
long-term capital gain and no more than 40% of it will be treated as
short-term capital loss.
The Portfolio may make other tax elections with respect to mixed
straddles which do not properly belong in any of its mixed straddle
accounts.
In the absence of a mixed straddle election, futures or currency
contracts entered into by the Portfolio and listed nonequity options
written or purchased by the Portfolio (including options on debt
securities, options on futures contracts, options on securities indexes
and options on broad-based stock indexes, but possibly excluding certain
foreign currency-related options, futures or forward contracts) will be
governed by Section 1256 of the Code. Absent a tax election to the
contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position will be treated as 60% long-term and 40% short-term
capital gain or loss, and on the last trading day of the Portfolio's
taxable year all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their
closing price on such day), and any resulting gain or loss will be
recognized as 60% long-term and 40% short-term capital gain or loss. Under
certain circumstances, the entry into a futures contract to sell a
security or the purchase of a put option with respect to a security may
constitute a short sale for Federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a
substantially identical security held by the Portfolio.
The Portfolio will monitor its transactions in options, futures
contracts and forward contracts in order to enable any investor that is a
RIC to maintain its qualification as a RIC for Federal income tax
purposes.
B-37
The Portfolio's investment in securities acquired at a market
discount, or zero coupon and certain other securities with original issue
discount will cause it to realize income prior to the receipt of cash
payments with respect to these securities. Such income will be allocated
daily among investors in the Portfolio. To enable an investor that is a
RIC to distribute its proportionate share of this income and avoid a tax
on such investor, the Portfolio may be required to liquidate portfolio
securities that it might otherwise have continued to hold, in order to
generate cash for distribution to the RIC.
An entity that is treated as a partnership under the Code, such as
the Portfolio, is generally treated as a partnership under state and local
tax laws, but certain states may have different entity classification
criteria and may therefore reach a different conclusion. Entities that are
classified as partnerships are not treated as separate taxable entities
under most state and local tax laws, and the income of a partnership is
considered to be income of partners both in timing and in character. The
laws of the various states and local taxing authorities vary with respect
to the status of a partnership interest under state and local tax laws,
and each Holder of an interest in the Portfolio is advised to consult his
own tax adviser.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Investors should consult
their own tax advisers with respect to special tax rules that may apply in
their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
Item 21. Underwriters
The placement agent for the Portfolio is Eaton Vance Distributors,
Inc., which receives no compensation for serving in this capacity.
Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Portfolio.
Item 22. Calculation of Performance Data
Not applicable.
Item 23. Financial Statements
The following financial statements of the Portfolio included herein
have been included in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, as experts in accounting and auditing.
Portfolio of Investments as of December 31, 1994
Statement of Assets and Liabilities as of December 31, 1994
Statement of Operations for the year ended December 31, 1994
B-38
Statement of Changes in Net Assets for the year ended December 31,
1994, and for the period from the start of business, October 28,
1993, to December 31, 1993
Supplementary Data for the year ended December 31, 1994, and for the
period from the start of business, October 28, 1993, to December 31,
1993
Notes to Financial Statements
Report of Independent Accountants
B-39
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
-------------------------------------
MORTGAGE PASS-THROUGHS -- 97.2%
- --------------------------------------------------------------------------------
- ----------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
- ----------------
<S> <C>
<C>
FEDERAL HOME LOAN MORTGAGE
CORP. PARTICIPATION CERTIFICATES:
4.5s, with maturity at 2000 $
240,219 $ 229,101
4.75s, with various maturities to 2002
206,727 195,974
5s, with various maturities to 2003
1,300,504 1,205,867
5.25s, with various maturities to 2005
667,506 615,665
5.5s, with various maturities to 2011
3,010,723 2,834,321
5.75s, with maturity at 1998
115,147 110,648
6s, with various maturities to 2022
5,627,750 5,247,829
6.25s, with various maturities to 2013
1,321,202 1,237,615
6.5s, with various maturities to 2022
24,401,448 23,016,740
6.75s, with various maturities to 2011
13,633,734 12,983,353
7s, with various maturities to 2019
26,491,954 25,308,818
7.25s, with maturity at 2003
2,473,141 2,385,734
7.5s, with various maturities to 2019
24,461,688 23,676,671
7.75s, with maturity at 2009
3,348,693 3,260,655
8s, with various maturities to 2022
26,257,789 25,674,594
8.25s, with various maturities to 2011
18,633,555 18,426,861
8.5s, with various maturities to 2018
13,453,143 13,379,525
8.75s, with various maturities to 2014
3,140,574 3,150,951
9s, with various maturities to 2010
2,979,510 2,991,355
9.25s, with various maturities to 2010
822,705 835,950
9.5s, with maturity at 2010
280,362 286,939
10s, with various maturities to 2017
535,632 555,280
11s, with various maturities to 2019
3,667,268 3,962,193
12s, with various maturities to 2019
2,728,755 2,981,340
12.25s, with various maturities to 2019
3,608,325 3,978,585
12.5, with various maturities to 2016
13,244,447 14,603,582
12.75s, with various maturities to 2015
2,457,385 2,715,910
13s, with various maturities to 2019
6,730,062 7,582,463
13.25s, with various maturities to 2019
1,129,939 1,287,560
13.5s, with various maturities to 2015
7,720,572 8,728,208
13.75s, with various maturities to 2014
294,492 337,099
14s, with various maturities to 2016
4,327,115 4,977,561
14.5s, with various maturities to 2014
289,865 337,741
14.75s, with maturity at 2010
828,325 962,052
15s, with various maturities to 2013
1,542,065 1,835,086
15.25s, with maturity at 2012
204,045 244,767
B-40
15.5s, with various maturities to 2012
390,931 467,077
16s, with maturity at 2012
298,107 361,263
16.25s, with various maturities to 2012
330,812 403,471
------------
$223,376,404
------------
</TABLE>
The accompanying Notes are an integral part of the financial statements
B-41
-------------------------------------
<TABLE>
<CAPTION>
MORTGAGE PASS-THROUGHS (Continued)
- --------------------------------------------------------------------------------
- ----------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
- ----------------
<S> <C>
<C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION MORTGAGE BACKED
SECURITIES:
0.25s, with maturity at 2014 $
379,604 $ 302,794
3.5s, with maturity at 2007
218,750 190,791
4.5s, with maturity at 1999
40,474 38,633
5s, with various maturities to 2017
1,640,137 1,481,633
5.25s, with various maturities to 2006
626,291 583,331
5.5s, with various maturities to 2008
3,275,525 3,090,994
5.75s, with maturity at 2003
271,089 252,491
6s, with various maturities to 2010
39,326,506 36,561,425
6.25s, with various maturities to 2007
4,725,720 4,428,261
6.5s, with various maturities to 2017
18,701,565 17,613,630
6.75s, with various maturities to 2008
3,921,678 3,712,706
7s, with various maturities to 2018
10,825,566 10,290,685
7.25s, with various maturities to 2017
2,739,981 2,620,041
7.5s, with various maturities to 2020
12,903,012 12,454,035
7.75s, with various maturities to 2008
2,149,109 2,089,113
8s, with various maturities to 2017
22,256,614 21,832,845
8.25s, with various maturities to 2020
10,144,642 10,011,029
8.50s, with various maturities to 2015
17,916,262 17,840,698
8.75s, with various maturities to 2017
1,942,088 1,949,261
9s, with various maturities to 2020
6,064,056 6,166,350
9.5s, with maturity at 2009
397,260 408,547
11s, with maturity at 2010
39,757 42,719
11.75s, with various maturities to 2015
3,305,012 3,635,995
12s, with various maturities to 2020
7,477,216 8,217,928
12.25s, with maturity at 2011
264,226 290,401
12.5s, with various maturities to 2021
5,741,960 6,356,727
12.75s, with various maturities to 2014
2,638,498 2,922,291
13s, with various maturities to 2019
7,397,063 8,336,923
13.25s, with various maturities to 2015
3,291,652 3,710,791
13.5s, with various maturities to 2015
5,769,470 6,598,626
13.75s, with various maturities to 2014
269,683 305,773
14s, with various maturities to 2014
1,115,075 1,294,225
14.25s, with maturity at 2014
421,265 492,120
14.5s, with various maturities to 2014
363,544 426,347
14.75s, with maturity at 2012
6,151,440 7,253,214
15s, with various maturities to 2013
591,668 703,302
15.5s, with maturity at 2012
1,540,725 1,859,316
15.75s, with maturity at 2011
44,585 53,984
16s, with maturity at 2012
535,081 654,264
B-42
------------
$207,074,239
------------
</TABLE>
The accompanying Notes are an integral part of the financial statements
B-43
-------------------------------------
<TABLE>
<CAPTION>
MORTGAGE PASS-THROUGHS (Continued)
- --------------------------------------------------------------------------------
- ----------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
- ----------------
<S> <C>
<C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION MORTGAGE BACKED
SECURITIES:
5.5s, with maturity at 1999 $
131,522 $ 124,796
6.5s, with maturity at 2002
798,219 755,132
7.25s, with various maturities to 2022
9,043,487 8,494,528
8s, with various maturities to 2017
16,117,456 15,767,047
8.25s, with maturity at 2008
831,562 823,580
8.5s, with maturity at 2017
1,547,158 1,547,862
12s, with various maturities to 2015
5,777,410 6,301,565
12.5s, with various maturities to 2015
2,708,366 2,994,111
13s, with various maturities to 2013
1,221,409 1,381,720
13.5s, with various maturities to 2013
566,966 637,991
14s, with maturity at 2015
347,626 404,867
14.5s, with maturity at 2014
272,411 321,977
15s, with various maturities to 2013
1,202,104 1,436,571
16s, with various maturities to 2012
457,811 561,592
------------
$ 41,553,339
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS:
Federal Home Loan Mtg. Corp.
Series 1983-B3, 12.5%, due 2013,
Collateral 100% FHLMC PC $
328,663 $ 363,121
Federal Home Loan Mtg. Corp. Series 1327-F, 7.5%, due 2003,
Collateral 100% FHLMC PC
5,027,000 4,681,394
Federal Home Loan Mtg. Corp. Series 1058-F, 8.0%, due 2004,
Collateral 100% FHLMC PC
8,300,000 8,274,063
Federal Home Loan Mtg. Corp. Series 1188-GC, 7.5%, due
2019, Collateral 100% FHLMC PC
10,000,000 9,150,000
Federal National Mtg. Association Series 93-73E, 6.35%, due
2019 Collateral 100% FNMA MBS
3,000,000 2,568,750
</TABLE>
The accompanying Notes are an integral part of the financial statements
B-44
-------------------------------------
<TABLE>
<CAPTION>
MORTGAGE PASS-THROUGHS (Continued)
- --------------------------------------------------------------------------------
- ----------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
- ----------------
<S> <C>
<C>
COLLATERALIZED MORTGAGE
OBLIGATIONS (Continued)
Guaranteed Mtg. Corp. III Series H2, 9% due 2015,
Collateral 100% FNMA MBS
1,293,209 1,297,857
Salomon Brothers Mortgage Securities II, Inc. Series III,
Class Z, 11.50%, due 2015 Collateral 100% GNMA/FNMA MBS
2,496,441 2,761,688
------------
$ 29,096,873
------------
TOTAL MORTGAGE PASS-THROUGHS
(identified cost, $522,323,986)
$501,100,855
------------
- --------------------------------------------------------------------------------
- ----------------
UNITED STATES TREASURY BONDS -- 15.7%
- --------------------------------------------------------------------------------
- ----------------
U.S. Treasury Bond, 12s, 8/15/13<F2>
$50,000,000 $ 66,484,400
U.S. Treasury Bond, 7.125s, 2/15/23<F1>
16,000,000 14,557,504
------------
TOTAL UNITED STATES TREASURY BONDS
(identified cost, $77,988,881)
$ 81,041,904
------------
TOTAL INVESTMENTS -- 112.9%
(identified cost, $600,316,020)
$582,142,759
OTHER ASSETS, LESS LIABILITIES -- (12.9%)
(66,473,246)
------------
NET ASSETS -- 100%
$515,669,513
------------
------------
<FN>
<F1>Collateral for financial futures contracts held at December 31, 1994
(See Note 7).
<F2>This security is on loan at December 31, 1994 (See Note 5).
</FN>
</TABLE>
The accompanying Notes are an integral part of the financial statements
B-45
<TABLE>
<CAPTION>
------------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------------------------------------
December 31, 1994
- -----------------------------------------------------------------------------
<S> <C>
<C>
ASSETS:
Investments, at value (Note 1A) (identified cost, $600,316,020)
$582,142,759
Cash
967
Receivable for investments sold
924,415
Interest receivable
6,785,757
Deferred organization expenses (Note 1H)
14,583
------------
Total assets
$589,868,481
LIABILITIES:
Liability for collateral received for securities loaned
(Note 5)
$70,162,000
Demand note payable (Note 4)
3,924,000
Payable for daily variation margin on financial futures
contracts (Note 1G)
28,125
Payable to affiliates --
Trustees' fees
5,196
Custodian fee
9,429
Accrued expenses
70,218
- -----------
Total liabilities
74,198,968
------------
NET ASSETS applicable to investors' interest in Portfolio
$515,669,513
------------
------------
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals
$533,640,352
Unrealized depreciation of investments and financial
futures contracts (computed on the basis of identified
cost)
(17,970,839)
------------
Total
$515,669,513
------------
------------
</TABLE>
The accompanying Notes are an integral part of the financial statements
B-46
STATEMENT OF OPERATIONS
-----------------------------------------------------------------
For the year ended December 31, 1994
-----------------------------------------------------------------
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME:
Interest income --
$ 53,735,067
Expenses --
Investment adviser fee (Note 3) $
4,259,500
Compensation of Trustees not members of the
Administrator's organization (Note 3)
20,725
Custodian fee (Note 3)
181,138
Interest (Note 5)
3,220,825
Legal and accounting services
32,833
Amortization of organization expenses (Note 1H)
3,789
Miscellaneous
48,242
- ----------
Total expenses
7,767,052
------------
Net investment income
$ 45,968,015
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) (identified cost basis) --
Investment transactions $
(8,711,023)
Financial futures contracts
4,494,315
- ------------
Net realized loss on investments
$ (4,216,708)
Change in unrealized appreciation of investments
(50,227,104)
------------
Net realized and unrealized loss on investments
$(54,443,812)
------------
Net decrease in net assets from operations
$ (8,475,797)
------------
------------
</TABLE>
The accompanying Notes are an integral part of the financial statements
B-47
----------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR
ENDED DECEMBER 31,
- --------------------------------------
1994
1993<F1>
------------
------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $
45,968,015 $ 7,856,183
Net realized loss on investments
(4,216,708) (861,136)
Change in unrealized appreciation of investments
(50,227,104) (7,359,654)
- ------------ ------------
Net decrease in net assets from operations $
(8,475,797) $ (364,607)
- ------------ ------------
Capital transactions --
Contributions
$272,129,376 $621,258,936
Withdrawals
(285,281,160) (83,697,255)
- ------------ ------------
Increase (decrease) in net assets resulting from
capital transactions
$(13,151,784) $537,561,681
- ------------ ------------
Total increase (decrease) in net assets
$(21,627,581) $537,197,074
NET ASSETS:
At beginning of period
537,297,094 100,020
- ------------ ------------
At end of period
$515,669,513 $537,297,094
- ------------ ------------
- ------------ ------------
<FN>
<F1>For the period from the start of business, October 28, 1993, to
December 31, 1993.
</FN>
The accompanying Notes are an integral part of the financial statements
B-48
SUPPLEMENTARY DATA
-----------------------------------------------------------------
YEAR ENDED DECEMBER
31,
- ------------------------
1994
1993*
-------
- -------
RATIOS (As a percentage of average net assets):
Interest expense 0.56%
0.63%+
Other expenses 0.80%
0.86%+
Net investment income 8.03%
8.46%+
PORTFOLIO TURNOVER 35%
42%
LEVERAGE ANALYSIS:
Amount of debt outstanding at end of period
(000 omitted) $3,924 --
Average daily balance of debt outstanding during
period (000 omitted) $ 982
$1,660
*For the period from the start of business, October 28, 1993, to
December 31,
1993.
+Computed on an annualized basis.
The accompanying Notes are an integral part of the financial statements
B-49
------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Government Obligations Portfolio (the Portfolio) is registered
under the
Investment Company Act of 1940 as a diversified open-end investment
company
which was organized as a trust under the laws of the State of New York in
1992.
The Declaration of Trust permits the Trustees to issue beneficial
interests in
the Portfolio. Investment operations began on October 28, 1993,
with the
acquisition of net assets of $564,244,545 in exchange for an interest
in the
Portfolio by one of the Portfolio's investors. The following is a
summary of
significant accounting policies of the Portfolio. The policies are in
conformity
with generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Mortgage backed, "pass-through"
securities are
valued using a matrix pricing system which takes into account
closing bond
valuations, yield differentials, anticipated prepayments, and interest
rates.
Debt securities (other than mortgage backed, "pass-through"
securities) are
normally valued at the mean between the latest available bid and asked
prices
for securities for which the over-the-counter market is the primary
market. Debt
securities may also be valued on the basis of valuations furnished by a
pricing
service. Options are valued at last sale price on a U.S. exchange or
board of
trade or, in the absence of a sale, at the mean between the last bid and
asked
price. Financial futures contracts listed on commodity exchanges are
valued at
closing settlement prices. Securities for which there is no such
quotation or
valuation are valued at fair value using methods determined in good faith
by or
at the direction of the Trustees. Short-term obligations having
remaining
maturities of less than 60 days are valued at amortized cost, which
approximates
value.
B. INCOME -- Interest income is determined on the basis of interest
accrued and
discount earned, adjusted for amortization of discount when required for
federal
income tax purposes.
C. GAINS AND LOSSES FROM SECURITY TRANSACTIONS -- For book purposes,
gains or
losses are not recognized until disposition. For federal tax
purposes, the
Portfolio has elected, under Section 1092 of the Internal Revenue
Code, to
utilize mixed straddle accounting for certain designated classes of
activities
involving options and financial futures contracts in determining
recognized
gains or losses. Under this method, Section 1256 positions (financial
futures
contracts and options on investments or financial futures contracts)
and non-
Section 1256 positions (bonds, etc.) are marked-to- market on a daily
basis
resulting in the recognition of taxable gains or losses on a daily basis.
Such
gains or losses are categorized as short-term or long-term based on
aggregation
rules provided in the Code.
D. INCOME TAXES -- The Portfolio is treated as a partnership for
federal tax
purposes. No provision is made by the Portfolio for federal or state
taxes on
B-50
any taxable income of the Portfolio because each investor in the
Portfolio is
ultimately responsible for the payment of any taxes. Since some
of the
Portfolio's investors are regulated investment companies that invest
all or
substantially all of their assets in the Portfolio, the Portfolio
normally must
satisfy the applicable source of income and diversification requirements
(under
the Code) in order for its investors to satisfy them. The Portfolio
will
allocate at least annually among its investors each investors'
distributive
share of the Portfolio's net investment income, net realized capital
gains, and
any other items of income, gain, loss, deduction or credit.
-----------------------------------------------------------------
E. WRITTEN OPTIONS -- Upon the writing of a call or a put option, an
amount
equal to the premium received by the Portfolio is included in the
Statement of
Assets and Liabilities as a liability. The amount of the
liability is
subsequently marked-to-market to reflect the current market value of the
option
written in accordance with the Portfolio's policies on investment
valuations
discussed above. Premiums received from writing options which expire are
treated
as realized gains. Premiums received from writing options which are
exercised or
are closed are added to or offset against the proceeds or amount paid
on the
transaction to determine the realized gain or loss. If a put
option is
exercised, the premium reduces the cost basis of the securities purchased
by the
Portfolio. The Portfolio, as writer of an option, may have no control
over
whether the underlying securities may be sold (call) or purchased (put)
and, as
a result, bears the market risk of an unfavorable change in the price
of the
securities underlying the written option.
F. PURCHASED OPTIONS -- Upon the purchase of a call or put option, the
premium
paid by the Portfolio is included in the Statement of Assets and
Liabilities as
an investment. The amount of the investment is subsequently
marked-to-market to
reflect the current market value of the option purchased, in accordance
with the
Portfolio's policies on investment valuations discussed above. If an
option
which the Portfolio has purchased expires on the stipulated expiration
date, the
Portfolio will realize a loss in the amount of the cost of the option.
If the
Portfolio enters into a closing sale transaction, the Portfolio will
realize a
gain or loss, depending on whether the sales proceeds from the closing
sale
transaction are greater or less than the cost of the option. If the
Portfolio
exercises a put option, it will realize a gain or loss from the sale
of the
underlying security, and the proceeds from such sale will be decreased
by the
premium originally paid. If the Portfolio exercises a call option, the
cost of
the security which the Portfolio purchases upon exercise will be
increased by
the premium originally paid. For tax purposes, the Portfolio's
options are
generally subject to the mixed straddle rules described in Note
1C, and
unrealized gains or losses are recognized on a daily basis.
G. FINANCIAL FUTURES CONTRACTS -- Upon entering into a financial
futures
contract, the Portfolio is required to deposit an amount ("initial
margin")
either in cash or securities equal to a certain percentage of the purchase
price
indicated in the financial futures contract. Subsequent payments are
made or
received by the Portfolio ("margin maintenance") each day, dependent
on the
B-51
daily fluctuations in the value of the underlying securities, and are
recorded
for book purposes as unrealized gains or losses by the Portfolio.
If the Portfolio enters into a closing transaction, the Portfolio
will
realize, for book purposes, a gain or loss equal to the difference
between the
value of the financial futures contract to sell and the financial
futures
contract to buy. The Portfolio's investment in financial futures
contracts is
designed only to hedge against anticipated future changes in
interest or
currency exchange rates. Should interest or currency exchange
rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits
of the
financial futures contracts and may realize a loss. For tax purposes,
such
futures contracts are generally subject to the mixed straddle rules
described in
Note 1C, and unrealized gains or losses are recognized on a daily basis.
H. DEFERRED ORGANIZATION EXPENSE -- Costs incurred by the
Portfolio in
connection with its organization are being amortized on the straight-line
basis
over five years.
I. OTHER -- Investment transactions are accounted for on the
date the
investments are purchased or sold.
- ------------------------------------------------------------------------------
(2) PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
obligations,
aggregated $271,104,426 and $225,418,353, respectively.
- --------------------------------------------------------------------------------
(3) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee, computed at the monthly rate of 0.0625%
(0.75% per
annum) of the Portfolio's average daily net assets up to $500 million
and at
reduced rates as daily net assets exceed that level, is earned by
Boston
Management and Research (BMR), a wholly-owned subsidiary of Eaton
Vance
Management (EVM), as compensation for management and investment
advisory
services rendered to the Portfolio. For the year ended December 31,
1994, the
fee was equivalent to .74% (annualized) of the Portfolio's average net
assets
for such period and amounted to $4,259,500. Except as to Trustees
of the
Portfolio who are not members of EVM's or BMR's organization,
officers and
Trustees receive remuneration for their service to the Portfolio out
of such
investment adviser fee. Investors Bank & Trust Company (IBT), an
affiliate of
EVM and BMR, serves as custodian of the Portfolio. Pursuant to the
custodian
agreement, IBT receives a fee reduced by credits which are determined
based on
the average daily cash balances the Portfolio maintains with IBT. Certain
of the
officers and Trustees of the Portfolio are officers and
directors/trustees of
the above organizations.
- --------------------------------------------------------------------------------
(4) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR
or EVM
in a $120 million unsecured line of credit agreement with a bank. The
line of
credit consists of a $20 million committed facility and an $100
million
discretionary facility. Interest is charged to each portfolio or fund
based on
B-52
its borrowings at an amount above either the bank's adjusted
certificate of
deposit rate, a variable adjusted certificate of deposit rate, or a
federal
funds effective rate. In addition, a fee computed at an annual rate of 1/4
of 1%
on the $20 million committed facility and on the daily unused portion
of the
$100 million discretionary facility is allocated among the
participating
portfolios and funds at the end of each quarter. The average daily loan
balance
for the year ended December 31, 1994, was $981,635 and the average
interest rate
was 5.87%. The maximum borrowings outstanding at any month end during
the year
ended December 31, 1994 was $11,823,000.
- -----------------------------------------------------------------------------
(5) SECURITIES LENDING AGREEMENT
The Portfolio has established a securities lending agreement with a
broker in
which the Portfolio lends portfolio securities to the broker in
exchange for
collateral consisting of either cash or U.S. government securities.
Under the
agreement, the Portfolio continues to earn interest on the securities
loaned. If
the collateral received is U.S. government securities, the Portfolio
will also
receive from the broker an additional loan premium fee computed as a
varying
percentage of the market value of the securities loaned. If the
collateral
received is cash, the Portfolio may invest the cash and receive any
interest on
the amount invested but it must also pay the broker a loan rebate fee
computed
as a varying percentage of the collateral received. The Portfolio
did not
receive any loan premium fee during the year ended December 31, 1994,
but did
incur $3,159,903 of loan rebate fees which have been included in
interest
expense. The maximum liability for cash collateral received for
securities
loaned at any month end during the period ended December 31,
1994, was
$79,592,900.
- ------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES
The cost and unrealized appreciation/depreciation in the value of
investment
securities owned at December 31, 1994, as computed on a federal
income tax
basis, were as follows:
Aggregate cost
$604,168,776
- -------------
- -------------
Gross unrealized depreciation
$(29,362,529)
Gross unrealized appreciation
7,336,512
- -------------
Net unrealized depreciation
$(22,026,017)
- -------------
- -------------
- ------------------------------------------------------------------------------
(7) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance
sheet
risk in the normal course of its investing activities to assist in
managing
exposure to various market risks. These financial instruments include
written
B-53
options, forward foreign currency exchange contracts, and financial
futures
contracts and may involve, to a varying degree, elements of risk in
excess of
the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments
represent the
investment the Fund has in particular classes of financial instruments
and does
not necessarily represent the amounts potentially subject to
risk. The
measurement of the risks associated with these instruments is
meaningful only
when all related and offsetting transactions are considered.
</TABLE>
A summary of obligations under these financial instruments at December
31, 1994
is as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACT
NET UNREALIZED
EXPIRATION DATE CONTRACTS
POSITION APPRECIATION
--------------- ---------
- -------- --------------
<S> <C> <C>
<C> <C>
3/95 900 U.S. Treasury Five Year Note Futures
Short $202,422
--------
--------
</TABLE>
At December 31, 1994, the Fund had sufficient cash and/or securities to
cover margin requirements on any open futures contracts.
B-54
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------------------------
To the Trustees and Investors of
Government Obligations Portfolio:
We have audited the accompanying statement of assets and
liabilities of Government Obligations Portfolio, including the portfolio
of investments, as of December 31, 1994, and the related statement of
operations for the year then ended, the statement of changes in net
assets and supplementary data for the year ended December 31, 1994,
and for the period from the start of business, October 28, 1993, to
December 31, 1993. These financial statements and supplementary
data are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial
statements and supplementary data based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1994 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and supplementary data
referred to above present fairly, in all material respects, the
financial position of Government Obligations Portfolio as of December
31, 1994, the results of its operations for the year then ended,
the changes in its net assets and supplementary data for the year
ended December 31, 1994, and for the period from the start of business,
October 28, 1993, to December 31, 1993, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
B-55
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements called for by this Item are included in Part B
and listed in Item 23 hereof.
(b) Exhibits
1. Declaration of Trust dated May 1, 1992 filed herewith.
2. By-Laws of the Registrant adopted May 1, 1992 filed herewith.
3. Not applicable.
4. Not applicable.
5. Investment Advisory Agreement between the Registrant and Boston
Management and Research dated October 28, 1993 filed herewith.
6. Placement Agent Agreement with Eaton Vance Distributors, Inc. dated
October 28, 1993 filed herewith.
7. The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See In the
Matter of Capital Exchange Fund, Inc., Release No. IC-20671 (November 1,
1994).
8. Custodian Agreement with Investors Bank & Trust Company dated December
30, 1994 filed herewith.
9.(a) Accounting and Interestholder Services Agreement with IBT Fund
Services (Canada) Inc. dated as of December 30, 1994 filed herewith.
9.(b) Administration Agreement with The Bank of Nova Scotia Trust Company
(Cayman) Ltd. (to be filed by amendment).
10. Not applicable.
C-1
11. Not applicable.
12. Not applicable.
13. Investment representation letter of Eaton Vance Government Obligations
Trust on behalf of EV Traditional Government Obligations Fund dated
September 27, 1993 filed herewith.
14. Not applicable.
15. Not applicable.
16. Not applicable.
27. Financial Data Schedule.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of
Title of Class Record Holders
Interests As of February 22, 1995
5
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 investment adviser 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.
Item 28. Business and Other Connections
To the knowledge of the Portfolio, none of the trustees or officers
of the Portfolio's investment adviser, except as set forth on its Form ADV
as filed with the Securities and Exchange Commission, is engaged in any
other business, profession, vocation or employment of a substantial
nature, except that certain trustees and officers also hold various
C-2
positions with and engage in business for affiliates of the investment
adviser.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
All applicable accounts, books and documents required to be
maintained by the Registrant by Section 31(a) of the Investment Company
Act of 1940, as amended, and the Rules promulgated thereunder are in the
possession and custody of the Registrant's custodian, Investors Bank &
Trust Company, 24 Federal Street, Boston, MA 02110, with the exception of
certain corporate documents and portfolio trading documents that are in
the possession and custody of the Registrant's investment adviser, Boston
Management and Research, 24 Federal Street, Boston, MA 02110. Certain
corporate documents are also maintained by The Bank of Nova Scotia Trust
Company (Cayman) Ltd., The Bank of Nova Scotia Building, P.O. Box 501,
George Town, Grand Cayman, Cayman Islands, British West Indies, and
certain investor account and Portfolio accounting records are held by IBT
Fund Services (Canada) Inc., 1 First Canadian Place, King Street West,
Suite 2800, P.O. Box 231, Toronto, Ontario, Canada M5X 1C8. The
Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the
custody and possession of the Registrant's investment adviser.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
C-3
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement on Form N-1A to
be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Toronto, Ontario, Canada, on the 22nd day of February, 1995.
GOVERNMENT OBLIGATIONS PORTFOLIO
By /s/ M. Dozier Gardner
-------------------------------
M. Dozier Gardner
President
C-4
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1. Declaration of Trust dated May 1, 1992.
2. By-Laws of the Registrant adopted May 1, 1992.
5. Investment Advisory Agreement between the Registrant and Boston
Management and Research dated October 28, 1993.
6. Placement Agent Agreement with Eaton Vance Distributors, Inc. dated
October 28, 1993.
7. The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See In the
Matter of Capital Exchange Fund, Inc., Release No. IC-20671 (November 1,
1994).
8. Custodian Agreement with Investors Bank & Trust Company dated December
30, 1994.
9.(a) Accounting and Interestholder Services Agreement with IBT Fund
Services (Canada) Inc. dated as of December 30, 1994.
9.(b) Administration Agreement with The Bank of Nova Scotia Trust Company
(Cayman) Ltd. (to be filed by amendment).
13. Investment representation letter of Eaton Vance Government Obligations
Trust on behalf of EV Traditional Government Obligations Fund dated
September 27, 1993.
27. Financial Data Schedule.
GOVERNMENT OBLIGATIONS PORTFOLIO
--------------------------------
DECLARATION OF TRUST
Dated as of May 1, 1992
DC-184408.1
TABLE OF CONTENTS
PAGE
----
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . 3
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . 5
Section 3.1 General . . . . . . . . . . . . . . . . . . 5
Section 3.2 Investments . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . 7
Section 3.8 Collection and Payment . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . 7
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . 8
Section 3.11 Further Powers . . . . . . . . . . . . . . . 8
ARTICLE IV--Investment Advisory, Administration and Placement Agent
Arrangements . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Investment Advisory, Administration and Other
Arrangements . . . . . . . . . . . . . . . . 8
Section 4.2 Parties to Contract . . . . . . . . . . . . 9
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. . . . . . . . . . . . . . . . . . . . . 9
Section 5.1 Liability of Holders; Indemnification . . . . 9
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Third Parties . . . . . . . . . . . . . . 10
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc. . . . . . . . . . 10
Section 5.4 Mandatory Indemnification . . . . . . . . 10
Section 5.5 No Bond Required of Trustees . . . . . . . . 11
i
PAGE
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc. . . . . . . . . . . . . . 11
Section 5.7 Reliance on Experts, etc. . . . . . . . . . 11
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Interests . . . . . . . . . . . . . . . . . . 12
Section 6.2 Non-Transferability . . . . . . . . . . . . . 12
Section 6.3 Register of Interests . . . . . . . . . . . . 12
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . 12
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . . . 13
Section 8.1 Book Capital Account Balances . . . . . . . 13
Section 8.2 Allocations and Distributions to Holders . . 13
Section 8.3 Power to Modify Foregoing Procedures . . . . 13
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.1 Rights of Holders . . . . . . . . . . . . . 13
Section 9.2 Meetings of Holders . . . . . . . . . . . . 13
Section 9.3 Notice of Meetings . . . . . . . . . . . . . 14
Section 9.4 Record Date for Meetings, Distributions, etc. 14
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . 14
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . 15
Section 9.7 Inspection of Records . . . . . . . . . . . 15
Section 9.8 Holder Action by Written Consent . . . . . . 15
Section 9.9 Notices . . . . . . . . . . . . . . . . . . . 15
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc. . . . . . . 16
Section 10.1 Duration . . . . . . . . . . . . . . . . . . 16
Section 10.2 Termination . . . . . . . . . . . . . . . . . 17
Section 10.3 Dissolution . . . . . . . . . . . . . . . . . 17
Section 10.4 Amendment Procedure . . . . . . . . . . . . 18
Section 10.5 Merger, Consolidation and Sale of Assets . . 19
Section 10.6 Incorporation . . . . . . . . . . . . . . . 19
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 19
Section 11.1 Certificate of Designation; Agent for
Service of Process . . . . . . . . . . . . . 19
Section 11.2 Governing Law . . . . . . . . . . . . . . . 19
Section 11.3 Counterparts . . . . . . . . . . . . . . . . .
Section 11.4 Reliance by Third Parties . . . . . . . . . . 20
Section 11.5 Provisions in Conflict With Law or
Regulations . . . . . . . . . . . . . . . . 20
ii
DECLARATION OF TRUST
OF
GOVERNMENT OBLIGATIONS PORTFOLIO
--------------------------------
This DECLARATION OF TRUST of Government Obligations
Portfolio is made as of the 1st day of May, 1992 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 Government Obligations 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:
"Administrator" shall mean any party furnishing services
to the Trust pursuant to any administration contract described in Section
4.1 hereof.
"Book Capital Account" shall mean, for any Holder at any
time, the Book Capital Account of the Holder for such day, determined in
accordance with Section 8.1 hereof.
"Code" shall mean the U.S. Internal Revenue Code of 1986,
as amended from time to time, as well as any non-superseded provisions of
the U.S. Internal Revenue Code of 1954, as amended (or any corresponding
provision or provisions of succeeding law).
"Commission" shall mean the U.S. 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.
"Interested Person" shall have the meaning given it in
the 1940 Act.
"Investment Adviser" shall mean any party furnishing
services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a
meeting of Holders, of (A) 67% or more of the Interests present or
represented at such meeting, if Holders of more than 50% of all Interests
are present or represented by proxy, or (B) more than 50% of all
Interests, whichever is less.
"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.
2
"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 U.S. Investment Company Act
of 1940, as amended from time to time, and the rules and regulations
thereunder.
3
ARTICLE II
Trustees
--------
2.1. Number and Qualification. The number of Trustees
shall be fixed from time to time by action of the Trustees taken as
provided in Section 2.5 hereof; provided, however, that the number of
Trustees so fixed shall in no event be less than three or more than 15.
Any vacancy created by an increase in the number of Trustees may be filled
by the appointment of an individual having the qualifications described in
this Section 2.1 made by action of the Trustees taken as provided in
Section 2.5 hereof. Any such appointment shall not become effective,
however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the
number of Trustees shall have the effect of removing any Trustee from
office. Whenever a vacancy occurs, until such vacancy is filled as
provided in Section 2.4 hereof, the Trustees continuing in office,
regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by
this Declaration. A Trustee shall be an individual at least 21 years of
age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of Holders, shall (except
in the event of resignations, retirements, removals or vacancies pursuant
to Section 2.3 or Section 2.4 hereof) hold office until a successor to
such Trustee has been elected at such meeting and has qualified to serve
as Trustee, as required under the 1940 Act. Subject to the provisions of
Section 16(a) of the 1940 Act and 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
4
Trustees, be deemed to have retired in accordance with the terms of such
policy, effective as of the date determined in accordance with such
policy. Any Trustee who has become incapacitated by illness or injury as
determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the
date of such Trustee's retirement. Upon the resignation, retirement or
removal of a Trustee, or a Trustee otherwise ceasing to be a Trustee, such
resigning, retired, removed or former Trustee shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held
in the name of such resigning, retired, removed or former Trustee. Upon
the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of
such deceased, removed, retired or resigning Trustee shall execute and
deliver on behalf of such deceased, removed, retired or resigning Trustee
such documents as the remaining Trustees shall require for the purpose set
forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, retirement, adjudicated incompetence or other incapacity to
perform the duties of the office, or removal, of a Trustee. No such
vacancy shall operate to annul this Declaration or to revoke any existing
agency created pursuant to the terms of this Declaration. In the case of
a vacancy, Holders of at least a majority of the Interests entitled to
vote, acting at any meeting of Holders held in accordance with Section 9.2
hereof, or, to the extent permitted by the 1940 Act, a majority vote of
the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the
Trustees or the Holders shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held
from time to time upon the call of the Chairman, if any, the President,
the Secretary, an Assistant Secretary or any two Trustees, at such time,
on such day and at such place, as shall be designated in the notice of the
meeting. The Trustees shall hold an annual meeting for the election of
officers and the transaction of other business which may come before such
meeting. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given by mail, by telegram
(which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). If notice is given by
mail, it shall be mailed not later than 48 hours preceding the meeting and
if given by telegram, telecopier or personally, such notice shall be sent
or delivery made not later than 24 hours preceding the meeting. Notice of
a meeting of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the purpose
of, any meeting of the Trustees need be stated in the notice or waiver of
notice of 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, at
the commencement of such meeting, to the transaction of any business on
5
the ground that the meeting was not lawfully called or convened. The
Trustees may act with or without a meeting, but no notice need be given of
action proposed to be taken by written consent. A quorum for all meetings
of the Trustees shall be a majority of the Trustees. Unless provided
otherwise in this Declaration, any action of the Trustees may be taken at
a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the
Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all
meetings of any such committee shall be a majority of the members thereof.
Unless provided otherwise in this Declaration, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or without a meeting by written consent
of a majority of the members.
With respect to actions of the Trustees and any committee
of the Trustees, Trustees who are Interested Persons of the Trust or
otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 2.5 and shall be entitled to vote to the
extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a
meeting of the Trustees or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all
individuals participating in the meeting can hear each other and
participation in a meeting by means of such communications equipment shall
constitute presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees
shall, from time to time, elect a President, a Secretary and a Treasurer.
The Trustees may elect or appoint, from time to time, a Chairman of the
Board who shall preside at all meetings of the Trustees and carry out such
other duties as the Trustees may designate. The Trustees may elect or
appoint or authorize the President to appoint such other officers, agents
or independent contractors with such powers as the Trustees may deem to be
advisable. The Chairman, if any, shall be and each other officer may, but
need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time
to time, amend or repeal By-Laws for the conduct of the business of the
Trust.
ARTICLE III
Powers of Trustees
------------------
3.1. General. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the
Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and such business in their own right, but with such powers
6
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 U.S. and foreign
currencies and related instruments including forward contracts, and
securities, including common and preferred stock, warrants, bonds,
debentures, time notes and all other evidences of indebtedness, negotiable
or non-negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, and other securities, including, without limitation, those
issued, guaranteed or sponsored by any state, territory or possession of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the U.S. Government,
any foreign government, or any agency, instrumentality or political
subdivision of the U.S. 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
7
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, 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
8
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.
3.10. Miscellaneous Powers. The Trustees shall have
power to: (a) employ or contract with such Persons as the Trustees may
deem appropriate for the transaction of the business of the Trust and
terminate such employees or contractual relationships as they consider
appropriate; (b) enter into joint ventures, partnerships and any other
combinations or associations; (c) purchase, and pay for out of Trust
Property, insurance policies insuring the Investment Adviser,
Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust against all claims arising
by reason of holding any such position or by reason of any action taken or
omitted by any such Person in such capacity, whether or not the Trust
would have the power to indemnify such Person against such liability; (d)
establish pension, profit-sharing and other retirement, incentive and
benefit plans for the Trustees, officers, employees or agents of the
Trust; (e) make donations, irrespective of benefit to the Trust, for
charitable, religious, educational, scientific, civic or similar purposes;
(f) to the extent permitted by law, indemnify any Person with whom the
Trust has dealings, including the Investment Adviser, Administrator,
placement agent, Holders, Trustees, officers, employees, agents or
independent contractors of the Trust, to such extent as the Trustees shall
determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the Fiscal Year and the method by which
the accounts of the Trust 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
9
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.
10
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
-----------------------------------
4.1. Investment Advisory, Administration and Other
Arrangements. The Trustees may in their discretion, from time to time,
enter into investment advisory contracts, administration contracts or
placement agent agreements whereby the other party to such contract or
agreement shall undertake to furnish the Trustees such investment
advisory, administration, placement agent and/or other services as the
Trustees shall, from time to time, consider appropriate or desirable and
all upon such terms and conditions as the Trustees may in their sole
discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Adviser (subject to such general
or specific instructions as the Trustees may, from time to time, adopt) to
effect purchases, sales, loans or exchanges of Trust Property on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Adviser (all without any further action by the
Trustees). Any such purchase, sale, loan or exchange shall be deemed to
have been authorized by the Trustees.
4.2. Parties to Contract. Any contract of the
character described in Section 4.1 hereof or in the By-Laws of the Trust
may be entered into with any corporation, firm, trust or association,
although one or more of the Trustees or officers of the Trust may be an
officer, director, Trustee, shareholder or member of such other party to
the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall
any individual holding such relationship be liable merely by reason of
such relationship for any loss or expense to the Trust under or by reason
of any such contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this
Article IV or the 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.
11
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) except for such Person's own bad faith,
willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
12
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 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
13
the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust made or sold by any Trustee, officer, employee, agent or independent
contractor of the Trust, in such capacity, shall contain an appropriate
recital to the effect that the Trustee, officer, employee, agent or
independent contractor of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property for
the satisfaction of any obligation or claim thereunder, and appropriate
references shall be made therein to the Declaration, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee,
officer, employee, agent or independent contractor of the Trust. Subject
to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees,
officers, employees, agents and independent contractors of the Trust in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the
performance of such Person's duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the
Trust (whether or not the Trust would have the power to indemnify such
Persons against such liability), upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by any
Investment Adviser or Administrator, accountant, appraiser or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
ARTICLE VI
Interests
---------
6.1. Interests. The beneficial interest in the Trust
Property shall consist of non-transferable Interests. The Interests shall
be personal property giving only the rights in this Declaration
specifically set forth. The value of an Interest shall be equal to the
Book Capital Account balance of the Holder of the Interest.
6.2. Non-Transferability. A Holder may not transfer,
sell or exchange its Interest.
6.3. Register of Interests. A register shall be kept
at the Trust under the direction of the Trustees which shall contain the
name, address and Book Capital Account balance of each Holder. Such
register shall be conclusive as to the identity of the Holders, and the
Trust shall not be bound to recognize any equitable or legal claim to or
14
interest in an Interest which is not contained in such register. 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.
15
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.
16
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
--------------------------
8.1. Book Capital Account Balances. The Book Capital
Account balance of each Holder shall be determined on such days and at
such time or times as the Trustees may determine. The Trustees shall
adopt resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations
pursuant to such resolutions may be delegated by the Trustees to the
Investment Adviser, Administrator, custodian, or such other Person as the
Trustees may determine. Upon the Redemption of an Interest, the Holder of
that Interest shall be entitled to receive the balance of its Book Capital
Account. A Holder may not transfer, sell or exchange its Book Capital
Account balance.
8.2. Allocations and Distributions to Holders. The
Trustees shall, in compliance with the Code, the 1940 Act and generally
accepted accounting principles, establish the procedures by which the
Trust shall make (i) the allocation of unrealized gains and losses,
taxable income and tax loss, and profit and loss, 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.
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.
17
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.
9.4. Record Date for Meetings, Distributions, etc.
For the purpose of determining the Holders who are entitled to notice of
and to vote or act at any meeting, including any adjournment thereof, 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. If the Trustees do not, prior to any meeting of the
Holders, so fix a record date, then the date of mailing notice of the
meeting shall be the record date.
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
18
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. No proxy shall be
valid after one year from the date of execution, unless a longer period is
expressly stated in such proxy. The Trust may also permit a Holder to
authorize and empower individuals named as proxies on any form of proxy
solicited by the Trustees to vote that Holder's Interest on any matter by
recording his voting instructions on any recording device maintained for
that purpose by the Trust or its agent, provided the Holder complies with
such procedures as the Trustees may designate to be necessary or
appropriate to determine the authenticity of the voting instructions so
recorded; such instructions shall be deemed to constitute a written proxy
signed by the Holder and delivered to the Trust and shall be deemed to be
dated as of the date such instructions were transmitted, and the Holder
shall be deemed to have approved and ratified all actions taken by such
proxies in accordance with the voting instructions so recorded.
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 books and records of
the Trust shall be open to inspection by Holders during normal business
hours for any purpose not harmful to the Trust.
9.8. Holder Action by Written Consent. Any action
which may be taken by Holders may be taken without a meeting if Holders
holding more than 50% of all Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are
19
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.
20
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
---- ------- --------
Cassius Marcellus Cornelius 742 Old Dublin Road November 9, 1990
Clay Hancock, NH 03449
Sara Briggs Sullivan 1308 Rhodes Street September 17, 1990
Dubois, WY 82513
Myles Bailey Rawson Winhall Hollow Road May 13, 1990
R.R. #1, Box 178B
Bondville, VT 05340
Zeben Curtis Kopchak Box 1126 October 31, 1989
Cordova, AK 99574
Landon Harris Clay 742 Old Dublin Road February 15, 1989
Hancock, NH 03449
Kelsey Ann Sullivan 1308 Rhodes Street May 1, 1988
Dubois, WY 82513
Carter Allen Rawson Winhall Hollow Road January 28, 1988
R.R. #1, Box 178B
Bondville, VT 05340
Obadiah Barclay Kopchak Box 1126 August 29, 1987
Cordova, AK 99574
Richard Tubman Clay 742 Old Dublin Road April 12, 1987
Hancock, NH 03449
Thomas Moragne Clay 742 Old Dublin Road April 11, 1985
Hancock, NH 03449
Zachariah Bishop Kopchak Box 1126 January 11, 1985
Cordova, AK 99574
Sager Anna Kopchak Box 1126 May 22, 1983
Cordova, AK 99574
21
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.
(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
22
effective 120 days after the event. However, the Holders (other than such
bankrupt or redeeming Holder) may, by a unanimous affirmative vote at any
meeting of such Holders or by an instrument in writing without a meeting
executed by a majority of the Trustees and consented to by all such
Holders, agree to continue the business of the Trust even if there has
been such a dissolution.
10.4. Amendment Procedure
-------------------
(a) This Declaration may be amended by the vote
of Holders of more than 50% of all Interests at any meeting of Holders or
by an instrument in writing without a meeting, executed by a majority of
the Trustees and consented to by the Holders of more than 50% of all
Interests. Notwithstanding any other provision hereof, this Declaration
may be amended by an instrument in writing executed by a majority of the
Trustees, and without the vote or consent of Holders, for any one or more
of the following purposes: (i) to change the name of the Trust, (ii) to
supply any omission, or to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirements of applicable federal law or regulations
or the requirements of the applicable provisions of the Code, (iv) to
change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to
effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the law of
such state or other jurisdiction applicable to trusts or voluntary
associations, (B) to permit the Trust to elect to be treated as a
"regulated investment company" under the applicable provisions of the
Code, or (C) to permit the transfer of Interests (or to permit the
transfer of any other beneficial interest in or share of the Trust,
however denominated), (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, and (vii) change, modify or rescind any
provision of this Declaration provided such change, modification or
rescission is found by the Trustees to be necessary or appropriate and to
not have a materially adverse effect on the financial interests of the
Holders, any such finding 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
23
Trust, 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 a Majority Interests Vote, and any such
merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of
the State of New York.
10.6. Incorporation. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation
or corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to
carry on any business in which the Trust directly or indirectly has any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, partnership, association or other organization in
exchange for the equity interests thereof or otherwise, and to lend money
to, subscribe for the equity interests of, and enter into any contract
with any such corporation, trust, partnership, association or other
organization, or any corporation, trust, partnership, association or other
organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation 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.
24
ARTICLE XI
Miscellaneous
-------------
11.1. Certificate of Designation; Agent for Service of
Process. The Trust shall file, with the Department of State of the State
of New York, a certificate, in the name of the Trust and executed by an
officer of the Trust, designating the Secretary of State of the State of
New York as an agent upon whom process in any action or proceeding against
the Trust may be served.
11.2. Governing Law. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the
law thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
in accordance with the law of the State of New York and reference shall be
specifically made to the trust law of the State of New York as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any one such
original counterpart.
11.4. Reliance by Third Parties. Any certificate executed
by an individual who, according to the records of the Trust or of any
recording office in which this Declaration may be recorded, appears to be
a Trustee hereunder, certifying to: (a) the number or identity of
Trustees or Holders, (b) the due authorization of the execution of any
instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Holders, (d) the fact that the number of Trustees or Holders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by
or the identity of any officer elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs
of the Trust, shall be conclusive evidence as to the matters so certified
in favor of any Person dealing with the Trustees.
11.5. Provisions in Conflict With Law or Regulations
----------------------------------------------
(a) The provisions of this Declaration are
severable, and if the Trustees shall determine, with the advice of
counsel, that any of such provisions is in conflict with the 1940 Act, or
with other applicable law and regulations, the conflicting provision shall
be deemed never to have constituted a part of this Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of this Declaration or render invalid or improper any action
taken or omitted prior to such determination.
25
(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/James G. Baur
---------------------------------
James G. Baur, as Trustee and
not individually
/s/H. Day Brigham, Jr.
-----------------------------------
H. Day Brigham, Jr., as Trustee and
not individually
/s/James B. Hawkes
-----------------------------------
James B. Hawkes, as Trustee and
not individually
26
GOVERNMENT OBLIGATIONS PORTFOLIO
------------------------------
BY-LAWS
As Adopted May 1, 1992
DC-184411.1
TABLE OF CONTENTS
PAGE
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . . . . . . 1
Section 1.1 Records at Holder Meetings . . . . 1
Section 1.2 Inspectors of Election . . . . . . 1
ARTICLE II -- Officers . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Officers of the Trust . . . . . . . 2
Section 2.2 Election and Tenure . . . . . . . . 2
Section 2.3 Removal of Officers . . . . . . . . 2
Section 2.4 Bonds and Surety . . . . . . . . . 2
Section 2.5 Chairman, President and Vice
President . . . . . . . . . . . . . 2
Section 2.6 Secretary . . . . . . . . . . . . . 3
Section 2.7 Treasurer . . . . . . . . . . . . . 3
Section 2.8 Other Officers and Duties . . . . . 3
ARTICLE III -- Miscellaneous . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Depositories . . . . . . . . . . . 4
Section 3.2 Signatures . . . . . . . . . . . . 4
Section 3.3 Seal . . . . . . . . . . . . . . . . 4
Section 3.4 Indemnification . . . . . . . . . . 4
Section 3.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . . . . 4
ARTICLE IV -- Regulations; Amendment of By-Laws . . . . . . . . . . . 5
Section 4.1 Regulations . . . . . . . . . . . . 5
Section 4.2 Amendment and Repeal of By-Laws . . 5
i
BY-LAWS
OF
GOVERNMENT OBLIGATIONS PORTFOLIO
--------------------------------
These By-Laws are made and adopted pursuant to Section
2.7 of the Declaration of Trust establishing GOVERNMENT OBLIGATIONS
PORTFOLIO (the "Trust"), dated as of May 1, 1992, as from time to time
amended (the "Declaration"). All words and terms capitalized in these
By-Laws shall have the meaning or meanings set forth for such words or
terms in the Declaration.
ARTICLE I
Meetings of Holders
-------------------
Section 1.1. Records at Holder Meetings. At each
meeting of the Holders there shall be open for inspection the minutes of
the last previous meeting of Holders of the Trust and a list of the
Holders of the Trust, certified to be true and correct by the Secretary or
other proper agent of the Trust, as of the record date of the meeting.
Such list of Holders shall contain the name of each Holder in alphabetical
order and the address and Interest owned by such Holder on such record
date.
Section 1.2. Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman, if any, of any meeting of the Holders
may, and on the request of any Holder or his proxy shall, appoint
Inspectors of Election. The number of Inspectors of Election shall be
either one or three. If appointed at the meeting on the request of one or
more Holders or proxies, a Majority Interests Vote shall determine whether
one or three Inspectors of Election are to be appointed, but failure to
allow such determination by the Holders shall not affect the validity of
the appointment of Inspectors of Election. In case any individual
appointed as an Inspector of Election fails to appear or fails or refuses
to so act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the
individual acting as chairman of the meeting. The Inspectors of Election
shall determine the Interest owned by each Holder, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents,
shall hear and determine all challenges and questions in any way arising
in connection with the right to vote, shall count and tabulate all votes
or consents, shall determine the results, and shall do such other acts as
may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision,
act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or its proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined
by them and shall execute a certificate of any facts found by them.
ARTICLE II
Officers
----------
Section 2.1. Officers of the Trust. The officers of the
Trust shall consist of a Chairman, if any, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be elected by the Trustees. Any two or more of the
offices may be held by the same individual. The Trustees may designate a
Vice President as an Executive Vice President and may designate the order
in which the other Vice Presidents may act. The Chairman shall be a
Trustee, but no other officer of the Trust, including the President, need
be a Trustee.
Section 2.2. Election and Tenure. At the initial
organization meeting and thereafter at each annual meeting of the
Trustees, the Trustees shall elect the Chairman, if any, the President,
the Secretary, the Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the
Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any
additional officer at any time.
Section 2.3. Removal of Officers. Any officer may be
removed at any time, with or without cause, by action of a majority of the
Trustees. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect
upon any cause of action which any officer may have as a result of removal
in breach of a contract of employment. Any officer may resign at any time
by notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, the President or the Secretary, and such resignation
shall take effect immediately, or at a later date according to the terms
of such notice in writing.
Section 2.4. Bonds and Surety. Any officer may be
required by the Trustees to be bonded for the faithful performance of his
duties in such amount and with such sureties as the Trustees may
determine.
Section 2.5. Chairman, President and Vice Presidents.
The Chairman, if any, shall, if present, preside at all meetings of the
Holders and of the Trustees and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the
Trustees. Subject to such supervisory powers, if any, as may be given by
the Trustees to the Chairman, if any, the President shall be the chief
executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Holders and, in the absence of the
Chairman, the President shall preside at all meetings of the Trustees.
The President shall be, ex officio, a member of all standing committees of
Trustees. Subject to the direction of the Trustees, the President shall
-2-
have the power, in the name and on behalf of the Trust, to execute any and
all loan documents, contracts, agreements, deeds, mortgages and other
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power to attend, to act and to vote, on
behalf of the Trust, at any meeting of any business organization in which
the Trust holds an interest, or to confer such powers upon any other
person, by executing any proxies duly authorizing such person. The
President shall have such further authorities and duties as the Trustees
shall from time to time determine. In the absence or disability of the
President, the Vice Presidents in order of their rank or the Vice
President designated by the Trustees, shall perform all of the duties of
the President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the
direction of the President, each Vice President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing,
and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 2.6. Secretary. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Holders, Trustees and
the Executive Committee, if any. The results of all actions taken at a
meeting of the Trustees, or by written consent of the Trustees, shall be
recorded by the Secretary. The Secretary shall be custodian of the seal
of the Trust, if any, and (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to
any instrument executed by the Trust which would be sealed by a New York
corporation executing the same or a similar instrument and shall attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall
also perform any other duties commonly incident to such office in a New
York corporation, and shall have such other authorities and duties as the
Trustees shall from time to time determine.
Section 2.7. Treasurer. Except as otherwise directed by
the Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers and
documents of the Trust, and shall have and exercise under the supervision
of the Trustees and of the President all powers and duties normally
incident to his office. The Treasurer may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or
to its order and shall deposit all funds of the Trust as may be ordered by
the Trustees or the President. The Treasurer shall keep accurate account
of the books of the Trust's transactions which shall be the property of
the Trust, and which together with all other property of the Trust in his
possession, shall be subject at all times to the inspection and control of
the Trustees. Unless the Trustees shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Trust and shall
also be the principal financial officer of the Trust. The Treasurer shall
have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize the Investment Adviser or the
Administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
-3-
Section 2.8. Other Officers and Duties. The Trustees
may elect such other officers and assistant officers as they shall from
time to time determine to be necessary or desirable in order to conduct
the business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer in
the duties of his office. Each officer, employee and agent of the Trust
shall have such other duties and authorities as may be conferred upon him
by the Trustees or delegated to him by the President.
ARTICLE III
Miscellaneous
-------------
Section 3.1. Depositories. The funds of the Trust shall
be deposited in such depositories as the Trustees shall designate and
shall be drawn out on checks, drafts or other orders signed by such
officer, officers, agent or agents (including the Investment Adviser or
the Administrator) as the Trustees may from time to time authorize.
Section 3.2. Signatures. All contracts and other
instruments shall be executed on behalf of the Trust by such officer,
officers, agent or agents as provided in these By-Laws or as the Trustees
may from time to time by resolution provide.
Section 3.3. Seal. The seal of the Trust, if any, may
be affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the
same manner and with the same effect as if done by a New York corporation.
Section 3.4. Indemnification. 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, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately will
be found entitled to indemnification.
Section 3.5. Distribution Disbursing Agents and the
Like. The Trustees shall have the power to employ and compensate such
distribution disbursing agents, warrant agents and agents for the
reinvestment of distributions as they shall deem necessary or desirable.
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Any of such agents shall have such power and authority as is delegated to
any of them by the Trustees.
ARTICLE IV
Regulations; Amendment of By-Laws
---------------------------------
Section 4.1. Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as
they may deem expedient concerning the sale and purchase of Interests of
the Trust.
Section 4.2. Amendment and Repeal of By-Laws. In
accordance with Section 2.7 of the Declaration, the Trustees shall have
the power to alter, amend or repeal the By-Laws or adopt new By-Laws at
any time. Action by the Trustees with respect to the By-Laws shall be
taken by an affirmative vote of a majority of the Trustees. The Trustees
shall in no event adopt By-Laws which are in conflict with the
Declaration.
The Declaration refers to the Trustees as Trustees, but
not as individuals or personally; and no Trustee, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the
Trust.
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GOVERNMENT OBLIGATIONS PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of October, 1993, between Government
Obligations Portfolio, a New York trust (the "Trust"), and Boston
Management and Research, a Massachusetts business trust (the "Adviser").
1. Duties of the Adviser. The Trust hereby employs the
Adviser to act as investment adviser for and to manage the investment and
reinvestment of the assets of the Trust and to administer its affairs,
subject to the supervision of the Trustees of the Trust, for the period
and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment, and undertakes to
afford to the Trust the advice and assistance of the Adviser's
organization in the choice of investments and in the purchase and sale of
securities for the Trust and to furnish for the use of the Trust office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Trust and for administering its affairs
and to pay the salaries and fees of all officers and Trustees of the Trust
who are members of the Adviser's organization and all personnel of the
Adviser performing services relating to research and investment
activities. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as otherwise expressly provided
or authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
The Adviser shall provide the Trust with such investment
management and supervision as the Trust may from time to time consider
necessary for the proper supervision of the Trust. As investment adviser
to the Trust, the Adviser shall furnish continuously an investment program
and shall determine from time to time what securities and other
investments shall be acquired, disposed of or exchanged and what portion
of the Trust's assets shall be held uninvested, subject always to the
applicable restrictions of the Declaration of Trust, By-Laws and
registration statement of the Trust under the Investment Company Act of
1940, all as from time to time amended. Should the Trustees of the Trust
at any time, however, make any specific determination as to investment
policy for the Trust and notify the Adviser thereof in writing, the
Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such
determination has been revoked. The Adviser shall take, on behalf of the
Trust, all actions which it deems necessary or desirable to implement the
investment policies of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust either directly with the
issuer or with brokers or dealers selected by the Adviser, and to that end
DC-184412.1
the Adviser is authorized as the agent of the Trust to give instructions
to the custodian of the Trust as to deliveries of securities and payments
of cash for the account of the Trust. In connection with the selection of
such brokers or dealers and the placing of such orders, the Adviser shall
use its best efforts to seek to execute security transactions at prices
which are advantageous to the Trust and (when a disclosed commission is
being charged) at reasonably competitive commission rates. In selecting
brokers or dealers qualified to execute a particular transaction, brokers
or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Adviser and the Adviser is expressly
authorized to pay any broker or dealer who provides such brokerage and
research services a commission for executing a security transaction which
is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the
overall responsibilities which the Adviser and its affiliates have with
respect to accounts over which they exercise investment discretion.
Subject to the requirement set forth in the second sentence of this
paragraph, the Adviser is authorized to consider, as a factor in the
selection of any broker or dealer with whom purchase or sale orders may be
placed, the fact that such broker or dealer has sold or is selling shares
of any one or more investment companies sponsored by the Adviser or its
affiliates or shares of any other investment company investing in the
Trust.
2. Compensation of the Adviser. For the services, payments
and facilities to be furnished hereunder by the Adviser, the Adviser shall
be entitled to receive from the Trust, on a daily basis, compensation is
an amount equal to 0.0625% (.75% annually) of the average daily net assets
of the Trust throughout each month.
Such compensation shall be paid monthly in arrears on the last
business day of each month. The Trust's daily net assets shall be
computed in accordance with the Declaration of Trust of the Trust and any
applicable votes and determinations of the Trustees of the Trust.
In case of initiation or termination of the Agreement during any
month with respect to the Trust, the fee for that month shall be based on
the number of calendar days during which it is in effect.
The Adviser may, from time to time, waive all or a part of the
above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all expenses other than those expressly stated to
be payable by the Adviser hereunder, which expenses payable by the Trust
shall include, without implied limitation, (i) expenses of maintaining the
Trust and continuing its existence, (ii) registration of the Trust under
the Investment Company Act of 1940, (iii) commissions, fees and other
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expenses connected with the acquisition, holding and disposition of
securities and other investments, (iv) auditing, accounting and legal
expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale, and redemption of Interests in the Trust, (viii) expenses
of registering and qualifying the Trust and Interests in the Trust under
federal and state securities laws and of preparing and printing
registration statements or other offering statements or memoranda for such
purposes and for distributing the same to Holders and investors, and fees
and expenses of registering and maintaining registrations of the Trust and
of the Trust's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to Holders and of
meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Trust (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset
values, book capital account balances and tax capital account balances),
(xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, Holder servicing agents and registrars for all services
to the Trust, (xv) expenses for servicing the account of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust,
(xvii) compensation and expenses of Trustees of the Trust who are not
members of the Adviser's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees, officers and Holders with respect thereto.
4. Other Interests. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Adviser as trustees, shareholders or otherwise
and that trustees, officers and shareholders of the Adviser are or may be
or become similarly interested in the Trust, and that the Adviser may be
or become interested in the Trust as Holder or otherwise. It is also
understood that trustees, officers, employees and shareholders of the
Adviser may be or become interested (as directors, trustees, officers,
employees, shareholders or otherwise) in other companies or entities
(including, without limitation, other investment companies) which the
Adviser may organize, sponsor or acquire, or with which it may merge or
consolidate, and which may include the words "Eaton Vance" or "Boston
Management and Research" or any combination thereof as part of their name,
and that the Adviser or its subsidiaries or affiliates may enter into
advisory or management agreements or other contracts or relationships with
such other companies or entities.
5. Limitation of Liability of the Adviser. The services of
the Adviser to the Trust are not to be deemed to be exclusive, the Adviser
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or to any Holder of Interests in the Trust for any act or omission
-3- A:\GOP.IAA
in the course of, or connected with, rendering services hereunder or for
any losses which may be sustained in the acquisition, holding or
disposition of any security or other investment.
6. Sub-Investment Advisers. The Adviser may employ one or
more sub-investment advisers from time to time to perform such of the acts
and services of the Adviser, including the selection of brokers or dealers
to execute the Trust's portfolio security transactions, and upon such
terms and conditions as may be agreed upon between the Adviser and such
investment adviser and approved by the Trustees of the Trust.
7. Duration and Termination of this Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect through and including February 28, 1995 and shall continue in full
force and effect indefinitely thereafter, but only so long as such
continuance after February 28, 1995 is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without the payment
of any penalty, by action of Trustees of the Trust or the trustees of the
Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement by vote of a
majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
8. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the outstanding voting securities of the Trust.
9. Limitation of Liability. The Adviser expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Section 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Adviser hereby agrees that it shall have
recourse to the Trust for payment of claims or obligations as between the
Trust and the Adviser arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
10. Certain Definitions. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
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order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Trust present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the
outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Trust. The terms "Holders" and "Interests" when used herein shall
have the respective meanings specified in the Declaration of Trust of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
GOVERNMENT OBLIGATIONS PORTFOLIO
By: /s/M. Dozier Gardner
------------------------------------------------
M. DOZIER GARDNER
President
BOSTON MANAGEMENT AND RESEARCH
By: /s/Curtis H. Jones
----------------------------------------
CURTIS H. JONES
Vice President, and not individually
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PLACEMENT AGENT AGREEMENT
October 28, 1993
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, Massachusetts 02110
Gentlemen:
This is to confirm that, in
consideration of the agreements hereinafter
contained, the undersigned, Government
Obligations Portfolio (the "Trust"), an
open-end diversified management investment
company registered under the Investment
Company Act of 1940, as amended (the "1940
Act"), organized as a New York trust, has
agreed that Eaton Vance Distributors, Inc.
("EVD") shall be the placement agent (the
"Placement Agent") of Interests in the Trust
("Trust Interests").
1. Services as Placement Agent.
---------------------------
1.1 EVD will act as Placement Agent of
the Trust Interests covered by the Trust's
registration statement then in effect under
the 1940 Act. In acting as Placement Agent
under this Placement Agent Agreement,
neither EVD nor its employees or any agents
thereof shall make any offer or sale of
Trust Interests in a manner which would
require the Trust Interests to be registered
under the Securities Act of 1933, as amended
(the "1933 Act").
1.2 All activities by EVD and its
agents and employees as Placement Agent of
Trust Interests shall comply with all
applicable laws, rules and regulations,
including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act
by the Securities and Exchange Commission
(the "Commission").
1.3 Nothing herein shall be construed
to require the Trust to accept any offer to
DC-184409.1
purchase any Trust Interests, all of which
shall be subject to approval by the Board of
Trustees.
1.4 The Portfolio shall furnish from
time to time for use in connection with the
sale of Trust Interests such information
with respect to the Trust and Trust
Interests as EVD may reasonably request.
The Trust shall also furnish EVD upon
request with: (a) unaudited semiannual
statements of the Trust's books and accounts
prepared by the Trust, and (b) from time to
time such additional information regarding
the Trust's financial or regulatory
condition as EVD may reasonably request.
1.5 The Trust represents to EVD that
all registration statements filed by the
Trust with the Commission under the 1940 Act
with respect to Trust Interests have been
prepared in conformity with the requirements
of such statute and the rules and
regulations of the Commission thereunder.
As used in this Agreement the term
"registration statement" shall mean any
registration statement filed with the
Commission as modified by any amendments
thereto that at any time shall have been
filed with the Commission by or on behalf of
the Trust. The Trust represents and
warrants to EVD that any registration
statement will contain all statements
required to be stated therein in conformity
with both such statute and the rules and
regulations of the Commission; that all
statements of fact contained in any
registration statement will be true and
correct in all material respects at the time
of filing of such registration statement or
amendment thereto; and that no registration
statement will include an untrue statement
of a material fact or omit to state a
material fact required to be stated therein
or necessary to make the statements therein
not misleading to a purchaser of Trust
Interests. The Trust may but shall not be
obligated to propose from time to time such
amendment to any registration statement as
in the light of future developments may, in
the opinion of the Trust's counsel, be
necessary or advisable. If the Trust shall
not propose such amendment and/or supplement
within fifteen days after receipt by the
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Trust of a written request from EVD to do
so, EVD may, at its option, terminate this
Agreement. The Trust shall not file any
amendment to any registration statement
without giving EVD reasonable notice thereof
in advance; provided, however, that nothing
contained in this Agreement shall in any way
limit the Trust's right to file at any time
such amendment to any registration statement
as the Trust may deem advisable, such right
being in all respects absolute and
unconditional.
1.6 The Trust agrees to indemnify,
defend and hold EVD, its several officers
and directors, and any person who controls
EVD within the meaning of Section 15 of the
1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for
purposes of this paragraph 1.6,
collectively, "Covered Persons") free and
harmless from and against any and all
claims, demands, liabilities and expenses
(including the cost of investigating or
defending such claims, demands or
liabilities and any counsel fees incurred in
connection therewith) which any Covered
Person may incur under the 1933 Act, the
1934 Act, common law or otherwise, arising
out of or based on any untrue statement of a
material fact contained in any registration
statement, private placement memorandum or
other offering material ("Offering
Material") or arising out of or based on any
omission to state a material fact required
to be stated in any Offering Material or
necessary to make the statements in any
Offering Material not misleading; provided,
however, that the Trust's agreement to
indemnify Covered Persons shall not be
deemed to cover any claims, demands,
liabilities or expenses arising out of any
financial and other statements as are
furnished in writing to the Trust by EVD in
its capacity as Placement Agent for use in
the answers to any items of any registration
statement or in any statements made in any
Offering Material, or arising out of or
based on any omission or alleged omission to
state a material fact in connection with the
giving of such information required to be
stated in such answers or necessary to make
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the answers not misleading; and further
provided that the Trust's agreement to
indemnify EVD and the Trust's
representations and warranties hereinbefore
set forth in this paragraph 1.6 shall not be
deemed to cover any liability to the Trust
or its investors to which a Covered Person
would otherwise be subject by reason of
willful misfeasance, bad faith or gross
negligence in the performance of its duties,
or by reason of a Covered Person's reckless
disregard of its obligations and duties
under this Agreement. The Trust should be
notified of any action brought against a
Covered Person, such notification to be
given by a writing addressed to the Trust,
24 Federal Street Boston, Massachusetts
02110, with a copy to the Adviser of the
Trust, Boston Management and Research, at
the same address, promptly after the summons
or other first legal process shall have been
duly and completely served upon such Covered
Person. The failure to so notify the Trust
of any such action shall not relieve the
Trust from any liability except to the
extent the Trust shall have been prejudiced
by such failure, or from any liability that
the Trust may have to the Covered Person
against whom such action is brought by
reason of any such untrue statement or
omission, otherwise than on account of the
Trust's indemnity agreement contained in
this paragraph. The Trust will be entitled
to assume the defense of any suit brought to
enforce any such claim, demand or liability,
but in such case such defense shall be
conducted by counsel of good standing chosen
by the Trust and approved by EVD, which
approval shall not be unreasonably withheld.
In the event the Trust elects to assume the
defense of any such suit and retain counsel
of good standing approved by EVD, the
defendant or defendants in such suit shall
bear the fees and expenses of any additional
counsel retained by any of them; but in case
the Trust does not elect to assume the
defense of any such suit or in case EVD
reasonably does not approve of counsel
chosen by the Trust, the Trust will
reimburse the Covered Person named as
defendant in such suit, for the fees and
expenses of any counsel retained by EVD or
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it. The Trust's indemnification agreement
contained in this paragraph and the Trust's
representations and warranties in this
Agreement shall remain operative and in full
force and effect regardless of any
investigation made by or on behalf of
Covered Persons, and shall survive the
delivery of any Trust Interests. This
agreement of indemnity will inure
exclusively to Covered Persons and their
successors. The Trust agrees to notify EVD
promptly of the commencement of any
litigation or proceedings against the Trust
or any of its officers or Trustees in
connection with the issue and sale of any
Trust Interests.
1.7 EVD agrees to indemnify, defend
and hold the Trust, its several officers and
trustees, and any person who controls the
Trust within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act
(for purposes of this paragraph 1.7,
collectively, "Covered Persons") free and
harmless from and against any and all
claims, demands, liabilities and expenses
(including the costs of investigating or
defending such claims, demands, liabilities
and any counsel fees incurred in connection
therewith) that Covered Persons may incur
under the 1933 Act, the 1934 Act or common
law or otherwise, but only to the extent
that such liability or expense incurred by a
Covered Person resulting from such claims or
demands shall arise out of or be based on
any untrue statement of a material fact
contained in information furnished in
writing by EVD in its capacity as Placement
Agent to the Trust for use in the answers to
any of the items of any registration
statement or in any statements in any other
Offering Material or shall arise out of or
be based on any omission to state a material
fact in connection with such information
furnished in writing by EVD to the Trust
required to be stated in such answers or
necessary to make such information not
misleading. EVD shall be notified of any
action brought against a Covered Person,
such notification to be given by a writing
addressed to EVD at 24 Federal Street,
Boston, Massachusetts 02110, promptly after
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the summons or other first legal process
shall have been duly and completely served
upon such Covered Person. EVD shall have
the right of first control of the defense of
the action with counsel of its own choosing
satisfactory to the Trust if such action is
based solely on such alleged misstatement or
omission on EVD's part, and in any other
event each Covered Person shall have the
right to participate in the defense or
preparation of the defense of any such
action. The failure to so notify EVD of any
such action shall not relieve EVD from any
liability except to the extent the Trust
shall have been prejudiced by such failure,
or from any liability that EVD may have to
Covered Persons by reason of any such untrue
or alleged untrue statement, or omission or
alleged omission, otherwise than on account
of EVD's indemnity agreement contained in
this paragraph.
1.8 No Trust Interests shall be
offered by either EVD or the Trust under any
of the provisions of this Agreement and no
orders for the purchase or sale of Trust
Interests hereunder shall be accepted by the
Trust if and so long as the effectiveness of
the registration statement or any necessary
amendments thereto shall be suspended under
any of the provisions of the 1933 Act or the
1940 Act; provided, however, that nothing
contained in this paragraph shall in any way
restrict or have an application to or
bearing on the Trust's obligation to redeem
Trust Interests from any investor in
accordance with the provisions of the
Trust's registration statement or
Declaration of Trust, as amended from time
to time.
1.9 The Trust agrees to advise EVD as
soon as reasonably practical by a notice in
writing delivered to EVD or its counsel:
(a) of any request by the Commission
for amendments to the registration statement
then in effect or for additional
information;
(b) in the event of the issuance by
the Commission of any stop order suspending
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the effectiveness of the registration
statement then in effect or the initiation
by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material
fact made in the registration statement then
in effect or that requires the making of a
change in such registration statement in
order to make the statements therein not
misleading; and
(d) of all action of the Commission
with respect to any amendment to any
registration statement that may from time to
time be filed with the Commission.
For purposes of this paragraph 1.9,
informal requests by or acts of the Staff of
the Commission shall not be deemed actions
of or requests by the Commission.
1.10 EVD agrees on behalf of itself
and its employees to treat confidentially
and as proprietary information of the Trust
all records and other information not
otherwise publicly available relative to the
Trust and its prior, present or potential
investors and not to use such records and
information for any purpose other than
performance of its responsibilities and
duties hereunder, except after prior
notification to and approval in writing by
the Trust, which approval shall not be
unreasonably withheld and may not be
withheld where EVD may be exposed to civil
or criminal contempt proceedings for failure
to comply, when requested to divulge such
information by duly constituted authorities,
or when so requested by the Trust.
2. Duration and Termination of this
Agreement.
--------------------------------
This Agreement shall become effective
upon the date of its execution, and, unless
terminated as herein provided, shall remain
in full force and effect through and
including February 28, 1994 and shall
continue in full force and effect
indefinitely thereafter, but only so long as
-8-
such continuance after February 28, 1994 is
specifically approved at least annually (i)
by the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting
securities of the Trust and (ii) by the vote
of a majority of those Trustees of the Trust
who are not interested persons of EVD or the
Trust cast in person at a meeting called for
the purpose of voting on such approval.
Either party hereto may, at any time on
sixty (60) days' prior written notice to the
other, terminate this agreement without the
payment of any penalty, by action of
Trustees of the Trust or the Directors of
EVD, as the case may be, and the Trust may,
at any time upon such written notice to EVD,
terminate this Agreement by vote of a
majority of the outstanding voting
securities of the Trust. This Agreement
shall terminate automatically in the event
of its assignment.
3. Representations and Warranties.
------------------------------
EVD and the Trust each hereby
represents and warrants to the other that it
has all requisite authority to enter into,
execute, deliver and perform its obligations
under this Agreement and that, with respect
to it, this Agreement is legal, valid and
binding, and enforceable in accordance with
its terms.
4. Limitation of Liability.
-----------------------
EVD expressly acknowledges the
provision in the Declaration of Trust of the
Trust (Sections 5.2 and 5.6) limiting the
personal liability of the Trustees and
officers of the Trust, and EVD hereby agrees
that it shall have recourse to the Trust for
payment of claims or obligations as between
the Trust and EVD arising out of this
Agreement and shall not seek satisfaction
from any Trustee or officer of the Trust.
5. Certain Definitions.
-------------------
The terms "assignment" and "interested
persons" when used herein shall have the
respective meanings specified in the
-9-
Investment Company Act of 1940 as now in
effect or as hereafter amended subject,
however, to such exemptions as may be
granted by the Securities and Exchange
Commission by any rule, regulation or order.
The term "vote of a majority of the
outstanding voting securities" shall mean
the vote, at a meeting of Holders, of the
lesser of (a) 67 per centum or more of the
Interests in the Trust present or
represented by proxy at the meeting if the
Holders of more than 50 per centum of the
outstanding Interests in the Trust are
present or represented by proxy at the
meeting, or (b) more than 50 per centum of
the outstanding Interests in the Trust. The
terms "Holders" and "Interests" when used
herein shall have the respective meanings
specified in the Declaration of Trust of the
Trust.
6. Concerning Applicable Provisions
of Law, etc.
-------------------------------
This Agreement shall be subject to all
applicable provisions of law, including the
applicable provisions of the 1940 Act and to
the extent that any provisions herein
contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the Commonwealth of
Massachusetts shall, except to the extent
that any applicable provisions of federal
law shall be controlling, govern the
construction, validity and effect of this
Agreement, without reference to principles
of conflicts of law.
-10-
If the contract set forth herein is
acceptable to you, please so indicate by
executing the enclosed copy of this
Agreement and returning the same to the
undersigned, whereupon this Agreement shall
constitute a binding contract between the
parties hereto effective at the closing of
business on the date hereof.
Yours very truly,
GOVERNMENT OBLIGATIONS
PORTFOLIO
By: /s/M. Dozier Gardner
-----------------------
President
Accepted:
EATON VANCE DISTRIBUTORS, INC.
By: /s/H. Day Brigham, Jr.
---------------------------------------
Vice President
CUSTODIAN AGREEMENT
between
GOVERNMENT OBLIGATIONS, HIGH INCOME AND
SENIOR DEBT PORTFOLIOS
and
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3
2. Employment of Custodian and Property to be Held by it . . . . . . 3
3. Duties of the Custodian with Respect to Property of the Trust . . 4
A. Safekeeping and Holding of Property . . . . . . . . . . . . . 4
B. Delivery of Securities . . . . . . . . . . . . . . . . . . 4-7
C. Registration of Securities . . . . . . . . . . . . . . . . . 7
D. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 7-8
E. Payments for Interests, or Increases in Interests,
in the Trust . . . . . . . . . . . . . . . . . . . . . . . . 8
F. Investment and Availability of U.S. Federal Funds . . . . . . 8
G. Collections . . . . . . . . . . . . . . . . . . . . . . . . 8-9
H. Payment of Trust Monies . . . . . . . . . . . . . . . . . . 9-11
I. Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . . . . . . 11
J. Payments for Reductions or Redemptions of
Interests of the Trust . . . . . . . . . . . . . . . . . . . 11
K. Appointment of Agents by the Custodian . . . . . . . . . 11-12
L. Deposit of Trust Portfolio Securities in
Securities Systems . . . . . . . . . . . . . . . . . . . 12-14
M. Deposit of Trust Commercial Paper in an Approved
Book-Entry System for Commercial Paper . . . . . . . . . 14-16
N. Segregated Account . . . . . . . . . . . . . . . . . . . 16-17
O. Ownership Certificates for Tax Purposes . . . . . . . . . . . 17
P. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Q. Communications Relating to Trust Portfolio Securities . . . . 17
R. Exercise of Rights; Tender Offers . . . . . . . . . . . 17-18
S. Depository Receipts . . . . . . . . . . . . . . . . . . . . . 18
T. Interest Bearing Call or Time Deposits . . . . . . . . . 18-19
U. Options, Futures Contracts and Foreign
Currency Transactions . . . . . . . . . . . . . . . . . 19-21
V. Actions Permitted Without Express Authority . . . . . . . . . 21
4. Records and Miscellaneous Duties . . . . . . . . . . . . . . 22-23
5. Opinion of Trust's Independent Public Accountants . . . . . . . . 23
6. Compensation and Expenses of Bank . . . . . . . . . . . . . . . . 23
7. Responsibility of Bank . . . . . . . . . . . . . . . . . . . 23-24
8. Persons Having Access to Assets of the Trust . . . . . . . . . 24
9. Effective Period, Termination and Amendment;
Successor Custodian . . . . . . . . . . . . . . . . . . 24-25
10. Interpretive and Additional Provisions . . . . . . . . . . . 25-26
11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . 26
- ii - a:\gohisdp.cus
CUSTODIAN AGREEMENT
This Agreement is made between each of the Government Obligations,
High Income and Senior Debt Portfolios (hereinafter called "Trusts"), each
a New York trust having its principal place of business in George Town,
Grand Cayman, Cayman Islands, BWI, and Investors Bank & Trust Company
(hereinafter called "Bank", "Custodian" and "Agent"), a trust company
established under the laws of Massachusetts with a principal place of
business in Boston, Massachusetts.
Whereas, each Trust is registered under the Investment Company Act of
1940 and has appointed the Bank to act as Custodian of its property and to
perform certain duties as its Agent, as more fully hereinafter set forth;
and
Whereas, the Bank is willing and able to act as the Trusts' Custodian
and Agent, subject to and in accordance with the provisions hereof;
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, each Trust and the Bank agree
as follows:
1. Definitions
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Board" shall mean the board of trustees of a Trust.
(b) "The Depository Trust Company", a clearing agency registered
with the U.S. Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository and
which has been specifically approved as a securities depository for the
Trust by the Board.
(c) "Participants Trust Company", a clearing agency registered with
the U.S. Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934 which acts as a securities depository and
which has been specifically approved as a securities depository for the
Trust by the Board.
(d) "Approved Clearing Agency" shall mean any other domestic
clearing agency registered with the U.S. Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 which
acts as a securities depository.
(e) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for
United States and federal agency securities (i.e., as provided in Subpart
O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350,
and the book-entry regulations of federal agencies substantially in the
form of Subpart O).
(f) "Approved Foreign Securities Depository" shall mean a non-U.S.
securities depository or clearing agency referred to in Rule 17f-4 under
the Investment Company Act of 1940 for non-U.S. securities.
(g) "Approved Book-Entry System for Commercial Paper" shall mean a
system maintained by the Custodian or by a subcustodian employed pursuant
to Section 2 hereof for the holding of commercial paper in book-entry
form.
(h) The Custodian shall be deemed to have received "proper
instructions" in respect of any of the matters referred to in this
Agreement upon receipt of written or facsimile instructions signed by such
one or more person or persons as the Board shall have from time to time
authorized to give the particular class of instructions in question.
Different persons may be authorized to give instructions for different
purposes. A certified copy of a resolution of the Board may be received
and accepted by the Custodian as conclusive evidence of the authority of
any such person to act and may be considered as in full force and effect
until receipt of written notice to the contrary. Such instructions may be
general or specific in terms and, where appropriate, may be standing
instructions. Unless the resolution delegating authority to any person or
persons to give a particular class of instructions specifically requires
that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class,
the Custodian shall be under no obligation to question the right of the
person or persons giving such instructions in so doing. Oral instructions
will be considered proper instructions if the Custodian reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Trust shall
cause all oral instructions to be confirmed in writing. The Trust
authorizes the Custodian to tape record any and all telephonic or other
oral instructions given to the Custodian. Upon receipt of a certificate
signed by two officers of the Trust as to the authorization by the
President and the Treasurer of the Trust accompanied by a detailed
description of the communication procedures approved by the President and
the Treasurer of the Trust, "proper instructions" may also include
communications effected directly between electromechanical or electronic
devices provided that the President and Treasurer of the Trust and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Trust's assets. In performing its duties generally, and more
particularly in connection with the purchase, sale and exchange of
securities made by or for the Trust, the Custodian may take cognizance of
the provisions of the governing documents and registration statement of
the Trust as the same may from time to time be in effect (and resolutions
or proceedings of the holders of interests in the Trust or the Board),
but, nevertheless, except as otherwise expressly provided herein, the
Custodian may assume unless and until notified in writing to the contrary
- 2 - a:\gohisdp.cus
that so-called proper instructions received by it are not in conflict with
or in any way contrary to any provisions of such governing documents and
registration statement, or resolutions or proceedings of the holders of
interests in the Trust or the Board.
(i) "Trust" shall mean one or all of the Trusts, as the context may
require.
(j) The term "Vote" when used with respect to the Board or the
Holders of Interests in the Trust shall include a vote, resolution,
consent, proceeding and other action taken by the Board or Holders in
accordance with the Declaration of Trust or By-Laws of the Trust.
2. Employment of Custodian and Property to be Held by It
The Trust hereby appoints and employs the Bank as its Custodian and
Agent in accordance with and subject to the provisions hereof, and the
Bank hereby accepts such appointment and employment. The Trust agrees to
deliver to the Custodian all securities, participation interests, cash and
other assets owned by it, and all payments of income, payments of
principal and capital distributions and adjustments received by it with
respect to all securities and participation interests owned by the Trust
from time to time, and the cash consideration received by it from time to
time in exchange for an interest in the Trust or for an increase in such
an interest. The Custodian shall not be responsible for any property of
the Trust held by the Trust and not delivered by the Trust to the
Custodian. The Trust will also deliver to the Bank from time to time
copies of its currently effective declaration of trust, by-laws,
registration statement and placement agent agreement with its placement
agent, together with such resolutions, and other proceedings of the Trust
as may be necessary for or convenient to the Bank in the performance of
its duties hereunder.
The Custodian may from time to time employ one or more subcustodians
to perform such acts and services upon such terms and conditions as shall
be approved from time to time by the Board. Any such subcustodian so
employed by the Custodian shall be deemed to be the agent of the
Custodian, and the Custodian shall remain primarily responsible for the
securities, participation interests, moneys and other property of the
Trust held by such subcustodian. Any non-U.S. subcustodian shall be a
bank or trust company which is an eligible foreign custodian within the
meaning of Rule 17f-5 under the Investment Company Act of 1940, and the
non-U.S. custody arrangements shall be approved by the Board and shall be
in accordance with and subject to the provisions of said Rule. For the
purposes of this Agreement, any property of the Trust held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the
Custodian under the terms of this Agreement.
- 3 - a:\gohisdp.cus
3. Duties of the Custodian with Respect to Property of the Trust
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Trust and on behalf of the Trust
shall from time to time receive delivery of Trust property for
safekeeping. The Custodian shall hold, earmark and segregate on
its books and records for the account of the Trust all property
of the Trust, including all securities, participation interests
and other assets of the Trust (1) physically held by the
Custodian, (2) held by any subcustodian referred to in Section 2
hereof or by any agent referred to in Paragraph K hereof, (3)
held by or maintained in The Depository Trust Company or in
Participants Trust Company or in an Approved Clearing Agency or
in the Federal Book-Entry System or in an Approved Foreign
Securities Depository, each of which from time to time is
referred to herein as a "Securities System", and (4) held by the
Custodian or by any subcustodian referred to in Section 2 hereof
and maintained in any Approved Book-Entry System for Commercial
Paper.
B. Delivery of Securities The Custodian shall release and deliver
securities or participation interests owned by the Trust held
(or deemed to be held) by the Custodian or maintained in a
Securities System account or in an Approved Book-Entry System
for Commercial Paper account only upon receipt of proper
instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities or participation interests for
the account of the Trust, but only against receipt of
payment therefor; if delivery is made in Boston or New York
City, payment therefor shall be made in accordance with
generally accepted clearing house procedures or by use of
U.S. Federal Reserve Wire System procedures; if delivery is
made elsewhere payment therefor shall be in accordance with
the then current "street delivery" custom or in accordance
with such procedures agreed to in writing from time to time
by the parties hereto; if the sale is effected through a
Securities System, delivery and payment therefor shall be
made in accordance with the provisions of Paragraph L
hereof; if the sale of commercial paper is to be effected
through an Approved Book-Entry System for Commercial Paper,
delivery and payment therefor shall be made in accordance
with the provisions of Paragraph M hereof; if the
securities are to be sold outside the United States,
delivery of the securities for the account of the Trust may
be made either (a) in advance of receipt of payment
therefor in the absence of specific instructions to do so
provided such actions are consistent with local settlement
practices and customs, subject to the Custodian's standard
- 4 - a:\gohisdp.cus
of care, or (b) in accordance with procedures agreed to in
writing from time to time by the parties hereto; for the
purposes of this subparagraph, the term "sale" shall
include the disposition of a portfolio security (i) upon
the exercise of an option written by the Trust and (ii)
upon the failure by the Trust to make a successful bid with
respect to a portfolio security, the continued holding of
which is contingent upon the making of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the Trust;
3) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Trust;
4) To the issuer thereof or its agent when such securities or
participation interests are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
5) To the issuer thereof, or its agent, for transfer into the
name of the Trust or into the name of any nominee of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Paragraph K hereof or into the name
or nominee name of any subcustodian employed pursuant to
Section 2 hereof; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities or participation
interests are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided that
the Custodian shall adopt such procedures as the Trust from
time to time shall approve to ensure their prompt return to
the Custodian by the broker in the event the broker elects
not to accept them;
7) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
- 5 - a:\gohisdp.cus
8) In the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such
warrants, rights or similar securities, or the surrender of
interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
9) For delivery in connection with any loans of securities
made by the Trust (such loans to be made pursuant to the
terms of the Trust's current registration statement), but
only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Trust, which may
be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities;
except that in connection with any securities loans for
which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of Treasury, the Custodian will not be held
liable or responsible for the delivery of securities loaned
by the Trust prior to the receipt of such collateral;
10) For delivery as security in connection with any borrowings
by the Trust requiring a pledge or hypothecation of assets
by the Trust (if then permitted under circumstances
described in the current registration statement of the
Trust), provided, that the securities shall be released
only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, further
securities may be released for that purpose; upon receipt
of proper instructions, the Custodian may pay any such loan
upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
11) When required for delivery in connection with any
reduction of or redemption of an interest in the Trust
in accordance with the provisions of Paragraph J
hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a
broker-dealer registered under the Securities Exchange
Act of 1934 and, if necessary, the Trust, relating to
compliance with the rules of The Options Clearing
Corporation or of any registered national securities
exchange, or of any similar organization or
- 6 - a:\gohisdp.cus
organizations, regarding deposit or escrow or other
arrangements in connection with options transactions
by the Trust;
13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian (or a
subcustodian employed pursuant to Section 2 hereof),
and a futures commissions merchant, relating to
compliance with the rules of the Commodity Futures
Trading Commission and/or of any contract market or
commodities exchange or similar organization,
regarding futures margin account deposits or payments
in connection with futures transactions by the Trust;
14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a resolution of the Board specifying
the securities to be delivered, setting forth the
purpose for which such delivery is to be made,
declaring such purpose to be proper corporate purpose,
and naming the person or persons to whom delivery of
such securities shall be made.
C. Registration of Securities Securities held by the Custodian
(other than bearer securities) for the account of the Trust
shall be registered in the name of the Trust or in the name of
any nominee of the Trust or of any nominee of the Custodian, or
in the name or nominee name of any agent appointed pursuant to
Paragraph K hereof, or in the name or nominee name of any
subcustodian employed pursuant to Section 2 hereof, or in the
name or nominee name of The Depository Trust Company or
Participants Trust Company or Approved Clearing Agency or
Federal Book-Entry System or Approved Book-Entry System for
Commercial Paper; provided, that securities are held in an
account of the Custodian or of such agent or of such
subcustodian containing only assets of the Trust or only assets
held by the Custodian or such agent or such subcustodian as a
custodian or subcustodian or in a fiduciary capacity for
customers. All certificates for securities accepted by the
Custodian or any such agent or subcustodian on behalf of the
Trust shall be in "street" or other good delivery form or shall
be returned to the selling broker or dealer who shall be advised
of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a separate
bank account or accounts in the name of the Trust, subject only
to draft or order by the Custodian acting pursuant to the terms
of this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from
or for the account of the Trust other than cash maintained by
- 7 - a:\gohisdp.cus
the Trust in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for the Trust may be deposited by it to
its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as the
Custodian may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall
be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the
funds to be deposited with each such bank or trust company shall
be approved in writing by two officers of the Trust. Such funds
shall be deposited by the Custodian in its capacity as Custodian
and shall be subject to withdrawal only by the Custodian in that
capacity.
E. Payment for Interests, or Increases in Interests, in the Trust
The Custodian shall make appropriate arrangements with the
Transfer Agent of the Trust to enable the Custodian to make
certain it promptly receives the cash or other consideration due
to the Trust for payment of interests in the Trust, or increases
in such interests, in accordance with the governing documents
and registration statement of the Trust. The Custodian will
provide prompt notification to the Trust of any receipt by it of
such payments.
F. Investment and Availability of U.S. Federal Funds Upon
agreement between the Trust and the Custodian, the Custodian
shall, upon the receipt of proper instructions, which may be
continuing instructions when deemed appropriate by the parties,
invest in such securities and instruments as may be set forth in
such instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and the
Trust.
G. Collections The Custodian shall promptly collect all income and
other payments with respect to registered securities held
hereunder to which the Trust shall be entitled either by law or
pursuant to custom in the securities business, and shall
promptly collect all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall
credit such income, as collected, to the Trust's custodian
account. The Custodian shall do all things necessary and proper
in connection with such prompt collections and, without limiting
the generality of the foregoing, the Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
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2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the
Trust, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a Securities
System or in an Approved Book-Entry System for Commercial
Paper at the time funds become available to the Custodian;
in the case of securities maintained in The Depository
Trust Company funds shall be deemed available to the Trust
not later than the opening of business on the first
business day after receipt of such funds by the Custodian.
The Custodian shall notify the Trust as soon as reasonably
practicable whenever income due on any security is not
promptly collected. In any case in which the Custodian
does not receive any due and unpaid income after it has
made demand for the same, it shall immediately so notify
the Trust in writing, enclosing copies of any demand
letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await
instructions from the Trust; the Custodian shall in no case
have any liability for any nonpayment of such income
provided the Custodian meets the standard of care set forth
in Section 8 hereof. The Custodian shall not be obligated
to take legal action for collection unless and until
reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock
dividends, rights and other items of like nature, and deal
with the same pursuant to proper instructions relative
thereto.
H. Payment of Trust Monies Upon receipt of proper instructions,
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out monies of the Trust in
the following cases only:
1) Upon the purchase of securities, participation interests,
options, futures contracts, forward contracts and options
on futures contracts purchased for the account of the Trust
but only (a) against the receipt of
(i) such securities registered as provided in Paragraph C
hereof or in proper form for transfer or
(ii) detailed instructions signed by an officer of the
Trust regarding the participation interests to be purchased
or
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(iii) written confirmation of the purchase by the Trust of
the options, futures contracts, forward contracts or
options on futures contracts by the Custodian (or by a
subcustodian employed pursuant to Section 2 hereof or by a
clearing corporation of a national securities exchange of
which the Custodian is a member or by any bank, banking
institution or trust company doing business in the United
States or abroad which is qualified under the Investment
Company Act of 1940 to act as a custodian and which has
been designated by the Custodian as its agent for this
purpose or by the agent specifically designated in such
instructions as representing the purchasers of a new issue
of privately placed securities); (b) in the case of a
purchase effected through a Securities System, upon receipt
of the securities by the Securities System in accordance
with the conditions set forth in Paragraph L hereof; (c) in
the case of a purchase of commercial paper effected through
an Approved Book-Entry System for Commercial Paper, upon
receipt of the paper by the Custodian or subcustodian in
accordance with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements entered
into between the Trust and another bank or a broker-dealer,
against receipt by the Custodian of the securities
underlying the repurchase agreement either in certificate
form or through an entry crediting the Custodian's
segregated, non-proprietary account at the Federal Reserve
Bank of Boston with such securities along with written
evidence of the agreement by the bank or broker-dealer to
repurchase such securities from the Trust; or (e) in the
case of securities purchased outside the United States, the
Custodian may make payment therefor either (i) in advance
of receipt of such securities in the absence of specific
instructions to do so provided such actions are consistent
with local settlement practices and customs, subject to the
Custodian's standard of care, or (ii) in accordance with
procedures agreed to in writing from time to time by the
parties hereto;
2) When required in connection with the conversion, exchange
or surrender of securities owned by the Trust as set forth
in Paragraph B hereof;
3) When required for the reduction or redemption of an
interest in the Trust in accordance with the provisions of
Paragraph J hereof;
4) For the payment of any expense or liability incurred by the
Trust, including but not limited to the following payments
for the account of the Trust: advisory fees, interest,
taxes, management compensation and expenses, accounting,
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transfer agent and legal fees, and other operating expenses
of the Trust whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
and
5) For distributions or payments to Holders of Interest of the
Trust.
6) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a certified
copy of a resolution of the Board, specifying the amount of
such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons
to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Trust is made by the Custodian
in advance of receipt of the securities purchased in the absence
of specific written instructions signed by two officers of the
Trust to so pay in advance, the Custodian shall be absolutely
liable to the Trust for such securities to the same extent as if
the securities had been received by the Custodian; except that
in the case of a repurchase agreement entered into by the Trust
with a bank which is a member of the Federal Reserve System, the
Custodian may transfer funds to the account of such bank prior
to the receipt of (i) the securities in certificate form subject
to such repurchase agreement or (ii) written evidence that the
securities subject to such repurchase agreement have been
transferred by book-entry into a segregated non-proprietary
account of the Custodian maintained with the Federal Reserve
Bank of Boston or (iii) the safekeeping receipt, provided that
such securities have in fact been so transferred by book-entry
and the written repurchase agreement is received by the
Custodian in due course; and except that if the securities are
to be purchased outside the United States, payment may be made
in accordance with procedures agreed to in writing from time to
time by the parties hereto. Notwithstanding any other provision
in this Agreement to the contrary, where securities are
purchased or sold outside the United States, delivery of
securities for the account of the Trust may be made by the
Custodian in advance of receipt of payment for the securities
sold, and the Custodian may pay for securities in advance of
receipt of the securities purchased for the account of the
Trust, in the absence of specific instructions to do so provided
such actions are consistent with local settlement practices and
customs, subject to the Custodian's standard of care.
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J. Payments for Reductions or Redemptions of Interests in the Trust
From such funds as may be available for the purpose, but subject
to any applicable resolutions of the Board and the current
procedures of the Trust, the Custodian shall, upon receipt of
written instructions from the Trust or from the Trust's transfer
agent make funds and/or portfolio securities available for
payment to holders of interest in the Trust which have caused
the amount of their interests to be reduced, or for their
interest to be redeemed.
K. Appointment of Agents by the Custodian The Custodian may at any
time or times in its discretion appoint (and may at any time
remove) any other bank or trust company (provided such bank or
trust company is itself qualified under the Investment Company
Act of 1940 to act as a custodian or is itself an eligible
foreign custodian within the meaning of Rule 17f-5 under said
Act) as the agent of the Custodian to carry out such of the
duties and functions of the Custodian described in this Section
3 as the Custodian may from time to time direct; provided,
however, that the appointment of any such agent shall not
relieve the Custodian of any of its responsibilities or
liabilities hereunder, and as between the Trust and the
Custodian the Custodian shall be fully responsible for the acts
and omissions of any such agent. For the purposes of this
Agreement, any property of the Trust held by any such agent
shall be deemed to be held by the Custodian hereunder.
L. Deposit of Trust Portfolio Securities in Securities Systems The
Custodian may deposit and/or maintain securities owned by the
Trust
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in an Approved Foreign Securities Depository
in each case only in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2 keep
securities of the Trust in a Securities System provided that
such securities are maintained in a non-proprietary account
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("Account") of the Custodian or such subcustodian in the
Securities System which shall not include any assets of the
Custodian or such subcustodian or any other person other than
assets held by the Custodian or such subcustodian as a
fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to
securities of the Trust which are maintained in a Securities
System shall identify by book-entry those securities belonging
to the Trust, and the Custodian shall be fully and completely
responsible for maintaining a recordkeeping system capable of
accurately and currently stating the Trust's holdings maintained
in each such Securities System.
(c) The Custodian shall pay for securities purchased in
book-entry form for the account of the Trust only upon (i)
receipt of notice or advice from the Securities System that such
securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Trust; except
that when such securities are purchased outside the United
States, payment therefor may be made by the Custodian in advance
of receipt of such notice or advice and the making of such entry
in the absence of specific instructions to do so provided such
actions are consistent with local settlement practices and
customs, subject to the Custodian's standard of care. The
Custodian shall transfer securities sold for the account of the
Trust only upon (i) receipt of notice or advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Trust; except that when such
securities are sold outside the United States, transfer thereof
may be made by the Custodian in advance of receipt of such
notice or advice and the making of such entry in the absence of
specific instructions to do so provided such actions are
consistent with local settlement practices and customs, subject
to the Custodian's standard of care. Copies of all notices or
advices from the Securities System of transfers of securities
for the account of the Trust shall identify the Trust, be
maintained for the Trust by the Custodian and be promptly
provided to the Trust at its request. The Custodian shall
promptly send to the Trust confirmation of each transfer to or
from the account of the Trust in the form of a written advice or
notice of each such transaction, and shall furnish to the Trust
copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the
Trust on the next business day.
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(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
Custodian relating to the Securities System's accounting system,
system of internal accounting controls or procedures for
safeguarding securities deposited in the Securities System; the
Custodian shall promptly send to the Trust any report or other
communication relating to the Custodian's internal accounting
controls and procedures for safeguarding securities deposited in
any Securities System; and the Custodian shall ensure that any
agent appointed pursuant to Paragraph K hereof or any
subcustodian employed pursuant to Section 2 hereof shall
promptly send to the Trust and to the Custodian any report or
other communication relating to such agent's or subcustodian's
internal accounting controls and procedures for safeguarding
securities deposited in any Securities System. The Custodian's
books and records relating to the Trust's participation in each
Securities System will at all times during regular business
hours be open to the inspection of the Trust's authorized
officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L in
the absence of receipt of a certificate of an officer of the
Trust that the Board has approved the use of a particular
Securities System; the Custodian shall also obtain appropriate
assurance from the officers of the Trust that the Board has
annually reviewed the continued use by the Trust of each
Securities System, and the Trust shall promptly notify the
Custodian if the use of a Securities System is to be
discontinued; at the request of the Trust, the Custodian will
terminate the use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Trust for
any loss or damage to the Trust resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or
subcustodians or of any of its or their employees or from any
failure of the Custodian or any such agent or subcustodian to
enforce effectively such rights as it may have against the
Securities System or any other person; at the election of the
Trust, it shall be entitled to be subrogated to the rights of
the Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that
the Trust has not been made whole for any such loss or damage.
M. Deposit of Trust Commercial Paper in an Approved Book-Entry
System for Commercial Paper Upon receipt of proper instructions
with respect to each issue of direct issue commercial paper
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purchased by the Trust, the Custodian may deposit and/or
maintain direct issue commercial paper owned by the Trust in any
Approved Book-Entry System for Commercial Paper, in each case
only in accordance with applicable Securities and Exchange
Commission rules, regulations, and no-action correspondence, and
at all times subject to the following provisions:
(a) The Custodian may (either directly or through one or
more subcustodians employed pursuant to Section 2) keep
commercial paper of the Trust in an Approved Book-Entry System
for Commercial Paper, provided that such paper is issued in book
entry form by the Custodian or subcustodian on behalf of an
issuer with which the Custodian or subcustodian has entered into
a book-entry agreement and provided further that such paper is
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in an Approved Book-Entry System
for Commercial Paper which shall not include any assets of the
Custodian or such subcustodian or any other person other than
assets held by the Custodian or such subcustodian as a
fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to
commercial paper of the Trust which is maintained in an Approved
Book-Entry System for Commercial Paper shall identify by
book-entry each specific issue of commercial paper purchased by
the Trust which is included in the System and shall at all times
during regular business hours be open for inspection by
authorized officers, employees or agents of the Trust. The
Custodian shall be fully and completely responsible for
maintaining a recordkeeping system capable of accurately and
currently stating the Trust's holdings of commercial paper
maintained in each such System.
(c) The Custodian shall pay for commercial paper purchased
in book-entry form for the account of the Trust only upon
contemporaneous (i) receipt of notice or advice from the issuer
that such paper has been issued, sold and transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such purchase, payment and transfer for the
account of the Trust. The Custodian shall transfer such
commercial paper which is sold or cancel such commercial paper
which is redeemed for the account of the Trust only upon
contemporaneous (i) receipt of notice or advice that payment for
such paper has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer or redemption and payment for the account of the
Trust. Copies of all notices, advices and confirmations of
transfers of commercial paper for the account of the Trust shall
identify the Trust, be maintained for the Trust by the Custodian
and be promptly provided to the Trust at its request. The
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Custodian shall promptly send to the Trust confirmation of each
transfer to or from the account of the Trust in the form of a
written advice or notice of each such transaction, and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the System for the account
of the Trust on the next business day.
(d) The Custodian shall promptly send to the Trust any
report or other communication received or obtained by the
Custodian relating to each System's accounting system, system of
internal accounting controls or procedures for safeguarding
commercial paper deposited in the System; the Custodian shall
promptly send to the Trust any report or other communication
relating to the Custodian's internal accounting controls and
procedures for safeguarding commercial paper deposited in any
Approved Book-Entry System for Commercial Paper; and the
Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Trust and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any Approved
Book-Entry System for Commercial Paper.
(e) The Custodian shall not act under this Paragraph M in
the absence of receipt of a certificate of an officer of the
Trust that the Board has approved the use of a particular
Approved Book-Entry System for Commercial Paper; the Custodian
shall also obtain appropriate assurance from the officers of the
Trust that the Board has annually reviewed the continued use by
the Trust of each Approved Book-Entry System for Commercial
Paper, and the Trust shall promptly notify the Custodian if the
use of an Approved Book-Entry System for Commercial Paper is to
be discontinued; at the request of the Trust, the Custodian will
terminate the use of any such System as promptly as practicable.
(f) The Custodian (or subcustodian, if the Approved
Book-Entry System for Commercial Paper is maintained by the
subcustodian) shall issue physical commercial paper or
promissory notes whenever requested to do so by the Trust or in
the event of an electronic system failure which impedes
issuance, transfer or custody of direct issue commercial paper
by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Trust for
any loss or damage to the Trust resulting from use of any
Approved Book-Entry System for Commercial Paper by reason of any
negligence, misfeasance or misconduct of the Custodian or any of
its agents or subcustodians or of any of its or their employees
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or from any failure of the Custodian or any such agent or
subcustodian to enforce effectively such rights as it may have
against the System, the issuer of the commercial paper or any
other person; at the election of the Trust, it shall be entitled
to be subrogated to the rights of the Custodian with respect to
any claim against the System, the issuer of the commercial paper
or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that
the Trust has not been made whole for any such loss or damage.
N. Segregated Account The Custodian shall upon receipt of proper
instructions establish and maintain a segregated account or
accounts for and on behalf of the Trust, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Paragraph L hereof, (i) in accordance with the provisions of any
agreement among the Trust, the Custodian and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation
and of any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract market
or commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other arrangements
in connection with transactions by the Trust, (ii) for purposes
of segregating cash or U.S. Government securities in connection
with options purchased, sold or written by the Trust or futures
contracts or options thereon purchased or sold by the Trust,
(iii) for the purposes of compliance by the Trust with the
procedures required by Investment Company Act Release No. 10666,
or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other
proper purposes, but only, in the case of clause (iv), upon
receipt of, in addition to proper instructions, a certificate
signed by two officers of the Trust, setting forth the purpose
such segregated account and declaring such purpose to be a
proper purpose.
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Trust
held by it and in connection with transfers of securities.
P. Proxies The Custodian shall, with respect to the securities
held by it hereunder, cause to be promptly delivered to the
Trust all forms of proxies and all notices of meetings and any
other notices or announcements or other written information
affecting or relating to the securities, and upon receipt of
proper instructions shall execute and deliver or cause its
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nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its
nominee shall vote upon any of the securities or execute any
proxy to vote thereon or give any consent or take any other
action with respect thereto (except as otherwise herein
provided) unless ordered to do so by proper instructions.
Q. Communications Relating to Trust Portfolio Securities The
Custodian shall deliver promptly to the Trust all written
information (including, without limitation, pendency of call and
maturities of securities and participation interests and
expirations of rights in connection therewith and notices of
exercise of call and put options written by the Trust and the
maturity of futures contracts purchased or sold by the Trust)
received by the Custodian from issuers and other persons
relating to the securities and participation interests being
held for the Trust. With respect to tender or exchange offers,
the Custodian shall deliver promptly to the Trust all written
information received by the Custodian from issuers and other
persons relating to the securities and participation interests
whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer.
R. Exercise of Rights; Tender Offers In the case of tender offers,
similar offers to purchase or exercise rights (including,
without limitation, pendency of calls and maturities of
securities and participation interests and expirations of rights
in connection therewith and notices of exercise of call and put
options and the maturity of futures contracts) affecting or
relating to securities and participation interests held by the
Custodian under this Agreement, the Custodian shall have
responsibility for promptly notifying the Trust of all such
offers in accordance with the standard of reasonable care set
forth in Section 8 hereof. For all such offers for which the
Custodian is responsible as provided in this Paragraph R, the
Trust shall have responsibility for providing the Custodian with
all necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to the
issuer or trustee thereof, or to the agent of either, warrants,
puts, calls, rights or similar securities for the purpose of
being exercised or sold upon proper receipt therefor and upon
receipt of assurances satisfactory to the Custodian that the new
securities and cash, if any, acquired by such action are to be
delivered to the Custodian or any subcustodian employed pursuant
to Section 2 hereof. Upon receipt of proper instructions, the
Custodian shall timely deposit securities upon invitations for
tenders of securities upon proper receipt therefor and upon
receipt of assurances satisfactory to the Custodian that the
consideration to be paid or delivered or the tendered securities
are to be returned to the Custodian or subcustodian employed
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pursuant to Section 2 hereof. Notwithstanding any provision of
this Agreement to the contrary, the Custodian shall take all
necessary action, unless otherwise directed to the contrary by
proper instructions, to comply with the terms of all mandatory
or compulsory exchanges, calls, tenders, redemptions, or similar
rights of security ownership, and shall thereafter promptly
notify the Trust in writing of such action.
S. Depository Receipts The Custodian shall, upon receipt of proper
instructions, surrender or cause to be surrendered foreign
securities to the depository used by an issuer of American
Depository Receipts or International Depository Receipts
(hereinafter collectively referred to as "ADRs") for such
securities, against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the Custodian that the depository has acknowledged receipt of
instructions to issue with respect to such securities ADRs in
the name of a nominee of the Custodian or in the name or nominee
name of any subcustodian employed pursuant to Section 2 hereof,
for delivery to the Custodian or such subcustodian at such place
as the Custodian or such subcustodian may from time to time
designate. The Custodian shall, upon receipt of proper
instructions, surrender ADRs to the issuer thereof against a
written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian
that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities
underlying such ADRs to the Custodian or to a subcustodian
employed pursuant to Section 2 hereof.
T. Interest Bearing Call or Time Deposits The Custodian shall,
upon receipt of proper instructions, place interest bearing
fixed term and call deposits with the banking department of such
banking institution (other than the Custodian) and in such
amounts as the Trust may designate. Deposits may be denominated
in U.S. Dollars or other currencies. The Custodian shall
include in its records with respect to the assets of the Trust
appropriate notation as to the amount and currency of each such
deposit, the accepting banking institution and other appropriate
details and shall retain such forms of advice or receipt
evidencing the deposit, if any, as may be forwarded to the
Custodian by the banking institution. Such deposits shall be
deemed portfolio securities of the Trust for the purposes of
this Agreement, and the Custodian shall be responsible for the
collection of income from such accounts and the transmission of
cash to and from such accounts.
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U. Options, Futures Contracts and Foreign Currency Transactions
1. Options The Custodian shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered
broker-dealer and, if necessary, the Trust, relating to
compliance with the rules of the Options Clearing
Corporation or of any registered national securities
exchange or similar organization or organizations, receive
and retain confirmations or other documents, if any,
evidencing the purchase or writing of an option on a
security or securities index or other financial instrument
or index by the Trust; deposit and maintain in a segregated
account for the Trust, either physically or by book-entry
in a Securities System, securities subject to a covered
call option written by the Trust; and release and/or
transfer such securities or other assets only in accordance
with a notice or other communication evidencing the
expiration, termination or exercise of such covered option
furnished by the Options Clearing Corporation, the
securities or options exchange on which such covered option
is traded or such other organization as may be responsible
for handling such options transactions. The Custodian and
the broker-dealer shall be responsible for the sufficiency
of assets held in the Trust's segregated account in
compliance with applicable margin maintenance requirements.
2. Futures Contracts The Custodian shall, upon receipt
of proper instructions, receive and retain confirmations
and other documents, if any, evidencing the purchase or
sale of a futures contract or an option on a futures
contract by the Trust; deposit and maintain in a segregated
account, for the benefit of any futures commission
merchant, assets designated by the Trust as initial,
maintenance or variation "margin" deposits (including
mark-to-market payments) intended to secure the Trust's
performance of its obligations under any futures contracts
purchased or sold or any options on futures contracts
written by the Trust, in accordance with the provisions of
any agreement or agreements among the Trust, the Custodian
and such futures commission merchant, designed to comply
with the rules of the Commodity Futures Trading Commission
and/or of any contract market or commodities exchange or
similar organization regarding such margin deposits or
payments; and release and/or transfer assets in such margin
accounts only in accordance with any such agreements or
rules. The Custodian and the futures commission merchant
shall be responsible for the sufficiency of assets held in
the segregated account in compliance with the applicable
margin maintenance and mark-to-market payment requirements.
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3. Foreign Exchange Transactions The Custodian shall,
pursuant to proper instructions, enter into or cause a
subcustodian to enter into currency exchange contracts or
options to purchase and sell non-U.S. currencies for spot
and future delivery on behalf and for the account of the
Trust. Such transactions may be undertaken by the
Custodian or subcustodian with such banking or financial
institutions or other currency brokers, as set forth in
proper instructions. Currency exchange contracts and
options shall be deemed to be portfolio securities of the
Trust; and accordingly, the responsibility of the Custodian
therefor shall be the same as and no greater than the
Custodian's responsibility in respect of other portfolio
securities of the Trust. The Custodian shall be
responsible for the transmittal to and receipt of cash from
the currency broker or banking or financial institution
with which the contract or option is made, the maintenance
of proper records with respect to the transaction and the
maintenance of any segregated account required in
connection with the transaction. The Custodian shall have
no duty with respect to the selection of the currency
brokers or banking or financial institutions with which the
Trust deals or for their failure to comply with the terms
of any contract or option. Without limiting the foregoing,
it is agreed that upon receipt of proper instructions and
insofar as funds are made available to the Custodian for
the purpose, the Custodian may (if determined necessary by
the Custodian to consummate a particular transaction on
behalf and for the account of the Trust) make free outgoing
payments of cash in the form of U.S. dollars or other
currency before receiving confirmation of a currency
exchange contract or confirmation that the countervalue
currency
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completing the currency exchange contract has been
delivered or received. The Custodian shall not be
responsible for any costs and interest charges which may be
incurred by the Trust or the Custodian as a result of the
failure or delay of third parties to deliver currency
exchange; provided that the Custodian shall nevertheless be
held to the standard of care set forth in, and shall be
liable to the Trust in accordance with, the provisions of
Section 8.
V. Actions Permitted Without Express Authority The Custodian may
in its discretion, without express authority from the Trust:
1) make payments to itself or others for minor expenses
of handling securities or other similar items relating
to its duties under this Agreement, provided, that all
such payments shall be accounted for by the Custodian
to the Treasurer of the Trust and shall be subject to
subsequent approval by an officer of the Trust;
2) surrender securities in temporary form for securities
in definitive form;
3) endorse for collection, in the name of the Trust,
checks, drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
securities and property of the Trust except as
otherwise directed by the Trust.
4. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating to
its activities and obligations under this Agreement in such manner as will
meet the obligations of the Trust under the Investment Company Act of
1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, applicable U.S. federal and state tax laws and any other
law or administrative rules or procedures which may be applicable to the
Trust. All books of account and records maintained by the Bank in
connection with the performance of its duties under this Agreement shall
be the property of the Trust, shall at all times during the regular
business hours of the Bank be open for inspection by authorized officers,
employees or agents of the Trust, and in the event of termination of this
Agreement shall be delivered to the Trust or to such other person or
persons as shall be designated by the Trust. Disposition of any account
or record after any required period of preservation shall be only in
accordance with specific instructions received from the Trust. At the
request of the Trustees or duly authorized agent of the Trust located
- 22 - a:\gohisdp.cus
outside the United States, The Bank shall assist generally in the
preparation of reports to holders of interest in the Trust, to the
Securities and Exchange Commission, including Form N-SAR, and to others,
audits of accounts, and other ministerial matters of like nature; and,
upon request, shall furnish the Trust's auditors with an attested
inventory of securities held with appropriate information as to securities
in transit or in the process of purchase or sale and with such other
information as said auditors may from time to time request. The Custodian
shall also maintain records of all receipts, deliveries and locations of
such securities, together with a current inventory thereof, and shall
conduct periodic verifications (including sampling counts at the
Custodian) of certificates representing bonds and other securities for
which it is responsible under this Agreement in such manner as the
Custodian shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. The Bank shall not disclose or use
any books or records it has prepared or maintained by reason of this
Agreement in any manner except as expressly authorized herein or directed
by the Trust, and the Bank shall keep confidential any information
obtained by reason of this Agreement.
5. Opinion of Trust's Independent Public Accountants
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to enable the Trust to obtain from year to year
favorable opinions from the Trust's independent public accountants with
respect to its activities hereunder in connection with the preparation of
the Trust's registration statement and Form N-SAR or other periodic
reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
6. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its
services as Custodian and Agent, as agreed upon from time to time between
the Trust and the Bank. The Bank shall be entitled to receive from the
Trust on demand reimbursement for its cash disbursements, expenses and
charges, including counsel fees, in connection with its duties as
Custodian and Agent hereunder, but excluding salaries and usual overhead
expenses.
7. Responsibility of Bank
So long as and to the extent that it is in the exercise of reasonable
care, the Bank as Custodian and Agent shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper
party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and may
act upon advice of counsel (who may be counsel for the Trust) on all
- 23 - a:\gohisdp.cus
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Bank as Custodian and Agent shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement but shall
be liable only for its own negligent or bad faith acts or failures to act.
Notwithstanding the foregoing, nothing contained in this paragraph is
intended to nor shall it be construed to modify the standards of care and
responsibility set forth in Section 2 hereof with respect to subcustodians
and in subparagraph f of Paragraph L of Section 3 hereof with respect to
Securities Systems and in subparagraph g of Paragraph M of Section 3
hereof with respect to an Approved Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a non-U.S.
banking institution to the same extent as set forth with respect to
subcustodians generally in Section 2 hereof, provided that, regardless of
whether assets are maintained in the custody of a non-U.S. banking
institution, a non-U.S. securities depository or a branch of a U.S. bank,
the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Trust to maintain custody of any securities or cash
of the Trust in other than the U.S. and Canada including, but not limited
to, losses resulting from governmental actions and restrictions,
nationalization, expropriation, currency restrictions, acts of war, civil
war or terrorism, insurrection, revolution, military or usurped powers,
nuclear fission, fusion or radiation, earthquake, storm or other
disturbance of nature or acts of God.
If the Trust requires the Bank in any capacity to take any action
with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Bank, result in the Bank or its
nominee assigned to the Trust being liable for the payment of money or
incurring liability of some other form, the Trust, as a prerequisite to
requiring the Custodian to take such action, shall provide indemnity to
the Custodian in an amount and form satisfactory to it.
8. Persons Having Access to Assets of the Trust
(i) No trustee, officer, employee or agent of the Trust shall have
physical access to the assets of the Trust held by the Custodian or be
authorized or permitted to withdraw any investments of the Trust, nor
shall the Custodian deliver any assets of the Trust to any such person.
No officer or director, employee or agent of the Custodian who holds any
similar position with the Trust or the investment adviser or the
administrator of the Trust shall have access to the assets of the Trust.
(ii) Access to assets of the Trust held hereunder shall only be
available to duly authorized officers, employees, representatives or
agents of the Custodian or other persons or entities for whose actions the
Custodian shall be responsible to the extent permitted hereunder, or to
- 24 - a:\gohisdp.cus
the Trust's independent public accountants in connection with their
auditing duties performed on behalf of the Trust.
(iii) Nothing in this Section 8 shall prohibit any officer, employee
or agent of the Trust or of the investment adviser of the Trust from
giving instructions to the Custodian or executing a certificate so long as
it does not result in delivery of or access to assets of the Trust
prohibited by paragraph (i) of this Section 8.
9. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties
hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such termination
to take effect not sooner than sixty (60) days after the date of such
delivery or mailing; provided, that the Trust may at any time by action of
its Board, (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or (ii) immediately
terminate this Agreement in the event of the appointment of a conservator
or receiver for the Custodian by the Federal Deposit Insurance Corporation
or by the Banking Commissioner of The Commonwealth of Massachusetts or
upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction. Upon termination of
the Agreement, the Trust shall pay to the Custodian such compensation as
may be due as of the date of such termination and shall likewise reimburse
the Custodian for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding "voting
securities" of the Trust (as defined in the Investment Company Act of
1940) vote to have the securities, funds and other properties held
hereunder delivered and paid over to some other bank or trust company,
specified in the vote, having not less than $2,000,000 of aggregate
capital, surplus and undivided profits, as shown by its last published
report, and meeting such other qualifications for custodians set forth in
the Investment Company Act of 1940, the Board shall, forthwith, upon
giving or receiving notice of termination of this Agreement, appoint as
successor custodian, a bank or trust company having such qualifications.
The Bank, as Custodian, Agent or otherwise, shall, upon termination of the
Agreement, deliver to such successor custodian, all securities then held
hereunder and all funds or other properties of the Trust deposited with or
held by the Bank hereunder and all books of account and records kept by
the Bank pursuant to this Agreement, and all documents held by the Bank
relative thereto. In the event that no such vote has been adopted by the
shareholders and that no written order designating a successor custodian
shall have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Trust to the Trust but shall
have the right to deliver to a bank or trust company doing business in
- 25 - a:\gohisdp.cus
Boston, Massachusetts of its own selection, having an aggregate capital,
surplus and undivided profits, as shown by its last published report, of
not less than $2,000,000, all funds, securities and properties of the
Trust held by or deposited with the Bank, and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents
held by the Bank relative thereto. Thereafter such bank or trust company
shall be the successor of the Custodian under this Agreement.
10. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and
the Trust may from time to time agree on such provisions interpretive of
or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement.
Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable U.S.
federal or state regulations or any provision of the governing instruments
of the Trust. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this
Agreement.
11. Notices
Notices and other writings delivered or mailed postage prepaid to the
Trust addressed to The Bank of Nova Scotia Trust Company (Cayman) Limited,
The Bank of Nova Scotia Building, George Town, Grand Cayman, Cayman
Islands, WMI, or to such other address as the Trust may have designated to
the Bank, in writing with a copy to Eaton Vance Management at 24 Federal
Street, Boston, Massachusetts 02110, or to Investors Bank & Trust Company,
24 Federal Street, Boston, Massachusetts 02110 with a copy to Eaton Vance
Management at 24 Federal Street, Boston, Massachusetts 02110, shall be
deemed to have been properly delivered or given hereunder to the
respective addressees.
12. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
The Custodian expressly acknowledges the provision in the Declaration
of Trust of the Trust (Section 5.2 and 5.6) limiting the personal
liability of the Trustees and officers of the Trust, and the Custodian
hereby agrees that it shall have recourse to the Trust for payment of
claims or obligations as between the Trust and the Custodian arising out
of this Agreement and shall not seek satisfaction from any Trustee or
officer of the Trust.
- 26 - a:\gohisdp.cus
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement on December 30, 1994.
GOVERNMENT OBLIGATIONS PORTFOLIO
HIGH INCOME PORTFOLIO
By: /s/ James B. Hawkes
------------------------------------
James B. Hawkes, Vice President
SENIOR DEBT PORTFOLIO
By: /s/ James B. Hawkes
------------------------------------
James B. Hawkes, President
INVESTORS BANK & TRUST COMPANY
By: /s/ Michael F. Rogers
------------------------------------
Michael F. Rogers,
Executive Managing Director
- 27 - a:\gohisdp.cus
ACCOUNTING AND INTERESTHOLDER SERVICES AGREEMENT
AGREEMENT made as of this 30th day of December, 1994, between Government
Obligations Portfolio, a New York trust (the "Trust"), and IBT Fund
Services (Canada) Inc., an Ontario corporation ("IBT").
WHEREAS, the Trust is registered under the Investment Company Act of 1940
as an open-end management investment company and desires to engage IBT to
provide certain trust accounting and interestholder recordkeeping services
with respect to the Trust and IBT has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. IBT Appointed. The Trust hereby appoints IBT to provide the
services as hereinafter described and IBT agrees to act as such upon the
terms and conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will
have the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on
behalf of the Trust by appropriate resolution of its Board, and set forth
in a certificate as required by Section 3 hereof.
2.2 Board. Board will mean the Board of Trustees of the Trust.
2.3 Portfolio Security. Portfolio Security will mean any
security owned by the Trust.
2.4 Interests. Interests will mean participation interests of
the Trust.
3. Certification as to Authorized Persons. The Secretary or
Assistant Secretary of the Trust will at all times maintain on file with
IBT his or her certification to IBT, in such form as may be acceptable to
IBT, of (i) the names and signatures of the Authorized Persons and (ii)
the names of the Board members, it being understood that upon the
occurrence of any change in the information set forth in the most recent
certification on file (including without limitation any person named in
the most recent certification who is no longer an Authorized Person as
designated therein), the Secretary or Assistant Secretary of the Trust,
will sign a new or amended certification setting forth the change and the
new, additional or omitted names or signatures. IBT will be entitled to
rely and act upon the most recent Officers' Certificate given to it by the
Trust.
4. Maintenance of Records. IBT will maintain records with respect
to the services provided by IBT hereunder and will furnish the Trust daily
with a statement of condition of the Trust. The books and records of IBT
pertaining to its actions under this Agreement and reports by IBT or its
-2-
independent accountants concerning its accounting systems and internal
accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Trust, and the staff of
The U.S. Securities and Exchange Commission, and will be preserved by IBT
in accordance with procedures established by the Trust.
IBT shall keep the books of account and render statements or copies
from time to time as reasonably requested by the Treasurer or any
executive officer of the Trust.
IBT, as fund accounting agent, shall assist generally in the
preparation of reports of a financial nature to Holders and others, audits
of accounts, and other ministerial matters of like nature.
5. Duties of Bank with Respect to Books of Account and Calculations
of Net Asset Value. Inasmuch as the Trust is treated as a partnership for
federal income tax purposes, the Bank shall as Agent keep and maintain the
books and records of the Trust in accordance with the Procedures for
Allocations and Distributions adopted by the Trustees of the Trust, as
such Procedures may be in effect from time to time. A copy of the current
Procedures is attached to this Agreement, and the Trust agrees promptly to
furnish all revisions to or restatements of such Procedures to the Bank.
The Bank shall as Agent keep such books of account (including records
showing the adjusted tax costs of the Trust's portfolio securities) and
render as at the close of business on each day a detailed statement of the
amounts received or paid out and of securities received or delivered for
the account of the Trust during said day and such other statements,
including a daily trial balance and inventory of the Trust's portfolio
securities; and shall furnish such other financial information and data as
from time to time requested by the Treasurer or any executive officer of
the Trust; and shall compute and determine, as of the close of business of
the New York Stock Exchange, or at such other time or times as the Board
may determine, the net asset value of the Trust and the net asset value of
each interest in the Trust, such computations and determinations to be
made in accordance with the governing documents of the Trust and the votes
and instructions of the Board and of the investment adviser at the time in
force and applicable, and promptly notify the Trust and its investment
adviser and such other persons as the Trust may request of the result of
such computation and determination. In computing the net asset value IBT
may rely upon security quotations received by telephone or otherwise from
sources or pricing services designated by the Trust by proper
instructions, and may further rely upon information furnished to it by any
authorized officer of the Trust relative (a) to liabilities of the Trust
not appearing on its books of account, (b) to the existence, status and
proper treatment of any reserve or reserves, (c) to any procedures or
policies established by the Board regarding the valuation of portfolio
securities or other assets, and (d) to the value to be assigned to any
bond, note, debenture, Treasury bill, repurchase agreement, subscription
right, security, participation interests or other asset or property for
which market quotations are not readily available. IBT shall also compute
and determine at such time or times as the Trust may designate the portion
-3-
of each item which has significance for a holder of an interest in the
Trust in computing and determining its U.S. federal income tax liability
including, but not limited to, each item of income, expense and realized
and unrealized gain or loss of the Trust which is attributable for Federal
income tax purposes to each such holder.
6. Interestholder Services. IBT shall keep appropriate records of
the holdings of each interestholder on a daily basis. IBT shall also keep
each interestholder's subscription agreement with the Portfolio.
7. Compensation of IBT. For the services to be rendered and the
facilities provided by IBT hereunder, the Trust shall pay to IBT a fee
from the assets of the Trust computed and paid monthly, in accordance with
Schedule B attached hereto, as the same may be changed by mutual agreement
of the parties from time to time.
8. Concerning IBT.
8.1 Performance of Duties and Standard of Care. IBT shall not
be liable for any error of judgment or mistake of law or for any act or
omission in the performance of its duties hereunder, except for willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties hereunder.
IBT will be entitled to receive and act upon the advice of
independent counsel of its own selection, which may be counsel for the
Trust, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in
conformity with such advice. In the performance of its duties hereunder,
IBT will be protected and not be liable, and will be indemnified and held
harmless by the Trust for any reasonable action taken or omitted to be
taken by it in good faith reliance upon the terms of this Agreement, any
Officers' Certificate, and or written instructions received from an
Authorized Person, resolution of the Board, telegram, notice, request,
certificate or other instrument reasonably believed by IBT to be genuine
and for any other loss to the Trust except in the case of IBT's gross
negligence, willful misfeasance or bad faith in the performance of its
duties or reckless disregard of its obligations and duties hereunder.
Notwithstanding anything in this Agreement to the contrary, in no
event shall IBT be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from
acts of God, earthquakes, fires, floods, storms or other disturbances of
restrictions, acts of war, civil war or terrorism, insurrection, nuclear
fusion, fission or radiation, the interruption, loss or malfunction or
utilities, transportation, or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other
similar happenings or events except as results from IBT's own gross
negligence, willful misfeasance or bad faith in the performance of its
duties; or
-4-
(b) for special, punitive or consequential damages arising
from the provision of services hereunder, even if IBT has been advised of
the possibility of such damages.
8.2 Subcontractors. IBT, subject to approval of the Trust, may
subcontract for the performance of IBT's obligations hereunder with any
one or more persons, provided, however, that unless the Trust otherwise
expressly agrees in writing, IBT shall be as fully responsible to the
Trust for the acts and omissions of any subcontractor as it would be for
its own acts or omissions. In the event IBT obtains a judgment,
settlement or other monetary recovery for the wrongful conduct of the
subcontractor, the Trust shall be entitled to such recovery if such
conduct resulted in a loss to the Trust and IBT agrees to pursue such
claims vigorously. To the extent possible, such sub-contractors shall
provide services outside the United States.
8.3 Activities of IBT. The services provided by IBT to the
Trust are not to be deemed to be exclusive, IBT being free to render
administrative, fund accounting and/or other services to other parties.
It is understood that members of the Board, officers, and shareholders of
the Trust are or may become similarly interested in the Trust and that IBT
and/or any of its affiliates may become interested in the Trust as a
shareholder of the Trust or otherwise.
8.4 Insurance. IBT need not maintain any special insurance for
the benefit of the Trust, but will maintain customary insurance for its
obligations hereunder.
9. Termination. This Agreement may be terminated at any time
without penalty upon sixty days written notice delivered by either party
to the other by means of registered mail, and upon the expiration of such
sixty days, this Agreement will terminate. At any time after the
termination of this Agreement, the Fund will have access to the records of
IBT relating to the performance of its duties hereunder and IBT shall
cooperate in the transfer of such records to its successor.
10. Confidentiality. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential
and may not be disclosed to any other person without the consent of the
other party, except as may be required by applicable law or at the request
of a governmental agency. The parties further agree that a breach of this
provision would irreparably damage the other party and accordingly agree
that each of them is entitled, without bond or other security, to an
injunction or injunctions to prevent breaches of this provision.
11. Notices. Any notice or other instrument in writing authorized
or required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to
it at its office at the address set forth below; namely:
(a) In the case of notices sent to the Trust to:
-5-
C/O The Bank of Nova Scotia Trust Company (Cayman) Ltd.
The Bank of Nova Scotia Building
P. O. Box 501
George Town
Grand Cayman, Cayman Island
British West Indies
(b) In the case of notices sent to IBT to:
IBT Fund Services (Canada), Inc.
Suite 5850, One First Canadian Place
P. O. Box 231
Toronto, Ontario M5X 1A4
Attention: Evelyn Foo
or at such other place as such party may from time to time designate in
writing.
12. Amendments. This Agreement may not be altered or amended,
except by an instrument in writing, executed by both parties, and in the
case of the Trust, duly authorized and approved by its respective Board.
13. Governing Law. This Agreement will be governed by the laws of
Ontario.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the
day and year first written above.
Government Obligations Portfolio
By: /s/ M. Dozier Gardner
---------------------------
Name M. Dozier Gardner
Title President
ATTEST:
/s/ H. Day Brigham, Jr.
-------------------------
H. Day Brigham, Jr.
IBT Fund Services (Canada), Inc.
By: /s/ Michael F. Rogers
----------------------------------
Name Michael F. Rogers
Title Executive Managing Director
ATTEST:
/s/ Robert Donohoe
-----------------------------
Robert Donohoe
DATE: 2/22/95
September 27, 1993
Government Obligations Portfolio
24 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of
$100,000, of an interest (an "Initial Interest") in Government Obligations
Portfolio (the "Portfolio"), we hereby advise you that we are purchasing
such Initial Interest for investment purposes without any present
intention of redeeming or reselling.
The amount paid by the Portfolio on any withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the
amount of such Initial Interest withdrawn to the aggregate Initial
Interests of all holders of similar Initial Interests then outstanding
after taking into account any prior withdrawals of any such Initial
Interest.
Very truly yours,
EATON VANCE GOVERNMENT
OBLIGATIONS TRUST
on behalf of EV Traditional Government
Obligations Fund
By /s/James L. O'Connor
----------------------------
James L. O'Connor, Treasurer
DC-184410.1
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<NAME> GOVERNMENT OBLIGATIONS PORTFOLIO
<MULTIPLIER> 1000
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<PERIOD-END> DEC-31-1994
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<NET-INVESTMENT-INCOME> 45968
<REALIZED-GAINS-CURRENT> (4217)
<APPREC-INCREASE-CURRENT> (50227)
<NET-CHANGE-FROM-OPS> (8476)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (13151)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 4260
<INTEREST-EXPENSE> 3221
<GROSS-EXPENSE> 7767
<AVERAGE-NET-ASSETS> 572314
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
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<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
