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As filed with the Securities and Exchange Commission on June 30, 1997
Registration No. 811-8086
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
Under
THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 6 /X/
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MASTER INVESTMENT TRUST, SERIES I
(Exact name of registrant as specified in its charter)
Concord (Cayman Islands) Limited
P.O. Box 30122 SMB
Grand Cayman, Cayman Islands
British West Indies
(Address, including zip code, of Principal Executive Offices)
(809) 949-7888
(Area Code and Telephone Number)
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W. Bruce McConnel, III
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and address of agent for service)
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EXPLANATORY NOTE
This Amendment No. 6 to the Registration Statement of Master Investment Trust,
Series I has been filed by the Registrant pursuant to Section 8(b) of the
Investment Company Act of 1940, as amended. However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), since such interests will be offered solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" within the meaning of Regulation D under the 1933 Act
(each, an "Investor"). This Registration Statement does not constitute an offer
to sell, or the solicitation of an offer to buy, any beneficial interests in the
Registrant.
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MASTER INVESTMENT TRUST, SERIES I
PART A
ITEM 1. COVER PAGE. Not applicable.
ITEM 2. SYNOPSIS. Not applicable.
ITEM 3. CONDENSED FINANCIAL INFORMATION. Not applicable.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Master Investment Trust, Series I, a Delaware business trust
established October 26, 1992 (the "Trust"), is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Trust is currently comprised of nine separate
series of beneficial interests ("Beneficial Interests"): the Blue Chip Fund (the
"Blue Chip Portfolio"); the Investment Grade Bond Fund (the "Bond Portfolio");
the Asset Allocation Fund (the "Asset Allocation Portfolio"); the Corporate Bond
Fund (the "Corporate Bond Portfolio"); the Growth and Income Fund (the "Growth
and Income Portfolio"); the International Bond Fund (the "International Bond
Portfolio"); the International Equity Fund (the "International Equity
Portfolio"); the Short-Term Government Fund (the "Short-Term Government
Portfolio"); and the Utilities Fund (the "Utilities Portfolio") (collectively
the "Portfolios", individually a "Portfolio"). Each Portfolio (except for the
International Bond and Utilities Portfolios) is "diversified" as defined in the
1940 Act.
On September 1, 1996, the sole Investor in each of the Corporate Bond
Portfolio and the International Equity Portfolio withdrew its entire investment
in the Portfolio. On June 23, 1997, the sole Investor in the Asset Allocation
Portfolio withdrew its entire investment in the Portfolio. Each of the Corporate
Bond, International Equity and Asset Allocation Portfolios ceased operations as
of the date of withdrawal by its respective sole Investor. As of the date of
this Registration Statement, the Utilities, Growth and Income, Short-Term
Government and International Bond Portfolios have not commenced operations.
BENEFICIAL INTERESTS OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("BANK OF AMERICA") OR ANY OF ITS AFFILIATES AND ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THE TRUST INVOLVES INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio are described
below. While each Portfolio strives to attain its investment objective, there
can be no assurance that any Portfolio will be able to do so.
THE BOND PORTFOLIO
The investment objective of the Bond Portfolio is to obtain interest
income and capital appreciation through investment in investment grade
intermediate and longer-term bonds, which consist of corporate and governmental
fixed income obligations, mortgage-backed securities, municipal securities and
cash equivalents. Under normal circumstances, at least 65% of the Bond
Portfolio's net assets will be invested in investment grade bonds.
Investment grade bonds are bonds that are rated within the four highest
rating categories by a nationally recognized statistical rating organization (a
"NRSRO"), i.e., BBB or better by Standard & Poor's Ratings Group, Division of
McGraw Hill ("S&P"), Fitch Investors Service, Inc. ("Fitch"), Duff & Phelps
Credit Co. ("D&P") or Baa or better by Moody's Investors Service, Inc.
("Moody's"). While bonds rated BBB or Baa are regarded as having adequate
capacity to pay interest and repay principal, adverse economic conditions or
changing circumstances could lead to a weakened capacity to pay interest and
repay principal. Bonds with the lowest investment grade rating (i.e., BBB or
Baa) do not have outstanding investment characteristics and may have speculative
characteristics as well. Unrated securities will be purchased only if Bank of
America determines that they are of comparable quality to the rated securities
in which the Bond Portfolio may invest. Corporate Bonds will be diversified by
investment in bonds issued by different companies in different industries.
Under normal market and interest rate conditions, the investment
adviser expects that the Bond Portfolio's average portfolio duration generally
will be approximately the same as the Lehman Brothers Intermediate
Government/Corporate Bond Index. This means that the Bond Portfolio's net asset
value fluctuation is expected to be similar to the price fluctuation of the
Lehman Brothers Intermediate Government/Corporate Bond Index. Unlike maturity
which indicates when the security repays principal, "duration" incorporates the
cash flows of all interest and principal payments and the proceeds from calls
and redemptions over the life of the security. These payments are multiplied by
the number of years over which they are received to produce a value that is
expressed in years (i.e., duration).
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Mortgage-backed securities, such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC") securities, will be guaranteed as to
principal and interest, but not market value, by the U.S. Government or one of
its agencies or instrumentalities. The Bond Portfolio will not invest more than
35% of its net assets in mortgage-backed securities. There is the risk that
corporate bonds might be called by the issuer if the bond interest rate is
higher than currently prevailing interest rates. Similarly, a risk associated
with mortgage-backed securities is early paydown of principal resulting from
refinancing of the underlying mortgages. The rate of such prepayments, and hence
the life of the security, will primarily be a function of current market rates.
In periods of falling interest rates, the rate of prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds will generally be
at lower rates than the rates on the prepaid obligations.
GNMA CERTIFICATES. The Bond Portfolio may invest in GNMA Certificates.
These are mortgage-backed debt securities representing fractional ownership of a
pool of mortgage loans. They are issued by lenders (such as savings and loan
associations, commercial banks and mortgage bankers) approved by the Federal
Housing Administration which meet criteria imposed by GNMA. The lender assembles
a specified pool of mortgage loans, all of which are insured by the Federal
Housing Administration or the Farmers' Home Administration, and applies to GNMA
for approval of the pool. Upon approval, GNMA provides its commitment to
guarantee timely payment of principal and interest on the GNMA certificates
secured by the mortgage loans in the pool.
GNMA Certificates usually bear a nominal rate of interest equal to the
effective rate on the mortgage loans in the pool less .5%, which is the fee
charged by the issuer and GNMA. The actual yield on the Bond Portfolio's
investments, calculated by dividing the interest payments by the purchase price
for the GNMA Certificate, may differ significantly from the nominal interest
rate. This difference is due to variations of the lives of the mortgages in the
pool and to the impossibility of anticipating the effective interest rate at
which future principal payments might be reinvested.
GNMA Certificates have in the past provided higher yields than direct
investments in U.S. Treasury obligations, although there is no assurance they
will continue to do so in the future.
If mortgage loans in the pool are prepaid (because of either voluntary
prepayments, which are more likely during periods of falling interest rates, or
because of foreclosure), the principal payments are passed through to the
Certificate holders. Because of
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these prepayments, the life of a GNMA Certificate may be substantially shorter
than the time remaining until maturity of the mortgages in the pool.
As opposed to bonds, where principal is normally returned in a lump sum
at maturity, the principal underlying a GNMA Certificate is paid back over the
life of the loan. The Bond Portfolio will purchase GNMA Certificates known as
"modified pass-through" certificates, on which timely payment of principal and
interest is guaranteed. The Bond Portfolio may also purchase "variable rate"
GNMA Certificates, which are backed by pools of variable rate mortgages, as well
as other types of Certificates that are backed by GNMA's guarantee.
The Bond Portfolio may also invest, from time to time, in obligations
issued by state and local governmental issuers ("Municipal Securities"). It is
currently expected that investment in Municipal Securities will not exceed 5% of
the Bond portfolio's net assets. The purchase of such securities may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the performance of such securities, on a pre-tax basis, is
comparable to that of corporate or U.S. Government obligations. Dividends
received by shareholders which are attributable to interest income received from
Municipal Securities generally will be subject to Federal income tax.
The two principal classifications of Municipal Securities which may be
held by the Bond Portfolio are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Bond Portfolio are
in most cases revenue securities and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of such private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The Bond Portfolio may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment but not a legal obligation of the state or municipality
which created the issuer.
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Interest income is expected to be the primary basis for investment
return from an investment in the Bond Portfolio and capital appreciation the
secondary basis. The Bond Portfolio will attempt to achieve capital appreciation
by moderate market timing in response to anticipated interest rate changes. The
Bond Portfolio will also attempt to take advantage of undervalued sectors while
selling bonds in overvalued sectors. However, since investments will normally
consist of bonds and mortgage-backed securities, the ability to achieve capital
appreciation is limited.
The value of the securities held in the Bond Portfolio will tend to
vary inversely with changes in prevailing interest rates. When, in the
evaluation of Bank of America, there is a high probability that there will be a
decline in the bond market, up to 75% of the net assets of the Bond Portfolio
may be held in cash and cash equivalents as a temporary defensive strategy. To
the extent that the Bond Portfolio invests in cash equivalents, it will not be
invested in accordance with the investment policies designed for it to realize
its investment objective. Cash equivalents are the following short-term,
interest bearing instruments: obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, certificates of deposit,
bankers' acceptances, time deposits and other interest-bearing deposits issued
by domestic and foreign banks and foreign branches of U.S. banks, asset-backed
securities, foreign government securities and commercial paper issued by U.S.
and foreign issuers which is rated at the time of purchase at lease Prime-2 by
Moody's or A-2 by S&P.
THE BLUE CHIP PORTFOLIO
The investment objective of the Blue Chip Portfolio is long-term
capital appreciation through investment in blue chip stocks. The Blue Chip
Portfolio is a diversified portfolio which will invest substantially all of its
assets in stocks included in either the Dow Jones Industrial Average or the
Standard & Poor's 500 Index. The Portfolio will hold approximately 100 stocks.
The Trust expects that under normal market conditions at least 80% of
the Blue Chip Portfolio's total assets will be invested in blue chip stocks and
the other 20% may be invested in cash equivalent securities of the type
permitted to be held by the Bond Portfolio (other than asset-backed securities).
The Blue Chip Portfolio may make other investments as described more fully below
under "Other Investments."
THE ASSET ALLOCATION PORTFOLIO
The investment objective of the Asset Allocation Portfolio is to obtain
long-term growth from capital appreciation and dividend and interest income. The
Asset Allocation Portfolio seeks to
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achieve its objective through a balanced approach to investment using bonds,
equity securities and cash equivalents.
Investments in equity securities will generally be limited to common
stocks of the same type in which the Blue Chip Portfolio invests. Bonds acquired
by the Asset Allocation Portfolio will be the same type of investment grade
corporate and governmental obligations, mortgage-backed securities and Municipal
Securities acquired by the Bond Portfolio. Unrated securities will be purchased
only if Bank of America determines they are of comparable quality to the rated
securities in which the Asset Allocation Portfolio may invest. Cash equivalents
are short-term, interest bearing instruments of the type permitted to be held by
the Bond Portfolio. Under normal market conditions at least 25% of the Asset
Allocation Portfolio's total assets will be invested in fixed-income senior
securities and no more than 35% of the Asset Allocation Portfolio's net assets
will be invested in mortgage backed securities. The Asset Allocation Portfolio
may make other investments as described more fully below under "Other
Investments."
THE CORPORATE BOND PORTFOLIO
The investment objective of the Corporate Bond Portfolio is to provide
investors with high current income consistent with reasonable investment risk.
The Corporate Bond Portfolio is a diversified portfolio which will invest
substantially all of its assets in investment grade corporate debt obligations
(at least 65% of total assets under normal circumstances) such as bonds,
debentures, notes and securities convertible into or, exchangeable for, or with
rights to purchase, common or preferred stocks. Investment grade debt securities
ordinarily carry lower rates of interest income than lower quality debt
securities with similar maturities. The securities obtained upon conversion of a
convertible security may be retained for a period of time pending their orderly
disposition.
The Corporate Bond Portfolio may invest up to 20% of its total assets
(determined at the time of purchase) in debt obligations of foreign issuers,
including Yankee bonds (dollar-denominated bonds sold in the United States by
non-U.S. issuers) and Eurobonds (bonds issued in a country and sometimes a
currency other than the country of the issuer). The Corporate Bond Portfolio may
also hold a portion of its assets in cash, money market instruments such as bank
obligations (including certificates of deposit, bankers' acceptances and time
deposits issued by domestic and foreign banks and foreign branches of U.S. banks
that have total assets of more than $2.5 billion and interest-bearing savings
deposits in commercial banks in amounts not exceeding 5% of its total assets)
and commercial paper (commercial paper must be rated at the time of
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purchase at least A-1 or A-2 by S&P, Prime 1 or Prime 2 by Moody's, F-1+ or F-1
by Fitch) obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, asset-backed and mortgage-backed securities, and bonds of
supranational entities. Obligations of some of the U.S. Government agencies and
instrumentalities, such as the Small Business Administration and the Maritime
Administration, are backed by the full faith and credit of the U.S.; others,
like the Federal National Mortgage Association, are backed by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and still
others, including the Student Loan Marketing Association, are backed solely by
the issuer's credit. There is no assurance that the U.S. Government would
support a U.S. Government-sponsored entity if it was not required to do so by
law.
The Corporate Bond Portfolio will normally invest at least 75% of its
total assets in investment grade corporate securities and securities issued by
the U.S. Government, its agencies or instrumentalities. The Corporate Bond
Portfolio may invest up to 25% of its total assets in lower quality, higher
yielding securities. Such securities are rated below investment grade, carry a
higher degree of risk and are considered to be speculative by S&P, Moody's or
Fitch. Debt securities will be rated at the time of purchase at least "B" by
S&P, Moody's or Fitch, or if unrated, will be determined by Bank of America to
be of comparable quality to securities with such ratings.
For temporary defensive purposes, or at times when Bank of America
believes such a position is warranted by uncertain or unusual market conditions,
the Corporate Bond Portfolio may invest without limitation in securities issued
or guaranteed by the U.S Government, its agencies and instrumentalities, money
market securities and cash. To the extent the Corporate Bond Portfolio invests
in such instruments, it will not be invested in accordance with the investment
policies designed for it to realize its investment objective.
In the event that the rating of any security held by the Corporate Bond
Portfolio falls below the required rating, the Corporate Bond Portfolio will not
be obligated to dispose of such security and may continue to hold the obligation
if, in the opinion of Bank of America, such investment is considered appropriate
under the circumstances.
The market value of debt securities and thus the Corporate Bond
Portfolio's net asset value per share is expected to vary with changes in
interest rates. The value of the Corporate Bond Portfolio's investments will
normally fall when prevailing interest rates rise and rise when interest rates
fall. Interest rate fluctuations can be expected to affect the Corporate Bond
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Portfolio's earnings. In an effort to preserve the capital of the Corporate Bond
Portfolio when interest rates are generally rising, Bank of America may shorten
the average weighted maturity of the securities in the Corporate Bond
Portfolio's investments. Because the principal values of the securities with
shorter maturities are less affected by rising interest rates, a portfolio with
a shorter average weighted maturity will generally diminish less in value during
such periods than a portfolio with a longer average weighted maturity. Because
securities with shorter maturities, however, generally have a lower yield to
maturity, the Corporate Bond Portfolio's current return based on its net asset
value will generally be lower as a result of such action than it would have been
had such action not been taken.
THE GROWTH AND INCOME PORTFOLIO
The objective of the Growth and Income Portfolio is to provide
investors with long-term growth of capital and current income. The Growth and
Income Portfolio invests primarily in common stocks that Bank of America
believes offer potential for capital appreciation, current income, or both.
However, the Growth and Income Portfolio may also invest in preferred stocks,
debt securities, securities convertible into common or preferred stocks,
convertible debt securities and rights or warrants to subscribe for or purchase
common stocks, preferred stocks or debt securities. Additionally, the Growth and
Income Portfolio may invest in securities of foreign issuers. Such investments
will be made either directly in such issuers or indirectly through American
Depository Receipts ("ADRs"). These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities of a foreign issuer.
Generally, ADRs, in registered form, are designed for use in U.S. securities
markets. The Growth and Income Portfolio's direct investments in issuers of
foreign securities (excluding ADRs) will not exceed 20% of the Growth and Income
Portfolio's total assets at the time of purchase.
Debt securities in which the Growth and Income Portfolio may invest
will be rated investment grade at the time of investment or will be unrated but
determined to be of comparable quality by Bank of America.
For temporary defensive purposes at times when Bank of America believes
such a position is warranted by uncertain or unusual market conditions, the
Growth and Income Portfolio may invest without limit in securities issued or
guaranteed by the U.S. Government (and its agencies and instrumentalities),
domestic or foreign money market securities and investment grade debt
securities, or may hold its assets in cash.
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THE INTERNATIONAL BOND PORTFOLIO
The investment objective of the International Bond Portfolio is to
provide investors with a high level of current income primarily through
investments in foreign debt securities.
The International Bond Portfolio invests primarily in debt securities
of foreign governmental or corporate issuers, and under normal circumstances at
least 80% of its total assets will be in such securities. The International Bond
Portfolio will allocate its assets among various issuers, foreign geographic
regions, and currency denominations. Issuers of these securities will be located
in at least three foreign countries and issuers located in any one country will
represent no more than 40% of total assets. Foreign debt securities may
constitute up to 100% of the International Bond Portfolio's assets. In addition
to debt securities of foreign governmental and corporate issuers, the
International Bond Portfolio also may invest in debt securities of domestic
companies and convertible debt securities and equity securities obtained on
conversion. The International Bond Portfolio currently anticipates (but there is
no requirement) that its investments in issuers located outside the United
States will emphasize governmental or quasi-governmental issuers. The location
of a company or a supranational entity (described below) will be deemed to be
the country under whose laws the firm is organized, in which the principal
trading market for the debt securities issued by the firm is located, or in
which the firm has over half of its assets or derives over half of its revenues
or profits. While the International Bond Portfolio strives to attain its
investment objective, there can be no assurance that it will be able to do so.
At least 95% of the International Bond Portfolio's debt securities will
be rated investment grade at the time of investment. The International Bond
Portfolio may invest up to 5% of its total assets in debt securities that do not
meet those quality requirements. Investment grade debt securities ordinarily
carry lower rates of interest income than lower quality debt securities with
similar maturities.
The market value of debt securities and thus the International Bond
Portfolio's net asset value per share is expected to vary as a result of changes
in interest rates. The value of the International Bond Portfolio's investment
portfolio will normally fall when prevailing interest rates rise and rise when
interest rates fall. Interest rate fluctuations can be expected to affect the
International Bond Portfolio's dividends. In an effort to preserve the capital
of the International Bond Portfolio when interest rates are generally rising,
Bank of America may shorten the average weighted maturity of the International
Bond Portfolio's investment portfolio. Because the principal values of the
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securities with shorter maturities are less affected by rising interest rates, a
portfolio with a shorter average weighted maturity will generally diminish less
in value during such periods than a portfolio with a longer average weighted
maturity. Since securities with shorter maturities, however, generally have a
lower yield to maturity, the International Bond Portfolio's current yield based
on its net asset value will generally be lower as a result of such action than
it would have been had such action not been taken.
In the event that the rating of any security held by the International
Bond Portfolio falls below the required rating, the International Bond Portfolio
will not be obligated to dispose of such security and may continue to hold the
obligation if, in the opinion of Bank of America, such investment is considered
appropriate under the circumstances.
Notwithstanding its policy of investing primarily in foreign debt
securities, however, for temporary defensive purposes at times when Bank of
America believes such a position is warranted by uncertain or unusual market
conditions, the International Bond Portfolio may invest without limit in
securities issued or guaranteed by the U.S. Government (and its agencies and
instrumentalities), or foreign or domestic money market instruments, or may hold
its assets in cash (U.S. dollars, foreign currencies or multinational currency
units).
FOREIGN DEBT SECURITIES. The International Bond Portfolio may purchase
debt obligations issued or guaranteed by governments (including states,
provinces or municipalities) of countries other than the United States, or by
their agencies, authorities or instrumentalities, or by supranational entities
organized or supported by several national governments, such as the
International Bank for Reconstruction and Development (the "World Bank"), the
Inter-American Development Bank, the Asian Development Bank and the European
Investment Bank. The International Bond Portfolio's investments will be
allocated among securities denominated in the currencies of a number of foreign
countries and, within each such country, among different types of debt
securities. The percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with
Bank of America's assessment of the relative yield of such securities and the
relationship of a country's currency to the United States dollar. Fundamental
economic strength, credit quality and interest rate trends will be the principal
factors considered by Bank of America in determining whether to increase or
decrease the emphasis placed upon a particular type of security within the
International Bond Portfolio.
The International Bond Portfolio may invest in debt securities with
varying maturities. Generally, the International Bond
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Portfolio's average maturity will be shorter when interest rates worldwide or in
a particular country are expected to rise, and longer when interest rates are
expected to fall.
The International Bond Portfolio may invest in fixed-income obligations
convertible into equity securities or having attached warrants or rights to
purchase equity securities. The International Bond Portfolio's investments in
common stocks will emphasize companies in various countries and industries which
pay dividends, or may offer prospects for further growth in dividend payments
and capital appreciation.
CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, the value of the assets of the
International Bond Portfolio as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. An issuer of fixed income securities
purchased by the International Bond Portfolio may be domiciled in a country
other than the country in whose currency the instrument is denominated. The
International Bond Portfolio may also invest in debt securities denominated in
multinational currency units such as the European Currency Unit ("ECU"), which
is a composite currency consisting of specified amounts in the currencies of
certain of the twelve member states of the European Community. As described
below under "Options on Foreign Currencies" and "Forward Foreign Currency
Exchange Contracts," the International Bond Portfolio also has the ability to
purchase put or call options on currencies and enter into forward currency
contracts to protect against changes in currency exchange rates. However, there
is no assurance that such strategies will be successful. The International Bond
Portfolio may hold a portion of its assets in U.S. dollars and other currencies.
ADDITIONAL INVESTMENTS. When not invested in foreign debt securities,
the International Bond Portfolio may invest in other types of securities subject
to the limitations described previously. The International Bond Portfolio may
also purchase bank obligations including certificates of deposit and bankers'
acceptances issued by domestic or foreign banks or financial institutions that
have total assets of more than $2.5 billion. The International Bond Portfolio
may also make interest-bearing savings deposits in commercial banks in amounts
not exceeding 5% of its total assets. Commercial paper rated in the top rating
category by Standard & Poor's or Moody's, and unrated commercial paper
determined to be of comparable quality by Bank of America, may also be
purchased.
RISK FACTORS. Although investing in any mutual fund has certain
inherent risks, an investment in the International Bond Portfolio may have even
greater risks than investments in most
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other types of mutual funds. The International Bond Portfolio is not a complete
investment program, and it may not be appropriate for an investor if he or she
cannot bear financially the loss of at least a significant portion of his or her
investment. The International Bond Portfolio's net asset value per share is
subject to rapid and substantial changes because greater risk is assumed in
seeking the International Bond Portfolio's objective.
THE INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the International Equity Portfolio is to
seek long-term capital growth primarily through investments in foreign equity
securities. While the International Equity Portfolio strives to attain its
investment objective, there can be no assurance that it will be able to do so.
During normal market conditions, the International Equity Portfolio
will invest at least 80% of its total assets in equity securities of companies
that are domiciled or have their principal activities in countries outside the
United States. Normally, the International Equity Portfolio will invest in
equity securities of companies in at least three different foreign countries.
The domicile or the location of the principal activities of a company will be
the country under whose laws the company is organized, in which the principal
trading market for the equity securities issued by the company is located, or in
which the company has over half its assets or derives over half of its revenues
or profits. Equity securities in which the International Equity Portfolio may
invest consist of common stocks, preferred stocks, securities convertible into
common stocks or preferred stocks, and warrants to purchase such securities.
The International Equity Portfolio may invest up to 20% of its total
assets (at the time of purchase) in convertible bonds and debt securities. These
debt obligations include U.S. Government and foreign government securities and
corporate debt securities, including Samurai and Yankee bonds and Eurobonds. The
International Equity Portfolio will limit its purchases of debt securities to
investment grade obligations.
In the event that the rating of any security held by the International
Equity Portfolio falls below the required rating, the International Equity
Portfolio will not be obligated to dispose of such security and may continue to
hold the obligation if, in the opinion of Bank of America, such investment is
considered appropriate under the circumstances.
The International Equity Portfolio may also invest, without limitation,
in securities of foreign issuers in the form of ADRs or other similar securities
evidencing ownership of underlying
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securities issued by foreign issuers. ADRs purchased for the International
Equity Portfolio will be included as part of the 80% of assets in foreign equity
securities. These securities may not necessarily be denominated in the same
currency as the securities underlying the ADRs.
During temporary defensive periods when Bank of America believes such a
position is warranted by uncertain or unusual market conditions, the
International Equity Portfolio may invest without limit in securities issued or
guaranteed by the U.S. Government (and its agencies and instrumentalities),
foreign or domestic money market instruments and investment grade debt
securities, or may hold its assets in cash (U.S. dollars, foreign currencies or
multinational currency units).
THE SHORT-TERM GOVERNMENT PORTFOLIO
The investment objective of the Short-Term Government Portfolio is to
seek high current income consistent with relative stability of principal. The
Short-Term Government Portfolio seeks this objective through investing primarily
in securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
DURATION. Under normal market and interest rate conditions, the
investment adviser expects that the Short-Term Government Portfolio's average
portfolio duration generally will be approximately the same as a one-year U.S.
Treasury bill (approximately one year). This means that the Short-Term
Government Portfolio's net asset value fluctuation is expected to be similar to
the price fluctuation of a one-year U.S. Treasury bill. Under normal market and
interest rate conditions, the investment adviser does not expect that the
Short-Term Government Portfolio's average portfolio duration to exceed that of a
two-year U.S. Treasury note (approximately 1.9 years). However, there is no
limitation on duration. Unlike maturity which indicates when the security repays
principal, "duration" incorporates the cash flows of all interest and principal
payments and the proceeds from calls and redemptions over the life of the
security. These payments are multiplied by the number of years over which they
are received to produce a value that is expressed in years (i.e., duration).
The Short-Term Government Portfolio has a policy that it will invest
primarily in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including, but not limited to, direct obligations
of the U.S. Treasury, such as U.S. Treasury bills, certificates of indebtedness,
notes and bonds, and in repurchase agreements involving such securities. Other
types of U.S. Government obligations that the Short-Term Government Portfolio
may hold include obligations of U.S. Government agencies
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or instrumentalities such as Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, Banks for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation or National Credit Union Administration.
Obligations of some of these agencies and instrumentalities, such as the Small
Business Administration or the Maritime Administration, are supported by the
full faith and credit of the U.S.Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, like the Federal National Mortgage
Association, are backed by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, including the Student Loan
Marketing Association, are supported solely by the credit of the
instrumentality. There is no assurance that the U.S. Government would support a
U.S. Government-sponsored entity if it was not required to do so by law. Under
normal circumstances, it is expected that the average weighted maturity of the
Short-Term Government Portfolio's investments will be less than three years.
Guarantees of the Short-Term Government Portfolio's investment
securities by the U.S. Government or its agencies or instrumentalities assure
only the payment of principal and interest on the guaranteed securities, and do
not guarantee the securities' yield or value, or the yield or value of the
Short-Term Government Portfolio's shares. U.S. Government obligations ordinarily
carry lower rates of interest income than debt securities of other issuers with
similar maturities.
The market value of debt securities and thus the Short-Term Government
Portfolio's net asset value per share is expected to vary with changes in
interest rates. The value of the Short-Term Government Portfolio's investments
will normally fall when prevailing interest rates rise and rise when interest
rates fall. Interest rate fluctuations can be expected to affect the Short-Term
Government Portfolio's earnings. In an effort to preserve the capital of the
Short-Term Government Portfolio when interest rates are generally rising, Bank
of America may shorten the average weighted maturity of the Short-Term
Government Portfolio's investments. Because the principal values of the
securities with shorter maturities are less affected by rising interest rates, a
portfolio with a shorter average weighted maturity will generally diminish less
in value during such periods than a portfolio with a longer average weighted
maturity. Because securities with shorter maturities, however, generally have a
lower yield to maturity, the Short-Term Government Portfolio's current yield
based on its net
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asset value will generally be lower as a result of such action than it would
have been had such action not been taken.
MORTGAGE-RELATED SECURITIES. The Short-Term Government Portfolio may
invest in U.S. Government securities which are collateralized by or represent
interests in real estate mortgages. The types of mortgage securities in which
the Short-Term Government Portfolio may invest include the following: (i)
adjustable rate mortgage securities; (ii) collateralized mortgage obligations;
(iii) real estate mortgage investment conduits; and (iv) other securities
collateralized by or representing interests in real estate mortgages whose
interest rates reset at periodic intervals and are issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
The Short-Term Government Portfolio may also invest in mortgage-related
securities which are issued by private entities such as investment banking firms
and companies related to the construction industry. The privately issued
mortgage-related securities in which the Short-Term Government Portfolio may
invest include but are not limited to: (i) privately issued securities which are
collateralized by pools of mortgages in which such mortgages are guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
Government; (ii) privately issued securities which are collateralized by pools
of mortgages in which such mortgages are guaranteed as to the payment of
principal and interest by the issuer and such guarantee is collateralized by
U.S. Government securities; and (iii) other privately issued securities in which
the proceeds of the issuance are invested in mortgage-backed securities and
which mortgage-related securities are supported as to the payment of the
principal and interest by the credit of any agency or instrumentality of the
U.S. Government.
The privately issued mortgage-related securities provide for periodic
payments consisting of both interest and principal. The interest portion of
these payments will be distributed by the Short-Term Government Portfolio as
income, and the capital portion will be reinvested.
Purchasable mortgage-related securities are represented by pools of
mortgage loans assembled for sale to investors by various governmental agencies
such as the Government National Mortgage Association ("GNMA") and
government-related organizations such as the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
as well as by private issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
are otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If the
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Short-Term Government Portfolio purchases a mortgage-related security at a
premium, the portion may be lost if there is a decline in the market value of
the security whether resulting from increases in interest rates or prepayment of
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of such securities are inversely affected by changes in interest
rates. However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true because mortgages
underlying securities are prone to prepayment in periods of declining interest
rates. For this and other reasons, a mortgage-related security's maturity may be
shortened by unscheduled prepayments on underlying mortgages and, therefore, it
is not possible to accurately predict the security's return to the Short-Term
Government Portfolio. Mortgage-related securities provide regular payments
consisting of interest and principal. No assurance can be given as to the return
the Short-Term Government Portfolio will receive when these amounts are
reinvested.
Mortgage-related securities acquired by the Short-Term Government
Portfolio may include collateralized mortgage obligations ("CMOs"), a type of
derivative, issued by FNMA, FHLMC or other U.S. Government agencies or
instrumentalities, as well as by private issuers. CMOs provide an investor with
a specified interest in the cash flow of a pool of underlying mortgage or other
mortgage-related securities. Issuers of CMOs frequently elect to be taxed as
pass-through entities known as real estate mortgage investment conduits
("REMICs"). CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final distribution date. The relative payment
rights of the various CMO classes may be structured in many ways. Generally,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. Sometimes, however, CMO classes are "parallel pay," i.e. payments
of principal are made to two or more classes concurrently.
CMOs may involve additional risks other than those found in other types
of mortgage-related obligations. CMOs may exhibit more price volatility and
interest rate risk than other types of mortgage-related obligations. During
periods of rising interest rates, CMOs may lose their liquidity as CMO market
makers may choose not to repurchase, or may offer prices, based on current
market conditions, which are unacceptable to the Short-Term Government Portfolio
based on its analysis of the market value of the security.
Privately issued mortgage-related securities generally offer a higher
yield than mortgage-related securities issued by
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governmental agencies or instrumentalities because of the absence of any direct
or indirect government or agency payment guarantees. However, timely payment of
interest and principal on mortgage loans in these pools may be supported by
various forms of insurance or guarantees, including individual loan, pool and
hazard insurance, subordination and letters of credit. The insurance and
guarantees are issued by government entities, private insurers, banks and
mortgage poolers. Although the market for such securities is becoming
increasingly liquid, some mortgage-related securities issued by private
organizations may not be readily marketable.
THE UTILITIES PORTFOLIO
The objective of the Utilities Portfolio is to provide investors with
current income and capital appreciation, consistent with prudent investment
risk.
The Utilities Portfolio invests primarily in debt and equity securities
of utility companies ("Utility Securities"). Under normal circumstances at least
65% of its total assets will be in Utility Securities. The Utilities Portfolio
may also invest in debt and equity securities of companies other than utilities.
Up to 30% of its total assets may be invested directly in foreign securities,
including foreign Utility Securities.
The Trust's Board of Trustees will evaluate whether a satisfactory
investment return has been achieved by comparing the Portfolio's return against
certain indices such as:
- The Standard & Poor's Utility Index; and
- The Dow Jones Utility Index.
While the Utilities Portfolio strives to attain its investment
objective, there can be no assurance that it will be able to do so.
Subject to its policy of investing primarily in Utility Securities, the
Utilities Portfolio also may invest in:
- securities issued or guaranteed by the U.S. Government (and
its agencies and instrumentalities);
- debt and equity securities of companies other than utilities
when deemed consistent with the Utilities Portfolio's
investment objective;
- options and futures; and
- money market securities.
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Notwithstanding its policy of investing primarily in Utility
Securities, the Utilities Portfolio, for temporary defensive purposes, may
invest without limit in securities issued or guaranteed by the U.S. Government
(and its agencies and instrumentalities) or money market securities, or may hold
its assets in cash when Bank of America believes such a position is warranted by
uncertain or unusual market conditions.
Utility companies are those engaged in the manufacture, production,
generation, transmission and sale of electricity, natural gas, or water or other
sanitary services, and those engaged in telephone, telegraph,
telecommunications, satellite, microwave, or other communications services to
the public. The percentage of total assets invested in each of the various types
of utility companies will depend upon the interpretation of economic and
underlying conditions by Bank of America.
At least 95% of the value of the Utilities Portfolio's debt securities
will be rated investment grade at the time of investment, or if not rated will
be considered to be of comparable quality by Bank of America. The Utilities
Portfolio may invest up to 5% of its total assets in debt securities that do not
meet these quality requirements.
In the event that the rating of any security held by the Utilities
Portfolio falls below the required rating, the Utilities Portfolio will not be
obligated to dispose of such security and may continue to hold the obligation
if, in the opinion of Bank of America, such investment is considered appropriate
under the circumstances.
The Utilities Portfolio may also invest in common stocks, preferred
stocks, debt and equity securities convertible into common stocks or preferred
stocks, and warrants to purchase common or preferred stocks.
RISKS RELATED TO UTILITY SECURITIES. As a result of the Utilities
Portfolio's policy of investing in Utility Securities, it is subject to risks
including inflation and other cost increases in fuel and operating expenses,
possible increases in interest on borrowings needed for capital construction
programs or compliance with environmental regulations, and possible adverse
changes in regulatory climate. The Portfolio is not a complete investment
program, and it may not be appropriate for an investor who cannot bear
financially the loss of a portion of his or her investment. Since the Utilities
Portfolio's investments are concentrated, the value of its shares will be
especially affected by factors peculiar to the utilities industries, and may
fluctuate more widely than the value of shares of a portfolio that invests in a
broader range of industries. In particular, regulatory changes with respect to
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nuclear and conventionally-fueled power generating facilities could increase
costs or impair the ability of utility companies to operate such facilities or
obtain adequate return on invested capital.
PORTFOLIO TURNOVER
The annual portfolio turnover rates for the International Bond and
Short-Term Government Portfolios are not expected to exceed 100%. The Corporate
Bond and Bond Portfolios investment practices may result in portfolio turnover
greater than that of other mutual fund portfolios. The Utilities Portfolio's
annual portfolio turnover rate is not expected to exceed 50%. The Growth and
Income Portfolio's annual turnover rate is not expected to exceed 60%. The
International Equity Portfolio's annual portfolio turnover rate is not expected
to exceed 75%. Portfolio turnover, however, will not be a limiting factor in
making investment decisions for a Portfolio. Short-term capital gains realized
from securities transactions are taxable to the holders of Beneficial Interests
as ordinary income. In addition, high portfolio turnover rates can result in
corresponding increases in brokerage commissions and other transaction costs
with respect to securities transactions. Although no commissions are paid on
bond transactions, purchases and sales are at net prices which reflect dealers'
mark-ups and mark-downs, and a higher portfolio turnover rate for bond
investments will result in payment of more dealer mark-ups and mark-downs than
would otherwise be the case.
RISK FACTORS
RISKS RELATED TO NON-DIVERSIFICATION. Since the International Bond and
Utilities Portfolios are "non-diversified" within the meaning of the 1940 Act,
the only statutory or regulatory diversification requirements to which each are
subject arise under federal tax law. The International Bond and Utilities
Portfolios may, with respect to 50% of their respective total assets, invest up
to 25% of their total assets in the securities of an issuer (except that this
limitation does not apply to securities of the U.S. Government or its agencies
and instrumentalities). With respect to the remaining 50% of such Portfolio's
respective total assets, (1) each Portfolio may not invest more than 5% of its
total assets in the securities of any one issuer (other than the securities of
the U.S. Government or its agencies and instrumentalities), and (2) each
Portfolio may not acquire more than 10% of the outstanding voting securities of
any issuer. These tests apply at the end of each quarter of its taxable year and
are subject to certain conditions and limitations under the Internal Revenue
Code of 1986. The International Bond and Utilities Portfolios may be more
susceptible than a diversified fund to adverse developments affecting any single
issuer. For purposes of
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these percentage limitations, the term "securities" does not include foreign
currencies, which means that the International Bond Portfolio could have more
than 25% of its total assets denominated in any particular currency.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Each Portfolio
(with the exception of the Blue Chip and Short-Term Government Portfolios) may
invest in securities of foreign issuers. It is currently the intention of the
Bond and Asset Allocation Portfolios to invest no more than 25% of each
Portfolio's net assets in foreign securities. Such investments will be made
either directly in such issuers or indirectly through ADRs.
Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. In addition, with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. A
Portfolio might have greater difficulty taking appropriate legal action in a
foreign court than in a United States court.
Although the foreign companies in which the Utilities Portfolio may
invest will be providing products and services substantially similar to domestic
companies in which the Utilities Portfolio may invest, the utility companies of
many major countries, such as the United Kingdom, Spain and Mexico, have only
recently substantially increased investor ownership, including ownership by U.S.
investors, and, as a result, have only recently become subject to adversarial
rate-making procedures. In addition, certain foreign utilities are experiencing
demand growth at rates greater than economic expansion in their countries or
regions. These factors as well as those associated with foreign issuers
generally may affect the future values of foreign securities held by the
Utilities Portfolio.
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Since the International Bond and International Equity Portfolios may
invest heavily in securities denominated or quoted in currencies other than the
U.S. dollar, changes in foreign currency exchange rates will, to the extent the
Portfolios do not adequately hedge against such fluctuation, affect the value of
securities in the Portfolios so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of such Portfolios can be expected to be higher than
that of funds investing in domestic securities. The costs attributable to
investing abroad are usually higher for several reasons, such as the higher cost
of investment research, higher cost of custody of foreign securities, higher
commissions paid on comparable transactions on foreign markets and additional
costs arising from delays in settlements of transactions involving foreign
securities.
Interest and dividends payable on a Portfolio's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by credits or deductions allowed to investors under U.S. federal
income tax provisions, they may reduce the net return to the Portfolios'
shareholders.
OTHER INVESTMENTS
Subject to the Portfolios' respective investment objectives and
policies described above, the Portfolios may make certain other investments and
use certain investment practices as described below.
OPTIONS. Each Portfolio may purchase various types of options. The
Asset Allocation, Blue Chip and Bond Portfolios may purchase put and call
options on listed securities and stock indexes. The Corporate Bond,
International Bond and International Equity Portfolios may purchase put and call
options on U.S. and foreign securities which are traded on U.S. and foreign
securities exchanges and, in over-the-counter markets. The Growth and Income and
Utilities Portfolios may purchase put options on securities owned (or acquirable
through conversion or exchange for securities owned) by each Portfolio. The
Short-Term Government Portfolio may only purchase put and call options, and
write options on futures contracts. Each Portfolio may write covered call
options on securities owned by the respective Portfolio. The Corporate Bond,
International Bond and International Equity Portfolios may write
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covered put and call options as defined below. The International Bond and
International Equity Portfolios may buy put and call options on various
securities indices. The International Bond Portfolio may write put options on
various securities indices.
Each of the Corporate Bond, Utilities, International Bond and
International Equity Portfolios' options transactions will be limited as
follows: a) not more than 5% of the total assets of a Portfolio may be invested
in options; b) the obligations of a Portfolio under put options written by the
Portfolio may not exceed 50% of the net assets of the Portfolio, or 25% with
respect to the Utilities Portfolio; and c) the aggregate premiums on all options
purchased by a Portfolio may not exceed 25% of the net assets of the Portfolio,
or 10% with respect to the Utilities Portfolio. The Asset Allocation, Blue Chip
and Bond Portfolios may not purchase additional put and call options, if, as a
result, the aggregate premiums paid for options held by the Portfolio would
exceed 2% of the net assets of the Portfolio. In addition, the aggregate value
of assets subject to options written by the Asset Allocation, Blue Chip and Bond
Portfolios may not exceed 25% of the value of their respective net assets.
Options written by the Growth and Income Portfolio will not exceed 25% of its
total assets (taken at market value on the date written) and options purchased
by the Growth and Income Portfolio will not exceed 5% of its total assets. With
respect to the Asset Allocation, Blue Chip, Bond and Corporate Bond Portfolios,
the restrictions discussed in options do not apply to options on futures
contracts.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Although the Portfolios' risk when purchasing
options is limited to the amount of the original premiums paid plus transaction
costs, options may be more volatile than the underlying instruments, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuations than an investment in the underlying security. When writing
covered call options, the Portfolios give up the opportunity to profit from a
price increase in the underlying security above the option's exercise price in
return for the premium but retains the risk of loss should the price of the
underlying security fall. In addition, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives, and there is no guarantee that a liquid secondary market for
particular options will exist. For additional information relating to options
transactions, please refer to the Statement of Additional Information.
Call options written by a Portfolio give the holder the right to buy
the underlying security from the Portfolio at a stated
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exercise price upon exercising the option at any time prior to its expiration. A
call option written by a Portfolio is "covered" if the Portfolio owns or has an
absolute right (such as by conversion) to the underlying security covered by the
call. A call option is also covered if a Portfolio holds a call on the same
security and in the same principal amount as the call written and the exercise
price of the call held is (i) equal to or less than the exercise price of the
call written, or (ii) greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash, government securities or
other high grade debt obligations in a segregated account with its custodian.
Put options written by a Portfolio give the holder the right to sell
the underlying security to the Portfolio at a stated exercise price. A put
option written by a Portfolio is "covered" if the Portfolio maintains cash or
high grade debt obligations with a value equal to the exercise price in a
segregated account with its custodian, or holds a put on the same security and
in the same principal amount as the put written and the exercise price of the
put held is equal to or greater than the exercise price of the put written.
The premium paid by the purchaser of an option will generally reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the remaining term of the option,
supply and demand, and current interest rates.
The risks of transactions in options on foreign exchanges are similar
to the risks of investing in foreign securities. In addition, a foreign exchange
may impose different exercise and settlement terms and procedures and margin
requirements than a U.S. exchange.
A Portfolio may purchase put options to hedge against a decline in the
value of its investment portfolio. By using put options in this way, a Portfolio
will reduce any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option plus transaction
costs. A Portfolio may purchase call options to hedge against an increase in the
price of securities that the Portfolio anticipates purchasing in the future. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Portfolio upon exercise of the option. Unless the
price of the underlying security rises sufficiently, the option may expire
worthless to a Portfolio.
OPTIONS ON FOREIGN CURRENCIES. The International Bond and International
Equity Portfolios may purchase and write put and call options on foreign
currencies to increase a Portfolio's gross
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income and for the purpose of protecting against declines in the United States
dollar value of foreign currency denominated portfolio securities and against
increases in the United States dollar cost of such securities to be acquired. As
with other kinds of options, however, writing an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
a Portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. Purchasing an option
on a foreign currency may constitute an effective hedge against fluctuations in
exchange rates although, in the event of rate movements adverse to the
Portfolio's position, the Portfolio may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies written or
purchased by the International Bond and International Equity Portfolios may be
traded on United States and foreign exchanges or over-the-counter. There is no
specific percentage limitation on the International Bond and International
Equity Portfolios' investments in options on foreign currencies.
FUTURES. The International Bond and Corporate Bond Portfolios may enter
into contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices
including any index of United States government securities or foreign government
securities. The Bond and Asset Allocation Portfolios may purchase and sell
interest rate futures contracts. The Asset Allocation and Blue Chip Portfolios
may also purchase and sell stock index futures contracts. The Bond Portfolio may
purchase and sell interest rate futures contracts. The Blue Chip Portfolio may
purchase and sell stock index futures contracts. The International Equity
Portfolio may purchase and sell stock index, interest rate and foreign currency
futures contracts. The Short-Term Government Portfolio may enter into contracts
for the purchase or sale for future delivery of U.S. Government securities,
mortgage-related securities or Euro-dollar securities. The Short-Term Government
Portfolio will engage in futures and related options transactions only for bona
fide hedging purposes. The Portfolios may also purchase related put and call
options on futures contracts. Options on futures contracts written or purchased
by the Corporate Bond and International Bond Portfolios may be traded on United
States or foreign exchanges. Options on futures contracts purchased by the Asset
Allocation, Blue Chip and Bond Portfolios will be traded on United States or
foreign (with respect to the Bond Portfolio) exchanges. Options on futures,
contracts written or purchased by the International Equity Portfolio may be
traded on United States and foreign exchanges or over-the-counter.
A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver the securities or foreign currencies called for by the
contract at a specified price on a
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specified date. A "purchase" of a futures contract means the incurring of a
contractual obligation to acquire the securities or foreign currencies called
for by the contract at a specified price on a specified date. The purchaser of a
futures contract on an index agrees to take or make delivery of an amount of
cash equal to the difference between a specified multiple of the value of the
index on the expiration date of the contract ("current contract value") and the
price at which the contract was originally struck. No physical delivery of the
fixed-income securities underlying the index is made. These investment
techniques would be used to hedge against anticipated future changes in interest
or exchange rates which otherwise might either adversely affect the value of the
Portfolio's portfolio securities. A Portfolio may not purchase or sell a futures
contract or purchase a related option unless immediately after any such
transaction the sum of the aggregate amount of margin deposits on its existing
futures positions and the amount of premiums paid for related options does not
exceed 5% of that Portfolio's total assets (after taking into account certain
technical adjustments). In order to prevent leverage in connection with the
purchase of futures contracts or call options thereon by a Portfolio, an amount
of cash, cash equivalents or liquid high grade debt securities equal to the
market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
Furthermore, a Portfolio's ability to engage in options and futures transactions
may be limited by tax considerations.
A Portfolio will purchase stock index, interest rate and foreign
currency futures contracts (and related options) in an effect to "hedge" against
changes in the value of securities that the Portfolio holds or which it intends
to purchase. Such changes could occur as a result of market conditions or
fluctuating currency exchange rates. These transactions will only be entered
when deemed by Bank of America appropriate to reduce the risks inherent in the
management of the Portfolio.
The Portfolios may be subject to additional risks associated with
futures contracts, such as the possibility that the Bank of America's forecasts
of market values and other factors are not correct, imperfect correlation
between a Fund's hedging instrument and the asset or liability being hedged,
default by the other party to the transaction, and inability to close out a
position because of the lack of a liquid market. In addition to the possibility
that there may be an imperfect correlation, or no correlation at all, between
movements in a futures contract and the securities being hedged, the price of
futures contracts may not correlate perfectly with movement in the cash market
due to certain market distortions. As a result of these factors, a correct
forecast of general market trends or interest rate movements by the Bank of
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America may still not result in a successful hedging transaction over a short
time frame.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The International Bond
Portfolio may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk from adverse changes in
the relationship between the United States dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. The International Bond Portfolio
may enter into a forward contract, for example, when it enters into a contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the United States dollar price of the security ("transaction
hedge"). Additionally, for example, when Bank of America believes that a foreign
currency may suffer a substantial decline against the United States dollar, the
International Bond Portfolio may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
International Bond Portfolio's portfolio securities denominated in such foreign
currency, or when Bank of America believes that the United States dollar may
suffer a substantial decline against foreign currency, the International Bond
Portfolio may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation, the
International Bond Portfolio may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed United States dollar
amount where Bank of America believes that the United States dollar value of the
currency to be sold pursuant to the forward contract will fall whenever there is
a decline in the United States dollar value of the currency in which portfolio
securities of the International Bond Portfolio are denominated ("cross-hedge").
The International Bond Portfolio's custodian will place cash not available for
investment or United States government securities or other high-quality debt
securities in a segregated account having a value equal to the aggregate amount
of the International Bond Portfolio's commitments under forward contracts
entered into with respect to position hedges and cross-hedges. If the value of
the securities place 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 equals the amount of the International Bond Portfolio's commitments
with respect to such contracts. As an alternative to maintaining all or part of
the segregated account, the International Bond Portfolio may purchase a call
option permitting it to purchase the amount of foreign currency being hedged by
a forward sale contract at a price no higher than the forward contract price or
the International Bond Portfolio may purchase a put option permitting it to sell
the amount of foreign
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currency subject to a forward purchase contract at a price as high or higher
than the forward contract price. Unanticipated changes in currency prices may
result in poorer overall performance for the International Bond Portfolio than
if it had not entered into such contracts.
INTEREST RATE AND CURRENCY SWAPS. The Corporate Bond and International
Bond Portfolios may enter into interest rate and currency swaps. The Corporate
Bond Portfolio only enters into such transactions for hedging purposes. The
International Bond Portfolio may enter into such transactions for hedging or
non-hedging purposes. A Portfolio will typically use interest rate swaps to
shorten the effective duration of its portfolio. Interest rate swaps involve the
exchange by a Portfolio with another party of their respective rights to receive
interest, e.g., an exchange of fixed rate payments for floating rate payments.
For example, if the Corporate Bond Portfolio holds an interest-paying security
whose interest rate is reset once a year, it may swap the right to receive
interest at this fixed rate for the right to receive interest at a rate that is
reset daily. Such a swap position would offset changes in the value of the
underlying security because of subsequent changes in interest rates. It is
designed to protect the Corporate Bond Portfolio from a decline in the value of
the underlying security due to rising rates, but would also limit its ability to
benefit from falling interest rates. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.
A Portfolio will only enter into interest rate swaps on a net basis,
which means that the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that a
Portfolio is contractually obligated to make. If the other party to an interest
rate swap defaults, a Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations.
POTENTIAL RISKS OF OPTIONS, FUTURES, FORWARD CONTRACTS AND SWAPS. The
use of options, futures, forward contracts and swaps is highly specialized
activity which involves investment techniques and risks different from those
associated with customary investments. If Bank of America should be incorrect in
its
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forecasts of market values, interest rates or currency exchange rates, a
Portfolio may not achieve the anticipated benefits of the techniques or may
realize losses, and its investment performance may be less favorable than if
these strategies had not been used. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a
Portfolio may be exposed to risk of loss. The loss incurred by a Portfolio in
entering into futures contracts and in writing call options on futures contracts
is potentially unlimited and may exceed the amount of the premium received.
Futures markets are highly volatile and the use of futures may increase the
volatility of a Portfolio's net asset value. In addition, because of the low
margin deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Portfolio.
A Portfolio's ability to dispose of its positions in futures contracts, options
and forward contracts will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of
securities are relatively new and still developing. If a secondary market does
not exist with respect to an option purchased or written by a Portfolio
over-the-counter, it might not be possible to effect a closing transaction in
the option (i.e., dispose of the option) with the result that (i) an option
purchased by a Portfolio would have to be exercised in order for that Portfolio
to realize any profit and (ii) a Portfolio may not be able to sell portfolio
securities covering an option written by it until the option expires or it
delivers the underlying futures contract upon exercise. Therefore, no assurance
can be given that a Portfolio will be able to utilize these instruments
effectively for the purposes set forth above.
ASSET-BACKED SECURITIES. The Asset Allocation, Corporate Bond and Bond
Portfolios may purchase asset-backed securities. Asset-backed securities consist
of undivided fractional interests in pools of mortgages, consumer loans or
receivables held in a trust. Examples include mortgage-backed securities,
certificates for automobile receivables (CARS) and credit card receivables
(CARDS). Payments of principal and interest on the mortgages, loans or
receivables are passed through to certificate holders. Asset-backed securities
may be issued by either governmental or non-governmental entities. Payment on
asset-backed securities of private issuers is typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited
guaranty, or subordination. The extent of credit enhancement varies, but usually
amounts to only a fraction of the asset-backed security's par value until
exhausted. Ultimately, asset-backed securities are dependent upon payment of the
mortgages, consumer loans or receivables by individuals, and the certificate
holder frequently has no recourse to the entity that originated the loans
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or receivables. All asset-backed securities purchased by a Portfolio will either
be issued or guaranteed by a U.S. Government entity or rated AAA by S&P, Aaa by
Moody's or have an equivalent rating from any other rating agency.
RISKS ASSOCIATED WITH ASSET-BACKED SECURITIES. An asset-backed
security's underlying assets may be prepaid with the result of shortening the
certificate's weighted average life. Prepayment rates vary widely and may be
affected by changes in market interest rates. It is not possible to accurately
predict the average life of a particular pool of mortgages, loans or
receivables. The proceeds of prepayments received by the Asset Allocation,
Corporate Bond and Bond Portfolios must be reinvested in securities whose yields
reflect interest rates prevailing at the time. Thus, a Portfolio's ability to
maintain a portfolio which includes high-yielding asset-backed securities will
be adversely affected to the extent reinvestments are in lower yielding
securities. The actual maturity and realized yield will therefore vary based
upon the prepayment experience of the underlying asset pool and prevailing
interest rates at the time of prepayment. Asset-backed securities may be subject
to greater risk of default during periods of economic downturn than other
instruments. Also, while the secondary market for asset-backed securities is
ordinarily quite liquid, in times of financial stress the secondary market may
not be as liquid as the market for other types of securities, which could result
in a Portfolio's experiencing difficulty in valuing or liquidating such
securities.
RISKS RELATED TO INTEREST RATE CHANGES. Mutual funds that invest solely
in fixed income securities are subject to interest rate risk. In general, bond
prices vary inversely with changes in interest rates. As a result, bond prices
tend to rise when interest rates fall and conversely, decrease during periods of
falling interest rates. Thus, the Bond Portfolio's net asset value per share is
expected to vary with changes in interest rates. The Bond Portfolio's
investments will normally fall when prevailing interest rates rise and rise when
interest rates fall. Interest rate fluctuations can be expected to affect
earnings. In an effort to preserve the capital of the Bond Portfolio when
interest rates are generally rising, Bank of America may shorten the average
weighted maturity of the securities in the Bond Portfolio's investments. Because
the principal values of the securities with shorter maturities are less affected
by rising interest rates, a portfolio with a shorter average weighted maturity
will generally diminish less in value during such periods than a portfolio with
a longer average weighted maturity. Because securities with shorter maturities,
however, generally have a lower yield to maturity, the Bond Portfolio's current
return based on its net asset value will generally be lower as a result of such
action than it would have been had such action not been taken.
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RISKS ASSOCIATED WITH HIGH YIELD/HIGH RISK SECURITIES. While any
investment carries some risk, some of the risks associated with lower-rated
securities are different from the risks associated with investment grade
securities. The risk of loss through default is greater because lower-rated
securities are usually unsecured and are often subordinate to an issuer's other
obligations. Additionally, the issuers of these securities frequently have high
debt levels and are thus more sensitive to difficult economic conditions,
individual corporate developments and rising interest rates. Consequently, the
market price of these securities, and the net asset value of a Portfolio's
shares, may be quite volatile.
RELATIVE YOUTH OF LOWER-RATED SECURITIES' MARKET. Because the market
for lower-rated securities, at least in its present size and form, is relatively
new, there remains some uncertainty about its performance level under adverse
market and economic environments. An economic downturn or increase in interest
rates could have a negative impact on both the market for lower-rated securities
(resulting in a greater number of bond defaults) and the value of lower-rated
securities held in a Portfolio's portfolio.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and
interest rates can affect lower-rated securities differently than other
securities. For example, the prices of lower-rated securities are more sensitive
to adverse economic changes or individual corporate developments than are the
prices of higher-rated investments.
Also, during an economic downturn or a period in which interest rates
are rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.
If the issuer of a security defaults, a Portfolio may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty would
likely result in increased volatility for the market prices of lower-rated
securities as well as the Portfolio's net asset value. In general, both the
prices and yields of lower-rated securities will fluctuate.
LIQUIDITY AND VALUATION. In certain circumstances it may be difficult
to determine a security's fair value due to a lack of reliable objective
information. Such instances occur when there is not an established secondary
market for the security or the security is thinly traded. As a result, a
Portfolio's valuation of a security and the price it is actually able to obtain
when it sells the security could differ.
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Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of lower-rated
securities held by a Portfolio, especially in a thinly traded market. Illiquid
or restricted securities held by a Portfolio may involve special registration
responsibilities, liabilities and costs, and could involve other liquidity and
valuation difficulties.
CONGRESSIONAL PROPOSALS. Current laws, as well as pending proposals,
may have a material impact on the market for lower-rated securities.
CREDIT RATINGS. S&P, Moody's and other nationally recognized
statistical rating organizations evaluate the safety of a lower-rated security's
principal and interest payments, but do not address market value risk. Because
the ratings of the rating agencies may not always reflect current conditions and
events, in addition to using recognized rating agencies and other sources, Bank
of America performs its own analysis of the issuers whose lower-rated securities
a Portfolio purchases. Because of this, a Portfolio's performance may depend
more on the investment adviser's own credit analysis than is the case for mutual
funds investing in higher rated securities.
In selecting lower-rated securities, Bank of America considers factors
such as those relating to the creditworthiness of issuers, the ratings and
performance of the lower-rated securities, the protections afforded the
lower-rated securities and the diversity of the Portfolio's portfolio. Bank of
America continuously monitors the issuers of lower-rated securities held in a
Portfolio's portfolio for their ability to make required principal and interest
payments, as well as in an effort to control the liquidity of the Portfolio's
portfolio so that it can meet redemption requests.
If a portfolio security undergoes a rating revision, a Portfolio may
continue to hold the security if Bank of America determines such retention is
warranted.
PARTICIPATIONS. The Corporate Bond Portfolio may purchase from domestic
financial institutions participation interests in high quality debt securities.
A participation interest gives the Corporate Bond Portfolio an undivided
interest in the security in the proportion that the Corporate Bond Portfolio's
participation interest bears to the total principal amount of the security.
Participation interests may have fixed, floating or variable rates of interest,
and will have remaining maturities of thirteen months or less (as defined by the
Securities and Exchange Commission). The Corporate Bond Portfolio intends only
to purchase participations from an entity or syndicate, and does not intend to
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serve as a co-lender in any participation. For certain participation interests,
the Corporate Bond Portfolio will have the right to demand payment, on not more
than 30 days' notice, for all or any part of the Corporate Bond Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, the Corporate Bond Portfolio intends to exercise its right to
demand payment only upon a default under the terms of the security, as needed to
provide liquidity, or to maintain or improve the quality of its investment
portfolio. It is possible that a participation interest might be deemed to be an
extension of credit by the Corporate Bond Portfolio to the issuing financial
institution that is not a direct interest in the credit of the obligor of the
underlying security and is not directly entitled to the protection of any
collateral security provided by such obligor. In such event, the ability of the
Corporate Bond Portfolio to obtain repayment might depend on the issuing
financial institution.
REPURCHASE AGREEMENTS. Each Portfolio may buy securities subject to the
seller's agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements.
A Portfolio will enter into repurchase agreements only with financial
institutions (such as banks and broker-dealers) deemed creditworthy by Bank of
America under guidelines approved by the Board of Trustees. It is intended that
such agreements will not have maturities longer than 60 days. Repurchase
agreements maturing in more than seven days are considered to be illiquid
investments and investment in such repurchase agreements along with any other
illiquid securities will not exceed 15% of the value of the net assets of a
Portfolio (10% with respect to the Asset Allocation, Blue Chip and Bond
Portfolios). During the term of any repurchase agreement the seller must
maintain the value of the securities subject to the agreement in an amount that
is greater than the repurchase price. Bank of America then continually monitors
that value. Nonetheless, should the seller default on its obligations under the
agreement, a Portfolio would be exposed to possible loss due to adverse market
action or delays connected with the disposition of the underlying obligations.
With respect to the Asset Allocation, Blue Chip and Bond Portfolios,
repurchase agreements maturing in more than seven days will not exceed 10% of
the total assets of a Portfolio (See "Investment Restrictions"). The Asset
Allocation, Blue Chip and Bond Portfolios will only acquire securities from
either a bank which has a commercial paper rating of A-2 or better by S&P or
Prime-2 or better by Moody's (or the equivalent from another NRSRO) or a
registered broker-dealer. The Asset Allocation, Blue Chip and Bond Portfolios
will only enter into repurchase agreements for debt obligations issued or
guaranteed by the U.S. Government, its
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agencies or instrumentalities, certificates of deposit, bankers' acceptance or
commercial paper.
Repurchase Agreements are considered to be loans under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio (except for the
Short-Term Government Portfolio) may borrow money for temporary purposes by
entering into transactions called reverse repurchase agreements. Under these
agreements a Portfolio sells portfolio securities to financial institutions
(such as banks and broker-dealers) and agrees to buy them back later at an
agreed upon time and price. When a Portfolio enters into a reverse repurchase
agreement, it places in a separate custodial account either liquid assets or
other high grade debt securities that have a value equal to or greater than the
repurchase price. The account is then continuously monitored by the Bank of
America to make sure that an appropriate value is maintained.
Reverse repurchase agreements involve the risk that the value of
portfolio securities a Portfolio relinquishes may decline below the price the
Portfolio must pay when the transaction closes. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Borrowings may magnify the
potential for loss or gain on amounts invested resulting in an increase in the
speculative character of a Portfolio's outstanding shares. A Portfolio will only
enter into reverse repurchase agreements to avoid the need to sell portfolio
securities to meet redemption requests during unfavorable market conditions.
With respect to the Asset Allocation, Blue Chip and Bond Portfolios, a
Portfolio will only enter into reverse repurchase agreements with banks which
have a commercial paper rating of A-2 or better by S&P or Prime-2 or better by
Moody's, or the equivalent from another NRSRO.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when-issued" basis and purchase or
sell securities on a "forward commitment" basis. Additionally, the Corporate
Bond, Growth and Income, International Bond, International Equity, Short-Term
Government and Utilities Portfolios may purchase or sell securities on a
"delayed settlement" basis. When-issued and forward commitment transactions,
which involve a commitment by a Portfolio to purchase or sell particular
securities with payment and delivery taking place at a future date (perhaps one
or two months later), permit a Portfolio to lock in a price or yield on a
security it owns or intends to purchase, regardless of future changes in
interest rates. Delayed settlement refers to a transaction in the secondary
market that will settle some time in the future. These
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transactions involve the risk that the price or yield obtained may be less
favorable than the price or yield available when the delivery takes place. The
Portfolios will set aside in a segregated account cash or liquid securities
equal to the amount of any when-issued, forward commitment or delayed settlement
transactions. When-issued purchases, forward commitments and delayed settlements
are not expected to exceed 25% of the value of a Portfolio's total assets under
normal circumstances. These transactions will not be entered into for
speculative purposes, but primarily in order to hedge against anticipated
changes in interest rates.
SECURITIES LENDING. In order to earn additional income, a Portfolio may
lend its portfolio securities to financial institutions (such as banks and
brokers) that Bank of America considers to be of good standing. If the financial
institution should become bankrupt, however, the particular Portfolio could
experience delays in recovering its securities. A securities loan will only be
made when, in the judgment of Bank of America, the possible reward from the loan
justifies the possible risks. In addition, such loans will not be made if, as a
result, the value of securities loaned by a Portfolio exceeds 30% (10% with
respect to the Asset Allocation, Blue Chip and Bond Portfolios) of its total
assets. Securities loans will be fully collateralized.
ILLIQUID SECURITIES. A Portfolio will not invest more than 15% (10%
with respect to the Asset Allocation, Blue Chip and Bond Portfolios) of the
value of its net assets (determined at the time of acquisition) in securities
that are illiquid. If, after the time of acquisition, events cause this limit to
be exceeded, a Portfolio will take steps to reduce the aggregate amount of
illiquid securities as soon as is reasonably practicable. The Corporate Bond,
Growth and Income, International Bond, International Equity, Short-Term
Government and Utilities Portfolios intend that investments in securities that
are not registered under the Securities Act of 1933 but may be purchased by
institutional buyers under Rule 144A and for which a liquid trading market
exists as determined by the Board of Trustees or Bank of America (pursuant to
guidelines adopted by the Board), will not be subject to a Portfolio's 15%
limitation on illiquid securities.
INVESTMENT COMPANY SECURITIES. The International Bond and International
Equity Portfolios may acquire shares of closed-end investment companies,
including companies that invest in foreign issuers, subject to the requirements
of applicable securities laws. Although these closed-end companies may have
policies that differ from each Portfolio's policies, their management and other
types of expenses will be similar to those borne by the Portfolios.
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In connection with the management of their respective daily cash
positions, the Portfolios may invest in securities issued by other investment
companies which invest in short-term debt securities and which seek to maintain
a $1.00 net asset value per share (i.e., "money market funds") (including money
market funds advised by Bank of America). The Blue Chip and Bond Portfolios may,
subject to their respective policies, invest in securities issued by any
investment company regulated under the 1940 Act whose investment objectives are
consistent with those of the respective Blue Chip and Bond Portfolios. No more
than 10% of the value of a Portfolio's total assets will be invested in
securities of other investment companies, with no more than 5% invested in the
securities of any one investment company; except that if a pending exemptive
order is granted by the Securities and Exchange Commission, with respect to the
investment in a money market mutual fund advised by Bank of America, a Portfolio
is permitted to invest the greater of 5% of its net assets or $2.5 million. In
addition, the Portfolios may each hold no more than 3% of the outstanding voting
stock of any other investment company.
As a shareholder of another investment company, a Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees.
VARIABLE RATE INSTRUMENTS. The Blue Chip, Bond, and Asset Allocation
Portfolios may invest in variable and floating rate instruments, which may
include master demand notes. Although payable on demand by a Portfolio, master
demand notes may not be marketable. Consequently, the ability to redeem such
notes may depend on the borrower's ability to pay which will be continuously
monitored by Bank of America. Such notes will be purchased only from domestic
corporations that either (a) are rated Aa or better by Moody's or AA or better
by S&P, (b) have commercial paper rated at least Prime-2 by Moody's or A-2 by
S&P or the equivalent by another nationally recognized statistical rating
organization ("NRSRO"), (c) are backed by a bank letter of credit or (d) are
determined by Bank of America to be of a quality comparable to securities
described in either clause (a) or (b).
PORTFOLIO TRANSACTIONS. Investment decisions for the Portfolios are
made independently from those for other investment companies and accounts
managed by Bank of America and its affiliated entities. Such other investment
companies and accounts may also invest in the same securities as a Portfolio.
When a purchase or sale of the same security is made at substantially the same
time on behalf of a Portfolio and another investment company or account,
available investments or opportunities for sales will be equitably allocated
pursuant to procedures of Bank of America. In some instances, this investment
procedure may adversely affect
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the price paid or received by a Portfolio or the size of the position obtained
or sold by a Portfolio.
In allocating purchase and sale orders for investment securities, Bank
of America may consider the sale of Portfolio shares by broker-dealers and other
financial institutions (including affiliates of Bank of America to the extent
permitted by law), provided it believes the quality of the transaction and the
price to the Portfolio are not less favorable than what they would be with any
other qualified firm.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective is a fundamental policy that may
not be changed without the approval of Investors holding a majority of such
Portfolio's outstanding Beneficial Interests (as defined in the 1940 Act). The
other investment policies of a Portfolio stated herein may be changed without
the approval of such Portfolio's Investors, except for the fundamental
investment limitations set forth below, and certain other fundamental
limitations set forth in Part B.
THE ASSET ALLOCATION, BLUE CHIP AND BOND PORTFOLIOS MAY NOT:
1. Purchase securities (except securities issued by the United States
Government, its agencies instrumentalities) if, as a result, more than
5% of the value of the total assets of any Portfolio would be invested
in the securities of any one issuer or any Portfolio would own more
than 10% of the voting securities of such issuer, except that up to 25%
of the total assets of any Portfolio may be invested without regard to
these limitations;
2. Make loans to other persons, except that a Portfolio may make time or
demand deposits with banks, provided that time deposits shall not have
an aggregate value in excess of 10% of a Portfolio's net assets, and
may purchase bonds, debentures or similar obligations that are publicly
distributed, may loan portfolio securities not in excess of 10% of the
value of the total assets of such Portfolio, and may enter into
repurchase agreements as long as repurchase agreements maturing in more
than seven days do not exceed 10% of the value of the total assets of a
Portfolio;
3. Purchase or sell commodities contracts, except that any Portfolio may
purchase or sell futures contracts on financial instruments, such as
bank certificates of deposit and U.S. Government securities, foreign
currencies and stock indexes and options on any such futures if such
options are written by other persons and if (i) the futures or options
are listed on
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a national securities or commodities exchange, (ii) the aggregate
premiums paid on all such options that are held at any time do not
exceed 20% of the total net assets of that Portfolio and (iii) the
aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the total assets of that
Portfolio; and
4. Invest the assets of any Portfolio in nonmarketable securities that are
not readily marketable (including repurchase agreements maturing in
more than seven days, securities described in paragraph (2) above,
restricted securities, certain OTC options and securities used as cover
for such options and stripped mortgage-backed securities) to any extent
greater than 10% of the value of the total assets of that Portfolio.
THE CORPORATE BOND PORTFOLIO MAY NOT:
1. Purchase securities (except securities issued by the U.S. Government,
its agencies or instrumentalities) if, as a result more than 5% of its
total assets will be invested in the securities of any one issuer,
except that up to 25% of its total assets may be invested without
regard to this 5% limitation;
2. Make loans, although it may invest in debt securities, enter into
repurchase agreements and lend its portfolio securities as discussed
herein; and
3. Purchase or sell commodities or commodity contracts, or invest in oil,
gas or mineral exploration or development programs, except that: (a) it
may, to the extent appropriate to its investment objective, invest in
securities issued by companies which purchase or sell commodities or
commodity contracts or which invest in such programs; and (b) it may
purchase and sell futures contracts and options on futures contracts.
NEITHER THE GROWTH AND INCOME, THE INTERNATIONAL EQUITY, THE INTERNATIONAL BOND
NOR THE SHORT-TERM GOVERNMENT PORTFOLIOS MAY:
1. Issue senior securities or borrow money except for temporary purposes
in amounts up to 10% of its total assets; and
2. Make loans, except investments in debt securities, repurchase
agreements and securities loans as discussed herein.
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THE UTILITIES PORTFOLIO MAY NOT:
1. Under normal circumstances invest less than 25% of its total assets in
Utility Securities;
2. Issue senior securities or borrow money except for temporary purposes
in amounts up to 10% of its total assets; and
3. Make loans, except investments in debt securities, repurchase
agreements and securities loans as discussed herein.
A complete list of the fundamental investment limitations of the Portfolios is
set out in full in Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIOS.
The business and affairs of the Trust are managed under the direction
of its Board of Trustees. The offices of the Trust are located in the Cayman
Islands.
Bank of America serves as investment adviser to the Portfolios. Bank of
America is a subsidiary of BankAmerica Corporation, a registered bank holding
company. Its principal offices are located at 555 California Street, San
Francisco, California 94104.
Formed in 1904, Bank of America is a national banking association that
provides commercial banking and trust business through an extensive system of
branches across the western United States. Bank of America's principal banking
affiliates operate branches in eleven U.S. states as well as corporate banking
offices in major U.S. cities and branches, and corporate offices and
representative offices in 37 foreign countries and territories. Bank of America
and its affiliates have over $50 billion under management, including over $14
billion in mutual funds.
Bank of America acts as the investment adviser to each Portfolio other
than the Corporate Bond Portfolio pursuant to an investment advisory agreement
with the Trust dated November 1, 1994 (the "Investment Advisory Agreement"), and
acts as the investment adviser to the Corporate Bond Portfolio pursuant to an
Addendum dated December 7, 1993 to an investment advisory agreement with the
Trust dated October 25, 1993 (the "Prior Advisory Agreement"). Prior to November
1, 1994, Bank of America, acted as the investment adviser to each Portfolio
pursuant to the Prior Advisory Agreement, as amended. In its advisory
agreements, Bank of America has agreed to manage each Portfolio's investments
and to be responsible for, place orders for, and make decisions with respect to,
all purchases and sales of the securities held by the Portfolios.
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The Investment Advisory Agreement also provides that Bank of America
may, in its discretion, provide advisory services through its own employees or
employees of one or more of its affiliates that are under the common control of
Bank of America's parent, BankAmerica Corporation, provided such employees are
under the management of Bank of America. This provision does not apply to the
Prior Advisory Agreement with respect to the Corporate Bond Portfolio. Both
advisory agreements permit Bank of America to employ a sub-adviser, provided
Bank of America remains fully responsible to the respective Portfolio for the
acts and omissions of that sub-adviser.
For the services provided and the expenses assumed under the advisory
agreements, Bank of America is entitled to receive fees at an annual rate of
.25% of the average daily net assets of the Short-Term Government Portfolio,
.30% of the Bond Portfolio's average daily net assets, .45% of the respective
average daily net assets of the Corporate Bond and International Bond
Portfolios, .50% of the average daily net assets of the Utilities and Blue Chip
Portfolios, .55% of the respective average daily net assets of the Asset
Allocation and Growth and Income Portfolios, and .75% of the average daily net
assets of the International Equity Portfolio. Prior to June 23, 1997 Bank of
America was entitled to receive an investment advisory fee at the annual rate of
0.75% and 0.45% of the Blue Chip and Bond Portfolio's respective average daily
net assets. The fee paid by the Blue Chip and International Equity Portfolios is
higher than that paid by most other investment companies, but is comparable to
the fees paid by other investment companies with similar investment objectives
and policies. These fees may be reduced pursuant to undertakings by Bank of
America. Subject to expense limitations imposed by applicable state securities
regulations, Bank of America may terminate any fee waiver at any time.
During the fiscal year ended February 28, 1997, Bank of America waived
its entire investment advisory fee payable by the Corporate Bond Portfolio. For
the same period, the Blue Chip, Bond and Asset Allocation Portfolios paid Bank
of America advisory fees at an effective annual rate of .48%, .17% and .12% of
their respective average daily net assets, and Bank of America waived a portion
of its fees at an effective annual rate of .27%, .28% and .43% of the respective
Portfolio's average daily net assets. No other Portfolios had commenced
operation during this period.
Portfolio securities may not be purchased from or sold to Bank of
America or any affiliated persons (as defined in the 1940 Act) of Bank of
America except as may be permitted by the Securities and Exchange Commission.
Affiliated persons of Bank of America include BankAmerica Corporation, Seafirst
Corporation, and each of their subsidiaries, its officers and directors.
A-39
<PAGE> 42
Bank of America will pay expenses of all employees, office space and
facilities necessary to carry out duties under the advisory agreement, and all
other expenses incurred by it in connection with acting as investment adviser
other than costs (including taxes and brokerages commissions) of securities
purchased for the Portfolios. All other expenses incurred in the investment
operations of the Portfolios are borne by the Portfolios.
PORTFOLIO MANAGEMENT
BLUE CHIP PORTFOLIO. Bank of America Illinois' Investment Advisors
Division is responsible for the day-to-day investment activities of the Blue
Chip Portfolio. The investment management team is headed by James Miller,
Executive Vice President and Chief Investment Officer of B of A Illinois (a
wholly-owned subsidiary of BankAmerica Corporation). Mr. Miller has been the
Blue Chip Portfolio's manager since May 1995 and has been associated with B of A
Illinois Investment Management (and its predecessor Continental Bank) since
1988. Mr. Miller is a Chartered Financial Analyst, a member of the Association
of Investment Management and Research and a former Director of the Investment
Analysts Society of Chicago.
BOND PORTFOLIO. Portfolio management services for this Portfolio is
conducted by the Fixed Income Division of the Investment Management Services
Group of Bank of America since May 1996, with no one person primarily
responsible for making recommendations to that committee.
GROWTH AND INCOME, INTERNATIONAL BOND, UTILITIES, ASSET ALLOCATION,
CORPORATE BOND, SHORT-TERM GOVERNMENT AND INTERNATIONAL EQUITY PORTFOLIOS. As of
the date of this Registration Statement, the Growth and Income, International
Bond, Utilities and Short-Term Government Portfolios have not commenced
investment operations, and no portfolio managers have been named. In addition,
during the fiscal year ended February 28, 1997 the Asset Allocation Portfolio,
Corporate Bond Portfolio, and International Equity Portfolio have ceased
operating.
THE ADMINISTRATOR
The BISYS Group, Inc. ("BISYS"), through its wholly-owned subsidiary,
BISYS Fund Services, L.P., and off-shore subsidiaries, serves as administrator
of the Portfolios. Their offices are located at 150 Clove Road, Little Falls,
New Jersey 07424 and 3435 Stelzer Road, Columbus, Ohio, 43219-3435. Prior to
November 1, 1996, Concord Holding Corporation, an indirect, wholly-owned
subsidiary of BISYS, served as administrator through its off-shore affiliate.
A-40
<PAGE> 43
Services for which BISYS is responsible include providing a facility to
receive purchase and redemption orders; providing statistical and research data,
data processing services, clerical, accounting and bookkeeping services, and
internal auditing and legal services; coordinating the preparation of reports to
Investors and reports to the Securities and Exchange Commission; preparing tax
returns; maintaining or overseeing the maintenance of books and records of the
Portfolios; calculating the net asset value of the Beneficial Interests; and
generally assisting in all aspects of the Portfolios' operations. For its
services as administrator, BISYS is entitled to receive an administration fee
from the Trust at the annual rate of .05% of each Portfolio's average daily net
assets.
During the fiscal year ended February 28, 1997, Concord and/or BISYS
waived its entire administration fee payable by the Bond and Corporate Bond
Portfolios and also reimbursed a portion of the operating expenses with respect
to the Corporate Bond Portfolio. During the same period, the Asset Allocation
and Blue Chip Portfolios paid BISYS and Concord administration fees at an
effective annual rate of .01% and .03% of the Portfolio's respective average
daily net assets and BISYS and Concord waived a portion of their fees at an
effective annual rate of .04% and 0.2% of the respective Portfolio's average
daily net assets. No other Portfolio had commenced operations during this
period.
Pursuant the authority granted in its administration agreement, BISYS
or a subcontractor has entered into an agreement with PFPC, Inc. ("PFPC"), 103
Bellevue Parkway, Wilmington, DE 19809, under which PFPC, and an off-shore
affiliate of PFPC, perform certain accounting, bookkeeping, pricing, and
distribution calculation services to the Portfolios. PFPC and its off-shore
affiliate are affiliates of PNC Bank, National Association, the Trust's
custodian, and are engaged in providing administrative and accounting services
to investment companies. The Portfolios bear the fees and expenses charged by
PFPC for its services.
Concord (Cayman Islands) Limited provides the principal office of the
Trust in the Cayman Islands and maintains certain books and records of the
Trust, for an annual fee of $3,000 (plus expenses) payable by the Trust. Concord
(Cayman Islands) Limited is a wholly-owned subsidiary of Concord and has been
licensed in the Cayman Islands as a Mutual Fund Administrator. Its principal
offices are located at P.O. Box 30122 SMB, Grand Cayman, Cayman Islands, British
West Indies.
A-41
<PAGE> 44
CUSTODIAN
PNC Bank, National Association, 1600 Market Street, 28th Floor,
Philadelphia, Pennsylvania 19103, acts as custodian of the assets of the Trust.
EXPENSES
Each Portfolio is responsible for its operating expenses, other than
expenses assumed by Bank of America under the advisory agreements and by Concord
under the administration agreement. The expenses paid by the Trust include but
are not limited to advisory fees; brokerage fees and commissions in connection
with the purchase of portfolio securities; administration fees; taxes, if any;
custodian, legal and auditing fees; fees and expenses of trustees who are not
interested persons of Bank of America; printing and other expenses relating to
the Portfolios' operations; and any extraordinary fees and expenses.
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Not applicable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Trust was organized on October 26, 1992 as a Delaware business
trust. The Trust's Declaration of Trust authorizes the Board to issue an
unlimited number of Beneficial Interests and to establish and designate such
Beneficial Interests into one or more series. Beneficial Interests may be
purchased only by institutional investors which are "accredited investors"
within the meaning of Regulation D under the Securities Act of 1933, as amended
(the "1933 Act"), and may not be purchased by individuals, S corporations,
partnerships or grantor trusts. The number of Investors may not exceed 500.
No certificates will be issued to evidence such Beneficial Interests.
Pursuant to such authority, the Board has established and designated each of the
Portfolios as separate series of the Trust.
VOTING AND OTHER RIGHTS
Each Investor is entitled to vote in proportion to its Beneficial
Interests. Beneficial Interests will vote by individual series, and not in the
aggregate, unless voting in the aggregate is required by the 1940 Act. If the
trustees determine that a matter affects only a particular series, only the
Beneficial Interests in that series will be entitled to vote on the matter.
Investors are entitled to participate in the Portfolio's net distributable
assets
A-42
<PAGE> 45
on liquidation. Beneficial Interests have no preemptive, conversion or exchange
rights, nor do they have transfer rights other than to the Trust. Shareholder
inquiries should be in writing addressed to PFPC International, Ltd., 80
Harcourt Street, Dublin 2, Ireland.
As used in this Registration Statement, a "vote of a majority" of the
outstanding Beneficial Interests of the Trust or a Portfolio means, with respect
to the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (i) more than 50% of
the outstanding Beneficial Interests of the Trust or a Portfolio, or (ii) 67% or
more of the Beneficial Interests of the Trust or Portfolio present at a meeting
at which more than 50% of the outstanding Beneficial Interests of the Trust or
Portfolio are represented in person or by proxy.
The Trust does not presently intend to hold annual meetings of
Investors for the election of trustees and other business unless and until such
time as less than a majority of the trustees holding office have been elected by
the Investors, at which time the trustees then in office will call a meeting of
Investors for the election of trustees. Investors have the right to call a
meeting of Investors to consider the removal of one or more trustees or certain
other matters, and such meetings will be called when requested by the holders of
record of 10% or more of the Trust's outstanding Beneficial Interests. To the
extent required by law and the Trust's undertaking with the Securities and
Exchange Commission, the Trust will assist Investors in communications in such
matters. As stated above under "General Description of Registrant," the
investment objectives of the respective Portfolios and certain of their
investment restrictions are fundamental policies and may not be changed without
the votes of their respective Investors.
Investors do not have cumulative voting rights, and accordingly the
holders of more than 50% of the Beneficial Interests may elect all of the
Trustees. Trustees may be removed by the affirmative vote of the holders of at
least two-thirds of the outstanding Beneficial Interests. Derivative actions on
behalf of the Trust may be brought by the holders of at least 10% of the then
outstanding Beneficial Interests.
As with any mutual fund, certain Investors in a Portfolio could control
the results of voting in certain instances. This could result in the withdrawal
by one or more other Investors of their investment in such Portfolio, and in
increased costs and expenses for the remaining Investors. In addition, the total
withdrawal by any Investor in a Portfolio will cause that Portfolio to
automatically terminate in 120 days, unless all other Investors
A-43
<PAGE> 46
in such Portfolio unanimously agree to continue the business of the Portfolio.
The policy of investment companies to invest their investable assets in trusts
such as the Trust is a relatively recent development in the mutual fund industry
and, consequently, there is a lack of substantial experience in the operation of
this type of structure.
LIABILITIES
Investors in a Portfolio will each be personally and jointly and
severally liable with each of the other Investors (with rights of contribution
inter se in proportion to their respective ownership interests in the Trust) for
all obligations of the Portfolio. However, the risk of an Investor 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. In the event that an Investor becomes liable for the obligations of
a Portfolio, the Portfolio will indemnify each Investor against such liability,
to the extent assets are available in the Trust. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
controlling persons of the Trust as described in the previous sentence, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that
such a claim for indemnification against such liabilities (other than payment by
the Trust of expenses incurred or paid by a controlling person of the Trust in
the successful defense of an action, suit or proceeding) is asserted by such
controlling person in connection with the securities being registered, the Trust
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
DISTRIBUTIONS
Investors are entitled to their pro rata shares of any distributions
arising from the net investment income and net realized gains, if any, earned on
investments held by the Portfolio in which such Investors hold Beneficial
Interests. Each Portfolio will allocate its investment income, expenses, and
realized and unrealized gains and losses daily.
A request for a distribution must be made in writing to Master
Investment Trust, Series I -- Asset Allocation Fund, Blue Chip Fund, Bond Fund,
Corporate Bond Fund, Growth and Income Fund, International Bond Fund,
International Equity Fund, Short-Term
A-44
<PAGE> 47
Government Fund or Utilities Fund, c/o PFPC International, Ltd., 80 Harcourt
Street, Dublin 2, Ireland and will become effective after its receipt by the
Trust.
FEDERAL TAXES
Certain Portfolios of the Trust have received private letter rulings
from the Internal Revenue Service indicating that the Portfolio will be
classified as a partnership rather than as a trust, a publicly traded
partnership or a corporation under the Internal Revenue Code of 1986, as amended
(the "Code"). Management of the Trust intends for each Portfolio to retain such
classification (or otherwise to avoid being treated as a separate taxable entity
such as a corporation) so long as it is in the best interests of such
Portfolio's Investors. Because a Portfolio is classified as a partnership under
the Code or is otherwise not treated as a separate taxable entity, any interest,
dividends, gains and losses of the Portfolio will be deemed to have been "passed
through" to the Investors in the Portfolio, regardless of whether any amounts
are actually distributed by the Portfolio. Therefore, to the extent the Trust
were to accrue but not distribute any interest, dividends or gains, the
Investors would be deemed to have realized and recognized their proportionate
share of interest, dividends, gains and losses realized and recognized by the
Portfolio in which they hold Beneficial Interests without receipt of any
corresponding distribution.
Each Investor will realize its share (as determined in accordance with
the governing instruments of the Trust) of the Trust's ordinary income and
capital gain in determining its taxable income. The determination of such share
will be made in accordance with the Code and the regulations promulgated
thereunder. It is intended that each Portfolio's assets, income and
distributions will be managed in such a way that an Investor in the Portfolio
will be able to satisfy the requirements of Subchapter M of the Code, assuming
that the Investor invested all of its assets in the Portfolio.
Each Portfolio's taxable year-end is the last day of February. Although
the Portfolios do not expect to be subject to federal income tax, they will file
appropriate federal income tax returns.
A taxable gain or loss may be realized by an Investor upon its
redemption or exchange of Beneficial Interests, depending upon the tax basis of
such Beneficial Interests and their value at the time of redemption or exchange.
Investors will be advised at least annually as to their shares of
income, gain, loss or deductions realized or distributions made each year, if
any, by the Portfolio in which they hold Beneficial
A-45
<PAGE> 48
Interests. The foregoing is only a brief summary of some of the important
federal tax considerations generally affecting the Portfolios and their
Investors, and is based on federal tax laws and regulations which are in effect
as of the date of this Registration Statement. Such laws and regulations may be
changed by legislative or administrative actions. Potential Investors in the
Portfolios should consult their tax advisers with specific reference to their
own situations.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Beneficial Interests are issued by the Trust in private placement
transactions which do not involve a "public offering" within the meaning of
Section 4(2) of the 1933 Act. Investments in the Portfolios may only be made by
investment companies or other entities which are "accredited investors" within
the meaning of Regulation D under the 1933 Act. The Portfolios are prohibited by
the Trust's Declaration of Trust from accepting investments from individuals, S
corporations, partnerships and grantor trusts.
An account may be opened by contacting the Trust. There is no minimum
initial or subsequent purchases amount with respect to any Portfolio of the
Trust. The Trust reserves the right to reject any purchase order for any reason.
Securities held by the Portfolio are valued at market value or, where
market quotations are not readily available, at fair value as determined in good
faith by an independent pricing service, under procedures established by the
Board of Trustees. Short-term securities are valued at amortized cost, which
approximates market value. Trading in foreign securities is generally completed
prior to the end of regular trading on U.S. Exchanges. Trading may occur in
foreign securities, however, on Saturdays and U.S. holidays and at other times
when U.S. Exchanges are closed. As a result, there may be delays in reflecting
changes in the market values of foreign securities in the calculation of the net
asset value per share of a Portfolio on days when net asset value is not
calculated and on which shareholders of a Portfolio cannot redeem due to changes
in values of securities traded in foreign markets.
In addition to cash purchases of Beneficial Interests, if accepted by
the Trust, investments in Beneficial Interests of a Portfolio may be made in
exchange for securities which are eligible for purchase by the Portfolio and
consistent with the Portfolio's investment objective and policies as described
above in this Part A. All dividends, interest, subscription, or other rights
pertaining to such securities will become the property of the
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<PAGE> 49
Portfolio and must be delivered to the Portfolio by the Investor upon receipt
from the issuer.
ITEM 8. REDEMPTION OR REPURCHASE.
An Investor may redeem Beneficial Interests in any amount by sending a
written request to Master Investment Trust, Series I -- Asset Allocation Fund,
Blue Chip Fund, Bond Fund, Corporate Bond Fund, Growth and Income Fund,
International Equity Fund, International Bond Fund, Short-Term Government Fund
or Utilities Fund c/o PFPC International, Ltd., 80 Harcourt Street, Dublin 2,
Ireland or calling 353-1-790-3500. Redemption requests must be made by a duly
authorized representative of the Investor and must specify the name of the
Portfolio, the dollar amount to be redeemed and the Investor's name and account
number.
Redemption orders are effected at the net asset value of the Beneficial
Interests next determined after receipt of the order in proper form by the
Trust. The Portfolios will make payment for all Beneficial Interests redeemed
after receipt by PFPC International, Ltd. of a request in proper form, except as
provided by the rules of the Securities and Exchange Commission. The Portfolios
impose no charge when Beneficial Interests are redeemed. The value of the
Beneficial Interests redeemed may be more or less than the Investor's cost,
depending on the Portfolio's current net asset value.
The Trust will wire the proceeds of redemption in federal funds to the
commercial bank specified by the Investor, normally the next business day after
receiving the redemption request and all necessary documents. Wire redemptions
may be terminated or modified by the Trust at any time. An Investor should
contact its bank for information on any charges imposed by the bank in
connection with the receipt of redemption proceeds by wire. During periods of
substantial economic or market change, telephone wire redemptions may be
difficult to implement. If an Investor is unable to contact PFPC International,
Ltd. by telephone, Interests may also be redeemed by mail as described above.
The Trust will act upon the instruction of any person by telephone
deemed by it to be authorized to redeem Beneficial Interests on behalf of an
Investor. Neither the Trust nor any of its service contractors will be liable
for any loss or expense for acting upon telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Trust will use such procedures as are considered
reasonable. To the extent the Trust fails to use reasonable procedures as a
basis for its belief, it and/or its service
A-47
<PAGE> 50
contractors may be liable for instructions that prove to be fraudulent or
unauthorized.
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 New York Stock Exchange (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.
ITEM 9. PENDING LEGAL PROCEEDINGS. Not applicable.
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<PAGE> 51
MASTER INVESTMENT TRUST, SERIES I
PART B
ITEM 10. COVER PAGE. Master Investment Trust, Series I, a Delaware business
trust (the "Trust"), is registered as an open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act"). The Trust is
currently comprised of nine separate series of beneficial interests ("Beneficial
Interests"): the Asset Allocation Fund (the "Asset Allocation Portfolio"), the
Blue Chip Fund (the "Blue Chip Portfolio"), the Investment Grade Bond Fund (the
"Bond Portfolio"), the Corporate Bond Fund (the "Corporate Bond Portfolio"), the
Growth and Income Fund (the "Growth and Income Portfolio"), the International
Bond Fund (the "International Bond Portfolio"), the International Equity Fund
(the "International Equity Portfolio"), the Short-Term Government Fund (the
"Short-Term Government Portfolio"), and the Utilities Fund (the "Utilities
Portfolio") (individually a "Portfolio" collectively, the "Portfolios"). Each of
the Portfolios (except for the International Bond and Utilities Portfolios) is
"diversified" as defined in the 1940 Act. As stated in Part A to this
Registration Statement, the sole unitholder of Beneficial Interests ("Investor")
of each of the Corporate Bond Portfolio, the International Equity Portfolio and
the Asset Allocation Portfolio withdrew its respective investment from the Trust
on September 1, 1996, September 1, 1996 and June 23, 1997. Each of the Corporate
Bond, International Equity and Asset Allocation Portfolios ceased operations as
of the date of withdrawal by its respective sole Investor. As of the date of
this Registration Statement, the Utilities, Growth and Income, Short-Term
Government and International Bond Portfolios have not commenced operations.
This Part B is not a prospectus and should be read in conjunction with
Part A. This Part B is incorporated by reference in its entirety into Part A.
All terms used in this Part B that are not otherwise defined herein have the
meanings assigned to them in Part A. A copy of Part A may be obtained by writing
to PFPC International, Ltd., 80 Harcourt Street, Dublin 2, Ireland.
The date of this Part B is June 30, 1997.
ITEM 11. TABLE OF CONTENTS.
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
General Information and History B-2
Investment Objectives and Policies B-2
</TABLE>
B-1
<PAGE> 52
<TABLE>
<S> <C>
Management of the Portfolio B-31
Control Persons and Principal Holders
of Securities B-34
Investment Advisory and Other Services B-35
Brokerage Allocation and Other Practices B-42
Capital Stock and Other Securities B-44
Purchase, Redemption and Pricing of Securities
Being Offered B-46
Tax Status B-48
Underwriters B-51
Calculations of Performance Data B-52
Financial Statements B-52
</TABLE>
ITEM 12. GENERAL INFORMATION AND HISTORY. Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
PORTFOLIO TRANSACTIONS
Each Portfolio's turnover rate is calculated by dividing the lesser of
purchases or sales of its portfolio securities for the year by the monthly
average value of its portfolio securities. The calculation excludes all
securities with maturities at the time of acquisition of one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may also be affected by cash requirements for redemptions
of Beneficial Interests and by requirements which enable an Investor to receive
certain favorable tax treatment. Portfolio turnover will not be a limiting
factor in making portfolio decisions for the Portfolios. For the fiscal years
indicated, the portfolio turnover rates for the Asset Allocation, Blue Chip and
Bond Portfolios were as follows:
<TABLE>
<CAPTION>
==========================================================================================
Year Ended Year Ended Year Ended
February 28, 1997 February 29, 1996 February 28, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Portfolio 83% 172% 240%
- ------------------------------------------------------------------------------------------
Blue Chip Portfolio 91% 108% 44%
- ------------------------------------------------------------------------------------------
Asset Allocation Portfolio 116% 157% 142%
==========================================================================================
</TABLE>
B-2
<PAGE> 53
For the fiscal year and periods indicated, the portfolio
turnover rates for the Corporate Bond Portfolio were as follows:
<TABLE>
<CAPTION>
======================================================================================
Period April 25,
Period 1994
Period Ended October 1, (commencement
September 1, 1996 Year Ended 1994 through of operations)
(cessation of February 29, February 28, through
activities) 1996 1995 September 30, 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate 34.83% 96% 124%(1,2) 51%(1)
Bond
Portfolio
======================================================================================
</TABLE>
- --------------------
(1) Not annualized
(2) The increase in portfolio turnover was attributable to volatility in
the market and good trading opportunities which resulted in the
increased opportunity to improve the relative value of the Corporate
Bond Portfolio.
For the period indicated, the portfolio turnover rate for the
International Equity Portfolio was as follows:
<TABLE>
<CAPTION>
=========================================================================
Period May 13, 1996
(commencement of operations)
through September 1, 1996
(cessation of operations)
- -------------------------------------------------------------------------
<S> <C>
International Equity Portfolio 129%
=========================================================================
</TABLE>
As of February 28, 1997 the other Portfolios had not commenced
investment operations.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT INFORMATION
The following discussion supplements the descriptions of such
investments in the Prospectuses.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
Each Portfolio may acquire certificates of deposit, bankers' acceptances and
time deposits. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning,
B-3
<PAGE> 54
in effect, that the bank unconditionally agrees to pay the face value of the
instrument on maturity. Certificates of deposit and banker's acceptances may
only be purchased from domestic or foreign banks and financial institutions
having total assets at the time of purchase in excess of $2.5 billion (including
assets of both domestic and foreign branches). Time deposits are non-negotiable
deposits maintained at a banking institution for a specified period of time at a
specified interest rate.
Instruments issued by foreign banks or financial institutions may be
subject to investment risks that are different in some respects than the risks
associated with instruments issued by those U.S. domestic issuers. Such risks
include future political and economic developments, the possible imposition of
withholding taxes by the particular country in which the issuer is located on
interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amounts and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations.
COMMERCIAL PAPER AND SHORT-TERM NOTES. Each Portfolio (except for the
Short-Term Government Portfolio) may invest a portion of its assets in
commercial paper and short-term notes. Commercial paper consists of unsecured
promissory notes issued by corporations. Except as noted below with respect to
variable and floating rate instruments, issues of commercial paper and
short-term notes will normally have maturities of less than 9 months and fixed
rates of return, although such instruments may have maturities of up to one
year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase A-1 or better by Standard & Poor's Rating Group, Division
of McGraw Hill ("S&P"), Prime-1 by Moody's
B-4
<PAGE> 55
Investors Service, Inc. ("Moody's"), or similarly rated by another nationally
recognized statistical rating organization ("NRSRO") in the case of purchases by
the Growth and Income, International Bond, International Equity and Utilities
Portfolios and A-2 or better by S&P, Prime-2 by Moody's or similarly rated by
another NRSRO in the case of purchases by the Asset Allocation, Blue Chip, Bond
and Corporate Bond Portfolios. The rating symbols are described in Appendix A to
this Part B.
CONVERTIBLE SECURITIES. The Corporate Bond, Growth and Income,
International Equity, International Bond and Utilities Portfolios may invest in
convertible securities. Convertible securities entitle the holder to receive
interest paid or accrued on debt or the dividend paid on preferred stock until
the convertible securities mature or are redeemed, converted or exchanged. Prior
to conversion, convertible securities have characteristics similar to ordinary
debt securities in that they normally provide a stable stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
In selecting convertible securities for a Portfolio, Bank of America
will consider, among other factors, its evaluation of the creditworthiness of
the issuers of the securities; the interest or dividend income generated by the
securities; the potential for capital appreciation of the securities and the
underlying stocks; the prices of the securities relative to other comparable
securities and to the underlying stocks; whether the securities are entitled to
the benefits of sinking funds or other protective conditions; diversification of
the Portfolio as to issuers; and whether the securities are rated by Moody's,
S&P, Duff & Phelps Credit Rating Co. ("D&P") or Fitch Investors Service, Inc.
("Fitch") and, if so, the ratings assigned.
The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying stock). The investment value of convertible securities is influenced
by changes in interest rates, with investment value declining as interest rates
rise and increasing as interest rates decline, and by the credit standing of the
issuer and other factors. The conversion value of convertible securities is
determined by the market price of the underlying stock. If the conversion value
is low relative to the investment value, the price of the convertible securities
is governed principally by their investment value. To
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the extent the market price of the underlying stock approaches or exceeds the
conversion price, the price of the convertible securities will be increasingly
influenced by their conversion value. In addition, convertible securities
generally sell at a premium over their conversion value determined by the extent
to which investors place value on the right to acquire the underlying stock
while holding fixed income securities.
The Portfolios may convert Convertible Securities during periods when
market conditions are unfavorable for their disposition or as a result of
developments such as the issuer's call or a decline in the market liquidity for
such Convertible Securities. The securities obtained upon the conversion may be
retained for temporary periods of not greater than two months after conversion,
and during such periods such securities will be considered to be Convertible
Securities for purposes of complying with this policy. Conversions may also
occur when necessary to permit orderly disposition of the investment (for
example, where a more substantial market exists for the underlying security than
for a relatively thinly traded Convertible Security) or when a Convertible
Security reaches maturity or has been called for redemption.
OTHER INVESTMENT COMPANIES. In connection with the management of their
daily cash position, the Portfolios may each invest in the securities of other
investment companies (including money market mutual funds advised by Bank of
America). Such Portfolios are permitted to invest up to 5% of the value of their
respective total assets in the securities of other investment companies; except
that, with respect to the investment in a money market mutual fund advised by
Bank of America, such Portfolios are permitted to invest the greater of 5% of
their respective net assets or $2.5 million. However, no more than 10% of such
Portfolio's total assets may be invested in the securities of other investment
companies in the aggregate. Securities of other investment companies will be
acquired by the Portfolios within the limits prescribed by the 1940 Act. As a
shareholder of another investment company, a Portfolio would bear along with
other shareholders, its pro-rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Portfolio bears directly in connection with
its own operations. The International Bond and International Equity Portfolios
may acquire shares of open and closed-end investment companies.
The 1940 Act generally prohibits each Portfolio from investing more
than 5% of the value of its total assets in any one investment company, or more
than 10% of the value of its total assets in investment companies as a group,
and also restricts its investment in any investment company to 3% of the voting
securities of such investment company. In addition, no more than 10% of the
outstanding voting stock of any one investment company may be owned
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in the aggregate by the Portfolios and any other investment company advised by
the investment adviser.
REPURCHASE AGREEMENTS. Each Portfolio may enter into repurchase
agreements with respect to its portfolio securities. Pursuant to such
agreements, a Portfolio acquires securities from financial institutions such as
banks and broker-dealers which are deemed to be creditworthy, subject to the
seller's agreement to repurchase and the agreement of the Portfolio to resell
such securities at a mutually agreed upon date and price. Although securities
subject to a repurchase agreement may bear maturities exceeding ten years, the
Corporate Bond and International Equity Portfolios intend to only enter into
repurchase agreements having maturities not exceeding 60 days. Repurchase
agreements maturing in more than seven days are considered illiquid investments
and investments in such repurchase agreements along with any other illiquid
securities will not exceed 10% of the value of the net assets of the Bond, Blue
Chip and Asset Allocation Portfolios, or 15% of the net assets of the
International Equity Portfolio. A Portfolio will not enter into repurchase
agreements with Bank of America or its affiliates. The repurchase price
generally equals the price paid by the Portfolio plus interest negotiated on the
basis of current short-term rates (which may be more or less than the rate on
the underlying portfolio security). Securities subject to repurchase agreements
will be held by a custodian or sub-custodian of the Portfolio or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement will
be required to deliver instruments the value of which is 102% of the repurchase
price (excluding accrued interest), provided that notwithstanding such
requirement, the adviser shall require that the value of the collateral, after
transaction costs (including loss of interest) reasonably expected to be
incurred on a default, shall be equal to or greater than the resale price
(including interest) provided in the agreement. If the seller defaulted on its
repurchase obligation, a Portfolio would suffer a loss because of adverse market
action or to the extent that the proceeds from a sale of the underlying
securities were less than the repurchase price under the agreement. Bankruptcy
or insolvency of such a defaulting seller may cause the particular Portfolio's
rights with respect to such securities to be delayed or limited. Repurchase
agreements are considered to be loans by a Portfolio under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. Each Portfolio may make investments in
U.S. government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association, Export-Import Bank of the United
States, Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage
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Association, Federal Home Loan Mortgage Corporation and the Student Loan
Marketing Association. Treasury bills have maturities of one year or less,
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of more than ten years. Some of these obligations, such as those
of the Government National Mortgage Association, are supported by the full faith
and credit of the U.S. Treasury. Others, such as those of the Export-Import Bank
of the United States, are supported by the right of the issuer to borrow from
the Treasury. Others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. government
to purchase the agency's obligations. Still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government sponsored instrumentalities if it
is not obligated to do so by law.
For additional information concerning Futures and options thereon,
please see Appendix A to this Statement of Additional Information.
MORTGAGE-RELATED SECURITIES. To the extent described in Part A the
Portfolios may purchase mortgage-backed securities that are secured by entities
such as the Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, trusts, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees. The average
life of a mortgage-backed security varies with the underlying mortgage
instruments, which have maximum maturities of 40 years. The average life is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Such prepayments are
passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S.
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Government corporation within the Department of Housing and Urban Development.
GNMA certificates also are supported by the authority of GNMA to borrow funds
from the U.S. Treasury to make payments under its guarantee. Mortgage-related
securities issued by FNMA include FNMA guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
FNMA, are not backed by or entitled to the full faith and credit of the United
States and are supported by the right of the issuer to borrow from the Treasury.
FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of principal and
interest by FNMA. Mortgage-related securities issued by the Federal Home Loan
Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by FHLMC.
FHLMC guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
ASSET-BACKED SECURITIES. The Asset Allocation, Corporate Bond and Bond
Portfolios may invest in asset-backed securities.
The Asset Allocation, Corporate Bond and Bond Portfolios may also
invest in non-mortgage backed securities including interests in pools of
receivables, such as motor vehicle installment purchase obligations and credit
card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities may also be debt instruments, which
are also known as collateralized obligations and are generally issued as the
debt of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Non-mortgage backed securities are not issued or
guaranteed by the U.S. Government or its agencies or instrumentalities; however,
the payment of principal and interest on such obligations may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that
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issue asset-backed securities relating to motor vehicle installment purchase
obligations perfect their interests in the respective obligations only by filing
a financing statement and by having the servicer of the obligations, which is
usually the originator, take custody thereof. In such circumstances, if the
servicer were to sell the same obligations to another party, in violation of its
duty not to do so, there is a risk that such party could acquire an interest in
the obligations superior to that of the holders of the asset-backed securities.
Also, although most of such obligations grant a security interest in the motor
vehicle being financed, in most states the security interest in a motor vehicle
must be noted on the certificate of title to perfect such security interest
against competing claims of other parties. Due to the large number of vehicles
involved, however, the certificate of title to each vehicle financed, pursuant
to the obligations underlying the asset-backed securities, usually is not
amended to reflect the assignment of the seller's security interest for the
benefit of the holders of the asset-backed securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. In addition, various state
and federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have against
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the related asset-backed securities. Insofar as credit card
receivables are concerned, credit card holders are entitled to the protection of
a number of state and federal consumer credit laws, many of which give such
holders the right to set off certain amounts against balances owed on the credit
card, thereby reducing the amounts paid on such receivables. In addition, unlike
most other asset-backed securities, credit card receivables are unsecured
obligations of the cardholder.
The development of non-mortgage backed securities is at an early stage
compared to mortgage backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage backed
securities issued by certain private organizations and non-mortgage backed
securities is not as well developed as that for mortgage backed securities
guaranteed by government agencies or instrumentalities. Bank of America intends
to limit its purchases of mortgage backed securities to those issued by certain
private organizations and to limit its purchase of non-mortgage backed
securities to securities to those that are readily marketable at the time of
purchase.
BONDS OF SUPRANATIONAL ENTITIES. The Corporate Bond, International
Equity and International Bond Portfolios may invest in bonds of supranational
entities. A supranational entity is an entity established or financially
supported by the national governments of one or more countries to promote
reconstruction or development. Examples of supranational entities include, among
others, the World Bank, the European Economic Community, the
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European Coal and Steel Community, the European Investment Bank, the
Inter-American Development Bank, the Export-Import Bank and the Asian
Development Bank. The risks associated with investments in foreign issuers are
described below under "Foreign Investments." Obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank are not permissible investments for
the Asset Allocation, Blue Chip and Bond Portfolios.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio (except for the
Short-Term Government Portfolio) may acquire variable and floating rate
instruments, including, with respect to the Asset Allocation, Blue Chip and Bond
Portfolios, master demand notes. The actual yield on variable and floating rate
instruments varies not only as a result of variations in the lives of the
underlying securities, but also as a result of changes in prevailing interest
rates. Such instruments are frequently not rated by credit rating agencies.
However, in determining the creditworthiness of unrated variable and floating
rate instruments and their eligibility for purchase by a Portfolio, Bank of
America will consider the earning power, cash flow and other liquidity ratios of
the issuers of such instruments (which include financial, merchandising, bank
holding and other companies) and will monitor their financial condition. An
active secondary market may not exist with respect to a particular variable or
floating rate instrument purchased by a Portfolio. The absence of such an active
secondary market could make it difficult to dispose of a variable or floating
rate instrument in the event the issuer of the instrument defaulted on its
payment obligation or during periods that a Portfolio is not entitled to
exercise its demand rights, and the Portfolio could, for these or other reasons,
suffer a loss to the extent of the default. Investments in illiquid variable and
floating rate instruments (instruments which are not payable upon seven days'
notice and do not have active trading markets) are subject to each Portfolio's
15% limitation on illiquid securities (10% with respect to the Asset Allocation,
Blue Chip and Bond Portfolios). Variable and floating rate instruments may be
secured by bank letters of credit.
REVERSE REPURCHASE AGREEMENTS. As described in Part A, each Portfolio
(except the Short-Term Government Portfolio) is permitted to borrow funds for
temporary purposes by entering into reverse repurchase agreements with financial
institutions such as banks and broker-dealers in accordance with the investment
limitations described therein. Whenever a Portfolio enters into a reverse
repurchase agreement, it will place in a segregated account maintained with its
custodian liquid assets such as cash, U.S. Government securities or other liquid
high grade debt securities having a value equal to the repurchase price
(including accrued interest), and Bank of America will subsequently continuously
monitor the account for maintenance of such equivalent value. Each Portfolio
intends to enter into reverse repurchase agreements to
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avoid otherwise having to sell securities during unfavorable market conditions
in order to meet redemptions. Reverse repurchase agreements are considered to be
borrowings by a Portfolio under the 1940 Act.
OPTIONS TRADING. Each Portfolio may, under certain circumstances and in
accordance with its investment limitations, engage in options trading. Such
options may relate to U.S. and foreign securities or to various stock indices.
In addition, the International Equity and International Bond Portfolios may
acquire options relating to foreign currencies in order to hedge against changes
in exchange rates. Such options may be traded on U.S. exchanges,
over-the-counter, and on foreign exchanges to the extent permitted by law.
Options trading is a highly specialized activity which entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security, index or currency increases or decreases, the option
buyer's risk is limited to the amount of the original premium paid for the
purchase of the option. However, options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. A listed call option for a particular
security or amount of currency gives the purchaser of the option the right to
buy from a clearing corporation, and a writer has the obligation to sell to the
clearing corporation the underlying security or currency amount at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security or currency. The premium paid to the writer is
in consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security or amount of currency at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price of the security or currency. In contrast to an option on a
particular security, an option on a stock index provides the holder with the
right to make or receive a cash settlement upon exercise of the option. The
amount of this settlement will be equal to the difference between the closing
price of the index at the time of exercise and the exercise price of the option
expressed in dollars, times a specified multiple. Unlisted options are not
subject to the protections afforded purchases of options listed by the Options
Clearing Corporation, which performs the obligations of its members who fail to
do so in connection with the purchase or sale of options. Furthermore, it is the
position of the staff of the SEC that over-the-counter options are illiquid. To
the extent that a Portfolio invests in options that are illiquid (including
over-the-counter options), such investment will be subject to the Portfolio's
limitations on illiquid securities.
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A Portfolio will continue to receive interest or dividend income on the
securities underlying such puts until they are exercised by the Portfolio. Any
losses realized by a Portfolio in connection with its purchase of put options
will be limited to the premiums paid by the Portfolio for the options plus any
transaction costs. A gain or loss may be wholly or partially offset by a change
in the value of the underlying security which the Fund or Portfolio owns.
In the case of a call option on a security, the option is "covered" if
a Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. For a call option on an
index, the option is covered if a Portfolio maintains with its custodian cash or
cash equivalents equal to the contract value. A call option is also covered if a
Portfolio holds a call on the same security or index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Portfolio in cash or cash
equivalents in a segregated account with its custodian.
The principal reason for writing call options on a securities portfolio
is the attempt to realize, through the receipt of premiums, a greater current
return than would be realized on the securities alone. In return for the
premium, the covered option writer gives up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
his obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to an
option, the covered option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the expiration of its obligation as a writer.
If a Portfolio desires to sell a particular security it owns on which
it has written an option, the Portfolio will seek to effect a closing purchase
transaction prior to, or concurrently with, the sale of the security. In order
to close out a covered call option position, a Portfolio will enter into a
"closing purchase transaction" - the purchase of a call option on a security or
stock index with the same exercise price and expiration date as the call option
which it previously wrote on the same security or index.
When a Portfolio purchases a put or call option, the premium paid by it
is recorded as an asset of the Portfolio. When a Portfolio writes an option, an
amount equal to the net premium (the
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premium less the commission) received by the Portfolio is included in the
liability section of the statement of assets and liabilities as a deferred
credit. The amount of this asset or deferred credit will be subsequently
marked-to-market to reflect the current value of the option purchased or
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option purchased by a Portfolio expires unexercised, the Portfolio realizes a
loss equal to the premium paid. If a Fund enters into a closing sale transaction
on an option purchased by it, the Portfolio will realize a gain if the premium
received by it on the closing transaction is more than the premium paid to
purchase the option, or a loss if it is less. Moreover, because increases in the
market price of an option will generally reflect (although not necessarily in
direct proportion) increases in the market price of the underlying security any
loss resulting from a closing purchase transaction is likely to be offset in
whole or in part by appreciation of the underlying security if such security is
owned by the Portfolio. If an option written by a Portfolio expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by a Portfolio is exercised, the proceeds of the sale will be increased by the
net premium originally received and the Portfolio will realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities, currencies and indices. For example,
there are significant differences between the securities, currencies and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. In addition, a liquid
secondary market for particular options, whether traded over-the-counter or on a
national securities exchange ("Exchange") may be absent for reasons which
include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options or
underlying securities; unusual or unforeseen circumstances may interrupt normal
operations on an Exchange; the facilities of an Exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or 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 that had been issued by the Options Clearing
Corporation as a result of
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trades on that Exchange would continue to be exercisable in accordance with
their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
FOREIGN INVESTMENTS. In considering whether to invest in the securities
of a foreign company, Bank of America considers such factors as the
characteristics of the particular company, differences between economic trends
and the performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located.
Each Portfolio (with the exception of the Short-Term Government
Portfolios) may invest in securities of foreign issuers that are not publicly
traded in the United States and may also acquire foreign securities indirectly
without limit through investments in ADRs. Investing in securities of foreign
issuers involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S.
issuers.
ADRs are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the
over-the-counter market. ADR prices are denominated in United States dollars;
the underlying security may be denominated in a foreign currency. The underlying
security may be subject to foreign government taxes which would reduce the yield
on such securities. The extent to which a Portfolio will be invested in foreign
companies and ADRs will fluctuate from time to time depending on the investment
adviser's assessment of prevailing market, economic and other conditions.
The International Bond and International Equity Portfolios may purchase
debt obligations issued or guaranteed by governments (including states,
provinces or municipalities) of countries other than the United States, or by
their agencies, authorities or instrumentalities. These Portfolios may also
purchase debt obligations of foreign corporations or financial institutions,
such as Yankee bonds (dollar-denominated bonds sold in the United States by
non-U.S. issuers), Samurai bonds (yen-denominated bonds sold in Japan by
non-Japanese issuers and Eurobonds (bonds not issued in the country (and
possibly currency of the country) of the issuer). The International Bond and
International Equity Portfolios' investments will be allocated among securities
denominated in the currencies of a number of foreign countries and, within each
such country, among different types of debt securities. The percentage
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of assets invested in securities of a particular country or denominated in a
particular currency will vary in accordance with Bank of America's assessment of
the country's gross domestic product, purchasing power parity and market
capitalization and the relationship of a country's currency to the United States
dollar. Fundamental economic strength, credit quality and interest rate trends
will be the principal factors considered by Bank of America in determining
whether to increase or decrease the emphasis placed upon a particular type of
security within these Portfolios.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on U.S. exchanges, although each Portfolio endeavors
to achieve the most favorable net results on its portfolio transactions. There
is generally less government supervision and regulation of securities exchanges,
brokers, dealers and listed companies than in the United States. Mail service
between the United States and foreign countries may be slower or less reliable
than within the United States, thus increasing the risk of delayed settlements
of portfolio transactions or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of a Portfolio is uninvested
and no return is earned thereon. The inability of a Portfolio to make intended
security purchases due to settlement problems could cause a Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a
Portfolio due to subsequent declines in value of the portfolio securities, or,
if a Portfolio has entered into a contract to sell the securities, could result
in possible liability to the purchaser. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth or
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Investments in foreign securities involve certain inherent risks, such
as political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Foreign brokerage commissions and custodian
fees are generally higher than in the United States. With respect
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to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, or diplomatic developments which could affect investment
in those countries.
MUNICIPAL SECURITIES. The Bond and Asset Allocation Portfolios may
invest in Municipal Securities. Municipal Securities are debt obligations issued
to obtain funds for various public purposes, including the construction of a
wide range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities. In addition, certain types of private activity
bonds (including industrial development bonds under prior law) are issued by or
on behalf of public authorities to finance various privately-operated
facilities. Such obligations are included within the term Municipal Securities
if the interest paid thereon is exempt from regular federal income tax. The two
principal classifications of Municipal Securities which may be held by the
Portfolios are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by the Portfolios are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Bond and Asset Allocation Portfolios may also invest in "moral
obligation" securities, which are normally issued by special purpose public
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
The Bond and Asset Allocation Portfolios may purchase short-term Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes and
other forms of short-term tax-exempt loans. Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. Those Portfolios may also purchase tax-exempt
commercial paper.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the
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municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's, S&P, Fitch and
D&P represent their opinions as to the quality of Municipal Securities. It
should be emphasized, however, that ratings are general and are not absolute
standards of quality, and Municipal Securities with the same maturity, interest
rate and rating may have different yields while Municipal Securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Portfolio, an issue of Municipal Securities may
cease to be rated or its rating may be reduced. The investment adviser will
consider such an event in determining whether a Portfolio should continue to
hold the obligation.
An issuer's obligations under its Municipal Securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its Municipal
Securities may be materially adversely affected by litigation or other
conditions. Further, it should also be noted with respect to all Municipal
Securities issued after August 15, 1986 (August 31, 1986 in the case of certain
bonds), the issuer must comply with certain rules formerly applicable only to
"industrial development bonds" which, if the issuer fails to observe them, could
cause interest on the Municipal Securities to become taxable retroactive to the
date of issue.
Information about the financial condition of issuers of Municipal
Securities may be less available than about corporations, a class of whose
securities is registered under the Securities Exchange Act of 1934.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when issued" or "forward
commitment" basis. The Corporate Bond, Growth and Income, International Bond,
International Equity, Short-Term Government and Utilities Portfolios may also
purchase securities on a "delayed settlement" basis. When a Portfolio agrees to
purchase securities on a "when-issued," forward commitment or delayed settlement
basis, its custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, its custodian will
set aside portfolio securities to satisfy a purchase commitment. In such a case,
a Portfolio may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Portfolio's commitment. It may be expected that a
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover
B-18
<PAGE> 69
such purchase commitments than when it sets aside cash. The Portfolios do not
intend to engage in these transactions for speculative purposes but primarily in
order to hedge against anticipated changes in interest rates. Because each
Portfolio will set aside cash or liquid portfolio securities to satisfy the
purchase commitments in the manner described, a Portfolio's liquidity and the
ability of Bank of America to manage it may be affected in the event forward
commitments, commitments to purchase when-issued and delayed settlements
securities ever exceeded 25% of the value of the Portfolio's assets.
A Portfolio may purchase securities on a when-issued, forward
commitment or delayed settlement basis only with the intention of completing the
transaction. If deemed advisable as a matter of investment strategy, however, a
Portfolio may dispose of or renegotiate a commitment after it is entered into,
and may sell securities it has committed to purchase before those securities are
delivered to a Portfolio on the settlement date. In these cases a Portfolios may
realize a taxable capital gain or loss.
When a Portfolio engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Portfolio's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement transaction
and any subsequent fluctuations in their market value is taken into account when
determining the market value of a Portfolio starting on the day the Portfolio
agrees to purchase the securities. A Portfolio does not earn interest on the
securities they have committed to purchase until the securities are paid for and
delivered on the settlement date.
FUTURES. The Portfolios may engage in futures contracts. A futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the value of a specified obligation or stock index (which
assigns relative values to the common stocks included in the index) at the close
of the last trading day of the contract and the price at which the futures
contract is originally struck. No physical delivery of the underlying securities
is normally made. A Portfolio may not purchase or sell futures contracts and
purchase related options unless immediately after any such transaction the
aggregate initial margin that is required to be posted by that Portfolio under
the rules of the exchange on which the futures contract (or futures option) is
traded, plus any premiums paid by the Portfolio on its open futures options
positions, does not exceed 5% of the Portfolio's total assets, after taking into
account any unrealized profits and losses on the Portfolio's open contracts and
excluding
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<PAGE> 70
the amount that a futures option is "in-the-money" at the time of purchase. An
option to buy a futures contract is "in-the-money" if the then current purchase
price of the contract that is subject to the option is less than the exercise or
strike price; an option to sell a futures contract is "in-the-money" if the
exercise or strike price exceeds the then current purchase price of the contract
that is the subject of the option.
Successful use of futures contracts by a Portfolio is subject to Bank
of America's ability to predict correctly movements in the direction of the
stock market or interest rates. There are several risks in connection with the
use of futures contracts by a Portfolio as a hedging devise. One risk arises
because of the imperfect correlation between movements in the price of the
futures contract and movements in the price of the securities which are the
subject of the hedge. The price of the futures contract may move more than or
less than the price of the securities being hedged. If the price of the futures
contract moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, a Portfolio would
be in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures contract. If the price of the
futures contract moves more than the price of the hedged securities, a Portfolio
involved will experience either a loss or gain on the futures contract which
will not be completely offset by movements in the price of the securities which
are the subject of the hedge.
It is also possible that, where a Portfolio has sold futures contracts
to hedge its portfolio against a decline in the market, the market may advance
and the value of securities held in a Portfolio may decline. If this occurred, a
Portfolio would lose money on the futures contract and also experience a decline
in value in its portfolio securities.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. Due to the possibility of price distortion in the futures market,
and because of the imperfect correlation between the movement in the cash market
and movements in the price of futures contracts, a correct forecast of general
market trends or interest rate movements by Bank of America may still not result
in a successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures contracts.
Although the Portfolios intend to purchase
B-20
<PAGE> 71
or sell futures contracts only on exchanges or boards of trade where there
appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Portfolio would continue to be required to make daily cash payments
of variation margin. The liquidity of a secondary market in a futures contract
may in addition be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
For additional information concerning Futures and options thereon,
please see Appendix B to this Part B.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options
on a futures contract will give a Portfolio the right (but not the obligation),
for a specified price, to sell or to purchase, respectively, the underlying
futures contract at any time during the option period. As the purchaser of an
option on a futures contract, the Portfolio obtains the benefit of the futures
position if prices move in a favorable direction but limits its risk of loss in
the event of an unfavorable price movement to the loss of the premium and
transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Portfolio's assets. By
writing a call option, a Portfolio becomes obligated, in exchange for the
premium, to sell a futures contact, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, which may partially offset an increase in the price of
securities that the Portfolio intends to purchase. However, the Portfolio
becomes obligated to purchase a futures contact, which may have a value lower
than the exercise price. Thus, the loss incurred by the Portfolio in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received. The Portfolio will incur transaction costs in connection with
the writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. A
Portfolio's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
B-21
<PAGE> 72
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The International Bond and
International Equity Portfolios may enter into forward foreign currency exchange
contracts. 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
generally 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 purchase transaction involving the purchase or
sale of an offsetting contract. Closing purchase transactions with respect to
forward contracts are usually effected with the currency trader who is a party
to the original forward contract.
When Bank of America 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 Portfolio's
securities 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. Using forward contracts to protect the value of a Portfolio's
securities 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.
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.
A Portfolio generally will not enter into a forward contract with a
term of greater than one year.
INTEREST RATE AND CURRENCY SWAPS. The Corporate Bond and International
Bond Portfolios may enter into interest rate and currency swaps. Inasmuch as
interest rate and currency swaps are entered into for hedging purposes or are
offset by a segregated account as described below, the Portfolios and Bank of
America believe that swaps do not constitute senior securities as defined in the
1940 Act and, accordingly, will not treat them as being subject to the
Portfolio's borrowing restrictions. The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest rate
or currency swap will be accrued on a daily basis and an amount of cash or
liquid high grade debt securities (i.e., securities rated in one of the
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<PAGE> 73
top three ratings categories by Moody's or Standard & Poor's) or, if unrated,
deemed by Bank of America to be of comparable credit quality, having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by the Portfolio's custodian. A Portfolio
will not enter into any interest rate or currency swap unless the credit quality
of the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by Bank of America. If there were a
default by the other party to such a transaction, a Portfolio would have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market.
SECURITIES LENDING. A Portfolio may lend securities as described in
Part A. Such loans will be secured by cash or securities of the U.S. Government
and its agencies and instrumentalities. The collateral must be at all times
equal to at least the market value of the securities loaned and is "marked to
market" daily. A Portfolio will continue to receive interest or dividends on the
securities it loans, and will also earn interest on the investment of any cash
collateral. Cash collateral may be invested in short-term U.S. Government
securities certificates of deposit, other high-grade, short-term obligations or
interest-bearing cash equivalents. The International Equity Portfolio may also
invest cash collateral in U.S. Treasury Notes. Although voting rights, or rights
to consent, attendant to securities loaned pass to the borrower, such loans may
be called at any time and will be called so that the securities may be noted by
a Portfolio if a material event affecting the investment is to occur.
ILLIQUID SECURITIES. It is possible that unregistered securities
purchased by a Portfolio (other than the Asset Allocation, Blue Chip or Bond
Portfolios) in reliance upon Rule 144A under the Securities Act of 1933 could
have the effect of increasing the level of a Portfolio's illiquidity to the
extent that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.
HIGH YIELD/HIGH RISK SECURITIES. In general, investments in high
yielding fixed-income securities are subject to a significant risk of a change
in the credit rating or financial condition of the issuing entity. Investments
in high yielding fixed-income securities of medium or lower quality are also
likely to be subject to greater market fluctuation and to greater risk of loss
of income and principal due to default than investments of higher rated
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<PAGE> 74
fixed-income securities. Such high yielding securities generally tend to reflect
short-term corporate and market developments to a greater extent than higher
rated securities, which react more to fluctuations in the general level of
interest rates. A Portfolio seeks to reduce risk to the investor by
diversification, credit analysis and attention to current developments in trends
of both the economy and financial markets. However, while diversification
reduces the effect on a Portfolio of any single investment, it does not reduce
the overall risk of investing in lower rated securities.
In seeking to attain the investment objective of a Portfolio, the
investment adviser may consider both the relative risks and potential returns of
higher-rated and lower-rated securities. As a result, a Portfolio may hold
higher-rated fixed-income securities when the differential in return between
lower-rated and higher-rated securities narrows and the investment adviser
believes that the risk of loss of income and principal may be substantially
reduced with only a relatively small reduction in potential capital appreciation
and yield. The relative proportions of the types of securities in a Portfolio
may vary from time to time according to the prevailing and projected market and
economic conditions and other factors.
ADDITIONAL INFORMATION
The investment adviser's own investment portfolios may include bank
certificates of deposit, bankers' acceptances, corporate debt obligations,
equity securities and other investments any of which may also be purchased by a
fund of the Company. The Portfolios may also invest in securities, interests or
obligations of companies or entities which have a deposit, loan, commercial
banking or other business relationship with Bank of America or any of its
affiliates (including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of securities purchased by a Portfolio of the
Trust).
OTHER INVESTMENT LIMITATIONS
The investment objectives of the Portfolios are fundamental; Part A
summarizes certain fundamental policies that may not be changed with respect to
a Portfolio without the affirmative vote of the holders of the majority of the
Portfolio's outstanding interests (as defined in Item 18 below). The following
is a complete list of fundamental policies may not be changed with respect to a
Portfolio without such a vote.
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<PAGE> 75
NEITHER THE BLUE CHIP, ASSET ALLOCATION NOR BOND PORTFOLIOS MAY:
1. Purchase securities (except securities issued by the United
States Government, its agencies instrumentalities) if, as a result, more than 5%
of the value of the total assets of any Portfolio would be invested in the
securities of any one issuer or any Portfolio would own more than 10% of the
voting securities of such issuer, except that up to 25% of the total assets of
any Portfolio may be invested without regard to these limitations.
2. Pledge, mortgage or hypothecate the assets of any Portfolio
to any extent greater than 10% of the value of the total assets of that
Portfolio;
3. Make loans to other persons, except that a Portfolio may
make time or demand deposits with banks, provided that time deposits shall not
have an aggregate value in excess of 10% of a Portfolio's net assets, and may
purchase bonds, debentures or similar obligations that are publicly distributed,
may loan portfolio securities not in excess of 10% of the value of the total
assets of such Portfolio, and may enter into repurchase agreements as long as
repurchase agreements maturing in more than seven days do not exceed 10% of the
value of the total assets of a Portfolio;
4. Purchase or sell commodities contracts, except that any
Portfolio may purchase or sell futures contracts on financial instruments, such
as bank certificates of deposit and U.S. Government securities, foreign
currencies and stock indexes and options on any such futures if such options are
written by other persons and if (i) the futures or options are listed on a
national securities or commodities exchange, (ii) the aggregate premiums paid on
all such options that are held at any time do not exceed 20% of the total net
assets of that Portfolio and (iii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the total
assets of that Portfolio;
5. Purchase any securities for any Portfolio that would cause
more than 25% of the value of the Portfolio's total assets at the time of such
purchase to be invested in the securities of one or more issuers conducting
their principal activities in the same industry; provided that there is no
limitation with respect to investments in obligations issued or guaranteed by
the United States Government, its agencies and instrumentalities;
6. Invest the assets of any Portfolio in nonmarketable
securities that are not readily marketable (including repurchase agreements
maturing in more than seven days, securities described in paragraph (3) above,
restricted securities, certain OTC options and securities used as cover for such
options and stripped
B-25
<PAGE> 76
mortgage-backed securities) to any extent greater than 10% of the value of the
total assets of that Portfolio.
7. Borrow money for any Portfolio except for temporary
emergency purposes and then only in an amount not exceeding 5% of the value of
the total assets of that Portfolio. Borrowing shall, for purposes of this
paragraph 1, include reverse repurchase agreements. Any borrowings, other than
reverse repurchase agreements, will be from banks. The Trust will repay all
borrowings in any Portfolio before making additional investments for that
Portfolio and interest paid on such borrowings will reduce income;
8. Issue senior securities;
9. Underwrite any issue of securities; provided, however, that
the purchase by a Portfolio of securities issued by a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objectives, policies and restrictions as such Portfolio shall not
constitute an underwriting for purposes of this paragraph 9;
10. Purchase or sell real estate or real estate mortgage
loans, but this shall not prevent investments in instruments secured by real
estate or interests therein or in marketable securities of issuers that engage
in real estate operations;
11. Purchase on margin or sell short;
12. Purchase or retain securities of an issuer if those
members of the Board of Trustees, each of whom own more than 1/2 of 1% of such
securities, together own more than 5% of the securities of such issuer;
13. Purchase securities of any other investment company
(except in connection with a merger, consolidation, acquisition or
reorganization) if, immediately after such purchase, the Trust (and any
companies controlled by it) would own in the aggregate (i) more than 3% of the
total outstanding voting stock of such investment company, (ii) securities
issued by such investment company would have an aggregate value in excess of 5%
of the value of the total assets of the Trust, or (iii) securities issued by
such investment company and all other investment companies would have an
aggregate value in excess of 10% of the value of the total assets of the Trust;
14. Invest in or sell put, call, straddle or spread options or
interests in oil, gas or other mineral exploration or development programs;
B-26
<PAGE> 77
NEITHER THE CORPORATE BOND PORTFOLIO, THE GROWTH AND INCOME PORTFOLIO,
THE INTERNATIONAL BOND PORTFOLIO, THE INTERNATIONAL EQUITY PORTFOLIO, THE
SHORT-TERM GOVERNMENT PORTFOLIO NOR THE UTILITIES PORTFOLIO MAY:
1. Underwrite the securities of other issuers.
2. Purchase securities on margin (except for such short-term
credits as may be necessary for the clearance of transactions), make short sales
of securities or maintain a short position. For this purpose, the deposit or
payment by the Portfolio for initial or maintenance margin in connection with
futures contracts is not considered to be the purchase or sale of a security on
margin.
3. Write or sell puts, calls, straddles, spreads or
combinations thereof, except that (other than the Short-Term Government
Portfolio) it may engage in options transactions.
4. Purchase securities of other investment companies, except
(a) in connection with a merger, consolidation, acquisition or reorganization or
(b) as may otherwise be permitted by the 1940 Act.
5. Purchase any securities which would cause 25% or more of
the value of its total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to investments in obligations issued or guaranteed by the federal
government and its agencies and instrumentalities; (b) each utility (such as
gas, gas transmission, electric and telephone service) will be considered a
single industry for purposes of this policy; and (c) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents.
6. Purchase securities of any issuer if as a result it would
own more than 10% of the voting securities of such issuer.
7. Borrow money for the purpose of obtaining investment
leverage or issue senior securities (as defined in the 1940 Act) provided that
the Portfolio may borrow from banks for temporary purposes and in an amount not
exceeding 10% of the value of the total assets of the Portfolio; or mortgage,
pledge or hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amount borrowed or 10%
of the value of its total assets at the time of such borrowing. This restriction
shall not apply to (a) the sale of portfolio securities accompanied by a
simultaneous agreement as to their repurchase, or (b) to transactions in
currency, options,
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<PAGE> 78
futures contracts and options on futures contracts or forward commitment
transactions.
8. Make loans, except that it may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations' may enter into repurchase agreements with respect to securities;
and may lend portfolio securities against collateral consisting of cash or
securities of the U.S. Government and its agencies and instrumentalities which
are consistent with its permitted investments.
For the purposes of Investment Limitation 5 above, the
Portfolios treat, in accordance with the current views of the staff of the
Securities and Exchange Commission and as a matter of non-fundamental policy
that may be changed without a vote of shareholders, all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
NEITHER THE CORPORATE BOND PORTFOLIO, THE GROWTH AND INCOME
PORTFOLIO, THE INTERNATIONAL BOND PORTFOLIO, THE INTERNATIONAL EQUITY PORTFOLIO
NOR THE UTILITIES PORTFOLIO MAY:
1. Purchase or sell real estate, except that the Portfolio
may, to the extent appropriate to its investment objective, invest in securities
and instruments guaranteed by agencies or instrumentalities of the U.S.
Government and securities issued by companies which invest in real estate or
interests therein.
2. Purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration or development programs, except that:
(a) it may, to the extent appropriate to its investment objective, invest in
securities issued by companies which purchase or sell commodities or commodity
contracts or which invest in such programs; and (b) it may purchase and sell
futures contracts and options on futures contracts.
NEITHER THE CORPORATE BOND PORTFOLIO, THE GROWTH AND INCOME
PORTFOLIO, THE INTERNATIONAL EQUITY PORTFOLIO NOR THE SHORT-TERM GOVERNMENT
PORTFOLIO MAY:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a result more than 5% of
its total assets will be invested in the securities of any one issuer, except
that up to 25% of its total assets may be invested without regard to this 5%
limitation.
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<PAGE> 79
THE SHORT-TERM GOVERNMENT PORTFOLIO MAY NOT:
1. Purchase or sell commodities or commodity contacts, or
invest in oil, has or mineral exploration or development programs. This
restriction shall not apply to securities issued by companies which purchase or
sell commodities or commodity contracts or which invest in such programs, or to
futures contracts or options on futures contracts.
If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
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<PAGE> 80
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The business and affairs of the Trust are managed under the direction
of the Board of Trustees. The members of the Board of Trustees and the officers
of the Trust, their addresses, ages and principal occupations during the past
five years are as follows:
<TABLE>
<CAPTION>
Position with Principal
Name and Address Age the Trust Occupations
- ---------------- --- ------------- -----------
<S> <C> <C> <C>
Thomas M. Collins 62 Chairman of the Of counsel, the law firm
McDermott & Trayner Board of McDermott & Trayner;
225 South Lake Avenue Partner of the law firm
Suite 410 of Musick, Peeler &
Pasadena, CA 91101-3005 Garrett (until April
1993); Director, Pacific
Horizon Funds, Inc.;
former Trustee, Master
Investment Trust, Series
II (registered investment
company) 1993 to February
1997).
Michael Austin 60 Trustee Chartered Accountant;
Victory House, Trustee, Master
Nelson Quay Investment Trust, Series
Governor's Harbor II (1993 to February
Grand Cayman 1997); Retired Partner,
Cayman Islands KPMG Peat Marwick, LLP.
British West Indies
Robert E. Greeley 64 Trustee Chairman, Page Mill Asset
Page Mill Asset Management Management (a private
433 California Street investment company) since
Suite 900 1991; Director, Morgan
San Francisco, CA 94104 Grenfell Small-Cap Fund
(since 1986); Director,
Pacific Horizon Funds,
Inc. (since 1994); former
Trustee, Master
Investment Trust, Series
II (1993 to February
1997); former Director,
Bunker Hill Income
Securities, Inc. (since
1989); former Trustee,
SunAmerica Fund Group
(previously Equitech
Siebel Fund Group) from
1984 through 1992
(registered investment
companies).
Robert A. Nathane* 71 Trustee Chairman of Board of
1200 Shenandoah Drive East Advisors, Phoenix Venture
Seattle, WA 98112 Funds; Trustee, Seafirst
Retirement
</TABLE>
B-30
<PAGE> 81
<TABLE>
<CAPTION>
Position with Principal
Name and Address Trust Occupations
- ---------------- ------------- -----------
<S> <C> <C> <C>
Funds (since 1993);
Retired President, Laird
Norton Trust Company;
Trustee, Master
Investment Trust, Series
II (1993-February 1997);
former Supervisor,
Collective Investment
Trust for Seafirst
Retirement Accounts,
(until 1993); former
Trustee, First Funds of
America (registered
investment companies).
Cornelius J. Pings 67 Trustee President, Association of
Association of American American Universities,
Universities February 1993 to date;
One DuPont Circle Provost, 1982 to January
Suite 730 Washington, DC 20036 1993, Senior Vice
President for Academic
Affairs, 1981 to January
1993, University of
Southern California;
President and Chairman of
the Board, Pacific
Horizon Funds, Inc.;
Trustee, Master
Investment Trust, Series
II (1995 to February
1997).
J. David Huber 49 President Employee of BISYS Fund
BISYS Fund Services Services, Inc., June 1987
3435 Stelzer Road to present; President of
Columbus, OH 43219 Master Investment Trust,
Series I, and Seafirst
Retirement Funds (since
1996) Master Investment
Trust Series II (1996 -
February 1997).
Adrian J. Waters 32 Executive Vice Managing Director,
BISYS Fund Services President, Concord Management
Floor 2, Block 2 Treasurer and (Ireland) Ltd. since May
The Harcourt Centre Assistant Secretary 1993; Chartered
Dublin 2, Ireland Accountant, in the
Investment Company
Industry Services Group,
Price Waterhouse, New
York 1989 May 1993.
W. Bruce McConnel, III 54 Secretary Partner of the law firm
1345 Chestnut Street of Drinker Biddle & Reath
Suite 1100 LLP.
Philadelphia, PA 19107
</TABLE>
B-31
<PAGE> 82
<TABLE>
<CAPTION>
Position with Principal
Name and Address Trust Occupations
- ---------------- ------------- -----------
<S> <C> <C> <C>
Stephanie L. Blaha 37 Vice President Manager of Client
BISYS Fund Services Services of Concord,
3435 Stelzer Road March 1995 to date, prior
Columbus, OH 43219 thereto Assistant Vice
President of Concord,
October 1991 to March
1995; Vice President,
Seafirst Retirement Funds
and Master Investment
Trust, Series I (since
1996); Assistant Vice
President, Pacific
Horizon Funds, Inc.
(since 1996).
</TABLE>
- --------------------------
* Mr. Nathane is an "interested trustee" of the Trust as defined in the
1940 Act.
Each trustee receives an aggregate annual fee of $3,000 ($5,000 in the
case of any trustee who is not also a trustee of an Investor), plus $500 per
meeting attended and $500 per day for each day devoted to travel in connection
with meetings. Each trustee is also reimbursed for out-of-pocket expenses
incurred as a trustee. The trustees' fees and reimbursements are allocated among
all of the Trust's Portfolios based on relative net asset values. For the fiscal
year ended February 28, 1997, the Trust paid or accrued for the account of its
trustees as a group for services in all capacities a total of $50,654. Of that
amount, $7,722, $25,773, $14,942, $1,894 and $323 were allocated to the Bond,
Blue Chip, Asset Allocation, Corporate Bond, and International Equity
Portfolios, respectively. The other Portfolios had not commenced investment
operations as of February 28, 1997.
The following table provides certain information about the compensation
received by each trustee of the Trust for the fiscal year ended February 28,
1997:
B-32
<PAGE> 83
<TABLE>
<CAPTION>
============================================================================================================
Total
Pension or Compensa-
Retirement tion from
Benefits Estimated Registrant
Aggregate Accrued as Annual and Fund
Compensation part of Benefits Complex*
Name of Person/ from the Trust upon Paid to
Position Trust Expenses Retirement Trustee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Collins
Chairman $7,000 $0 $0 $86,125
- ------------------------------------------------------------------------------------------------------------
Michael Austin
Trustee $8,000 $0 $0 $12,836
- ------------------------------------------------------------------------------------------------------------
Robert E. Greeley
Trustee $8,000 $0 $0 $51,625
- ------------------------------------------------------------------------------------------------------------
Robert A. Nathane
Trustee $8,000 $0 $0 $13,005
- ------------------------------------------------------------------------------------------------------------
Cornelius J.
Pings $8,000 $0 $0 $68,125
Trustee
============================================================================================================
</TABLE>
* During the past year, the "Fund Complex" consisted of the Trust,
Pacific Horizon Funds, Inc., Seafirst Retirement Funds, Master
Investment Trust, Series II, Time Horizon Funds and World Horizon
Funds. Fees from the Time Horizon Funds are for the period March 11,
1996 to February 28, 1997.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of June 24, 1997, the trustees and officers of the Trust, as a
group, own less than 1% of the outstanding Beneficial Interests.
As of June 24, 1997, the World Horizon US Equity Fund owned of record
or beneficially 9.98% of the Blue Chip Portfolio and the Pacific Horizon Blue
Chip Fund owned of record or beneficially 89.95% of the Blue Chip Portfolio; the
Pacific Horizon Intermediate Bond Fund owned of record or beneficially 46.15% of
the Bond Portfolio and the World Horizon U.S. Bond Fund owned of record or
beneficially 53.53% of the Bond Portfolio.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISORY AGREEMENTS
Bank of America is authorized by each investment advisory agreement
(including the Prior Advisory Agreement) to employ or associate with itself such
persons as it believes are appropriate to assist it in the performance of its
duties. Any such person is
B-33
<PAGE> 84
required to be compensated by Bank of America, not by the Trust, and to be
approved by the interestholders as required by the 1940 Act.
For the services provided and expenses assumed pursuant to each
investment advisory agreement, the Trust has agreed to pay Bank of America fees,
accrued daily and payable monthly, at the annual rates of .25% of the average
daily net assets of the Short-Term Government Portfolio, .30% of the Bond
Portfolio's average daily net assets, .45% of the respective average daily net
assets of the Corporate Bond and International Bond Portfolios, .50% of the
respective average daily net assets of the Utilities and Bond Portfolios, .55%
of the respective average daily net assets of the Asset Allocation and Growth
and Income Portfolios, and .75% of the average daily net assets of the
International Equity Portfolio. The fees payable to Bank of America are not
subject to reduction as the value of a Portfolio's net assets increases. From
time to time Bank of America may waive fees or reimburse a Portfolio for
expenses voluntarily or as required by certain state securities laws. See
"Administration Agreement" for instances where Concord is required to make
expense reimbursements for a Portfolio. Prior to June 23, 1997, Bank of America
was entitled to receive an investment advisory fee at the annual rate of 0.45%
and 0.75% of the respective average daily net assets of the Bond and Blue Chip
Portfolios.
For the fiscal years indicated, Bank of America was paid or waived
advisory fees with respect to the Bond, Blue Chip and Asset Allocation
Portfolios as follows:
<TABLE>
<CAPTION>
================================================================================
Year ended Year ended Year ended
February 28, February 29, February 28,
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BOND
PORTFOLIO
Total Fee $ 428,287 $ 296,136 $ 293,222
Payable
Total Fee $ 256,439 -- --
Waived
- --------------------------------------------------------------------------------
BLUE CHIP
PORTFOLIO
Total Fee
Payable $2,701,648 $1,574,388 $1,091,132
Total Fee
Waived $ 961,001 $1,164,328 --
- --------------------------------------------------------------------------------
</TABLE>
B-34
<PAGE> 85
<TABLE>
<S> <C> <C> <C>
ASSET
ALLOCATION
PORTFOLIO
Total Fee
Payable $1,046,406 $ 913,660 $ 849,188
Total Fee
Waived $ 735,797 $ 720,259 --
================================================================================
</TABLE>
For the periods indicated, Bank of America waived its entire advisory
fee with respect to the Corporate Bond Portfolio as follows:
<TABLE>
<CAPTION>
================================================================================
Period
April 25,
1994
Period ended (commencement
September 1, Period of
1996 October 1, operations)
(cessation Year ended 1994 through through
of February 29, February 28, September 30,
operations) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE
BOND
PORTFOLIO
Total Fee
Payable $70,991 $144,324 $58,897 $73,575
Total Fee
Waived $70,991 $144,324 $58,897 $73,575
================================================================================
</TABLE>
For the period indicated, Bank of America waived its entire advisory
fee with respect to the International Equity Portfolio as follows:
B-35
<PAGE> 86
<TABLE>
<CAPTION>
================================================================================
Period May 13, 1996
(commencement of operations)
through September 1, 1996
(cessation of operations)
- --------------------------------------------------------------------------------
<S> <C>
INTERNATIONAL EQUITY
PORTFOLIO
Total Fee Payable $8,262
Total Fee Waived $8,262
================================================================================
</TABLE>
The other Portfolios of the Trust had not yet commenced investment
operations as of February 28, 1997.
Each investment advisory agreement provides that Bank of America shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of the particular
investment advisory agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder.
Each investment advisory agreement provides that Bank of America will
maintain a policy of conducting its investment management and advisory
activities independently of its commercial banking operations. Therefore, in
making investment decisions with respect to a Portfolio's portfolio securities,
Bank of America will not inquire or consider whether issuers of the securities
are customers of its commercial banking department, nor will it obtain, or seek
to obtain, any information from its commercial banking department with respect
to any issuer of securities.
Each investment advisory agreement will be in effect until October 31,
1997, and will continue in effect from year to year with respect to a particular
Portfolio thereafter only so long as such continuation is approved at least
annually by (1) the Board of Trustees of the Trust or the vote of a "majority,"
as defined in the 1940 Act, of the outstanding Beneficial Interests of such
Portfolio, and (2) a majority of those trustees who are neither parties to the
investment advisory agreements nor "interested persons," as defined in the 1940
Act, of any such party, acting in person at a meeting called for the purpose of
voting on such approvals. Each investment advisory agreement will terminate
automatically in the event of its "assignment," as defined in the 1940 Act. In
addition, each investment advisory agreement is terminable with respect to any
Portfolio at any time without penalty by the Board of Trustees of the Trust or
by vote of Investors holding a majority of the Portfolio's outstanding
Beneficial Interests upon 60 days' written notice to Bank of
B-36
<PAGE> 87
America and by Bank of America on 60 days written notice to the Trust.
ADMINISTRATION AGREEMENT
The BISYS Group, Inc., through its wholly-owned subsidiary BISYS Fund
Services, L.P., provides administrative services to each Portfolio as described
in Part A pursuant to an administration agreement with the Trust. Prior to
November 1, 1996, Concord Holding Corporation ("Concord"), an indirect,
wholly-owned subsidiary of BISYS, served as the Funds' administrator. The
administration agreement will continue in effect until October 31, 1997 and
thereafter for successive periods of one year, provided the agreement is not
sooner terminated. The administration agreement is terminable at any time with
respect to a particular Portfolio by the Trust's Board of Trustees or by a vote
of a majority of such Portfolio's outstanding Beneficial Interests upon 60 days'
written notice to Concord, or by Concord upon 90 days' notice to the Trust.
For its services, BISYS is entitled to receive a fee, accrued daily and
payable monthly, at the annual rate of .05% of the average daily net assets of
each Portfolio. The fees payable to BISYS are not subject for reduction as the
value of the Portfolios' net assets increase. From time to time, BISYS may waive
fees or reimburse a Portfolio for expenses voluntarily.
During the course of the Trust's fiscal year, BISYS and Bank of America
may prospectively waive payment of fees and/or assume certain expenses of a
Portfolio, as a result of competitive pressures and in order to preserve and
protect the business and reputation of BISYS and Bank of America. This will have
the effect of increasing yield to Investors at the time such fees are not
received or amounts are assumed and decreasing yield when such fees or amounts
are reimbursed.
BISYS will bear all expenses in connection with the performance of its
services under the administration agreement with the exception of the fees
charged by PFPC, Inc. ("PFPC") for certain fund accounting services which are
borne by the Portfolios. Expenses borne by each Portfolio include taxes,
interest, brokerage fees and commissions, if any, fees of Board members who are
not officers, directors, partners, employees or holders of 5% or more of the
outstanding voting securities of Bank of America or Concord or any of their
affiliates, Securities and Exchange Commission fees, advisory fees,
administration fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, outside auditing and legal expenses,
costs of maintaining corporate existence, cost of Investors' reports and
corporate meetings and any extraordinary expenses.
B-37
<PAGE> 88
For the fiscal years indicated, BISYS or Concord was paid or waived
administration fees with respect to the Bond, Blue Chip and Asset Allocation
Portfolios as follows:
<TABLE>
<CAPTION>
================================================================================
Year Ended Year Ended Year Ended
February 28, February 29, February 28,
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
BOND
PORTFOLIO
Total Fee
Payable $ 47,588 $ 30,769 $33,431
Total Fee
Waived $ 28,508 -- --
- --------------------------------------------------------------------------------
BLUE CHIP
PORTFOLIO
Total Fee
Payable $180,110 $104,889 --
Total Fee
Waived $ 64,005 $ 77,922 $72,742
- --------------------------------------------------------------------------------
ASSET
ALLOCATION
PORTFOLIO
Total Fee
Payable $ 94,685 $ 83,060 --
Total Fee
Waived $ 66,954 $ 65,491 $79,573
================================================================================
</TABLE>
B-38
<PAGE> 89
For the periods indicated, BISYS or Concord waived its entire
administration fee with respect to the Corporate Bond Portfolio as follows:
<TABLE>
<CAPTION>
================================================================================
Period
April 25,
1994
Period ended (commence-
September 1, Period ment of
1996 October 1, operations)
(cessation Year ended 1994 through through
of February 29, February 28, September
operations) 1996 1995 30, 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE
BOND
PORTFOLIO
Total Fee
Payable $0 $16,036 $6,544 $8,175
Total Fee
Waived $0 $16,036 $6,544 $8,175
================================================================================
</TABLE>
For the period indicated, BISYS or Concord waived its entire
administration fee with respect to the International Equity Portfolio as
follows:
<TABLE>
<CAPTION>
================================================================================
Period May 13, 1996
(commencement of operations)
to September 1, 1996
(cessation of operations)
- --------------------------------------------------------------------------------
<S> <C>
INTERNATIONAL EQUITY
PORTFOLIO
Total Fee Payable $0
Total Fee Waived $0
================================================================================
</TABLE>
The administration agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law for any loss suffered by the Trust in
connection with the matters to which the administration agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence in the
performance of its duties or from the reckless disregard by it of its
obligations and duties thereunder. BISYS is also as fully responsible to the
Trust for the acts and omissions of PFPC as it is for its own acts and
omissions.
B-39
<PAGE> 90
CUSTODIAN AGREEMENT
PNC Bank, National Association, acts as custodian of the Portfolios
pursuant to a Custodian Agreement. Among other responsibilities, the custodian
(i) maintains a separate account or accounts in the name of each Portfolio, (ii)
holds and disburses portfolio securities on account of each Portfolio, (iii)
receives and disburses money on behalf of each Portfolio, (iv) collects and
receives all income and other payments and distributions on account of each
Portfolio's portfolio securities held by the Custodian, (v) responds to
correspondence from security brokers and others relating to its duties and (vi)
makes periodic reports to the Board of Trustees of the Trust concerning its
duties thereunder. Under the Custodian Agreement, each Portfolio will reimburse
the Custodian for its costs and expenses in providing services thereunder.
GLASS-STEAGALL ACT CONSIDERATIONS
The Glass-Steagall Act, among other things, prohibits banks from
engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in Investment Company Institute v. Camp that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board of Governors") issued a
regulation and interpretation to the effect that the Glass-Steagall Act and such
decision forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but do
not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board of Governors did
not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies.
Bank of America believes that if the question were properly presented,
a court should hold that Bank of America may perform the services for the Trust
contemplated by the advisory agreement as described in Part A, and this Part B
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. It should be noted, however, that there have been no cases deciding
whether a national bank may perform services comparable to those performed by
Bank of America and that future changes in either
B-40
<PAGE> 91
federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent Bank of America from continuing
to perform such services for the Trust or from continuing to purchase Portfolio
shares for the accounts of its customers.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of the Trust, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107, serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent accountants of the Trust for the fiscal
year ended February 28, 1998.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
Subject to the general supervision of the Board of Trustees of the
Trust, Bank of America is responsible for, makes decisions with respect to and
places orders for all portfolio transactions for each Portfolio. Transactions on
stock exchanges involve the payment of negotiated brokerage commissions. There
is generally no stated commission in the case of securities traded in the
over-the-counter market, but the price includes an undisclosed commission or
mark-up. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Purchases and sales of fixed income securities are normally principal
transactions without brokerage commissions.
For the fiscal years or periods indicated, the Blue Chip Portfolio and
Asset Allocation Portfolio paid the following brokerage commissions:
B-41
<PAGE> 92
<TABLE>
<CAPTION>
================================================================================
Year Ended Year Ended Year Ended
February 28, 1997 February 29, 1996 February 28, 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip $637,281 $428,667 $202,817
Portfolio
Asset $152,270 $175,960 $152,778
Allocation
Portfolio
================================================================================
</TABLE>
For these same periods, the Bond Portfolio paid no brokerage
commissions. During the fiscal years or periods ended September 30, 1994,
February 28, 1995, February 29, 1996 and September 1, 1996, the Corporate Bond
Portfolio paid no brokerage commissions. For the period May 13, 1996 to
September 1, 1996, the International Equity Portfolio paid brokerage commissions
in the amount of $19,566. No other Portfolio was engaged in investment
operations during these years or periods.
In executing portfolio transactions and selecting brokers or dealers,
it is the Portfolios' policy to seek the best overall terms available. The
investment advisory agreements provide that, in assessing the best overall terms
available for any transaction, Bank of America shall consider factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis. In addition, the investment advisory
agreements authorize Bank of America, subject to the approval of the Board, to
cause a Portfolio to pay a broker-dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that such commission
is deemed reasonable in terms of either that particular transaction or the
overall responsibilities of Bank of America to the particular Portfolio.
Brokerage and research services may include: (1) 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; and
(2) analyses and reports concerning industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts.
It is possible that certain of the brokerage and research services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, a particular
Portfolio may be the primary beneficiary of the brokerage or research services
B-42
<PAGE> 93
received as a result of portfolio transactions effected for such other accounts
or investment companies.
Brokerage and research services so received are in addition to and not
in lieu of services required to be performed by Bank of America and do not
reduce the advisory fee payable to Bank of America.
A Portfolio may participate, if and when practicable, in bidding for
the purchase of securities of the U.S. Government and its agencies and
instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Portfolio will
engage in this practice only when Bank of America, in its sole discretion
subject to guidelines adopted by the particular Board, believes such practice to
be in the interest of the Portfolio.
To the extent permitted by law, Bank of America may aggregate the
securities to be sold or purchased on behalf of the Portfolios with those to be
sold or purchased for other investment companies or common trust funds in order
to obtain best execution.
Portfolio securities may not be purchased from or sold to Bank of
America or Concord, or any affiliated person of either of them (as defined in
the 1940 Act), acting as principal or as broker, except as may be permitted by
the Securities and Exchange Commission and subject to the rules and regulations
of the Comptroller of the Currency. With respect to the Corporate Bond
Portfolio, the Trust will not purchase securities during the existence of any
underwriting or selling group of which Seafirst Corporation or BankAmerica
Corporation or any of their affiliates is a member, except as permitted by the
1940 Act and the regulations thereunder. With respect to each Portfolio other
than the Corporate Bond Portfolio, Bank of America is authorized to purchase,
sell or otherwise deal with securities or other instruments for which (a) Bank
of America, (b) any affiliate of Bank of America, (c) an entity in which Bank of
America has a direct or indirect interest, or (d) another member of a syndicate
or other intermediary (where an entity referred to in (a), (b) or (c) above was
a member of the syndicate), has acted, now acts or in the future will act as an
underwriter, syndicate member, market-maker, dealer, broker or in any other
similar capacity, whether the purchase, sale or other dealing occurs during the
life of the syndicate or after the close of the syndicate, provided such
purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder.
The Trust is required to identify any securities of its regular brokers
or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held
by the Trust as of the close of its most recent fiscal year. Merrill Lynch &
Co., Inc., Goldman, Sachs & Co., Bear Stearns Co., Inc., Morgan Stanley & Co.
Incorporated,
B-43
<PAGE> 94
Shearson Lehman Brothers, Inc., Dean Witter Reynolds, Inc. and Paine Webber are
considered to be regular brokers and dealers of the Trust. As of February 28,
1997 (a) the Intermediate Bond Portfolio held the following security: Paine
Webber Group medium term note in the amount of $3,000,000, (b) the Asset
Allocation Portfolio held the following securities: Dean Witter common stock in
the amount of $2,701,600, Lehman Brothers corporate obligation in the principal
amount of $1,000,000; Morgan Stanley corporate obligation in the principal
amount of $3,800,000; Paine Webber Group medium term note in the principal
amount of $2,500,000, (c) the Blue Chip Portfolio held the following security:
Dean Witter common stock in the amount of $6,220,588.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
DESCRIPTION OF BENEFICIAL INTERESTS
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding Beneficial Interests of
the series of the Trust affected by the matter. Under Rule 18f-2, a series is
presumed to be affected by a matter, unless the interests of each series in the
matter are identical or the matter does not affect any interest of such series.
Under Rule 18f-2 the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to a Portfolio only if approved by a majority of its outstanding Beneficial
Interests. However, the rule also provides that the ratification of independent
public accountants, the approval of principal underwriting contracts and the
election of directors may be effectively acted upon by Investors of the Trust
voting without regard to Portfolio.
Unless otherwise provided by law (for example, by Rule 18f-2 discussed
above) or by the Trust's Declaration of Trust or Bylaws, the Trust may take or
authorize any action upon the favorable vote of the holders of more than 50% of
the Beneficial Interests of the Trust.
REPORTS
Investors will be sent unaudited semi-annual reports, and audited
annual financial statements together with the report of the independent
accountants of the Trust.
DECLARATION OF TRUST
In accordance with Delaware law and in connection with the tax
treatment sought by the Trust, the Trust's Declaration of Trust
B-44
<PAGE> 95
provides that its Investors will be personally and jointly and severally
responsible (with rights of contribution inter se in proportion to their
respective ownership interests in the Trust) for the Trust's liabilities and
obligations in the event that the Trust fails to satisfy such liabilities and
obligations. However, to the extent assets are available in the Trust, the Trust
will indemnify and hold each Investor harmless from any claim or liability to
which the Investor may become subject solely by reason of its having been an
Investor, and will reimburse the Investor for all legal and other expenses
reasonably incurred by it in connection with any such claim or liability.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to controlling persons of the Trust as described in the
previous sentence, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that such a claim for indemnification against such
liabilities (other than payment by the Trust of expenses incurred or paid by a
controlling person of the Trust in the successful defense of an action, suit or
proceeding) is asserted by such controlling person in connection with the
securities being registered, the Trust will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
The Trust's Declaration of Trust also provides that obligations of the
Trust are not binding upon its Trustees, officers, employees and agents
individually and that the trustees, officers, employees and agents will not be
liable to the Trust or the Investors for any action or failure to act, but
nothing in the Declaration of Trust protects a trustee, officer, employee or
agent against any liability to the Trust or the Investors to which the trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.
The Declaration of Trust also provides that subject to the rights of
the trustees in their discretion to allocate general liabilities, expenses,
costs, charges or reserves as provided in the Declaration of Trust, the debts,
liabilities, obligations and expenses incurred, contracted for or existing with
respect to the Portfolio shall be enforceable against the assets and property of
such Portfolio and the Investors therein only, and not against the assets or
property of any other Portfolio or the Investors therein. The debts,
liabilities, obligations and expenses incurred, contracted for or existing with
respect to a Portfolio shall be enforceable against the assets and property of
such Portfolio and
B-45
<PAGE> 96
the Investors therein only, and not against the assets or property of any other
Portfolio or the Investors therein.
REGISTRATION STATEMENT
The Registration Statement of the Trust, including exhibits filed
therewith, may be examined at the office of the Securities and Exchange
Commission in Washington, D.C. Statements contained in Part A or Part B of such
Registration Statement as to the contents of any contract or other document
referred to therein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
such Registration Statement, such statement being qualified in all respects by
such reference.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
PFPC determines the net asset value of each Portfolio as described
below. Except for debt securities held by the Portfolios with remaining
maturities of 60 days or less, assets for which market quotations are available
are valued as follows: (a) each listed security is valued at its closing price
obtained from the primary exchange on which the security is listed, or, if there
were no sales on that day, at its last reported current closing price; (b) each
unlisted security is valued at the last current bid price (or last current sale
price, as applicable) obtained from the NASDAQ; (c) United States Government and
agency obligations are valued based upon bid quotations from the Federal Reserve
Bank for identical or similar obligations; (d) short-term money market
instruments (such as certificates of deposit, bankers' acceptances and
commercial paper) are most often valued by bid quotations or by reference to bid
quotations of available yields for similar instruments of issuers with similar
credit ratings. The Board of Trustees of the Trust has determined that the
values obtained using the procedures described in (c) and (d) represent the fair
values of the securities valued by such procedures. Most of these prices are
obtained by PFPC from a service that collects and disseminates such market
prices. Bid quotations for short-term money market instruments reported by such
service are the bid quotations reported to it by major dealers in such
instruments.
Debt securities held by the Portfolios with remaining maturities of 60
days or less are valued on the basis of amortized cost, which provides stability
of net asset value. Under this method of valuation, the security is initially
valued at cost on the date of purchase or, in the case of securities purchased
with more than 60 days remaining to maturity and to be valued on the amortized
cost basis only during the final 60 days of its maturity, the market value on
the 61st day prior to maturity. Thereafter the Trust assumes a constant
proportionate amortization in value until
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maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security, unless the Board of Trustees
determines that amortized cost no longer represents fair value. The Trust will
monitor the market value of these investments for the purpose of ascertaining
whether any such circumstances exist.
When approved by the Board of Trustees of the Trust, certain securities
may be valued on the basis of valuations provided by an independent pricing
service when such prices are believed to reflect the fair market value of such
securities. These securities may include those that have no available recent
market value, have few outstanding shares and therefore infrequent trades, or
for which there is a lack of consensus on the value, with quoted prices covering
a wide range. The lack of consensus might result from relatively unusual
circumstances such as no trading in the security for long periods of time, or a
company's involvement in merger or acquisition activity, with widely varying
valuations placed on the company's assets or stock. Prices provided by an
independent pricing service may be determined without exclusive reliance on
quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data.
In the absence of an ascertainable market value, assets are valued at
their fair value as determined by PFPC using methods and procedures reviewed and
approved by the Board of Trustees of the Trust.
The net asset value of each Portfolio is determined as of the end of
regular trading hours on the New York Stock Exchange on days the Exchange is
open. Trading in foreign securities is generally completed prior to that time.
Trading may occur in foreign securities, however, on Saturdays and U.S. holidays
and at other times when the New York Stock Exchange is closed. As a result,
there may be delays in reflecting changes in the market values of foreign
securities in the calculation of the net asset value of a Portfolio. There may
be variations in the net asset value per share of Portfolio on days when net
asset value is not calculated and on which interestholders cannot redeem due to
changes in values of securities traded in foreign markets.
A "business day" for purposes of processing share purchases and
redemptions received by the Trust is a day on which the New York Stock Exchange
is open for trading. In 1996, the holidays on which the Exchange is closed are
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or
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undesirable, the Trust may make payment wholly or partly in securities or other
property. Additionally, the Trust has made an undertaking to the State of Texas
that it may only make payment of such proceeds wholly or in part in "readily
marketable" securities or other property. (If the Trust determines that such
undertaking is no longer in its best interests, it will revoke such commitment.)
In such event, an Investor would incur transaction costs in selling the
securities or other property. The Trust has committed that it will pay all
redemption requests by an Investor in cash, limited in amount with respect to
each Investor during any ninety-day period to the lesser of $250,000 or 1% of
the Trust's net asset value at the beginning of such period.
ITEM 20. TAX STATUS.
SPECIAL TAX CONSIDERATIONS
U.S. GOVERNMENT OBLIGATIONS. Income received on direct U.S. Government
obligations is exempt from tax at the state level when received directly and may
be exempt, depending on the state, when received by a shareholder from an
Investor. Interest received on repurchase agreements collateralized by U.S.
Government obligations is not exempt from state taxation. The Trust will inform
Investors annually of the percent of income and distributions derived from
direct U.S. Government obligations and Investors should provide that information
to their shareholders. Investors should consult their tax advisers to determine
whether any portion of the income received from a Portfolio is considered
tax-exempt in particular states.
With respect to investments in zero coupon Treasury securities that are
sold at original issue discount and thus do not make periodic cash interest
payments, a Portfolio will be required to include as part of its current income
the imputed interest on such obligations even though the Portfolio has not
received any interest payments on such obligations during that period. The
Portfolio may have to sell portfolio securities to allow Investors to distribute
such imputed income to their shareholders, which may occur at a time when Bank
of America would not have chosen to sell such securities, and such sales may
result in a taxable gain or loss.
SECTION 1256 CONTRACTS. The options, futures contracts and forward
contracts used by a Portfolio may be "Section 1256 contracts." Any gains or
losses on Section 1256 contracts are generally treated as 60% long-term and 40%
short-term capital gains or losses ("60/40"), although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character. Also,
Section 1256 contracts held by the Portfolio at the end of each taxable year
will be treated for federal income tax purposes as sold for their fair market
value on the last business
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day of such year, a process known as "marking to market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss, depending
on the circumstances.
STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by a Portfolio
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Portfolio
and its Investors. In addition, losses realized by the Portfolio and its
Investors on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences of transactions in options, futures and forward contracts to the
Portfolios and their Investors are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by a Portfolio which is
taxed as ordinary income when distributed to its Investors.
A Portfolio may make one or more of the elections under the Code which
are available to a holder of straddles. If the Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amounts which must be
distributed to Investors and which will be taxed to Investors as ordinary income
or long-term capital gain may be increased or decreased as compared to investors
in a fund that did not engage in such hedging transactions.
The 30% limit on gains from the disposition of certain options, futures
and forward contracts held less than three months and the qualifying income and
diversification requirements applicable to the assets of Investors subject to
subchapter M of the Code may limit the extent to which the Portfolios will be
able to engage in transactions in options, futures contracts or forward
contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Portfolio accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Portfolio
actually collects such
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receivables or pays such liabilities generally are treated as ordinary income or
loss. Similarly, gains or losses on disposition of debt securities denominated
in a foreign currency and on disposition of certain futures attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security or contract and the date of disposition also
generally are treated as ordinary gain or loss. These gains and losses, referred
to under the Code as "Section 988" gains or losses, may increase or decrease the
amount of an Investor's investment company taxable income to be passed through
to its shareholders as ordinary income.
FOREIGN TAX CREDITS. Income received by a Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. However, tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes and Bank of America intends to manage the
Portfolios with the intention of minimizing foreign taxation in cases where it
is deemed prudent to do so. If more than 50% of an Investor's total assets at
the close of its taxable year consists of stock or securities of foreign
corporations (including its pro rata share of foreign securities held by a
Portfolio), the Investor may be eligible to elect to "pass through" to its
shareholders the Investor's pro rata share of foreign income and similar taxes
paid by the Portfolio. Shareholders may be unable to claim a credit for the full
amount of their proportionate share of foreign taxes paid by a Portfolio because
of various limitations in the Code. In particular, the foreign tax credit is
modified for purposes of the federal alternative minimum tax and can be used to
offset only 90% of the alternative minimum tax, and foreign taxes generally are
not deductible in computing alternative minimum taxable income.
ORIGINAL ISSUE DISCOUNT. Some of the debt securities (with a fixed
maturity date of more than one year from the date of issuance) that may be
acquired by the Portfolios may be treated as debt securities that are issued
originally at a discount. Generally, the amount of the original issue discount
("OID") is treated as interest income and is included in income over the term of
the debt security, even though payment of that amount is not received until a
later time, usually when the debt security matures. A portion of the OID
includable in income with respect to certain high-yield corporation debt
securities may be treated as a dividend for federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Portfolios in
the secondary market may be treated as having market discount. Generally, any
gain recognized on the disposition of, and any partial payment of principal on,
a debt security having market discount is treated as ordinary income to the
extent the gain, or principal payment, does not exceed the "accrued market
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discount" on such debt security. Market discount generally accrues in equal
daily installments.
OTHER TAX INFORMATION
The Trust and the Portfolios may also be subject to state or local
taxes in certain states where they may be deemed to be doing business. Further,
in those states which have income tax laws, the tax treatment of the Trust, of
the Portfolios and of Investors may differ from federal tax treatment.
Distributions to Investors may be subject to additional state and local taxes.
Investors should consult their own tax advisers because state and local tax
consequences may be different from the federal tax consequences described above.
ITEM 21. UNDERWRITERS. Not applicable.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA. Not applicable.
ITEM 23. FINANCIAL STATEMENTS. The audited financial statements and notes
thereto for each of the Asset Allocation, Blue Chip, and Bond Portfolios are
contained in their Annual Reports for the year ended February 28, 1997 and are
incorporated by reference into this Registration Statement. The Corporate Bond
and International Equity Portfolio ceased operations on September 1, 1997. No
other Portfolio had commenced investment operations as of February 28, 1997. The
financial statements and notes thereto have been audited by Price Waterhouse
LLP, whose reports thereon also appear in the aforementioned Annual Reports and
are also incorporated herein by reference. No other parts of the Annual Reports
are incorporated by reference herein. Such financial statements have been
incorporated herein in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment.
It is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of 9 months. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions
are considered to have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions
are considered to have a strong capacity for repayment of short-
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term promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have
an acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the
Prime rating categories.
The three rating categories of Duff & Phelps for
investment grade commercial paper and short-term debt are "D-1," "D-2" and
"D-3." Duff & Phelps employs three designations, "D-1+," "D-1" and "D-1-,"
within the highest rating category. The following summarizes the rating
categories used by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
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"D-4" - Debt possesses speculative investment
characteristics. Liquidity is not sufficient to ensure against disruption in
debt service. Operating factors and market access may be subject to a high
degree of variation.
"D-5" - Issuer has failed to meet scheduled principal
and/or interest payments.
Fitch short-term ratings apply to debt obligations that
are payable on demand or have original maturities of generally up to three
years. The following summarizes the rating categories used by Fitch for
short-term obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality.
Issues assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the
likelihood of an untimely or incomplete payment of principal or interest of
unsubordinated instruments having a maturity of one year or less which are
issued by United States commercial banks, thrifts and non-bank banks; non-United
States banks; and broker-
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dealers. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree
of safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest
investment grade category and indicates that while the debt is more susceptible
to adverse developments (both internal and external) than obligations with
higher ratings, capacity to service principal and interest in a timely fashion
is considered adequate.
"TBW-4" - This designation indicates that the debt is
regarded as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt
with an original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by the highest capacity
for timely repayment.
"A2" - Obligations are supported by a satisfactory
capacity for timely repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory
capacity for timely repayment. Such capacity is more susceptible to adverse
changes in business, economic or financial conditions than for obligations in
higher categories.
"B" - Obligations for which the capacity for timely
repayment is susceptible to adverse changes in business, economic or financial
conditions.
"C" - Obligations for which there is an inadequate
capacity to ensure timely repayment.
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"D" - Obligations which have a high risk of default or
which are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard &
Poor's for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity
to pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to
pay interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
"BB" - Debt has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to
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senior debt that is assigned an actual or implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt
subordinated to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt
subordinated to senior debt which is assigned an actual or implied "CCC-" debt
rating. The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which
no interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through
"CCC" may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative,
hybrid, and certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest return
is indexed to equities, commodities, or currencies; certain swaps and options;
and interest only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for
corporate and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such
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changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one
of these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may be
revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
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The following summarizes the long-term debt ratings used
by Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average
but adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors
but such protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one
of these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality,
the "AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major
categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
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"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds
that possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality,
the Fitch ratings from and including "AA" to "C" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.
IBCA assesses the investment quality of unsecured debt
with an original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and
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interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned
one of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a
rating to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's
lowest investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
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"BB," "B," "CCC," and "CC," - These designations are
assigned by Thomson BankWatch to non-investment grade long-term debt. Such
issues are regarded as having speculative characteristics regarding the
likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt
is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through
"CC" may include a plus or minus sign designation which indicates where within
the respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity
concerns and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of
the best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of
high quality, with margins of protection ample although not so large as in the
preceding group.
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"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly regarded
as required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in the Parts A and B, each Portfolio may enter
into futures contracts and options for hedging purposes. Such transactions are
described in this Appendix.
I. INTEREST RATE FUTURES CONTRACTS.
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Portfolio presently could accomplish a similar result to
that which it hopes to achieve through the use of futures contracts by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term bonds
and investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Portfolio, through
using futures contracts.
Description of Interest Rate Futures Contracts. An
interest rate futures contract sale would create an obligation by a Portfolio,
as seller, to deliver the specific type of financial instrument called for in
the contract at a specific future time for a specified price. A futures contract
purchase would create an obligation by a Portfolio, as purchaser, to take
delivery of the specific type of financial instrument at a specific future time
at a specific price. The specific securities delivered or taken, respectively,
at settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
Although interest rate futures contracts by their terms
call for actual delivery or acceptance of securities, in most cases
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the contracts are closed out before the settlement date without the making or
taking of delivery of securities. Closing out a futures contract sale is
effected by a Portfolio's entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument and the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, a Portfolio is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Portfolio pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by a Portfolio's entering into a futures contract sale. If
the offsetting sale price exceeds the purchase price, a Portfolio realizes a
gain, and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago Board
of Trade and the Chicago Mercantile Exchange. A Portfolio would deal only in
standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury bonds
and notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Portfolio may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. A Portfolio would
engage in an interest rate futures contract sale to maintain the income
advantage from continued holding of a long-term bond while endeavoring to avoid
part or all of the loss in market value that would otherwise accompany a decline
in long-term securities prices. Assume that the market value of a certain
security in the Portfolio tends to move in concert with the futures market
prices of long-term United States Treasury bonds ("Treasury bonds"). The
investment adviser wishes to fix the current market value of this portfolio
security until some point in the future. Assume the portfolio security has a
market value of 100, and the investment adviser believes that, because of an
anticipated rise in interest rates, the value will decline to 95. A Portfolio
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
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In that case, the five-point loss in the market value of
the portfolio security would be offset by the five-point gain realized by
closing out the futures contract sale. Of course, the futures market price of
Treasury bonds might well decline to more than 93 or to less than 93 because of
the imperfect correlation between cash and futures prices mentioned below.
The investment adviser could be wrong in its forecast of
interest rates and the equivalent futures market price could rise above 98. In
this case, the market value of the portfolio securities, including the portfolio
security being protected, would increase. The benefit of this increase would be
reduced by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, a Portfolio in the
above example might incur a loss of 2 points (which might be reduced by an
off-setting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
Examples of Futures Contract Purchase. A Portfolio would
engage in an interest rate futures contract purchase when it is not fully
invested in long-term bonds but wishes to defer for a time the purchase of
long-term bonds in light of the availability of advantageous interim
investments, e.g., shorter-term securities whose yields are greater than those
available on long-term bonds. A Portfolio's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Portfolio would be endeavoring at the same time to eliminate the
effect of all or part of an expected increase in market price of the long-term
bonds that the Portfolio may purchase.
For example, assume that the market price of a long- term
bond that a Portfolio may purchase, currently yielding 10%, tends to move in
concert with futures market prices of Treasury bonds. The investment adviser
wishes to fix the current market price (and thus 10% yield) of the long-term
bond until the time (four months away in this example) when it may purchase the
bond. Assume the long-term bond has a market price of 100, and the investment
adviser believes that, because of an anticipated fall in interest rates, the
price will have risen to 105 (and the yield will have dropped to about 9 1/2%)
in four months. A Portfolio might enter into futures contracts purchases of
Treasury bonds for an equivalent price of 98. At the same time, a Portfolio
would assign a pool of investments in short-term securities that are either
maturing in four months or earmarked for sale in four months, for purchase of
the long-term bond at an assumed market price of 100. Assume these short-term
securities are yielding 15%. If the market price of the long-term bond does
indeed rise from 100 to 105, the equivalent futures market price for Treasury
bonds might also rise from 98 to 103. In that case, the 5-point increase
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in the price that a Portfolio pays for the long-term bond would be offset by the
5-point gain realized by closing out the futures contract purchase.
The investment adviser could be wrong in its forecast of
interest rates; long-term interest rates might rise to above 10%; and the
equivalent futures market price could fall below 98. If short-term rates at the
same time fall to 10% or below, it is possible that a Portfolio would continue
with its purchase program for long-term bonds. The market price of available
long-term bonds would have decreased. The benefit of this price decrease, and
thus yield increase, will be reduced by the loss realized on closing out the
futures contract purchase.
If, however, short-term rates remained above available
long-term rates, it is possible that a Portfolio would discontinue its purchase
program for long-term bonds. The yield on short-term securities in a Portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase. In each transaction, expenses would also be
incurred.
II. STOCK INDEX FUTURES CONTRACTS.
A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks included. A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value (which assigns relative values to the common stocks included in the
index) at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100 or
indices based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through a
clearing corporation, which guarantees the performance of the parties to each
contract.
A Portfolio will sell stock index futures contracts in
order to offset a decrease in market value of its portfolio securities that
might otherwise result from a market decline. A Portfolio may do so either to
hedge the value of its portfolios as
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a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Portfolio will purchase
stock index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, a Portfolio will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Portfolio may utilize stock index futures
contracts in anticipation of changes in the composition of its respective
portfolio holdings. For example, in the event that a Portfolio expects to narrow
the range of industry groups represented in its holdings it may, prior to making
purchases of the actual securities, establish a long futures position based on a
more restricted index, such as an index comprised of securities of a particular
industry group. A Portfolio may also sell futures contracts in connection with
this strategy, in order to protect against the possibility that the value of the
securities to be sold as part of the restructuring of its respective portfolio
securities will decline prior to the time of sale.
The following are examples of transactions in stock index
futures (net of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Blue Chip Portfolio at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Blue Chip Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
</TABLE>
If, however, the market moved in the opposite direction, that
is, market value decreased and a Portfolio had entered into an anticipatory
purchase hedge, or market value increased and the Portfolio had hedged its stock
portfolio, the results of the Portfolio's transactions in stock index futures
would be as set forth below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Blue Chip Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Blue Chip Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
</TABLE>
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
<TABLE>
<CAPTION>
Portfolio Futures
--------- -------
<S> <C>
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Blue Chip Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Blue Chip Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio Value = $40,000 Loss of Futures = $40,000
</TABLE>
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a
Portfolio to hedge against exposure to fluctuations in exchange rates between
the U.S. dollar and other currencies arising from multinational transactions.
IV. MARGIN PAYMENTS.
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by the Portfolio upon the purchase or sale of a
futures contract. Initially, a Portfolio will be required to deposit with the
broker or in a segregated account with
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the Portfolio's custodian an amount of cash or cash equivalents, the value of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Portfolio upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-market. For example, when a Portfolio has purchased a futures
contract and the price of the contract has risen in response to a rise in the
underlying instruments, that position will have increased in value and the
Portfolio will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Portfolio has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Portfolio would be required to make a variation margin payment to the
broker. At any time prior to expiration of the futures contract, the investment
adviser may elect to close the position by taking an opposite position, subject
to the availability of a secondary market, which will operate to terminate the
Portfolio's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to a
Portfolio, and the Portfolio realizes a loss or gain.
V. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.
There are several risks in connection with the use of futures
in a Portfolio as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, a
Portfolio would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, a Portfolio
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge.
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To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of futures contracts, a
Portfolio may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the investment adviser. Conversely, a Portfolio may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the adviser. It is also possible that, where a Portfolio has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Portfolio may decline. If this
occurred, a Portfolio would lose money on the future and also experience a
decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible
increase in the price of securities before a Portfolio is able to invest its
cash (or cash equivalents) in securities (or options) in an orderly fashion, it
is possible that the market may decline instead; if the Portfolio then concludes
not to invest in securities or options at that time because of concern as to
possible further market decline or for other reasons, the Portfolio will realize
a loss on the futures contract that is not offset by a reduction in the price of
securities purchased.
In instances involving the purchase of futures contracts by a
Portfolio, an amount of cash and cash equivalents, equal to the market value of
the futures contracts, will be deposited in a segregated account with the
Portfolio's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the
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securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements in
the price of futures, a correct forecast of general market trends or interest
rate movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. Although the
Portfolios intend to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary
market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions.
Successful use of futures by a Portfolio is also subject to
the investment adviser's ability to predict correctly movements in the direction
of the market. For example, if a Portfolio has hedged against the possibility of
a decline in the market adversely affecting securities held by it and securities
prices increase instead, the Portfolio will lose part of all of the benefit to
the increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Portfolio has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Portfolio
may have to sell securities at a time when it may be disadvantageous to do so.
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VI. OPTIONS ON FUTURES CONTRACTS.
A Portfolio may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase of an option also entails the risk that changes in the
value of the underlying futures contract will not be fully reflected in the
value of the option purchased. Depending on the pricing of the option compared
to either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to a Portfolio because the maximum amount
at risk is the premium paid for the options (plus transaction costs).
VII. OTHER HEDGING TRANSACTIONS
A Portfolio may use interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts (and related
options) in connection with its hedging activities. A Portfolio is authorized to
enter into hedging transactions in any other futures or options contracts which
are currently traded or which may subsequently become available for trading.
Such instruments may be employed in connection with the Portfolios' hedging
strategies if, in the judgment of the adviser, transactions therein are
necessary or advisable.
VIII. ACCOUNTING AND TAX TREATMENT.
Accounting for futures contracts and related options will be
in accordance with generally accepted accounting principles.
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Generally, futures contracts and options on futures contracts
held by a Portfolio at the close of the Portfolio's taxable year will be treated
for federal income tax purposes as sold for their fair market value on the last
business day of such year, a process known as "mark-to-market." Forty percent of
any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60% of such gain or loss will be treated as
long-term capital gain or loss, without regard to the length of time a Portfolio
holds the futures contract or option ("the 40%-60% rule"). The amount of any
capital gain or loss actually realized by a Portfolio in a subsequent sale or
other disposition of those futures contracts or options will be adjusted to
reflect any capital gain or loss taken into account by the Portfolio in a prior
year as a result of the constructive sale of the contract or option. With
respect to futures contracts to sell, which are regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by a Portfolio, losses as to such contracts to sell may be
subject to certain loss deferral rules which limit the amount of loss currently
deductible on either part of the straddle to the amount thereof which exceeds
the unrecognized gain (if any) with respect to the other part of the straddle,
and to certain wash sales regulations. Under short sales rules, which also will
be applicable, the holding period of the securities forming part of the straddle
(if they have not been held for the long-term holding period) will be deemed not
to begin prior to termination of the straddle. With respect to certain futures
contracts and related options, deductions for interest and carrying charges will
not be allowed. Notwithstanding the rules described above, with respect to
futures contracts to sell which are properly identified as such, a Portfolio may
make an election which will exempt (in whole or in part) those identified
futures contracts from being treated for federal income tax purposes as sold on
the last business day of the Portfolio's taxable year, but gains and losses will
be subject to such short sales, wash sales and loss deferral rules and the
requirement to capitalize interest and carrying charges. Under Temporary
regulations, a Portfolio would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from positions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) to establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50 percent of any net gain may be treated as
long-term and no more than 40 percent of any net loss may be treated as
short-term.
Certain foreign currency contracts entered into by a Portfolio
may be subject to the "marking-to-market" process, but
B-12
<PAGE> 126
gain or loss will be treated as 100% ordinary income or loss. To receive such
federal income tax treatment, a foreign currency contract must meet the
following conditions: (1) the contract must require delivery of a foreign
currency of a type in which regulated futures contracts are traded or upon which
the settlement value of the contract depends; (2) the contract must be entered
into at arm's length at a price determined by reference to the price in the
interbank market; and (3) the contract must be traded in the interbank market.
The Treasury Department has broad authority to issue regulations under the
provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information, the Treasury has not issued any such
regulations. Foreign currency contracts entered into by a Portfolio may result
in the creation of one or more straddles for federal income tax purposes, in
which case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option or similar
financial instrument. However, regulated futures contracts and non-equity
options generally are not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
mark-to-market rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer also is treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated that
some of the non-U.S. dollar denominated
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<PAGE> 127
investments and foreign currency contracts that the Portfolio may make or may
enter into will be subject to the special currency rules described above. Gain
or loss attributable to the foreign currency component of transactions engaged
in by the Portfolio which are not subject to special currency rules (such as
foreign equity investments other than certain preferred stocks) will be treated
as capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction.
Qualification as a regulated investment company under the Code
requires that each Portfolio satisfy certain requirements with respect to the
source of its income during a taxable year. At least 90% of the gross income of
each Portfolio must be derived from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and other income (including, but not limited
to, gains from options, futures, or forward contracts) derived with respect to
the Portfolio's business of investing in such stock, securities or currencies.
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to the Portfolio's principal
business of investing in stock or securities, or options and futures with
respect to stock or securities. Any income derived by a Portfolio from a
partnership or trust is treated for this purpose as derived with respect to the
Portfolio's business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income which would have been
qualifying income if realized by the Portfolio in the same manner as by the
partnership or trust.
An additional requirement for qualification as a regulated
investment company under the Code is that less than 30% of each Portfolio's
gross income must be derived from gains realized on the sale or other
disposition of the following investments held for less than three months: (1)
stock and securities (as defined in section 2(a)(36) of the 1940 Act); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to the Portfolio's principal
business of investing in stock and securities (and options and futures with
respect to stocks and securities). With respect to futures contracts and other
financial instruments subject to the mark-to-market rules, the Internal Revenue
Service has ruled in private letter rulings that a gain realized from such a
futures contract or financial instrument will be treated as being derived from a
security held for three months or more (regardless of the actual period for
which the contract or instrument is held) if the gain arises as a result of a
constructive sale under the marking-to-market rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or
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<PAGE> 128
transferred) during the taxable year (other than by reason of marking-to-market)
and less than three months have elapsed between the date the contract or
instrument is acquired and the termination date. In determining whether a
Portfolio meets the 30% test for a taxable year, increases and decreases in the
value of the Portfolio's futures contracts and other investments that qualify as
part of a "designated hedge," as defined in the Code, may be netted.
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<PAGE> 129
MASTER INVESTMENT TRUST, SERIES I
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
(1) Included in Part A:
- Not applicable.
(2) Incorporated by reference in Part B:
The audited financial statements and related notes thereto as
well as the Auditor's reports thereon for each of the Asset
Allocation, Blue Chip and Investment Grade Bond Portfolios for
the fiscal year ended February 28, 1997, are incorporated
herein by reference to the Annual Reports to Interestholders
of the Registrant as filed with the Securities and Exchange
Commission on May 8, 1997 pursuant to Rule 30b2-1 of the
Investment Company Act of 1940 (No. 811-8086).
(b) EXHIBITS.
1.1 Amended and Restated Declaration of Trust of Registrant
dated February 10, 1993.
1.2 Instrument of Amendment of Amended and Restated
Declaration of Trust dated October 22, 1993.
1.3 Instrument of Establishment and Designation of New Series
of Beneficial Interests dated February 8, 1994.
2 Bylaws of Registrant dated February 10, 1993.
3 Not applicable.
4 Not applicable.
5.1 Investment Advisory Agreement dated November 1, 1994
between Registrant and Bank of America National Trust and
Savings Association as it relates to the Asset Allocation,
Investment Grade Bond, Blue Chip, Utilities, Short-Term
Government, International Equity and International Bond
Portfolios.
5.2 Addendum to the Investment Advisory Agreement dated June
23, 1997 between Registrant and Bank of America
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<PAGE> 130
National Trust and Savings Association as it relates to
the Investment Grade Bond Portfolio and Blue Chip
Portfolios.
6 Not applicable.
7 Not applicable.
8 Custodian Services Agreement between Registrant and PNC
Bank, National Association dated October 25, 1993.
9.1 Administration Agreement dated November 1, 1997 between
Registrant and The BISYS Group, Inc.
9.2 Accounting Services Agreement dated October 25, 1993 among
Concord Holding Corporation, PFPC Inc. and Registrant.
9.3 Services Agreement dated April 22, 1994 between Registrant
and Concord (Cayman Islands) Limited.
9.4 Agreement and Plan of Reorganization among Registrant,
Seattle-First National Bank and Seafirst Retirement Funds.
10 Not Applicable.
11 Not applicable.
12 Not applicable.
13.1 Purchase Agreement dated April 23, 1994 between Registrant
and Concord Management (Ireland), Limited in trust for
Concord (Cayman Islands) Limited with respect to the
Corporate Bond Fund.
13.2 Purchase Agreements dated March 3, 1994 between Registrant
and Concord Management (Ireland), Limited in trust for
Concord (Cayman Islands) Limited with respect to the
International Bond Fund, Short-Term Government Fund,
International Equity Fund, Growth and Income Fund, and
Utilities Fund.
13.3 Purchase Agreements dated December 3, 1993 between
Registrant and Concord Management (Ireland), Limited in
trust for Concord (Cayman Islands) Limited with respect to
the Asset Allocation Fund, Blue Chip Fund, and Investment
Grade Bond Fund.
14 Not applicable.
C-2
<PAGE> 131
15 Not applicable.
16 Not applicable.
17 Financial Data Schedules.
18 Not applicable.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
Shares of Beneficial Interest Number of Record Holders as of
No per value May 30, 1997
----------------------------- ------------------------------
<S> <C>
Series A - Investment Grade Bond Fund 4
Series B - Blue Chip Fund 4
Series C - Asset Allocation Fund 3
Series D - Utilities Fund 0
Series E - Growth and Income Fund 0
Series H - International Bond Fund 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Article V of Registrant's Amended and Restated Declaration of Trust,
included herewith as Exhibit 1.1 provides for the indemnification of
Registrant's trustees, officers, employees and agents, as well as for
indemnification of Investors (to the extent assets are available in the Trust).
Indemnification of the Registrant's custodian and certain other service
providers is provided for in Section 12 of the Custodian Services Agreement,
included herewith by reference as Exhibit 8, Section 12 of the Accounting
Services Agreement, included herewith by reference as Exhibit 9.2, and Section
7(b) of the Services Agreement, included herewith by reference as Exhibit 9.3.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
C-3
<PAGE> 132
performance of his duties or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See Item 5 of Part A for a description of Bank of America.
Certain information regarding the Directors and the principal executive
officers of Bank of America National Trust and Savings Association is set forth
below:
<TABLE>
<CAPTION>
POSITION WITH
BANK OF AMERICA
NATIONAL TRUST
AND SAVINGS PRINCIPAL TYPE OF
ASSOCIATION NAME OCCUPATION BUSINESS
- ----------- ---- ---------- --------
<S> <C> <C> <C>
Director .......... Joseph F. Alibrandi Chairman of the Manufacturer of
Board and CEO, Aerospace and
Whittaker Communication
Corporation Products
Director .......... Jill Elikann Barad President and Chief Toy manufacturer
Executive Officer, and distributor
Mattel, Inc.
Director .......... Peter B. Bedford Chairman and CEO, California based
Bedford Property Real Estate
Investors, Inc. Investment Trust
</TABLE>
C-4
<PAGE> 133
<TABLE>
<CAPTION>
POSITION WITH
BANK OF AMERICA
NATIONAL TRUST
AND SAVINGS PRINCIPAL TYPE OF
ASSOCIATION NAME OCCUPATION BUSINESS
- ----------- ---- ---------- --------
<S> <C> <C> <C>
Director .......... Richard A. Retired Chairman of Utility Company
Clarke the Board, Pacific
Gas and Electric
Company
Chairman .......... David A. Coulter Chairman of the Banking
Board, Chief
Executive Officer
and President, Bank
America Corporation
and Bank of
America National
Trust & Savings
Association
Director .......... Timm F. Crull Chairman, Hallmark Greeting cards
International
Director .......... Kathleen Feldstein President, Economic
Economics Consulting
Studies, Inc.
Director .......... Donald E. Guinn Chairman Emeritus, Telecommunications
Pacific Telesis and Diversified
Group Holding Company
Director .......... Frank L. Hope, Jr. Consulting Architectural
Architect and Engineering
Consulting
Director .......... Walter E. Massey, President, Higher
Ph.D. Morehouse Education
College
Director .......... John M. Richman Of Counsel, Law firm
Wachtell, Lipton,
Rosen & Katz
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder will be maintained at the following locations:
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<PAGE> 134
(1) Bank of America National Trust and Savings Association,
555 California Street, San Francisco, California 94104
(records relating to the investment advisor).
(2) BISYS Fund Services (Ireland) Limited, Floor 2, Block 2,
The Harcourt Centre, Dublin 2, Ireland (records relating
to the administrator).
(3) PFPC International, Ltd., 80 Harcourt Street, Dublin 2,
Ireland (records relating to the accounting services
agreement).
(4) PNC Bank, National Association, Airport Business Center,
International Court 2, 200 Stevens Drive, Lester,
Pennsylvania 191113 (records relating to the custodian
agreement).
(5) Concord (Cayman Islands) Limited, P.O. Box 30122 SMB,
Grand Cayman, Cayman Islands, British West Indies
(principal corporate records, including Registrant's
charter, bylaws and minute books, and original copies of
contracts).
(6) Maples & Calder, P.O. Box 309, Ugland House, S. Church
St., Grand Cayman Islands, British West Indies
(principal corporate records, including Registrant's
charter, bylaws and minute books and original copies of
contracts).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
The Registrant undertakes to call a meeting of Investors for
the purpose of voting upon the question of removal of one or more members of the
Board of Trustees when requested in writing to do so by the holders of at least
10% of the Registrant's outstanding Beneficial Interests and in connection with
such meeting to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to shareholder communications.
The Registrant hereby undertakes to provide its Annual Report
upon request and without charge to any recipient of a Registration Statement for
Master Investment Trust, Series I.
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<PAGE> 135
SIGNATURE
Pursuant to the requirements of the Investment Company Act of
1940, as amended, the Registrant has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Columbus, State of Ohio, on the 30th day of June, 1997.
MASTER INVESTMENT TRUST, SERIES I
By: /s/ Stephanie L. Blaha
----------------------
Stephanie L. Blaha
Title: Vice President
<PAGE> 136
EXHIBIT INDEX
EXHIBITS
1.1 Amended and Restated Declaration of Trust of Registrant
dated February 10, 1993.
1.2 Instrument of Amendment of Amended and Restated
Declaration of Trust dated October 22, 1993.
1.3 Instrument of Establishment and Designation of New Series
of Beneficial Interests dated February 8, 1994.
2 Bylaws of Registrant dated February 10, 1993.
5.1 Investment Advisory Agreement dated November 1, 1994
between Registrant and Bank of America National Trust and
Savings Association as it relates to the Asset Allocation,
Investment Grade Bond, Blue Chip, Utilities, Short-Term
Government, International Equity and International Bond
Portfolios.
5.2 Addendum to the Investment Advisory Agreement dated June
23, 1997 between Registrant and Bank of America National
Trust and Savings Association as it relates to the
Investment Grade Bond Portfolio and Blue Chip Portfolios.
8 Custodian Services Agreement between Registrant and PNC
Bank, National Association dated October 25, 1993.
9.1 Administration Agreement dated November 1, 1997 between
Registrant and The BISYS Group, Inc.
9.2 Accounting Services Agreement dated October 25, 1993 among
Concord Holding Corporation, PFPC Inc. and Registrant.
9.3 Services Agreement dated April 22, 1994 between Registrant
and Concord (Cayman Islands) Limited.
9.4 Agreement and Plan of Reorganization among Registrant,
Seattle-First National Bank and Seafirst Retirement Funds.
13.1 Purchase Agreement dated April 23, 1994 between Registrant
and Concord Management (Ireland), Limited in trust for
Concord (Cayman Islands) Limited with respect to the
Corporate Bond Fund.
13.2 Purchase Agreements dated March 3, 1994 between Registrant
and Concord Management (Ireland), Limited in trust for
Concord (Cayman Islands) Limited with respect to the
International Bond Fund, Short-Term Government Fund,
International Equity Fund, Growth and Income Fund, and
Utilities Fund.
<PAGE> 137
13.3 Purchase Agreements dated December 3, 1993 between
Registrant and Concord Management (Ireland), Limited in
trust for Concord (Cayman Islands) Limited with respect to
the Asset Allocation Fund, Blue Chip Fund, and Investment
Grade Bond Fund.
17 Financial Data Schedules.
<PAGE> 1
EXHIBIT 1.1
AMENDED AND RESTATED DECLARATION OF TRUST
OF
MASTER INVESTMENT TRUST, SERIES I
a Delaware Business Trust
February 10, 1993
<PAGE> 2
AMENDED AND RESTATED DECLARATION OF TRUST
OF
MASTER INVESTMENT TRUST, SERIES I
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - The Trust........................................................................................... 1
1.1 Name........................................................................................ 1
1.2 Trust Purpose............................................................................... 2
1.3 Definitions................................................................................. 2
ARTICLE II - Trustees........................................................................................... 4
2.1 Number and Qualification.................................................................... 4
2.2 Term and Election........................................................................... 5
2.3 Resignation and Removal..................................................................... 5
2.4 Vacancies................................................................................... 6
2.5 Meetings.................................................................................... 6
2.6 Officers; Chairman of the Board............................................................. 7
2.7 By-Laws..................................................................................... 7
ARTICLE III - Powers of Trustees................................................................................ 8
3.1 General..................................................................................... 8
3.2 Investments................................................................................. 8
3.3 Legal Title................................................................................. 9
3.4 Sale of Interests........................................................................... 9
3.5 Borrow Money................................................................................ 9
3.6 Delegation; Committees...................................................................... 9
3.7 Collection and Payment...................................................................... 9
3.8 Expenses.................................................................................... 10
3.9 Miscellaneous Powers........................................................................ 10
3.10 Further Powers.............................................................................. 10
ARTICLE IV - Investment Advisory, Administrative Services
and Placement Agent Arrangements................................................................... 11
4.1 Investment Advisory and Other Arrangements.................................................. 11
4.2 Parties to Contract......................................................................... 11
ARTICLE V - Limitations of Liability............................................................................ 12
5.1 No Personal Liability of Trustees, Officers,
Employees, Agents........................................................................... 12
5.2 Indemnification of Trustees, Officers, Employees,
Agents...................................................................................... 12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.3 Liability of Holders; Indemnification....................................................... 13
5.4 No Bond Required of Trustees................................................................ 13
5.5 No Duty of Investigation; Notice in Trust
Instruments, Etc............................................................................ 13
5.6 Reliance on Experts, Etc.................................................................... 14
5.7 Assent to Liability......................................................................... 14
ARTICLE VI - Interests in the Trust............................................................................. 14
6.1 Interests................................................................................... 14
6.2 Rights of Holders........................................................................... 15
6.3 Register of Interests....................................................................... 15
6.4 Non-Transferability......................................................................... 15
6.5 Notices..................................................................................... 15
6.6 No Preemptive Rights; Derivative Suits...................................................... 15
ARTICLE VII - Purchases, Decreases And Withdrawals.............................................................. 15
7.1 Purchases................................................................................... 15
7.2 Decreases and Withdrawals................................................................... 16
ARTICLE VIII - Determination of Book Capital Account Balances,
Net Income and Distributions..................................................................... 16
8.1 Book Capital Account Balances............................................................... 16
8.2 Distributions and Allocations to Holders.................................................... 17
8.3 Allocation of Certain Tax Items............................................................. 17
8.4 Power to Modify Foregoing Procedures........................................................ 17
8.5 Deficit Makeup Requirement.................................................................. 18
ARTICLE IX - Holders............................................................................................ 18
9.1 Meetings of Holders......................................................................... 18
9.2 Notice of Meetings...........................................................................18
9.3 Record Date for Meetings.....................................................................19
9.4 Proxies, Etc.................................................................................19
9.5 Reports......................................................................................20
9.6 Inspection of Records........................................................................20
9.7 Voting Powers................................................................................20
9.8 Series of Interests..........................................................................20
9.9 Holder Action by Written Consent.............................................................23
9.10 Holder Communications........................................................................23
ARTICLE X - Duration; Termination of Trust; Amendment;
Mergers; Etc........................................................................................ 24
10.1 Duration.................................................................................... 24
10.2 Termination of Trust........................................................................ 24
10.3 Termination Upon Certain Events............................................................. 25
10.4 Amendment Procedure......................................................................... 25
10.5 Merger, Consolidation and Sale of Assets.................................................... 26
10.6 Incorporation............................................................................... 27
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XI - Miscellaneous...................................................................................... 27
11.1 Certificate of Designation; Agent for Service of
Process..................................................................................... 27
11.2 Governing Law............................................................................... 28
11.3 Counterparts................................................................................ 28
11.4 Reliance by Third Parties................................................................... 28
11.5 Provisions in Conflict With Law or Regulations.............................................. 29
11.6 Trust Only ..................................................................................29
11.7 Tax Matters Partner .........................................................................29
11.8 Withholding................................................................................. 30
11.9 Headings and Construction................................................................... 30
</TABLE>
-iii-
<PAGE> 5
AMENDED AND RESTATED DECLARATION OF TRUST
OF
MASTER INVESTMENT TRUST, SERIES I
This AMENDED AND RESTATED DECLARATION OF TRUST of Master
Investment Trust, Series I is made on the l0th day of February, 1993 by the
party signatory hereto, as Trustee.
WHEREAS, the Trustee has heretofore formed a business trust
under the law of Delaware for the investment and reinvestment of its assets, by
the execution of the Declaration of Trust of Offshore Master Investment Trust on
October 23, 1992; and
WHEREAS, the Trustee desires to change the name of the Trust
to Master Investment Trust, Series I, and to amend and restate such Declaration
of Trust in its entirety; and
WHEREAS, it is proposed that the Trust assets be composed of
cash, securities and other assets contributed to the Trust by the holders of
interests in the Trust entitled to ownership rights in the Trust;
NOW, THEREFORE, the Trustee hereby declares that the Trustees
will hold in trust all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder, and manage and dispose
of the same for the benefit of the holders of interests in the Trust and subject
to the following terms and conditions, and the Declaration of Trust of the Trust
is amended and restated to read in full as set forth herein.
ARTICLE I
The Trust
1.1 Name. The name of the trust created hereby (the "Trust")
shall be "Master Investment Trust, Series I," 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 not refer to the Trustees in their individual capacities
or to the officers, agents, employees or holders of interest in the Trust.
However, should the Trustees determine that the use of the name of the Trust is
not advisable, they may select such other name for the Trust as they deem proper
and the Trust may hold its property and conduct its activities under such other
name. Any name change shall become effective upon the execution
- 1 -
<PAGE> 6
by a majority of the then Trustees of an instrument setting forth the new name
and the filing of a certificate of amendment pursuant to Section 3810(b) of the
DBTA. Any such instrument shall not require the approval of the holders of
interests in the Trust, but shall have the status of an amendment to this
Declaration.
1.2 Trust Purpose. The purpose of the Trust is to conduct,
operate and carry on the business of an open-end management investment company
registered under the 1940 Act. In furtherance of the foregoing, it shall be the
purpose of the Trust to do everything necessary, suitable, convenient or proper
for the conduct, promotion and attainment of any businesses and purposes which
at any time may be incidental or may appear conducive or expedient for the
accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA, and in connection therewith the Trust shall have
and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.
1.3 Definitions. As used in this Declaration, the following
terms shall have the following meanings:
(a) "1940 Act" shall mean the Investment Company Act
of 1940, as amended from time to time, and the rules and regulations thereunder,
as adopted or amended from time to time.
(b) "Affiliated Person," "Assignment" and "Interested
Person" shall have the meanings given them in the 1940 Act.
(c) "Administrator" shall mean any party furnishing
services to the Trust pursuant to any administrative services contract described
in Section 4.1 hereof.
(d) "Book Capital Account" shall mean, for any Holder
at any time, the book capital account of the Holder at such time, determined in
accordance with generally accepted accounting principles, and pursuant to
Article VIII of this Declaration, and based upon the net asset value of the
Trust Property determined in accordance with applicable provisions of the 1940
Act and the Code. The net asset value of a Holder's Book Capital Account shall
be determined in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)
under the Code.
(e) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
(f) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, and the rules and regulations thereunder, as
adopted or amended from time to time.
- 2 -
<PAGE> 7
(g) "Commission" shall mean the Securities and
Exchange Commission.
(h) "Declaration" shall mean this Declaration of
Trust as amended from time to time. References in this Declaration to
"Declaration," "hereof," "herein" and "hereunder" shall be deemed to refer to
the Declaration rather than the article or section in which such words appear.
This Declaration shall, together with the By-Laws, constitute the governing
instrument of the Trust under the DBTA.
(i) "DBTA" shall mean the Delaware Business Trust
Act, Delaware Code Annotated title 12, Sections 3801 et seq., as amended from
time to time.
(j) "Fiscal Year" shall mean an annual period as
determined by the Trustees unless otherwise provided by the Code or applicable
regulations.
(k) "Holders" shall mean as of any particular tine
any or all holders of record of Interests in the Trust or in Trust Property, as
the case may be, at such time.
(l) "Institutional Investor" shall mean any
registered broker/dealer, regulated investment company, segregated asset
account, foreign investment company, common or commingled trust fund, group
trust or similar organization or entity that is an "accredited investor" within
the meaning of Regulation D under the Securities Act of 1933.
(m) "Interest" shall mean the interest of a Holder in
the Trust, including all rights, powers and privileges accorded to Holders in
this Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage in, or fraction of, Interests of the Holders, shall mean
Holders whose combined Book Capital Accounts represents such specified
percentage or fraction of the total of the Book Capital Accounts of all Holders.
(n) "Investment Adviser" shall mean any party
furnishing services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
(o) "Majority Interests Vote" shall mean the vote, at
a meeting of the Holders of Interests, of the lesser of (A) 67% or more of the
Interests present or represented at such meeting, provided the Holders of more
than 50% of the Interests
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are present or represented by proxy or (B) more than 50% of the Interests.
(p) "Person" shall mean and include an individual,
corporation, partnership, trust, association, joint venture and other entity,
whether or not a legal entity, and a government and agencies and political
subdivisions thereof.
(q) "Registration Statement" as of any particular
time shall mean the Registration Statement of the Trust which is effective at
such time under the 1940 Act.
(r) "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 Trustees may authorize the division of Trust Property into two or more
series, in accordance with the provisions of Section 9.8 hereof, in which case
all references in this Declaration to the Trust, Trust Property, Interests
therein or Holders thereof shall be deemed to refer to each such series, as the
case may be, except as the context otherwise requires. Any series of Trust
Property shall be established and designated, and the variations in the relative
rights and preferences as between the different series shall be fixed and
determined, by the Trustees.
(s) "Trustees" shall mean such persons who are
identified as trustees of the Trust on the signature page of this Declaration,
so long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, in their capacity as trustees
hereunder.
ARTICLE II
Trustees
2.1 Number and Qualification. The number of Trustees shall
initially be one and shall thereafter be fixed from time to time by written
instrument signed by a majority of the Trustees so fixed then in office,
provided, however, that the number of Trustees shall in no event be less than
one. A Trustee shall be an individual at least 21 years of age who is not under
legal disability.
(a) Any vacancy created by an increase in Trustees
shall be filled by the appointment or election of an individual having the
qualifications described in this Article as provided in Section 2.4. Any such
appointment or election shall
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not become effective, however, until the individual so appointed or elected
shall have accepted in writing such appointment or election and agreed in
writing to be bound by the terms of the Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office.
(b) Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.4 hereof, the
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration.
2.2 Term and Election. Each Trustee named herein, or elected
or appointed prior to the first meeting of the Holders, shall (except in the
event of resignations or removals or vacancies pursuant to Section 2.3 or 2.4
hereof) hold office until his or her successor has been elected at such meeting
and has qualified to serve as Trustee. Beginning with the Trustees elected at
the first meeting of Holders, each Trustee shall hold office during the lifetime
of this Trust and until its termination as hereinafter provided unless such
Trustee resigns or is removed as provided in Section 2.3 below.
2.3 Resignation and Removal. Any Trustee may resign (without
need for prior or subsequent accounting) by an instrument in writing signed by
him or her and delivered or mailed to the Chairman, if any, the President or the
Secretary and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument.
(a) Any of the Trustees may be removed with or
without cause by the affirmative vote of the Holders of two-thirds (2/3) 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 (2/3) of the remaining Trustees. Removal with
cause shall include, but not be limited to, the removal of a Trustee due to
physical or mental incapacity.
(b) Upon the resignation or removal of a Trustee, or
his or her otherwise ceasing to be a Trustee, he or she shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the death of any Trustee or
upon removal or resignation due to any Trustee's incapacity to serve as trustee,
his or her legal representative shall execute and deliver on his or her behalf
such documents as the remaining Trustees shall require as provided in the
preceding sentence.
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2.4 Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, adjudicated
incompetence or other incapacity to perform the duties of the office, or
removal, of a Trustee. A vacancy shall also occur in the event of an increase in
the number of trustees as provided in Section 2.1. No such vacancy shall operate
to annul this Declaration or to revoke any existing trust created pursuant to
the terms of this Declaration. In the case of a vacancy, the Holders of at least
a majority of the Interests entitled to vote, acting at any meeting of the
Holders held in accordance with Section 9.1 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. There shall be no cumulative voting by the Holders in the election
of Trustees.
2.5 Meetings. Meetings of the Trustees shall be held from time
to time within or without the State of Delaware upon the call of the Chairman,
if any, the President, the Chief Operating Officer, the Secretary, an Assistant
Secretary or any two Trustees.
(a) 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 not later than 72
hours preceding the meeting by United States mail or by electronic transmission
to each Trustee at his business address as set forth in the records of the Trust
or otherwise given personally not less than 24 hours before the meeting but may
be waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees shall
be one-third of the total number of Trustees, but (except at such time as there
is only one Trustee) no less than two 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, which written consent
shall be filed with the minutes of proceedings of the Trustees or any such
committee. If there be less than a quorum present at any meeting of the
Trustees, a majority of those present may adjourn the meeting until a quorum
shall have been obtained.
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(c) 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 two or more of the members thereof,
unless the Board shall provide otherwise. 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, which written consent
shall be filed with the minutes of proceedings of the Trustees or any such
committee.
(d) With respect to actions of the Trustees and any
committee of the Trustees, Trustees who are Interested Persons of the Trust or
are 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.
(e) 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 persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to such communications system shall constitute presence in person at
such meeting, unless the 1940 Act specifically requires the Trustees to act "in
person," in which case such term shall be construed consistent with Commission
or staff releases or interpretations.
2.6 Officers; Chairman of the Board. The Trustees shall, from
time to time, elect officers of the Trust including a President, a Secretary and
a Treasurer. The Trustees shall elect or appoint, from time to time, a Trustee
to act as Chairman of the Board who shall preside at all meetings of the
Trustees and carry out such other duties as the Trustees shall designate. The
Trustees may elect or appoint or authorize the President to appoint such other
officers or agents with such powers as the Trustees may deem to be advisable.
The President, Secretary and Treasurer may, but need not, be a Trustee. The
Chairman of the Board and such officers of the Trust shall serve in such
capacity for such time and with such authority as the Trustees may, in their
discretion, so designate or as provided by in the By-Laws.
2.7 By-Laws. The Trustees may adopt and, from time to time,
amend or repeal the By-Laws for the conduct of the business of the Trust not
inconsistent with this Declaration and such ByLaws are hereby incorporated in
this Declaration by reference thereto.
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ARTICLE III
Powers of Trustees
3.1 General. The Trustees shall have exclusive and absolute
control over the management of the business and affairs of the Trust, but with
such powers of delegation as may be permitted by this Declaration and the DBTA.
The Trustees may perform such acts as in their sole discretion are proper for
conducting the business and affairs of the Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid power.
Such powers of the Trustee may be exercised without order of or recourse to any
court.
3.2 Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of United States and foreign currencies and
related instruments including forward contracts, and securities, including
common and preferred stock, warrants, bonds, debentures, time notes and all
other evidences of indebtedness, negotiable or non-negotiable instruments,
obligations, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, reverse repurchase agreements, convertible securities,
forward contracts, options, futures contracts, and other securities, including,
without limitation, those issued, guaranteed or sponsored by any state,
territory or possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, or by the United
States Government, any foreign government, or any agency, instrumentality or
political subdivision of the United States Government or any foreign government,
or international instrumentalities, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States or under foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more persons, firms, associations, or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and the
Trustees shall be deemed to have the foregoing powers with respect to any
additional securities in which the Trustees may determine to invest.
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<PAGE> 13
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 the Trust Property shall
be vested in the Trust as a separate legal entity under the DBTA, 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 any
other Person on behalf of the Trust on such terms as the Trustees may determine.
In the event that title to any part of the Trust Property is
vested in one or more Trustees, the right, title and interest of the Trustees in
the Trust Property shall vest automatically in each person who may hereafter
become a Trustee upon his or her due election and qualification. Upon the
resignation, removal or death of a Trustee he or she shall automatically cease
to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. To the extent permitted by law, such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4 Sale of Interests. Subject to the more detailed provisions
set forth in Articles VII and VIII, the Trustees shall have the power to permit
persons to purchase Interests and to add or reduce, in whole or in part, their
Interest in the Trust.
3.5 Borrow Money. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any other person, firm,
association or corporation.
3.6 Delegation; Committees. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments, either in the name of the Trust or the
names of the Trustees or otherwise, as the Trustees may deem expedient.
3.7 Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to
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the Trust Property; to foreclose any security interest securing any obligations,
by virtue of which any property is owned to the Trust; and to enter into
releases, agreements and other instruments.
3.8 Expenses. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal and brokerage services, as they in good faith may deem
reasonable (subject to any limitations in the 1940 Act), and reimbursement for
expenses reasonably incurred by themselves on behalf of the Trust.
3.9 Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust 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 (including, but not
limited to, fidelity bonding and errors and omission 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 liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (e) 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; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal Year of
the Trust and the method by which its accounts shall be kept; and (h) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
3.10 Further Powers. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of Delaware,
in any and all states of the United States of America, in the District of
Columbia, in any foreign countries, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or
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instrumentalities of the United States of America and of foreign countries, and
to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive and shall be binding upon the Trust and the Holders, past,
present and future. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The Trustees
shall not be required to obtain any court order to deal with Trust Property.
ARTICLE IV
Investment Advisory, Administrative Services
and Placement Agent Arrangements
4.1 Investment Advisory and Other Arrangements. The Trustees
may in their discretion, from time to time, enter into contracts or agreements
for investment advisory services, administrative services (including transfer
and dividend disbursing agency services), distribution services, fiduciary
(including custodian) services, placement agent services, Holder servicing and
distribution services, or other services, whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, 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 further action by the Trustees). Any such purchases, sales,
loans and exchanges shall be binding upon the Trust.
4.2 Parties to Contract. Any contract or agreement of the
character described in Section 4.1 of this Article IV or in the By-Laws of the
Trust may be entered into with any Person, although one or more of the Trustees
or officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or
accountable for any profit realized directly or indirectly therefrom,
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provided that the contract or agreement when entered into was reasonable and
fair and not inconsistent with the provisions of this Article IV or the By-Laws.
Any Trustee or officer of the Trust or any Holder may be the other party to
contracts or agreements entered into pursuant to Section 4.1 hereof or the
By-Laws of the Trust, and any Trustee or officer of the Trust of any Holder may
be financially interested or otherwise affiliated with Persons who are parties
to any or all of the contracts or agreements mentioned in this Section 4.2.
ARTICLE V
Limitations of Liability
5.1 No Personal Liability of Trustees, Officers, Employees,
Agents. No Trustee, officer, employee or agent of the Trust when acting in such
capacity shall be subject to any personal liability whatsoever, in his or her
individual capacity, to any Person, other than the Trust or its 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 or agent of the Trust arising in connection
with the affairs of the Trust. No Trustee, officer, employee or agent of the
Trust shall be liable to the Trust, Holders of Interests therein, or to any
Trustee, officer, employee, or agent thereof for any action or failure to act
(including, without limitation, the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his or her own bad
faith, willful misfeasance, gross negligence or reckless disregard of his or her
duties.
5.2 Indemnification of Trustees, Officers, Employees, Agents.
The Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or trustees
of another organization in which it 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 him or her in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he or she may be involved or with which he or she may be threatened,
while in office or thereafter, by reason of his or her being or having been such
a Trustee, officer, employee or agent, except with respect to any matter as to
which he or she shall have been adjudicated to have acted in bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her 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
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either for said 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 his or her office by the court or other body approving the settlement
or other disposition or by a reasonable determination, based upon review of
readily available facts (as opposed to a full trial-type inquiry), that he or
she 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 he or she may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he or she may be
otherwise entitled except out of the Trust Property. The Trustees may make
advance payments in connection with indemnification under this Section 5.2,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he or she is
not entitled to such indemnification.
5.3 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 his or her being or having been a Holder and shall reimburse such
Holder for all legal and other expenses reasonably incurred by him or her in
connection with any such claim or liability; and provided, further, that no
Holder shall be liable for the obligations of, or be entitled to indemnification
by, any series established in accordance with Section 9.8 unless such Holder is
a Holder of Interests of such series. The rights accruing to a Holder under this
Section 5.3 shall not exclude any other right to which such Holder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Holder in any appropriate situation even
though not specifically provided herein.
5.4 No Bond Required of Trustees. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance of
any of his or her duties hereunder.
5.5 No Duty of Investigation; Notice in Trust Instruments,
Etc. No purchaser, lender, or other Person dealing with the Trustees or any
officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any
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transaction purporting to be made by the Trustees or by said officer, employee
or agent or be liable for the application of money or property paid, loaned, or
delivered to or on the order of the Trustees or of said officer, employee or
agent. Every obligation, contract, instrument, certificate or other interest or
undertaking of the Trust, and every other act or thing whatsoever executed in
connection with the Trust, shall be conclusively taken to have been executed or
done by the executors thereof only in their capacity as Trustees, officers,
employees or agents of the Trust. Every written obligation, contract,
instrument, certificate or other interest or undertaking of the Trust made by
the Trustees or by any officer, employee or agent of the Trust, in his or her
capacity as such, shall contain an appropriate recital to the effect that the
Trustee, officer, employee and agent of the Trust shall not personally be bound
by or liable thereunder, nor shall resort be had to their private property or
the private property of the Holders for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, Holders, Trustees, officers, employees and agents in such amount as
the Trustees shall deem advisable.
5.6 Reliance on Experts, Etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his or her duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by any Investment Adviser,
Administrator, accountant, appraiser or other experts or consultants selected
with reasonable care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
5.7 Assent to Liability. Every Holder, by virtue of having
become a Holder in accordance with the terms of this Declaration, shall be held
to have expressly assented and agreed to the terms hereof and to have become a
party hereto, including, without limitation, the provisions of Section 5.3
hereof.
ARTICLE VI
Interests in the Trust
6.1 Interests. The beneficial interests in the property of the
Trust shall consist of an unlimited number of
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Interests. Individuals, S corporations, partnerships and grantor trusts may not
purchase Interests. No certificates certifying the ownership of Interests need
be issued except as the Trustees may otherwise determine from time to time.
6.2 Rights of Holders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trust or the Trustees, and the Holders shall have
no right or title therein other than the beneficial interest conferred by their
Interests and they shall have no right to call for any partition or division of
any property, profits or rights of the Trust. The Interests shall be personal
property giving only the rights specifically set forth in this Declaration.
6.3 Register of Interests. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the names and
addresses of the Holders and the Book Capital Account balances of each Holder.
Each such register shall be conclusive as to the identity of the Holders of the
Trust and the Persons who shall be entitled to payments of distributions or
otherwise to exercise or enjoy the rights of Holders. No Holder shall be
entitled to receive payment of any distribution, nor to have notice given to it
as herein provided, until it has given its address to such officer or agent of
the Trustees as shall keep the said register for entry thereon.
6.4 Non-Transferability. Interests shall not be transferable
except to the Trust. The Trustees shall cause any certificate or other paper
issued to the Holders to contain a legend stating that such Holder's Interests
are nontransferable.
6.5 Notices. Any and all notices to which any Holder hereunder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Holder of record at its last
known address as recorded on the register of the Trust.
6.6 No Preemptive Rights; Derivative Suits. Holders shall have
no preemptive or other rights to subscribe for any additional Interests or other
securities issued by the Trust. No action may be brought by a Holder on behalf
of the Trust unless Holders owning no less than 10% of the then-outstanding
Interests join in the bringing of such action.
ARTICLE VII
Purchases, Decreases And Withdrawals
7.1 Purchases. The Trustees may permit the purchase of
Interests from the Trust, but only if the purchaser is an
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Institutional Investor and the number of Holders does not exceed 500. The
Trustees, in their discretion, may, from time to time, without a vote of the
Holders, permit the purchase of Interests by such party or parties (or increase
in the Interests of a Holder) and for such type of consideration, including,
without limitation, 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, without limitation, the
acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses.
7.2 Decreases and Withdrawals. A Holder shall have the
authority to decrease or withdraw its Interest in the Trust, at such Holder's
option, subject to the terms and conditions provided in this Article VII. The
Trust shall, upon application of any Holder or pursuant to authorization from
any Holder, and subject to this Section 7.2, decrease or withdraw such Holder's
Interest; provided that a) the amount of such decrease or withdrawal shall not
exceed the reduction in the Holder's Book Capital Account effected by such
decrease or withdrawal of its Interest and (b) if so authorized by the Trustees,
the Trust may, at any time and from time to tine, charge fees for effecting such
decrease or withdrawal, at such rates as the Trustees may establish, and may, at
any time and from time to time, suspend such right of decrease or withdrawal
subject to the applicable requirements of the 1940 Act. The procedures for
effecting decreases or withdrawals shall be as determined by the Trustees from
time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances, Net Income and Distributions
8.1 Book Capital Account Balances. An individual Book Capital
Account shall be maintained for each Holder.
(a) The balance of each Holder's Book Capital Account
shall consist of its original contribution of capital, increased by additional
contributions and by allocations of income or gain and decreased by allocations
of loss and expenses and by distributions, including distributions pursuant to
redemptions of a Holder's Interests in the Trust.
(b) The Book Capital Accounts of the Holders shall be
adjusted daily pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(q) to
reflect the revaluation of Trust assets on the Trust's books as if such assets
had been sold for fair market value. Gain or loss in such case, and in the case
of an actual sale of Trust assets, shall be computed by reference to
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the book value of the assets and not their tax basis. Such Book Capital Accounts
shall be further adjusted as necessary to meet the requirements of Treasury
Regulation Section 1.704-1(b)(2)(iv) under the Code. The Trustees may adopt
resolutions setting forth the specific method of determining the Book Capital
Account balances of each Holder.
(c) The power and duty to make calculations pursuant
to such resolutions may be delegated by the Trustees to the Investment Adviser,
Administrator, custodian, or other such person as the Trustees may determine.
8.2 Distributions and Allocations to Holders. The Trust shall,
in compliance with the regulations promulgated under applicable provisions of
the Code (i) allocate daily the income or loss of the Trust to each Holder of
Interests in the Trust in proportion to such Holder's Book Capital Account, (ii)
pay distributions to each Holder in proportion to such Holder's Book Capital
Account and (iii) upon liquidation, make a final distribution to each Holder in
accordance with such Holder's positive Book Capital Account balance, as
determined after taking into account all Book Capital Account adjustments for
the Trust's taxable year during which the liquidation occurs (other than those
adjustments made pursuant to this Section 8.2 and Section 8.5 hereof), by the
end of such taxable year (or, if later, within 90 days after the date of the
liquidation). The Trustees may also retain from the amounts to be distributed
such amount as they may deem necessary to pay the debts or expenses of the Trust
or to meet obligations of the Trust, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of the
business. The Trustees may from time to time modify the Trust's obligation or
methodology under this Section 8.2 to the extent necessary to comply with the
Code or any regulations promulgated thereunder.
8.3 Allocation of Certain Tax Items. If any property of the
Trust is reflected in the Book Capital Accounts of the Holders and on the books
of the Trust at a book value that differs from the adjusted tax basis of such
property, then the tax items with respect to such property shall, in accordance
with the requirements of Treasury Regulations Section 1.704-1(b)(4)(i) under the
Code, be shared among the Holders in a manner that takes account of the
variation between the adjusted tax basis of the applicable property and its book
value in the same manner as variations between the adjusted tax basis and fair
market value of property contributed to the Trust are taken into account in
determining the Holders' share of tax items under Code Section 704(c).
8.4 Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VIII, but subject to the
requirements of the Code and the
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Regulations thereunder, the Trustees may prescribe, in their absolute
discretion, such other bases and times for determining the net income and net
assets of the Trust, the allocation of income or the payment of distributions to
the Holders of Interests in the Trust as they may deem necessary or desirable to
enable the Trust to comply with any applicable provisions of the 1940 Act, or
any order of exemption issued by the Commission, as in effect now or hereafter
amended or modified.
8.5 Deficit Makeup Requirement. In the event the Trust is
"liquidated" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(q)(i), distributions shall be made pursuant to Section 8.2
hereof to any Holders who have positive Book Capital Account balances, in
compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2). If, upon
dissolution of the Trust (or any Holder's Interest in the Trust), a Holder has a
deficit balance in his or her Book Capital Account following the liquidation of
his or her Interest in the Trust, as determined after taking into account all
Book Capital Account adjustments for the Trust's taxable year during which such
liquidation occurs, such Holder shall be unconditionally obligated to contribute
an amount of cash to the Trust, which amount shall be sufficient to eliminate
such deficit balance, which contributions shall be made in the manner and at the
time called for in Treasury Regulation Section 1.704-1(b).
ARTICLE IX
Holders
9.1 Meetings of Holders. Meetings of the Holders may be called
at any time by a majority of the Trustees and shall be called by any Trustee
upon written request of Holders holding, in the aggregate, not less than 10% of
the Interests, 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 Delaware on such day and at such time as the Trustees shall designate.
Holders of one-third of the Interests in the Trust, present in person or by
proxy, shall constitute a quorum for the transaction of any business, except as
may otherwise be required by the 1940 Act or other applicable law or by this
Declaration or the By-Laws of the Trust. If a quorum is present at a meeting, an
affirmative vote by 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 the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust requires
a greater number of affirmative votes.
9.2 Notice of Meetings. Written or printed notice of all
meetings of the Holders, stating the time, place and purposes
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of the meeting, shall be given by the Trustees either by presenting it
personally to a Holder, leaving it at his or her residence or usual place of
business, or by sending it via United States mail or by electronic transmission
to a Holder, at his or her registered address, at least 10 business days and not
more than 90 business days before the meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
Holder at his or her address as it is registered with the Trust, with postage
thereon prepaid. At any such meeting, any business properly before the meeting
may be considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
9.3 Record Date for Meetings. For the purpose of determining
the Holders who are entitled to notice of any meeting and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90 calendar
days prior to the date of any meeting of the Holders or payment of distributions
or other action, as the case may be, as a record date for the determination of
the persons to be treated as Holders of record for such purposes. If the
Trustees shall divide the Trust Property into two or more series in accordance
with Section 9.8 herein, nothing in this Section 9.3 shall be construed as
precluding the Trustees from setting different record dates for different
series.
9.4 Proxies, Etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
(a) Pursuant to a resolution of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or one or
more of the officers of the Trust. Only Holders of record shall be entitled to
vote. Each Holder shall be entitled to a vote proportionate to its Interest in
the Trust.
(b) When Interests are held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Interest, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Interest.
(c) 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
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rest on the challenger. If the Holder is a minor or a person of unsound mind,
and subject to guardianship or to the legal control of any other person
regarding the charge or management of its Interest, he or she may vote by his or
her guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
9.5 Reports. The Trustees shall cause to be prepared, at least
annually, a report of operations containing a balance sheet and statement of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually interim reports containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current Fiscal
Year to the end of such period.
9.6 Inspection of Records. The records of the Trust shall be
open to inspection by Holders during normal business hours and for any purpose
not harmful to the Trust.
9.7 Voting Powers. The Holders shall have power to vote only
(a) for the election of Trustees as contemplated by Section 2.2 hereof, (b) with
respect to any investment advisory contract as contemplated by Section 4.1
hereof, (c) with respect to termination of the Trust as provided in Section 10.2
hereof, (d) with respect to any amendment of the Declaration to the extent and
as provided in Section 10.4 hereof, (e) with respect to any merger,
consolidation or sale of assets as provided in Section 10.5 hereof, (f) with
respect to incorporation of the Trust to the extent and as provided in Section
10.6 hereof, (g) with respect to such additional matters relating to the Trust
as may be required by the 1940 Act, DBTA, or any other law, the Declaration, the
By-Laws or any registration of the Trust with the Commission (or any successor
agency) or any state, or as and when the Trustees may consider necessary or
desirable.
Each Holder shall be entitled to vote based on the ratio its
Interest bears to the Interests of all Holders entitled to vote. Until Interests
are issued, the Trustees may exercise all rights of Holders and may take any
action required by law, the Declaration or the By-Laws to be taken by Holders.
The ByLaws may include further provisions for Holders' votes and meetings and
related matters not inconsistent with this Declaration.
9.8 Series of Interests. Without limiting the authority of the
Trustees set forth in this Section 9.8 to establish and designate any further
series, the Trustees hereby establish and designate two series, the Investment
Grade Bond
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Fund and the Blue Chip Fund. The following provisions shall be applicable to
such series and any further series that may from time to time be established and
designated by the Trustees:
(a) All consideration received by the Trust for the
issue or sale of Interests of a particular series together with all Trust
Property in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there is any Trust Property, or any income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more of the series established and designated from time to
time in such manner and on such basis as they, in their sole discretion, deem
fair and equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the Holders of all Interests for all purposes.
(b) The Trust Property belonging to each particular
series shall be charged with the liabilities of the Trust in respect of that
series and all expenses, costs, charges and reserves attributable to that
series, and any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular series
shall be allocated and charged by the Trustees to and among any one or more of
the series established and designated from time to time in such manner and on
such basis as the Trustees in their sole discretion deem fair and equitable.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Holders of all Interests for
all purposes. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital, and each such determination and allocation
shall be conclusive and binding upon the Holders. Without limitation of the
foregoing provisions of this Section, but subject to the right of the Trustees
in their discretion to allocate general liabilities, expenses, costs, charges or
reserves as herein provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series shall be enforceable against the assets of such series only, and not
against the assets of any other series. Notice of this limitation on
inter-series liabilities may, in the Trustees' sole discretion, be set forth in
the certificate of trust of the Trust (whether originally or by amendment) as
filed
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or to be filed in the Office of the Secretary of State of the State of Delaware
pursuant to the DBTA, and upon the giving of such notice in the certificate of
trust, the statutory provisions of Section 3804 of the DBTA relating to
limitations on inter-series liabilities (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each series. Every note, bond, contract or other
undertaking issued by or on behalf of a particular series shall include a
recitation limiting the obligation represented thereby to that series and its
assets.
(c) Dividends and distributions on Interests of a
particular series may be paid with such frequency as the Trustees may determine,
which may be daily or otherwise, pursuant to a standing resolution or resolution
adopted only once or with such frequency as the Trustees may determine, to the
Holders of Interests in that series, from such of the income and capital gains,
accrued or realized, from the Trust Property belonging to that series as the
Trustees may determine, after providing for actual and accrued liabilities
belonging to that series. All dividends and distributions on Interests in a
particular series shall be distributed pro rata to the Holders of Interests in
that series in proportion to the total outstanding Interests in that series held
by such Holders at the date and time of record establishment for the payment of
such dividends or distribution.
(d) The Interests in a series of the Trust shall
represent beneficial interests in the Trust Property belonging to such series.
Each Holder of Interests in a series shall be entitled to receive its pro rata
share of distributions of income and capital gains made with respect to such
series. Upon reduction or withdrawal of its Interests or indemnification for
liabilities incurred by reason of being or having been a Holder of Interests in
a series, such Holder shall be paid solely out of the funds and property of such
series of the Trust. Upon liquidation or termination of a series of the Trust,
Holders of Interests in such series shall be entitled to receive a pro rata
share of the Trust Property belonging to such series. A Holder of Interests in a
particular series of the Trust shall not be entitled to participate in a
derivative or class action lawsuit on behalf of any other series or the Holders
of Interests in any other series of the Trust.
(e) Notwithstanding any other provision hereof, if
the Trust Property has been divided into two or more series, then on any matter
submitted to a vote of Holders of Interests in the Trust, all Interests then
entitled to vote shall be voted by individual series, except that (1) when
required by the 1940 Act, Interests shall be voted in the aggregate and not by
individual series, and (2) when the Trustees have determined that the matter
affects only the interests of Holders of Interests in a limited number of
series, then only the Holders of Interests in such
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series shall be entitled to vote thereon. Except as otherwise provided in this
Article IX, the Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each series of Interests.
(f) The establishment and designation of any series
of Interests other than the Asset Allocation Fund shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights and preferences of such
series, or as otherwise provided in such instrument. At any time that there are
no Interests outstanding of any particular series previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that series and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration.
(g) If the Trust Property has been divided into two
or more series, then Sections 10.2 and 10.3 of this Agreement shall apply also
with respect to each such series as if such series were a separate trust.
(h) The Trustees shall be authorized to issue an
unlimited number of Interests of each series.
9.9 Holder Action by Written Consent. Any action which may be
taken by Holders may be taken without notice and without a meeting if Holders
holding more than 50% of the total Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) shall consent to the action in writing and the written consents
shall be filed with the records of the meetings of Holders. Such consents shall
be treated for all purposes as votes taken at a meeting of Holders.
9.10 Holder Communications. Whenever ten or more Holders who
have been such for at least six months preceding the date of application, and
who hold in the aggregate at least 1% of the total Interests, shall apply to the
Trustees in writing, stating that they wish to communicate with other Holders
with a view to obtaining signatures to a request for a meeting of Holders and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either (1) afford to such applicants access to a list of the names and addresses
of all Holders as recorded on the books of the Trust; or (2) inform such
applicants as to the approximate number of Holders, and the approximate cost of
transmitting to them the proposed communication and form of request.
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If the Trustees elect to follow the course specified in clause
(2) above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be transmitted and of the reasonable
expenses of transmission, shall, with reasonable promptness, transmit, by United
States mail or by electronic transmission, such material to all Holders at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall transmit, by United States mail or by electronic
transmission, to such applicants and file with the Commission, together with a
copy of the material to be transmitted, a written statement signed by at least a
majority of the Trustees to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in violation
of applicable law, and specifying the basis of such opinion. The Trustees shall
thereafter comply with any order entered by the Commission and the requirements
of the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE X
Duration; Termination of Trust;
Amendment; Mergers; Etc.
10.1 Duration. Subject to possible termination or dissolution
in accordance with the provisions of Sections 10.2 and 10.3 respectively, the
Trust created hereby shall continue perpetually pursuant to Section 3808 of
DBTA.
10.2 Termination of Trust.
(a) The Trust may be terminated (i) by the
affirmative vote of the Holders of not less than two-thirds of the Interests in
the Trust at any meeting of the Holders, or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
Holders of not less than two-thirds of such Interests, or (iii) 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 shall
have been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell, convey, assign,
exchange, or otherwise dispose of all or all or any part of the
remaining Trust Property to one or more Persons at public or private
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sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange, or
other disposition of all or substantially all of the Trust Property
shall require approval of the principal terms of the transaction and
the nature and amount of the consideration by the Holders by a Majority
Interests Vote.
(iii) After paying or adequately
providing for the payment of all liabilities, and upon receipt of such
releases, indemnities and refunding agreements, as they deem necessary
for their protection, the Trustees may distribute the remaining Trust
Property, in cash or in kind or partly each, among the Holders
according to their respective rights.
(b) Upon termination of the Trust and distribution to
the Holders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination and file a certificate of cancellation in accordance
with Section 3810 of the DBTA. Upon termination of the Trust, the Trustees shall
thereon be discharged from all further liabilities and duties hereunder, and the
rights and interests of all Holders shall thereupon cease.
10.3 Termination Upon Certain Events. Upon the withdrawal,
resignation, retirement, bankruptcy or expulsion of any Holder, the Trust shall
be terminated effective 120 days after the event. However, the Holders may, by a
unanimous affirmative vote of Holders present at any meeting of the Holders or
by an instrument in writing without a meeting signed by a majority of the
Trustees and consented to by all of the Holders, agree to continue the business
of the Trust.
10.4 Amendment Procedure.
(a) This Declaration may be amended at a meeting by
the vote of Holders holding more than 50% of the total Interests present or by
any instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by Holders holding more than 50% of the total
Interests.
(b) Subject to the requirements of the 1940 Act and
DBTA, this Declaration may be amended by an instrument in writing, without a
meeting, signed 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, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or to
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conform this Declaration to the requirements of the 1940 Act, the Code, DBTA, or
any other applicable federal laws or regulations, but the Trustees shall not be
liable for failing so to do; (ii) to change the state or other jurisdiction
designated herein as the state or other jurisdiction whose laws shall be the
governing law hereof; (iii) to effect such changes herein as the Trustees find
to be necessary or appropriate (A) to permit the filing of this Declaration
under the laws 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 interests or shares in the Trust, however denominated); and (iv) in
conjunction with any amendment contemplated by the foregoing clause (ii) or the
foregoing clause (iii) 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 (iii) or clause (iv)
to be conclusively evidenced by the execution of any such amendment by a
majority of the Trustees.
(c) No amendment may be made, under Section 10.4(b)
above, which would change any rights with respect to any Interest in the Trust
by reducing the amount payable thereon upon liquidation of the Trust or by
diminishing or eliminating any voting rights pertaining thereto, except with a
Majority Interests Vote.
(d) A certification in recordable form signed by a
majority of the Trustees setting forth an amendment and reciting that it was
duly adopted by the Holders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, in recordable form, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when lodged among the
records of the Trust.
(e) Notwithstanding any other provision hereof, until
such time as Interests are first sold, this Declaration may be terminated or
amended in any respect by the affirmative vote of a majority of the Trustees or
by an instrument signed by a majority of the Trustees.
10.5 Merger, Consolidation and Sale of Assets. The Trust, or
any series thereof, may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of its property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by no less than a
majority of the Trustees and by a Majority Interests Vote of the Trust or such
series, as the case may be, or by an instrument or instruments in writing
without a meeting, consented to by the
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Holders of not less than 50% of the total Interests, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of Delaware.
In accordance with Section 3815(f) of DBTA, an agreement of merger or
consolidation may effect any amendment to the Declaration or By-Laws or effect
the adoption of a new declaration of trust or by-laws of the Trust if the Trust
is the surviving or resulting business trust. A certificate of merger or
consolidation of the Trust shall be signed by a majority of the Trustees.
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 laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, association or 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 contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or 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, as provided under the law then in effect. 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 such organizations or entities.
ARTICLE XI
Miscellaneous
11.1 Certificate of Designation; Agent for Service of Process.
The Trust shall file, in accordance with Section 3812 of DBTA, in the office of
the Secretary of State of Delaware, a certificate of trust, in the form and with
such information required by Section 3810 by DBTA and executed in the manner
specified in Section 3811 of DBTA. In the event the Trust does not have at least
one Trustee qualified under Section 3807(a) of DBTA, then the Trust shall comply
with Section 3807(b) of DBTA by having and maintaining a registered office in
Delaware and by designating a registered agent for service of process on the
Trust, which agent shall have the same business office as the Trust's registered
office. The failure to file any such
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certificate, to maintain a registered office, to designate a registered agent
for service of process, or to include such other information shall not affect
the validity of the establishment of the Trust, the Declaration, the By-Laws or
any action taken by the Trustees, the Trust officers or any other Person with
respect to the Trust except insofar as a provision of the DBTA would have
governed, in which case the Delaware common law governs.
11.2 Governing Law. This Declaration is executed by all of the
Trustees and delivered with reference to DBTA and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of Section 3540 of Title 12 of
the Delaware Code or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
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 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 officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
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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, the DBTA, or with other
applicable laws and regulations, the conflicting provisions shall be deemed
never to have constituted a part of this Declaration; provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
11.6 Trust Only. It is the intention of the Trustees to create
only a business trust under DBTA with the relationship of Trustee and
beneficiary between the Trustees and each Holder from time to time. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a Delaware business trust except to the extent
such trust is deemed to constitute a partnership under the Code and applicable
state tax laws. Nothing in this Declaration of Trust shall be construed to make
the Holders, either by themselves or with the Trustees, partners or members of a
joint stock association except to the extent such Holders are deemed to be
partners under the Code and applicable state tax laws. However, it is the
intention of the Trustees to create a partnership among the Holders for purposes
of taxation under the Code and applicable state tax laws.
11.7 Tax Matters Partner. The Trustees shall appoint one of
the Holders as tax matters partner ("TMP") in accordance with Section 6231(a)(7)
of the Code for federal income tax purposes.
(a) The TMP shall be charged with all authority and
duties accorded tax matters partners under the Code and applicable regulations.
The TMP, at Trust expense, shall cause to be prepared income tax returns for the
Trust and shall further cause such returns to be timely filed with the
appropriate authorities. In the event the Trust is subject to administrative or
judicial proceedings for the assessment and collection of deficiencies for
federal taxes or for the refund of overpayments of federal taxes arising out of
a Holder's distributive share of income, losses, gain, credits and deductions,
the TMP shall have all the powers and duties assigned to the TMP under Sections
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<PAGE> 34
6221-6233 of the Code and regulations thereunder. Such powers include the right
of the TMP, in its absolute discretion, to make or to refuse to make any
election, or to take or to refuse to take any action, permitted to be made or
taken pursuant to the provisions of sections 6221-6232 of the Code. In addition,
the TMP shall have similar authority and duties with respect to all state and
local tax matters.
(b) Nothing in this Section 11.7 shall be construed
to prohibit the TMP from delegating its authority and duties as TMP to the
Trustees or an agent or adviser selected with the approval of the Trustees.
(c) The TMP, Trustees, agent or adviser, as the case
may be, shall send to each Holder within 60 days after the end of each taxable
year, the information necessary for the Holder to complete its federal and state
income tax or information returns and a copy of the Trust's federal, state and
local income tax or information returns for the year.
11.8 Withholding. Should any Holder be subject to withholding
pursuant to the Code or any other provision of law, the Trust shall withhold all
amounts otherwise distributable to such Holder as shall be required by law and
any amounts so withheld shall be deemed to have been distributed to such Holder
under this Declaration of Trust. If any sums are withheld pursuant to this
provision, the Trust shall remit the sums so withheld to and file the required
forms with the Internal Revenue Service, or other applicable government agency.
11.9 Headings and Construction. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. Whenever the
singular number is used herein, the same shall include the plural; and the
neuter, masculine and feminine genders shall include each other, as applicable.
IN WITNESS WHEREOF, the undersigned has caused these presents
to be executed as of the day and year first above written.
/s/ Robert E. Carlson February 10, 1993
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Robert E. Carlson, Trustee
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<PAGE> 1
EXHIBIT 1.2
MASTER INVESTMENT TRUST, SERIES I
INSTRUMENT OF AMENDMENT
THIS INSTRUMENT OF AMENDMENT of Master Investment Trust, Series I
("Master Trust") is being executed as of this 22nd day of October 1993 by the
undersigned individuals, consisting of a majority of the Trustees of Master
Trust (the "Trustees").
WHEREAS, Section 9.8, 9.8(e) and 9(f) of the Amended and Restated
Declaration of Trust of Master Trust dated February 10, 1993 (the "Declaration")
contain errors which the undersigned Trustees desire to correct in accordance
with Section 10.4(e) of the Declaration.
WHEREAS, Section 10.4(e) of the Declaration permits the Trustees, prior
to the time Interests in the Master Trust are first sold, to amend the
Declaration by an instrument signed by a majority of the Trustees.
WHEREAS, as of the date hereof, no interests in the Master Trust have
been sold.
Accordingly, the Undersigned Trustees hereby agree on the following
amendments:
1. Pursuant to Section 10.4(e) of the Declaration, the first
sentence of the first paragraph of Section 9.8 of the Declaration is hereby
amended by: (a) replacing the fourth word "two" on the fourth line with the word
"three"; (b) adding a comma after the first word on the fifth line; (c) deleting
the second word on the fifth line; and (d) by the adding the words "and the
Asset allocation Fund" at the end of such sentence.
2. Pursuant to Section 10.4(e) of the Declaration, the fourth
and fifth lines of the first sentence of Section 9.8(e) of the Declaration are
hereby amended by replacing the words "by individual series" with "in the
aggregate and not by individual series" and the sixth and seventh lines of such
sentence are hereby amended by replacing the words "in the aggregate and not by
individual series" with "by individual series and not in the aggregate".
3. Pursuant to Section 10.4(e) of the Declaration, the first
sentence of Section 9.8(f) of the Declaration is hereby amended by adding the
words "Investment Grade Bond Fund, Blue
<PAGE> 2
Chip Fund and" immediately before the word "Asset" on the second line of such
sentence.
All signatures need not appear on the same copy of this Unanimous
Consent.
/s/ Michael Austin /s/ Thomas M. Collins
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Michael Austin Thomas M. Collins
/s/ Robert Greeley /s/ Robert A. Nathane
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Robert Greeley Robert A. Nathane
<PAGE> 1
EXHIBIT 1.3
MASTER INVESTMENT TRUST, SERIES I
INSTRUMENT OF ESTABLISHMENT AND DESIGNATION OF
NEW SERIES OF BENEFICIAL INTEREST
THIS INSTRUMENT OF ESTABLISHMENT AND DESIGNATION OF NEW SERIES OF
BENEFICIAL INTEREST of Master Investment Trust, Series I ("Master Trust") is
being executed as of this 8th day of February, 1994 by the undersigned
individuals, consisting of a majority of the Trustees of master Trust (the
"Trustees").
WHEREAS, Section 9(f) of the Amended and Restated Declaration of Trust
of Master Trust dated February 10, 1993 and as amended by the Instrument of
Amendment dated October 22, 1993 (the "Declaration") provides the Trustees with
the authority to establish and designate any new series of beneficial interests
in the Trust upon the execution of any instrument setting forth such
establishment and designation and the relative rights and preferences of such
series, or as otherwise provided in such instruments.
WHEREAS, the Trustees approved the authorization and issuance of six
new series of beneficial interest in the Trust and certain other matters with
respect to such new series at a special meeting of the Board of Trustees held on
December 7, 1993.
Accordingly, the Undersigned Trustees hereby establish and designate
six new series of beneficial interests of the Trust consisting of Series D,
Series E, Series F, Series G, Series H and Series I (representing interests in
the Utilities Fund, the Growth and Income Fund, the International Equity Fund,
the Short-Term Government Fund, the International Bond Fund and the Corporate
Bond Fund, respectively) each having the preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption that are set forth in the Declaration.
All signatures need not appear on the same copy of this Instrument:
/s/ Michael Austin /s/ Thomas M. Collins
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Michael Austin Thomas M. Collins
/s/ Robert Greeley /s/ Robert A. Nathane
- ---------------------- --------------------------
Robert Greeley Robert A. Nathane
<PAGE> 1
EXHIBIT 2
MASTER INVESTMENT TRUST, SERIES I
BY-LAWS
These By-Laws are made as of the 19th day of August, 1993 and
adopted pursuant to Section 2.7 of the Amended and Restated Declaration of Trust
establishing Master Investment Trust, Series I dated February 10, 1993, as from
time to time amended (hereinafter called the "Declaration"). All words and terms
capitalized in these By-Laws shall have the meaning or meanings set forth for
such words or terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1 Annual Meeting. An annual meeting of the Holders
of Interests in the Trust, which may be held on such date and at such hour as
may from time to time be designated by the Board of Trustees and stated in the
notice of such meeting, is not required to be held unless certain actions must
be taken by the Holders as set forth in Section 9.7 of the Declaration, or
except when the Trustees consider it necessary or desirable.
Section 1.2 Chairman. The President or, in his or her absence,
the Chief Operating Officer shall act as chairman at all meetings of the Holders
and, in the absence of both of them, the Trustee or Trustees present at the
meeting may elect a temporary chairman for the meeting, who may be one of
themselves or an officer of the Trust.
Section 1.3 Proxies; Voting. Holders may vote either in person
or by duly executed proxy and each Holder shall be entitled to a vote
proportionate to his or her Interest in the Trust, all as provided in Article IX
of the Declaration. No proxy shall be valid after eleven (11) months from the
date of its execution, unless a longer period is expressly stated in such proxy.
Section 1.4 Fixing Record Dates. For the purpose of
determining the Holders who are entitled to notice of or to vote or act at a
meeting, including any adjournment thereof, or who are entitled to participate
in any distributions, or for any other proper purpose, the Trustees may from
time to time fix a record date in the manner provided in Section 9.3 of the
Declaration. If the Trustees do not, prior to any meeting of the Holders, so fix
a record date, then the date of mailing notice of the meeting shall be the
record date.
Section 1.5 Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of
<PAGE> 2
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 or her proxy shall, appoint
Inspectors of Election of the meeting. The number of Inspectors shall be either
one or three. If appointed at the meeting on the request of one or more Holders
or proxies, a Majority Interests Vote shall determine whether one or three
Inspectors are to be appointed, but failure to allow such determination by the
Holders shall not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the Interests owned by
Holders, the Interests represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Holders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the chairman, if any, of the meeting, or of any Holder or his or her proxy,
the Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
Section 1.6 Records of Meetings of Holders. 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, the Holder's address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during normal business hours for any purpose not
harmful to the Trust.
ARTICLE II
Trustees
Section 2.1 Annual and Regular Meetings. The Trustees shall
hold an Annual Meeting of the Trustees for the election of officers and the
transaction of other business which may come before such meeting. Regular
meetings of the Trustees may be held without call or notice at such place or
places and times as the Trustees may by resolution provide from time to time.
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<PAGE> 3
Section 2.2 Special Meetings. Special Meetings of the Trustees
shall be held upon the call of the chairman, if any, the President, the
Secretary, or any two Trustees, at such time, on such day and at such place, as
shall be designated in the notice of the meeting.
Section 2.3 Notice. Notice of a meeting shall be given by mail
(which term shall include overnight mail) or by telegram (which term shall
include a cablegram or telefacsimile) or delivered personally (which term shall
include notice by telephone). If notice is given by mail, it shall be mailed not
later than 72 hours preceding the meeting and if given by telegram or
personally, such notice shall be delivered 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 Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by written consent. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
Section 2.4 Chairman; Records. The Trustees shall appoint a
Chairman of the Board from among their number. Such Chairman of the Board shall
act as chairman at all meetings of the Trustees; in his or her absence the
President shall act as chairman; and, in the absence of all of them, the
Trustees present shall elect one of their number to act as temporary chairman.
The results of all actions taken at a meeting of the Trustees, or by written
consent of the Trustees, shall be recorded by the Secretary.
Section 2.5 Audit Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, appoint from its members an
Audit Committee composed of two or more Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, as the Board may from time
to time determine. The Audit Committee shall (a) recommend independent public
accountants for selection by the Board, (b) review the scope of audit,
accounting and financial internal controls and the quality and adequacy of the
Trust's accounting staff with the independent public accountants and such other
persons as may be deemed appropriate, (c) review with the accounting staff and
the independent public accountants the compliance of transactions of the Trust
with its investment adviser, administrator or any other service provider with
the financial terms of applicable contracts or agreements, (d) review reports of
the independent public accountants and comment to the Board when warranted, (e)
report
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<PAGE> 4
to the Board at least once each year and at such other times as the committee
deems desirable, and (f) be directly available at all times to independent
public accountants and responsible officers of the Trust for consultation on
audit, accounting and related financial matters.
Section 2.6 Nominating Committee of Trustees. The Board of
Trustees may, by the affirmative vote of a majority of the entire Board, appoint
from its members a Trustee Nominating Committee composed of two or more
Trustees. The Trustee Nominating Committee shall recommend to the Board a slate
of persons to be nominated for election as Trustees by the Holders at a meeting
of the Holders and a person to be elected to fill any vacancy occurring for any
reason in the Board. Notwithstanding anything in this Section to the contrary,
if the Trust has in effect a plan pursuant to Rule 12b-1 under the 1940 Act, the
selection and nomination of those Trustees who are not "interested persons" (as
defined in the Act) shall be committed to the discretion of such Disinterested
Trustees.
Section 2.7 Executive Committee. The Board of Trustees may
appoint from its members an Executive Committee composed of those Trustees as
the Board may from time to time determine, of which committee the Chairman of
the Board shall be a member. In the intervals between meetings of the Board, the
Executive Committee shall have the power of the Board to (a) determine the value
of securities and assets owned by the Trust, (b) elect or appoint officers of
the Trust to serve until the next meeting of the Board, and (c) take such action
as may be necessary to manage the portfolio security loan business of the Trust.
All action by the Executive Committee shall be recorded and reported to the
Board at its meeting next succeeding such action.
Section 2.8 Other Committees. The Board of Trustees may
appoint from among its members other committees composed of two or more of its
Trustees which shall have such powers as may be delegated or authorized by the
resolution appointing them.
Section 2.9 Committee Procedures. The Board of Trustees may at
any time change the members of any committee, fill vacancies or discharge any
committee. In the absence of any member of any committee, the member or members
thereof present at any meeting, whether or not they constitute a quorum, may
unanimously appoint to act in the place of such absent member a member of the
Board who, except in the case of the Executive Committee, is not an "interested
person" of the Trust as the Board may from time to time determine. Each
committee may fix its own rules of procedure and may meet as and when provided
by those rules. Copies of the minutes of all meetings of committees other than
the Nominating Committee and the Executive Committee
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<PAGE> 5
shall be distributed to the Board unless the Board shall otherwise provide.
ARTICLE III
Officers
Section 3.1 Officers of the Trust; Compensation. The officers
of the Trust shall consist of a President, a Secretary, a Treasurer and such
other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person. The Trustees may designate a Vice President as an Executive Vice
President and may designate the order in which the other Vice Presidents may
act. No officer of the Trust need be a Trustee. The Board of Trustees may
determine what, if any, compensation shall be paid to officers of the Trust.
Section 3.2 Election and Tenure. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
Section 3.3 Removal of Officers. Any officer may be removed at
any time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the President or Secretary, and such
resignation shall take effect immediately, or at a later date according to the
terms of such notice in writing.
Section 3.4 Bonds and Surety. Any officer may be required by
the Trustees to be bonded for the faithful performance of his or her duties in
such amount and with such sureties as the Trustees may determine.
Section 3.5 President and Vice-Presidents. 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.
The President shall preside at all meetings of the
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<PAGE> 6
Holders and, in the absence of the Chairman of the Board, the President shall
preside at all meetings of the Trustees. The President shall be, ex officio, a
member of all standing committees. Subject to direction of the Trustees, the
President shall have the power, in the name and on behalf of the Trust, to
execute any and all loan documents, contracts, agreements, deeds, mortgages, and
other instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President shall
have full authority and power, on behalf of all of the Trustees, to attend and
to act and to vote, on behalf of the Trust at any meetings of business
organizations in which the Trust holds an interest, or to confer such powers
upon any other persons, by executing any proxies duly authorizing such persons.
The President shall have such further authorities and duties as the Trustees
shall from time to time determine. In the absence or disability of the
President, the Vice Presidents in order of their rank or the Vice President
designated by the Trustees, shall perform all of the duties of President, and
when so acting shall have all the powers of and be subject to all of the
restrictions upon the President. Subject to the direction of the President, the
Treasurer and 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, the Chairman, or the President.
Section 3.6 Secretary. The Secretary shall keep the minutes of
all meetings of, and record all votes of, Holders, Trustees and any committees
of Trustees, provided that, in the absence or disability of the Secretary, the
Holders or Trustees or committee may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the signature
or signatures of the officer or officers executing any instrument on behalf of
the Trust. The Secretary shall also perform any other duties commonly incident
to such office in a Delaware corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
Section 3.7 Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the Chairman and the President all powers and duties normally incident to his
office. He may endorse for deposit or collection all notes, checks and other
instruments payable to the Trust or to its order. He shall deposit all funds of
the Trust as may be ordered by the Trustees, the Chairman or the President. He
shall keep accurate account of the books of the Trust's transactions which shall
be the property of the Trust and which, together with
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<PAGE> 7
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust. He
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser or administrator to maintain bank accounts
and deposit and disburse funds on behalf of the Trust.
Section 3.8 Other Officers and Duties. The Trustees may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer whom
they assist and shall assist that officer in the duties of his office. Each
officer, employee and agent of the Trust shall have such other duties and
authority as may be conferred upon him by the Trustees or delegated to him by
the President.
ARTICLE IV
Custodian
Section 4.1 Appointment and Duties. The Trustees shall at all
times employ a custodian or custodians with authority as its agent, but subject
to such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and
deliver the same upon written order;
(2) to receive and receipt for any moneys due to
the Trust and deposit the same in its own banking department
or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the
books and accounts of the Trust and furnish clerical and
accounting services; and
(5) if authorized to do so by the Trustees, to
compute the net income and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian
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<PAGE> 8
and upon such terms and conditions as may be agreed upon between the custodian
and such sub-custodian and approved by the Trustee.
Section 4.2 Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, any such other person or
entity with which the Trustees may authorize deposit in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities. All such deposits shall be subject to withdrawal only upon the order
of the Trust.
ARTICLE V
Miscellaneous
Section 5.1 Depositories. In accordance with Article IV of
these By-Laws, the funds of the Trust shall be deposited in such depositories as
the Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser
or administrator), as the Trustees may from time to time authorize.
Section 5.2 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 or authorization provide.
Section 5.3 Fiscal Year. The fiscal year of the Trust shall
end on the last day in February of each year, subject, however, to change from
time to time by the Board of Trustees.
ARTICLE VI
Interests
Section 6.1 Interests. Except as otherwise provided by law,
the Trust shall be entitled to recognize the exclusive right of a person in
whose name Interests stand on the record of Holders as the owners of such
Interests for all purposes, including, without limitation, the rights to receive
distributions, and to vote as such owner, and the Trust shall not be bound to
recognize any equitable or legal claim to or interest in any such Interests on
the part of any other person.
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Section 6.2 Regulations. The Trustees may make such additional
rules and regulations, not inconsistent with these By-Laws, as they may deem
expedient concerning the sale and purchase of Interests of the Trust.
Section 6.3 Distribution Disbursing Agents and the Like. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE VII
Amendment of By-Laws
Section 7.1 Amendment and Repeal of By-Laws. In accordance
with Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, DBTA, the
1940 Act or applicable federal securities laws.
Section 7.2 No Personal Liability. The Declaration
establishing Master Investment Trust, Series I provides that the name "Master
Investment Trust, Series I" does not refer to the Trustees as individuals or
personally; and no Trustee, officer, employee or agent of, or Holder of Interest
in, Master Investment Trust, Series I 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 Master
Investment Trust, Series I (except to the extent of a Holder's Interest in the
Trust).
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<PAGE> 1
EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of November 1, 1994 between MASTER INVESTMENT
TRUST SERIES I, a Delaware business trust (herein called the "Trust"), and Bank
of America National Trust and Savings Association (the "Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Adviser currently furnishes investment advisory services
to the Trust's Asset Allocation, Investment Grade Bond, Blue Chip, International
Equity, International Bond, Growth and Income, Short-Term Government, Utilities
and Corporate Bond Funds pursuant to an investment advisory agreement dated as
of October 25, 1993, as amended (the "Old Advisory Agreement");
WHEREAS, the Trust desires to terminate the Old Advisory Agreement as
it relates to the Asset Allocation, Investment Grade Bond, Blue Chip,
International Equity, International Bond, Growth and Income, Short-Term
Government and Utilities Funds;
WHEREAS, the Trust desires to retain the Adviser to furnish investment
advisory services to the Trust's Asset Allocation, Investment Grade Bond, Blue
Chip, International Equity, International Bond, Growth and Income, Short-Term
Government and Utilities Funds (individually a "Fund" and together the "Funds");
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Termination. The Old Advisory Agreement is terminated as it relates
to the Asset Allocation, Investment Grade Bond, Blue Chip, International Equity,
International Bond, Growth and Income, Short-Term Government and Utilities Funds
effective as of the date hereof.
2. Appointment.
(a) The Trust hereby appoints the Adviser to act as investment
adviser to the Funds for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. The Adviser may,
in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Trust under applicable law and are under the common
control of BankAmerica
<PAGE> 2
Corporation provided (i) that all persons, when providing services hereunder,
are functioning as part of an organized group of persons, and (ii) that such
organized group of persons is managed at all times by authorized officers of the
Adviser.
(b) In the event that the Trust establishes one or more
investment portfolios other than the Initial Funds with respect to which it
desires to retain the Adviser to act as investment adviser hereunder, it shall
notify the Adviser in writing. If the Adviser is willing to render such services
under this Agreement it shall so notify the Trust in writing whereupon such
investment portfolio shall become a "Fund" hereunder and shall be subject to the
provisions of this Agreement to the same extent as the Initial Funds except to
the extent that said provisions (including those relating to the compensation
payable by the Fund to the Adviser) are modified with respect to such Fund in
writing by the Trust and the Adviser at the time.
3. Services. Subject to the supervision of the Trust's Board of
Trustees (the "Board"), the Adviser, in consultation with any Sub-Adviser
appointed pursuant to Section 4 hereof with respect to a particular Fund, will
provide a continuous investment program for each of the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in the Funds. The Adviser will determine from
time to time what securities and other investments will be purchased, retained
or sold by the Trust with respect to each Fund. The Adviser will provide the
services under this Agreement in accordance with each Fund's investment
objective, policies and restrictions as stated in the Fund's registration
statement, as from time to time amended, and resolutions of the Board. The
Adviser further agrees that it:
(a) Will conform with all applicable rules and regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with other applicable law,
including but not limited to banking law.
(b) Will review, monitor and report to the Board of Trustees
regarding the performance and investment procedures of any Sub-Adviser (as
defined in Section 4 of this Agreement).
(c) Will assist and consult with any Sub-Adviser appointed
with respect to a particular Fund in connection with that Fund's continuous
investment program (as defined in Section 4 of this Agreement).
(d) Will place all orders for the purchase and sale of
portfolio securities for the account of each Fund with brokers or dealers
selected by the Adviser. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will
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<PAGE> 3
use its best efforts to seek on behalf of the Trust and each Fund the best
overall terms available. In assessing the best overall terms available for any
transaction the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. In evaluating the best overall terms available, and in
selecting the broker or dealer to execute a particular transaction, the Adviser
may also consider the brokerage and research services (as those terms are
defined in Section 28(c) of the Securities Exchange Act of 1934, as amended)
provided to any Fund and/or other accounts over which the Adviser or any
affiliate of the Adviser exercises investment discretion. The Adviser is
authorized, subject to the prior approval of the Board, to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for any Fund which is in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser to the
particular Fund and to the Trust. In no instance will portfolio securities be
purchased from or sold to the Adviser, any Sub-Adviser or Concord Holding
Corporation, the Trust's administrator (the "Administrator"), or an affiliated
person of any of them acting as principal or as broker, except as permitted by
law. In executing portfolio transactions for any Fund, the Adviser may, but
shall not be obligated to, to the extent permitted by applicable laws and
regulations, aggregate the securities to be sold or purchased with those of
other Funds and its other clients where such aggregation is not inconsistent
with the policies set forth in the Trust's registration statement. In such
event, the Adviser will allocate the securities so purchased or sold, and the
expenses incurred in the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Funds and such
other clients.
In performing the investment advisory services hereunder, the Adviser
is authorized to purchase, sell or otherwise deal with securities or other
instruments for which (a) Bank of America National Trust and Savings
Association, (b) any affiliate of Bank of America National Trust and Savings
Association, (c) an entity in which Bank of America National Trust and Savings
Association has a direct or indirect interest, or (d) another member of a
syndicate or other intermediary (where an entity referred to in (a), (b) or (c)
above was a member of the syndicate), has acted, now acts or in the future will
act as an underwriter, syndicate member, market-maker, dealer, broker or in
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<PAGE> 4
any other similar capacity, whether the purchase, sale or other dealing occurs
during the life of the syndicate or after the close of the syndicate, provided
such purchase, sale or dealing is permitted under the Investment Company Act of
1940 and the rules thereunder. Insofar as permitted by law any rules of or under
applicable law prohibiting or restricting in any way an agent or fiduciary from
dealing with itself or from dealing with respect to any matter in which it may
or does have a personal interest shall not apply to the Adviser, to the extent
its actions are authorized under this paragraph.
(e) Will maintain all books and records with respect to the
securities transactions for the Funds, keep books of account with respect to
such Funds and furnish the Board such periodic special reports as the Board may
request.
(f) Will maintain a policy and practice of conducting its
investment advisory operations independently of its commercial banking
operations. When the Adviser makes investment recommendations for a Fund, its
investment advisory personnel will not inquire or take into consideration
whether the issuer of securities proposed for purchase or sale for the Fund's
account are customers of its commercial department. In dealing with commercial
customers, the Adviser's commercial department will not inquire or take into
consideration whether securities of those customers are held by the Funds.
(g) Will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust and prior
or present Trust interestholders ("Investors") or those persons or entities who
respond to inquires concerning investment in the Trust, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder or under any other agreement with the
Trust 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
the Adviser 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. Nothing contained herein,
however, shall prohibit the Adviser from advertising to or soliciting the public
generally with respect to other products or services, including, but not limited
to, any advertising or marketing via radio, television, newspapers, magazines or
direct mail solicitation, regardless of whether such advertisement or
solicitation may coincidentally include prior or present Trust Investors or
those persons or entities who have responded to inquiries regarding the Trust.
4. Sub-Adviser. It is understood that the Adviser may from time to time
employ or associate with itself such person or
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<PAGE> 5
persons as the Adviser believes to be fitted to assist it in the performance of
this Agreement (each a "Sub-Adviser"); provided, however, that the compensation
of such person or persons shall be paid by the Adviser and that the Adviser
shall be as fully responsible to the Trust for the acts and omissions of any
such person as it is for its own acts and omissions; and provided further, that
the retention of any Sub-Adviser shall be approved as may be required by the
1940 Act. Additionally, in the event that any Sub-Adviser appointed hereunder is
terminated, the Adviser may provide investment advisory services pursuant to
this Agreement to the Funds without further shareholder approval.
5. Services Not Exclusive. The Adviser will for all purposes herein be
deemed to be an independent contractor and will, unless otherwise expressly
provided herein or authorized by the Board from time to time, have no authority
to act for or represent the Trust in any way or otherwise be deemed its agent.
The investment management services furnished by the Adviser hereunder are not
deemed exclusive, and the Adviser will be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
6. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request. The
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31-1 under the
1940 Act.
7. Expenses. During the term of this Agreement, the Adviser will pay
all expenses incurred by it in connection with its activities under the
Agreement other than the cost of securities (including brokerage commissions, if
any) purchased for the Trust.
8. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Adviser and the Adviser will
accept as full compensation therefor a fee, computed daily and paid monthly (in
arrears), at an annual rate of: .25% of the net assets of the Short-Term
Government Fund; .45% of the net assets of the Investment Grade Bond Fund; .50%
of the net assets of the Utilities Fund; .55% of the net assets of the Asset
Allocation, International Bond and Growth and Income Funds, and .75% of the net
assets of the Blue Chip and International Equity Funds. Such fee as is
attributable to each Fund will be a separate charge to each such Fund and will
be the several (and not joint or joint and several obligation of each such Fund.
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<PAGE> 6
If in any fiscal year the aggregate of (i) the pro rata share of the
total expenses of any Fund borne by an Investor in such Fund which is a
registered investment company (as such expenses are defined under the securities
regulations of any state having jurisdiction over such Investor), plus (ii) the
expenses borne by such Investor in connection with such Investor's operations as
a registered investment company (as defined under such regulations), exceed the
expense limitations of any such state, the Adviser will reimburse the Fund for
such excess expenses. The obligation of the Adviser to reimburse any Fund
hereunder is limited in any fiscal year to the amount of its fee hereunder for
such fiscal year with respect to such Fund; provided, however, that
notwithstanding the foregoing, the Adviser will reimburse any Fund for such
excess expenses regardless of the amount of fees paid to it during such fiscal
year to the extent that the securities regulations of any state having
jurisdiction over the Fund so require. Such expense reimbursement, if any, will
be estimated and accrued daily and paid on a monthly basis.
9. Limitation of Liability. Subject to the provisions of Section 4
hereof concerning the Adviser's responsibility for the acts and omissions of
persons employed by or associated with the Adviser, the Adviser will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement.
10. Duration and Termination. This Agreement will become effective as
of the date first above written. This Agreement will become effective with
respect to any additional Fund on the date of receipt by the Trust of notice
from the Adviser in accordance with Section 1(b) hereof that the Adviser is
willing to serve as investment adviser with respect to such Fund, provided that
this Agreement (as supplemented by the terms specified in any notice and
agreement pursuant to Section 1(b) hereof) shall have been approved by the
Investors of the Funds in accordance with the requirements of the 1940 Act.
Unless sooner terminated as provided herein, this Agreement will
continue in effect until October 31, 1995. Thereafter, if not terminated, this
Agreement shall continue in effect as to a particular Fund for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Board who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval,
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<PAGE> 7
and (b) by the Board or by vote of a majority of the outstanding voting
securities of such Fund. Notwithstanding the foregoing, this Agreement may be
terminated as to any Fund at any time, without the payment of any penalty, by
the Trust (by vote of the Board or by vote of a majority of the outstanding
voting securities of such Fund), or by the Adviser, on sixty days' written
notice. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning as the meaning of such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement will be
effective as to a particular Fund until approved by vote of a majority of the
outstanding voting securities of such Fund.
12. Notices. Notices of any kind to be given to the Adviser hereunder
by the Trust will be in writing and will be duly given if mailed or delivered to
the Adviser at 300 South Grand Avenue, Suite 2200, Los Angeles, California
90071. Attention: Sandra C. Brown, Vice President, or at such other address or
to such individual as will be so specified by the Adviser. Notices of any kind
to be given to the Trust hereunder by the Adviser will be in writing and will be
duly given if mailed or delivered to the Trust at P.O. Box 309, Grand Cayman,
Cayman Islands, British West Indies Attention: Richard E. Stierwalt, President,
or at such other address or to such individual as will be so specified by the
Trust to the Adviser.
13. Names. The names "Master Investment Trust, Series I" and "Trustees
of Master Investment Trust, Series I" refer respectively to the Trust created
and the Trustees, as trustees but not individually or personally, acting from
time to time under a Declaration of Trust dated October 23, 1992, as amended and
restated on February 10, 1993, which is hereby referred to and a copy of which
is on file at the principal office of the Trust. The Trustees, officers,
employees and agents of the Trust shall not personally be bound by or liable
under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Trust made by the Trustees or by an officer,
employee or agent of the Trust, in his or her capacity as such, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
thereunder.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall
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<PAGE> 8
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement will not be affected thereby. This Agreement will be
binding upon and will inure to the benefit of the parties hereto and their
respective successors and will be governed by the internal laws, and not the law
of conflicts, of the State of Delaware; provided that nothing herein will be
construed in a manner inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or any rule or regulation of the Securities and
Exchange Commission thereunder. This Agreement may be executed in two or more
parts which together shall constitute a single Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
MASTER INVESTMENT TRUST, SERIES I
By: /s/ Adrian Waters
----------------------------------
Title: Executive Vice President,
Treasurer and Secretary
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: signature illegible
----------------------------------
Title:
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<PAGE> 1
EXHIBIT 5.2
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
This Addendum, dated as of the 23rd day of June, 1997, is
entered into between MASTER INVESTMENT TRUST, SERIES I, a Delaware business
trust (the "Trust"), and Bank of America National Trust and Savings Association
(the "Adviser").
WHEREAS, the Trust and the Adviser have entered into an
Investment Advisory Agreement dated as of November 1, 1994 (the "Advisory
Agreement"), pursuant to which the Trust appointed the Adviser to act as
investment adviser to the Trust for its Asset Allocation Fund, Investment Grade
Bond Fund, Blue Chip Fund, International Bond Fund, Growth and Income Fund and
Utilities Fund;
WHEREAS, the Adviser has notified the Trust that the Bond,
Blue Chip and Asset Allocation Funds of Seafirst Retirement Funds are being
reorganized into the Intermediate Bond, Blue Chip and Asset Allocation Funds,
respectively, of Pacific Horizon Funds, Inc. on June 23, 1997 ("Reorganization
Date");
WHEREAS, effective upon the Reorganization Date the fee
payable to the Adviser as set forth in the Advisory Agreement shall be reduced
as provided herein with respect to the Investment Grade Bond Fund and Blue Chip
Fund (the "Funds");
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. COMPENSATION. For the services provided and the expenses
assumed pursuant to the Advisory Agreement with respect to the Funds, the Trust
will pay the Adviser and the Adviser will accept as full compensation therefor a
fee, computed daily and paid monthly (in arrears), at the annual rate of .30% of
the average net assets of the Investment Grade Bond Fund and .50% of the average
net assets of the Blue Chip Fund. Such fee as is attributable to each Fund will
be a separate charge to each such Fund and will be the several (and not joint or
joint and several) obligation of each such Fund.
2. MISCELLANEOUS. Except to the extent supplemented hereby,
the Advisory Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as supplemental hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
<PAGE> 2
MASTER INVESTMENT TRUST, SERIES I
By:
--------------------------------
Title: President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
--------------------------------
Title
2
<PAGE> 1
EXHIBIT 8
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of October 25, 1993 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and MASTER
INVESTMENT TRUST, SERIES I, a Delaware business trust (the "Fund").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940" Act). The Fund wishes to
retain PNC Bank to provide custodian services, for such portfolios listed in
Appendix A, as amended from time to time (each a "Portfolio") , and PNC Bank
wishes to furnish custodian services, either directly or through an affiliate or
affiliates, as more fully described herein.
In consideration of the promises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by the
Fund's Governing Board, to give oral and Written Instructions on behalf of the
Fund, provided, however, that if the Governing Board determines that Oral
Instructions or Written Instructions require the approval of more than one
person, the term "Authorized Person" shall mean such persons as are in
combination so authorized. Such persons are listed in the Certificate attached
hereto as the Authorized Persons Appendix as
<PAGE> 2
such appendix may be amended in writing by the Fund's Governing Board from time
to time.
(b) "Book-Entry System". The term "Book-Entry System" shall
mean the Federal Reserve Treasury book-entry system for United States and
federal agency securities, its successor or successors, and its nominee or
nominees and any book-entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures
Trading Commission.
(d) "Governing Board". The term "Governing Board" shall mean
the Fund's Board of Trustees, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by PNC Bank from an Authorized Person or from a
person reasonably identified to PNC Bank as an Authorized Person.
(f) "PNC Bank". The term "PNC Bank" shall mean PNC Bank,
National Association or a subsidiary or affiliate of PNC Bank, National
Association.
(g) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(h) "Securities and Commodities Laws". The term shall mean the
"1933 Act," which shall mean the Securities Act of 1933, as amended, the "1934
Act," which shall mean the Securities Exchange Act of 1934, as amended, the
"1940 Act," which shall
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<PAGE> 3
mean the Investment Company Act of 1940, as amended and the "CEA," which shall
mean the Commodities Exchange Act, as amended.
(i) "Shares". The term "Shares" shall mean the shares of any
series or class of units of beneficial interest of the Fund.
(j) "Property". The term "Property" shall mean:
(i) any and all securities and other investment
items which the Fund may from time to time
deposit, or cause to be deposited, with PNC
Bank or which PNC Bank may from time to time
hold for the Fund;
(ii) All income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities issued
by the Fund, which are received by PNC Bank
from time to time, from or on behalf of the
Fund.
(k) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by one or more Authorized Persons as
required by the Governing Board from time to time and received by PNC Bank. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to provide custodian
services, and PNC Bank accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents. The Fund has provided or, where applicable,
will provide PNC Bank with the following:
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<PAGE> 4
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board,
approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory and sub-advisory
agreements;
(d) a copy of the Fund's administration agreement; and
(e) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable requirements of the
Securities and Commodities Laws and any other laws, rules and regulations of
state and federal governmental authorities having jurisdiction with respect to
all duties to be performed by PNC Bank hereunder. Except as specifically set
forth herein, PNC Bank assumes no responsibility for such compliance by the
Fund.
5. Instructions. Unless otherwise provided in this Agreement or by
resolution of the Governing Board which has been submitted to PNC Bank, PNC Bank
shall act only upon Oral and Written Instructions. PNC Bank shall be entitled to
rely upon any Oral and Written Instructions. PNC Bank may assume that any Oral
or Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Governing Board or any committee thereof
or of the Fund's shareholders.
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<PAGE> 5
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PNC Bank
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the
Fund in acting upon Oral or Written Instructions.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request Oral or Written Instructions,
from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PNC Bank
may request advice at its own cost from such counsel of its own choosing (who
may be counsel for the Fund, the Fund's advisor or PNC Bank, at the option of
PNC Bank).
(c) Conflicting Advice. In the event of a conflict between Oral or
Written Instructions PNC Bank receives from the Fund, and the written advice it
receives from counsel, PNC Bank shall be entitled to rely upon and follow such
advice of counsel after notice to the Fund.
(d) Protection of PNC Bank. PNC Bank shall be protected in any
action it takes or does not take in reliance
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<PAGE> 6
upon Oral or Written Instructions it receives from the Fund or written advice of
counsel.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PNC Bank (i) to seek Oral or Written Instructions, or (ii) to
act in accordance with Oral or Written Instructions unless, under the terms of
other provisions of this Agreement, the same is a condition of PNC Bank's
properly taking or not taking such action.
Nothing in this subsection shall excuse PNC Bank when an action or
omission on the part of PNC Bank constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PNC Bank of any duties or obligations under
this Agreement.
7. Records. The books and records pertaining to the Fund, which are in
the possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations and shall, to the extent
practicable, be maintained separately for each portfolio of the Fund. The Fund,
or the Fund's authorized representatives, shall have access to such books and
records at all times during PNC Bank's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an authorized representative of the Fund,
at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential and to treat
as proprietary information of the Fund all records
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<PAGE> 7
of the Fund and information relative to the Fund and its shareholders (past,
present and potential), unless the release of such records or information is
otherwise authorized by the Governing Board. The Fund further agrees that,
should PNC Bank be required to provide such information or records to duly
constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), PNC Bank shall not be required to seek the
Fund's consent prior to disclosing such information; provided that PNC Bank
gives the Fund prior written notice of the provision of such information and
records.
9. Cooperation with Accountants. PNC Bank shall cooperate with the
Fund's independent public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. As soon as reasonably possible, PNC Bank shall
at its expense enter into and shall maintain in effect with appropriate parties
one or more agreements making reasonable provision for emergency use of
electronic data processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PNC Bank shall, at no additional
expense to the Fund, take reasonable steps to minimize service interruptions but
shall have no liability with respect thereto.
11. Compensation. As compensation for custody services rendered by PNC
Bank during the tern of this Agreement, the Fund
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<PAGE> 8
will pay to PNC Bank a fee or fees as may be agreed to in writing from time to
time by the Fund and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless PNC
Bank and its nominees from all taxes, charges, expenses, assessment, claims and
liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws, and any state and foreign securities and blue
sky laws, and amendments thereto), and expenses, including (without limitation)
reasonable attorneys' fees and disbursements, arising directly or indirectly
from any action which PNC Bank takes or does not take on the direction of or in
reliance on Oral or Written Instructions provided that neither PNC Bank, nor any
of its nominees, shall be indemnified against any liability to the Fund or to
its shareholders (or any expenses incident to such liability) arising out of PNC
Bank's or its nominees' own willful misfeasance, bad faith, negligence or
reckless disregard of its duties and obligations under this Agreement or PNC
Bank's own negligent failure to perform its duties under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to take
any action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PNC Bank, in writing. PNC Bank itself shall
perform all duties specified herein unless the Governing Board has approved the
performance of such duties by an affiliate of PNC Bank, provided, that PNC Bank
shall retain responsibility therefor as
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<PAGE> 9
specified herein. PNC Bank shall be obligated to exercise care and diligence in
the performance of its duties hereunder and, shall be responsible for its own or
its affiliates' and nominees' own willful misfeasance, bad faith, negligence or
reckless disregard of its duties and obligations under this Agreement or PNC
Bank's own negligent failure to perform its duties under this Agreement.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of circumstances beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank
expressly disclaims all responsibility for consequential damages, including but
not limited to any that may result from performance or non-performance of any
duty or obligation whether express or implied in this Agreement and also
expressly disclaims
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<PAGE> 10
any express or implied warranty of products or services provided in connection
with this Agreement.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to PNC Bank, all (except as otherwise determined by the Governing
Board) the Property it owns, including cash received as a result of the
distribution of its Shares, during the period that is set forth in this
Agreement. PNC Bank will not be responsible for such Property until actual
receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
Instructions, shall open and maintain separate account(s) in the Fund's name
using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, PNC Bank shall
open and maintain separate custodial accounts for each separate series,
portfolio or class of the Fund and shall hold in such account(s) all cash
received from or for the accounts of the Fund specifically designated to each
separate series, portfolio or class.
PNC Bank shall make cash payments from or for the account of each
portfolio of the Fund only for:
(i) purchases of securities in the name of the
portfolios of the Fund or PNC Bank or PNC
Bank's nominee as provided in sub-paragraph (j)
and for which PNC Bank has received a copy of
the broker's or dealer's confirmation or
payee's invoice, as appropriate;
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<PAGE> 11
(ii) purchase or redemption of Shares of the Fund
delivered to PNC Bank;
(iii) payment of, subject to Written Instructions,
interest, taxes, administration, accounting,
distribution, advisory, management fees or
similar expenses which are to be borne by the
Fund;
(iv) payment to, subject to receipt of Written
Instructions, the Fund's transfer agent, as
agent for the Fund's shareholders, of an amount
equal to the amount of dividends and
distributions stated in the Written
Instructions to be distributed in cash by the
transfer agent to shareholders of the
applicable portfolio, or, in lieu of paying the
Fund's transfer agent, PNC Bank may arrange for
the direct payment of cash dividends and
distributions to shareholders in accordance
with procedures mutually agreed upon from time
to time by and among the Fund, PNC Bank and the
Fund's transfer agent;
(v) payments, upon receipt of Written Instructions,
in connection with the conversion, exchange or
surrender of securities owned or subscribed to
by the Fund and held by or delivered to PNC
Bank;
(vi) payments of the amounts of dividends received
with respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to
provisions in sub-paragraph (c) of this
Paragraph 14; and
(viii) payments, upon receipt of Written
Instructions, for other proper Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as custodian for the account
of the Fund.
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<PAGE> 12
(c) Receipt and Withdrawal of Securities.
(i) PNC Bank shall hold all securities received by
it for the account of each portfolio of the
Fund in a separate account that physically
segregates such securities from those of any
other persons, firms or corporations. All such
securities shall be held or disposed of only
upon Written Instructions of the Fund pursuant
to the terms of this Agreement. PNC Bank shall
have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any
such securities or investment items, except
upon the express terms of this Agreement and
upon Written Instructions, accompanied by a
certified resolution of the Fund's Governing
Board, authorizing the transaction. In no case
may any member of the Governing Board, or any
officer, employee or agent of the Fund withdraw
any securities.
At PNC Bank's own expense and for its own
convenience, PNC Bank may enter into
subcustodian agreements with other United
States banks or trust companies to perform
duties described in this sub paragraph (c).
Such bank or trust company shall have an
aggregate capital, surplus and undivided
profits, according to its last published
report, of at least one million dollars
($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank or
trust company is not a subsidiary or affiliate
of PNC Bank. In addition, such bank or trust
company must be qualified to act as custodian
and agree to comply with the relevant
provisions of the 1940 Act and other applicable
rules and regulations. Any such arrangement
will not be entered into without prior written
notice to the Fund.
PNC Bank shall remain responsible for the
performance of all of its duties as described
in this Agreement and shall
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<PAGE> 13
hold the Fund harmless from its own acts or
omissions, under the standards of care provided
for herein, or the acts and omissions of any
sub custodian chosen by PNC Bank under the
terms of this sub paragraph (c).
(d) Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions and not otherwise, PNC Bank, directly or through the use of
the Book-Entry System,
shall:
(i) deliver any securities held for a portfolio of
the Fund against the receipt of payment for the
sale of such securities;
(ii) execute and deliver to such persons as may be
designated in such Oral or Written
Instructions, proxies, consents,
authorizations, and any other instruments
whereby the authority of the Fund as owner of
any securities on behalf of a portfolio may be
exercised;
(iii) deliver any securities held for a portfolio of
the Fund to the issuer thereof, or its agent,
when such securities are called, redeemed,
retired or otherwise become payable; provided
that, in any such case, the cash or other
consideration is to be delivered to PNC Bank;
(iv) deliver any securities held for a portfolio of
the Fund against receipt of other securities or
cash issued or paid in connection with the
liquidation, reorganization, refinancing,
tender offer, merger, consolidation or
recapitalization of any corporation, or the
exercise of any conversion privilege;
(v) deliver any securities held for a portfolio of
the Fund to any protective committee,
reorganization committee or other person in
connection with the reorganization,
refinancing, merger,
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<PAGE> 14
consolidation, recapitalization or sale of
assets of any corporation, and receive and hold
under the terms of this Agreement such
certificates of deposit, interim receipts or
other instruments or documents as may be issued
to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets
of a portfolio of the Fund and take such other
steps as shall be stated in said Oral or
Written Instructions to be for the purpose of
effectuating a duly authorized plan of
liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to a portfolio of
the Fund to any bank or trust company for the
purpose of a pledge or hypothecation to secure
any loan incurred by a portfolio of the Fund;
provided, however, that securities shall be
released only upon payment to PNC Bank of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be
released for that purpose; and repay such loan
upon redelivery to it of the securities pledged
or hypothecated therefor and upon surrender of
the note or notes evidencing the loan;
(viii) release and deliver securities owned by a
portfolio of the Fund in connection with any
repurchase agreement entered into on behalf of
a portfolio of the Fund, but only on receipt of
payment therefor; and pay out monies of a
portfolio of the Fund in connection with such
repurchase agreements, but only upon the
delivery of the securities;
(ix) release and deliver or exchange securities
owned by a portfolio of the Fund in connection
with any conversion of such securities,
pursuant to their terms, into other securities;
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<PAGE> 15
(x) release and deliver securities owned by a
portfolio of the Fund for the purpose of
redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities
owned by a portfolio of the Fund for other
corporate purposes.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing PNC Bank on a continuous and on-going basis, to deposit in the
Book-Entry System all securities belonging to each portfolio of the Fund
eligible for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales of securities by
each portfolio of the Fund, and deliveries and returns of securities loaned,
subject to repurchase agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties until it receives
Written or Oral Instructions authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund which
are maintained in the Book-Entry System,
established pursuant to this sub paragraph (e)
hereof, the records of PNC Bank shall identify
by Book-Entry or otherwise those securities
belonging to the applicable portfolio of the
Fund. PNC Bank shall furnish the Fund a
detailed statement of the Property held for
each portfolio of the Fund under this Agreement
at least monthly and from time to time and upon
written request.
(ii) Securities and any cash of the Fund deposited
in the Book-Entry System will
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<PAGE> 16
at all times be segregated from any assets and
cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be
commingled with other assets held in such
capacities. PNC Bank and its sub custodian, if
any, will pay out money only upon receipt of
securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC Bank
which relate to the Fund's participation in the
Book-Entry System will at all times during PNC
Bank's regular business hours be open to the
inspection of the Fund's duly authorized
employees or agents, and the Fund will be
furnished with all information in respect of
the services rendered to it as it may require.
(iv) PNC Bank will provide the Fund with copies of
any report obtained by PNC Bank on the system
of internal accounting control of the
Book-Entry System promptly after receipt of
such a report by PNC Bank.
PNC Bank will also provide the Fund with such reports on its own system
of internal control as the Fund may reasonably request from time to time.
(f) Registration Securities. All Securities held for the Fund which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book- Entry System; a sub custodian; or any duly appointed nominee(s)
of the Fund, PNC Bank, the Book-Entry System or any sub custodian. The Fund
reserves the right to instruct PNC Bank as to the method of registration and
safekeeping of the securities
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<PAGE> 17
of the Fund. The Fund agrees to furnish to PNC Bank appropriate instruments to
enable PNC Bank to hold or deliver in proper form for transfer, or to register
in the name of its registered nominee or the Book-Entry System, any securities
which it may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund. PNC Bank shall hold all such securities
which are not held in the Book-Entry System in a separate account for each
portfolio of the Fund in the name of the applicable portfolio of the Fund
physically segregated at all times from those of any other person or persons.
(g) Voting an Other Action. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or for the account
of a portfolio of the Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System, shall execute in
blank and promptly deliver all notices, proxies, and proxy soliciting materials
to the registered holder of such securities. If the registered holder is not a
portfolio of the Fund then Written or Oral Instructions must designate the
person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of each
portfolio of the Fund, all income, dividends,
distributions,
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<PAGE> 18
coupons, option premiums, other payments and
similar items, included or to be included in
the Property, and, in addition, promptly advise
the Fund of such receipt and credit such
income, as collected, to the applicable
portfolios custodian account;
(B) endorse and deposit for collection, in the name
of the applicable portfolio of the Fund,
checks, drafts, or other orders for the payment
of money on the same day as received;
(C) receive and hold for the account of each
portfolio of the Fund all securities received
as a distribution on the portfolio securities
as a result of a stock dividend, share split-up
or reorganization, recapitalization,
readjustment or other rearrangement or
distribution of rights or similar securities
issued with respect to any portfolio securities
belonging to the portfolio held by PNC Bank
hereunder;
(D) present for payment and collect the amount
payable upon all securities which may mature or
be called, redeemed, or retired, or otherwise
become payable on the date such securities
become payable; and
(E) take any action which may be necessary and
proper in connection with the collection and
receipt of such income and other payments and
the endorsement for collection of checks,
drafts, and other negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver or cause to
be delivered Property against payment or other
consideration or written receipt therefor in
the following cases:
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<PAGE> 19
(1) for examination by a broker or dealer
selling for the account of a portfolio of
the Fund in accordance with street delivery
custom;
(2) for the exchange of interim receipts or
temporary securities for definitive
securities; and
(3) for transfer of securities into the name of
a portfolio of the Fund or PNC Bank or
nominee of either, or for exchange of
securities for a different number of bonds,
certificates, or other evidence,
representing the same aggregate face amount
or number of units bearing the same
interest rate, maturity date and call
provisions, if any; provided that, in any
such case, the new securities are to be
delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or
Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by it which call
for payment upon presentation and hold the
cash received by it upon such payment for
the account of the applicable portfolio of
the Fund;
(2) collect interest and cash dividends
received, with notice to the Fund, to the
account of the applicable portfolio of the
Fund;
(3) hold for the account of the applicable
portfolio of the Fund all stock dividends,
rights and similar securities issued with
respect to any
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<PAGE> 20
securities held by PNC Bank; and
(4) execute as agent on behalf of the
applicable portfolio of the Fund all
necessary ownership certificates required
by the Internal Revenue Code or the Income
Tax Regulations of the United States
Treasury Department or under the laws of
any State now or hereafter in effect,
inserting the portfolio's name on such
certificate as the owner of the securities
covered thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral
Instructions establish and maintain a
segregated accounts(s) on its records for and
on behalf of each portfolio of the Fund. Such
account(s) may be used to transfer cash and
securities, including securities in the
Book-Entry System:
(A) for the purposes of compliance by the Fund
with the procedures required by a
securities or option exchange, providing
such procedures comply with the 1940 Act
and any regulations of the SEC relating to
the maintenance of segregated accounts by
registered investment companies; and
(B) Upon receipt of Written Instructions, for
other proper corporate purposes.
(ii) PNC Bank shall arrange for the establishment of
IRA custodian accounts for such shareholders
holding shares through IRA accounts, in
accordance with the Prospectus, the Internal
Revenue Code (including regulations), and with
such other procedures as are mutually agreed
upon from time to time
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<PAGE> 21
by and among the Fund, PNC Bank and the Fund's
transfer agent.
(iii) PNC Bank may enter into separate custodial
agreements with various futures commission
merchants ("FCMs") that the Fund uses (each an
"FCM Agreement"), pursuant to which the Fund's
margin deposits in any transactions involving
futures contracts and options on futures
contracts will be held by PNC Bank in accounts
(each an "FCM Account") subject to the
disposition by the FCM involved in such
contracts in accordance with the customer
contact between FCM and the Fund ("FCM
Contract"), SEC rules governing such segregated
accounts, CFTC rules and the rules of the
applicable commodities exchange. Such FCM
Agreements shall only be entered into upon
receipt of Written Instructions from the Fund
which state that (i) a customer agreement
between the FCM and the Fund has been entered
into; and (ii) the Fund is in compliance with
all the rules and regulations of the CFTC.
Except as otherwise determined by the Governing
Board, transfers of initial margin shall be
made into an FCM Account only upon Written
Instructions; transfers of premium and
variation margin may be made into an FCM
Account pursuant to Oral Instructions.
Transfers of funds from an FCM Account to the
FCM for which PNC Bank holds such an account
may only occur upon certification by the FCM to
PNC Bank that pursuant to the FCM Agreement and
the FCM Contract, all conditions precedent to
its right to give PNC Bank such instruction
have been satisfied.
(j) Purchases of Securities. PNC Bank shall settle purchased
securities upon receipt of Oral or Written Instructions that specify:
(i) the name of the issuer and the title of the
securities, including CUSIP number if applicable;
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<PAGE> 22
(ii) the number of shares or the principal amount
purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the name of the person from whom or the broker
through whom the purchase was made; and
(vii) the portfolio of the Fund to which such purchase
applies. PNC Bank shall upon receipt of securities
purchased by or for a portfolio of the Fund pay out
of the moneys held for the account of such
portfolio the total amount payable to the person
from whom or the broker through whom the purchase
was made, provided that the same conforms to the
total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall sell securities upon receipt
of Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the
security, including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and
accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such
sale;
(vi) the name of the broker through whom or the person
to whom the sale was made;
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<PAGE> 23
(vii) the location to which the security must be
delivered and delivery deadline, if any; and
(viii) the portfolio of the Fund to which such sale
applies.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total amount payable is
the same as was set forth in the Oral or Written Instructions. Subject to the
foregoing, PNC Bank may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in accordance with the
customs prevailing among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the following
reports:
(A) such periodic and special reports as the
Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the account of
each portfolio of the Fund, listing the
portfolio securities belonging to each
portfolio of the Fund with the adjusted
average cost of each issue and the market
value at the end of such month, and stating
the cash account of each portfolio of the
Fund including disbursement;
(C) the reports to be furnished to the Fund
pursuant to Rule 17f-4; and
(D) such other information as may be agreed
upon from time to time between the Fund and
PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any
proxy statement, proxy material, notice of a call
or conversion or similar communication received by
it
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<PAGE> 24
as custodian of the Property. PNC Bank shall be
under no other obligation to inform the Fund as to
such actions or events.
(m) Collections. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time after proper
demands have been made, PNC Bank shall notify the Fund in writing, including
copies of all demand letters, any written responses, memoranda of all oral
responses and to telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action for collection unless
and until reasonably indemnified to its satisfaction. PNC Bank shall also notify
the Fund as soon as reasonably practicable whenever income due on securities is
not collected in due course.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PNC Bank on one hundred eighty (180) days' prior
written notice to the other party. In the event this Agreement is terminated
(pending appointment of a successor to PNC Bank or vote of the shareholders of
the Fund to dissolve or to function without a custodian of its cash, securities
or other property), PNC Bank shall not deliver cash, securities or other
property of the Fund to the Fund. It may deliver them to a bank or trust company
of PNC Bank's own selection, having an aggregate capital, surplus and undivided
profits, as shown by its last published report, of
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<PAGE> 25
not less than twenty million dollars ($20,000,000), as a custodian for the Fund
to be held under terms similar to those of this Agreement. PNC Bank shall not be
required to make any such delivery or payment until full payment shall have been
made to PNC Bank of all of its fees, compensation, costs and expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor) (b) if to the Fund, at the address of the
Fund at P.O. Box 309, Grand Cayman, Cayman Islands, British Indies, Attention:
President with copies to Thomas M. Collins, Esq., Chairman, McDermott & Trayner,
225 South Lake Avenue, Suite 300, Pasadena, CA 91101-3005 and to W. Bruce
McConnel, III, Esq., Secretary, Drinker Biddle & Reath, Philadelphia National
Bank Building, 1345 Chestnut Street, Philadelphia, PA 19107; or (c) if to
neither of the foregoing, at such other address as shall have been notified to
the sender of any such Notice or other communication. If notice is sent by
confirming telegram, cable, telex or facsimile sending device, it shall be
deemed to have been given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given five days after it has been mailed. If
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<PAGE> 26
notice is sent by messenger, it shall be deemed to have been given on the day it
is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. Assignment. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without the
written consent of PNC Bank, or by PNC Bank without the written consent of the
Fund, authorized or approved by a resolution of the Fund's Governing Board.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. No Limitation. Nothing contained in this Agreement shall be
construed in any way so as to limit any guaranty or obligations of any signing
party, as set forth in the letter agreement dated July 21, 1993 by and among
PFPC, Inc., Bank of America NTSA, Seattle-First National Bank and Concord
Financial Group, Inc.
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<PAGE> 27
22. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated and/or Oral Instructions.
The names "Master Investment Trust, Series I" and "Trustees of Master
Investment Trust, Series I" refer respectively to the trust created and the
trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated October 23, 1992, as amended and
restated on February 10, 1993, which is hereby referred to and a copy of which
is on file at the principal office of the Fund. The trustees, officers,
employees and agents of the Fund shall not personally be bound by or liable
under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Fund made by the trustees or by an officer,
employee or agent of the Fund, in his or her capacity as such, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
thereunder. All persons dealing with any class of shares of the Fund may enforce
claims against the Fund only against the assets belonging to such class.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE> 28
This Agreement shall be deemed to be a contract governed by
Pennsylvania law. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding and
shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By:/s/ Signature Illegible
---------------------------------------
Vice President
MASTER INVESTMENT TRUST, SERIES I
By:/s/ Richard Stierwalt
---------------------------------------
President
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<PAGE> 1
EXHIBIT 9.1
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 1st day of
November, 1996 between MASTER INVESTMENT TRUST, SERIES I, a Delaware business
trust (herein called the "Trust"), and THE BISYS GROUP, INC., a Delaware
corporation.
WHEREAS, the Trust is a Delaware business trust which is an
open-end management investment company and is so registered under the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Trust will offer and maintain the following
investment portfolios: Asset Allocation Fund, Blue Chip Fund, Corporate Bond
Fund, Growth and Income Fund, International Bond Fund, International Equity
Fund, Investment Grade Bond Fund, Short-Term Government Fund and Utilities Fund
(collectively, the "Funds"); and
WHEREAS, the Trust desires to retain The BISYS Group,
Inc. as its Administrator to provide it with administrative
services for the Funds and The BISYS Group, Inc. is willing to
provide such services for the Funds;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
I. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints The
BISYS Group, Inc. as Administrator of each Fund on the terms and for the period
set forth in this Agreement and The BISYS Group, Inc. hereby accepts such
appointment and agrees to have the services and duties set forth in this Section
I performed for the compensation provided in this Section. The Trust understands
that the services and duties set forth in this Section I will be performed by
BISYS Fund Services, L.P., a wholly-owned subsidiary of The BISYS Group, Inc.
(hereafter, BISYS Fund Services, L.P. and The BISYS Group, Inc., collectively
"BISYS"). Notwithstanding anything herein to the contrary, The BISYS Group, Inc.
shall be as fully responsible to the Trust for the acts or omissions of BISYS
Fund Services, L.P. and any other affiliate of The BISYS Group, Inc. as The
BISYS Group, Inc. is for its own acts or omissions. The Trust further
understands that BISYS now acts and will continue to act as administrator of
various investment companies and fiduciary of other managed accounts, and the
Trust has no objection to BISYS' so acting. In addition, it is understood that
the persons employed by BISYS to assist in the performance of its duties
hereunder will not devote
<PAGE> 2
their full time to such services and nothing herein contained shall be deemed to
limit or restrict the right of BISYS or any affiliate of BISYS to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
2. SERVICES AND DUTIES.
(A) Subject to the supervision and control of the
Trust's Board of Trustees, BISYS will provide facilities, equipment, statistical
and research data, clerical, accounting and bookkeeping services, internal
auditing and legal services, and personnel to carry out all administrative
services required for operation of the business and affairs of the Funds, other
than those investment advisory functions which are to be performed by the
Trust's Investment Adviser and any Sub-Investment Adviser, those services to
performed by PNC Bank, National Association pursuant to the Trust's Custodian
Services Agreement and those services normally performed by the Trust's counsel
and auditors. The responsibilities of BISYS include without limitation the
following services:
(1) Providing a facility to receive purchase
and redemption orders for interests in the Funds (the
"Interests");
(2) Providing for the preparing, supervising
and mailing of confirmations for all purchase and
redemption orders for Interests;
(3) Providing and supervising the operation
of an automated data processing system to process purchase and
redemption orders for Interests received by BISYS (BISYS
assumes responsibility for the accuracy of the data
transmitted for processing or storage);
(4) Overseeing the performance of PNC Bank,
National Association under the Custodian Services
Agreement with respect to the Funds; and
(5) Making available information concerning
each Fund to its interestholders; distributing written
communications to each Fund's interestholders such as periodic
listings of each Fund's securities, annual and semi-annual
reports, and prospectuses and supplements thereto; and
handling interestholder problems and calls relating to
administrative matters.
(B) BISYS shall assure that persons are available to
transmit redemption requests for Interests to the Trust's fund accounting agent
as promptly as practicable.
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<PAGE> 3
(C) BISYS shall assure that persons are available to
transmit orders accepted for the purchase of Interests to the Trust's fund
accounting agent as promptly as practicable.
(D) BISYS shall participate in the periodic updating
of the Trust's registration statement and shall accumulate information for and,
subject to approval by the Trust's Treasurer and legal counsel, coordinate the
preparation, filing, printing and dissemination of reports to each Fund's
interestholders and the Commission, including but not limited to annual reports
and semi-annual reports on Form N-SAR and proxy materials pertaining to the
Funds.
(E) BISYS shall compute each Fund's net asset value
on each business day.
(F) BISYS shall calculate dividends and capital gain
distributions to be paid to each Fund's interestholders.
(G) BISYS shall pay all costs and expenses of
maintaining the offices of the Trust, wherever located, and shall arrange for
payment by the Trust of all expenses payable by the Trust.
(H) BISYS, after consultation with legal counsel for
the Trust, shall determine the jurisdictions, if any, in which the Interests
shall be registered or qualified for sale and, in connection therewith, shall be
responsible for the maintenance of the registration or qualification of the
Interests for sale under the securities laws of any state. Payment of Interest
registration fees and any fees for qualifying or continuing the qualification of
the Trust shall be made by the Trust.
(I) BISYS shall provide the services of certain
persons who may be appointed as officers of the Trust by the Trust's Board of
Trustees.
(J) BISYS shall oversee the maintenance by PNC Bank,
National Association of the books and records pertaining to the Funds required
under the 1940 Act in connection with the performance of the Trust's Custodian
Services Agreement, and shall maintain such other books and records with respect
to the Funds (other than those required to be maintained by the Trust's
Investment Adviser and Sub-Investment Adviser) as may be required by law or may
be required for the proper operation of the business and affairs of the Funds.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, BISYS
agrees that all such books and records which it maintains, or is responsible for
maintaining, for the Trust and the Funds are the property of the Trust and
further agrees to surrender promptly to the Trust any of such books and records
upon the Trust's request. BISYS
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<PAGE> 4
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act said books and records required to be maintained by Rule 31a-1 under
said Act.
(K) BISYS shall prepare the Funds' federal, state and
local income tax returns.
(L) BISYS shall prepare and, subject to approval of
the Trust's Treasurer, disseminate the Trust's quarterly financial statements
and schedules of investments to the Trust's Board of Trustees, and shall prepare
such other reports relating to the business and affairs of the Funds (not
otherwise appropriately prepared by the Trust's Investment Adviser,
Sub-Investment Adviser, counsel or auditors) as the officers and trustees of the
Trust may from time to time reasonably request in connection with performance of
their duties.
(M) BISYS shall assist PNC Bank, National Association
and the Trust's Investment Adviser, Sub-Investment Adviser, counsel and auditors
as required to carry out the business and operations of the Funds.
(N) In performing its duties as Administrator for the
Funds, BISYS will act in conformity with the Trust's Amended and Restated
Declaration of Trust, By-Laws, registration statement, and the instructions and
directions of the Board of Trustees of the Trust. It is understood that the
services and duties described in, and to be performed by BISYS and any
subcontractors under, this Agreement shall be performed offshore, at a general
business office or offices outside the United States in which the personnel
performing such services and duties are located, to the extent that such
services and duties relate to the functions itemized in Treasury regulation
Sections 1.864- 2(c)(2)(iii). In addition, BISYS will conform to and comply
with the requirements of the 1940 Act and all other applicable federal or state
laws and regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time
to time employ or associate with itself such person or persons as BISYS may
believe to be particularly fitted to assist in the performance of this
agreement; provided, however, that the compensation of such person or persons
shall be paid by BISYS and that notwithstanding anything herein to the contrary
The BISYS Group, Inc. shall be as fully responsible to the Trust for the acts
and omissions of any subcontractor as The BISYS Group, Inc. is for its own acts
and omissions. Without limiting the generality of the foregoing, it is
understood that BISYS, an affiliate of BISYS or a subcontractor has entered into
an agreement with PFPC, Inc. under which said institution will provide certain
accounting, bookkeeping, pricing and dividend and distribution calculation
services with respect to the Funds at the expense of the Funds.
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<PAGE> 5
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise
stated in this subsection 4, BISYS shall pay all expenses incurred by it in
performing its services and duties hereunder as Administrator including the cost
of any independent pricing service used in connection with the Funds. Other
expenses to be incurred in the operation of the Funds (other than those borne by
the Trust's Investment Adviser and Sub-Investment Adviser) including taxes,
interest, brokerage fees and commissions, if any, fees of trustees who are not
officers, directors, partners, employees or holders of 5 percent or more of the
outstanding voting securities of the Trust's Investment Adviser, Sub-Investment
Adviser or BISYS or any of their affiliates, state blue sky registration and
qualification fees (if any), advisory fees, charges of custodians, transfer and
dividend distributing agents' fees, certain insurance premiums, outside auditing
and legal expenses, costs of maintaining corporate existence, costs attributable
to interestholder services, including without limitation telephone and personnel
expenses, costs of preparing and printing prospectuses or any supplement or
amendment thereto, necessary for the continued effective registration of the
Interests under federal or state securities laws, costs of printing and
distributing any prospectus, supplement or amendment thereto for existing
interestholders of the Fund described therein, costs of interestholders' reports
and corporate meetings and any extraordinary expenses will be borne by the
Trust.
5. COMPENSATION. For the services provided and the expenses
assumed as Administrator pursuant to Section I of this Agreement, the Trust will
pay The BISYS Group, Inc. a fee, computed daily and payable monthly, at the
annual rate of .05 percent of the average net assets of each Fund. Such fee as
is attributable to each Fund shall be a separate (and not joint or joint and
several) obligation of each such Fund.
II. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust and the
Funds and prior or present interestholders or those persons or entities who
respond to inquiries concerning investment in the Trust, and will not use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder or under any other agreement with the
Trust, 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
BISYS may be exposed to civil or criminal contempt proceedings for failure to
comply, when BISYS is requested to divulge such information by duly constituted
authorities, or when BISYS is so requested by the Trust.
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<PAGE> 6
III. LIMITATIONS OF LIABILITY
Neither The BISYS Group, Inc. nor BISYS Fund Services, L.P. shall be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust or by any Fund in connection with the matters to which this Agreement
relates, except a loss resulting from willful misfeasance, bad faith or
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, director, partner, employee or agent of BISYS, who
may be or become an officer, trustee, employee or agent of the Trust, shall be
deemed, when rendering services to the Trust or to any Fund, or acting on any
business of the Trust or of any Fund (other than services or business in
connection with BISYS' duties as Administrator hereunder or under any other
agreement with the Trust) to be rendering such services to or acting solely for
the Trust or the Fund and not as an officer, director, partner, employee or
agent or one under the control or direction of BISYS even though paid by BISYS.
IV. DURATION AND TERMINATION
This Agreement shall become effective on November 1, 1996 and
shall continue in effect until October 31, 1997, unless sooner terminated as
provided herein. Thereafter, if not terminated, this Agreement shall continue
automatically as to a particular Fund for successive terms of one year, provided
that such continuance is specifically approved at least annually (a) by a vote
of a majority of those members of the Board of Trustees of the Trust who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by vote of a "majority of the
outstanding voting securities" of such Fund; provided, however, that this
Agreement may be terminated by the Trust at any time with respect to any Fund,
without the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by a vote of a "majority of the outstanding voting
securities" of such Fund on 60 days' written notice to The BISYS Group, Inc., or
by The BISYS Group, Inc. at any time, without the payment of any penalty, on 90
days' written notice to the Trust. This Agreement will automatically and
immediately terminate in the event of its "assignment." (As used in this
Agreement, the terms "majority of the outstanding voting securities, "interested
person" and "assignment" shall have the same meaning as such terms have in the
1940 Act.)
V. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in
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<PAGE> 7
writing signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
VI. NOTICES
Notices of any kind to be given to the Trust hereunder by
BISYS shall be in writing and shall be duly given if mailed or delivered to the
Trust at P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies,
Attention: President, with copies to Thomas M. Collins, Esq., Chairman,
McDermott & Trayner, 225 South Lake Avenue, Suite 410, Pasadena, CA 91101-3005
and to W. Bruce McConnel, III, Esq., Secretary, Drinker Biddle & Reath,
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia, PA
19107 or at such other addresses or to such individuals as shall be so specified
by the Trust to BISYS. Notices of any kind to be given to BISYS hereunder by the
Trust shall be in writing and shall be duly given if mailed or delivered to
BISYS at 150 Clove Road, Little Falls, New Jersey, 07424, Attention: Kevin J.
Dell, General Counsel, or at such other address or to such individual as shall
be so specified by BISYS to the Trust.
VII. NAMES
The names "Master Investment Trust, Series I" and "Trustees of
Master Investment Trust, Series I" refer respectively to the Trust created and
the Trustees, as trustees but not individually or personally, acting from time
to time under a Declaration of Trust dated October 23, 1992, as amended and
restated on February 10, 1993, which is hereby referred to and a copy of which
is on file at the principal office of the Trust. The Trustees, officers,
employees and agents of the Trust shall not personally be bound by or liable
under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Trust made by the Trustees or by an officer,
employee or agent of the Trust, in his or her capacity as such, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
thereunder.
VIII. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be signed in
one or more counterparts, each of which shall be an original and all of which
together shall be deemed one and the same document. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section IV hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and
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<PAGE> 8
their respective successors and shall be governed by Delaware law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
MASTER INVESTMENT TRUST, SERIES I
BY: /s/ J. David Huber
------------------------------
J. David Huber
President
Attest: /s/ W. Bruce McConnel, III
--------------------------------
W. Bruce McConnel, III
Secretary
THE BISYS GROUP, INC.
By: /s/ Robert J. McMullan
------------------------------
Robert J. McMullan
EVP and CFO
Attest: /s/ Kevin J. Dell
---------------------------
Kevin J. Dell
Vice President,
General Counsel
and Secretary
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<PAGE> 1
EXHIBIT 9.2
ACCOUNTING SERVICES AGREEMENT
This Agreement is made as of October 25, 1993 by and between CONCORD
HOLDING CORPORATION ("Concord"), a Delaware corporation, PFPC INC. ("PFPC") , a
Delaware corporation, which is an indirect wholly-owned subsidiary of PNC Bank
Corp., and MASTER INVESTMENT TRUST, SERIES I (the "Fund").
WHEREAS, Concord has entered into an Administration Agreement dated the
date hereof (the "Administration Agreement") to provide administration services
(including but not limited to fund accounting services) to the Fund, which is an
investment company registered under the Investment Company Act of 1940, as
amended (the 1940 Act");
WHEREAS, the Administration Agreement provides that Concord may from time
to time employ or associate with itself such person or persons as it may believe
to be particularly fitted to assist in the performance of the Administration
Agreement;
WHEREAS, Concord desires to retain PFPC to provide fund accounting services
for the portfolios of the Fund listed on Appendix A, as amended from time to
time, and PFPC is willing to provide such services, all as more fully set forth
below;
WHEREAS, PFPC is experienced in providing fund accounting services to
investment companies and possesses facilities sufficient to provide such
services; and
<PAGE> 2
WHEREAS, the Board of Trustees of the Fund has approved the appointment of
PFPC to provide fund accounting services on behalf of the Fund.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall
mean any officer of the Fund and any other person, who is duly authorized by the
Fund's Governing Board, to give Oral and Written Instructions on behalf of the
Fund, provided, however, that if the Governing Board determines that Oral
Instructions or Written Instructions require the approval of more than one
person, the term "Authorized Person" shall mean such persons as are in
combination so authorized. Such persons are listed in the Certificate attached
hereto as the Authorized Persons Appendix to each Services Attachment to this
Agreement. If PFPC provides more than one service hereunder, the Fund's
designation of Authorized Persons may vary by service.
(b) "CFTC". The term "CFTC" shall mean the Commodities Futures
Trading Commission.
(c) "Governing Board". The Term "Governing Board" shall mean
the Fund's Board of Trustees, or, where duly authorized, a competent committee
thereof.
(d) "Oral Instructions". The term "Oral Instructions" shall
mean oral instructions received by PFPC from
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<PAGE> 3
an Authorized Person or from a person reasonably identified to PFPC to be as an
Authorized Person.
(e) "SEC". The term "SEC" shall mean the Securities and
Exchange Commission.
(f) "Securities and Commodities Laws". The term "Securities
and Commodities Laws" shall mean the "1933 Act" which shall mean the Securities
Act of 1933, the "1934 Act" which shall mean the Securities Exchange Act of
1934, the "1940 Act" which shall mean the Investment Company Act of 1940, and
the "CEA" which shall mean the Commodities Exchange Act, in each case as
amended.
(g) "Shares". The terms "Shares" shall mean the shares of any
series or class of units of beneficial interest of the Fund.
(h) "Written Instructions". The term "Written Instructions"
shall mean written instructions signed by one or more Authorized Persons as
required by the Governing Board from time to time and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment. Concord hereby appoints PFPC to provide fund accounting
services, in accordance with the terms set forth in this Agreement. PFPC accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. Concord has provided or, where applicable,
will provide PFPC with the following:
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<PAGE> 4
(a) certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PFPC or its affiliates to provide
fund accounting services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of the Fund's advisory and sub-advisory agreements;
(d) a copy of the Administration Agreement; and
(e) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PFPC undertakes to comply with all applicable requirements of the
Securities and Commodities Laws and any other laws, rules and regulations of
state and federal governmental authorities having jurisdiction with respect to
all duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement or by
resolution of the Governing Board which has been submitted to PFPC, PFPC shall
act only upon Oral and Written Instructions.
PFPC shall be entitled to rely upon any Oral and Written Instructions. PFPC
may assume that any Oral or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or this
Agreement
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<PAGE> 5
or of any vote, resolution or proceeding of the Fund's Governing Board or any
committee thereof or of the Fund's shareholders.
Concord shall forward, or shall cause the Fund to forward, to PFPC Written
Instructions confirming Oral Instructions so that PFPC receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. PFPC
shall incur no liability to Concord or to the Fund in acting upon Oral or
Written Instructions.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any action
it should or should not take, PFPC may request Oral or Written Instructions.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
questions of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's advisor or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between
Oral or Written Instructions PFPC receives from the Fund, and the written advice
it receives from counsel, PFPC shall be entitled to rely upon and follow such
advice of counsel after notice to the Fund.
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<PAGE> 6
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reasonable reliance upon Oral or Written Instructions it
receives from the Fund or written advice of counsel.
Nothing in this paragraph shall be construed so as to impose an
obligation upon PFPC (i) to seek Oral or Written Instructions, or (ii) to act in
accordance with such Oral or Written Instructions unless, under the terms of
other provisions of this Agreement, the same is a condition of PFPC's properly
taking or not taking such action.
Nothing in this sub-section shall excuse PFPC when an action or
omission on the part of PFPC constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC of any duties or obligations under this
Agreement.
7. Records. The books and records pertaining to the Fund, which are in
the possession of PFPC, shall be the property of the Fund. Concord, the Fund or
the Fund's Authorized Persons, shall have access to such books and records at
all times during PFPC's normal business hours. Upon the reasonable request of
Concord or the Fund, copies of any such books and records shall be provided by
PFPC to Concord or the Fund or to an Authorized Person of the Fund, at the
expense of the requesting party. Consistent with Treasury regulation
Section 1.864-2(c)(2)(iii)(5), such books and records shall be maintained at an
office located in Ireland.
PFPC shall keep the following records:
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<PAGE> 7
(a) all above-referenced books and records with respect to the
Fund's books of account;
(b) records of the Fund's securities transactions. PFPC shall
preserve any such books and records in accordance with the requirements of Rule
3la-2 under the 1940 Act.
8. Confidentiality. PPFC agrees to keep confidential and to treat as
proprietary of the Fund all records of the Fund and information relative to the
Fund and its shareholders (past, present and potential), unless the release of
such records or information is otherwise authorized by the Governing Board.
Should PFPC be required to provide such information or records to duly
constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), PFPC shall not be required to seek the
Fund's consent prior to disclosing such information but shall be required to
give Concord and the Fund prior written notice of PFPC's intent to disclose such
information.
9. Liaison with Accountants. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules. PFPC shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required by the Fund from time to
time.
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<PAGE> 8
10. Disaster Recovery. As soon as reasonably possible, PFPC shall at
its expense enter into and shall maintain in effect with appropriate parties one
or more agreements making reasonable provision of emergency use of electronic
data processing equipment to the extent appropriate equipment is available. In
the event of equipment failures, PFPC shall, at no additional expense to the
Fund, take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto.
11. Compensation. As compensation for services rendered by PFPC during
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
approved by Concord in writing and consistent with resolutions adopted by the
Fund's Governing Board.
12. Indemnification. Concord agrees to indemnify and hold harmless PFPC
and its nominees from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities and commodities Laws and any state and foreign securities and blue
sky laws, and amendments thereto), and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PFPC takes or does not take (i) at the request or on the direction
of or in reliance on the advice of Concord or the Fund or (ii) upon Oral or
Written Instructions, provided that neither PFPC, nor any of its nominees, shall
be indemnified against any liability to Concord, to the Fund or to its
shareholders (or any expenses incident to
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<PAGE> 9
such liability) arising out of PFPC's own willful misfeasance, negligence or
reckless disregard of its duties and obligations under this Agreement.
13. Responsibility of PFPC. PFPC shall be under no duty to take any
action on behalf of Concord or the Fund except as specifically set forth herein
or as may be specifically agreed to by PFPC, in writing. PFPC shall be obligated
to exercise care and diligence in the performance of its duties hereunder and
shall be responsible for failure to perform its duties under this Agreement
arising out of PFPC's negligence. Notwithstanding the foregoing, PFPC shall not
be responsible for losses beyond its control, provided that PFPC has acted in
accordance with the standard of care set forth above; and provided further that
PFPC shall only be responsible for that portion of losses or damages suffered by
the Fund that are attributable to the negligence of PFPC.
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PFPC, in connection with its duties under this
Agreement, shall not be liable for (a) the validity or invalidity or authority
or lack thereof of any Oral or Written Instruction, notice or other instrument
which conforms to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood or catastrophe, acts
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<PAGE> 10
of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
PFPC acknowledges that the performance of this Agreement is for the
benefit of the Fund, that PFPC shall be directly liable and responsible to the
Fund and to Concord for the performance of its obligations hereunder, and that
either the Fund or Concord may therefore enforce, in its own name and for itself
such liability and responsibility against PFPC.
Notwithstanding anything in this Agreement to the contrary, PFPC
expressly disclaims all responsibility for consequential damages, including but
not limited to any that may result from performance or non-performance of any
duty or obligation whether expressed or implied in this Agreement and also
expressly disclaims any express or implied warranty of products or services
provided in connection with the Agreement.
14. Description of Accounting Services.
(a) Services on a Continuing Basis. PFPC will perform the
following accounting functions if requested by Concord or the Fund:
(i) Journalize the Fund's investment, capital
share and income and expense activities;
(ii) Verify investment buy/sell trade tickets
when received from the Fund's investment
advisor and transmit trades to the Fund's
custodian for proper settlement;
(iii) Make daily partnership income allocations
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<PAGE> 11
and perform daily partnership accounting as
necessitated by the master/feeder structure
of the Fund and its feeder funds including,
but not limited to, allocations of realized
and unrealized gains and losses;
(iv) Maintain individual ledgers for investment
securities in both U.S. dollars and foreign
currency terms;
(v) Maintain historical tax lots for each
security and foreign currency;
(vi) Reconcile cash and investment balances of
the Fund with the custodian, and provide the
Fund's investment advisor with the beginning
cash balance available for investment
purposes in both U.S. dollar and foreign
currency terms;
(vii) Update the cash availability throughout the
day as required by the Fund's advisor;
(viii) Post to and prepare the Fund's Statement of
Assets and Liabilities and the Statement of
Operations in U.S. dollar terms;
(ix) Calculate various contractual expenses
(e.g., advisory and custody fees);
(x) Record expense accruals as provided by Fund
management;
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<PAGE> 12
(xi) Record all disbursements from the Fund upon
Written Instructions;
(xii) Calculate capital gains and losses and
foreign exchange gains and losses;
(xiii) Determine the Fund's net income in both U.S.
dollar and foreign currency terms;
(xiv) Obtain security market quotes and foreign
exchange rates from independent pricing
services approved by the Fund's Governing
Board, or if such quotes are unavailable,
then obtain them from the Advisor or as
otherwise directed by resolution of the
Governing Board, and in either case
calculate the market value of the Fund's
investments in both U.S. dollar and foreign
currency terms;
(xv) Transmit or mail a copy of the daily
portfolio valuation and any other required
reports to the Advisor and Concord;
(xvi) Compute the net asset value of the Fund in
U.S. dollars and the dividend rate per
share;
(xvii) As appropriate, compute the Fund's yields,
total return, expense ratios, portfolio
turnover rate, and, if required, portfolio
average dollar-weighted maturity; and
-12-
<PAGE> 13
(xviii) Prepare a monthly financial statement in
U.S. dollars, which will include the
following
items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
(xix) Provide certain financial information
necessary to facilitate the preparation of
the Fund's annual U.S. Federal partnership
income tax return, IRS Form 1065, including
Schedules K-1 thereto;
(xx) With respect to each owner of an interest in
the Fund that has elected, or has notified
PFPC of an intention to elect, to be treated
as a regulated investment company under IRC
section 851, maintain records of the Fund
amounts allocable to such owner of gross
income, dividends, interest and other
categories of gross income described in IRC
section 851(b)(2), and gross income derived
from the sale or disposition by the Fund of
stock, securities or other property
described in IRC section 851(b)(3) that was
held for
-13-
<PAGE> 14
less than 3 months, and timely notify Fund management
of any potential noncompliance by such owner with the
gross income requirements of IRC sections 851(b)(2)
and 851(b)(3) on the assumption that the interest in
the Fund held by such owner is its sole source of
income.
(b) Consistent with Treasury regulation Sections 1.864-
2(c)(2)(iii)(5), (6), (7) and (8), the accounting functions performed by PFPC
shall be performed at an office located in Ireland.
15. Duration and Termination. This Agreement shall continue until
terminated by the Fund or by PFPC on one hundred eighty (180) days prior written
notice to the other party.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC at PFPC's address, 103 Bellevue Parkway, Wilmington, Delaware
19809; (b) if to Concord, at Concord's address, 125 W. 55th Street, New York,
New York 10019; (b) if to the Fund at P.O.
-14-
<PAGE> 15
Box 309, Grand Cayman Islands, British West Indies, Attention: President, with
copies to Thomas M. Collins, Esq., Chairman, McDermott & Trayner, 225 South Lake
Avenue, Suite 300, Pasadena, CA 91101-3005 and to W. Bruce McConnel, III, Esq.,
Secretary, Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pa 19107; or (d) if to none of the foregoing, at
such other address as shall have been notified to the sender of any such Notice
or other communication.
17. Delegation. PFPC may delegate any or all of its duties under this
Agreement to any offshore affiliate, provided that PFPC shall retain
responsibility therefor as specified herein.
18. Amendments. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. Assignment. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by Concord without the
written consent of PFPC, or by PFPC without the written consent of Concord and
of the Fund, authorized or approved by a resolution of the Fund's Governing
Board.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-15-
<PAGE> 16
21. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
22. No Limitation. Nothing contained in this Agreement shall be
construed in any way so as to limit the obligations of any signing party as set
forth in the letter agreement dated July 21, 1993 by and among PFPC, Bank of
America NTSA, Seattle-First National Bank and Concord Financial Group, Inc.
23. Names. The names "Master Investment Trust, Series I" and "Trustees
of Master Investment Trust, Series I" refer respectively to the trust created
and the trustees, as trustees but not individually or personally, acting from
time to time under a Declaration of Trust dated October 23, 1992, as amended and
restated on February 10, 1993, which is hereby referred to and a copy of which
is on file at the principal office of the Fund. The trustees, officers,
employees and agents of the Fund shall not personally be bound by or liable
under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Fund made by the trustees or by an officer,
employee or agent of the Fund, in his or her capacity as such, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
thereunder. All persons dealing with any class of shares of the Fund may enforce
claims against the Fund only against the assets belonging to such class.
24. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes
-16-
<PAGE> 17
all prior agreements and understandings relating to the subject matter hereof,
provided that the parties may embody with the approval of the Fund in one or
more separate documents their agreement, if any, with respect to delegated
and/or Oral Instructions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors.
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
CONCORD HOLDING CORPORATION
By:/s/ Richard Fabietti
--------------------------------
Title: Treasurer
PFPC INC.
By:/s/ Joseph Gramlich
--------------------------------
Title: Sr. V.P.
MASTER INVESTMENT TRUST, SERIES I
By:/s/ Richard Stierwalt
--------------------------------
Title: President
-18-
<PAGE> 19
APPENDIX A
Investment Grade Bond Fund
Blue Chip Fund
Asset Allocation Fund
<PAGE> 20
October 25, 1993
MASTER INVESTMENT TRUST, SERIES I
Re: Accounting Services Fees
Dear Sir/Madam:
This letter constitutes our agreement with respect to
compensation to be paid to PFPC Inc. ("PFPC") under the terms of an Accounting
Services Agreement dated October 25, 1993 between Concord Holding Corporation,
Master Investment Trust, Series I and PFPC, as amended from time to time (the
"Agreement") relating to the portfolios of the Fund listed on Exhibit A attached
hereto (the "Portfolios"). Pursuant to Paragraph 11 of that Agreement, and in
consideration of services to be provided, each Portfolio will pay PFPC an annual
accounting fee, to be calculated daily and paid monthly. Each Portfolio will
also reimburse PFPC for its out-of pocket expenses incurred on behalf of that
Portfolio, including, but not limited to, postage, telephone, telex, federal
express, overnight delivery services, daily report transmissions, record
retention/storage and outside independent pricing service charges.
The annual accounting fee shall be payable in equal monthly
installments of $7,100 with respect to each Portfolio of the Fund plus .045% of
each Portfolio's average daily net assets from $100 million to $250 million;
.035% of each Portfolio's next $250 million of average daily net assets; and
.025% of each Portfolio's average daily net assets over $500 million.
The fee for the period from the date hereof until the end of
that calendar year shall be pro-rated according to the proportion which such
period bears to the full annual period commencing on the date hereof.
<PAGE> 21
If the foregoing accurately sets forth our agreement, and you intend
to be legally bound thereby, please execute a copy of this letter and return it
to us.
Very truly yours,
PFPC INC.
By:/s/ Joseph Gramlich
------------------------
Title: Sr. V.P.
Accepted:
CONCORD HOLDING CORPORATION
By:/s/ Richard Fabietti
-------------------------------
Title: Treasurer
MASTER INVESTMENT TRUST, SERIES I
By:/s/ Richard Stierwalt
-------------------------------
Title: President
<PAGE> 22
EXHIBIT A
Portfolios
INVESTMENT GRADE BOND
BLUE CHIP FUND
ASSET ALLOCATION FUND
And any other portfolios of the Fund, whether now existing or hereafter
created, for which the Fund has approved PFPC to provide accounting services and
for which PFPC provides accounting services.
<PAGE> 1
EXHIBIT 9.3
SERVICES AGREEMENT
THIS AGREEMENT is made April 22, 1994
BETWEEN: Master Investment Trust, Series I, a company
incorporated in the Cayman Islands with its
principal place of business at P.O. Box 30122SMB,
Grand Cayman, Cayman Islands, B.W.I.
(hereinafter called the "Fund")
OF THE ONE PART
AND: CONCORD (CAYMAN ISLANDS) LIMITED, a company
incorporated in the Cayman Islands and duly
licensed to carry on business under the laws of
the Cayman Islands with its principal place of
business at P.O. Box 30122SMB, Grand Cayman,
Cayman Islands, B.W.I.
(hereinafter called "Concord Cayman")
OF THE OTHER PART
WHEREAS:
The Fund has requested Concord Cayman to provide in the Cayman Islands certain
services, and it is desired to now set forth the terms and conditions
hereinafter appearing upon which Concord Cayman will provide such services.
NOW IT IS HEREBY AGREED as follows:
1. The Fund hereby retains Concord Cayman to provide such
services as are, and subject to the terms and conditions,
hereinafter set forth.
2. Concord Cayman hereby agrees:
(a) to perform and provide services to the Fund in and from
within the Cayman Islands as follows:
(i) subject to clause 4(b) hereof, to maintain such books
and records of the Fund as may be required to be held
in the Cayman Islands by the Fund's Articles of
Association or laws or regulations of
<PAGE> 2
the Cayman Islands in such manner as may be agreed
upon from time to time;
(ii) to provide the principal office and the registered
office of the Fund in the Cayman Islands at its own
offices as set out above and to make available within
its premises such non-exclusive space as may be
necessary to efficiently carry out its duties
hereunder and, subject to clause 4(b) hereof, to
maintain the register of members, the register of
directors and officers, the register of mortgages and
charges, minute books and common seal of the Fund and
on behalf of the Fund to make such filings from time
to time with the Register of Companies in and for the
Cayman Islands as may be required;
(iii) to provide the services of two or more directors and
a secretary or assistant secretary of the Fund;
(iv) to deliver to the Fund at its offices in George Town,
Grand Cayman, Cayman Islands, B.W.I. or to such other
address as may be notified to Concord Cayman pursuant
to clause 4(b) hereof all correspondence received at
the offices of Concord Cayman and addressed to the
Fund and to respond thereto on behalf of the Fund if
so requested by the Fund; and
(v) to provide such other services to the Fund as may be
agreed from time to time.
(b) to keep confidential all documents, materials and other
information relating to the business of the Fund and its
customers and not to disclose any of the aforesaid without the
prior written consent of the Fund unless it shall in good
faith determine that such disclosure is legally required.
(c) to obtain and maintain during the term of this Agreement a
mutual fund administrator's license under the Mutual Fund Law
1993.
3. The services to be provided by Concord Cayman hereunder are limited to
those stipulated in clause 2(a) hereof. Concord Cayman may but shall be
under no obligation to agree to provide additional services as may be
requested from time to time by the Fund for such additional fee as may
be agreed between the parties hereto.
-2-
<PAGE> 3
4. (a) Until and unless otherwise amended by valid resolution
of the Board of Directors of the Fund, Concord Cayman
shall be entitled to assume that the approval and
authorization of the Fund of any act, deed, document,
matter or thing has been given if it shall have been
notified whether in writing, orally, by telephone,
telex, facsimile or cable by any one Director of the
Fund provided such Director shall not at the time be
present in the United States of America, its
territories or possessions, and Concord Cayman shall
not be obliged to make further inquiry thereafter of
the Fund with respect to matters hereunder and subject
to clause 7 hereof, shall be under no liability or
obligation whatsoever to the Fund for so assuming and
relying whether or not such approval or authorization
has been actually given.
(b) The Fund shall promptly supply Concord Cayman all such
information, documents and instructions as are required by
Concord Cayman to fulfill its obligations hereunder.
(c) Subject to clause 7 hereof, Concord Cayman shall not be liable
as a result of any failure on the Fund's part promptly to give
proper authorizations, instructions, approvals, information
and documents as may be necessary to enable Concord Cayman to
carry out its obligations hereunder.
5. (a) The Fund will pay or cause to be paid to Concord Cayman
an annual fee of U.S. $3,000.
(b) The fees payable under clause 5(a) hereof shall where
appropriate be pro-rated to and be paid on the date on which
this Agreement is terminated pursuant to clause 9 hereof.
(c) The parties agree that the fees described in clause 5(a) and
any adjusted fees hereafter may be amended from time to time
by agreement of both parties, the party wishing to make such
amendment shall give thirty days notice in writing to the
other party and in the absence of agreement thereto the fees
payable hereunder shall continue at the previously agreed
rate.
(d) In addition to the fees set out hereinbefore the Fund
shall reimburse or cause to be reimbursed Concord
Cayman such government or similar fees (including but
not limited to filing fees and annual return fees),
charges, taxes, duties and imposts whatsoever levied
on or in respect of the Fund or business of the Fund
as it may properly pay and all reasonable out-of-pocket
expenses such as telex, telephone, telefax, postage
-3-
<PAGE> 4
and stationery and expenses of a similar nature as it
may incur in the execution of its duties hereunder.
(e) In the event of any dispute as to the calculation of the fees
payable to Concord Cayman hereunder, the matter shall be
referred to the auditors of the Fund, whose decision will be
final and binding.
6. The parties hereto hereby acknowledge:
(a) that Concord Cayman is an independent contractor hired
to render specified services; and
(b) that nothing herein contained shall preclude Concord Cayman
from providing or agreeing to provide services of a like or
similar nature to any other person, firm or corporation.
7. (a) Concord Cayman shall not be liable for any damage, loss,
costs or expenses whatsoever to or of the Fund at any time
from any cause whatsoever except Concord Cayman's negligence,
dishonesty, fraud, willful misfeasance or willful default or
that of any of its directors, officers, employees or agents as
the case may be.
(b) The Fund agrees to indemnify and hold harmless Concord Cayman,
its directors, officers and employees and each of them against
any liability, actions, proceedings, claims, demands, costs or
expenses whatsoever which they or any of them may incur or be
subject to in consequence of this Agreement except as a result
of negligence, willful misfeasance, willful default,
dishonesty or fraud of Concord Cayman or any of its directors,
officers, employees or agents as the case may be and this
indemnity shall expressly inure to the benefit of any
director, officer or employee existing or future and to the
benefit of any successor of Concord Cayman hereunder.
(c) Concord Cayman shall send to the Fund (in accordance with the
notice procedures set forth in clause 11 hereto) as soon as
practicable (including but not limited to the services of
legal process) all communications addressed to the Fund and
received by Concord Cayman and shall be under no further
liability in relation thereto having acted as aforesaid.
(d) Concord Cayman shall not be required to take any legal action
on behalf of the Fund unless Concord Cayman so agrees and
unless Concord Cayman is fully indemnified to its reasonable
satisfaction against all costs and
-4-
<PAGE> 5
liabilities howsoever connected with such actions. If the Fund
requests Concord Cayman in any capacity to take any action,
which in the opinion of Concord Cayman may make it or its
nominee liable for the payment of money or liable in any other
way and if Concord Cayman so agrees then Concord Cayman shall
keep indemnified in any reasonable amount and form
satisfactory to it as a pre-requisite to taking such action.
8. The parties hereto agree that they will both use their best endeavors
to ensure that no breach of any laws or regulations of the Cayman
Islands occurs in connection with the operation of the business of the
Fund in and from within the Cayman Islands.
9. (a) This Agreement may be terminated forthwith by either
party if the other is in material breach of this
Agreement and by either party upon giving to the other
at least ninety days' written notice PROVIDED ALWAYS
that such termination shall be without prejudice to the
provisions of clause 5 hereof or either party's rights
with respect to any antecedent breach hereof by the
other. Unless a longer period is specified in the
notice of termination, this Agreement will be deemed
terminated on the ninetieth day following the date of
mailing of the notice.
(b) In the event of termination, Concord Cayman shall forthwith
deliver all books, records and other property of the Fund in
its possession, custody or control to the Fund or as the Fund
may direct.
10. Nothing herein contained shall constitute a partnership between the
parties hereto.
11. All notices to be given hereunder shall be either delivered by hand or
dispatched by first class registered post in the case of notices to be
given to the Fund to P.O. Box 30122SMB, Grand Cayman Islands, B.W.I.
and in the case of notices to be given to Concord Cayman to its address
hereinbefore set out. Notices delivered by hand shall be deemed served
or received when so delivered and notices sent by first class
registered post shall be deemed served or received five days following
dispatch. In the case of notice to the Fund, a copy shall be sent to W.
Bruce McConnel, III, Esquire, Drinker Biddle & Reath, Philadelphia
National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107.
12. This Agreement may be executed in counterparts and all such
counterparts taken together shall be deemed to constitute one and the
same agreement.
-5-
<PAGE> 6
13. This Agreement shall be governed by and construed in accordance with
the laws of the Cayman Islands.
14. The effective date of this Agreement for the purposes of clause 5
hereof shall be April 22, 1994.
IN WITNESS WHEREOF intending to be legally bound hereby, the parties have
executed this Agreement on the day and year first before written.
MASTER INVESTMENT TRUST, SERIES I
by:/s/ Richard Stierwalt
--------------------------
its: President
--------------------------
in the presence of:
/s/ Mary Jo Reilly
--------------------------
Witness
CONCORD (CAYMAN ISLANDS) LIMITED
by:/s/ Peter Marshall
--------------------------
its: Chairman
--------------------------
in the presence of:
/s/ Mary Jo Reilly
--------------------------
Witness
-6-
<PAGE> 1
EXHIBIT 9.4
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 2nd day of August, 1993 by and among Seattle-First National Bank, as
trustee (the "Trustee") of the Collective Investment Trust for Seafirst
Retirement Accounts ("CIT"), a Washington trust consisting of multiple
investment portfolios including (the Bond Fund, the Money Market Fund, the Asset
Allocation Fund and the Blue Chip Fund (collectively, the "CIT Funds"), Master
Investment Trust, Series I (the "Master Trust"), a Delaware business trust
consisting of multiple investment portfolios including the Investment Grade Bond
Fund, the Asset Allocation Fund and the Blue Chip Fund (collectively, the
"Master Funds"), and Seafirst Retirement Funds ("SRF"), a Delaware business
trust consisting of multiple investment portfolios including the Bond Fund, the
Asset Allocation Fund and the Blue Chip Fund (collectively, the "Seafirst
Funds").
WHEREAS, each of CIT, the Master Trust and SRF is an open-end
management investment company registered or to be registered with the Securities
and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the parties desire that all the assets of each of the CIT
Funds other than the CIT Money Market Fund (collectively, the "CIT Securities
Funds") be transferred to, and acquired by, the Master Funds as stated herein in
exchange for which the CIT Securities Funds shall be entitled to have issued to
them by the Master Trust beneficial interests ("interests") in the Master Funds
as described in this Agreement; and
WHEREAS, the parties desire that immediately thereafter such interests
in the Master Funds to which the CIT Securities Funds are entitled shall be
issued by the Master Trust to, and the liabilities of the CIT Securities Funds
shall be transferred to, and acquired and assumed by, the Seafirst Funds as
stated herein in exchange for shares of beneficial interest ("shares") of the
Seafirst Funds, which shall thereafter be distributed by CIT to its unitholders
as described in this Agreement; and
WHEREAS, the parties intend that the Seafirst Funds will have nominal
assets and liabilities before the transactions described above (the
"Reorganization") and will continue the historic business and investment
operations of the CIT Securities Funds thereafter, and that in this regard
certain additional actions shall be taken as described in this Agreement; and
WHEREAS, the parties intend that in connection with the Reorganization
the CIT Money Market Fund shall be terminated as described in this Agreement;
and
<PAGE> 2
WHEREAS, the parties intend that in connection with the Reorganization
CIT shall be terminated and deregistered as described in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and subject to the terms and conditions thereof, the
parties hereto, intending to be legally bound, agree as follows:
1. SALES AND TRANSFERS OF ASSETS.
(a) At the Effective Time (as defined in Section 10 of this
Agreement), all property of every description, and all interests, rights,
privileges and powers or each of the CIT Securities Funds (the "Assets") shall
be transferred and conveyed by each CIT Securities Fund to the corresponding
Master Fund and shall be accepted by the corresponding Master Fund, such that at
and after the Effective Time, all assets of each CIT Securities Fund shall
become and be the assets of the corresponding Master Fund.
(b) In exchange for the transfer of the Assets from the
following CIT Securities Funds, each such CIT Securities Fund shall be entitled
to have simultaneously issued to it by the Master Trust at the Effective Time
full and fractional interests (to the third decimal place) of the following
Master Funds (the "Master Fund Interests"), which Master Fund Interests shall
represent all of the outstanding interests of such Master Funds and which shall
be equal in value to the value of the full and fractional units of beneficial
Interest of such CIT Securities Funds that are outstanding immediately prior to
the Effective Time (the "Units"): (I) CIT's Bond Fund series shall be entitled
to receive Interests in the Master Trust's Bond Fund; (ii) CIT's Asset
Allocation Fund series shall be entitled to receive Interests in the Master
Trust's Asset Allocation Fund; and (iii) CIT's Blue Chip Fund series shall be
entitled to receive Interests in the Master Trust's Blue Chip Fund.
(c) Immediately after the transactions referred to in
paragraphs (a) and (b) hereof, the Master Fund Interests to which the CIT
Securities Funds are entitled shall be issued by the Master Trust to the
following Seafirst Funds and shall be accepted by such Seafirst Funds: (i) to
SRF's Bond Fund series, Interests in the Master Trust's Bond Fund to which the
CIT Bond Fund is entitled; (ii) to SRF's Asset Allocation Fund series, Interests
in the Master Trust's Asset Allocation Fund to which the CIT Asset Allocation
Fund is entitled; and (iii) to SRF's Blue Chip Fund series, Interests in the
Master Trust's Blue Chip Fund to which the CIT Blue Chip Fund is entitled.
(d) In exchange for the issuance of the Master Fund Interests
to which the following CIT Securities Funds are
-2-
<PAGE> 3
entitled, SRF shall simultaneously issue to such CIT Securities Funds full and
fractional shares (to the third decimal place) of beneficial interest of the
following Seafirst Funds (the "Seafirst Shares"), which Seafirst Shares be
accepted by such CIT Securities Funds and shall represent all of the outstanding
shares of such Seafirst Funds, and shall be equal in value to the value of the
full and fractional Master Fund Interests to which such CIT Securities Funds are
entitled: (i) to CIT's Bond Fund series, shares of the Seafirst Bond Fund; (ii)
to CIT's Asset Allocation Fund series, shares of the Seafirst Asset Allocation
Fund; and (iii) to CIT's Blue Chip Fund series, shares or the Seafirst Blue Chip
Fund.
Such Master Fund Interests shall be issued subject to assumption
by the following Seafirst Funds of all liabilities and obligations of each
corresponding CIT Securities Fund (the "Liabilities"), whether accrued,
absolute, contingent or otherwise, which liabilities shall include, without
limitation, all obligations of each of the CIT Securities Funds to indemnify
CIT's Board of Supervisors and officers acting in their capacity or capacities
as such to the fullest extent permitted by law and CIT's Declaration of Trust as
in effect on the date hereof, such that at and after such issuance and
assumption all debts, liabilities, obligations and duties of each of the CIT
Securities Funds shall become the debts, liabilities, obligations and duties of
the corresponding Seafirst Fund and may thenceforth be enforced against such
Seafirst Fund as if the same had been incurred by it, and at and after such time
the liabilities of each CIT Securities Fund shall be enforceable against and be
limited to the corresponding Seafirst Fund and no other person: (i) the
liabilities of the CIT Bond Fund series shall be transferred to and assumed by
the Seafirst Bond Fund; (ii) the liabilities of the CIT Asset Allocation Fund
series shall be transferred to and assumed by the Seafirst Asset Allocation
Fund; and (iii) the liabilities of the CIT Blue Chip Fund series shall be
transferred to and assumed by the Seafirst Blue Chip Fund.
(e) At the Effective Time, the Trustee shall liquidate the
assets of the CIT Money Market Fund and distribute the proceeds, net of all
liabilities attributable to the CIT Money Market Fund, in accordance with the
provisions of Section 2 of this Agreement.
2. LIQUIDATING DISTRIBUTIONS OF CIT.
(a) At the Effective Time, the Trustee shall liquidate and
distribute pro rata to the holders of the Units of record of each CIT Securities
Fund and or the CIT Money Market Fund (the "Record Holders") as of the close of
business on the date of the Effective Time the shares of the corresponding
Seafirst Fund which such CIT Securities Fund will receive from SRF pursuant to
Section 1 of this Agreement or the assets of the CIT Money Market
-3-
<PAGE> 4
Fund, net of its liabilities, as the case may be. Each Record Holder of a CIT
Securities Fund shall be credited with a number of full and fractional shares of
the corresponding Seafirst Fund that are issued by SRF to such CIT Securities
Fund in connection with the Reorganization, which number shall be equal in value
to the value of the proportionate share of the total number of the Units of such
CIT Securities Fund held by such Record Holder immediately prior to the
Effective Time. In addition, each Record Holder shall have the right to receive
any unpaid dividends or other distributions declared prior to the Effective Time
with respect to the Units held by the Record Holder at the Effective Time.
(b) In accordance with instructions it receives from CIT, SRF
shall record on its books the ownership of Seafirst Shares by the Record Holders
of the CIT Securities Funds.
(c) All the issued and outstanding Units representing
interests in CIT shall be cancelled on the books of CIT and CIT's transfer books
shall be closed permanently immediately after the Effective Time. Exchange or
redemption requests received after that time with respect to the CIT Securities
Funds shall be treated as requests for the exchange or redemption or shares of
the respective Seafirst Funds to be distributed to its shareholders. No Units
shall be issued by CIT after the Effective Time.
3. TERMINATION OF CIT.
(a) As soon as practicable after the Effective Time, CIT shall
be terminated pursuant to applicable Washington law and federal regulations,
such that: (i) its affairs are immediately wound up, its contracts discharged
and its business liquidated; and (ii) an instrument in writing setting forth the
fact of such termination is executed and lodged among the records of CIT by an
appropriate officer of CIT.
(b) As promptly as practicable after the Effective Time, the
Trustee shall file an application pursuant to Section 8(f) of the 1940 Act for
an order declaring that CIT has ceased to be an investment company.
4. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS REGARDING CIT.
The Trustee, on behalf of CIT and the CIT Funds, represents and warrants to, and
agrees with, the other parties as follows (said representations, warranties and
agreements being made solely on behalf of each CIT Fund):
(a) CIT is a trust duly created and validly existing under the
laws of the State of Washington.
-4-
<PAGE> 5
(b) This Agreement has been duly authorized, executed and
delivered by the Trustee on behalf of CIT and, subject to the approvals of the
holders of Units of each CIT Fund (the "Participants") pursuant to Section 7 of
this Agreement, represents a valid and binding contract, enforceable against the
assets of CIT in accordance with its terms. The execution and delivery of this
Agreement does not, and, subject to the approvals of Participants pursuant to
Section 7 of this Agreement, the consummation of the transactions contemplated
by this Agreement will not, violate CIT's Amended and Restated Declaration of
Trust, any agreement or arrangement to which it is a party or by which it is
bound, or any order or decree to which it is subject.
(c) CIT is duly registered under the 1940 Act as an open-end
management investment company and such registration has not been revoked or
rescinded and is in full force and effect.
(d) To the Trustee's best knowledge, there are no material
legal, administrative or other proceedings pending or threatened against CIT or
the CIT Funds which could result in liability on the part of the CIT Funds.
(e) At the Effective Time, subject only to the delivery of the
Assets as contemplated by this Agreement, the Master Funds will acquire the
Assets free and clear of all liens, pledges security interests, charges or other
encumbrances of any nature whatsoever and without any restrictions upon the
transfer thereof, except such liabilities as have been imposed by federal or
state securities laws.
(f) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by CIT of the
transactions contemplated by this Agreement, except such as may be required
under the Securities Act of 1933, as amended ("1933 Act"), the Securities
Exchange Act of 1934, as amended ("1934 Act") or the 1940 Act, and the rules and
regulations thereunder, or state securities laws (which term as used in this
Agreement shall include the laws of the District of Columbia and Puerto Rico).
(g) Insofar as the following relate to CIT. the proxy
materials of CIT filed with the SEC pursuant to Section 14(a) of the 1934 Act
and Section 20(a) of the 1940 Act with respect to the transactions contemplated
by this Agreement, and any supplement or amendment thereto or the documents
appended thereto (the "Proxy Materials"), on the mailing date of the Proxy
Materials, at the time of the Participants' meeting to be held pursuant to
Section 7 of this Agreement and at the Effective Time shall not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
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<PAGE> 6
provided, that the representations and warranties made by CIT in this subsection
shall not apply to statements in or omissions from the Proxy Materials made in
reliance upon and in conformity with information furnished by SRF or the Master
Trust for use therein as provided in Section 8 of this Agreement.
(h) No Master Fund Interest or Seafirst Share to which CIT is
entitled or which is to be received by CIT in the transactions contemplated
herein shall be sold or otherwise disposed of by CIT, except as contemplated
herein.
(i) SRF and the Master Trust shall be given a reasonable
opportunity to review and comment upon all reports, notices, registration
statements, proxy statements and other material relating to any aspect of this
Agreement or the transactions contemplated hereunder, filed by CIT with the SEC
or with any other federal, state or local authority or to be distributed to the
Participants.
(j) SRF will acquire the Master Fund Interests to which CIT is
entitled free and clear of all liens, pledges, security interests, charges or
other encumbrances of any nature whatsoever and without any restriction on the
transfer thereof (except as set forth in Section 4(h) hereof and in the Master
Trust's Amended and Restated Declaration of Trust).
5. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SRF. SRF on
behalf or itself and the Seafirst Funds, represents and warrants to, and agrees
with, the other parties as follows (said representations, warranties and
agreements being made solely on behalf of each Seafirst Fund):
(a) SRF is a business trust duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) This Agreement has been duly authorized, executed and
delivered by SRF, and represents a valid and binding contract, enforceable
against SRF in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement will not, violate its Declaration of Trust or By-laws, any
agreement or arrangement to which it is a party or by which it is bound, or any
order or decree to which it is subject.
(c) At the Effective Time, SRF will be duly registered under
the 1940 Act as an open-end management investment company and such registration
will not have been revoked or rescinded and will be in full force and effect.
(d) The Seafirst Funds intend to qualify as regulated
investment companies under Part I of Subchapter M of Subtitle A,
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<PAGE> 7
Chapter 1 of the Internal Revenue Code of 1986, as amended (the "Code") after
the Effective Time.
(e) To SRF's best knowledge, there are no material legal,
administrative or other proceedings pending or threatened against SRF or the
Seafirst Funds which could result in liability on the part of the Seafirst
Funds.
(f) At the Effective Time, subject only to the delivery of the
Seafirst Shares as contemplated by this Agreement, such shares will be the only
outstanding shares of SRF, all of which will be duly authorized, validly issued,
fully paid and nonassessable; no shareholder of SRF has any preemptive right to
subscription or purchase in respect thereof; and CIT will acquire the Seafirst
Shares free and clear of all liens, pledges, security interests, charges or
other encumbrances of any nature whatsoever and without any restrictions upon
the transfer thereof (except as set forth in Section 4(h) hereof).
(g) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by SRF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1934 Act, or the 1940 Act, the rules and regulations
thereunder, or state securities laws.
(h) The information provided by SRF for inclusion in the Proxy
Materials shall not contain any 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; in the event that SRF becomes aware of any
such untrue statement or omissions, SRF shall promptly notify CIT of such untrue
statement or omission.
(i) As of the Effective Time, the Seafirst Shares will be duly
qualified for offering to the public in all states of the United States in which
such qualification is required or an exemption to such requirement shall have
been obtained.
6. CERTAIN REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE MASTER
TRUST. The Master Trust, on behalf of itself and the Master Funds, represents
and warrants to, and agrees with, the other parties as follows (said
representations, warranties and agreements being made solely on behalf of each
Master Fund):
(a) The Master Trust is a business trust duly organized,
validly existing and in good standing under the laws of the State of Delaware.
(b) This Agreement has been duly authorized, executed and
delivered by the Master Trust, and represents a valid and binding contract,
enforceable against the Master Trust in
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<PAGE> 8
accordance with its terms. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this Agreement
will not, violate its Declaration of Trust or By-laws, any agreement or
arrangement to which it is a party or by which it is bound, or any order or
decree to which it is subject.
(c) At the Effective Time, the Master Trust will be duly
registered under the 1940 Act as an open-end management investment company and
such registration will not have been revoked or rescinded and will be in full
force and effect.
(d) To the Master Trust's best knowledge, there are no
material legal, administrative or other proceedings pending or threatened
against the Master Trust, the Master Funds or any other series of the Master
Trust which could result in liability on the part of the Master Funds.
(e) At the Effective Time, subject only to the delivery of the
Master Fund Interests as contemplated by this Agreement, such Interests will be
the only outstanding Interests of the Master Trust, all of which will be duly
authorized, validly issued, fully paid and nonassessable; no interestholder of
the Master Trust has any preemptive right to subscription or purchase in respect
thereof; and CIT will be entitled to, and SRF shall, acquire the Master Fund
Interests free and clear of all liens, pledges, security interests, charges or
other encumbrances of any nature whatsoever and without any restrictions upon
the transfer thereof (except as set forth in Section 4(h) hereof and in the
Master Trust's Amended and Restated Declaration of Trust).
(f) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by the Master Trust
of the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, the 1934 Act, or the 1940 Act, the rules and
regulations thereunder, or state securities laws.
(g) The information provided by the Master Trust for inclusion
in the Proxy Materials shall not contain any 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; in the event that the Master Trust
becomes aware of any such untrue statement or omissions, the Master Trust shall
promptly notify CIT of such untrue statement or omission.
7. MEETING OF CTI'S PARTICIPANTS.
(a) CIT shall call a meeting of its Participants, as soon as
practicable after the clearance date of the proxy solicitation materials to be
prepared and filed pursuant to
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<PAGE> 9
Section 8 of this Agreement, for the purpose of considering and voting upon:
(i) Approval of this Agreement and the transactions
contemplated hereby, including (A) the transfer of the Assets to the
Master Funds by CIT in exchange for which CIT shall be entitled to have
issued to it by the Master Trust Master Fund Interests, (B) the
issuance to SRF of the Master Fund Interests to which CIT is entitled
in exchange for Seafirst Shares, (C) the termination of the CIT Money
Market Fund, and (D) the liquidation of CIT through the distributions
to its Participants described in this Agreement.
(ii) Approval of modifications to the investment
restrictions of each of the CIT Securities Funds.
(iii) Authorization of the CIT Securities Funds, as the
sole shareholders of the Master Funds immediately prior to the
Reorganization, to approve an Investment Advisory Agreement between the
Master Trust and Bank of America National Trust and Savings Association
("Bank of America") and a Sub-Advisory Agreement between Bank of
America and Seattle Capital Management Company, in substantially the
forms attached to CIT's definitive proxy statement with respect to such
shareholders meeting.
(iv) Such other matters as may be determined by the Board
of Supervisors of CIT and the Boards of Trustees of SRF and the Master
Trust.
(b) Consummation or the Reorganization is contingent upon
approval by the appropriate Participants of each of the matters set forth in
Section 7(a)(i)-(iii) of this Agreement.
8. PROXY SOLICITATION MATERIALS. CIT shall file Proxy Materials with
the SEC relating to the matters described in Section 7 as promptly as
practicable. SRF, the Master Trust and CIT have cooperated and shall continue to
cooperate with each other, and each has furnished and shall continue to furnish
the others with the information relating to itself that is required by the 1933
Act, the 1934 Act, the 1940 Act, the rules and regulations under each or such
Acts and state securities laws, to be included in the Proxy Materials.
9. AMENDMENT TO REGISTRATION STATEMENT.
(a) CIT shall file with the SEC as promptly as practicable a
post-effective amendment to its registration statement on Form N-1A reflecting
the proposed modifications of its investment restrictions and shall use its
best efforts to
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<PAGE> 10
ensure that the SEC will declare effective such amendment immediately prior to
the Effective Time.
(b) SRF shall file with the SEC, as promptly as practicable, a
registration statement on Form N-1A pursuant to Rule 414 under the 1933 Act and
1940 Act adopting CIT's registration statement on Form N-1A as amended, and
shall use its best efforts to ensure that the SEC will declare effective such
registration statement immediately prior to the Effective Time.
10. EFFECTIVE TIME OF THE REORGANIZATION. Delivery of the Assets, the
Master Fund Interests and the Seafirst Shares to be issued pursuant to Section 1
of this Agreement, and the liquidation and termination of CIT, shall occur at
11:00 a.m., at the offices of CIT on September 25, 1993, or at such other place,
time and date as may be agreed to by the Boards of Supervisors or Trustees of
each of the parties. The date and time at which such actions are taken are
referred to herein as the "Effective Time." To the extent any Assets are, for
any reason, not transferred at the Effective Time, the Trustee shall cause such
Assets to be transferred in accordance with this Agreement at the earliest
practicable date thereafter.
11. CONDITIONS PRECEDENT OF SRF.
The obligations of SRF to consummate the transactions
contemplated hereby shall be subject to the following conditions precedent:
(a) SRF shall have received at the Effective Time a
certificate of the Principal Executive Officer or President and the Treasurer of
CIT and the Master Trust dated as of the Effective Time to the effect set forth
in Sections 14(b) and 14(c) of this Agreement with respect to CIT and the Master
Trust.
(b) SRF shall have received an opinion of Davis Wright
Tremaine, counsel to CIT, in form reasonably satisfactory to SRF and dated the
Effective Time, to the effect that:
(i) CIT is a trust duly created and validly
existing under the laws of the State of Washington;
(ii) CIT is registered as an open-end management
investment company under the 1940 Act;
(iii) this Agreement has been duly authorized, executed
and delivered by CIT, and represents a valid and binding contract of
CIT, enforceable against CIT in accordance with its terms, subject to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto, provided
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<PAGE> 11
that such counsel shall express no opinion with respect to the
application of equitable principles in any proceeding whether at law or
in equity;
(iv) the execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Amended and Restated Declaration of
Trust or CIT or any material agreement known to such counsel to which
CIT is a party or by which it is bound;
(v) such counsel does not have actual knowledge of
any material suit, action or legal or administrative proceeding pending
or threatened against CIT or the CIT Funds, the unfavorable outcome of
which would materially and adversely affect the CIT Funds, and
(vi) no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by CIT
of the transactions contemplated by this Agreement under the National
Banking Act or the rules and regulations thereunder.
Such opinion: (i) may rely on the opinion of other counsel to the
extent set forth in such opinion, provided such other counsel is reasonably
acceptable to SRF; and (ii) shall state that such opinion is solely for the
benefit of SRF and its trustees and officers.
(c) The Assets to be transferred to the Master Funds under
this Agreement shall include no assets which the Seafirst Funds or Master Funds
may not properly acquire pursuant to their respective investment limitations or
objectives or may not otherwise lawfully acquire, unless SRF and the Master
Trust shall have received a written list of such assets that are to be so
transferred at least ten business days before the Effective Date and SRF and the
Master Trust fail to deliver to the Trustee an objection in writing to such
assets at least five business days before the Effective Date.
(d) The Trustee shall have paid all of the then remaining
unamortized organizational expenses of CIT reflected on its books and records,
except those expenses that are carried forward to, and assumed by, SRF in
accordance with generally accepted accounting principles and the policies of the
SEC.
(e) SRF shall have received an opinion of Drinker Biddle &
Reath, counsel to the Master Trust, in form reasonably satisfactory to SRF and
dated the Effective Time, to the effect that:
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<PAGE> 12
(i) The Master Trust is a business trust duly
organized and validly existing under the laws of the State of Delaware.
(ii) The Master Trust is authorized to issue an unlimited
number of beneficial interests, and each Master Fund Interest upon
issuance to SRF pursuant to this Agreement will be duly authorized,
validly issued, fully paid and non-assessable and to such counsel's
knowledge, no interestholder of the Master Trust has any preemptive
right to subscription or purchase in respect thereof;
(iii) the Master Trust is a diversified, open-end
management investment company registered under the 1940 Act,
(iv) this Agreement has been duly authorized, executed and
delivered by the Master Trust, and represents a valid and binding
contract of the Master Trust, enforceable against the Master Trust in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating
to or affecting creditors' rights generally and court decisions with
respect thereto, provided that such counsel shall express no opinion
with respect to the application of equitable principles in any
proceeding whether at law or in equity;
(v) the execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Amended and Restated Declaration of
Trust or By-laws of the Master Trust or any material agreement known to
such counsel to which the Master Trust is a party or by which it is
bound,
(vi) such counsel does not have actual knowledge of any
material suit, action or legal or administrative proceeding pending or
threatened against the Master Trust or any Master Fund, the unfavorable
outcome or which would materially and adversely affect the Master
Funds; and
(vii) no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by the
Master Trust of the transactions contemplated by this Agreement, except
such as have been obtained under the 1933 Act, the 1934 Act, or the
1940 Act, the rules and regulations under such Acts and such as may be
required by state securities laws.
Such opinion (i) may rely on the opinion of other counsel to the extent
set forth in such opinion, provided such other counsel is reasonably acceptable
to SRF; and (ii) shall state that such
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<PAGE> 13
opinion is solely for the benefit of SRF and its trustees and officers.
12. CONDITIONS PRECEDENT OF CIT. The obligations of the Trustee to
consummate the transactions contemplated hereby on behalf of CIT shall be
subject to the following conditions precedent:
(a) SRF and the Master Trust shall each have furnished the
Trustee at the Effective Time with a certificate of its President and Treasurer
dated the Effective Time to the effect set forth in Sections 14(b) and 14(c) of
this Agreement.
(b) The Trustee shall have received an opinion of Drinker
Biddle & Reath, counsel to SRF, in form reasonably satisfactory to CIT and dated
the Effective Time, to the effect that:
(i) SRF is a business trust duly organized and
validly existing under the laws of the State of Delaware;
(ii) SRF is authorized to issue an unlimited number of
shares of beneficial interest, and each Seafirst Share upon issuance to
CIT pursuant to this Agreement will be duly authorized, validly issued,
fully paid and nonassessable and to such counsel's knowledge, no
shareholder of SRF has any preemptive right to subscription or purchase
in respect thereof;
(iii) SRF is a diversified, open-end management investment
company registered under the 1940 Act;
(iv) this Agreement has been duly authorized, executed and
delivered by SRF, and represents a valid and binding contract of SRF,
enforceable against SRF in accordance with its terms, subject to the
effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, provided that such counsel shall
express no opinion with respect to the application of equitable
principles in any proceeding whether at law or in equity;
(v) the execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this
Agreement will not, violate the Declaration of Trust or By-laws of SRF
or any material agreement known to such counsel to which SRF is a party
or by which it is bound;
(vi) such counsel does not have actual knowledge of any
material suit, action or legal or administrative
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<PAGE> 14
proceeding pending or threatened against SRF or any Seafirst Fund, the
unfavorable outcome of which would materially and adversely affect the
Seafirst Funds; and
(vii) no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by SRF
of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act, or the 1940 Act, the
rules and regulations under such Acts and such as may be required by
state securities laws.
Such opinion (i) may rely on the opinion of other counsel to the extent
set forth in such opinion, provided such other counsel is reasonably acceptable
to CIT; and (ii) shall state that such opinion is solely for the benefit of CIT
and its Supervisors and officers.
(c) CIT shall have received an opinion of Drinker Biddle &
Reath to the effect set forth in Section 11 (e) hereof with respect to the
Master Trust.
(d) The Trustee shall have received from SRF a duly executed
instrument whereby each Seafirst Fund assumes all of the liabilities and
obligations of the corresponding CIT Securities Fund.
13. CONDITIONS PRECEDENT OF THE MASTER TRUST. The obligations of the
Master Trust to consummate the transactions contemplated hereby shall be subject
to the following conditions precedent:
(a) The Trustee shall have furnished the Master Trust with a
statement of Assets, with values determined in accordance with the current
policies and practices of CIT, and with their respective dates of acquisition
and tax costs and holding periods, all as of 4:00 p.m. Eastern time on the day
preceding the Effective Time, certified on its behalf by its President (or any
Vice President) and Treasurer.
(b) The Master Trust shall have received at the Effective Time
a certificate of the President and Treasurer of the Trustee and SRF dated as of
the Effective Time to the effect set forth in Sections 14 (b) and 14(c) of this
agreement with respect to CIT and SRF.
(c) The Master Trust shall have received duly executed bills
of sale, assignments, certificates and other instruments or transfer ("Transfer
Documents") as the Master Trust may reasonably request to transfer all of CIT's
and each CIT Securities Fund's right, title and interest in and to the Assets.
The Assets shall be accompanied by all necessary state stock
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<PAGE> 15
transfer stamps or cash for the appropriate purchase price therefor.
(d) The Master Trust shall have received an opinion of Davis
Wright Tremaine, counsel to CIT, to the effect set forth, in Section 11 (b)
hereof.
(e) The Master Trust shall have received an opinion of Drinker
Biddle & Reath, counsel to SRF, to the effect set forth in Section 12(b) hereof.
(f) The Assets to be transferred to the Master Funds under
this Agreement shall include no assets which the Master Funds or SRF may not
properly acquire pursuant to their respective investment limitations or
objectives or may not otherwise lawfully acquire, unless the Master Trust and
SRF shall have received a written list of such assets that are to be so
transferred at least ten business days before the Effective Date and the Master
Trust and SRF fail to deliver to the Trustee an objection in writing to such
assets at least five business days before the Effective Date.
(g) The Trustee shall have paid all of the then remaining
unamortized organizational expenses of CIT reflected on its books and records,
except those expenses that are carried forward to, and assumed by, SRF in
accordance with generally accepted accounting principles and the policies of the
SEC.
14. CONDITIONS PRECEDENT OF EACH PARTY. The obligations of each party
to this Agreement to consummate the transactions contemplated hereby shall be
subject to the following conditions precedent:
(a) Subject to Section 20 hereof, this Agreement shall have
been adopted and the transactions contemplated by this Agreement shall have been
approved by the Participants of CIT, in the manner required by all applicable
laws.
(b) All representations and warranties of each other party
made in this Agreement shall be true and correct at and as of the Effective Time
in all material respects with the same effect as if made at and as of the
Effective Time.
(c) Each other party shall have performed and complied in all
material respects with each of its agreements and covenants required by this
Agreement to be performed or complied with by it prior to or at the Effective
Time.
(d) The parties shall have received all permits and other
authorizations necessary under state securities laws to consummate the
transactions contemplated by this Agreement.
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<PAGE> 16
(e) At the Effective Time, no action, suit or other proceeding
shall be threatened or pending before any court or governmental agency seeking
to restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
(f) The SEC shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted nor threatened to
institute any proceeding seeking to enjoin consummation of the transactions
contemplated by this Agreement under Section 25(c) of the 1940 Act.
(g) The Trustee, SRF and the Master Trust shall have received
an opinion of Paul, Hastings, Janofsky & Walker addressed to the Trustee, SRF
and the Master Trust, in form reasonably satisfactory to them and dated the
Effective Time, to the effect that the Reorganization will not result in any
taxable income for federal income tax purposes to the CIT Securities Funds, the
Master Trust or SRF.
(h) The Trustee, SRF and the Master Trust shall have received
an opinion of Davis Wright Tremaine, counsel to CIT, addressed to the Trustee,
SRF and the Master Trust, in form reasonably satisfactory to them and dated the
Effective Date, to the effect that the Reorganization will not constitute a
prohibited transaction resulting in the imposition of any federal excise tax
pursuant to Section 4975 of the Code.
(i) SRF shall have received the written agreement of
Seattle-First National Bank to reimburse expenses of the Seafirst Funds in
excess of the levels referred to in the Proxy Materials.
(j) On the business day prior to the Effective Time, all Units
of CIT Securities Funds held of record by Participants voting against
transactions contemplated hereby shall have been redeemed.
15. ANNOUNCEMENTS. Any announcements or similar publicity with respect
to this Agreement or the transactions contemplated herein shall be at such time
and in such manner as the parties shall agree; provided, that nothing herein
shall prevent any party upon notice to the other parties from making such public
announcements as such party's counsel may consider advisable in order to satisfy
the party's legal and contractual obligations in such regard.
16. EXPENSES. The parties understand that Bank of America has
undertaken to assume all of the legal, accounting, proxy solicitation and
Participants' meetings, printing, mailings, deregistration, termination and
special Trustee and Supervisor meeting expenses and all other expenses arising
in connection with the Reorganization, whether or not the Reorganization is
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<PAGE> 17
consummated, other than SRF's share registration expenses arising in connection
with the Reorganization.
17. FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts lo take, or
cause to be taken, such actions, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, including without limitation,
delivering and/or causing to be delivered to the Master Trust each account,
book, record or other document of the CIT Securities Funds required to be
maintained by Section 31(a) of the 1940 Act and Rules 31a-1 to 3la-3 thereunder
(regardless of whose possession they are in). The Trustee has instructed CIT's
service contractors to provide SRF and the Master Trust with access to and
copies of all documents belonging to CIT.
18. TERMINATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the parties in this Agreement shall terminate upon the
issuance of the Seafirst Shares to the Trustee on behalf of CIT.
19. TERMINATION OF AGREEMENT. This Agreement may be terminated by a
party at any time at or prior to the Effective Time by a written notice of the
good faith determination of a majority of its Board of Supervisors or Trustees,
as the case may be, that the Reorganization is no longer in the interests of its
respective unitholders, shareholders or interestholders.
20. AMENDMENT AND WAIVER. At any time prior to or (to the fullest
extent permitted by law) after approval of this Agreement by the Participants of
CIT (a) the parties hereto may, by written agreement authorized by their
respective Boards of Supervisors or Trustees and with or without the approval of
their respective unitholders, shareholders or interestholders, amend any of the
provisions of this Agreement, if, in the judgment of such Board, such amendment
will not have a material adverse effect on the interests of the Participants of
CIT, the shareholders of SRF or the interestholders of the Master Trust,
respectively; and (b) any party may waive any breach by any other party or the
failure to satisfy any of the conditions to its obligations (such waiver to be
in writing and authorized by the Board of Supervisors or Trustees of the waiving
party with or without the approval of such party's unitholders, shareholders or
interestholders).
21. FAILURE TO ENFORCE. The failure or any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part
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<PAGE> 18
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
22. GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be governed, construed and enforced in accordance with the laws of
the State of Washington, without regard to principles of conflicts of law.
23. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
respective successors and permitted assigns of the parties hereto. This
Agreement and the rights, obligations and liabilities hereunder may not be
assigned by any party without the consent or all other parties.
24. BENEFICIARIES. Nothing contained in this Agreement shall be deemed
to create rights in persons not parties hereto, other than the successors and
permitted assigns of the parties.
25. SRF, CIT, MASTER TRUST AND TRUSTEE LIABILITY. Each party
acknowledges and agrees that the obligations of SRF, the Master Trust, the
Trustee and CIT under this Agreement are binding only with respect to the
Seafirst Funds, the Master Funds and CIT Funds, respectively; and that any
liability of SRF, the Master Trust or CIT under this Agreement with respect to a
Seafirst Fund, Master Fund or CIT Fund, respectively, or in connection with the
transactions contemplated herein with respect to such Seafirst Fund, Master Fund
or CIT Fund, shall be discharged only out of the assets of such Seafirst Fund,
Master Fund or CIT Fund, and no other portfolio of SRF, the Master Trust or CIT
shall be liable with respect to this Agreement or in connection with the
transactions contemplated herein.
26. NOTICES. All notices and other communications required or permitted
herein shall be in writing and shall be deemed to be properly given when
delivered personally or by telecopier (except for legal process) to the party
entitled to receive the notice or communication or when sent by certified or
registered mail, postage prepaid, or delivered to an internationally recognized
overnight courier service, in each case properly addressed to the party entitled
to receive such notice or communication at the address or telecopier number
stated below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other parties
hereto:
IF TO SRF:
Seafirst Retirement Funds
P.O. Box 84248
Seattle, Washington 98124
Telecopier number: (206) 358-3242
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Attention: President
With copies to
Arthur A. Fritz, Esq. W. Bruce McConnel, III, Esq.
Bank of America National Trust Drinker Biddle & Reath
and Savings Association 1100 Philadelphia National
555 South Flower Street, 8th Floor Bank Building
Los Angeles, California 90071 1345 Chestnut Street
Telecopier number: (213) 228-2530 Philadelphia, Pennsylvania 19107
Telecopier number: (215) 988-2757
IF TO THE TRUSTEE OR CIT:
Collective Investment Trust for Seafirst
Retirement Accounts
P.O. Box 84248
Seattle, Washington 98124
Telecopier number: (206) 358-3242
Attention: Principal Executive Officer
With copies to:
Ivan Landreth, Esq. William G. Pusch, Esq.
Seafirst Bank Davis Wright Tremaine
800 5th Avenue, 32nd Floor 2600 Century Square
Seattle, Washington 98104 1501 4th Avenue
Telephone number: (206) 358-3104 Seattle, Washington 98101
Telecopier number: (206) 628-7040
IF TO THE MASTER TRUST:
Master Investment Trust, Series I
P.O. Box 309
Grand Cayman, Cayman Islands
British West Indies
Attention: President
With copies to:
Arthur A. Fritz, Esq. W. Bruce McConnel, III, Esq.
Bank of America National Trust Drinker Biddle & Reath
and Savings Association 1100 Philadelphia National
555 South Flower Street, 8th Floor Bank Building
Los Angeles, California 90071 1345 Chestnut Street
Telecopier number: (213) 228-2530 Philadelphia, Pennsylvania 19107
Telecopier number: (215) 988-2757
27. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto and supersedes any
-19-
<PAGE> 20
and all prior agreements, arrangements and understandings relating to
matters provided for herein.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers designated below as of the date
first written above.
COLLECTIVE INVESTMENT TRUST FOR
SEAFIRST RETIREMENT ACCOUNTS
ATTEST: By: Seattle-First Bank, as Trustee
/s/ Signature Illegible By:/s/ Edward J. Laskowski
- -------------------------- --------------------------------
AVP Title: Senior V.P.
ATTEST: SEAFIRST RETIREMENT FUNDS
/s/ W. Bruce McConnel By:/s/ Richard Stierwalt
- -------------------------- --------------------------------
Secretary Title: President
ATTEST: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel By:/s/ Richard A. Fabietti
- -------------------------- --------------------------------
Secretary Title: President
-20-
<PAGE> 1
EXHIBIT 13.1
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases one Series I interest representing interests in its Corporate Bond
Fund at a purchase price of US $10.00. Concord hereby acknowledges purchase of
the interest and the Trust hereby acknowledges receipt from Concord of funds in
the amount of US $10.00 in full payment for the interest. The interest is being
purchased in a private offering.
2. Concord represents and warrants to the Trust that the
interest is being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 23rd day of April, 1994.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 1
EXHIBIT 13.2
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases one Series D interest representing interests in its Utilities Fund at
a purchase price of US $10.00. Concord hereby acknowledges purchase of the
interest and the Trust hereby acknowledges receipt from Concord of funds in the
amount of US $10.00 in full payment for the interest. The Interest is being
purchased in a private offering.
2. Concord represents and warrants to the Trust that the
interest is being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of March, 1994.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 2
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases one Series E interest representing interests in its Growth and Income
Fund at a purchase price of US $10.00. Concord hereby acknowledges purchase of
the interest and the Trust hereby acknowledges receipt from Concord of funds in
the amount of US $10.00 in full payment for the interest. The interest is being
purchased in a private offering.
2. Concord represents and warrants to the Trust that the
interest is being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of March, 1994.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 3
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases one Series F interest representing interests in its International
Equity Fund at a purchase price of US $10.00. Concord hereby acknowledges
purchase of the interest and the Trust hereby acknowledges receipt from Concord
of funds in the amount of US $10.00 in full payment for the interest. The
interest is being purchased in a private offering.
2. Concord represents and warrants to the Trust that the
interest is being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of March, 1994.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 4
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases one Series G interest representing interests in its Short-Term
Government Fund at a purchase price of US $10.00. Concord hereby acknowledges
purchase of the interest and the Trust hereby acknowledges receipt from Concord
of funds in the amount of US $10.00 in full payment for the interest. The
interest is being purchased in a private offering.
2. Concord represents and warrants to the Trust that the
interest is being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of March, 1994.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 5
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases one Series H interest representing interests in its International Bond
Fund at a purchase price of US $10.00 per interest. Concord hereby acknowledges
purchase of the interest and the Trust hereby acknowledges receipt from Concord
of funds in the amount of US $10.00 in full payment for the Interest. The
Interest is being purchased in a private offering.
2. Concord represents and warrants to the Trust that the
interest is being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of March, 1994.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 1
EXHIBIT 13.3
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases 10,000 Series A interests representing interests in its Bond Fund
(such beneficial interests in the Trust being hereinafter collectively known as
"Interests") at a purchase price of US $10.00 per Interest. Concord hereby
acknowledges purchase of the Interests and the Trust hereby acknowledges receipt
from Concord of funds in the amount of US $100,000 in full payment for the
Interests. The Interests are being purchased in a private offering.
2. Concord represents and warrants to the Trust that the
Interests are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of December, 1993.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 2
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases 10,000 Series C interests representing interests in its Asset
Allocation Fund (such beneficial interests in the Trust being hereinafter
collectively known as "Interests") at a purchase price of US $10.00 per
Interest. Concord hereby acknowledges purchase of the Interests and the Trust
hereby acknowledges receipt from Concord of funds in the amount of US $100,000
in full payment for the Interests. The Interests are being purchased in a
private offering.
2. Concord represents and warrants to the Trust that the
Interests are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of December, 1993.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
<PAGE> 3
PURCHASE AGREEMENT
Master Investment Trust, Series I (the "Trust"), a Delaware
business trust, and Concord Management (Ireland), Limited in trust for Concord
(Cayman Islands) Limited ("Concord"), hereby agree with each other as follows:
1. The Trust hereby offers Concord and Concord hereby
purchases 10,000 Series B interests representing interests in its Blue Chip Fund
(such beneficial interests in the Trust being hereinafter collectively known as
"Interests") at a purchase price of US $10.00 per Interest. Concord hereby
acknowledges purchase of the Interests and the Trust hereby acknowledges receipt
from Concord of funds in the amount of US $100,000 in full payment for the
Interests. The Interests are being purchased in a private offering.
2. Concord represents and warrants to the Trust that the
Interests are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 3rd day of December, 1993.
(SEAL)
Attest: MASTER INVESTMENT TRUST, SERIES I
/s/ W. Bruce McConnel, III By: /s/ Richard Stierwalt
- -------------------------- ---------------------------------------
Secretary President
(SEAL)
Attest: CONCORD MANAGEMENT (IRELAND),
LIMITED IN TRUST FOR CONCORD
(CAYMAN ISLANDS) LIMITED
/s/ Signature Illegible By: /s/ Adrian Waters
- -------------------------- ---------------------------------------
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