As filed with the Securities and Exchange Commission on February 28, 1995
File No. 811-8342
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
SHORT-TERM INCOME PORTFOLIO
(formerly Short-Term Global Income Portfolio)
(Exact Name of Registrant as Specified in Charter)
24 Federal Street
Boston, Massachusetts 02110
(Address of Principal Executive Offices)
Registrant's Telephone number, including Area Code: (617) 482-8260
H. Day Brigham, Jr.
24 Federal Street, Boston, Massachusetts 02110
(Name and Address of Agent for Service)
The exhibit index required by Rule 483(a) under the Securities Act of
1933 is located on page ___ in the sequential numbering system of the
manually signed copy of this Registration Statement.
Page 1 of ___ pages
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EXPLANATORY NOTE
This Registration Statement, as amended, has been filed by the
Registrant pursuant to Section 8(b) of the Investment Company Act of 1940,
as amended. However, interests in the Registrant have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), because
such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. Investments in the Registrant may be made only by
U.S. and foreign investment companies, common or commingled trust funds,
organizations or trusts described in Sections 401(a) or 501(a) of the
Internal Revenue Code of 1986, as amended, or similar organizations or
entities that are "accredited investors" within the meaning of Regulation
D under the 1933 Act. This Registration Statement, as amended, does not
constitute an offer to sell, or the solicitation of an offer to buy, any
interests in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
Paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant
Short-Term Income Portfolio (formerly Short-Term Global Income
Portfolio) (and, effective as of March 1, 1995, Strategic Income
Portfolio) (the "Portfolio") is a non-diversified, open-end management
investment company which was organized as a trust under the laws of the
State of New York on May 1, 1992. Interests in the Portfolio are issued
solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). Investments in the Portfolio may be
made only by U.S. and foreign investment companies, common or commingled
trust funds, organizations or trusts described in Sections 401(a) or
501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or
similar organizations or entities that are "accredited investors" within
the meaning of Regulation D under the 1933 Act. This Registration
Statement, as amended, does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
The Portfolio's investment objective is a high level of income,
consistent with prudent investment risk. The Portfolio seeks to achieve
its objective by investing in a global portfolio consisting primarily of
high grade debt securities and having a dollar weighted average maturity
of not more than three years. The Portfolio's investment objective is
nonfundamental and may be changed when authorized by a vote of the
Trustees of the Portfolio without obtaining the approval of the investors
in the Portfolio.
Additional information about the investment policies of the Portfolio
appears in Part B. The Portfolio is not intended to be a complete
investment program, and a prospective investor should take into account
its objectives and other investments when considering the purchase of an
interest in the Portfolio. The Portfolio cannot assure achievement of its
investment objective.
How the Portfolio Invests its Assets
In pursuing the Portfolio's investment objective, the Portfolio's
investment adviser, Boston Management and Research ("BMR" or the
Investment Adviser"), will strategically allocate the Portfolio's
investments among different countries and currencies based on its
perception of the most favorable markets and issuers, the relative yield
and appreciation potential of a particular country's securities and the
relationship of a country's currency to the U.S. Dollar. The Portfolio
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will, under normal market conditions, invest in the securities of issuers
in at least three countries, one of which may be the United States. The
Portfolio may, for temporary defensive purposes, invest up to 100% of its
total assets in U.S. securities. Investments will be allocated among
particular industries or types of securities based on each issuer's
fundamental economic strength, credit quality, relative interest rate
spreads and interest rate trends.
The Portfolio seeks to minimize credit risk and fluctuations in net
asset value. The Portfolio will pursue investment opportunities in both
U.S. and foreign markets, and may invest a substantial portion of its
assets in debt obligations denominated in foreign currencies. While the
Portfolio intends to invest at least 25% of its total assets in U.S.
Dollar denominated debt obligations, such investment will not limit the
foreign currency exposure that may result from the Portfolio's investments
in forward foreign currency exchange contracts, options, futures, options
on futures, and currency swaps. The Portfolio may not invest more than 25%
of its total assets in securities denominated in a single currency other
than the U.S. Dollar and may not invest more than 25% of its total assets
in the securities of issuers located in a single country other than the
United States at the time of purchase; these 25% limitations do not apply
to the Portfolio's positions in forward contracts, options, futures
contracts, options on futures or currency swaps.
Debt Securities. The Portfolio seeks to minimize investment risk by,
among other strategies, investing primarily in high grade debt securities,
which are: (i) debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government
securities"); (ii) obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies, or
instrumentalities, or by supra-national entities, provided that such
obligations are rated AAA, AA or A or a comparable rating by Standard &
Poor's Ratings Group ("S&P") or Duff & Phelps Inc. ("Duff"), or Aaa, Aa or
A or a comparable rating by Moody's Investors Service, Inc. ("Moody's")
("High Grade Ratings") or, if unrated, are determined by the Investment
Adviser to be of equivalent credit quality; (iii) corporate debt
securities having at least one High Grade Rating or, if unrated,
determined by the Investment Adviser to be of equivalent credit quality;
(iv) certificates of deposit and bankers' acceptances issued or guaranteed
by, or time deposits maintained at, banks (including foreign branches of
U.S. banks or U.S. or foreign branches of foreign banks) having total
assets of more than $500 million and determined by the Investment Adviser
to be of comparable credit quality to securities with High Grade Ratings;
and (v) commercial paper and other short-term securities rated A-1 or A-2
by S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch
Investors Service, Inc. ("Fitch"), or Duff 1 or Duff 2 by Duff or, if not
rated, issued by U.S. or foreign companies, governments, or other entities
having outstanding debt securities with a High Grade Rating or determined
by the Investment Adviser to be high grade, and loan participation
interests having a remaining term not exceeding one year in loans made by
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banks to such companies. The remainder of the Portfolio, up to 50% of
total assets, may be invested in investment grade securities (rated BBB by
S&P or Duff, Baa by Moody's, or the equivalent), which have speculative
characteristics, or in a combination of investment grade and below
investment grade securities.
Debt securities that are rated below investment grade are commonly
referred to as "junk bonds". The Portfolio will invest less than 35% of
its total assets in such securities, which may include securities in the
lowest rating categories. The Portfolio is more likely to purchase
sovereign debt obligations, as opposed to U.S. corporate obligations.
Sovereign debt and other below investment grade and unrated securities
will have speculative characteristics in varying degrees. While such
obligations may have some quality and protective characteristics, these
characteristics can be expected to be offset or outweighed by
uncertainties or major risk exposures to adverse conditions. Lower rated
and comparable unrated securities are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to price volatility due to such
factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Lower rated and comparable unrated securities are also more likely to
react to real or perceived developments affecting market and credit risk
than are more highly rated securities, which react primarily to movements
in the general level of interest rates. The Portfolio may retain
defaulted securities in its portfolio when such retention is considered
desirable by the Investment Adviser. In the case of a defaulted security,
the Portfolio may incur additional expense seeking recovery of its
investment. In the event that the rating of a security held by the
Portfolio is downgraded, causing the Portfolio to exceed the 35%
limitation set forth above, the Investment Adviser will (in an orderly
fashion within a reasonable period of time) dispose of such securities as
it deems necessary in order to comply with the limitation. See the
Appendix to this Part A for the asset composition of the Portfolio for the
fiscal year ended October 31, 1994. For a description of securities
ratings, see Part B.
The income producing securities in which the Portfolio invests may
have fixed, variable or floating interest rates, constitute a broad mix of
asset classes, and may include convertible bonds, securities of real
estate investment trusts and natural resource companies, stripped debt
obligations, closed-end investment companies (that invest primarily in
debt securities the Portfolio could invest in) preferred, preference and
convertible stocks, equipment lease certificates, equipment trust
certificates, conditional sales contracts and debt obligations
collateralized by, or representing interests in pools of, mortgages and
other types of loans ("asset-backed obligations"). The Portfolio may also
invest in loans and loan participations. The Portfolio may invest a
portion of its assets in fixed and floating rate loans and loan interests,
which generally will be fully collateralized. Such investments must meet
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the Investment Adviser's creditworthiness guidelines, as applied to the
borrower or, as the case may be, an agent lending bank or other financial
intermediary. Loan interests may take the form of participation interests
in, assignments of or novations of a loan during its secondary
distribution, or direct interests during a primary distribution. Loan
interests may be acquired from banks or other financial institutions, and
the Portfolio may derive its rights directly from the borrower. Prepayment
of loan interests may reduce the yield of the Portfolio depending upon the
returns available on permissible investments at the time of prepayment.
Foreign Investments and Foreign Currency Considerations. The Portfolio
invests in debt securities denominated in the currencies of countries
whose governments are considered stable by the Investment Adviser. In
addition to the U.S. Dollar, such currencies include, among others, the
Australian Dollar, British Pound Sterling, Canadian Dollar, European
Currency Unit ("ECU"), Finnish Markka, French Franc, German Mark, Greek
Drachma, Irish Punt, Italian Lira, Japanese Yen, Spanish Peseta and Swiss
Franc. The Portfolio may also invest in debt securities denominated in
currencies of developing countries such as the Malaysian Ringgit,
Indonesian Rupiah, Brazilian Cruzeiro, Peruvian New Sol and the Mexican
Peso. An issuer of debt securities purchased by the Portfolio may be
domiciled in a country other than the country in whose currency the
instrument is denominated. To the extent that the Portfolio's investments
are diversified as to currency, it is expected by the Investment Adviser
that fluctuations in the value of a particular currency may be offset by
fluctuations in the value of other currencies in which the Portfolio's
securities are denominated.
Changes in exchange rates for the foreign currencies in which the
Portfolio's investments are denominated may adversely affect the value of
such investments and the value of interests in the Portfolio. The
Portfolio may hedge against foreign currency risk by investing in
instruments indexed to a specific currency, entering into forward foreign
currency exchange contracts and currency swaps, engaging in transactions
in futures contracts on currency and options on such futures contracts and
purchasing and writing options on currency.
The Portfolio may invest in debt securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European
Community, which is a twelve-nation organization engaged in cooperative
economic activities; the European Coal and Steel Community, which is an
economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions.
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Investing in securities issued by foreign governments and corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by the U.S. Government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax
laws, including withholding taxes, changes in governmental administration
or economic or monetary policy (in this country or abroad) or changed
circumstances in dealings between nations. Costs are incurred in
connection with conversions between various currencies. In addition,
foreign brokerage commissions are generally higher than in the United
States, and foreign securities markets may be less liquid, more volatile
and less subject to governmental supervision than in the United States.
Investments in foreign countries could be affected by other factors not
present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations and could be subject to
settlement delays.
The Portfolio may invest in the debt securities of issuers in
developing countries in Eastern Europe, Asia, Latin America and elsewhere
to the extent such securities meet the Portfolio's quality standards. The
economies of some of these countries are currently suffering both from the
stagnation resulting from centralized economic planning and control and
the higher prices and unemployment associated with the transition to
market economies. Unstable economic and political conditions may adversely
affect the ability of issuers of debt securities located in these
countries to meet their obligations under such securities.
Interest Rate Risk Management. The net asset value of an interest in the
Portfolio reflects the underlying value of the Portfolio's assets and
liabilities and will change in response to interest rate fluctuations.
When interest rates decline, the value of debt securities held by the
Portfolio can be expected to rise. Conversely, when interest rates rise,
the value of debt securities held by the Portfolio can be expected to
decline. Although a shorter maturity is generally associated with a lower
level of market value volatility, because interest rate trends are
different for each country, it is possible that interest rate changes
affecting the value of the Portfolio's investments in one country may be
offset by countervailing changes affecting the Portfolio's investments in
another country. Thus, the Portfolio's policy of diversifying its
investments among several countries may reduce its susceptibility to
interest rate volatility.
The Portfolio will maintain a dollar weighted average portfolio
maturity of not more than three years. In measuring the dollar weighted
average portfolio maturity of the Portfolio, the Portfolio will use the
concept of "duration", adjusted to account for the volatility-reducing
effect of diversifying a debt portfolio among several countries. Duration
represents the dollar weighted average maturity of expected cash flows
(i.e., interest and principal payments) on one or more debt obligations,
discounted to their present values. The duration of a floating rate
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security will be defined as the time to the next interest payment. The
duration of an obligation is usually less than its stated maturity and is
related to the degree of volatility in the market value of the obligation.
Maturity measures only the time until a bond or other debt security
provides its final payment; it takes no account of the pattern of a
security's payments over time. Duration takes both interest and principal
payments into account and, thus, in the Investment Adviser's opinion, is a
more accurate measure of a debt security's price sensitivity in response
to changes in interest rates. In computing the duration of its portfolio,
the Portfolio will have to estimate the duration of debt obligations that
are subject to prepayment or redemption by the issuer, based on projected
cash flows from such obligations.
The Portfolio may use various techniques to shorten or lengthen the
dollar weighted average maturity of its portfolio, including the
acquisition of debt obligations at a premium or discount, transactions in
futures contracts and options on futures and interest rate swaps. Subject
to the requirement that the dollar weighted average portfolio maturity
will not exceed three years, the Portfolio may invest in individual debt
obligations of any maturity, including obligations with a remaining stated
maturity of more than three years.
U.S. Government Securities. U.S. Government securities that the Portfolio
may invest in include (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one
to ten years) and U.S. Treasury bonds (generally maturities of greater
than ten years) and (2) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities which are supported by any of
the following: (a) the full faith and credit of the U.S. Treasury, (b) the
right of the issuer to borrow any amount limited to a specific line of
credit from the U.S. Treasury, (c) discretionary authority of the U.S.
Government to purchase certain obligations of the U.S. Government agency
or instrumentality or (d) the credit of the agency or instrumentality. The
Portfolio may also invest in any other security or agreement
collateralized or otherwise secured by U.S. Government securities.
Agencies and instrumentalities of the U.S. Government include, but are not
limited to: Federal Land Banks, Federal Financing Banks, Banks for
Cooperatives, Federal Intermediate Credit Banks, Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
National Mortgage Association, Student Loan Marketing Association, United
States Postal Service, Chrysler Corporate Loan Guarantee Board, Small
Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government.
Zero Coupon and Payment in Kind Bonds. The Portfolio may invest in zero
coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ("PIK bonds"). Zero coupon and deferred interest bonds are
debt obligations which are issued at a significant discount from face
value. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity or the first
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interest accrual date at a rate of interest reflecting the market rate of
the security at the time of issuance. While zero coupon bonds do not
require the periodic payment of interest, deferred interest bonds provide
for a period of delay before the regular payment of interest begins.
Although this period of delay is different for each deferred interest
bond, a typical period is approximately one-third of the bond's term to
maturity. PIK bonds are debt obligations which provide that the issuer
thereof may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments benefit the issuer
by mitigating its need for cash to meet debt service, but also require a
higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments experience greater volatility in
market value due to changes in interest rates than debt obligations which
provide for regular payments of interest. The Portfolio will accrue income
on such investments for tax and accounting purposes in accordance with
applicable law. Any regulated investment company ("RIC") that invests in
the Portfolio (a "Fund") must distribute its share of such income to its
shareholders. Because no cash is received at the time such income is
accrued, the Portfolio may be required to liquidate other portfolio
securities to generate cash that a Fund may withdraw from the Portfolio to
enable such Fund to satisfy its distribution obligations.
Derivative Instruments. The Portfolio may purchase or enter into the
derivative instruments described below to enhance return, to hedge against
fluctuations in interest rates, securities prices or currency exchange
rates, to change the duration of the Portfolio's fixed income portfolio or
as a substitute for the purchase or sale of securities or currency. The
Portfolio's investments in derivative securities may include certain
indexed securities. The Portfolio's transactions in derivative contracts
may include the purchase or sale of futures contracts on securities,
indices or currency; options on futures contracts; options on currency;
forward contracts to purchase or sell currency; currency and interest rate
swaps; and interest rate caps, floors and collars.
All of the Portfolio's transactions in derivative instruments involve
a risk of loss or depreciation due to unanticipated adverse changes in
interest rates, securities prices or currency exchange rates. The loss on
derivative contracts (other than purchased options, caps, floors and
collars) may exceed the Portfolio's initial investment in these contracts.
In addition, the Portfolio may lose the entire premium paid for purchased
options, caps, floors and collars that expire before they can be
profitably exercised by the Portfolio.
Indexed Investments. The Portfolio may invest in instruments which
are indexed to certain specific foreign currency exchange rates. The terms
of such instruments may provide that their principal amounts or just their
coupon interest rates are adjusted upwards or downwards (but not below
zero) at maturity or on established coupon payment dates to reflect
changes in the exchange rate between two currencies while the obligation
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is outstanding. An indexed security may be leveraged to the extent that
the magnitude of any change in the interest rate or principal payable on
an indexed security is a multiple of the change in the reference price.
Thus, indexed securities may decline in value due to adverse market
changes in the relevant exchange rates. The Portfolio has provided an
undertaking to the Securities and Exchange Commission ("SEC") to establish
and maintain a segregated account consisting of cash, U.S. Government
securities or other high grade liquid debt securities having a value equal
to the aggregate principal amount of the Portfolio's currency indexed
investments. The Portfolio may invest without limitation in instruments
indexed to foreign currency rates. The market values of currency linked
securities may be very volatile and may decline during periods of unstable
currency exchange rates.
Derivative Contracts. The Portfolio may purchase and sell a variety
of derivative contracts, including futures contracts on securities,
indices or currency; options on futures contracts; options on currency;
forward contracts to purchase or sell currency; currency and interest rate
swaps; and interest rate caps, floors and collars. The Portfolio incurs
liability to a counterparty in connection with transactions in futures
contracts, forward contracts and swaps and in selling options, caps,
floors and collars. The Portfolio pays a premium for purchased options,
caps, floors and collars. In addition, the Portfolio incurs transaction
costs in opening and closing positions in derivative contracts.
Forward Foreign Currency Exchange Contracts. The Portfolio may enter
into forward foreign currency exchange contracts. A forward foreign
currency exchange contract is a contract individually negotiated and
privately traded by currency traders and their customers. A forward
contract involves an obligation to purchase or sell a specific currency
for an agreed price at a future date, which may be any fixed number of
days from the date of the contract. The Portfolio may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different
currency if the Investment Adviser determines that there is an established
historical pattern of correlation between the two currencies. The purpose
of entering into these contracts is to minimize the risk to the Portfolio
from adverse changes in the relationship between the U.S. Dollar and
foreign currencies. In addition, the Portfolio may purchase forward
contracts for non-hedging purposes when the Investment Adviser anticipates
that the foreign currency will appreciate in value, but securities
denominated in that currency do not present attractive investment
opportunities. However, forward contracts may limit potential gain from a
positive change in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for a Fund than if the Portfolio had not entered into
forward foreign currency exchange contracts.
Options on Foreign Currencies. The Portfolio may write covered put
and call options and purchase put and call options on foreign currencies
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for the purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of
securities to be acquired. The Portfolio may use options on currency to
cross-hedge, which involves writing or purchasing options on one currency
to hedge against changes in exchange rates for a different, but related
currency. As with other types of options, however, the writing of an
option on foreign currency will constitute only a partial hedge, up to the
amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency
may be used to hedge against fluctuations in exchange rates although, in
the event of exchange rate movements adverse to the Portfolio's position,
it may forfeit the entire amount of the premium plus related transaction
costs. In addition, the Portfolio may purchase call options on currency
for non-hedging purposes when the portfolio manager of the Portfolio
anticipates that the currency will appreciate in value, but the securities
denominated in that currency do not present attractive investment
opportunities.
Futures Contracts and Options on Futures Contracts. A change in the
level of currency exchange rates or interest rates may affect the value of
the Portfolio's investments (or of investments that the Portfolio expects
to make). To hedge against such changes in such rates or prices or for
non-hedging purposes, the Portfolio may purchase and sell various kinds of
futures contracts and write and purchase call and put options on any of
such futures contracts; it may also enter into closing purchase and sale
transactions with respect to any of such contracts and options. The
futures contracts may be based on various securities in which the
Portfolio may invest, foreign currencies, certificates of deposit,
Eurodollar time deposits, securities indices, economic indices (such as
the Commodity Research Bureau Futures Price Index) and other financial
instruments and indices. The Portfolio will engage in futures and related
options transactions only for bona fide hedging or non-hedging purposes as
defined in or permitted by regulations of the Commodity Futures Trading
Commission ("CFTC"). The Portfolio may engage in cross-hedging by
purchasing or selling futures or options on a security or currency
different from the security or currency position being hedged if the
Investment Adviser determines that there is a historical pattern of
correlation between the two securities or currencies.
The Portfolio may not purchase or sell futures contracts or purchase
or sell related options, except for closing purchase or sale transactions,
if immediately thereafter the sum of the amount of margin deposits on and
premiums paid for the Portfolio's outstanding non-hedging positions in
futures and options on futures would exceed 5% of the market value of the
Portfolio's net assets. There are no other percentage limitations on the
amount of the Portfolio's assets that may be committed to futures
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transactions and the Portfolio may enter into futures positions with
respect to 100% of its assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options
obligating the Portfolio to purchase securities or currency, require the
Portfolio to segregate liquid high grade debt securities in an amount
equal to the underlying value of such contracts and options.
Interest Rate and Currency Swaps. The Portfolio may enter into
interest rate and currency swaps both for hedging purposes and to enhance
return. The Portfolio will typically use interest rate swaps to shorten
the effective maturity of its portfolio. Interest rate swaps involve the
exchange by the Portfolio with another party of their respective
commitments to pay or receive interest, e.g., an exchange of fixed rate
payments for floating rate payments. Currency swaps involve the exchange
of their respective rights to make or receive payments in specified
currencies. Because interest rate and currency swaps are individually
negotiated, the Portfolio expects to achieve an acceptable degree of
correlation between its portfolio investments and interest rate or
currency swap positions entered into for hedging purposes.
The Portfolio will enter into interest rate swaps only on a net basis,
i.e., the two payment streams are netted out, with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments.
Interest rate swaps do not involve the delivery of securities or
principal. Accordingly, the risk of loss with respect to interest rate
swaps is limited to the net amount of interest payments that the Portfolio
is contractually obligated to make. If the other party to an interest rate
swap defaults, the 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
payment stream in one designated currency in exchange for the entire
payment stream in 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.
The use of interest rate and currency swaps is a highly specialized
activity which involves investment techniques and risks different from
those associated with ordinary portfolio securities transactions. The
Investment Adviser has used interest rate and currency swaps only to a
limited extent, but has utilized other types of hedging techniques. If the
Investment Adviser is incorrect in its forecasts of market values,
interest rates and currency exchange rates, the investment performance of
the Portfolio would be less favorable than it would have been if swaps
were not used.
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Risks Associated With Derivative Securities and Contracts. The risks
associated with the Portfolio's transactions in derivative securities and
contracts may include some or all of the following: (1) market risk; (2)
leverage and volatility risk; (3) correlation risk; (4) credit risk; and
(5) liquidity and valuation risk.
Market Risk. Investments in mortgage-backed and indexed securities
are subject to the prepayment, extension, interest rate and other market
risks described above. Entering into a derivative contract involves a
risk that the applicable market will move against the Portfolio's position
and that the Portfolio will incur a loss. For derivative contracts other
than purchased options, this loss may exceed the amount of the initial
investment made or the premium received by the Portfolio.
Leverage and Volatility Risk. Derivative instruments may sometimes
increase or leverage the Portfolio's exposure to a particular market risk.
Leverage enhances the price volatility of derivative instruments held by
the Portfolio. The Portfolio may partially offset the leverage inherent
in derivative contracts by maintaining a segregated account consisting of
cash and liquid, high grade debt securities, by holding offsetting
portfolio securities or currency positions or by covering written options.
Correlation Risk. The Portfolio's success in using derivative
instruments to hedge portfolio assets depends on the degree of price
correlation between the derivative instrument and the hedged asset.
Imperfect correlation may be caused by several factors, including
temporary price disparities among the trading markets for the derivative
instrument, the assets underlying the derivative instrument and the
Portfolio's assets.
Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to
perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not
readily marketable or may become illiquid under adverse market conditions.
In addition, during periods of extreme market volatility, a commodity or
option exchange may suspend or limit trading in an exchange-traded
derivative contract, which may make the contract temporarily illiquid and
difficult to price. The staff of the SEC takes the position that certain
over-the-counter options and all swaps, caps, floors and collars are
subject to the Portfolio's 15% limit on illiquid investments. The
Portfolio's ability to terminate over-the-counter derivative contracts may
depend on the cooperation of the counterparties to such contracts. For
thinly traded derivative securities and contracts, the only source of
price quotations may be the selling dealer or counterparty.
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Lending of Portfolio Securities. The Portfolio may seek to earn
additional income by lending portfolio securities to broker-dealers or
other institutional borrowers. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and will also
receive a fee, or all or a portion of the interest on investment of the
collateral, if any. However, the Portfolio may at the same time pay a
transaction fee to such borrowers. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the
securities loaned if the borrower of the securities fails financially.
However, the loans will be made only to organizations deemed by the
Investment Adviser to be of good standing and when, in its judgment, the
consideration which can be earned from securities loans of this type
justifies the attendant risk. The financial condition of the borrower will
be monitored by the Investment Adviser on an ongoing basis. If the
Investment Adviser decides to make securities loans, it is intended that
the value of the securities loaned would not exceed 30% of the Portfolio's
total assets.
Repurchase Agreements. The Portfolio may enter into repurchase agreements
with respect to its permitted investments, but currently intends to do so
only with member banks of the Federal Reserve System or with primary
dealers in U.S. Government securities. Under a repurchase agreement the
Portfolio buys a security at one price and simultaneously promises to sell
that same security back to the seller at a higher price. The repurchase
date is usually within seven days of the original purchase date. At no
time will the Portfolio commit more than 15% of its net assets to
repurchase agreements which mature in more than seven days and in illiquid
securities. Repurchase agreements are deemed to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). In all cases
the Investment Adviser must be satisfied with the creditworthiness of the
other party to the agreement before entering into a repurchase agreement.
In the event of the bankruptcy of the other party to a repurchase
agreement, the Portfolio might experience delays in recovering its cash.
To the extent that, in the meantime, the value of the securities the
Portfolio purchased may have decreased, the Portfolio could experience a
loss.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements. Under a reverse repurchase agreement, the Portfolio
temporarily transfers possession of a portfolio instrument to another
party, such as a bank or broker-dealer, in return for cash. At the same
time, the Portfolio agrees to repurchase the instrument at an agreed upon
time (normally within seven days) and price, which reflects an interest
payment. The Portfolio could also enter into reverse repurchase agreements
as a means of raising cash to satisfy redemption requests without the
necessity of selling portfolio assets.
When the Portfolio enters into a reverse repurchase agreement for such
purposes described above, any fluctuations in the market value of either
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the securities transferred to another party or the securities in which the
proceeds may be invested would affect the market value of the Portfolio's
assets. As a result, such transactions may increase fluctuations in the
market value of the Portfolio's assets. While there is a risk that large
fluctuations in the market value of the Portfolio's assets could affect
the Portfolio's net asset value, this risk is not significantly increased
by entering into reverse repurchase agreements, in the opinion of the
Investment Adviser. Because reverse repurchase agreements may be
considered to be the practical equivalent of borrowing funds, they
constitute a form of leverage. If the Portfolio reinvests the proceeds of
a reverse repurchase agreement at a rate lower than the cost of the
agreement, entering into the agreement will lower the Portfolio's yield.
The Portfolio may also enter into reverse repurchase agreements in
order to hedge against a possible decline in the value of the foreign
currency in which a debt security is denominated. In these transactions,
the Portfolio sells a debt security denominated in a foreign currency for
delivery in the current month and simultaneously contracts to repurchase
the same security on a specified future date. The foreign currency cash
proceeds from the sale of the debt security are then converted into U.S.
Dollars. Thus, as a result of the transaction, the Portfolio continues to
be subject to fluctuations in the value of the security, but not to
fluctuations in the value of the currency in which the security is
denominated. Because these reverse repurchase transactions are entered
into to hedge foreign currency risk and not for leverage purposes, they
will not be treated as borrowing for purposes of the Portfolio's
investment restriction concerning borrowing.
Certain Investment Policies. The Portfolio has adopted certain
fundamental investment restrictions and policies which are enumerated in
detail in Part B and which may not be changed unless authorized by an
investor vote. Among these fundamental restrictions, the Portfolio may not
(1) borrow money or issue senior securities except as permitted by the
1940 Act, or (2) purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). Except for the fundamental investment restrictions
and policies specifically enumerated in Part B, the investment objective
and policies of the Portfolio are not fundamental policies and accordingly
may be changed by the Trustees of the Portfolio without obtaining the
approval of the investors in the Portfolio. The Portfolio's investors will
receive written notice thirty days prior to any change in the investment
objective of the Portfolio. If any changes were made, the Portfolio might
have investment objectives different from the objectives which an investor
considered appropriate at the time of its initial investment.
"Non-Diversified" Investment Company. The Portfolio is a
"non-diversified" investment company under the 1940 Act, which means that
the Portfolio is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Portfolio
intends to conduct its operations so as to enable a Fund to qualify as a
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"regulated investment company" for purposes of the Code, which will
relieve such Fund of any liability for Federal income tax to the extent
its earnings are distributed to shareholders. See Part B, Item 20. To
enable a Fund to so qualify, among other requirements, the Portfolio will
limit its investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Portfolio's total
assets will be invested in the securities of a single issuer, and (ii)
with respect to 50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested in the
securities of a single issuer and the Portfolio will not own more than 10%
of the outstanding voting securities of a single issuer. The Portfolio's
investments in U.S. Government securities and regulated investment
companies, if any, are not subject to these limitations. Because the
Portfolio may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Portfolio may present
greater risk to an investor than an investment in a diversified investment
company.
Item 5. Management of the Portfolio
The Portfolio was organized as a trust under the laws of the State of
New York on May 1, 1992. The Portfolio intends to comply with all
applicable Federal and state securities laws.
Investment Adviser. The Portfolio engages Boston Management and
Research ("BMR"), a wholly-owned subsidiary of Eaton Vance Management
("Eaton Vance"), as its investment adviser. Eaton Vance, its affiliates
and its predecessor companies have been managing assets of individuals and
institutions since 1924 and managing investment companies since 1931.
Acting under the general supervision of the Board of Trustees, BMR
manages the Portfolio's investments and affairs. Under its investment
advisory agreement with the Portfolio, BMR receives a monthly advisory fee
equal to the aggregate of:
(a) a daily asset-based fee computed by applying the annual asset
rate applicable to that portion of the total daily net assets in
each Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income
rate applicable to that portion of the total daily gross income
(which portion shall bear the same relationship to the total
daily gross income on such day as that portion of the total
daily net assets in the same Category bears to the total daily
net assets on such day) in each Category as indicated below:
Annual Daily
Category Daily Net Assets Asset Income
Rate Rate
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1 up to $500 million 0.275% 2.75%
2 $500 million but less than $1 billion 0.250% 2.50%
3 $1 billion but less than $1.5 billion 0.225% 2.25%
4 $1.5 billion but less than $2 billion 0.200% 2.00%
5 $2 billion but less than $3 billion 0.175% 1.75%
6 $3 billion and over 0.150% 1.50%
Total daily gross income is the total gross investment income, exclusive
of capital gains and losses on investments and before deduction of
expenses, earned each day by the Portfolio.
As at October 31, 1994, the Portfolio had net assets of $236,468,766.
For the period from the start of business, March 1, 1994, to October 31,
1994, the Portfolio paid BMR advisory fees equivalent to 0.49%
(annualized) of the Portfolio's average daily net assets for such period.
BMR also furnishes for the use of the Portfolio office space and all
necessary office facilities, equipment and personnel, and investment
advisory, statistical and research facilities and has arranged for certain
members of the Eaton Vance organization to serve without salary as
officers or Trustees of the Portfolio. The Portfolio is responsible for
the payment of all expenses other than those expressly stated to be
payable by BMR under the investment advisory agreement.
The Portfolio believes that most of the obligations which it will
acquire for its portfolio will normally be traded on a net basis (without
commission) through broker-dealers and banks acting for their own account.
Such firms attempt to profit from such transactions by buying at the bid
price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms
which will execute portfolio transactions BMR judges their professional
ability and quality of service and uses its best efforts to obtain
execution of such transactions at prices which are advantageous to the
Portfolio and at reasonably competitive commission rates. Subject to the
foregoing, BMR may consider sales of shares of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of
broker-dealer firms to execute portfolio transactions.
Mark S. Venezia has acted as the portfolio manager of the Portfolio
since it commenced operations. Mr. Venezia has been a Vice President of
Eaton Vance since 1987 and of BMR since 1992.
BMR or Eaton Vance acts as investment adviser to investment companies
and various individual and institutional clients with assets under
management of approximately $15 billion. Eaton Vance is a wholly-owned
subsidiary of Eaton Vance Corp., a publicly held holding company. Eaton
Vance Corp., through its subsidiaries and affiliates, engages in
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investment management and marketing activities, fiduciary and banking
services, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
The Portfolio also engages BMR as its Administrator under an
administration agreement. Under the administration agreement, BMR is
responsible for reviewing and supervising the provision of custody
services to the Portfolio and making related reports and recommendations
to the Board of Trustees of the Portfolio; for providing certain
valuation, legal, accounting and tax services in connection with
investments with foreign issuers or guarantors, investments denominated in
foreign currencies and transactions in derivative instruments; and for
such other special services as the Board may direct. BMR also furnishes
the office facilities and personnel necessary for providing these
services. As compensation for these services, BMR receives a monthly
administration fee at an annual rate of .15% of the Portfolio's average
daily net assets.
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Item 6. Capital Stock and Other Securities
The Portfolio is organized as a trust under the laws of the State of
New York and intends to be treated as a partnership for Federal tax
purposes. Under the Declaration of Trust, the Trustees are authorized to
issue interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value. Investors
in the Portfolio will each be liable for all obligations of the Portfolio.
However, the risk of an investor in the Portfolio incurring financial loss
on account of such liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
The Declaration of Trust of the Portfolio provides that the Portfolio
will terminate 120 days after the complete withdrawal of any investor in
the Portfolio unless either the remaining investors, by unanimous vote at
a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
the treatment of the Portfolio as a partnership for Federal income tax
purposes.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and non-assessable by the Portfolio, except as set
forth above. The Portfolio is not required and has no current intention
to hold annual meetings of investors, but the Portfolio may hold special
meetings of investors when in the judgment of the Trustees it is necessary
or desirable to submit matters for an investor vote. Changes in
fundamental policies or restrictions will be submitted to investors for
approval. The investment objective and all nonfundamental investment
policies of the Portfolio may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio.
Investors have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified
number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of
removing one or more Trustees. Any Trustee may be removed by the
affirmative vote of holders of two-thirds of the interests in the
Portfolio.
Information regarding pooled investment entities or funds which invest
in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc., 24 Federal Street, Boston, MA 02110 (617) 482-8260. Smaller
investors in the Portfolio may be adversely affected by the actions of
larger investors in the Portfolio. For example, if a large investor
withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
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However, this possibility exists as well for historically structured
mutual funds which have large or institutional investors.
As of January 31, 1995, EV Marathon Short-Term Strategic Income Fund
controlled the Portfolio by virtue of owning more than 99.99% of the
outstanding voting securities of the Portfolio.
The net asset value of the Portfolio is determined each day on which
the New York Stock Exchange (the "Exchange") is open for trading
("Portfolio Business Day"). This determination is made each Portfolio
Business Day as of the close of regular trading on the Exchange (normally
4:00 p.m., New York time) (the "Portfolio Valuation Time").
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day as of the Portfolio Valuation
Time. The value of each investor's interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interest in the
Portfolio on such prior day. Any additions or withdrawals for the current
Portfolio Business Day will then be recorded. Each investor's percentage
of the aggregate interest in the Portfolio will then be recomputed as a
percentage equal to a fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the Portfolio Valuation
Time on the prior Portfolio Business Day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii)
the denominator of which is the aggregate net asset value of the Portfolio
as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the
investor's interest in the Portfolio for the current Portfolio Business
Day. See Item 7 regarding the pricing of investments in the Portfolio.
The Portfolio will allocate at least annually among its investors its
net investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit. The Portfolio's net investment
income consists of all income accrued on the Portfolio's assets, less all
actual and accrued expenses of the Portfolio, determined in accordance
with generally accepted accounting principles.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any Federal income tax. (See Part B, Item
20) However, each investor in the Portfolio will take into account its
allocable share of the Portfolio's ordinary income and capital gain in
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determining its Federal income tax liability. The determination of each
such share will be made in accordance with the governing instruments of
the Portfolio, which are intended to comply with the requirements of the
Code and the regulations promulgated thereunder.
It is intended that the Portfolio's assets and income will be managed
in such a way that an investor in the Portfolio which seeks to qualify as
a RIC under the Code will be able to satisfy the requirements for such
qualification.
Item 7. Purchase of Interests in the Portfolio
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio will be made without a sales load. All
investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not determine its net
asset value on the following business holidays: New Year's Day,
Washington's Birthday, Good Friday (a New York Stock Exchange holiday),
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. The Portfolio's net asset value is computed in accordance with
procedures established by the Portfolio's Trustees.
The Portfolio's net asset value is determined by Investors Bank &
Trust Company (as custodian and agent for the Portfolio), in the manner
authorized by the Trustees of the Portfolio. Most debt securities are
valued on the basis of market valuations furnished by pricing services.
The net asset value is computed by subtracting the liabilities of the
Portfolio from the value of its total assets. For further information
regarding the valuation of the Portfolio's assets, see Part B.
There is no minimum initial or subsequent investment in the Portfolio.
The Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
The placement agent for the Portfolio is Eaton Vance Distributors,
Inc. ("EVD"). The principal business address of EVD is 24 Federal Street,
Boston, Massachusetts 02110. EVD receives no compensation for serving as
the placement agent for the Portfolio.
Item 8. Redemption or Decrease of Interest
An investor in the Portfolio may withdraw all (redeem) or any portion
(decrease) of its interest in the Portfolio if a withdrawal request in
proper form is furnished by the investor to the Portfolio. All withdrawals
will be effected as of the next Portfolio Valuation Time. The proceeds of
a withdrawal will be paid by the Portfolio normally on the Portfolio
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Business Day the withdrawal is effected, but in any event within seven
days. The Portfolio reserves the right to pay the proceeds of a withdrawal
(whether a redemption or decrease) by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be
valued at the same amount as that assigned to them in calculating the net
asset value for the interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
converting the securities to cash. The Portfolio has filed with the SEC a
notification of election on Form N-18F-1 committing to pay in cash all
requests for withdrawals by any investor, limited in amount with respect
to such investor during any 90 day period to the lesser of (a) $250,000 or
(b) 1% of the net asset value of the Portfolio at the beginning of such
period.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds
postponed during any period in which the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists, or
during any other period permitted by order of the SEC for the protection
of investors.
Item 9. Pending Legal Proceedings
Not applicable.
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APPENDIX
Asset Composition Information
For The Fiscal Year Ended October 31, 1994
Debt Securities-- Percentage of
Moody's Ratings Net Assets
Aaa 37.4
Aa1 3.7
Aa2 26.8
Aa3 6.4
A1 4.6
A2 0.7
Ba2 0.7
Ba3 2.2
B2 11.0
B3 2.7
Unrated 3.7
Total 100.0%
The chart above indicates the weighted average composition for the
fiscal year ended October 31, 1994, with the debt securities rated by
Moody's Investors Service, Inc. ("Moody's") separated into the indicated
categories. The weighted average indicated above was calculated on a
dollar weighted basis and was computed as at the end of each month during
the fiscal year. The chart is for the period March 1, 1994 to October 31,
1994. The chart does not necessarily indicate what the composition of the
Portfolio will be in the current and subsequent fiscal years.
For a description of Moody's ratings of debt securities, see Appendix
A to Part B.
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PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents.
Page
General Information and History . . . . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . . . B-14
Control Persons and Principal Holder of Securities . . . . B-17
Investment Advisory and Other Services . . . . . . . . . . B-18
Brokerage Allocation and Other Practices . . . . . . . . . B-22
Capital Stock and Other Securities . . . . . . . . . . . . B-24
Purchase, Redemption and Pricing of Securities . . . . . . . B-26
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . B-26
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . B-30
Calculation of Performance Data . . . . . . . . . . . . . . B-30
Financial Statements . . . . . . . . . . . . . . . . . . . . B-30
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . a-1
Item 12. General Information and History.
Not applicable.
Item 13. Investment Objectives and Policies.
Part A contains additional information about the investment objective
and policies of the Short-Term Income Portfolio (formerly Short-Term
Global Income Portfolio) (and, effective as of March 1, 1995, Strategic
Income Portfolio) (the "Portfolio"). This Part B should be read in
conjunction with Part A. Capitalized terms used in this Part B and not
otherwise defined have the meanings given them in Part A.
The investment objective of the Portfolio is a high level of income,
consistent with prudent investment risk. The Portfolio seeks to achieve
its investment objective by investing in a global portfolio consisting
primarily of high grade debt securities and having a dollar weighted
average maturity of not more than three years.
Income Producing Securities
Included in the income producing securities in which the Portfolio may
invest are preferred and preference stocks, convertible bonds, securities
of real estate investment trusts and natural resource companies, stripped
debt obligations, closed-end investment companies (that invest primarily
in debt securities the Portfolio could invest in), equipment lease
certificates, equipment trust certificates and conditional sales
contracts. Preference stocks are stocks that have many characteristics of
preferred stocks, but are typically junior to an existing class of
preferred stocks. Securities of real estate investment trusts, such as
debentures, are affected by conditions in the real estate industry and
interest rates. Securities of natural resource companies are subject to
price fluctuation based upon inflationary pressures and demand for natural
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resources. Stripped debt obligations are comprised of principal only or
interest only obligations. The value of closed-end investment company
securities, which are generally traded on an exchange, is affected by
demand for those securities regardless of the demand for the underlying
portfolio assets. Equipment lease certificates are debt obligations
secured by leases on equipment (such as railroad cars, airplanes or office
equipment), with the issuer of the certificate being the owner and lessor
of the equipment. The issuers of equipment lease certificates tend to be
industrial, transportation and leasing companies. Equipment trust
certificates are debt obligations secured by an interest in property (such
as railroad cars or airplanes), the title of which is held by a trustee
while the property is being used by the borrower. Conditional sales
contracts are agreements under which the seller of property continues to
hold title to the property until the purchase price is fully paid or other
conditions are met by the buyer. The Portfolio has no current intention of
investing more than 5% of its total assets in any of these types of
securities.
The Portfolio may purchase fixed-rate bonds which have a demand
feature allowing the holder to redeem the bonds at specified times. These
bonds are more defensive than conventional long-term bonds (protecting to
some degree against a rise in interest rates) while providing greater
opportunity than comparable intermediate term bonds, because the Portfolio
may retain the bond if interest rates decline. By acquiring these kinds of
bonds the Portfolio obtains the contractual right to require the issuer of
the bonds to purchase the security at an agreed upon price, which right is
contained in the obligation itself rather than in a separate agreement or
instrument. Because this right is assignable only with the bond, the
Portfolio will not assign any separate value to such right. The Portfolio
has no current intention during the coming year of investing more than 5%
of its total assets in bonds with demand features. The Portfolio may also
purchase floating or variable rate obligations and warrants when such
warrants are part of a unit with other securities.
The Portfolio's investments in high yield, high risk obligations rated
below investment grade, which have speculative characteristics, bear
special risks. They are subject to greater credit risks, including the
possibility of default or bankruptcy of the issuer. The value of such
investments may also be subject to a greater degree of volatility in
response to interest rate fluctuations, economic downturns and changes in
the financial condition of the issuer. These securities generally are less
liquid than higher quality securities. During periods of deteriorating
economic conditions and contractions in the credit markets, the ability of
such issuers to service their debt, meet projected goals or obtain
additional financing may be impaired. The Portfolio will also take such
action as it considers appropriate in the event of anticipated financial
difficulties, default or bankruptcy of either the issuer of any such
obligation or of the underlying source of funds for debt service. Such
action may include retaining the services of various persons and firms
(including affiliates of the Investment Adviser) to evaluate or protect
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any real estate, facilities or other assets securing any such obligation
or acquired by the Portfolio as a result of any such event.
The Portfolio may invest in obligations of domestic and foreign
companies in the group consisting of the banking and the financial
services industries. Companies in the banking industry include U.S. and
foreign commercial banking institutions (including their parent holding
companies). Companies in the financial services industry include finance
companies, diversified financial services companies and insurance and
insurance holding companies. Companies engaged primarily in the investment
banking, securities, investment advisory or investment company business
are not deemed to be in the financial services industry for this purpose.
The securities held by the Portfolio may be affected by economic or
regulatory developments in or related to such industries. Sustained
increases in interest rates can adversely affect the availability and cost
of funds for an institution's lending activities, and a deterioration in
general economic conditions could increase the institution's exposure to
credit losses.
A bank from whom the Portfolio acquires a loan participation interest
may be treated as a co-issuer for tax diversification purposes to the
extent that the Portfolio does not have direct recourse against the
borrower of the underlying loan and is therefore relying on the credit of
such bank. For industry concentration purposes, the Investment Adviser
will consider all relevant factors in determining the issuer of a loan
interest, including: the credit quality of the borrower, the amount and
quality of the collateral, the terms of the loan agreement and the other
relevant agreements (including inter-creditor agreements), the degree to
which the credit of such interpositioned person was deemed material to the
decision to purchase the loan interest, the interest rate environment, and
general economic conditions applicable to the borrower and such
interpositioned person.
Mortgage Rolls
The Portfolio may enter into mortgage "dollar rolls" in which the
Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date.
During the roll period, the Portfolio foregoes principal and interest paid
on the mortgage-backed securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for
the future purchase (often referred to as the "drop") as well as by the
interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before
the forward settlement date of the dollar roll transaction. The Portfolio
will enter into only covered rolls. Covered rolls are not treated as a
borrowing or other senior security and will be excluded from the
calculation of the Portfolio's borrowings and other senior securities.
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Lending of Portfolio Securities
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission
("SEC"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at
least equal to the market value of the securities loaned, which will be
marked to market daily. Cash equivalents include certificates of deposit,
commercial paper and other short-term money market instruments. The
Portfolio would have the right to call a loan and obtain the securities
loaned at any time on up to five business days' notice.
Foreign Investments
Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. issuers. Because investments in foreign issuers may
involve currencies of foreign countries, and because the Portfolio may
temporarily hold funds in bank deposits in foreign currencies during
completion of investment programs, the Portfolio may be affected favorably
or unfavorably by changes in currency rates and in exchange control
regulations and may incur costs in connection with conversions between
various currencies.
Because foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less
publicly available information about a foreign company than about a
domestic company. Volume and liquidity in most foreign bond markets is
less than in the United States and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S.
companies. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the
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 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. The Portfolio may be
required to pay for securities before delivery. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect the Portfolio's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
B - 4
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Forward Foreign Currency Exchange Contracts
The Portfolio may enter into forward foreign currency exchange
contracts. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions
are charged at any stage for trades.
At the maturity of a forward contract the Portfolio may either accept
or make delivery of the currency specified in the contract or, at or prior
to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions
with respect to forward contracts are often effected with the currency
trader who is a party to the original forward contract.
The Portfolio may enter into forward foreign currency exchange
contracts in several circumstances. First, when the Portfolio enters into
a contract for the purchase or sale of a security denominated in a foreign
currency, or when the Portfolio anticipates the receipt in a foreign
currency of dividend or interest payments on such a security which it
holds, the Portfolio may desire to "lock in" the U.S. dollar price of the
security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Portfolio will
attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when management of the Portfolio believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating
the value of some or all of the securities held by the Portfolio
denominated in such foreign currency. The precise matching of the forward
contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of those securities between the date on which the contract is
entered into and the date it matures. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides
a means of fixing the dollar value of only a portion of the Portfolio's
foreign assets.
The Portfolio's custodian will place cash or liquid high grade debt
securities into a segregated account of the Portfolio in an amount equal
to the value of the Portfolio's total assets, reduced by the value of any
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offsetting forward or written or purchased option position on the same or
a related currency, committed to the consummation of forward foreign
currency exchange contracts requiring the Portfolio to purchase foreign
currencies or forward contracts entered into for non-hedging purposes. If
the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the
Portfolio's commitments with respect to such contracts, net of any
offsetting forward contracts or options positions.
The Portfolio generally will not enter into a forward contract with a
term of greater than one year. Using forward contracts to protect the
value of the securities held by the Portfolio against a decline in the
value of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange which
the Portfolio can achieve at some future point in time.
While the Portfolio will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while the Portfolio may benefit from such
transactions, unanticipated changes in currency prices may result in a
poorer overall performance for the Portfolio than if it had not engaged in
any such transactions. Moreover, there may be imperfect correlation
between the Portfolio's holdings of securities denominated in a particular
currency and forward contracts entered into by the Portfolio. Such
imperfect correlation may prevent the Portfolio from achieving a complete
hedge or expose the Portfolio to risk of foreign exchange loss.
Writing and Purchasing Currency Call and Put Options
The Portfolio may write covered put and call options and purchase put
and call options on foreign currencies for the purpose of protecting
against declines in the dollar value of portfolio securities and against
increases in the dollar cost of securities to be acquired. A call option
written by the Portfolio obligates the Portfolio to sell specified
currency to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. A put option written by
the Portfolio would obligate the Portfolio to purchase specified currency
from the option holder at a specified price if the option is exercised at
any time before the expiration date.
A call option written by the Portfolio may be covered by segregating
assets denominated in the currency on which the call option is written. A
written call option or put option may also be covered by maintaining cash
or high grade liquid debt securities (either of which may be denominated
in any currency) in a segregated account, by entering into an offsetting
forward contract and/or by purchasing an offsetting option or any other
option on the same or a related currency and/or by purchasing an
offsetting option or any other option which, by virtue of its exercise
price or otherwise, reduces the Portfolio's net exposure on its written
option position.
B - 6
<PAGE>
The writing of currency options involves a risk that the Portfolio
will, upon exercise of the option, be required to sell currency subject to
a call at a price that is less than the currency's market value or be
required to purchase currency subject to a put at a price that exceeds the
currency's market value.
The Portfolio may terminate its obligations under a call or put option
by purchasing an option identical to the one it has written. Such
purchases are referred to as "closing purchase transactions." The
Portfolio would also be able to enter into closing sale transactions in
order to realize gains or minimize losses on options purchased by the
Portfolio.
The Portfolio would normally purchase call options in anticipation of
an increase in the dollar value of currency in which securities to be
acquired by the Portfolio are denominated. The purchase of a call option
would entitle the Portfolio, in return for the premium paid, to purchase
specified currency at a specified price during the option period. The
Portfolio would ordinarily realize a gain if, during the option period,
the value of such currency exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise the Portfolio would realize
a loss on the purchase of the call option.
The Portfolio would normally purchase put options in anticipation of a
decline in the dollar value of currency in which securities in its
portfolio ("protective puts") are denominated. The purchase of a put
option would entitle the Portfolio, in exchange for the premium paid, to
sell specified currency at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against
a decline in the dollar value of the securities held by the Portfolio due
to currency exchange rate fluctuations. The Portfolio would ordinarily
realize a gain if, during the option period, the value of the underlying
currency decreased below the exercise price sufficiently to cover the
premium and transaction costs; otherwise the Portfolio would realize a
loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing
changes in the value of underlying currency.
B - 7
<PAGE>
Special Risks Associated With Options on Currency
An exchange traded options position may be closed out only on an
options exchange which provides a secondary market for an option of the
same series. Although the Portfolio will generally purchase or write only
those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time. For some
options no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular
options, with the result that the Portfolio would have to exercise its
options in order to realize any profit and would incur transaction costs
upon the sale of underlying securities pursuant to the exercise of put
options. If the Portfolio as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it will not
be able to sell the underlying currency (or security denominated in that
currency) until the option expires or it delivers the underlying currency
upon exercise.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to
particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation may not at
all times be adequate to handle current trading volume; or (vi) one or
more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their
terms.
There is no assurance that higher than anticipated trading activity
or other unforeseen events might not, at times, render certain of the
facilities of the Options Clearing Corporation inadequate, and thereby
result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders.
The Portfolio may purchase and write over-the-counter options to the
extent consistent with its limitation on investments in illiquid
securities, as described in the Fund's prospectus. Trading in
over-the-counter options is subject to the risk that the other party will
be unable or unwilling to close-out options purchased or written by the
Portfolio. The staff of the SEC takes the position that purchased
over-the-counter options and assets used to cover written over-the-counter
options are illiquid securities. However, with respect to options written
with primary dealers in U.S. Government securities or with dealers on the
Federal Reserve's approved list for foreign exchange dealers pursuant to
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<PAGE>
an agreement requiring a closing purchase transaction at a formula price,
the amount of illiquid securities may be calculated with reference to the
repurchase formula.
The Portfolio intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the Portfolio
is "covered" if the Portfolio owns the underlying foreign currency covered
by the call or has an absolute and immediate right to acquire that foreign
currency without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon
conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if the Portfolio has a call on the same
foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the Portfolio
in cash, U.S. Government Securities and other high grade liquid debt
securities in a segregated account with its custodian.
The amount of the premiums which the Portfolio may pay or receive may
be adversely affected as new or existing institutions, including other
investment companies, engage in or increase their option purchasing and
writing activities.
Futures Contracts
A change in the level of currency exchange rates or interest rates may
affect the value of the securities held by the Portfolio (or of securities
that the Portfolio expects to purchase). To hedge against such changes,
the Portfolio may enter into (i) futures contracts for the purchase or
sale of securities, (ii) futures contracts on securities indices; (iii)
futures contracts on other financial instruments and indices and futures
contracts on foreign currencies. A futures contract may generally be
described as an agreement between two parties to buy and sell particular
financial instruments for an agreed price during a designated month (or to
deliver the final cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the
end of trading in the contract). All futures contracts entered into by the
Portfolio are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the Commodity Futures Trading Commission
("CFTC") or on foreign exchanges.
Futures Contracts on Securities or Currencies. A futures contract on
a security or currency is a binding contractual commitment which, if held
to maturity, will result in an obligation to make or accept delivery,
during a particular month, of securities or currency having a standardized
face value and rate of return or currency. By purchasing futures on
securities or currency, the Portfolio will legally obligate itself to
accept delivery of the underlying security or currency and pay the agreed
price; by selling futures on securities or currency, it will legally
obligate itself to make delivery of the security or currency against
payment of the agreed price. Open futures positions on securities or
currency are valued at the most recent settlement price, unless such price
B - 9
<PAGE>
does not reflect the fair value of the contract, in which case the
positions will be valued by or under the direction of the Board of
Trustees of the Portfolio.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions which
may result in a profit or a loss. While the Portfolio's futures contracts
on securities will usually be liquidated in this manner, it may instead
make or take delivery of the underlying securities or currency whenever it
appears economically advantageous for the Portfolio to do so. A clearing
corporation associated with the exchange on which futures on securities or
currency are traded guarantees that, if still open, the sale or purchase
will be performed on the settlement date.
Futures Contracts on Securities Indices. Futures contracts on
securities or other indices do not require the physical delivery of
securities, but merely provide for profits and losses resulting from
changes in the market value of a contract to be credited or debited at the
close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date a final cash settlement occurs
and the futures position is simply closed out. Changes in the market value
of a particular futures contract reflect changes in the level of the index
on which the futures contract is based.
Hedging Strategies. Hedging by use of futures contracts seeks to
establish with more certainty than would otherwise be possible the
effective price, rate of return or currency exchange rate on portfolio
securities or securities that the Portfolio proposes to acquire. The
Portfolio may, for example, take a "short" position in the futures market
by selling futures contracts in order to hedge against an anticipated rise
in interest rates or a decline in market prices or foreign currency rates
that would adversely affect the dollar value of the securities held by the
Portfolio. Such futures contracts may include contracts for the future
delivery of securities held by the Portfolio or securities with
characteristics similar to those of the securities held by the Portfolio.
Similarly, the Portfolio may sell futures contracts on currency in which
its securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern of correlation
between the two currencies. If, in the opinion of the Investment Adviser,
there is a sufficient degree of correlation between price trends for the
securities held by the Portfolio and futures contracts based on other
financial instruments, securities indices or other indices, the Portfolio
may also enter into such futures contracts as part of its hedging
strategy. Although under some circumstances prices of securities held by
Portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of
this difference in volatility based on historical patterns and to
compensate for it by having the Portfolio enter into a greater or lesser
number of futures contracts or by attempting to achieve only a partial
hedge against price changes affecting the securities held by the
Portfolio. When hedging of this character is successful, any depreciation
B - 10
<PAGE>
in the value of portfolio securities will substantially be offset by
appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by
purchasing such futures contracts. This would be done, for example, when
the Portfolio anticipates the subsequent purchase of particular securities
when it has the necessary cash, but expects the prices then available in
the securities market to be less favorable than the prices that are
currently available.
Options on Futures Contracts
The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board
of trade. An option on a futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the option period. Upon
exercise of the option, the writer of the option is obligated to convey
the appropriate futures position to the holder of the option. If an option
is exercised on the last trading day before the expiration date of the
option, a cash settlement will be made in an amount equal to the
difference between the closing price of the futures contract and the
exercise price of the option.
The Portfolio may use options on futures contracts solely for bona
fide hedging purposes as defined below or for non-hedging purposes subject
to the limitations imposed by CFTC regulations. If the Portfolio purchases
a call (put) option on a futures contract it benefits from any increase
(decrease) in the value of the futures contract, but is subject to the
risk of decrease (increase) in value of the futures contract. The benefits
received are reduced by the amount of the premium and transaction costs
paid by the Portfolio for the option. If market conditions do not favor
the exercise of the option, the Portfolio's loss is limited to the amount
of such premium and transaction costs paid by the Portfolio for the
option.
If the Portfolio writes a call (put) option on a futures contract, the
Portfolio receives a premium but assumes the risk of a rise (decline) in
value in the underlying futures contract. If the option is not exercised,
the Portfolio gains the amount of the premium, which may partially offset
unfavorable changes due to interest rate or currency exchange rate
fluctuations in the value of securities held or to be acquired for the
Portfolio. If the option is exercised, the Portfolio will incur a loss,
which will be reduced by the amount of the premium it receives. However,
depending on the degree of correlation between changes in the value of its
portfolio securities (or the currency in which the are denominated) and
changes in the value of futures positions, the Portfolio's losses from
writing options on futures may be partially offset by favorable changes in
the value of portfolio securities or in the cost of securities to be
acquired.
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<PAGE>
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same
series. There is no guarantee that such closing transactions can be
effected. The Portfolio's ability to establish and close out positions on
such options will be subject to the development and maintenance of a
liquid market.
Limitations on the Use of Futures Contracts and Options on Futures
Contracts
The Portfolio will engage in futures and related options transactions
only for bona fide hedging or non-hedging purposes as defined in or
permitted by CFTC regulations. The Portfolio will determine that the price
fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in
securities held by the Portfolio or which it expects to purchase. Except
as stated below, the Portfolio's futures transactions will be entered into
for traditional hedging purposes -- i.e., futures contracts will be sold
to protect against a decline in the price of securities (or the currency
in which they are denominated) that the Portfolio owns, or futures
contracts will be purchased to protect the Portfolio against an increase
in the price of securities (or the currency in which they are denominated)
it intends to purchase. As evidence of this hedging intent, the Portfolio
expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process
of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when
the futures (or option) position is closed out. However, in particular
cases, when it is economically advantageous for the Portfolio to do so, a
long futures position may be terminated (or an option may expire) without
the corresponding purchase of securities. As an alternative to compliance
with the bona fide hedging definition, a CFTC regulation permits the
Portfolio to elect to comply with a different test, under which the
aggregate initial margin and premiums required to establish non-hedging
positions in futures contracts and options on futures will not exceed 5%
of the Portfolio's net asset value after taking into account unrealized
profits and losses on such positions and excluding the in-the-money amount
of such options. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are
consistent with the requirements of the Internal Revenue Code, as amended
(the "Code"), for maintaining the qualification of each of the Portfolio's
investment company investors as a RIC for Federal income tax purposes (see
"Tax Status").
The Portfolio will be required, in connection with transactions in
futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit
of the futures commission merchant through whom the Portfolio engages in
such futures and options transactions. Cash or liquid high grade debt
securities required to be segregated in connection with a "long" futures
position taken by the Portfolio will also be held by the custodian in a
segregated account and will be marked to market daily.
B - 12
<PAGE>
Interest Rate and Currency Swaps
The Portfolio will enter into interest rate swaps only on a net basis,
i.e., the two payment streams are netted out with the Portfolio receiving
or paying, as the case may be, only the net amount of the two payments. In
contrast, currency swaps usually involve the delivery of the entire
payment stream in one designated currency in exchange for the entire
payment stream in the other designated currency. Inasmuch as the Portfolio
maintains a segregated account with respect to all interest rate and
currency swaps, the Portfolio and its Investment Adviser believe that such
obligations do not constitute senior securities (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) and,
accordingly, will not treat them as being subject to the Portfolio's
borrowing restrictions. The net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each
interest rate or currency swap will be accrued on a daily basis and an
amount of cash or liquid high grade debt securities having an aggregate
net asset value at least equal to the accrued excess will be maintained in
a segregated account by the Portfolio's custodian. The Portfolio will not
enter into any interest rate or currency swap unless the credit quality of
the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Investment Adviser. If
there is a default by the other party to such a transaction, the Portfolio
will have contractual remedies pursuant to the agreements related to the
transaction. The 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.
Reverse Repurchase Agreements
The Portfolio may enter into reverse repurchase agreements. Under a
reverse repurchase agreement, the Portfolio temporarily transfers
possession of a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash. At the same time, the Portfolio agrees
to repurchase the instrument at an agreed upon time (normally within seven
days) and price, which reflects an interest payment. The Portfolio could
also enter into reverse repurchase agreements as a means of raising cash
to satisfy redemption requests without the necessity of selling portfolio
assets.
When the Portfolio enters into a reverse repurchase agreement, any
fluctuations in the market value of either the securities transferred to
another party or the securities in which the proceeds may be invested
would affect the market value of the Portfolio's assets. As a result, such
transactions may increase fluctuations in the market value of the
Portfolio's assets. While there is a risk that large fluctuations in the
market value of the Portfolio's assets could affect the Portfolio's net
asset value, this risk is not significantly increased by entering into
reverse repurchase agreements, in the opinion of the Investment Adviser.
Because reverse repurchase agreements may be considered to be the
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practical equivalent of borrowing funds, they constitute a form of
leverage. If the Portfolio reinvests the proceeds of a reverse repurchase
agreement at a rate lower than the cost of the agreement, entering into
the agreement will lower the Portfolio's yield. While the Investment
Adviser does not consider reverse repurchase agreements to involve a
traditional borrowing of money, reverse repurchase agreements will be
included within "borrowings" contained in the Portfolio's investment
restriction (2) set forth below.
At all times that a reverse repurchase agreement for borrowing
purposes is outstanding, the Portfolio will maintain cash or high grade
liquid securities in a segregated account at its custodian bank with a
value at least equal to its obligation under the agreement. Securities and
other assets held in the segregated account may not be sold while the
reverse repurchase agreement is outstanding, unless other suitable assets
are substituted. To the extent that the Portfolio enters into reverse
repurchase agreements for hedging purposes as described in Part A, the
Portfolio will not be required to maintain the segregated account
described above.
Portfolio Turnover
The Portfolio cannot accurately predict its portfolio turnover rate,
but it is anticipated that the annual turnover rate will generally not
exceed 100% (excluding turnover of securities having a maturity of one
year or less). A 100% annual turnover rate would occur, for example, if
all the securities held by the Portfolio were replaced in a period of one
year. A high turnover rate (such as 100% or more) necessarily involves
greater expenses to the Portfolio and may result in the realization of
substantial net short-term capital gains. The Portfolio may engage in
active short-term trading to benefit from yield disparities among
different issues of securities or among the markets for fixed income
securities of different countries, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons. Such trading
will increase the Portfolio's rate of turnover and the incidence of net
short-term capital gains distributions which when allocated to investors
in the Portfolio will be subject to tax as ordinary income.
Investment Restrictions
The Portfolio has adopted the following investment restrictions, which
may not be changed without the approval of the holders of a "majority of
the outstanding voting securities" of the Portfolio, which as used in this
Part B means the lesser of (a) 67% or more of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting
if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented at the meeting or (b) more than
50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in
the 1940 Act. The Portfolio may not:
(1) Purchase any security (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
B - 14
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instrumentalities) if such purchase, at the time thereof, would cause 25%
or more of the Portfolio's total assets (taken at market value) to be
invested in the securities of issuers in any single industry; provided,
that the electric, gas and telephone utility industries shall be treated
as separate industries for purposes of this restriction;
(2) Borrow money or issue senior securities except as
permitted by the Investment Company Act of 1940;
(3) Purchase securities on margin (but the Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities). The deposit or payment by the
Portfolio of initial, maintenance or variation margin in connection with
all types of options and futures contract transactions is not considered
the purchase of a security on margin;
(4) Underwrite or participate in the marketing of
securities of others, except insofar as it may technically be deemed to be
an underwriter in selling a portfolio security under circumstances which
may require the registration of the same under the Securities Act of 1933;
(5) Purchase or sell real estate, although it may
purchase and sell securities which are secured by real estate and
securities of companies which invest or deal in real estate;
(6) Purchase or sell physical commodities or futures
contracts for the purchase or sale of physical commodities; provided, that
the Portfolio may enter into all types of futures and forward contracts on
currency, securities and securities, economic and other indices and may
purchase and sell options on such futures contracts; or
(7) Make loans to any person except by (a) the
acquisition of debt instruments and making portfolio investments, (b)
entering into repurchase agreements, and (c) lending portfolio securities.
The Portfolio has adopted the following nonfundamental investment
policies, which may be changed by the Trustees of the Portfolio with or
without the approval of the Portfolio's investors. As a matter of
nonfundamental policy, the Portfolio may not: (a) invest more than 15% of
its net assets in investments which are not readily marketable, including
restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do
not include securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 that the Board of Trustees, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security; (b) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short, and unless no more than
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25% of its net assets (taken at current value) is held as collateral for
such sales at any one time. (It is the present intention of management to
make such sales only for the purpose of deferring realization of gain or
loss for Federal income tax purposes); (c) purchase or retain in its
portfolio any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee or is a
member, officer, director or trustee of any investment adviser of the
Portfolio, if after the purchase of the securities of such issuer by the
Portfolio one or more of such persons owns beneficially more than 1/2 of
1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or
securities or both (all taken at market value); (d) purchase oil, gas or
other mineral leases or purchase partnership interests in oil, gas or
other mineral exploration or development programs; (e) invest more than 5%
of its total assets (taken at current value) in the securities of issuers
which, including their predecessors, have been in operation for less than
three years; (f) purchase put or call options on securities if after such
purchase more than 5% of its net assets, as measured by the aggregate of
the premiums paid for such options, would be invested in such options; and
(g) purchase warrants with a value in excess of 5% of its net assets, or
warrants which are not listed on the New York or American Stock Exchange
with a value in excess of 2% of its net assets. The Portfolio has no
current intention during the current year of engaging in short sales.
In order to permit the sale in certain states of shares of certain
open-end investment companies which are investors in the Portfolio, the
Portfolio may adopt policies more restrictive than the fundamental
policies described above. Should the Portfolio determine that any such
policy is no longer in the best interests of the Portfolio and its
investors, it will revoke such policy.
Item 14. Management of the Portfolio
The Trustees and officers of the Portfolio are listed below. Except as
indicated, each individual has held the office shown or other offices in
the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's
investment adviser, Boston Management and Research ("BMR" or the
"Investment Adviser"), which is a wholly-owned subsidiary of Eaton Vance
Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance Corp.
("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees and officers who are "interested persons" of the Portfolio, BMR,
Eaton Vance, EVC or EV, as defined in the 1940 Act, by virtue of their
affiliation with any one or more of the Portfolio, BMR, Eaton Vance, EVC
or EV, are indicated by an asterisk(*).
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TRUSTEES OF THE PORTFOLIO
DONALD R. DWIGHT (63), Trustee
President of Dwight Partners, Inc. (a corporate relations and
communications company) founded in 1988; Chairman of the Board of
Newspapers of New England, Inc. since 1983. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director
of EVC and EV. Director or Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University
Graduate School of Business Administration. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding
company owning institutional investment management firms. Chairman,
President and Director, The Regis Fund, Inc. (mutual fund). Director or
Trustee of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE PORTFOLIO
MARK VENEZIA (45), Vice President*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (49), Treasurer*
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Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary*
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Treasurer and Assistant Secretary*
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES F. ALBAN (33), Assistant Treasurer*
Assistant Vice President of BMR since August 11, 1992 and of Eaton Vance
and EV since January 17, 1992, and employee of Eaton Vance since September
23, 1991. Tax Consultant and Audit Senior with Deloitte & Touche
(1987-1991). Officer of various investment companies managed by Eaton
Vance or BMR.
MARK P. DOMAN (34), Assistant Vice President*
Regional Representative of Eaton Vance Distributors, Inc.
Address: 136 N. Broad Street, Philadelphia, Pennsylvania 19106
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the
Special Committee of the Board of Trustees. The Special Committee's
functions include a continuous review of the Portfolio's contractual
relationship with the Investment Adviser, making recommendations to the
Trustees regarding the compensation of those Trustees who are not members
of the Eaton Vance organization, and making recommendations to the
Trustees regarding candidates to fill vacancies, as and when they occur,
in the ranks of those Trustees who are not "interested persons" of the
Portfolio or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection of
the independent accountants, and reviewing with such accountants and the
Treasurer of the Portfolio matters relative to accounting and auditing
practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian and transfer agent
of the Portfolio.
The fees and expenses of those Trustees of the Portfolio who are not
members of the Eaton Vance organization are paid by the Portfolio. During
the fiscal year ended October 31, 1994, the Trustees of the Portfolio
received the following compensation in their capacities as Trustees of the
Portfolio, and, during the year ended December 31, 1994, received the
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following compensation in their capacities as directors or trustees of the
other funds in the Eaton Vance Fund Complex1:
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Retirement Total
Aggregate Benefit Compensation
Compensation Accrued from from Corporation
Name from Portfolio Fund Complex and Fund Complex
---- -------------- ----------- ----------------
Donald R. Dwight $1,576 $8,750 $135,000
Samuel L. Hayes, III $1,574 $8,865 $142,500
Norton H. Reamer $1,548 0 $135,000
John L. Thorndike $1,609 0 $140,000
Jack L. Treynor $1,625 0 $140,000
(1) The Eaton Vance Fund Complex consists of 201 registered investment
companies or series thereof.
Trustees of the Portfolio who are not affiliated with BMR may elect to
defer receipt of all or a percentage of their annual fees in accordance
with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan
will be determined based upon the performance of such investments.
Deferral of Trustees' fees in accordance with the Plan will have a
negligible effect on the Portfolio's assets, liabilities, and net income
per share, and will not obligate the Portfolio to retain the services of
any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee.
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or
its investors, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving
the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
noninterested Trustees or in a written opinion of independent counsel,
that such officers or Trustees have not engaged in wilful misfeasance, bad
faith, gross negligence or reckless disregard of their duties.
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Item 15. Control Persons and Principal Holder of Securities
As of January 31, 1995, EV Marathon Short-Term Strategic Income Fund
(the "Marathon Fund") controlled the Portfolio by virtue of owning 99.99%
of the value of the outstanding interests in the Portfolio. Because the
Marathon Fund controls the Portfolio, the Marathon Fund may take actions
without the approval of any other investor. The Marathon Fund has informed
the Portfolio that whenever it is requested to vote on matters pertaining
to the fundamental policies of the Portfolio, it will hold a meeting of
shareholders and will cast its vote as instructed by its shareholders. It
is anticipated that any other investor in the Portfolio which is an
investment company registered under the 1940 Act would follow the same or
a similar practice. The Marathon Fund is a series of Eaton Vance
Investment Fund, Inc. (the "Corporation"). The Corporation was
incorporated under Maryland law on October 4, 1990, as the successor to a
Massachusetts business trust organized on August 21, 1990. The Corporation
(formerly Eaton Vance Short-Term Global Income Fund, Inc.) changed its
name to Eaton Vance Investment Fund, Inc. on August 17, 1993. The
Corporation is an open-end, non-diversified management investment company.
Item 16. Investment Advisory and Other Services
Investment Adviser. The Portfolio engages BMR as investment adviser
pursuant to an Investment Advisory Agreement dated March 1, 1994. BMR or
Eaton Vance acts as investment adviser to investment companies and various
individual and institutional clients with combined assets under management
of approximately $15 billion.
BMR manages the investments and affairs of the Portfolio subject to
the supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an
investment program and will determine what securities will be purchased,
held or sold by the Portfolio and what portion, if any, of the Portfolio's
assets will be held uninvested. The Investment Advisory Agreement requires
BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities. The
Portfolio is responsible for all expenses not expressly stated to be
payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and
continuing its existence, (ii) registration of the Portfolio under the
1940 Act, (iii) commissions, fees and other expenses connected with the
acquisition, holding and disposition of securities and other investments,
(iv) auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale and redemption of
interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or
other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering
and maintaining registrations of the Portfolio and of the Portfolio's
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placement agent as broker-dealer or agent under state securities laws,
(ix) expenses of reports and notices to investors and of meetings of
investors and proxy solicitations therefor, (x) expenses of reports to
governmental officers and commissions, (xi) insurance expenses, (xii)
association membership dues, (xiii) fees, expenses and disbursements of
custodians and subcustodians for all services to the Portfolio (including
without limitation safekeeping for funds, securities and other
investments, keeping of books, accounts and records, and determination of
net asset values, book capital account balances and tax capital account
balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for
all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees
of the Portfolio, (xvii) compensation and expenses of Trustees of the
Portfolio who are not members of the BMR organization, and (xvii) such
non-recurring items as may arise, including expenses incurred in
connection with litigation, proceedings and claims and the obligation of
the Portfolio to indemnify its Trustees, officers and investors with
respect thereto.
Under the Investment Advisory Agreement the Portfolio pays BMR as
compensation a monthly advisory fee equal to the aggregate of:
(a) a daily asset based fee computed by applying the annual
asset rate applicable to that portion of the total daily
net assets in each Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
1 up to $500 million ..................... 0.275% 2.75%
2 $500 million but less than $1 billion .... 0.250% 2.50%
3 $1 billion but less than $1.5 billion .... 0.225% 2.25%
4 $1.5 billion but less than $2 billion .... 0.200% 2.00%
5 $2 billion but less than $3 billion ...... 0.175% 1.75%
6 $3 billion and over ...................... 0.150% 1.50%
As at October 31, 1994, the Portfolio had net assets of $236,468,766.
For the period from the start of business, March 1, 1994, to October 31,
1994, the Portfolio paid BMR advisory fees of $1,004,670 (equivalent to
0.49% (annualized) of the Portfolio's average daily net assets for such
period).
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The Investment Advisory Agreement with BMR remains in effect until
February 28, 1996. It may be continued indefinitely thereafter so long as
such continuance after February 28, 1996 is approved at least annually (i)
by the vote of a majority of the Trustees who are not interested persons
of the Portfolio or of the Investment Adviser cast in person at a meeting
specifically called for the purpose of voting on such approval and (ii) by
the Board of Trustees or by vote of a majority of the outstanding voting
securities of the Portfolio. The Agreement may be terminated at any time
without penalty on sixty (60) days' written notice by the Board of
Trustees of either party, or by vote of the majority of the outstanding
voting securities of the Portfolio, and the Agreement will terminate
automatically in the event of its assignment. The Agreement provides that
the Investment Adviser may render services to others and engage in other
business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The Agreement also provides that
the Investment Adviser shall not be liable for any loss incurred in
connection with the performance of its duties, or action taken or omitted
under that Agreement, in the absence of willful misfeasance, bad faith,
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any
losses sustained in the acquisition, holding or disposition of any
security or other investment.
The Portfolio has also engaged BMR to act as its Administrator under
an Administration Agreement. The Administration Agreement with BMR
remains in effect until February 28, 1996 and shall continue in full force
and effect indefinitely thereafter, but only so long as such continuance
is approved at least annually (i) by the Trustees of the Portfolio and
(ii) by the vote of a majority of those Trustees of the Portfolio who are
not interested persons of the Portfolio or of the Administrator. Under
the Administration Agreement, BMR is obligated to (a) review and supervise
the provision of all domestic and foreign custodial services to the
Portfolio, and to make such reports and recommendations to the Board of
Trustees of the Portfolio concerning the provision of such services as the
Board deems appropriate; (b) provide to the Portfolio certain valuation,
legal, accounting and tax assistance and services in connection with the
Portfolio's (i) investments in (A) securities, obligations and commercial
paper that are denominated in foreign currencies or the European Currency
Unit ("ECU"), or that are issued or guaranteed by foreign entities, (B)
certificates of deposit and bankers' acceptances issued or guaranteed by,
or time deposits maintained at, foreign banks or foreign branches of U.S.
banks, and (C) participation interests in loans by U.S. or foreign banks
that are made to foreign borrowers or that are denominated in foreign
currencies or the ECU; and (ii) transactions in derivative instruments,
including instruments indexed to foreign exchange rates, forward foreign
currency exchange contracts, put and call options on foreign currencies,
futures contracts and options on such contracts, and interest rate and
currency swaps; and (c) provide to the Portfolio such other special
administrative services as the Board from time to time shall instruct BMR
to furnish under the Administration Agreement. In return for these
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special services, the Portfolio pays BMR as compensation under the
Administration Agreement a monthly fee in the amount of .0125% (equivalent
to .15% annually) of the average daily net assets of the Portfolio. For
the period from the start of business, March 1, 1994, to October 31, 1994,
the Portfolio paid BMR administration fees of $284,828.
The Portfolio will be responsible for all costs and expenses not
expressly stated to be payable by BMR under the Administration Agreement.
Such costs and expenses to be borne by the Portfolio include, without
limitation, the fees and expenses of the Portfolio's custodian and
transfer agent, including those incurred for determining the Portfolio's
net asset value and keeping the Portfolio's books; expenses of pricing and
valuation services; the cost of interest certificates; membership dues in
investment company organizations; brokerage commissions and fees; fees and
expenses of registering its interests; expenses of reports to investors,
proxy statements, and other expenses of investor's meetings; insurance
premiums; printing and mailing expenses; interest, taxes and corporate
fees; legal and accounting expenses; compensation and expenses of Trustees
not affiliated with BMR; and investment advisory and administration fees.
The Portfolio will also bear expenses incurred in connection with
litigation in which the Portfolio is a party and the legal obligation the
Portfolio may have to indemnify its officers and Trustees with respect
thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV
are both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton
Vance. The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M.
Dozier Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors
of EVC consist of the same persons and John G.L. Cabot and Ralph Z.
Sorenson. Mr. Clay is chairman and Mr. Gardner is president and chief
executive officer of EVC, BMR, Eaton Vance and EV. All of the issued and
outstanding shares of Eaton Vance and EV are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares
of the outstanding Voting Common Stock of EVC are deposited in a Voting
Trust which expires on December 31, 1996, the Voting Trustees of which are
Messrs. Clay, Brigham, Gardner, Hawkes and Rowland. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All
of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of BMR and Eaton Vance who are also
officers and Directors of EVC and EV. As of January 31, 1995, Messrs.
Clay, Gardner and Hawkes each owned 24% of such voting trust receipts, and
Messrs. Rowland and Brigham owned 15% and 13%, respectively, of such
voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees of
the Portfolio and are members of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Alban, Venezia and O'Connor and Ms. Sanders are
officers of the Portfolio and are members of the BMR, Eaton Vance and EV
organizations. Mr. Doman is an officer of the Portfolio and an employee
of EVD. BMR will receive the fees paid under the Investment Advisory
Agreement.
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Eaton Vance owns all of the stock of Energex Corporation, which is
engaged in oil and gas operations. EVC owns all of the stock of
Marblehead Energy Corp. (which is engaged in oil and gas operations) and
77.3% of the stock of Investors Bank & Trust Company, custodian of the
Portfolio, which provides custodial, trustee and other fiduciary services
to investors, including individuals, employee benefit plans, corporations,
investment companies, savings banks and other institutions. In addition,
Eaton Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment, consulting and management. EVC owns all
of the stock of Fulcrum Management, Inc. and MinVen Inc., which are
engaged in the development of precious metal properties. EVC, BMR, Eaton
Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to
time have transactions with various banks, including the custodian of the
Portfolio, Investors Bank & Trust Company. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not
be influenced by existing or potential custodial or other relationships
between the Portfolio and such banks.
Custodian. Investors Bank & Trust Company ("IBT"), 24 Federal Street,
Boston, Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian
for the Portfolio. IBT has the custody of all of the Portfolio's assets,
maintains the general ledger of the Portfolio and computes the daily net
asset value of interests in the Portfolio. In such capacity it attends to
details in connection with the sale, exchange, substitution, transfer or
other dealings with the Portfolio's investments, receives and disburses
all funds and performs various other ministerial duties upon receipt of
proper instructions from the Portfolio. IBT charges custody fees which are
competitive within the industry. The fees for the Portfolio relate to (1)
bookkeeping and valuation services provided at an annual rate, (2)
activity charges based upon the volume of investment related transactions,
and (3) reimbursement of out-of-pocket expenses. These fees are then
reduced by a credit for cash balances of the Portfolio at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
Portfolio's average daily collected balances. In view of the ownership of
EVC in IBT, the Portfolio is treated as a self-custodian pursuant to Rule
17f-2 under the 1940 Act, and the Portfolio's investments held by IBT as
custodian are thus subject to the additional examinations by the
Portfolio's independent accountants as called for by such Rule. For the
period from the start of business, March 1, 1994, to October 31, 1994, the
Portfolio paid IBT $191,871 for its services as custodian.
Independent Accountants. Coopers & Lybrand L.L.P., One Post Office
Square, Boston, Massachusetts 02109, are the independent accountants for
the Portfolio, providing audit services, tax return preparation, and
assistance and consultation with respect to the preparation of filings
with the SEC.
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Item 17. Brokerage Allocation and Other Practices
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by
BMR. BMR is also responsible for the execution of transactions for all
other accounts managed by it.
BMR places the portfolio security transactions of the Portfolio and of
all other accounts managed by it for execution with many broker-dealer
firms. BMR uses its best efforts to obtain execution of portfolio security
transactions at prices which are advantageous to the Portfolio (when a
disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, BMR will use its best
judgment in evaluating the terms of a transaction, and will give
consideration to various relevant factors, including without limitation
the size and type of the transaction, the general execution and
operational capabilities of the executing broker-dealer, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the
reputation, reliability, experience and financial condition of the
broker-dealer, the value and quality of the services rendered by the
broker-dealer in this and other transactions, and the reasonableness of
the commission, if any. The debt securities and obligations purchased and
sold by the Portfolio are generally traded in the domestic or foreign
over-the-counter markets on a net basis (i.e., without commission) through
broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of
such obligations. Such firms attempt to profit from such transactions by
buying at the bid price and selling at the higher asked price of the
market for such obligations, and the difference between the bid and asked
price is customarily referred to as the spread. The Portfolio may also
purchase debt securities from domestic and foreign underwriters, the cost
of which may include undisclosed fees and concessions to the underwriters.
Transactions in foreign obligations usually involve the payment of fixed
brokerage commissions when executed on foreign securities exchanges, which
commissions are generally higher than those in the United States.
Although commissions on portfolio security transactions will, in the
judgment of BMR, be reasonable in relation to the value of the services
provided, commissions exceeding those which another firm might charge may
be paid to broker-dealers who were selected to execute transactions on
behalf of the Portfolio and BMR's other clients for providing brokerage
and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934,
a broker or dealer who executes a portfolio transaction on behalf of the
Portfolio may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
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provided. This determination may be made on the basis of either that
particular transaction or on the basis of overall responsibilities which
BMR and its affiliates have for accounts over which they exercise
investment discretion. In making any such determination, BMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include
advice as to the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the
next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to
receive research, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealer firms which execute portfolio transactions for the
clients of such advisers and from third parties with which such
broker-dealers have arrangements. Consistent with this practice, BMR
receives Research Services from many broker-dealer firms with which BMR
places the Portfolio's transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
data bases and services. Any particular Research Service obtained through
a broker-dealer may be used by BMR in connection with client accounts
other than those accounts which pay commissions to such broker-dealer. Any
such Research Service may be broadly useful and of value to BMR in
rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by
the Portfolio is not reduced because BMR receives such Research Services.
BMR evaluates the nature and quality of the various Research Services
obtained through broker-dealer firms and attempts to allocate sufficient
commissions to such firms to ensure the continued receipt of Research
Services which BMR believes are useful or of value to it in rendering
investment advisory services to its clients.
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Subject to the requirement that BMR shall use its best efforts to seek
and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any firm with whom portfolio
orders may be placed the fact that such firm has sold or is selling
securities of other investment companies sponsored by BMR or Eaton Vance.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a
member of the Association shall favor or disfavor the distribution of
shares of any particular investment company or group of investment
companies on the basis of brokerage commissions received or expected by
such firm from any source.
Securities considered as investments for the Portfolio may also be
appropriate for other investment accounts managed by BMR or its
affiliates. BMR will attempt to allocate equitably portfolio security
transactions among the Portfolio and the portfolios of its other
investment accounts whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be
considered are the respective investment objectives of the Portfolio and
such other accounts, the relative size of portfolio holdings of the same
or comparable securities, the availability of cash for investment by the
Portfolio and such accounts, the size of investment commitments generally
held by the Portfolio and such accounts and the opinions of the persons
responsible for recommending investments to the Portfolio and such
accounts. While this procedure could have a detrimental effect on the
price or amount of the securities available to the Portfolio from time to
time, it is the opinion of the Trustees of the Portfolio that the benefits
available from the BMR organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
For the period from the start of business, March 1, 1994, to October
31, 1994, the Portfolio paid foreign brokerage commissions on its
portfolio security transactions amounting to $6,875.
Item 18. Capital Stock and Other Securities
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, the Trustees
shall liquidate the assets of the Portfolio and apply and distribute the
proceeds thereof as follows: (a) first, to the payment of all debts and
obligations of the Portfolio to third parties including, without
limitation, the retirement of outstanding debt, including any debt owed to
holders of record of interests in the Portfolio ("Holders") or their
affiliates, and the expenses of liquidation, and to the setting up of any
reserves for contingencies which may be necessary; and (b) second, then in
accordance with the Holders' positive Book Capital Account balances after
B - 28
<PAGE>
adjusting Book Capital Accounts for certain allocations provided in the
Declaration of Trust and in accordance with the requirements described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the assets of the Portfolio would cause undue loss to the
Holders, the Trustees, in order to avoid such loss, may, after having
given notification to all the Holders, to the extent not then prohibited
by the law of any jurisdiction in which the Portfolio is then formed or
qualified and applicable in the circumstances, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Portfolio except those necessary to satisfy the Portfolio's debts and
obligations or distribute the Portfolio's assets to the Holders in
liquidation. Interests in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except
as set forth below. Interests in the Portfolio may not be transferred.
Certificates representing an investor's interest in the Portfolio are
issued only upon the written request of a Holder.
Each Holder is entitled to vote in proportion to the amount of its
interest in the Portfolio. Holders do not have cumulative voting rights.
The Portfolio is not required and has no current intention to hold annual
meetings of Holders but the Portfolio will hold meetings of Holders when
in the judgment of the Portfolio's Trustees it is necessary or desirable
to submit matters to a vote of Holders at a meeting. Any action which may
be taken by Holders may be taken without a meeting if Holders holding more
than 50% of all interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of the Declaration
of Trust of the Portfolio) consent to the action in writing and the
consents are filed with the records of meetings of Holders.
The Portfolio's Declaration of Trust may be amended by vote of Holders
of more than 50% of all interests in the Portfolio at any meeting of
Holders or by an instrument in writing without a meeting, executed by a
majority of the Trustees and consented to by the Holders of more than 50%
of all interests. The Trustees may also amend the Declaration of Trust
(without the vote or consent of Holders) to change the Portfolio's name or
the state or other jurisdiction whose law shall be the governing law, to
supply any omission or cure, correct or supplement any ambiguous,
defective or inconsistent provision, to conform the Declaration of Trust
to applicable Federal law or regulations or the requirements of the Code,
or to change, modify or rescind any provision provided that such change,
modification or rescission is determined by the Trustees to be necessary
or appropriate and not to have a materially adverse effect on the
financial interests of the Holders. No amendment of the Declaration of
Trust which would change any rights with respect to any Holder's interest
in the Portfolio by reducing the amount payable thereon upon liquidation
of the Portfolio may be made, except with the vote or consent of the
Holders of two-thirds of all interests. References in the Declaration of
Trust and in Part A or this Part B to a specified percentage of, or
fraction of, interests in the Portfolio, means Holders whose combined Book
Capital Account balances represent such specified percentage or fraction
B - 29
<PAGE>
of the combined Book Capital Account balance of all, or a specified group
of, Holders.
In accordance with the Declaration of Trust, there normally will be no
meetings of the investors for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office
have been elected by investors. In such an event, the Trustees of the
Portfolio then in office will call an investors' meeting for the election
of Trustees. Except for the foregoing circumstances, and unless removed
by action of the investors in accordance with the Portfolio's Declaration
of Trust, the Trustees shall continue to hold office and may appoint
successor Trustees.
The Declaration of Trust provides that no person shall serve as a
Trustee if investors holding two-thirds of the outstanding interests have
removed him from that office either by a written declaration or by votes
cast at a meeting called for that purpose. The Declaration of Trust
further provides that under certain circumstances, the investors may call
a meeting to remove a Trustee and that the Portfolio is required to
provide assistance in communicating with investors about such a meeting.
The Portfolio may merge or consolidate with any other corporation,
association, trust or other organization or may sell or exchange all or
substantially all of its assets upon such terms and conditions and for
such consideration when and as authorized by the Holders of (a) 67% or
more of the interests in the Portfolio present or represented at the
meeting of Holders, if Holders of more than 50% of all interests are
present or represented by proxy, or (b) more than 50% of all interests,
whichever is less. The Portfolio may be terminated (i) by the affirmative
vote of Holders of not less than two-thirds of all interests at any
meeting of Holders or by an instrument in writing without a meeting,
executed by a majority of the Trustees and consented to by Holders of not
less than two-thirds of all interests, or (ii) by the Trustees by written
notice to the Holders.
The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for
its obligations and liabilities, subject, however, to indemnification by
the Portfolio in the event that there is imposed upon an investor a
greater portion of the liabilities and obligations of the Portfolio than
its proportionate interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Therefore, the risk of an investor incurring financial loss
on account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
B - 30
<PAGE>
action or failure to act, but nothing in the Declaration of Trust protects
a Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Item 19. Purchase, Redemption and Pricing of Securities
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the Securities Act of 1933. See "Purchase of Interests
in the Portfolio" and "Redemption or Decrease of Interest" in Part A.
Item 20. Tax Status
The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Internal Revenue Code of 1986, as
amended (the "Code"), and it should not be a "publicly traded partnership"
within the meaning of Section 7704 of the Code. Consequently, the
Portfolio does not expect that it will be required to pay any Federal
income tax, and a holder will be required to take into account in
determining its Federal income tax liability its share of the Portfolio's
income, gains, losses and deductions.
Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity, depending upon
the factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio has
been advised by tax counsel that, in the case of a Holder that seeks to
qualify as a RIC, the aggregate approach should apply, and each such
Holder should accordingly be deemed to own a proportionate share of each
of the assets of the Portfolio and to be entitled to the gross income of
the Portfolio attributable to that share for purposes of all requirements
of Sections 851(b) and 852(b)(5) of the Code. Further, the Portfolio
believes that each Holder that seeks to qualify as a RIC should be deemed
to hold its proportionate share of the Portfolio's assets for the period
the Portfolio has held the assets or for the period the Holder has been an
investor in the Portfolio, whichever is shorter. Investors should consult
their tax advisors regarding whether the entity or the aggregate approach
applies to their investment in the Portfolio in light of their particular
tax status and any special tax rules applicable to them.
In order to enable a Holder that is otherwise eligible to qualify as a
RIC, the Portfolio intends to satisfy the requirements of Subchapter M of
B - 31
<PAGE>
the Code relating to sources of income and diversification of assets as if
they were applicable to the Portfolio and to allocate and permit
withdrawals in a manner that will enable a Holder that is a RIC to comply
with those requirements. The Portfolio will allocate at least annually to
each Holder such Holder's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss, deduction or credit in a manner intended to comply
with the Code and applicable Treasury regulations. Tax counsel has advised
the Portfolio that the Portfolio's allocations of taxable income and loss
should have "economic effect" under applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal (or, under certain
circumstances, such proceeds plus the value of any marketable securities
distributed to an investor) ("liquid proceeds") exceed a Holder's adjusted
basis of his interest in the Portfolio, the Holder will generally realize
a gain for Federal income tax purposes. If, upon a complete withdrawal
(redemption of the entire interest), the Holder's adjusted basis of his
interest exceeds the liquid proceeds of such withdrawal, the Holder will
generally realize a loss for Federal income tax purposes. The tax
consequences of a withdrawal of property (instead of or in addition to
liquid proceeds) will be different and will depend on the specific factual
circumstances. A Holder's adjusted basis of an interest in the Portfolio
will generally be the aggregate prices paid therefor (including the
adjusted basis of contributed property and any gain recognized on such
contribution), increased by the amounts of the Holder's distributive share
of items of income (including interest income exempt from Federal income
tax) and realized net gain of the Portfolio, and reduced, but not below
zero, by (i) the amounts of the Holder's distributive share of items of
Portfolio loss, and (ii) the amount of any cash distributions (including
distributions of interest income exempt from Federal income tax and cash
distributions on withdrawals from the Portfolio) and the basis to the
Holder of any property received by such Holder other than in liquidation,
and (iii) the Holder's distributive share of the Portfolio's nondeductible
expenditures not properly chargeable to capital account. Increases or
decreases in a Holder's share of the Portfolio's liabilities may also
result in corresponding increases or decreases in such adjusted basis.
Distributions of liquid proceeds in excess of a Holder's adjusted basis in
its interest in the Portfolio immediately prior thereto generally will
result in the recognition of gain to the Holder in the amount of such
excess.
The Portfolio may acquire zero coupon or other securities issued with
original issue discount. As the holder of those securities, the Portfolio
must account for the original issue discount that accrues on the
securities during the taxable year, even if it receives no corresponding
payment on the securities during the year. Because each Holder that is a
RIC must distribute annually substantially all of its investment company
taxable income and net tax-exempt income, including any original issue
discount, to qualify for treatment as a RIC, any such Holder may be
required in a particular year to distribute as an "exempt-interest
B - 32
<PAGE>
dividend" an amount that is greater than its proportionate share of the
total amount of cash the Portfolio actually receives. Those distributions
will be made from the Holder's cash assets, if any, or from its
proportionate share of the Portfolio's cash assets or the proceeds of
sales of the Portfolio's securities, if necessary. The Portfolio may
realize capital gains or losses from those sales, which would increase or
decrease the investment company taxable income and/or net capital gain
(the excess of net long-term capital gain over net short-term capital
loss) of a Holder that is a RIC. In addition, any such gains may be
realized on the disposition of securities held for less than three months.
Because of the Short-Short Limitation (defined below), any such gains
would reduce the Portfolio's ability to sell other securities, or options
or futures contracts, held for less than three months that it might wish
to sell in the ordinary course of its portfolio management.
The appropriate tax accounting for dollar rolls is also uncertain in
some respects, and the Portfolio's use of such rolls may accordingly be
limited in order to preserve an investor's qualification as a RIC.
Investments in lower rated or unrated securities may present special
tax issues for the Portfolio and hence to an investor in the Portfolio to
the extent actual or anticipated defaults may be more likely with respect
to such securities. Tax rules are not entirely clear about issues such as
when the Portfolio may cease to accrue interest, original issue discount,
or market discount; when and to what extent deductions may be taken for
bad debts or worthless securities; how payments received on obligations in
default should be allocated between principal and income; and whether
exchanges of debt obligations in a workout context are taxable.
The Portfolio may be subject to foreign withholding taxes with respect
to income on certain foreign securities. These taxes may be reduced or
eliminated under the terms of an applicable U.S. income tax treaty.
Because it is expected that more than 50% of the value of the total assets
of the Portfolio at the close of any taxable year will consist of
securities issued by foreign corporations, an investor that is a RIC may
be eligible to pass through to its shareholders their proportionate shares
of foreign taxes paid by the Portfolio and allocated to the RIC, with the
result that shareholders would include such proportionate shares in income
subject to Federal income tax and would be entitled to take a foreign tax
credit or deduction for such foreign taxes, subject to certain
limitations. Certain foreign exchange gains and losses realized by the
Portfolio and allocated to the RIC will be treated as ordinary income and
losses. Certain uses of foreign currency, foreign currency options,
futures and forward contracts, and interest rate and currency swaps, and
investment by the Portfolio in certain "passive foreign investment
companies", may be limited or a tax election may be made, if available, in
order to enable an investor that is a RIC to preserve its qualification as
a RIC or to avoid imposition of a tax on such an investor.
B - 33
<PAGE>
The Portfolio's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of its items of income, gain or loss and hence the
allocations of such items to investors. For example, certain positions
held by the Portfolio on the last business day of each taxable year will
be marked to market (i.e., treated as if closed out on such day), and any
resulting gain or loss will generally be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Portfolio
that substantially diminish the Portfolio's risk of loss with respect to
other positions in its portfolio may constitute "straddles," which are
subject to tax rules that may cause deferral of Portfolio losses,
adjustments in the holding period of Portfolio securities and conversion
of short-term into long-term capital losses.
Income from transactions in options and futures contracts derived by
the Portfolio with respect to its business of investing in securities will
qualify as permissible income for its Holders that are RICs under the
requirement that at least 90% of a RIC's gross income each taxable year
consist of specified types of income. However, income from the dispo-
sition by the Portfolio of options and futures contracts held for less
than three months will be subject to the requirement applicable to those
Holders that less than 30% of a RIC's gross income each taxable year
consist of certain short-term gains ("Short-Short Limitation").
If the Portfolio satisfies certain requirements, any increase in value
of a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Holders that are RICs satisfy the Short-Short Limitation.
Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. The Portfolio
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Portfolio does not so qualify, it
may be forced to defer the closing out of options and futures contracts
beyond the time when it otherwise would be advantageous to do so, in order
for Holders that are RICs to continue to qualify as such.
An entity that is treated as a partnership under the Code, such as
the Portfolio, is generally treated as a partnership under state and local
tax laws, but certain states may have different entity classification
criteria and may therefore reach a different conclusion. Entities that are
classified as partnerships are not treated as separate taxable entities
under most state and local tax laws, and the income of a partnership is
considered to be income of partners both in timing and in character. The
laws of the various states and local taxing authorities vary with respect
to the status of a partnership interest under state and local tax laws,
and each holder of an interest in the Portfolio is advised to consult his
own tax adviser.
B - 34
<PAGE>
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Investors should consult
their own tax advisers with respect to special tax rules that may apply in
their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
Item 21. Underwriters
The placement agent for the Portfolio is Eaton Vance Distributors,
Inc., which receives no compensation for serving in this capacity.
Investment companies, common and commingled trust funds and similar
organizations and entities may continuously invest in the Portfolio.
Item 22. Calculation of Performance Data
Not applicable.
Item 23. Financial Statements
The following financial statements of the Portfolio included herein
have been included in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, as experts in accounting and auditing.
Portfolio of Investments as of October 31, 1994
Statement of Assets and Liabilities as at October 31,
1994
Statement of Operations for the period from the start of
business, March 1, 1994, to October 31, 1994
Statement of Changes in Net Assets for the period from
the start of business, March 1, 1994, to October 31, 1994
Supplementary Data for the period from the start of
business, March 1, 1994, to October 31, 1994
Notes to Financial Statements
Report of Independent Accountants
B - 35
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
SHORT-TERM INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
- ---------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- ---------------------------------------------------------------------------------------------------
BONDS & NOTES --95.8%
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA, 10.2% U.S. Dollars
Argentina Discount Bond, (Brady), 5.8125%, 3/31/23
(identified cost, $26,948,500) 35,400,000 $24,204,750
-----------
AUSTRALIA, 7.7% Australian Dollars
Commonwealth Bank of Australia, 13.75%, 9/21/99 5,000,000 $ 4,147,322
Commonwealth Bank of Australia, 11%, 10/16/01 9,000,000 6,743,712
State Bank of New South Wales, 9%, 9/17/02 10,000,000 6,717,363
State Electricity -- Victoria, 9.25%, 9/18/03 1,000,000 666,169
-----------
Total Australia (identified cost, $19,968,579) $18,274,566
-----------
BRAZIL, 6.9% U.S. Dollars
Brazil IDU Bond, 6.0625%, 1/1/01 8,820,000 $ 7,232,400
Brazil Eligible Interest Bond, 6.6875%, 4/15/06 6,000,000 4,050,000
Brazil Discount Bond, (Brady), 6.6875%, 4/15/24 7,800,000 5,060,250
-----------
Total Brazil (identified cost, $16,076,219) $16,342,650
-----------
COSTA RICA, 3.2% U.S. Dollars
Costa Rica Interest Series B, (Brady), 5.8125%, 5/21/05 1,536,075 $ 1,305,664
Costa Rica Principal Series A, (Brady), 6.25%, 5/21/10 10,000,000 6,250,000
-----------
Total Costa Rica (identified cost, $8,113,334) $ 7,555,664
-----------
CZECH REPUBLIC, 2.7% Czech Korunas
CEZ, 14.375%, 1/27/01
(identified cost, $6,022,084) 159,710,000 $ 6,393,511
-----------
DENMARK, 2.5% Danish Krone
Denmark Government, 9%, 11/15/00
(identified cost, $6,155,561) 35,000,000 $ 5,969,976
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
FINLAND, 13.9% Finnish Markka
Republic of Finland, 11%, 1/15/99 40,000,000 $ 9,115,400
Finnish Housing Fund, 11%, 3/15/01 15,000,000 3,378,870
Finnish Housing Fund, 10.5%, 6/15/01 82,000,000 18,079,442
Finnish Housing Fund, 10.75%, 3/15/02 10,000,000 2,250,420
------------
Total Finland (identified cost, $33,294,037) $ 32,824,132
------------
ICELAND, 2.7% Icelandic Kornur
Nordic Investment Bank, 6.75%, 11/29/96
(identified cost, $6,842,285) 400,000,000 $ 6,449,200
------------
Ireland, 3.4% Irish Pound
Irish Government, 9.25%, 7/11/03
(identified cost, $8,244,835) 5,000,000 $ 8,154,504
------------
NEW ZEALAND, 13.9% New Zealand Dollars
Abbey National, 0%, 10/4/96 6,900,000 $ 3,573,617
New Zealand Government, 8%, 7/15/98 24,000,000 14,339,720
New Zealand Government, 10%, 3/15/02 23,000,000 14,853,788
------------
Total New Zealand (identified cost, $32,101,740) $ 32,767,125
------------
PHILIPPINES, 5.5% U.S. Dollars
Philippine Par Bond, (Brady), 5.25%, 12/1/17 5,000,000 $ 3,093,750
Morgan Guaranty Trust Philippine Peso --
Linked Certificate of Deposit, 0%, 12/29/94 3,000,000 3,105,117
Morgan Guaranty Trust Philippine Peso --
Linked Certificate of Deposit, 0%, 1/30/95 7,000,000 6,840,568
------------
Total Philippines (identified cost, $13,052,649) $ 13,039,435
------------
THAILAND, 4.4% Thailand Baht
Finance One Certificate of Deposit, 0%, 2/1/95 50,000,000 $ 1,955,600
Deutsche Bank Certificate of Deposit, 8.75%, 9/19/96 60,000,000 2,402,820
ABN -- Amro Bank Hong Kong -- Certificate of Deposit,
9/1%, 8/5/97 150,000,000 6,003,450
------------
Total Thailand (identified cost, $10,347,639) $ 10,361,870
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES, 18.8%
CORPORATE BONDS & NOTES, 7.8%
ACME Metals Inc, Sr. Sec. Notes, 12.5%, 8/1/02 500,000 $ 500,000
Agricultural Minerals & Chemicals, Sr. Notes,
10.75%, 9/30/03 1,000,000 1,020,000
American Restaurant Group, Sr. Sec. Notes, 12%, 9/15/98 1,000,000 950,000
Anchor Glass, Sr. Notes, 9.875%, 12/15/08 1,000,000 910,000
Applied Extrusion, Sr. Notes, 11.5%, 4/1/02 1,000,000 1,010,000
Cablevision Industries, Debs., 9.25%, 4/1/08 1,000,000 890,000
Dayton Hudson Medium Term Note, 9.5%, 6/10/15 665,000 707,961
Dayton Hudson Medium Term Note, 9.52%, 6/10/15 350,000 373,326
Dayton Hudson Medium Term Note, 9.35%, 6/16/20 600,000 642,632
Corporate Express Inc., Sr. Sub. Notes, 9.125%, 3/15/04 500,000 460,000
Flagstar Corp., Sr. Sub. Debs., 11.25%, 11/1/04 1,000,000 850,000
General Electric Capital Corp., 8.625%, 6/15/08 250,000 257,398
General Electric Capital Corp., 8.30%, 9/20/09 2,000,000 2,064,140
ITT Corp., 8.5%, 10/15/01 500,000 503,085
ITT Corp., 8.55%, 6/15/09 270,000 278,620
Jorgensen Earle, Sr. Notes, 10.75%, 3/1/00 1,000,000 1,000,000
Moran Transportation, 1st Mortgage Bond,
11.75%, 7/15/04 1,000,000 1,010,000
NL Industries Inc., Sr. Sec. Disc. Notes,
13% (0% until 10/15/98), 10/15/05 1,000,000 620,000
Purina Mills, Sr. Sub. Notes, 10.25%, 9/1/03 1,000,000 970,000
Stone Container Corp., Sr. Sub. Debs.,
10.75%, 10/1/02 500,000 492,500
Waters Corporation, Sr. Sub. Notes, 12/75%, 9/30/04 1,000,000 1,010,000
Weirton Steel Corp., Sr. Notes, 10.875%, 10/15/99 1,000,000 1,012,500
Westpoint Stevens, Sr. Sub. Notes, 9.375%, 12/15/05 1,000,000 893,750
------------
Total United States Corporate Bonds & Notes
(identified cost, $18,638,699) $ 18,425,912
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE PASS-THROUGHS, 9.4%
Federal Home Loan Mortgage Corp. Participation Certificates:
4.75%, with various maturities to 2003 297,818 $ 286,513
5.5%, with various maturities to 2019 440,010 420,505
7.75%, with maturity at 2008 325,912 319,148
12.5%, with various maturities to 2013 846,179 941,330
12.75%, with maturity at 2013 246,797 274,504
13.25%, with various maturities to 2013 399,342 446,957
13.5%, with maturity at 2019 881,344 1,002,419
14%, with various maturities to 2014 3,003,600 3,436,008
14.5%, with maturity at 2010 156,580 180,394
------------
$ 7,307,778
------------
Federal National Mortgage Association
Mortgage-Backed Securities:
4.75%, with maturity at 1999 226,001 $ 215,706
5%, with maturity at 2003 308,598 289,423
5.5%, with various maturities to 2012 379,231 363,590
12.75%, with maturity at 2014 283,416 319,111
13%, with various maturities to 2015 2,309,967 2,588,536
13.25%, with maturity at 2014 310,685 351,335
13.5%, with various maturities to 2015 1,896,080 2,145,240
14.75%, with various maturities to 2012 4,303,974 5,048,653
------------
$ 11,321,594
------------
Government National Mortgage Association:
6.5%, with various maturities to 2002 2,100,081 $ 2,009,157
8.25%, with maturity at 2008 677,545 686,045
13.5%, with various maturities at 2014 798,000 916,814
------------
$ 3,612,016
------------
Total Mortgage Pass-Throughs $ 22,241,388
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL U.S.$ VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES TREASURY BOND, 1.6%
U.S. Treasury Bond, 11.75%, 2/15/01+
(identified cost, $3,862,188) 3,000,000 $ 3,621,738
------------
Total United States (identified cost, $44,973,069) $ 44,289,038
------------
TOTAL BONDS & NOTES (IDENTIFIED COST, $232,140,531) $226,626,421
------------
- -----------------------------------------------------------------------------------------------
OPTIONS PURCHASED BY FUND -- 0.1%
- -----------------------------------------------------------------------------------------------
OPTION TO DELIVER/RECEIVE, STRIKE PRICE, EXPIRATION MONTH:
Swedish Krona
Swedish Government Bond, 10.25%, 5/05/03/SEK,
92.094, November 1994 (premium paid $292,982) 100,000,000 $ 8,036
------------
- -----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS -- 2.8%
- -----------------------------------------------------------------------------------------------
Banque National De Paris, Euro Time-Deposit
Cayman Islands, 4.75%, 11/1/94 5,600,000 $ 5,600,000
Postipanki -- N.Y., Cayman Time Deposit, 4.75%, 11/1/94 1,000,000 1,000,000
Salomon Brothers Inc. Repurchase Agreement, 4.75%,
dated 10/31/94, 11/01/94 90,000 90,000
------------
Total Short-Term Obligations, at amortized cost $ 6,690,000
------------
Total Investments (identified cost, $239,123,513), 98.7% $233,324,457
OTHER ASSETS, LESS LIABILITIES, 1.3% 3,144,309
------------
NET ASSETS, 100% $236,468,766
============
<FN>
+ Security pledged as collateral on financial futures contracts.
SEK -- Swedish Krona
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
<S> <C> <C>
ASSETS:
Investments, at value (Note 1A) (identified cost, $239,123,513) $ 233,324,457
Cash 395
Foreign currency, at value (cost, $2,046,864) 2,081,276
Receivable for investments sold 7,610,593
Interest receivable 6,649,563
Deferred organization expenses (Note 1J) 20,392
---------------
Total assets $ 249,686,676
LIABILITIES:
Payable for investments purchased $ 6,859,384
Payable for forward foreign currency exchange contracts 6,272,443
Payable for daily variation margin on financial futures contracts 45,153
Accrued expenses 40,930
--------------
Total liabilities 13,217,910
---------------
NET ASSETS applicable to investors' interest in Portfolio $ 236,468,766
===============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $ 248,008,101
Unrealized depreciation of investments (computed on the basis of
identified cost) (11,539,335)
---------------
Total $ 236,468,766
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the period from the start of business, March 1, 1994, to October 31, 1994
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income -- $ 17,513,766
Expenses --
Investment adviser fee (Note 2) $ 1,004,670
Administration fee (Note 2) 284,828
Compensation of Directors not members of the
Investment Adviser's organization (Note 2) 4,895
Custodian fee (Note 2) 191,871
Legal and accounting services 49,964
Registration costs 1,265
Amortization of organization expenses (Note 1J) 3,161
Miscellaneous 23,552
-------------
Total expenses 1,564,206
---------------
Net investment income $ 15,949,560
---------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss (identified cost basis) (including net gain
due to foreign currency rate fluctuations of $134,438) --
Investment transactions $ (8,009,774)
Financial futures (4,990,449)
Foreign currency and forward foreign currency exchange contracts (10,646,036)
-------------
Net realized loss on investments $ (23,646,259)
Unrealized depreciation of investments (7,159,575)
---------------
Net realized and unrealized loss of investments $ (30,805,834)
---------------
Net decrease in net assets resulting from operations $ (14,856,274)
===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the period from the start of business, March 1, 1994, to October 31, 1994
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 15,949,560
Net realized loss on investments (23,646,259)
Unrealized depreciation of investments (7,159,575)
--------------
Net decrease in net assets resulting from operations $ (14,856,274)
--------------
Capital transactions --
Contributions $ 353,394,561
Withdrawals (102,169,541)
--------------
Increase in net assets resulting from capital transactions $ 251,225,020
--------------
Total increase in net assets $ 236,368,746
NET ASSETS:
At beginning of period 100,020
--------------
At end of period $ 236,468,766
==============
- -----------------------------------------------------------------------------------------------
SUPPLEMENTARY DATA
For the period from the start of business, March 1, 1994, to October 31, 1994
RATIOS (as a percentage of average net assets)
Expenses 0.82%+
Net investment income 8.41%+
PORTFOLIO TURNOVER 71%
+ Computed on an annualized basis
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1) SIGNIFICANT ACCOUNTING POLICIES
Short-Term Income Portfolio (the Portfolio) is registered under the Investment
Company Act of 1940 as a non-diversified open-end investment company which was
organized as a trust under the laws of the State of New York in 1992. The
Declaration of Trust permits the Trustees to issue beneficial interests in the
Portfolio. Investment operations began on March 1, 1994, with the acquisition
of net assets of $348,433,258 in exchange for an interest in the Portfolio by
one of the Portfolio's investors. The following is a summary of significant
accounting policies of the Portfolio. The policies are in conformity with
generally accepted accounting principles.
A. INVESTMENT VALUATIONS -- Debt securities (other than mortgage-backed,
"pass-through," securities and short-term obligations maturing in sixty days or
less), including listed securities and securities for which price quotations
are available and forward contracts, will normally be valued on the basis of
market valuations furnished by pricing services. Mortgage backed, "pass
through" securities are valued using a matrix pricing system which takes into
account closing bond valuations, yield differentials, anticipated prepayments
and interest rates. Financial futures contracts listed on commodity exchanges
and exchange-traded options are valued at closing settlement price. Short-term
obligations and money-market securities maturing in sixty days or less are
valued at amortized cost which approximates value. Non-U.S. dollar denominated
short-term obligations are valued at amortized cost as calculated in the base
currency and translated into U.S. dollars at the current exchange rate.
Investments for which market quotations are unavailable are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees.
B. INCOME -- Interest income is determined on the basis of interest accrued and
discount earned, adjusted for amortization of discount when required for
federal income tax purposes.
C. GAINS AND LOSSES FROM SECURITY TRANSACTIONS -- For book purposes, gains and
losses are not recognized until disposition. For federal tax purposes, the Fund
is subject to special tax rules that may affect the amount, timing, and
character of gains recognized on certain of the Portfolio's investments. The
Portfolio has elected, under Section 1092 of the Internal Revenue Code, to
utilize mixed straddle accounting for certain designated classes of activities
involving domestic options and domestic financial futures contracts in
determining recognized gains and losses. Under this method, Section 1256
positions (financial futures contracts and options on investments or financial
futures contracts) and non-Section 1256 positions (bonds, etc.) are
marked-to-market on a daily basis resulting in the recognition of taxable gains
and losses on a daily basis. Such gains or losses are categorized as short-term
or long-term based on aggregation rules provided in the Code.
<PAGE>
D. INCOME TAXES -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements (under
the Code) in order for its investors to satisfy them. The Portfolio will
allocate at least annually among its investors each investor's distributive
share of the Portfolio's net investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit.
E. FINANCIAL FUTURES CONTRACTS -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit an amount ("initial margin")
either in cash or securities equal to a certain percentage of the purchase
price indicated in the financial futures contract.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Subsequent payments are made or received by the Portfolio ("margin
maintenance") each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for book purposes as unrealized gains or
losses by the Portfolio. The Portfolio's investment in financial futures
contracts is designed only to hedge against anticipated future changes in
interest or currency exchange rates. Should interest or currency exchange rates
move unexpectedly, the Portfolio may not achieve the anticipated benefits of
the financial futures contracts and may realize a loss. If the Portfolio enters
into a closing transaction, the Portfolio will realize, for book purposes, a
gain or loss equal to the difference between the value of the financial futures
contract to sell and financial futures contract to buy.
F. FOREIGN CURRENCY TRANSLATION -- Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investment securities and income and expenses are converted
into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Recognized gains and losses on
investment transactions attributable to foreign currency rates are recorded for
financial statement purposes as net realized gains and losses on investments.
That portion of unrealized gains and losses on investments that result from
fluctuations in foreign currency exchange rates are not separately disclosed.
G. WRITTEN OPTIONS -- The Portfolio may write call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Portfolio. The Portfolio as a writer of an option
may have no control over whether the underlying securities may be sold (call)
or purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
H. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Portfolio may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties to
meet the terms of their contracts and from movements in the value of a foreign
currency relative to the U.S. dollar. The Portfolio will enter into forward
contracts for hedging purposes as well as non-hedging purposes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until such time as the contracts have been
closed or offset.
<PAGE>
I. REVERSE REPURCHASE AGREEMENTS -- The Portfolio may enter into reverse
repurchase agreements. Under such an agreement, the Portfolio temporarily
transfers possession, but not ownership, of a security to a counterparty, in
return for cash. At the same time, the Portfolio agrees to repurchase the
security at an agreed-upon price and time in the future. The Portfolio may
enter into reverse repurchase agreements for temporary purposes, such as to
fund redemptions, or for use as hedging instruments where the underlying
security is foreign denominated. As a form of leverage, reverse repurchase
agreements may increase the risk of fluctuation in the market value of the
Portfolio's assets or in its yield. Liabilities to counterparties under reverse
repurchase agreements are recognized in the statement of assets and liabilities
at the same time at which cash is received by the Fund. The securities
underlying such agreements continue to be treated as owned by the Fund and
remain in the Portfolio of investments. Interest charged on amounts borrowed
by the Portfolio under reverse repurchase agreements is accrued daily and
offset against interest income for financial statement purposes.
<PAGE>
- --------------------------------------------------------------------------------
J. DEFERRED ORGANIZATION EXPENSE -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
K. OTHER -- Investment transactions are accounted for on the date the
investments are purchased or sold.
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR), a
wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross investment income (i.e., income other than gains from the sale of
investments). Such percentages are reduced as average daily net assets exceed
certain levels. For the period from the start of business, March 1, 1994, to
October 31, 1994, the fee was equivalent to0.49% (annualized) of the
Portfolio's average net assets for such period and amounted to $1,004,670. An
administration fee, computed at an effective annual rate of 0.15% of average
daily net assets was also paid to BMR for administrative services and office
facilities. Such fee amounted to $284,828 for the period from the start of
business, March 1, 1994, to October 31, 1994.
Except for Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser fee. Investors Bank & Trust
Company (IBT), an affiliate of EVM and BMR, serves as custodian of the
Portfolio. Pursuant to the custodian agreement, IBT receives a fee reduced by
credits which are determined based on the average daily cash balances the
Portfolio maintains with IBT. Certain of the officers of the Portfolio and
Directors of the Corporation are officers and directors/trustees of the above
organizations.
- --------------------------------------------------------------------------------
(3) LINE OF CREDIT
The Portfolio participates with other portfolios and funds managed by BMR or
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Borrowings will be made by the Portfolio solely to
facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each portfolio or fund based on its
borrowings at an amount above either the bank's adjusted certificate of deposit
rate, a variable adjusted certificate of deposit rate, or a federal funds
effective rate. In addition, a fee computed at an annual rate of 1/4 of 1% on
the $20 million committed facility and on the daily unused portion of the $100
million discretionary facility is allocated among the participating portfolios
and funds at the end of each quarter. The Portfolio did not have any
significant borrowings or allocated fees during the period from March 1, 1994,
to October 31, 1994.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(4) INVESTMENTS
<TABLE>
The Portfolio invests primarily in foreign debt securities and U.S. Government
securities, the aggregate of which have a dollar weighted average maturity of
not more than three years. The ability of the issuers of the debt securities to
meet their obligations may be affected by economic developments in a specific
industry or country. Purchases and sales of investments, other than short- term
obligations, for the period from the start of business, March 1, 1994, to
October 31, 1994, were as follows:
<S> <C>
Purchases --
Investments (non-U.S. Government) $186,217,365
U.S. Government Securities --
------------
$186,217,365
============
Sales --
Investments (non-U.S. Government) $215,246,119
U.S. Government Securities 30,195,867
------------
$245,441,986
============
</TABLE>
- --------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts and financial futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
<PAGE>
<TABLE>
A summary of obligations under these financial instruments at October 31, 1994 is as follows:
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<CAPTION>
Sales
- ----
In Exchange Net Unrealized
Settlement For (in U.S. Appreciation
Date Deliver Dollars) (Depreciation)
- -------------- ------------------------------ --------------- ----------------
<S> <C> <C> <C> <C>
11/14/94-2/22/95 Belgian Franc 1,667,765,401 $ 48,538,463 $ (5,249,752)
11/03/94 Deutsche Mark 8,200,456 5,203,698 (233,405)
11/30/94-1/11/95 Finnish Markka 122,453,197 24,585,183 (1,890,521)
6/15/95 Japanese Yen 1,500,000,000 14,943,216 (849,578)
--------------- ----------------
$ 93,270,560 $ (8,223,256)
=============== ================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
Purchases
- ---------
Deliver Net Unrealized
Settlement (in United Appreciation
Date In Exchange for States Dollars) (Depreciation)
- ------------------- ----------------------------------- ---------------- --------------
<S> <C> <C> <C> <C>
12/8/94-12/21/94 Australian Dollar 14,364,306 $ 10,608,752 $ 34,039
11/30/94-12/29/94 Canadian Dollar 26,439,186 19,185,278 364,334
11/3/94-1/23/95 Deutsche Mark 18,321,265 12,209,152 (54,837)
2/6/95-3/13/95 Indonesian Rupiah 37,000,000,000 16,365,499 284,794
1/20/95 Indian Rupee 252,200,000 8,000,000 23,236
11/15/94-11/30/94 Italian Lira 26,578,254,451 16,294,212 898,737
1/30/95 Japanese Yen 324,000,000 3,367,108 (781)
3/6/95 Singapore Dollar 13,300,000 8,886,810 211,811
11/14/94-12/28/94 Thai Baht 550,000,000 21,811,572 189,480
--------------- --------------
$ 116,728,383 $ 1,950,813
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts
Net Unrealized
Appreciation
Expiration Date Contracts Position (Depreciation)
- ------------------- ----------------------------------- ---------- --------------
<S> <C> <C> <C>
12/94 50 U.S. 30 year Bond Futures Short $ 201,562
12/94 40 U.S. 10 year Bond Futures Short 86,250
12/94 390 U.S. 5 year Bond Futures Short 833,407
12/94 300 Canadian 10 year Bond Futures Long (418,954)
12/94 90 Australian 10 year Bond Futures Long (159,713)
12/94 45 10 year Oat Bond Futures Short 23,836
--------------
$ 566,388
==============
</TABLE>
<PAGE>
At October 31, 1994, the Portfolio had sufficient cash and/or
securities to cover margin requirements on open futures contracts.
WRITTEN OPTION TRANSACTIONS
- --------------------------------------------------------------------------------
(6) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned at October 31, 1994, as computed on a federal income tax basis, were as
follows:
<TABLE>
<S> <C>
Aggregate cost $ 238,409,103
===============
Gross unrealized depreciation $ 9,511,403
Gross unrealized appreciation 4,426,757
---------------
Net unrealized depreciation $ 5,084,646
===============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF SHORT-TERM INCOME PORTFOLIO:
We have audited the accompanying statement of assets and liabilities of
Short-Term Income Portfolio, including the portfolio of investments, as of
October 31, 1994, the related statements of operations, changes in net assets
and supplementary data for the period from March 1, 1994 (start of business) to
October 31, 1994. These financial statements and supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and supplementary data referred to
above present fairly, in all material respects, the financial position of
Short-Term Income Portfolio as of October 31, 1994, the results of its
operations, changes in its net assets and the supplementary data for the period
from March 1, 1994 (start of business) to October 31, 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 15, 1994
<PAGE>
APPENDIX A
Description of Securities Ratings(1)
Description of Moody's Investors Service, Inc.'s corporate bond ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
<PAGE>
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporated bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Short-Term Debt
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of one year.
Issuers rated Prime-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or
P-1 repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
<PAGE>
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Description of Standard & Poor's Ratings Group's corporate bond ratings:
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B: Debt rated B 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 senior debt
that is assigned an actual or implied BB or BB- rating.
<PAGE>
CCC: Debt rated CCC 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: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C 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.
C1: The Rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category 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 Standard & Poor's
believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
NR: Bonds may lack a S&P's rating because no public rating has been
requested, because there is insufficient information on which to base a
rating, or because Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Commercial Paper
A: S&P's commercial paper rating is a current assessment of the likelihood
of timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
<PAGE>
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
Fitch Investors Service, Inc.
Investment Grade Bond Ratings
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+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors 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 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.
High Yield Bond Ratings
BB: Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
that could assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
<PAGE>
CCC: Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default of interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.
Plus (+) or Minus (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a
credit within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Investment Grade Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying 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: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be
rated below investment grade.
Duff & Phelps
Investment Grade Bond Ratings
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
<PAGE>
AA+, AA, and AA-: High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, and A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, and BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
High Yield Bond Ratings
BB+, BB, and BB-: Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
B+, B, and B-: Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate
widely according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company
developments.
Preferred stocks are rated on the same scale as bonds but the preferred
rating gives weight to its more junior position in the capital structure.
Structured Financings are also rated on this scale.
Commercial Paper/Certificates of Deposit
Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1 minus: High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protections factors. Risk factors
are very small.
Category 2: Good Grade
<PAGE>
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
Category 3: Satisfactory Grade
Duff 3: Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
* * *
Notes: (1) The ratings indicated herein are believed to be the most
recent ratings available at the date of this Registration Statement, as
amended, for the securities listed. Ratings are generally given to
securities at the time of issuance. While the rating agencies may from
time to time revise such ratings, they undertake no obligation to do so,
and the ratings indicated do not necessarily represent ratings which would
be given to these securities on the date of the Portfolio's fiscal year
end.
Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the
risks of lower-rated bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such
bonds.
Investors should note that the assignment of a rating to a bond
by a rating service may not reflect the effect of recent developments on
the issuer's ability to make interest and principal payments.
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The Financial statements called for by this Item are included in
Part B and listed in Item 23 hereof.
(b) Exhibits
1. (a) Declaration of Trust of the Registrant dated May 1, 1992.
(b) Amendment to Declaration of Trust dated February 23,
1994.
(c) Form of Amendment to Declaration of Trust.
2. By-Laws of the Registrant dated May 1, 1992.
5. Investment Advisory Agreement between the Registrant and
Boston Management and Research dated March 1, 1994.
6. Placement Agent Agreement between the Registrant and Eaton
Vance Distributors, Inc. dated March 1, 1994.
8. Form of Custodian Agreement between the Registrant and
Investors Bank & Trust Company filed as Exhibit No. 8 to the
initial Registration Statement, which was filed with the SEC
on February 4, 1994, and incorporated herein by reference.
9. Administration Agreement between the Registrant and Boston
Management and Research dated March 1, 1994.
13. Investment representation letter of Eaton Vance Investment
Fund, Inc., on behalf of Eaton Vance Short-Term Global Income
Fund dated December 14, 1993.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of
Title of Class Record Holders
Interests As of January 31, 1995
3
<PAGE>
Item 27. Indemnification
No change from the information set forth in Item 27 of Form N-1A
in the original Registration Statement under the Investment Company Act of
1940, which information is incorporated herein by reference.
The Trustees and officers of the Registrant and the personnel of
the Registrant's investment adviser are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
Item 28. Business and Other Connections
To the knowledge of the Portfolio, none of the trustees or
officers of the Portfolio's investment adviser, except as set forth on its
Form ADV as filed with the SEC, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that
certain trustees and officers also hold various positions with and engage
in business for affiliates of the investment adviser.
Item 29. Principal Underwriters
Not applicable.
Item 30. Location of Accounts and Records
All applicable accounts, books and documents required to be
maintained by the Registrant by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder are in the possession and
custody of the Registrant's custodian, Investors Bank & Trust Company, 24
Federal Street, Boston, MA 02110 and 89 South Street, Boston, MA 02111,
and its transfer agent, The Shareholder Services Group, Inc., 53 State
Street, Boston, MA 02104, with the exception of certain corporate
documents and portfolio trading documents, which are in the possession and
custody of the Registrant's investment adviser at 24 Federal Street,
Boston, MA 02110. The Registrant is informed that all applicable
accounts, books and documents required to be maintained by registered
investment advisers are in the custody and possession of the Registrant's
investment adviser.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this amendment to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and Commonwealth of
Massachusetts on the 23rd day of February, 1995.
SHORT-TERM INCOME PORTFOLIO
By /s/ JAMES B. HAWKES
James B. Hawkes
President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1(a). Declaration of Trust of the Registrant dated May 1, 1992.
1(b). Amendment to Declaration of Trust dated February 23, 1994.
1(c). Form of Amendment to Declaration of Trust.
2. By-Laws of the Registrant dated May 1, 1992.
5. Investment Advisory Agreement between the Registrant and
Boston Management and Research dated March 1, 1994.
6. Placement Agent Agreement between the Registrant and Eaton
Vance Distributors, Inc. dated March 1, 1994.
8. Form of Custodian Agreement between the Registrant and
Investors Bank & Trust Company filed as Exhibit No. 8 to the
initial Registration Statement, which was filed with the SEC
on February 4, 1994, and incorporated herein by reference.
9. Administration Agreement between the Registrant and Boston
Management and Research dated March 1, 1994.
13. Investment representation letter of Eaton Vance Investment
Fund, Inc., on behalf of Eaton Vance Short-Term Global Income
Fund dated December 14, 1993.
<PAGE>
SHORT-TERM GLOBAL INCOME PORTFOLIO
-----------------
DECLARATION OF TRUST
Dated as of May 1, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . 3
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . 5
Section 3.1 General . . . . . . . . . . . . . . . . . . 5
Section 3.2 Investments . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . 7
Section 3.8 Collection and Payment . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . 7
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . 8
Section 3.11 Further Powers . . . . . . . . . . . . . . . 8
ARTICLE IV--Investment Advisory, Administration and Placement Agent
Arrangements . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Investment Advisory, Administration and Other
Arrangements . . . . . . . . . . . . . . . . 8
Section 4.2 Parties to Contract . . . . . . . . . . . . 9
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. . . . . . . . . . . . . . . . . . . . 9
Section 5.1 Liability of Holders; Indemnification . . . . 9
Section 5.2 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Third Parties . . . . . . . . 10
Section 5.3 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Trust, Holders, etc. . . . . 10
Section 5.4 Mandatory Indemnification . . . . . . . . . 10
Section 5.5 No Bond Required of Trustees . . . . . . . . 11
i
<PAGE>
PAGE
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc. . . . . . . . . . . . . . 11
Section 5.7 Reliance on Experts, etc. . . . . . . . . . 11
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Interests . . . . . . . . . . . . . . . . . 12
Section 6.2 Non-Transferability . . . . . . . . . . . . 12
Section 6.3 Register of Interests . . . . . . . . . . . 12
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . 12
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . . . 13
Section 8.1 Book Capital Account Balances . . . . . . . . 13
Section 8.2 Allocations and Distributions to Holders . . 13
Section 8.3 Power to Modify Foregoing Procedures . . . . 13
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.1 Rights of Holders . . . . . . . . . . . . . . 13
Section 9.2 Meetings of Holders . . . . . . . . . . . . . 13
Section 9.3 Notice of Meetings . . . . . . . . . . . . . 14
Section 9.4 Record Date for Meetings, Distributions, etc. 14
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . 14
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . 15
Section 9.7 Inspection of Records . . . . . . . . . . . . 15
Section 9.8 Holder Action by Written Consent . . . . . . 15
Section 9.9 Notices . . . . . . . . . . . . . . . . . . 15
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc. . . . . . . 16
Section 10.1 Duration . . . . . . . . . . . . . . . . . . 16
Section 10.2 Termination . . . . . . . . . . . . . . . . 17
Section 10.3 Dissolution . . . . . . . . . . . . . . . . . 17
Section 10.4 Amendment Procedure . . . . . . . . . . . . . 18
Section 10.5 Merger, Consolidation and Sale of Assets . 19
Section 10.6 Incorporation . . . . . . . . . . . . . . . . 19
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 19
Section 11.1 Certificate of Designation; Agent for
Service . . . . . . . . . . . . . . . . . . 19
Section 11.2 Governing Law . . . . . . . . . . . . . . . 19
Section 11.3 Counterparts . . . . . . . . . . . . . . . . 19
Section 11.4 Reliance by Third Parties . . . . . . . . . . 20
Section 11.5 Provisions in Conflict With Law or
Regulations . . . . . . . . . . . . . . . . 20
ii
<PAGE>
DECLARATION OF TRUST
OF
SHORT-TERM GLOBAL INCOME PORTFOLIO
----------------------------------
This DECLARATION OF TRUST of Short-Term Global Income
Portfolio is made as of the 1st day of September, 1992 by the parties
signatory hereto, as Trustees (as defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under
the law of the State of New York for the investment and reinvestment of
its assets; and
WHEREAS, it is proposed that the trust assets be composed
of money and property contributed thereto by the holders of interests in
the trust entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they
will hold in trust all money and property contributed to the trust fund
and will manage and dispose of the same for the benefit of the holders of
interests in the Trust and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
---------
1.1. Name. The name of the trust created hereby (the
"Trust") shall be Short-Term Global Income Portfolio and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word
"Trust" wherever hereinafter used) shall refer to the Trustees as
Trustees, and not individually, and shall not refer to the officers,
employees, agents or independent contractors of the Trust or holders of
interests in the Trust.
1.2. Definitions. As used in this Declaration, the
following terms shall have the following meanings:
"Administrator" shall mean any party furnishing services
to the Trust pursuant to any administration contract described in Section
4.1 hereof.
"Book Capital Account" shall mean, for any Holder at any
time, the Book Capital Account of the Holder for such day, determined in
accordance with Section 8.1 hereof.
<PAGE>
"Code" shall mean the U.S. Internal Revenue Code of 1986,
as amended from time to time, as well as any non-superseded provisions of
the U.S. Internal Revenue Code of 1954, as amended (or any corresponding
provision or provisions of succeeding law).
"Commission" shall mean the U.S. Securities and Exchange
Commission.
"Declaration" shall mean this Declaration of Trust as
amended from time to time. References in this Declaration to
"Declaration", "hereof", "herein" and "hereunder" shall be deemed to refer
to this Declaration rather than the article or section in which any such
word appears.
"Fiscal Year" shall mean an annual period determined by
the Trustees which ends on August 31 of each year or on such other day as
is permitted or required by the Code.
"Holders" shall mean as of any particular time all
holders of record of Interests in the Trust.
"Institutional Investor(s)" shall mean any regulated
investment company, segregated asset account, foreign investment company,
common trust fund, group trust or other investment arrangement, whether
organized within or without the United States of America, other than an
individual, S corporation, partnership or grantor trust beneficially owned
by any individual, S corporation or partnership.
"Interest(s)" shall mean the interest of a Holder in the
Trust, including all rights, powers and privileges accorded to Holders by
this Declaration, which interest may be expressed as a percentage,
determined by calculating, at such times and on such basis as the Trustees
shall from time to time determine, the ratio of each Holder's Book Capital
Account balance to the total of all Holders' Book Capital Account
balances. Reference herein to a specified percentage of, or fraction of,
Interests, means Holders whose combined Book Capital Account balances
represent such specified percentage or fraction of the combined Book
Capital Account balances of all, or a specified group of, Holders.
"Interested Person" shall have the meaning given it in
the 1940 Act.
"Investment Adviser" shall mean any party furnishing
services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a
meeting of Holders, of (A) 67% or more of the Interests present or
represented at such meeting, if Holders of more than 50% of all Interests
are present or represented by proxy, or (B) more than 50% of all
Interests, whichever is less.
2
<PAGE>
"Person" shall mean and include individuals,
corporations, partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Redemption" shall mean the complete withdrawal of an
Interest of a Holder the result of which is to reduce the Book Capital
Account balance of that Holder to zero, and the term "redeem" shall mean
to effect a Redemption.
"Trustees" shall mean each signatory to this Declaration,
so long as such signatory shall continue in office in accordance with the
terms hereof, and all other individuals who at the time in question have
been duly elected or appointed and have qualified as Trustees in
accordance with the provisions hereof and are then in office, and
reference in this Declaration to a Trustee or Trustees shall refer to such
individual or individuals in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any
and all property, real or personal, tangible or intangible, which at such
time is owned or held by or for the account of the Trust or the Trustees.
The "1940 Act" shall mean the U.S. Investment Company Act
of 1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
Trustees
--------
2.1. Number and Qualification. The number of Trustees
shall be fixed from time to time by action of the Trustees taken as
provided in Section 2.5 hereof; provided, however, that the number of
Trustees so fixed shall in no event be less than three or more than 15.
Any vacancy created by an increase in the number of Trustees may be filled
by the appointment of an individual having the qualifications described in
this Section 2.1 made by action of the Trustees taken as provided in
Section 2.5 hereof. Any such appointment shall not become effective,
however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the
number of Trustees shall have the effect of removing any Trustee from
office. Whenever a vacancy occurs, until such vacancy is filled as
provided in Section 2.4 hereof, the Trustees continuing in office,
regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by
this Declaration. A Trustee shall be an individual at least 21 years of
age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of Holders, shall (except
in the event of resignations, retirements, removals or vacancies pursuant
3
<PAGE>
to Section 2.3 or Section 2.4 hereof) hold office until a successor to
such Trustee has been elected at such meeting and has qualified to serve
as Trustee, as required under the 1940 Act. Subject to the provisions of
Section 16(a) of the 1940 Act and except as provided in Section 2.3
hereof, each Trustee shall hold office during the lifetime of the Trust
and until its termination as hereinafter provided.
2.3. Resignation, Removal and Retirement. Any Trustee
may resign his or her trust (without need for prior or subsequent
accounting) by an instrument in writing executed by such Trustee and
delivered or mailed to the Chairman, if any, the President or the
Secretary of the Trust and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument.
Any Trustee may be removed by the affirmative vote of Holders of two-
thirds of the Interests or (provided the aggregate number of Trustees,
after such removal and after giving effect to any appointment made to fill
the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of
the remaining Trustees. Removal with cause includes, but is not limited
to, the removal of a Trustee due to physical or mental incapacity or
failure to comply with such written policies as from time to time may be
adopted by at least two-thirds of the Trustees with respect to the conduct
of the Trustees and attendance at meetings. Any Trustee who has attained
a mandatory retirement age, if any, established pursuant to any written
policy adopted from time to time by at least two-thirds of the Trustees
shall, automatically and without action by such Trustee or the remaining
Trustees, be deemed to have retired in accordance with the terms of such
policy, effective as of the date determined in accordance with such
policy. Any Trustee who has become incapacitated by illness or injury as
determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the
date of such Trustee's retirement. Upon the resignation, retirement or
removal of a Trustee, or a Trustee otherwise ceasing to be a Trustee, such
resigning, retired, removed or former Trustee shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held
in the name of such resigning, retired, removed or former Trustee. Upon
the death of any Trustee or upon removal, retirement or resignation due to
any Trustee's incapacity to serve as Trustee, the legal representative of
such deceased, removed, retired or resigning Trustee shall execute and
deliver on behalf of such deceased, removed, retired or resigning Trustee
such documents as the remaining Trustees shall require for the purpose set
forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death,
resignation, retirement, adjudicated incompetence or other incapacity to
perform the duties of the office, or removal, of a Trustee. No such
vacancy shall operate to annul this Declaration or to revoke any existing
agency created pursuant to the terms of this Declaration. In the case of
a vacancy, Holders of at least a majority of the Interests entitled to
vote, acting at any meeting of Holders held in accordance with Section 9.2
4
<PAGE>
hereof, or, to the extent permitted by the 1940 Act, a majority vote of
the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the
Trustees or the Holders shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held
from time to time upon the call of the Chairman, if any, the President,
the Secretary, an Assistant Secretary or any two Trustees, at such time,
on such day and at such place, as shall be designated in the notice of the
meeting. The Trustees shall hold an annual meeting for the election of
officers and the transaction of other business which may come before such
meeting. Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given by mail, by telegram
(which term shall include a cablegram), by telecopier or delivered
personally (which term shall include by telephone). If notice is given by
mail, it shall be mailed not later than 48 hours preceding the meeting and
if given by telegram, telecopier or personally, such notice shall be sent
or delivery made not later than 24 hours preceding the meeting. Notice of
a meeting of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the purpose
of, any meeting of the Trustees need be stated in the notice or waiver of
notice of such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except in the situation in
which a Trustee attends a meeting for the express purpose of objecting, at
the commencement of such meeting, to the transaction of any business on
the ground that the meeting was not lawfully called or convened. The
Trustees may act with or without a meeting, but no notice need be given of
action proposed to be taken by written consent. A quorum for all meetings
of the Trustees shall be a majority of the Trustees. Unless provided
otherwise in this Declaration, any action of the Trustees may be taken at
a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the
Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all
meetings of any such committee shall be a majority of the members thereof.
Unless provided otherwise in this Declaration, any action of any such
committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or without a meeting by written consent
of a majority of the members.
With respect to actions of the Trustees and any committee
of the Trustees, Trustees who are Interested Persons of the Trust or
otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 2.5 and shall be entitled to vote to the
extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a
meeting of the Trustees or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all
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individuals participating in the meeting can hear each other and
participation in a meeting by means of such communications equipment shall
constitute presence in person at such meeting.
2.6. Officers; Chairman of the Board. The Trustees
shall, from time to time, elect a President, a Secretary and a Treasurer.
The Trustees may elect or appoint, from time to time, a Chairman of the
Board who shall preside at all meetings of the Trustees and carry out such
other duties as the Trustees may designate. The Trustees may elect or
appoint or authorize the President to appoint such other officers, agents
or independent contractors with such powers as the Trustees may deem to be
advisable. The Chairman, if any, shall be and each other officer may, but
need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time
to time, amend or repeal By-Laws for the conduct of the business of the
Trust.
ARTICLE III
Powers of Trustees
------------------
3.1. General. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the
Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and such business in their own right, but with such powers
of delegation as may be permitted by this Declaration. The Trustees may
perform such acts as in their sole discretion they deem proper for
conducting the business of the Trust. The enumeration of or failure to
mention any specific power herein shall not be construed as limiting such
exclusive and absolute control. The powers of the Trustees may be
exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the
business of an investment company;
(b) subscribe for, invest in, reinvest in,
purchase or otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute or otherwise deal in or dispose of U.S. and foreign
currencies and related instruments including forward contracts, and
securities, including common and preferred stock, warrants, bonds,
debentures, time notes and all other evidences of indebtedness, negotiable
or non-negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse repurchase
agreements, convertible securities, forward contracts, options, futures
contracts, and other securities, including, without limitation, those
issued, guaranteed or sponsored by any state, territory or possession of
the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the U.S. Government,
any foreign government, or any agency, instrumentality or political
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subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank, savings institution,
corporation or other business entity organized under the laws of the
United States or under any foreign laws; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of any
and all such investments of any kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of such
rights, powers and privileges in respect of any of such investments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional instruments in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in
obligations maturing before the possible termination of the Trust, nor
shall the Trustees be limited by any law limiting the investments which
may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property
shall be vested in the Trustees as joint tenants except that the Trustees
shall have the power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name or nominee name of any other Person on behalf of the
Trust, on such terms as the Trustees may determine.
The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each individual who may
hereafter become a Trustee upon his due election and qualification. Upon
the resignation, removal or death of a Trustee, such resigning, removed or
deceased Trustee shall automatically cease to have any right, title or
interest in any Trust Property, and the right, title and interest of such
resigning, removed or deceased Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of
title shall be effective whether or not conveyancing documents have been
executed and delivered.
3.4. Sale and Increases of Interests. The Trustees,
in their discretion, may, from time to time, without a vote of the
Holders, permit any Institutional Investor to purchase an Interest, or
increase its Interest, for such type of consideration, including cash or
property, at such time or times (including, without limitation, each
business day), and on such terms as the Trustees may deem best, and may in
such manner acquire other assets (including the acquisition of assets
subject to, and in connection with the assumption of, liabilities) and
businesses. Individuals, S corporations, partnerships and grantor trusts
that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. A Holder which has redeemed its
Interest may not be permitted to purchase an Interest until the later of
60 calendar days after the date of such Redemption or the first day of the
Fiscal Year next succeeding the Fiscal Year during which such Redemption
occurred.
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3.5 Decreases and Redemptions of Interests. Subject
to Article VII hereof, the Trustees, in their discretion, may, from time
to time, without a vote of the Holders, permit a Holder to redeem its
Interest, or decrease its Interest, for either cash or property, at such
time or times (including, without limitation, each business day), and on
such terms as the Trustees may deem best.
3.6. Borrow Money. The Trustees shall have power to
borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, including the lending of portfolio securities, and to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person.
3.7. Delegation; Committees. The Trustees shall have
power, consistent with their continuing exclusive and absolute control
over the Trust Property and over the business of the Trust, to delegate
from time to time to such of their number or to officers, employees,
agents or independent contractors of the Trust the doing of such things
and the execution of such instruments in either the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have
power to collect all property due to the Trust; and to pay all claims,
including taxes, against the Trust Property; to prosecute, defend,
compromise or abandon any claims relating to the Trust or the Trust
Property; to foreclose any security interest securing any obligation, by
virtue of which any property is owed to the Trust; and to enter into
releases, agreements and other instruments.
3.9. Expenses. The Trustees shall have power to incur
and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to
pay reasonable compensation from the Trust Property to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal and brokerage services, as they in
good faith may deem reasonable, and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.10. Miscellaneous Powers. The Trustees shall have
power to: (a) employ or contract with such Persons as the Trustees may
deem appropriate for the transaction of the business of the Trust and
terminate such employees or contractual relationships as they consider
appropriate; (b) enter into joint ventures, partnerships and any other
combinations or associations; (c) purchase, and pay for out of Trust
Property, insurance policies insuring the Investment Adviser,
Administrator, placement agent, Holders, Trustees, officers, employees,
agents or independent contractors of the Trust against all claims arising
by reason of holding any such position or by reason of any action taken or
omitted by any such Person in such capacity, whether or not the Trust
would have the power to indemnify such Person against such liability; (d)
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establish pension, profit-sharing and other retirement, incentive and
benefit plans for the Trustees, officers, employees or agents of the
Trust; (e) make donations, irrespective of benefit to the Trust, for
charitable, religious, educational, scientific, civic or similar purposes;
(f) to the extent permitted by law, indemnify any Person with whom the
Trust has dealings, including the Investment Adviser, Administrator,
placement agent, Holders, Trustees, officers, employees, agents or
independent contractors of the Trust, to such extent as the Trustees shall
determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the Fiscal Year and the method by which
the accounts of the Trust shall be kept; and (i) adopt a seal for the
Trust, but the absence of such a seal shall not impair the validity of any
instrument executed on behalf of the Trust.
3.11. Further Powers. The Trustees shall have power to
conduct the business of the Trust and carry on its operations in any and
all of its branches and maintain offices, whether within or without the
State of New York, in any and all states of the United States of America,
in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign
governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in
order to promote the interests of the Trust although such things are not
herein specifically mentioned. Any determination as to what is in the
interests of the Trust which is made by the Trustees in good faith shall
be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The
Trustees shall not be required to obtain any court order in order to deal
with Trust Property.
ARTICLE IV
Investment Advisory, Administration
and Placement Agent Arrangements
-----------------------------------
4.1. Investment Advisory, Administration and Other
Arrangements. The Trustees may in their discretion, from time to time,
enter into investment advisory contracts, administration contracts or
placement agent agreements whereby the other party to such contract or
agreement shall undertake to furnish the Trustees such investment
advisory, administration, placement agent and/or other services as the
Trustees shall, from time to time, consider appropriate or desirable and
all upon such terms and conditions as the Trustees may in their sole
discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Adviser (subject to such general
or specific instructions as the Trustees may, from time to time, adopt) to
effect purchases, sales, loans or exchanges of Trust Property on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Adviser (all without any further action by the
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Trustees). Any such purchase, sale, loan or exchange shall be deemed to
have been authorized by the Trustees.
4.2. Parties to Contract. Any contract of the
character described in Section 4.1 hereof or in the By-Laws of the Trust
may be entered into with any corporation, firm, trust or association,
although one or more of the Trustees or officers of the Trust may be an
officer, director, Trustee, shareholder or member of such other party to
the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall
any individual holding such relationship be liable merely by reason of
such relationship for any loss or expense to the Trust under or by reason
of any such contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this
Article IV or the By-Laws of the Trust. The same Person may be the other
party to one or more contracts entered into pursuant to Section 4.1 hereof
or the By-Laws of the Trust, and any individual may be financially
interested or otherwise affiliated with Persons who are parties to any or
all of the contracts mentioned in this Section 4.2 or in the By-Laws of
the Trust.
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ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
-------------------------------------
5.1. Liability of Holders; Indemnification. Each
Holder shall be jointly and severally liable (with rights of contribution
inter se in proportion to their respective Interests in the Trust) for the
liabilities and obligations of the Trust in the event that the Trust fails
to satisfy such liabilities and obligations; provided, however, that, to
the extent assets are available in the Trust, the Trust shall indemnify
and hold each Holder harmless from and against any claim or liability to
which such Holder may become subject by reason of being or having been a
Holder to the extent that such claim or liability imposes on the Holder an
obligation or liability which, when compared to the obligations and
liabilities imposed on other Holders, is greater than such Holder's
Interest (proportionate share), and shall reimburse such Holder for all
legal and other expenses reasonably incurred by such Holder in connection
with any such claim or liability. The rights accruing to a Holder under
this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the
right of the Trust to indemnify or reimburse a Holder in any appropriate
situation even though not specifically provided herein. Notwithstanding
the indemnification procedure described above, it is intended that each
Holder shall remain jointly and severally liable to the Trust's creditors
as a legal matter.
5.2. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Third Parties. No Trustee,
officer, employee, agent or independent contractor (except in the case of
an agent or independent contractor to the extent expressly provided by
written contract) of the Trust shall be subject to any personal liability
whatsoever to any Person, other than the Trust or the Holders, in
connection with Trust Property or the affairs of the Trust; and all such
Persons shall look solely to the Trust Property for satisfaction of claims
of any nature against a Trustee, officer, employee, agent or independent
contractor (except in the case of an agent or independent contractor to
the extent expressly provided by written contract) of the Trust arising in
connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Trust, Holders, etc. No
Trustee, officer, employee, agent or independent contractor (except in the
case of an agent or independent contractor to the extent expressly
provided by written contract) of the Trust shall be liable to the Trust or
the Holders for any action or failure to act (including, without
limitation, the failure to compel in any way any former or acting Trustee
to redress any breach of trust) except for such Person's own bad faith,
willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
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5.4. Mandatory Indemnification. The Trust shall
indemnify, to the fullest extent permitted by law (including the 1940
Act), each Trustee, officer, employee, agent or independent contractor
(except in the case of an agent or independent contractor to the extent
expressly provided by written contract) of the Trust (including any Person
who serves at the Trust's request as a director, officer or trustee of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by such Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to
any matter as to which such Person shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of such Person's duties; provided, however, that as to any
matter disposed of by a compromise payment by such Person, pursuant to a
consent decree or otherwise, no indemnification either for such payment or
for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of such Person's office by the court or other body approving
the settlement or other disposition or by a reasonable determination,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees.
The rights accruing to any Person under these provisions shall not exclude
any other right to which such Person may be lawfully entitled; provided
that no Person may satisfy any right of indemnity or reimbursement granted
in this Section 5.4 or in Section 5.2 hereof or to which such Person may
be otherwise entitled except out of the Trust Property. The Trustees may
make advance payments in connection with indemnification under this
Section 5.4, provided that the indemnified Person shall have given a
written undertaking to reimburse the Trust in the event it is subsequently
determined that such Person is not entitled to such indemnification.
5.5. No Bond Required of Trustees. No Trustee shall,
as such, be obligated to give any bond or surety or other security for the
performance of any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust
Instruments, etc. No purchaser, lender or other Person dealing with any
Trustee, officer, employee, agent or independent contractor of the Trust
shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by such Trustee, officer, employee,
agent or independent contractor or be liable for the application of money
or property paid, loaned or delivered to or on the order of such Trustee,
officer, employee, agent or independent contractor. Every obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust, and every other act or thing whatsoever executed in connection with
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the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust made or sold by any Trustee, officer, employee, agent or independent
contractor of the Trust, in such capacity, shall contain an appropriate
recital to the effect that the Trustee, officer, employee, agent or
independent contractor of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property for
the satisfaction of any obligation or claim thereunder, and appropriate
references shall be made therein to the Declaration, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to impose personal liability on any Trustee,
officer, employee, agent or independent contractor of the Trust. Subject
to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees,
officers, employees, agents and independent contractors of the Trust in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the
performance of such Person's duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the
Trust (whether or not the Trust would have the power to indemnify such
Persons against such liability), upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by any
Investment Adviser or Administrator, accountant, appraiser or other
experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
ARTICLE VI
Interests
--------
6.1. Interests. The beneficial interest in the Trust
Property shall consist of non-transferable Interests. The Interests shall
be personal property giving only the rights in this Declaration
specifically set forth. The value of an Interest shall be equal to the
Book Capital Account balance of the Holder of the Interest.
6.2. Non-Transferability. A Holder may not transfer,
sell or exchange its Interest.
6.3. Register of Interests. A register shall be kept
at the Trust under the direction of the Trustees which shall contain the
name, address and Book Capital Account balance of each Holder. Such
register shall be conclusive as to the identity of the Holders, and the
Trust shall not be bound to recognize any equitable or legal claim to or
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interest in an Interest which is not contained in such register. No
Holder shall be entitled to receive payment of any distribution, nor to
have notice given to it as herein provided, until it has given its address
to such officer or agent of the Trust as is keeping such register for
entry thereon.
ARTICLE VII
Increases, Decreases And Redemptions of Interests
-------------------------------------------------
Subject to applicable law, to the provisions of this
Declaration and to such restrictions as may from time to time be adopted
by the Trustees, each Holder shall have the right to vary its investment
in the Trust at any time without limitation by increasing (through a
capital contribution) or decreasing (through a capital withdrawal) or by a
Redemption of its Interest. An increase in the investment of a Holder in
the Trust shall be reflected as an increase in the Book Capital Account
balance of that Holder and a decrease in the investment of a Holder in the
Trust or the Redemption of the Interest of a Holder shall be reflected as
a decrease in the Book Capital Account balance of that Holder. The Trust
shall, upon appropriate and adequate notice from any Holder increase,
decrease or redeem such Holder's Interest for an amount determined by the
application of a formula adopted for such purpose by resolution of the
Trustees; provided that (a) the amount received by the Holder upon any
such decrease or Redemption shall not exceed the decrease in the Holder's
Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at
any time and from time to time, charge fees for effecting any such
decrease or Redemption, at such rates as the Trustees may establish, and
may, at any time and from time to time, suspend such right of decrease or
Redemption. The procedures for effecting decreases or Redemptions shall
be as determined by the Trustees from time to time.
ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
--------------------------
8.1. Book Capital Account Balances. The Book Capital
Account balance of each Holder shall be determined on such days and at
such time or times as the Trustees may determine. The Trustees shall
adopt resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations
pursuant to such resolutions may be delegated by the Trustees to the
Investment Adviser, Administrator, custodian, or such other Person as the
Trustees may determine. Upon the Redemption of an Interest, the Holder of
that Interest shall be entitled to receive the balance of its Book Capital
Account. A Holder may not transfer, sell or exchange its Book Capital
Account balance.
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8.2. Allocations and Distributions to Holders. The
Trustees shall, in compliance with the Code, the 1940 Act and generally
accepted accounting principles, establish the procedures by which the
Trust shall make (i) the allocation of unrealized gains and losses,
taxable income and tax loss, and profit and loss, or any item or items
thereof, to each Holder, (ii) the payment of distributions, if any, to
Holders, and (iii) upon liquidation, the final distribution of items of
taxable income and expense. Such procedures shall be set forth in writing
and be furnished to the Trust's accountants. The Trustees may amend the
procedures adopted pursuant to this Section 8.2 from time to time. The
Trustees may retain from the net profits such amount as they may deem
necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the
conduct of the affairs of the Trust or to retain for future requirements
or extensions of the business.
8.3. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VIII, the
Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the net income of the Trust, the allocation of
income of the Trust, the Book Capital Account balance of each Holder, or
the payment of distributions to the Holders as they may deem necessary or
desirable to enable the Trust to comply with any provision of the 1940 Act
or any order of exemption issued by the Commission or with the Code.
ARTICLE IX
Holders
-------
9.1. Rights of Holders. The ownership of the Trust
Property and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Holders shall have no right or title
therein other than the beneficial interest conferred by their Interests
and they shall have no power or right to call for any partition or
division of any Trust Property.
9.2. Meetings of Holders. Meetings of Holders may be
called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Holders holding, in the aggregate, not
less than 10% of the Interests, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall
be held within or without the State of New York and within or without the
United States of America on such day and at such time as the Trustees
shall designate. Holders of one-third of the Interests, present in person
or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other
applicable law, this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the
Holders present, either in person or by proxy, at such meeting constitutes
the action of the Holders, unless a greater number of affirmative votes is
required by the 1940 Act, other applicable law, this Declaration or the
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By-Laws of the Trust. All or any one of more Holders may participate in a
meeting of Holders by means of a conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
9.3. Notice of Meetings. Notice of each meeting of
Holders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Holder, at its registered address,
mailed at least 10 days and not more than 60 days before the meeting.
Notice of any meeting may be waived in writing by any Holder either before
or after such meeting. The attendance of a Holder at a meeting shall
constitute a waiver of notice of such meeting except in the situation in
which a Holder attends a meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting was not
lawfully called or convened. At any meeting, any business properly before
the meeting may be considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further
notice.
9.4. Record Date for Meetings, Distributions, etc.
For the purpose of determining the Holders who are entitled to notice of
and to vote or act at any meeting, including any adjournment thereof, or
to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Holders or the payment of any
distribution or the taking of any other action, as the case may be, as a
record date for the determination of the Persons to be treated as Holders
for such purpose. If the Trustees do not, prior to any meeting of the
Holders, so fix a record date, then the date of mailing notice of the
meeting shall be the record date.
9.5. Proxies, etc. At any meeting of Holders, any
Holder entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such
vote is to be taken. A proxy may be revoked by a Holder at any time
before it has been exercised by placing on file with the Secretary, or
with such other officer or agent of the Trust as the Secretary may direct,
a later dated proxy or written revocation. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of the
Trust or of one or more Trustees or of one or more officers of the Trust.
Only Holders on the record date shall be entitled to vote. Each such
Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at
any meeting in person or by proxy in respect of such Interest, but if more
than one of them is present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to
be cast, such vote shall not be received in respect of such Interest. A
proxy purporting to be executed by or on behalf of a Holder shall be
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deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. No proxy shall be
valid after one year from the date of execution, unless a longer period is
expressly stated in such proxy. The Trust may also permit a Holder to
authorize and empower individuals named as proxies on any form of proxy
solicited by the Trustees to vote that Holder's Interest on any matter by
recording his voting instructions on any recording device maintained for
that purpose by the Trust or its agent, provided the Holder complies with
such procedures as the Trustees may designate to be necessary or
appropriate to determine the authenticity of the voting instructions so
recorded; such instructions shall be deemed to constitute a written proxy
signed by the Holder and delivered to the Trust and shall be deemed to be
dated as of the date such instructions were transmitted, and the Holder
shall be deemed to have approved and ratified all actions taken by such
proxies in accordance with the voting instructions so recorded.
9.6. Reports. The Trustees shall cause to be prepared
and furnished to each Holder, at least annually as of the end of each
Fiscal Year, a report of operations containing a balance sheet and a
statement of income of the Trust prepared in conformity with generally
accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to each Holder at least semi-annually interim reports of
operations containing an unaudited balance sheet as of the end of such
period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The books and records of
the Trust shall be open to inspection by Holders during normal business
hours for any purpose not harmful to the Trust.
9.8. Holder Action by Written Consent. Any action
which may be taken by Holders may be taken without a meeting if Holders
holding more than 50% of all Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) consent to the action in writing and the written consents are
filed with the records of the meetings of Holders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Holders. Each
such written consent shall be executed by or on behalf of the Holder
delivering such consent and shall bear the date of such execution. No
such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written
consents executed by a sufficient number of Holders to take such action
are filed with the records of the meetings of Holders.
9.9. Notices. Any and all communications, including
any and all notices to which any Holder may be entitled, shall be deemed
duly served or given if mailed, postage prepaid, addressed to a Holder at
its last known address as recorded on the register of the Trust.
17
<PAGE>
ARTICLE X
Duration; Termination;
Amendment; Mergers; Etc.
-------------------------
10.1. Duration. Subject to possible termination or
dissolution in accordance with the provisions of Section 10.2 and Section
10.3 hereof, respectively, the Trust created hereby shall continue until
the expiration of 20 years after the death of the last survivor of the
initial Trustees named herein and the following named persons:
Name Address Birth
---- ------- -----
Cassius Marcellus 742 Old Dublin Road November 9, 1990
Corneliu Clay Hancock, NH 03449
1308 Rhodes Street September 17, 1990
Sara Briggs Sullivan Dubois, WY 82513
Myles Bailey Rawson Winhall Hollow Road May 13, 1990
R.R. #1, Box 178B
Bondville, VT 05340
Zeben Curtis Kopchak Box 1126 October 31, 1989
Cordova, AK 99574
Landon Harris Clay 742 Old Dublin Road February 15, 1989
Hancock, NH 03449
Kelsey Ann Sullivan 1308 Rhodes Street May 1, 1988
Dubois, WY 82513
Carter Allen Rawson Winhall Hollow Road January 28, 1988
R.R. #1, Box 178B
Bondville, VT 05340
Obadiah Barclay Kopchak Box 1126 August 29, 1987
Cordova, AK 99574
Richard Tubman Clay 742 Old Dublin Road April 12, 1987
Hancock, NH 03449
Thomas Moragne Clay 742 Old Dublin Road April 11, 1985
Hancock, NH 03449
Zachariah Bishop Kopchak Box 1126 January 11, 1985
Cordova, AK 99574
Sager Anna Kopchak Box 1126 May 22, 1983
Cordova, AK 99574
10.2. Termination.
-----------
18
<PAGE>
(a) The Trust may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all Interests
at any meeting of Holders or by an instrument in writing without a
meeting, executed by a majority of the Trustees and consented to by
Holders of not less than two-thirds of all Interests, or (ii) by the
Trustees by written notice to the Holders. Upon any such termination,
(i) the Trust shall carry on no business
except for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind
up the affairs of the Trust and all of the powers of the
Trustees under this Declaration shall continue until the
affairs of the Trust have been wound up, including the
power to fulfill or discharge the contracts of the Trust,
collect the assets of the Trust, sell, convey, assign,
exchange or otherwise dispose of all or any part of the
Trust Property to one or more Persons at public or
private sale for consideration which may consist in whole
or in part of cash, securities or other property of any
kind, discharge or pay the liabilities of the Trust, and
do all other acts appropriate to liquidate the business
of the Trust; provided that any sale, conveyance,
assignment, exchange or other disposition of all or
substantially all the Trust Property shall require
approval of the principal terms of the transaction and
the nature and amount of the consideration by the vote of
Holders holding more than 50% of all Interests; and
(iii) after paying or adequately
providing for the payment of all liabilities, and upon
receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection,
the Trustees shall distribute the remaining Trust
Property, in cash or in kind or partly each, among the
Holders according to their respective rights as set forth
in the procedures established pursuant to Section 8.2
hereof.
(b) Upon termination of the Trust and
distribution to the Holders as herein provided, a majority of the Trustees
shall execute and file with the records of the Trust an instrument in
writing setting forth the fact of such termination and distribution. Upon
termination of the Trust, the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests
of all Holders shall thereupon cease.
10.3. Dissolution. Upon the bankruptcy of any Holder,
or upon the Redemption of any Interest, the Trust shall be dissolved
effective 120 days after the event. However, the Holders (other than such
bankrupt or redeeming Holder) may, by a unanimous affirmative vote at any
meeting of such Holders or by an instrument in writing without a meeting
19
<PAGE>
executed by a majority of the Trustees and consented to by all such
Holders, agree to continue the business of the Trust even if there has
been such a dissolution.
10.4. Amendment Procedure.
-------------------
(a) This Declaration may be amended by the
vote of Holders of more than 50% of all Interests at any meeting of
Holders or by an instrument in writing without a meeting, executed by a
majority of the Trustees and consented to by the Holders of more than 50%
of all Interests. Notwithstanding any other provision hereof, this
Declaration may be amended by an instrument in writing executed by a
majority of the Trustees, and without the vote or consent of Holders, for
any one or more of the following purposes: (i) to change the name of the
Trust, (ii) to supply any omission, or to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, (iii) to conform
this Declaration to the requirements of applicable federal law or
regulations or the requirements of the applicable provisions of the Code,
(iv) to change the state or other jurisdiction designated herein as the
state or other jurisdiction whose law shall be the governing law hereof,
(v) to effect such changes herein as the Trustees find to be necessary or
appropriate (A) to permit the filing of this Declaration under the law of
such state or other jurisdiction applicable to trusts or voluntary
associations, (B) to permit the Trust to elect to be treated as a
"regulated investment company" under the applicable provisions of the
Code, or (C) to permit the transfer of Interests (or to permit the
transfer of any other beneficial interest in or share of the Trust,
however denominated), (vi) in conjunction with any amendment contemplated
by the foregoing clause (iv) or the foregoing clause (v) to make any and
all such further changes or modifications to this Declaration as the
Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution of any such amendment by a
majority of the Trustees, and (vii) change, modify or rescind any
provision of this Declaration provided such change, modification or
rescission is found by the Trustees to be necessary or appropriate and to
not have a materially adverse effect on the financial interests of the
Holders, any such finding to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that
unless effected in compliance with the provisions of Section 10.4(b)
hereof, no amendment otherwise authorized by this sentence may be made
which would reduce the amount payable with respect to any Interest upon
liquidation of the Trust and; provided, further, that the Trustees shall
not be liable for failing to make any amendment permitted by this Section
10.4(a).
(b) No amendment may be made under
Section 10.4(a) hereof which would change any rights with respect to any
Interest by reducing the amount payable thereon upon liquidation of the
Trust, except with the vote or consent of Holders of two-thirds of all
Interests.
20
<PAGE>
(c) A certification in recordable form
executed by a majority of the Trustees setting forth an amendment and
reciting that it was duly adopted by the Holders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, in recordable form,
and executed by a majority of the Trustees, shall be conclusive evidence
of such amendment when filed with the records of the Trust.
Notwithstanding any other provision hereof, until such
time as Interests are first sold, this Declaration may be terminated or
amended in any respect by the affirmative vote of a majority of the
Trustees at any meeting of Trustees or by an instrument executed by a
majority of the Trustees.
10.5. Merger, Consolidation and Sale of Assets. The
Trust may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or
substantially all of the Trust Property, including good will, upon such
terms and conditions and for such consideration when and as authorized at
any meeting of Holders called for such purpose by a Majority Interests
Vote, and any such merger, consolidation, sale, lease or exchange shall be
deemed for all purposes to have been accomplished under and pursuant to
the statutes of the State of New York.
10.6. Incorporation. Upon a Majority Interests Vote,
the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the law of any jurisdiction or a trust,
partnership, association or other organization to take over the Trust
Property or to carry on any business in which the Trust directly or
indirectly has any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, partnership, association or other
organization in exchange for the equity interests thereof or otherwise,
and to lend money to, subscribe for the equity interests of, and enter
into any contract with any such corporation, trust, partnership,
association or other organization, or any corporation, trust, partnership,
association or other organization in which the Trust holds or is about to
acquire equity interests. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and
to the extent permitted by law. Nothing contained herein shall be
construed as requiring approval of the Holders for the Trustees to
organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to one or more of such
organizations or entities.
ARTICLE XI
Miscellaneous
-------------
11.1. Certificate of Designation; Agent for Service of
Process. The Trust shall file, with the Department of State of the State
of New York, a certificate, in the name of the Trust and executed by an
21
<PAGE>
officer of the Trust, designating the Secretary of State of the State of
New York as an agent upon whom process in any action or proceeding against
the Trust may be served.
11.2. Governing Law. This Declaration is executed by
the Trustees and delivered in the State of New York and with reference to
the law thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
in accordance with the law of the State of New York and reference shall be
specifically made to the trust law of the State of New York as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists.
11.3. Counterparts. This Declaration may be
simultaneously executed in several counterparts, each of which shall be
deemed to be an original, and such counterparts, together, shall
constitute one and the same instrument, which shall be sufficiently
evidenced by any one such original counterpart.
11.4. Reliance by Third Parties. Any certificate
executed by an individual who, according to the records of the Trust or of
any recording office in which this Declaration may be recorded, appears to
be a Trustee hereunder, certifying to: (a) the number or identity of
Trustees or Holders, (b) the due authorization of the execution of any
instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Holders, (d) the fact that the number of Trustees or Holders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by
or the identity of any officer elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs
of the Trust, shall be conclusive evidence as to the matters so certified
in favor of any Person dealing with the Trustees.
11.5. Provisions in Conflict With Law or Regulations.
----------------------------------------------
(a) The provisions of this Declaration are
severable, and if the Trustees shall determine, with the advice of
counsel, that any of such provisions is in conflict with the 1940 Act, or
with other applicable law and regulations, the conflicting provision shall
be deemed never to have constituted a part of this Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of this Declaration or render invalid or improper any action
taken or omitted prior to such determination.
(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.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the day and year first above written.
/s/James G. Baur
-------------------------------
JAMES G. BAUR, as Trustee and
not individually
/s/H. Day Brigham, Jr.
-------------------------------
H. DAY BRIGHAM, JR., as Trustee and
not individually
/s/James B. Hawkes
-------------------------------
JAMES B. HAWKES, as Trustee and
not individually
23
<PAGE>
SHORT-TERM INCOME PORTFOLIO
(formerly called Short-Term Global Income Portfolio)
AMENDMENT TO DECLARATION OF TRUST
February 23, 1994
AMENDMENT, made February 23, 1994 to the Declaration of Trust
made May 1, 1992 (hereinafter called the "Declaration") of Short-Term
Global Income Portfolio, a New York trust (hereinafter called the "Trust")
by the undersigned, being at least a majority of the Trustees of the Trust
in office on February 23, 1994.
WHEREAS, Section 10.4 of Article X of the Declaration empowers a
majority of the Trustees of the Trust to amend the Declaration without the
vote or consent of Holders to change the name of the Trust;
NOW THEREFORE, the undersigned Trustees, do hereby amend the
Declaration in the following manner:
1. The caption at the head of the Declaration is hereby amended
to read as follows:
SHORT-TERM INCOME PORTFOLIO
2. Section 1.1 of Article I of the Declaration is hereby amended
to read as follows:
ARTICLE I
NAME
1.1 NAME. The name of the trust created hereby (the "Trust")
shall be Short-Term Income Portfolio and so far as may be practicable the
Trustees shall conduct the Trusts's activities, execute all documents and
sue or be sued under that name, which name (and the work "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not
individually, and shall not refer to the officers, employees, agents or
independent contractors of the Trust or holders of interests in the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustees have executed this
instrument this 23rd day of February, 1994.
/s/Landon T. Clay /s/Samuel L. Hayes, III
----------------- -----------------------
LANDON T. CLAY SAMUEL L. HAYES, III
/s/Donald R. Dwight /s/Norton H. Reamer
------------------- ------------------------
DONALD R. DWIGHT NORTON H. REAMER
/s/James B. Hawkes /s/John L. Thorndike
------------------- -------------------------
JAMES B. HAWKES JOHN L. THORNDIKE
/s/Jack L. Treynor
---------------------------
JACK L. TREYNOR
- 2 -
<PAGE>
STRATEGIC INCOME PORTFOLIO
(formerly called Short-Term Income Portfolio)
FORM OF
AMENDMENT TO DECLARATION OF TRUST
March 1, 1995
AMENDMENT, made March 1, 1995 to the Declaration of Trust made
May 1, 1992, as amended February 23, 1994, (hereinafter called the
"Declaration") of Short-Term Income Portfolio, a New York trust
(hereinafter called the "Trust"), by the undersigned, being at least a
majority of the Trustees of the Trust in office on March 1, 1995.
WHEREAS, Section 10.4 of Article X of the Declaration empowers a
majority of the Trustees of the Trust to amend the Declaration without the
vote or consent of Holders to change the name of the Trust;
NOW THEREFORE, the undersigned Trustees, do hereby amend the
Declaration in the following manner:
1. The caption at the head of the Declaration is hereby amended
to read as follows:
STRATEGIC INCOME PORTFOLIO
2. Section 1.1 of Article I of the Declaration is hereby amended
to read as follows:
ARTICLE I
NAME
1.1 NAME. The name of the trust created hereby (the "Trust")
shall be Strategic Income Portfolio and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and
sue or be sued under that name, which name (and the word "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not
individually, and shall not refer to the officers, employees, agents or
independent contractors of the Trust or holders of interests in the Trust.
IN WITNESS WHEREOF, the undersigned Trustees have executed this
instrument as of this 1st day of March, 1995.
_________________________ _________________________
Landon T. Clay Samuel L. Hayes, III
_________________________ _________________________
Donald R. Dwight Norton H. Reamer
_________________________ _________________________
<PAGE>
James B. Hawkes John L. Thorndike
_________________________
Jack L. Treynor
- 2 -
<PAGE>
SHORT-TERM INCOME PORTFOLIO
____________________________
BY-LAWS
As Adopted May 1, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . . . . . . 1
Section 1.1 Records at Holder Meetings . . . . . . . . 1
Section 1.2 Inspectors of Election . . . . . . . . . . 1
ARTICLE II -- Officers . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Officers of the Trust . . . . . . . . . . . 2
Section 2.2 Election and Tenure . . . . . . . . . . . . 2
Section 2.3 Removal of Officers . . . . . . . . . . . . 2
Section 2.4 Bonds and Surety . . . . . . . . . . . . . 2
Section 2.5 Chairman, President and Vice President . . 2
Section 2.6 Secretary . . . . . . . . . . . . . . . . . 3
Section 2.7 Treasurer . . . . . . . . . . . . . . . . . 3
Section 2.8 Other Officers and Duties . . . . . . . . . 3
ARTICLE III -- Miscellaneous . . . . . . . . . . . . . . . . . . . . 4
Section 3.1 Depositories . . . . . . . . . . . . . . . 4
Section 3.2 Signatures . . . . . . . . . . . . . . . . 4
Section 3.3 Seal . . . . . . . . . . . . . . . . . . . . 4
Section 3.4 Indemnification . . . . . . . . . . . . . . 4
Section 3.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV -- Regulations; Amendment of By-Laws . . . . . . . . . . . 5
Section 4.1 Regulations . . . . . . . . . . . . . . . . 5
Section 4.2 Amendment and Repeal of By-Laws . . . . . . 5
i
<PAGE>
BY-LAWS
OF
SHORT-TERM GLOBAL INCOME PORTFOLIO
------------------------
These By-Laws are made and adopted pursuant to Section
2.7 of the Declaration of Trust establishing SHORT-TERM GLOBAL INCOME
PORTFOLIO (the "Trust"), dated as of January 18, 1994, as from time to
time amended (the "Declaration"). All words and terms capitalized in
these By-Laws shall have the meaning or meanings set forth for such words
or terms in the Declaration.
ARTICLE I
Meetings of Holders
-------------------
Section 1.1. Records at Holder Meetings. At each
meeting of the Holders there shall be open for inspection the minutes of
the last previous meeting of Holders of the Trust and a list of the
Holders of the Trust, certified to be true and correct by the Secretary or
other proper agent of the Trust, as of the record date of the meeting.
Such list of Holders shall contain the name of each Holder in alphabetical
order and the address and Interest owned by such Holder on such record
date.
Section 1.2. Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of Election
are not so appointed, the chairman, if any, of any meeting of the Holders
may, and on the request of any Holder or his proxy shall, appoint
Inspectors of Election. The number of Inspectors of Election shall be
either one or three. If appointed at the meeting on the request of one or
more Holders or proxies, a Majority Interests Vote shall determine whether
one or three Inspectors of Election are to be appointed, but failure to
allow such determination by the Holders shall not affect the validity of
the appointment of Inspectors of Election. In case any individual
appointed as an Inspector of Election fails to appear or fails or refuses
to so act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the
individual acting as chairman of the meeting. The Inspectors of Election
shall determine the Interest owned by each Holder, the Interests
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents,
shall hear and determine all challenges and questions in any way arising
in connection with the right to vote, shall count and tabulate all votes
or consents, shall determine the results, and shall do such other acts as
may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision,
act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or its proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined
by them and shall execute a certificate of any facts found by them.
<PAGE>
ARTICLE II
Officers
--------
Section 2.1. Officers of the Trust. The officers of the
Trust shall consist of a Chairman, if any, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including Vice
Presidents, as may be elected by the Trustees. Any two or more of the
offices may be held by the same individual. The Trustees may designate a
Vice President as an Executive Vice President and may designate the order
in which the other Vice Presidents may act. The Chairman shall be a
Trustee, but no other officer of the Trust, including the President, need
be a Trustee.
Section 2.2. Election and Tenure. At the initial
organization meeting and thereafter at each annual meeting of the
Trustees, the Trustees shall elect the Chairman, if any, the President,
the Secretary, the Treasurer and such other officers as the Trustees shall
deem necessary or appropriate in order to carry out the business of the
Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and
qualified. The Trustees may fill any vacancy in office or add any
additional officer at any time.
Section 2.3. Removal of Officers. Any officer may be
removed at any time, with or without cause, by action of a majority of the
Trustees. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect
upon any cause of action which any officer may have as a result of removal
in breach of a contract of employment. Any officer may resign at any time
by notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, the President or the Secretary, and such resignation
shall take effect immediately, or at a later date according to the terms
of such notice in writing.
Section 2.4. Bonds and Surety. Any officer may be
required by the Trustees to be bonded for the faithful performance of his
duties in such amount and with such sureties as the Trustees may
determine.
Section 2.5. Chairman, President and Vice Presidents.
The Chairman, if any, shall, if present, preside at all meetings of the
Holders and of the Trustees and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the
Trustees. Subject to such supervisory powers, if any, as may be given by
the Trustees to the Chairman, if any, the President shall be the chief
executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of a
corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Holders and, in the absence of the
Chairman, the President shall preside at all meetings of the Trustees.
The President shall be, ex officio, a member of all standing committees of
Trustees. Subject to the direction of the Trustees, the President shall
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
<PAGE>
instruments in writing, and to employ and discharge employees and agents
of the Trust. Unless otherwise directed by the Trustees, the President
shall have full authority and power to attend, to act and to vote, on
behalf of the Trust, at any meeting of any business organization in which
the Trust holds an interest, or to confer such powers upon any other
person, by executing any proxies duly authorizing such person. The
President shall have such further authorities and duties as the Trustees
shall from time to time determine. In the absence or disability of the
President, the Vice Presidents in order of their rank or the Vice
President designated by the Trustees, shall perform all of the duties of
the President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the
direction of the President, each Vice President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing,
and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 2.6. Secretary. The Secretary shall keep the
minutes of all meetings of, and record all votes of, Holders, Trustees and
the Executive Committee, if any. The results of all actions taken at a
meeting of the Trustees, or by written consent of the Trustees, shall be
recorded by the Secretary. The Secretary shall be custodian of the seal
of the Trust, if any, and (and any other person so authorized by the
Trustees) shall affix the seal or, if permitted, a facsimile thereof, to
any instrument executed by the Trust which would be sealed by a New York
corporation executing the same or a similar instrument and shall attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall
also perform any other duties commonly incident to such office in a New
York corporation, and shall have such other authorities and duties as the
Trustees shall from time to time determine.
Section 2.7. Treasurer. Except as otherwise directed by
the Trustees, the Treasurer shall have the general supervision of the
monies, funds, securities, notes receivable and other valuable papers and
documents of the Trust, and shall have and exercise under the supervision
of the Trustees and of the President all powers and duties normally
incident to his office. The Treasurer may endorse for deposit or
collection all notes, checks and other instruments payable to the Trust or
to its order and shall deposit all funds of the Trust as may be ordered by
the Trustees or the President. The Treasurer shall keep accurate account
of the books of the Trust's transactions which shall be the property of
the Trust, and which together with all other property of the Trust in his
possession, shall be subject at all times to the inspection and control of
the Trustees. Unless the Trustees shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Trust and shall
also be the principal financial officer of the Trust. The Treasurer shall
have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize the Investment Adviser or the
Administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
Section 2.8. Other Officers and Duties. The Trustees
may elect such other officers and assistant officers as they shall from
time to time determine to be necessary or desirable in order to conduct
<PAGE>
the business of the Trust. Assistant officers shall act generally in the
absence of the officer whom they assist and shall assist that officer in
the duties of his office. Each officer, employee and agent of the Trust
shall have such other duties and authorities as may be conferred upon him
by the Trustees or delegated to him by the President.
ARTICLE III
Miscellaneous
-------------
Section 3.1. Depositories. The funds of the Trust shall
be deposited in such depositories as the Trustees shall designate and
shall be drawn out on checks, drafts or other orders signed by such
officer, officers, agent or agents (including the Investment Adviser or
the Administrator) as the Trustees may from time to time authorize.
Section 3.2. Signatures. All contracts and other
instruments shall be executed on behalf of the Trust by such officer,
officers, agent or agents as provided in these By-Laws or as the Trustees
may from time to time by resolution provide.
Section 3.3. Seal. The seal of the Trust, if any, may
be affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the
same manner and with the same effect as if done by a New York corporation.
Section 3.4. Indemnification. Insofar as the
conditional advancing of indemnification monies under Section 5.4 of the
Declaration for actions based upon the 1940 Act may be concerned, such
payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with
the preparation of a settlement; (ii) advances may be made only upon
receipt of a written promise by, or on behalf of, the recipient to repay
the amount of the advance which exceeds the amount to which it is
ultimately determined that he is entitled to receive from the Trust by
reason of indemnification; and (iii) (a) such promise must be secured by a
surety bond, other suitable insurance or an equivalent form of security
which assures that any repayment may be obtained by the Trust without
delay or litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately will
be found entitled to indemnification.
Section 3.5. Distribution Disbursing Agents and the
Like. The Trustees shall have the power to employ and compensate such
distribution disbursing agents, warrant agents and agents for the
reinvestment of distributions as they shall deem necessary or desirable.
Any of such agents shall have such power and authority as is delegated to
any of them by the Trustees.
ARTICLE IV
<PAGE>
Regulations; Amendment of By-Laws
---------------------------------
Section 4.1. Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as
they may deem expedient concerning the sale and purchase of Interests of
the Trust.
Section 4.2. Amendment and Repeal of By-Laws. In
accordance with Section 2.7 of the Declaration, the Trustees shall have
the power to alter, amend or repeal the By-Laws or adopt new By-Laws at
any time. Action by the Trustees with respect to the By-Laws shall be
taken by an affirmative vote of a majority of the Trustees. The Trustees
shall in no event adopt By-Laws which are in conflict with the
Declaration.
The Declaration refers to the Trustees as Trustees, but
not as individuals or personally; and no Trustee, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the
Trust.
<PAGE>
SHORT-TERM INCOME PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of March, 1994, between Short-Term
Income Portfolio, a New York trust (the "Trust"), and Boston Management
and Research, a Massachusetts business trust (the "Adviser").
1. Duties of the Adviser. The Trust hereby employs the
Adviser to act as investment adviser for and to manage the investment and
reinvestment of the assets of the Trust and to administer its affairs,
subject to the supervision of the Trustees of the Trust, for the period
and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment, and undertakes to
afford to the Trust the advice and assistance of the Adviser's
organization in the choice of investments and in the purchase and sale of
securities for the Trust and to furnish for the use of the Trust office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Trust and for administering its affairs
and to pay the salaries and fees of all officers and Trustees of the Trust
who are members of the Adviser's organization and all personnel of the
Adviser performing services relating to research and investment
activities. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as otherwise expressly provided
or authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
The Adviser shall provide the Trust with such investment
management and supervision as the Trust may from time to time consider
necessary for the proper supervision of the Trust. As investment adviser
to the Trust, the Adviser shall furnish continuously an investment program
and shall determine from time to time what securities and other
investments shall be acquired, disposed of or exchanged and what portion
of the Trust's assets shall be held uninvested, subject always to the
applicable restrictions of the Declaration of Trust, By-Laws and
registration statement of the Trust under the Investment Company Act of
1940, all as from time to time amended. Should the Trustees of the Trust
at any time, however, make any specific determination as to investment
policy for the Trust and notify the Adviser thereof in writing, the
Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such
determination has been revoked. The Adviser shall take, on behalf of the
Trust, all actions which it deems necessary or desirable to implement the
investment policies of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust either directly with the
issuer or with brokers or dealers selected by the Adviser, and to that end
the Adviser is authorized as the agent of the Trust to give instructions
to the custodian of the Trust as to deliveries of securities and payments
of cash for the account of the Trust. In connection with the selection of
such brokers or dealers and the placing of such orders, the Adviser shall
use its best efforts to seek to execute security transactions at prices
which are advantageous to the Trust and (when a disclosed commission is
being charged) at reasonably competitive commission rates. In selecting
<PAGE>
brokers or dealers qualified to execute a particular transaction, brokers
or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Adviser and the Adviser is expressly
authorized to pay any broker or dealer who provides such brokerage and
research services a commission for executing a security transaction which
is in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular transaction or the
overall responsibilities which the Adviser and its affiliates have with
respect to accounts over which they exercise investment discretion.
Subject to the requirement set forth in the second sentence of this
paragraph, the Adviser is authorized to consider, as a factor in the
selection of any broker or dealer with whom purchase or sale orders may be
placed, the fact that such broker or dealer has sold or is selling shares
of any one or more investment companies sponsored by the Adviser or its
affiliates or shares of any other investment company investing in the
Trust.
2. Compensation of the Adviser. For the services, payments
and facilities to be furnished hereunder by the Adviser, the Adviser shall
be entitled to receive from the Trust, on a daily basis, compensation is
an amount equal to the aggregate of:
(a) a daily asset-based fee computed by applying the annual
asset rate applicable to that portion of the total daily net assets of the
Trust in each Category as indicated below:
Annual Asset
Rate
Category Daily Net Assets -----------
1 up to $500 million 0.275%
2 $500 million but less than $1 million 0.250%
3 $1 billion but less than $1.5 billion 0.225%
4 $1.5 billion but less than $2 billion 0.200%
5 $2 billion but less than $3 billion 0.175%
6 $3 billion and over 0.150%, plus
(b) a daily income-based fee computed by applying the daily
income rate applicable to that portion of the total daily gross income of
the Trust (which portion shall bear the same relationship to the total
daily gross income on such day as that portion of the total daily net
assets of the Trust in the same Category bears to the total daily net
assets on such day) in each Category as indicated below:
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<PAGE>
Category Daily Net Assets Daily Income Rate
1 up to $500 million 2.75%
2 $500 million but less than $1 million 2.50%
3 $1 billion but less than $1.5 billion 2.25%
4 $1.5 billion but less than $2 billion 2.00%
5 $2 billion but less than $3 billion 1.75%
6 $3 billion and over 1.50%
Such daily compensation shall be paid monthly in arrears on the last
business day of each month. The Trust's daily net assets and gross income
shall be computed in accordance with the Declaration of Trust of the Trust
and any applicable votes and determinations of the Trustees of the Trust.
In case of initiation or termination of the Agreement during any
month with respect to the Trust, the fee for that month shall be based on
the number of calendar days during which it is in effect.
The Adviser may, from time to time, waive all or a part of the
above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all expenses other than those expressly stated to
be payable by the Adviser hereunder, which expenses payable by the Trust
shall include, without implied limitation, (i) expenses of maintaining the
Trust and continuing its existence, (ii) registration of the Trust under
the Investment Company Act of 1940, (iii) commissions, fees and other
expenses connected with the requisition, holding and disposition of
securities and other investments, (iv) auditing, accounting and legal
expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale, and redemption of Interests in the Trust, (viii) expenses
of registering and qualifying the Trust and Interests in the Trust under
federal and state securities laws and of preparing and printing
registration statements or other offering statements or memoranda for such
purposes and for distributing the same to Holders and investors, and fees
and expenses of registering and maintaining registrations of the Trust and
the Trust's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to Holders and of
meetings of Holders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements
of custodians and subcustodians for all services to the Trust (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset
values, book capital account balances and tax capital account balances),
(xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, Holder servicing agents and registrars for all services
to the Trust, (xv) expenses for servicing the account of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust,
(xvii) compensation and expenses of Trustees of the Trust who are not
-3- A:\STIP.IAA
<PAGE>
members of the Adviser's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and the obligation of the Trust to
indemnify its Trustees, officers and Holders with respect thereto.
4. Other Interests. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Adviser as trustees, shareholders or otherwise
and that trustees, officers and shareholders of the Adviser are or may be
or become similarly interested in the Trust, and that the Adviser may be
or become interested in the Trust as Holder or otherwise. It is also
understood that trustees, officers, employees and shareholders of the
Adviser may be or become interested (as directors, trustees, officers,
employees, shareholders or otherwise) in other companies or entities
(including, without limitation, other investment companies) which the
Adviser may organize, sponsor or acquire, or with which it may merge or
consolidate, and which may include the words "Eaton Vance" or "Boston
Management and Research" or any combination thereof as part of their name,
and that the Adviser or its subsidiaries or affiliates may enter into
advisory or management agreements or other contracts or relationships with
such other companies or entities.
5. Limitation of Liability of the Adviser. The services of
the Adviser to the Trust are not to be deemed to be exclusive, the Adviser
being free to render services to others and engage in other business
activities. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be subject to liability to the
Trust or to any Holder of Interests in the Trust for any act or omission
in the course of, or connected with, rendering services hereunder or for
any losses which may be sustained in the acquisition, holding or
disposition of any security or other investment.
6. Sub-Investment Advisers. The Adviser may employ one or
more sub-investment advisers from time to time to perform such of the acts
and services of the Adviser, including the selection of brokers or dealers
to execute the Trust's portfolio security transactions, and upon such
terms and conditions as may be agreed upon between the Adviser and such
investment adviser and approved by the Trustees of the Trust.
7. Duration and Termination of this Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
effect through and including February 28, 1995 and shall continue in full
force and effect indefinitely thereafter, but only so long as such
continuance after February 28, 1995 is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust and (ii) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without the payment
of any penalty, by action of Trustees of the Trust or the trustees of the
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<PAGE>
Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement by vote of a
majority of the outstanding voting securities of the Trust. This
Agreement shall terminate automatically in the event of its assignment.
8. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved (i) by the
vote of a majority of those Trustees of the Trust who are not interested
persons of the Adviser or the Trust cast in person at a meeting called for
the purpose of voting on such approval, and (ii) by vote of a majority of
the outstanding voting securities of the Trust.
9. Limitation of Liability. The Adviser expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Section 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Adviser hereby agrees that it shall have
recourse to the Trust for payment of claims or obligations as between the
Trust and the Adviser arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
10. Certain Definitions. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The term "vote of a majority of the outstanding voting securities"
shall mean the vote, at a meeting of Holders, of the lesser of (a) 67 per
centum or more of the Interests in the Trust present or represented by
proxy at the meeting if the Holders of more than 50 per centum of the
outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests
in the Trust. The terms "Holders" and "Interests" when used herein shall
have the respective meanings specified in the Declaration of Trust of the
Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
SHORT-TERM INCOME PORTFOLIO
By: /s/James B. Hawkes
-------------------------------
BOSTON MANAGEMENT AND RESEARCH
By: /s/Curtis H. Jones
-------------------------------
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<PAGE>
PLACEMENT AGENT AGREEMENT
March 1, 1994
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, Massachusetts 02110
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Short-Term Income Portfolio (the
"Trust"), an open-end diversified management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
organized as a New York trust, has agreed that Eaton Vance Distributors,
Inc. ("EVD") shall be the placement agent (the "Placement Agent") of
Interests in the Trust ("Trust Interests").
1. Services as Placement Agent.
---------------------------
1.1 EVD will act as Placement Agent of the Trust Interests
covered by the Trust's registration statement then in effect under the
1940 Act. In acting as Placement Agent under this Placement Agent
Agreement, neither EVD nor its employees or any agents thereof shall make
any offer or sale of Trust Interests in a manner which would require the
Trust Interests to be registered under the Securities Act of 1933, as
amended (the "1933 Act").
1.2 All activities by EVD and its agents and employees as
Placement Agent of Trust Interests shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and
regulations adopted pursuant to the 1940 Act by the Securities and
Exchange Commission (the "Commission").
1.3 Nothing herein shall be construed to require the Trust to
accept any offer to purchase any Trust Interests, all of which shall be
subject to approval by the Board of Trustees.
1.4 The Portfolio shall furnish from time to time for use in
connection with the sale of Trust Interests such information with respect
to the Trust and Trust Interests as EVD may reasonably request. The Trust
shall also furnish EVD upon request with: (a) unaudited semiannual
statements of the Trust's books and accounts prepared by the Trust, and
(b) from time to time such additional information regarding the Trust's
financial or regulatory condition as EVD may reasonably request.
1.5 The Trust represents to EVD that all registration statements
filed by the Trust with the Commission under the 1940 Act with respect to
Trust Interests have been prepared in conformity with the requirements of
such statute and the rules and regulations of the Commission thereunder.
- 1 -
<PAGE>
As used in this Agreement the term "registration statement" shall mean any
registration statement filed with the Commission as modified by any
amendments thereto that at any time shall have been filed with the
Commission by or on behalf of the Trust. The Trust represents and
warrants to EVD that any registration statement will contain all
statements required to be stated therein in conformity with both such
statute and the rules and regulations of the Commission; that all
statements of fact contained in any registration statement will be true
and correct in all material respects at the time of filing of such
registration statement or amendment thereto; and that no registration
statement will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading to a purchaser of Trust Interests.
The Trust may but shall not be obligated to propose from time to time such
amendment to any registration statement as in the light of future
developments may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment and/or
supplement within fifteen days after receipt by the Trust of a written
request from EVD to do so, EVD may, at its option, terminate this
Agreement. The Trust shall not file any amendment to any registration
statement without giving EVD reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any
way limit the Trust's right to file at any time such amendment to any
registration statement as the Trust may deem advisable, such right being
in all respects absolute and unconditional.
1.6 The Trust agrees to indemnify, defend and hold EVD, its
several officers and directors, and any person who controls EVD within the
meaning of Section 15 of the 1933 Act or Section 20 of the Securities and
Exchange Act of 1934 (the "1934 Act") (for purposes of this paragraph 1.6,
collectively, "Covered Persons") free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which any Covered Person
may incur under the 1933 Act, the 1934 Act, common law or otherwise,
arising out of or based on any untrue statement of a material fact
contained in any registration statement, private placement memorandum or
other offering material ("Offering Material") or arising out of or based
on any omission to state a material fact required to be stated in any
Offering Material or necessary to make the statements in any Offering
Material not misleading; provided, however, that the Trust's agreement to
indemnify Covered Persons shall not be deemed to cover any claims,
demands, liabilities or expenses arising out of any financial and other
statements as are furnished in writing to the Trust by EVD in its capacity
as Placement Agent for use in the answers to any items of any registration
statement or in any statements made in any Offering Material, or arising
out of or based on any omission or alleged omission to state a material
fact in connection with the giving of such information required to be
stated in such answers or necessary to make the answers not misleading;
and further provided that the Trust's agreement to indemnify EVD and the
Trust's representations and warranties hereinbefore set forth in this
paragraph 1.6 shall not be deemed to cover any liability to the Trust or
its investors to which a Covered Person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of a Covered Person's reckless
- 2 -
<PAGE>
disregard of its obligations and duties under this Agreement. The Trust
should be notified of any action brought against a Covered Person, such
notification to be given by a writing addressed to the Trust, 24 Federal
Street Boston, Massachusetts 02110, with a copy to the Adviser of the
Trust, Boston Management and Research, at the same address, promptly after
the summons or other first legal process shall have been duly and
completely served upon such Covered Person. The failure to so notify the
Trust of any such action shall not relieve the Trust from any liability
except to the extent the Trust shall have been prejudiced by such failure,
or from any liability that the Trust may have to the Covered Person
against whom such action is brought by reason of any such untrue statement
or omission, otherwise than on account of the Trust's indemnity agreement
contained in this paragraph. The Trust will be entitled to assume the
defense of any suit brought to enforce any such claim, demand or
liability, but in such case such defense shall be conducted by counsel of
good standing chosen by the Trust and approved by EVD, which approval
shall not be unreasonably withheld. In the event the Trust elects to
assume the defense of any such suit and retain counsel of good standing
approved by EVD, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
in case the Trust does not elect to assume the defense of any such suit or
in case EVD reasonably does not approve of counsel chosen by the Trust,
the Trust will reimburse the Covered Person named as defendant in such
suit, for the fees and expenses of any counsel retained by EVD or it. The
Trust's indemnification agreement contained in this paragraph and the
Trust's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of Covered Persons, and shall survive the delivery of
any Trust Interests. This agreement of indemnity will inure exclusively
to Covered Persons and their successors. The Trust agrees to notify EVD
promptly of the commencement of any litigation or proceedings against the
Trust or any of its officers or Trustees in connection with the issue and
sale of any Trust Interests.
1.7 EVD agrees to indemnify, defend and hold the Trust, its
several officers and trustees, and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act (for purposes of this paragraph 1.7, collectively, "Covered Persons")
free and harmless from and against any and all claims, demands,
liabilities and expenses (including the costs of investigating or
defending such claims, demands, liabilities and any counsel fees incurred
in connection therewith) that Covered Persons may incur under the 1933
Act, the 1934 Act or common law or otherwise, but only to the extent that
such liability or expense incurred by a Covered Person resulting from such
claims or demands shall arise out of or be based on any untrue statement
of a material fact contained in information furnished in writing by EVD in
its capacity as Placement Agent to the Trust for use in the answers to any
of the items of any registration statement or in any statements in any
other Offering Material or shall arise out of or be based on any omission
to state a material fact in connection with such information furnished in
writing by EVD to the Trust required to be stated in such answers or
necessary to make such information not misleading. EVD shall be notified
of any action brought against a Covered Person, such notification to be
given by a writing addressed to EVD at 24 Federal Street, Boston,
Massachusetts 02110, promptly after the summons or other first legal
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<PAGE>
process shall have been duly and completely served upon such Covered
Person. EVD shall have the right of first control of the defense of the
action with counsel of its own choosing satisfactory to the Trust if such
action is based solely on such alleged misstatement or omission on EVD's
part, and in any other event each Covered Person shall have the right to
participate in the defense or preparation of the defense of any such
action. The failure to so notify EVD of any such action shall not relieve
EVD from any liability except to the extent the Trust shall have been
prejudiced by such failure, or from any liability that EVD may have to
Covered Persons by reason of any such untrue or alleged untrue statement,
or omission or alleged omission, otherwise than on account of EVD's
indemnity agreement contained in this paragraph.
1.8 No Trust Interests shall be offered by either EVD or the
Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Trust Interests hereunder shall be accepted by the
Trust if and so long as the effectiveness of the registration statement or
any necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act or the 1940 Act; provided, however, that
nothing contained in this paragraph shall in any way restrict or have an
application to or bearing on the Trust's obligation to redeem Trust
Interests from any investor in accordance with the provisions of the
Trust's registration statement or Declaration of Trust, as amended from
time to time.
1.9 The Trust agrees to advise EVD as soon as reasonably
practical by a notice in writing delivered to EVD or its counsel:
(a) of any request by the Commission for amendments to the
registration statement then in effect or for additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement then in
effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement then in
effect or that requires the making of a change in such registration
statement in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement that may from time to time be
filed with the Commission.
For purposes of this paragraph 1.9, informal requests by or acts
of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
1.10 EVD agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Trust all records and
other information not otherwise publicly available relative to the Trust
and its prior, present or potential investors and not to use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
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<PAGE>
and approval in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld where EVD may be exposed to
civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
2. Duration and Termination of this Agreement.
------------------------------------------
This Agreement shall become effective upon the date of its
execution, and, unless terminated as herein provided, shall remain in full
force and effect through and including February 28, 1995 and shall
continue in full force and effect indefinitely thereafter, but only so
long as such continuance after February 28, 1995 is specifically approved
at least annually (i) by the Board of Trustees of the Trust or by vote of
a majority of the outstanding voting securities of the Trust and (ii) by
the vote of a majority of those Trustees of the Trust who are not
interested persons of EVD or the Trust cast in person at a meeting called
for the purpose of voting on such approval.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this agreement without the payment
of any penalty, by action of Trustees of the Trust or the Directors of
EVD, as the case may be, and the Trust may, at any time upon such written
notice to EVD, terminate this Agreement by vote of a majority of the
outstanding voting securities of the Trust. This Agreement shall
terminate automatically in the event of its assignment.
3. Representations and Warranties.
------------------------------
EVD and the Trust each hereby represents and warrants to the
other that it has all requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement and that, with respect to
it, this Agreement is legal, valid and binding, and enforceable in
accordance with its terms.
4. Limitation of Liability.
-----------------------
EVD expressly acknowledges the provision in the Declaration of
Trust of the Trust (Sections 5.2 and 5.6) limiting the personal liability
of the Trustees and officers of the Trust, and EVD hereby agrees that it
shall have recourse to the Trust for payment of claims or obligations as
between the Trust and EVD arising out of this Agreement and shall not seek
satisfaction from any Trustee or officer of the Trust.
5. Certain Definitions.
-------------------
The terms "assignment" and "interested persons" when used herein
shall have the respective meanings specified in the Investment Company Act
of 1940 as now in effect or as hereafter amended subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote, at a meeting of
Holders, of the lesser of (a) 67 per centum or more of the Interests in
the Trust present or represented by proxy at the meeting if the Holders of
more than 50 per centum of the outstanding Interests in the Trust are
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<PAGE>
present or represented by proxy at the meeting, or (b) more than 50 per
centum of the outstanding Interests in the Trust. The terms "Holders" and
"Interests" when used herein shall have the respective meanings specified
in the Declaration of Trust of the Trust.
6. Concerning Applicable Provisions of Law, etc.
--------------------------------------------
This Agreement shall be subject to all applicable provisions of
law, including the applicable provisions of the 1940 Act and to the extent
that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
The laws of the Commonwealth of Massachusetts shall, except to
the extent that any applicable provisions of federal law shall be
controlling, govern the construction, validity and effect of this
Agreement, without reference to principles of conflicts of law.
If the contract set forth herein is acceptable to you, please so
indicate by executing the enclosed copy of this Agreement and returning
the same to the undersigned, whereupon this Agreement shall constitute a
binding contract between the parties hereto effective at the closing of
business on the date hereof.
Yours very truly,
SHORT-TERM INCOME PORTFOLIO
By: /s/James B. Hawkes
--------------------
President
Accepted:
EATON VANCE DISTRIBUTORS, INC.
By: /s/H. Day Brigham, Jr. -------------------------
------
Vice President
- 6 -
<PAGE>
SHORT-TERM INCOME PORTFOLIO
ADMINISTRATION AGREEMENT
AGREEMENT made this 1st day of March, 1994, between SHORT-TERM
INCOME PORTFOLIO, a New York trust (the "Trust"), and BOSTON MANAGEMENT
AND RESEARCH, a Massachusetts business trust (the "Administrator").
1. Duties of the Administrator. The Trust hereby employs
the Administrator to provide certain administrative services to the Trust,
subject to the supervision of the Trustees of the Trust for the period and
on the terms set forth in this Agreement.
The Administrator hereby accepts such employment, and agrees to
provide the following administrative services to the Trust:
(a) the Administrator shall review and supervise the
provision of all domestic and foreign custodial
services to the Trust, and to make such reports
and recommendations to the Trustees of the Trust
concerning the provision of such services as the
Trustees of the Trust deems appropriate;
(b) the Administrator shall provide to the Trust
certain valuation, legal, accounting and tax
assistance and services in connection with the
Trust's
(i) investments in (A) securities,
obligations and commercial paper that
are denominated in foreign currencies or
the European Currency Unit ("ECU"), or
that are issued by or guaranteed by
foreign entities, (B) certificates of
deposit and bankers' acceptances issued
or guaranteed by, or time deposits
maintained at, foreign banks or foreign
branches of, U.S. banks, and (C)
participation interests in loans by U.S.
or foreign banks that are made to
foreign borrowers or denominated in
foreign currencies or the ECU, and
(ii) transactions in derivative instruments,
including instruments indexed to foreign
exchange rates, forward foreign currency
exchange contracts, put and call options
on foreign currencies, futures contracts
and options on such contracts and
interest rate and currency swaps; and
<PAGE>
(c) the Administrator shall provide to the Trust such
other special administrative services as the
Trustees of the Trust from time to time shall
instruct the Administrator to furnish under this
Agreement.
The Administrator shall also furnish for the use of the Trust
office space and all necessary office facilities and equipment and
personnel for providing the foregoing services to the Trust. The
Administrator shall also pay the salaries and compensation of all officers
and Trustees of the Trust who are members of the Administrator's
organization and who render or perform the foregoing services to the
Trust, and the salaries and compensation of all other personnel of the
Administrator who render or perform the foregoing services for the Trust.
The Administrator shall for all purposes herein be deemed to be an
independent contractor and shall, except as otherwise expressly provided
or authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
The Administrator shall not be responsible for providing
investment advisory services to the Trust under this Agreement. Boston
Management and Research in its capacity of investment adviser to the
Trust, shall be responsible for managing the investment and reinvestment
of the assets of the Trust under the Trust's separate Investment Advisory
Agreement with the investment adviser. The special administrative
services which the Administrator is required to furnish to the Trust under
this Agreement shall not be deemed to have been rendered or furnished
pursuant to said Investment Advisory Agreement.
2. Compensation of the Administrator. For the special
services, payments and facilities to be furnished hereunder by the
Administrator, the Trust shall pay to the Administrator on the last day of
each month a fee equal to 1/80 of 1% of the average daily net assets of
the Trust throughout the month.
In case of initiation or termination of the Agreement during any
month, the fee for that month shall be reduced proportionately on the
basis of the number of calendar days during which the Agreement is in
effect and the fee shall be computed upon the basis of the average net
assets for the business days the Agreement is so in effect for that month.
The Administrator may, from time to time, waive all or a part of
the above compensation.
3. Allocation of Charges and Expenses. It is understood
that the Trust will pay all its expenses other than those expressly stated
to be payable by the Administrator hereunder or by Boston Management and
Research in its capacity as investment adviser to the Trust under the
Trust's Investment Advisory Agreement, which expenses payable by the Trust
shall include, without implied limitation, (i) expenses of organizing and
maintaining the Trust and continuing its existence, (ii) registration of
the Trust under the Investment Company Act of 1940, (iii) commissions,
spreads, fees and other expenses connected with the acquisition or
disposition of securities or other investments, (iv) auditing, accounting
and legal expenses, (v) taxes and interest, (vi) governmental fees, (vii)
expenses of issue, sale, repurchase and redemption of shares, (viii)
expenses of preparing and printing registration statements or other
<PAGE>
offering documents or memoranda for such purposes and for distributing the
same to Holders and investors, (ix) expenses of reports and notices to
Holders and of meetings of Holders and proxy solicitations therefor, (x)
expenses of reports to governmental officers and commissions, (xi)
insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and sub-custodians for all
services to the Trust (including without limitation safekeeping of funds,
securities and other investments, keeping of books and accounts and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of
transfer agents, dividend disbursing agents, Holder servicing agents and
registrars for all services to the Trust, (xv) expenses for servicing the
accounts of Holders, (xvi) any direct charges to Holders approved by the
Board of Trustees of the Trust, (xvii) compensation of and expenses of
Trustees of the Trust who are not members of the Administrator's
organization, (xviii) expenses of pricing and valuation services employed
by the Trust, (xix) the investment advisory fees payable to the Trust's
investment adviser under the Trust's Investment Advisory Agreement, and
(xx) such non-recurring items as may arise, including expenses incurred in
connection with litigation, proceedings and claims and obligation of the
Trust to indemnify its Trustees, officers and Holders with respect
thereto.
4. Other Interests. It is understood that Trustees and
officers of the Trust and Holders of Interests in the Trust are or may be
or become interested in the Administrator as trustees, officers or
employees, shareholders or otherwise and that trustees, officers,
employees and shareholders of the Administrator are or may be or become
similarly interested in the Trust, and that the Administrator may be or
become interested in the Trust as Holder or otherwise. It is also
understood that trustees, officers, employees and shareholders of the
Administrator may be or become interested (as directors, trustees,
officers, employees, shareholders or otherwise) in other companies or
entities (including, without limitation, other investment companies) which
the Administrator may organize, sponsor or acquire, or with which it may
merge or consolidate, and that the Administrator or its subsidiaries or
affiliates may enter into advisory, management or administration
agreements or other contracts or relationship with such other companies or
entities.
5. Limitation of Liability of the Administrator. The
services of the Administrator to the Trust are not to be deemed to be
exclusive, the Administrator being free to render services to others and
engage in other business activities. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of the Administrator, the
Administrator shall not be subject to liability to the Trust or to any
Holder of Interests in the Trust for any act or omission in the course of,
or connected with, rendering services hereunder or for any losses which
may be sustained in the acquisition, holding or disposition of any
security or other investment.
6. Duration and Termination of this Agreement. This
Agreement shall become effective upon the date of its execution, and,
unless terminated as herein provided, shall remain in full force and
- 3 -
<PAGE>
effect to and including February 28, 1995 and shall continue in full force
and effect indefinitely thereafter, but only so long as such continuance
after February 28, 1995 is specifically approved at least annually (i) by
the Trustees of the Trust, and (ii) by the vote of a majority of those
Trustees of the Trust who are not interested persons of the Administrator
or the Trust.
Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Agreement without payment of
any penalty, by action of its Trustees, and the Trust may, at any time
upon such written notice to the Administrator, terminate the Agreement by
vote of a majority of the outstanding voting securities of the Trust (as
defined in Section 2(a)(42) of the Investment Company Act of 1940 as
amended). This Agreement shall terminate automatically in the event of
its assignment.
7. Amendments of the Agreement. This Agreement may be
amended by a writing signed by both parties hereto, provided that no
amendment to this Agreement shall be effective until approved by the vote
of a majority of those Trustees of the Trust who are not interested
persons of the Administrator or the Trust.
8. Limitation of Liability. The Administrator expressly
acknowledges the provision in the Declaration of Trust of the Trust
(Sections 5.2 and 5.6) limiting the personal liability of the Trustees and
officers of the Trust, and the Administrator hereby agrees that it shall
have recourse to the Trust for payment of claims or obligations as between
the Trust and the Administrator arising out of this Agreement and shall
not seek satisfaction from any Trustee or officer of the Trust.
9. Certain Definitions. The terms "assignment" and
"interested persons" when used herein shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order. The terms "Holders" and "Interests" when used herein shall have
the respective meanings specified in the Declaration of Trust of the
Trust.
SHORT-TERM INCOME PORTFOLIO BOSTON MANAGEMENT AND RESEARCH
By /s/James B. Hawkes By /s/Curtis H. Jones
President Vice President,
and not individually
- 4 -
<PAGE>
December 14, 1993
Short-Term Global Income Portfolio
24 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of
$100,000, of an interest (an "Initial Interest") in Short-Term Global
Income Portfolio (the "Portfolio"), we hereby advise you that we are
purchasing such Initial Interest for investment purposes without any
present intention of redeeming or reselling.
The amount paid by the Portfolio on any withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the
amount of such Initial Interest withdrawn to the aggregate Initial
Interests of all holders of similar Initial Interests then outstanding
after taking into account any prior withdrawals of any such Initial
Interest.
Very truly yours,
EATON VANCE INVESTMENT FUND, INC.
on behalf of Eaton Vance Short-Term
Global Income Fund
By /s/James L. O'Connor
James L. O'Connor, Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000918706
<NAME> SHORT-TERM INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 239,123
<INVESTMENTS-AT-VALUE> 233,324
<RECEIVABLES> 14,260
<ASSETS-OTHER> 2,081
<OTHER-ITEMS-ASSETS> 21
<TOTAL-ASSETS> 249,685
<PAYABLE-FOR-SECURITIES> 6,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,358
<TOTAL-LIABILITIES> 13,217
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<NET-ASSETS> 236,468
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 1564
<NET-INVESTMENT-INCOME> 15,950
<REALIZED-GAINS-CURRENT> (23,646)
<APPREC-INCREASE-CURRENT> (7,159)
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 0
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<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
</TABLE>
